Drift River revival · help Cirque Resources LP evaluate and develop its Heath formation leases in...
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● PIPELINES & DOWNSTREAM ● NATURAL GAS ● LAND & LEASING Vol. 17, No. 21 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 20, 2012 • $2 page 9 Statoil to use Seadrill’s West Aquarius to drill off Newfoundland The current issue of Petroleum News Bakken is enclosed. Inside: Petroleum News Bakken ● LAND & LEASING ● MOVING HYDROCARBONS ● DRILLING & COMPLETION Statoil/Brigham oil drilling in North Dakota pictured above. Regarding the story below, with natural gas liquids, the bulk of which are shipped down the trans-Alaska oil pipeline with North Slope crude, Alaska’s March production was 620,067 barrels of oil per day versus the 567,481 bopd presumed in the article below. An average oil well in Alaska produced 359 bopd in 2011 from 1,532 wells, as compared to North Dakota’s 6,565 wells with an average production of 64 bopd. Vol. 1, No. 3 • www.PetroleumNewsBakken.com A semi-monthly newspaper for industry and government Week of May 20, 2012 BAKKEN page 19 Who’s Who: Kodiak O&G’s Lynn A. Peterson, steady at the helm COURTESY STATOIL Hunt’s on for frack sand Iles: South Dakota looks to supply neighbor with proppants for hydraulic fracturing By RAY TYSON Petroleum News Bakken S outh Dakota plans to conduct a study to identi- fy suitable sand resources within the state that could be tapped by the private sector to help meet growing demand for sand in hydraulic fracturing markets, primarily in neighboring North Dakota, Petroleum News Bakken has learned. “It’s a study that’s being talked about; and it’s a study for which I have promised others that we will have a work plan in the coming months,” Derric Iles, a state geologist and head of South Dakota’s Geological Survey program, said in a recent inter- view. Sand is a key component in fracking, which has grown into a multi-billion dollar business as U.S shale plays develop, including the vast Bakken sys- tem, the heart of which is situated in North Dakota. In fracking, sand is pumped with water and chemicals at high pressure into perforated horizon- tal wells, or laterals, where it flows into cracks in the shale that are opened by the pressure and keeps them open, allowing oil and natural gas to flow out “Certainly the customer — the one with the most clout in the room right now — is the oil industry in North Dakota.” —Derric Iles see FRACK SAND page 21 Dea snags STL Norwegian oil giant joins Cirque to evaluate, develop Heath tight oil leases By KAY CASHMAN Petroleum News P eter Dea brought in Norway’s largest oil company, Statoil ASA (STL), to help Cirque Resources LP evaluate and develop its Heath formation leases in central Montana. But unlike Statoil’s October buyout of Brigham Exploration Co. to gain access to Bakken and Three Forks tight oil plays, Cirque, a closely held Denver firm founded by Dea in 2007, will remain operator of the shared Heath acreage. Statoil, which is looking to expand its North American unconventional reserves, bought stakes as high as 50 percent in “several blocks” of Cirque’s Heath acreage, Statoil spokesman Baard Glad Pedersen told Bloomberg reporter Mikael Holter on May 11, although he also said the investment was small. “We’re looking for new opportunities within shale oil and gas,” Pedersen told Holter, echoing the sentiments of Statoil President and CEO Helge Lund. When acquiring Brigham in October, Lund said, “The U.S. unconventional plays hold a substantial resource base and represent an increasingly impor- TC, ENB pull out stops Enbridge tosses C$2B more into mix to reverse, extend, expand pipelines east By GARY PARK For Petroleum News Bakken B akken producers on both sides of the United States- Canada border can increasing- ly see an answer to their hopes of accessing new North American markets by pipeline. Canadian pipeline compa- nies Enbridge and TransCanada are in full flight, seeking commercial backing and regulatory approval to hasten the exten- sion and expansion of delivery systems to the U.S. Gulf Coast and possibly the Atlantic Seaboard. Enbridge with partner Enterprise Products Partners has launched its Seaway connection to the Texas Gulf Coast, despite los- ing an application to the Federal Energy Regulatory Commission to set flexible rates known as a market-based tariff for a system that is tar- geted at 450,000 barrels per day by year’s end and an ulti- mate 850,000 bpd. TransCanada announced it had made another stab at gaining a U.S. Presidential Permit for the Keystone XL pipeline to the Gulf Coast. PAT DANIEL SEN. LISA MURKOWSKI North Dakota thumps Alaska March output makes North Dakota second biggest U.S. oil producer North Dakota has passed Alaska to become the second- leading oil-producing state in the U.S., trailing only Texas, state officials said May 15. North Dakota oil drillers pumped 17.8 million barrels in March, with a daily average of 575,490 barrels, said Assistant North Dakota Oil and Gas Division Director Bruce Hicks. That compares to 17.6 million in Alaska, though still far behind Texas. The state’s oil patch is drilling at record levels and shows little sign of slowing down. The 152.9 million barrels of crude oil produced in 2011 set a record, surpassing the pre- Pipeline relief for Bakken, oil sands crude by doubling 6B Enbridge has filed a proposal with Michigan regulators to spend $1.3 billion doubling capacity of its Line 6B to 500,000 barrels per day in response to demand from refiners for cheap Canadian crude from the Bakken and oil sands plays. The application to the Michigan Public Service Commission said there is growing demand that is largely driven by “ongoing and planned refinery upgrades and expansions” in Michigan and Ohio and “near-term anticipated demand increases by Eastern Canadian refineries for growing crude supplies.” Enbridge said the project has backing from eight refineries served by the line, along with the Canadian Association of The non-shale Bakken ‘shale play’ might soon become a true shale play CURRENTLY, ALMOST NO BAKKEN PRODUCTION contains oil extracted direct- ly from the organic-rich shale members of the Bakken petroleum system. Rather it comes from tight, conventional reservoirs close to the shale/source rock zones; the largest producer being a dolomitic sand- stone reservoir called the Middle Bakken. Anywhere else in the world that would make the Bakken system a tight oil play, not a shale play. But that ship has sailed. ‘Bakken shale’ has become see PRODUCER RANKING page 21 see PIPELINE RELIEF page 21 see PIPELINE SCRAMBLE page 22 see INSIDER page 16 see STATOIL JOINS page 17 PETER DEA Drift River revival Hilcorp Alaska looks to resume oil storage in shadow of Cook Inlet volcano By WESLEY LOY For Petroleum News H ilcorp Alaska LLC is planning to resume using the tank farm at the Drift River oil ter- minal on the west side of Cook Inlet. In fact, the company already has obtained inter- im permission to fill one of the enormous tanks at Drift River. Hilcorp has told state officials it’s important to bring Drift River storage capacity back online to avoid production shut-ins. But the state is requiring Hilcorp to make cer- tain improvements to safeguard the remote proper- ty from flooding that could result from an eruption of nearby Redoubt volcano. An eruption in 2009 forced an evacuation of the Drift River terminal and an emergency drawdown of stored oil. The tank farm since has been essen- tially mothballed. Because of the volcano’s proximity, not every- one is pleased to see the tank farm come back into see DRIFT RIVER page 20 Leaseholders fill in Apache, Cook Inlet Energy, Hilcorp big bidders in $6.9 million Cook Inlet sale By KRISTEN NELSON Petroleum News T he State of Alaska took in $6,865,835 in appar- ent high bids on almost 200,000 acres at its areawide Cook Inlet oil and gas lease sale May 16 in Anchorage, the second-highest dollar volume for a Cook Inlet sale since areawide sales began in 1999. The state’s 2011 Cook Inlet areawide sale brought in $11 million when Apache bid heavily as it estab- lished a Cook Inlet acreage position. In this year’s sale, Hilcorp Alaska had apparent high bids of $3.1 million on 82,560 acres (18 tracts), followed by Cook Inlet Energy with $2.7 million in apparent high bids on 74,880 acres (18 tracts) and Apache Alaska with apparent high bids of $1.03 mil- lion on 40,320 acres (seven tracts). William Crawford took one small tract, 35 acres, for $875. There were 52 bids on 44 tracts, with the highest bid $345,600 by Hilcorp on tract 721 (in an undevel- oped area on the southeastern Kenai Peninsula) and The three major bidders are all large current Cook Inlet leaseholders, two of them producers, and much of the bidding appeared to be filling in around existing leasehold positions. see LEASE SALE page 18 Canada feeling LNG heat Ernst & Young report, federal cabinet minister issue urgent infrastructure call By GARY PARK For Petroleum News C anada urgently needs to hasten the development of its stranded natural gas for export as LNG, or miss the boat to Asia, said Ernst & Young and feder- al Natural Resources Minister Joe Oliver. A report by the consulting firm said joint ventures and partnerships — such as those being sought by EnCana — could make all the difference between capitalizing on global LNG opportunities in high- demand Asian markets, or losing out to foreign sup- pliers. Lance Mortlock, senior manager in Ernst & Young’s oil and gas advisory practice, wrote that countries around the world are fast posing threats to Canada’s potential market share. “Total Pacific basin demand is expected to rise from 120 million metric tons today to 241 million metric tons per annum in 2020 and exporters in Australia, Russia, Malaysia and Qatar have been “Proposals for new LNG terminals in Australia and other countries could lead to a capacity glut for LNG, which could cause global LNG prices to drop,” said analyst Terry Marshal in a note to clients. see LNG HEAT page 19 Icy Cook Inlet sees ‘near miss’ as tug tending tanker loses power Cook Inlet’s notorious drifting ice factored into a “near miss” involving an oil tanker over the winter. The incident, which just recently came to light, occurred on Jan. 13, a Friday, at the Kenai Pipe Line Co. terminal at Tesoro’s Nikiski refinery. A Tesoro investigation report describes what happened: The tanker Overseas Martinez was docked at the KPL termi- nal conducting cargo loading operations. A Crowley tug, the Vigilant, was there to assist. It was still dark, and ice ranging from “slush to solid pan ice” was seen around the ship. The tide was coming in. At 6:24 a.m. the pilot aboard the Overseas Martinez asked the Vigilant to move into position to take some strain off the tanker’s mooring lines. As the tug responded, it lost power to its starboard engine due Consultant: nimble footwork on gas exports, energy rethink needed Although the fundamentals of energy supply and demand still underpin the long-term future of the oil and gas industry, the pace of change in the energy scene has been accelerating, Edward Chow, senior fellow of energy and national security at the Center for Strategic and International Studies, a Washington, D.C., think tank, observed to the Alaska World Affairs Council on May 11. This rapid change and the result- ing uncertainty creates difficulties for an industry that needs to invest in projects that may take 10 to 15 years to pay off, Chow said. see ENERGY INVESTMENT page 15 see NEAR MISS page 17 ALASKA VOLCANO OBSERVATORY
Transcript of Drift River revival · help Cirque Resources LP evaluate and develop its Heath formation leases in...
� P I P E L I N E S & D O W N S T R E A M
� N A T U R A L G A S
� L A N D & L E A S I N G
Vol. 17, No. 21 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 20, 2012 • $2
page9
Statoil to use Seadrill’s WestAquarius to drill off Newfoundland
The current issue of Petroleum News Bakken is enclosed.
Inside: Petroleum News Bakken
� L A N D & L E A S I N G
� M O V I N G H Y D R O C A R B O N S
� D R I L L I N G & C O M P L E T I O N
Statoil/Brigham oil drilling in North Dakota pictured above. Regardingthe story below, with natural gas liquids, the bulk of which areshipped down the trans-Alaska oil pipeline with North Slope crude,Alaska’s March production was 620,067 barrels of oil per day versusthe 567,481 bopd presumed in the article below. An average oil wellin Alaska produced 359 bopd in 2011 from 1,532 wells, as comparedto North Dakota’s 6,565 wells with an average production of 64 bopd.
Vol. 1, No. 3 • www.PetroleumNewsBakken.com A semi-monthly newspaper for industry and government Week of May 20, 2012
B A K K E Npage19
Who’s Who: Kodiak O&G’s Lynn A.Peterson, steady at the helm
CO
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Hunt’s on for frack sandIles: South Dakota looks to supply neighbor with proppants for hydraulic fracturing
By RAY TYSONPetroleum News Bakken
South Dakota plans to conduct a study to identi-fy suitable sand resources within the state that
could be tapped by the private sector to help meetgrowing demand for sand in hydraulic fracturingmarkets, primarily in neighboring North Dakota,Petroleum News Bakken has learned.
“It’s a study that’s being talked about; and it’s astudy for which I have promised others that we willhave a work plan in the coming months,” DerricIles, a state geologist and head of South Dakota’sGeological Survey program, said in a recent inter-view.
Sand is a key component in fracking, which has
grown into a multi-billion dollar business as U.Sshale plays develop, including the vast Bakken sys-tem, the heart of which is situated in North Dakota.
In fracking, sand is pumped with water andchemicals at high pressure into perforated horizon-tal wells, or laterals, where it flows into cracks inthe shale that are opened by the pressure and keepsthem open, allowing oil and natural gas to flow out
“Certainly the customer — the one withthe most clout in the room right now — is
the oil industry in North Dakota.” —Derric Iles
see FRACK SAND page 21
Dea snags STLNorwegian oil giant joins Cirque to evaluate, develop Heath tight oil leases
By KAY CASHMANPetroleum News
Peter Dea brought in Norway’s largestoil company, Statoil ASA (STL), to
help Cirque Resources LP evaluate anddevelop its Heath formation leases incentral Montana.
But unlike Statoil’s October buyout ofBrigham Exploration Co. to gain accessto Bakken and Three Forks tight oilplays, Cirque, a closely held Denver firm foundedby Dea in 2007, will remain operator of the sharedHeath acreage.
Statoil, which is looking to expand its North
American unconventional reserves,bought stakes as high as 50 percent in“several blocks” of Cirque’s Heathacreage, Statoil spokesman Baard GladPedersen told Bloomberg reporterMikael Holter on May 11, although healso said the investment was small.
“We’re looking for new opportunitieswithin shale oil and gas,” Pedersen toldHolter, echoing the sentiments of StatoilPresident and CEO Helge Lund.
When acquiring Brigham in October, Lund said,“The U.S. unconventional plays hold a substantialresource base and represent an increasingly impor-
TC, ENB pull out stopsEnbridge tosses C$2B more into mix to reverse, extend, expand pipelines east
By GARY PARKFor Petroleum News Bakken
Bakken producers on bothsides of the United States-
Canada border can increasing-ly see an answer to their hopesof accessing new NorthAmerican markets by pipeline.
Canadian pipeline compa-nies Enbridge andTransCanada are in full flight, seeking commercialbacking and regulatory approval to hasten the exten-sion and expansion of delivery systems to the U.S.Gulf Coast and possibly the Atlantic Seaboard.
Enbridge with partner Enterprise Products
Partners has launched itsSeaway connection to theTexas Gulf Coast, despite los-ing an application to theFederal Energy RegulatoryCommission to set flexiblerates known as a market-basedtariff for a system that is tar-geted at 450,000 barrels perday by year’s end and an ulti-mate 850,000 bpd.
TransCanada announced it had made another stabat gaining a U.S. Presidential Permit for the KeystoneXL pipeline to the Gulf Coast.
PAT DANIEL SEN. LISA MURKOWSKI
North Dakota thumps Alaska
March output makes North Dakotasecond biggest U.S. oil producer
North Dakota has passed Alaska to become the second-leading oil-producing state in the U.S., trailing only Texas,state officials said May 15.
North Dakota oil drillers pumped 17.8 million barrels inMarch, with a daily average of 575,490 barrels, saidAssistant North Dakota Oil and Gas Division Director BruceHicks. That compares to 17.6 million in Alaska, though stillfar behind Texas.
The state’s oil patch is drilling at record levels and showslittle sign of slowing down. The 152.9 million barrels ofcrude oil produced in 2011 set a record, surpassing the pre-
Pipeline relief for Bakken, oilsands crude by doubling 6B
Enbridge has filed a proposal with Michigan regulators tospend $1.3 billion doubling capacity of its Line 6B to 500,000barrels per day in response to demand from refiners for cheapCanadian crude from the Bakken and oil sands plays.
The application to the Michigan Public Service Commissionsaid there is growing demand that is largely driven by “ongoingand planned refinery upgrades and expansions” in Michiganand Ohio and “near-term anticipated demand increases byEastern Canadian refineries for growing crude supplies.”
Enbridge said the project has backing from eight refineriesserved by the line, along with the Canadian Association of
The non-shale Bakken ‘shaleplay’ might soon become a true shale play
CURRENTLY, ALMOST NO BAKKENPRODUCTION contains oil extracted direct-ly from the organic-rich shale members ofthe Bakken petroleum system. Rather itcomes from tight, conventional reservoirsclose to the shale/source rock zones; thelargest producer being a dolomitic sand-stone reservoir called the Middle Bakken.
Anywhere else in the world that wouldmake the Bakken system a tight oil play, not a shale play.
But that ship has sailed. ‘Bakken shale’ has become
see PRODUCER RANKING page 21
see PIPELINE RELIEF page 21
see PIPELINE SCRAMBLE page 22see INSIDER page 16
see STATOIL JOINS page 17
PETER DEA
Drift River revivalHilcorp Alaska looks to resume oil storage in shadow of Cook Inlet volcano
By WESLEY LOYFor Petroleum News
H ilcorp Alaska LLC is planning to resumeusing the tank farm at the Drift River oil ter-
minal on the west side of Cook Inlet.In fact, the company already has obtained inter-
im permission to fill one of the enormous tanks atDrift River.
Hilcorp has told state officials it’s important tobring Drift River storage capacity back online toavoid production shut-ins.
But the state is requiring Hilcorp to make cer-tain improvements to safeguard the remote proper-ty from flooding that could result from an eruptionof nearby Redoubt volcano.
An eruption in 2009 forced an evacuation of theDrift River terminal and an emergency drawdownof stored oil. The tank farm since has been essen-
tially mothballed.Because of the volcano’s proximity, not every-
one is pleased to see the tank farm come back into
see DRIFT RIVER page 20
Leaseholders fill inApache, Cook Inlet Energy, Hilcorp big bidders in $6.9 million Cook Inlet sale
By KRISTEN NELSONPetroleum News
The State of Alaska took in $6,865,835 in appar-ent high bids on almost 200,000 acres at its
areawide Cook Inlet oil and gas lease sale May 16 inAnchorage, the second-highest dollar volume for aCook Inlet sale since areawide sales began in 1999.
The state’s 2011 Cook Inlet areawide sale broughtin $11 million when Apache bid heavily as it estab-lished a Cook Inlet acreage position.
In this year’s sale, Hilcorp Alaska had apparenthigh bids of $3.1 million on 82,560 acres (18 tracts),followed by Cook Inlet Energy with $2.7 million inapparent high bids on 74,880 acres (18 tracts) and
Apache Alaska with apparent high bids of $1.03 mil-lion on 40,320 acres (seven tracts). William Crawfordtook one small tract, 35 acres, for $875.
There were 52 bids on 44 tracts, with the highestbid $345,600 by Hilcorp on tract 721 (in an undevel-oped area on the southeastern Kenai Peninsula) and
The three major bidders are all largecurrent Cook Inlet leaseholders, two of
them producers, and much of the biddingappeared to be filling in around existing
leasehold positions.
see LEASE SALE page 18
Canada feeling LNG heatErnst & Young report, federal cabinet minister issue urgent infrastructure call
By GARY PARKFor Petroleum News
Canada urgently needs to hasten the developmentof its stranded natural gas for export as LNG, or
miss the boat to Asia, said Ernst & Young and feder-al Natural Resources Minister Joe Oliver.
A report by the consulting firm said joint venturesand partnerships — such as those being sought byEnCana — could make all the difference betweencapitalizing on global LNG opportunities in high-demand Asian markets, or losing out to foreign sup-pliers.
Lance Mortlock, senior manager in Ernst &Young’s oil and gas advisory practice, wrote that
countries around the world are fast posing threats toCanada’s potential market share.
“Total Pacific basin demand is expected to risefrom 120 million metric tons today to 241 millionmetric tons per annum in 2020 and exporters inAustralia, Russia, Malaysia and Qatar have been
“Proposals for new LNG terminals inAustralia and other countries could leadto a capacity glut for LNG, which couldcause global LNG prices to drop,” said
analyst Terry Marshal in a note to clients.
see LNG HEAT page 19
Icy Cook Inlet sees ‘near miss’ astug tending tanker loses power
Cook Inlet’s notorious drifting ice factored into a “near miss”involving an oil tanker over the winter.
The incident, which just recently came to light, occurred onJan. 13, a Friday, at the Kenai Pipe Line Co. terminal at Tesoro’sNikiski refinery.
A Tesoro investigation report describes what happened:The tanker Overseas Martinez was docked at the KPL termi-
nal conducting cargo loading operations. A Crowley tug, theVigilant, was there to assist.
It was still dark, and ice ranging from “slush to solid pan ice”was seen around the ship. The tide was coming in.
At 6:24 a.m. the pilot aboard the Overseas Martinez asked theVigilant to move into position to take some strain off the tanker’smooring lines.
As the tug responded, it lost power to its starboard engine due
Consultant: nimble footwork ongas exports, energy rethink needed
Although the fundamentals of energy supply and demandstill underpin the long-term future of the oil and gas industry,the pace of change in the energy scene has been accelerating,Edward Chow, senior fellow of energy and national security atthe Center for Strategic and International Studies, aWashington, D.C., think tank, observed to the Alaska WorldAffairs Council on May 11. This rapid change and the result-ing uncertainty creates difficulties for an industry that needsto invest in projects that may take 10 to 15 years to pay off,Chow said.
see ENERGY INVESTMENT page 15
see NEAR MISS page 17
ALA
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2 PETROLEUM NEWS • WEEK OF MAY 20, 2012
Petroleum News North America’s source for oil and gas news
EXPLORATION & PRODUCTION
ENVIRONMENT & SAFETY
ASSOCIATIONS
GOVERNMENT
PIPELINES & DOWNSTREAM
LAND & LEASING
FINANCE & ECONOMY
NATURAL GAS
12 Distributing North Slope gas challenging
Enough gas exists to meet Alaska’s needs for decades,but at a cost; and getting gas to rural areas more difficult and costly yet
11 A piece of the methane hydrate puzzle
Experts are assessing the data from the Ignik Sikumi test well to more fully understand a potential future source of natural gas
5 BLM calls for NPR-A sale nominations
Interior updates report on oil, gas lease utilization; new rule in works to encourage timely onshoredevelopment of unused leases’
8 State terminates Arctic Fortitude unit
Department of Natural Resources ruling follows favorablecourt decision this past October, but company calls action premature
5 Enbridge boss stays cool
Daniel goes head-to-head with First Nations leaders,environmentalists and dissident shareholders in defending Northern Gateway
4 Groups appeal IHA for Apache seismic
Environmentalists, Native village say noise in Cook Inletwill threaten beluga whales protected under Endangered Species Act
7 New round of oil sands action
Projects from Canadian Natural Resources, Imperial Oiland Cavalier Energy targeting a combined 370,000 bpd of bitumen production
contents
7 Energy economics association to meet
9 Statoil probes Canadian frontiers
8 BLM seeks nominations for Alaska council
9 BLM Director Bob Abbey retiring
10 Obama anti-speculation plan questioned
14 Groups appeal Kulluk air quality permit
13 Alyeska plans multiple summer shutdowns
Consultant: nimble footwork on gas exports, energy rethink needed
Icy Cook Inlet sees ‘near miss’ as tug tending tanker loses power
Drift River revival
Hilcorp Alaska looks to resume oil storage in shadow of Cook Inlet volcano
Leaseholders fill in
Apache, Cook Inlet Energy, Hilcorp big bidders in $6.9 million Cook Inlet sale
Canada feeling LNG heat
Ernst & Young report, federal cabinet minister issue urgent infrastructure call
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ReactiveGel won’t solve every problem, because it never hardens and can be wiped off easily. So you can’t leave it exposed. However, the gel works well for preventing corrosion under insulation because it is protected by the insulation. And it works in other protected areas; the U.S. Navy uses it for hidden door mechanisms, and it has
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PETROLEUM NEWS • WEEK OF MAY 20, 2012 3
Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status
Alaska Rig StatusNorth Slope - Onshore
Doyon DrillingDreco 1250 UE 14 (SCR/TD) Prudhoe Bay Z-06 BPDreco 1000 UE 16 (SCR/TD) Prudhoe Bay MPL-06 BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD4-213 ConocoPhillipsAC Mobile 25 Prudhoe Bay DS 13-15Ai BPOIME 2000 141 (SCR/TD) Kuparuk 2K-14 ConocoPhillipsTSM 7000 Arctic Fox #1 Demobilizing, moving to Beluga ConcoPhillips
Kuukpik 5 Stacked in Barrow awaiting Barges North Slope Borough
Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay AvailableAC Coil Hybrid CDR-2 Kuparuk 1E-05 ConocoPhillips Dreco 1000 UE 2-ES Prudhoe Bay Stacked out AvailableMid-Continental U36A 3-S Prudhoe Bay Stacked out AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay X-22A BPDreco 1000 UE 7-ES (SCR/TD) Stacked out Available Dreco 1000 UE 9-ES (SCR/TD) Stacked out Available Oilwell 2000 Hercules 14-E (SCR) Prudhoe Bay Stacked out AvailableOilwell 2000 Hercules 16-E (SCR/TD) Prudhoe Bay Stacked out AvailableOilwell 2000 17-E (SCR/TD) Prudhoe Bay Stacked out AvailableEmsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point AvailableEmsco Electro-hoist 28-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Stacked Available Academy AC electric Heli-Rig 105-E (SCR-TD) Presently in Deadhorse Great Bear Petroleum Academy AC electric Heli-Rig 106-E (SCR/TD) Stacked at Deadhorse Available
*Nabors 27-E will be under contract at Oooguruk/Nuna for Pioneer this winter
Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site C-12C BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site J-12B BP Ideco 900 3 (SCR/TD) Kuparuk Well 1D-108 ConocoPhillips
Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay final construction and commission BPNOV ADS-10SD 273 Prudhoe Bay final construction and commissioning BP
North Slope - Offshore
BP (rig built & being assembled by Parker)Top drive, supersized Liberty rig Endicott SDI for Liberty oil field BP
Nabors Alaska DrillingOIME 1000 19-E (SCR) Oooguruk ODSN-25 Pioneer Natural ResourcesOIME 2000 245-E Oliktok Point OI24-08 ENI Oilwell 2000 33-E Prudhoe Bay Stacked out Available
Doyon DrillingSky Top Brewster NE-12 15 (SCR/TD) Spy Island SP 16-FN3 ENI
Cook Inlet Basin – OnshoreAurora Well ServiceFranks 300 Srs. Explorer III AWS 1 At Swanson River assorted workovers Hilcorp Alaska LLC
Cook Inlet EnergyAtlas Copco RD20 34 Undergoing winterization Cook Inlet Energy
at W. McArthur River Unit
Marathon Oil Co. (Inlet Drilling Alaska labor contractor)Taylor Glacier 1 Stacked Marathon Yard Available
Nabors Alaska DrillingContinental Emsco E3000 273 Stacked, Kenai AvailableFranks 26 Stacked AvailableIDECO 2100 E 429E (SCR) Stacked Available Rigmaster 850 129 Kenai Stacked out Available
Cook Inlet Basin – Offshore
Hilcorp Alaska LLC (Kuukpik, labor contract)428 Steelhead Platform,
well M-27 Workover Hilcorp Alaska LLC
XTO EnergyNational 1320 A Coil tubing cleanout planned off Platform XTO
A in the near futureNational 110 C (TD) Idle XTO
Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Escopeta
Upper Cook Inlet KLU#1
Mackenzie Rig StatusCanadian Beaufort Sea
SDC Drilling Inc.SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available
Central Mackenzie Valley
Akita/SAHTUOilwell 500 51 Still out of the NWT, but is again Available
available
Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of May 17, 2012.
Active drilling companies only listed.
TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig
This rig report was prepared by Marti Reeve
Baker Hughes North America rotary rig counts*April 27 April 20 Year Ago
US 1,974 1,965 1,830Canada 120 131 127Gulf 45 44 32
Highest/LowestUS/Highest 4530 December 1981US/Lowest 488 April 1999Canada/Highest 558 January 2000Canada/Lowest 29 April 1992
*Issued by Baker Hughes since 1944
The Alaska - Mackenzie Rig Report is sponsored by:
JUDY
PAT
RICK
4 PETROLEUM NEWS • WEEK OF MAY 20, 2012
Kay Cashman PUBLISHER & EXECUTIVE EDITOR
Mary Mack CHIEF FINANCIAL OFFICER
Kristen Nelson EDITOR-IN-CHIEF
Clint Lasley GM & CIRCULATION DIRECTOR
Susan Crane ADVERTISING DIRECTOR
Bonnie Yonker AK / NATL ADVERTISING SPECIALIST
Heather Yates BOOKKEEPER
Shane Lasley IT CHIEF
Marti Reeve SPECIAL PUBLICATIONS DIRECTOR
Steven Merritt PRODUCTION DIRECTOR
Alan Bailey SENIOR STAFF WRITER
Eric Lidji CONTRIBUTING WRITER
Wesley Loy CONTRIBUTING WRITER
Gary Park CONTRIBUTING WRITER (CANADA)
Rose Ragsdale CONTRIBUTING WRITER
Ray Tyson CONTRIBUTING WRITER
John Lasley DRILLING CONSULTANT
Allen Baker CONTRIBUTING WRITER
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� E N V I R O N M E N T & S A F E T Y
Groups appeal IHAfor Apache seismicEnvironmentalists, Native village say noise in Cook Inlet willthreaten beluga whales protected under Endangered Species Act
By ALAN BAILEYPetroleum News
Three environmental groups and aNative tribal organization have filed
a lawsuit in the federal District Court inAlaska, appealing the issue by theNational Marine Fisheries Service, orNMFS, of an authorization to ApacheAlaska Corp. for the accidental distur-bance of marine mammals during off-shore seismic survey operations inAlaska’s Cook Inlet.
NMFS issued the authorization,known as an incidental harassmentauthorization, or IHA, on April 30. TheIHA allows the minor disturbance ofsmall numbers of marine mammals with-out an infringement of the federal MarineMammals Protection Act, provided thatApache implements a series of NMFS-mandated measures designed to avoidwildlife impacts.
The petitioners appealing the IHAconsist of the Natural Resources DefenseCouncil, the Center for BiologicalDiversity, the Center for Water Advocacyand the Native Village of Chickaloon.
EIS needed?The petitioners claim that, in issuing the
IHA, NMFS did not conduct an adequateassessment of the potential environmentalimpacts of Apache’s planned surveys andthat, as a consequence, the IHA contra-venes both the Marine MammalsProtection Act and the NationalEnvironment Policy Act. NMFS shouldhave found that the planned survey wouldhave significant environmental impactsand should, therefore, have prepared anenvironmental impact statement for theproposed surveys, the petitioners say.
“To conduct these surveys, Apache willuse airguns that produce some of the loud-est underwater sounds short of dynamite,”wrote Rebecca Noblin of the Center forBiological Diversity in a May 15 court fil-ing. “Day and night, for 160 days per year,Cook Inlet will be inundated with high-intensity sound pulses that are greater than235 decibels at their source — billions oftimes more intense than the noise thresh-olds known to compromise foraging andother vital behavior in marine mammals.”
The seismic surveys are planned to takeplace within an area designated as criticalhabitat for the Cook Inlet beluga whale, amammal sub-species designated as endan-gered under the terms of the EndangeredSpecies Act. The petitioners say that after arequired 60-day notice period they will addto the lawsuit a claim that the issuance ofthe IHA infringes the Endangered SpeciesAct.
New explorationApache wants to conduct its Cook Inlet
seismic program as a first step in a multi-year effort to explore for oil and gas under
the inlet. Although there is some existingCook Inlet 2-D seismic data that was gath-ered a number of years ago, this old seis-mic is notoriously difficult to interpret inthe challenging geology of Cook Inletbasin. Companies prefer to shoot modern,detailed 3-D seismic to find new, some-times subtle exploration drilling targets inthe basin.
Apache plans to gather its seismic overa three-year period using new nodal seis-mic recording equipment that avoids theneed to lay cables in the survey area.Dwindling oil production from the CookInlet basin; high oil prices; pending short-ages of natural gas supplies forSouthcentral gas and power utilities; andstate exploration incentives are all drivinga resurgence of interest in Cook Inletexploration.
Biological opinionAs part of its statutory obligations
under the Endangered Species Act, inFebruary NMFS published a biologicalopinion on the potential impact ofApache’s seismic program on the CookInlet beluga whales. That opinion conclud-ed that the seismic operations were notlikely to jeopardize the continued exis-tence of the whales or adversely impact thewhales’ critical habitat. NMFS said thatApache had committed to mitigationmeasures designed to minimize impacts onthe whales and that, although some distur-bance to the whales could be expected, thisdisturbance would be unlikely to have anyimpact on the whales’ survival or repro-ductive capacity.
In the IHA that is the subject of the law-suit NMFS requires Apache to have pro-tected species observers on its vessel and asuitably located shore-base station towatch out for marine mammals. A helicop-ter must be used to watch for marine mam-mals when seismic survey operations arein progress near a river mouth. Apachemust also arrange to have an acoustic mon-itoring system for detecting marine mam-mal sounds in the water.
Mitigation measuresThe IHA spells out a series of steps to
be taken if a marine mammal is observedor detected within specified zones aroundthe airguns used in a survey. Those stepsinclude, depending on the circumstances,altering the speed or course of the seismicvessel, or powering down the seismicsound source.
And Apache is required to submit week-ly reports to NMFS, detailing the seismicoperations that it has been conducting,specifying information about any marinemammals that have been observed, anddescribing the implementation and effec-tiveness of the mitigation measures used. �
In the IHA that is the subject ofthe lawsuit NMFS requires Apache
to have protected speciesobservers on its vessel and a
suitably located shore-base stationto watch out for marine mammals.
Apache wants to conduct its CookInlet seismic program as a first
step in a multi-year effort toexplore for oil and gas under the
inlet.
Contact Alan Bailey at [email protected]
By GARY PARKFor Petroleum News
Pat Daniel faced one of the sternesttests of his 11 years as chief executive
officer of Enbridge on May 9.As he winds down towards retirement
later this year, the soft-spoken, 64-year-oldtook the stage at the annual general meet-ing of shareholders.
In other circumstances, it would havebeen a breeze.
He had plenty ofgood news to pass on,including companyplans to invest C$26billion on securedand risk-adjustedpipeline projects overthe 2011-15 period,up C$6 billion fromthe previous estimatelast October, alongwith word that Enbridge is reviewinganother C$30 billion worth of opportuni-ties.
The mix includes the Seaway pipelinefrom Cushing, Okla., to the Texas GulfCoast that is now carrying its first oil,strong shipper backing for the FlanaganSouth pipeline from Flanagan, Ill., toCushing and a series of possible pipelineexpansions and additions to deliver crudefrom the Alberta oil sands and Bakken torefineries in eastern Canada and the UnitedStates.
But the spotlight wasn’t on this array ofupbeat items that would normally have hadshareholders beaming.
Protests outsideOvershadowing everything was the
knowledge that scores of First Nationsleaders and supporters, along with environ-mentalists, were venting outside theToronto hotel where the meeting was tak-ing place, and the line-up inside of FirstNations chiefs and disgruntled institutionalshareholders wanting to challengeEnbridge’s planned Northern Gatewaypipeline to carry 525,000 barrels per day ofoil sands crude to Pacific Rim markets andimport 193,000 bpd of diluents.
Displaying his reputation for graceunder fire, Daniel was patient and sympa-thetic, without ever once wavering in hisdefense of Northern Gateway, emphasizingthe importance to Canadian oil producersand the Canadian economy of opening upnew export markets in Asia and insistingthe pipeline can be built responsible.
“We have to do it safely and we can,” hesaid.
“We don’t want to proceed on this proj-ect with opposition. Our objective (is to)get your concurrence and your support” —a hope that seems increasingly forlorn,despite Daniel’s disclosure that 22 of 45First Nations along the planned pipelineright of way have shown their interest intaking up Enbridge’s offer of a 10 percentequity stake that could generate C$300 mil-lion in earnings for those communities.
He also insisted that Enbridge has fullcommercial support for Northern Gatewayand “have more who want in than we canaccommodate.”
First Nations oppositionJackie Thomas, chief of the Saik’uz
First Nation, told reporters before the meet-ing that aboriginal communities will not beswayed by offers of money or benefits.
“It’s about our way of life. We makebusiness decisions based on the evaluationof risk and this risk is far too great,” shesaid, referring to the damage that could bedone to the land and fisheries from aninland pipeline spill or a tanker accident inthe British Columbia coastal waters.
Thomas said First Nations leaders willtake whatever legal action is needed to stopthe pipeline.
About 40 members of the Yinka DeneAlliance, who traveled to Toronto fromBritish Columbia aboard their so-calledFreedom Train, were quietly reminded byDaniel that the very rail line they used forthat journey was strongly opposed at itsinception in the late 19th Century, reinforc-ing his point that major infrastructureundertakings usually encounter protest.
“Can I stand here and say that if we haveone person opposed (to Northern Gateway)that we will not proceed? I can’t, because
that’s not the way that democracy works,”he said.
“Energy infrastructure has to be insomebody’s back yard, if we are going totake advantage of it,” Daniel argued.
Chief Martin Louie of the NadlehWhut’en First Nation, challenged Daniel tosay “How far you and the government arewilling to go in trying to stop us, becausewe are not going to go away.”
Three institutional shareholders, led byJamie Bonham of NEI Investments, pres-sured Enbridge to disclose what harmcould be done to the company’s reputationif it faced extended litigation, but thatdemand for more information was defeatedby 71.5 percent to 28.5 percent when put toa vote.
Committed to hearing all viewsHowever, Al Monaco, who will suc-
ceed Daniel as chief executive officer,
said Enbridge is committed to hearing allviews and treating the opposition withrespect.
“We really think that with greater dis-cussion, we can convince the First Nationsof the merit of the project,” he said.
But the test of wills between Enbridgeand the anti-Northern Gateway factioncould quickly erupt into a more seriousconfrontation if the Canadian government— as some believe it will — applies itsannounced changes to environmentalreviews to the current round of hearings.
Under legislation before the House ofCommons, the government of PrimeMinister Stephen Harper could restrictthose who appear before regulatory panelsto those deemed to be directly affected bya project and those with relevant expert-ise.
PETROLEUM NEWS • WEEK OF MAY 20, 2012 5
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� P I P E L I N E S & D O W N S T R E A M
Enbridge boss stays coolDaniel goes head-to-head with First Nations leaders, environmentalists and dissident shareholders in defending Northern Gateway
PAT DANIEL see DEFENDING GATEWAY page 6
By KRISTEN NELSONPetroleum News
The Bureau of Land Management iscalling for nominations and com-
ments on tracts for 2012 oil and gas leas-ing in the National Petroleum Reserve-Alaska.
In a Federal Register notice publishedMay 15, BLM said available tracts are inthe Northeast and Northwest NPR-Aplanning areas. A map and detailedinstructions are available atwww.blm.gov/ak.
That notice coincided with release of aDepartment of the Interior updated reportto the president on oil and gas lease uti-lization.
The report focuses on Lower 48onshore leases and outer continental shelfleases.
Nominations due June 29Nominations and comments for the
NPR-A sale are due June 29 and should bemailed to: State Director, Bureau of LandManagement, Alaska State Office, 222 W.7th Ave. Mailstop 13, Anchorage AK99513-7504.
Recent sales in NPR-A began in 1999and through 2010 sales covered either theNortheast or Northwest planning area orboth. The 1999 sale resulted in 133 tractsleased for $104.6 million. Sales were heldevery other year beginning in 2002 andthrough 2008 also brought in multimil-lions in high bids, ranging from $13.8 mil-lion in 2006 to $63.8 million in 2002.Sales slumped in 2010, with just fivetracts leased for $799,995.
Beginning in 2011, BLM began askingfor nominations of tracts, with 17 tractssold for $3.6 million in that year.
In a May 15 release the Department ofthe Interior said the NPR-A sale is sched-uled for November.
The sale is the second in NPR-A sincePresident Obama directed Interior in May
2011 to conduct annual oil and gas leasesales in NPR-A.
Unused leasesIn a release on the report on unused oil
and gas leases, Interior said more thantwo-thirds of federal offshore acreage andmore than half of federal onshore acreagein the Lower 48 is idle — it is “neitherproducing nor under active exploration ordevelopment” by the companies holdingthe leases.
OCS acreage includes 31,864,710acres in the Gulf of Mexico, 241,023 acresin the Pacific (where no lease sales havebeen held since 1984) and 3,723,465 acresin Alaska.
In the Gulf of Mexico 9.8 million acresof the leases have activity (1,984 leasesout of 5,902); in the Pacific, 217,669 acres(43 leases out of 49) are active; and inAlaska 72,491 acres, 14 leases out of 670,are active.
Interior did note that approximatelythree-quarters of the leased Alaska OCSacreage is subject to litigation challengingthe 2008 Chukchi Sea lease sale.
Sen. Lisa Murkowski, R-Alaska,objected to the conclusions in the report.
“The administration claims that just 3percent of leases in Alaska are producing,without acknowledging that the federalbureaucracy is largely to blame for thatdismal percentage,” she said May 15.
“Companies are doing everything intheir power to convince federal regulatorsto allow project to move forward, and yetthis report attempts to blame the compa-nies for the lack of progress,” Murkowskisaid, noting that U.S. law already consti-tutes a “use-it-or-lose-it” policy for oil andgas leases.
Murkowski said there are a variety ofreasons that not every lease issued is inactive development, including require-ments for companies to secure relevantpermits and explore to ensure energyresources are present in producible vol-umes, activities which often take years tocomplete.
The report does not list Alaska onshorelease activity. In the Lower 48 there are 37million acres under lease, with production
or exploration on 16 million of thoseacres, or 44 percent. Interior said in thereport that due to data system issues, thosefigures “likely understate the number ofleases with approved geophysical explo-ration permits.” It said BLM is reviewingthe data and the figures may be revised ina future publication.
BLM policyFor OCS leases, the Bureau of Ocean
Energy Management, BOEM, is imple-menting reforms to encourage diligentdevelopment, including: increasing rentalrates to encourage faster exploration anddevelopment; using tiered terms of leaselife to incentivize prompt exploration anddevelopment, based on water depths; andincreasing minimum bids.
The Interior report said BLM is imple-menting reforms to ensure that onshorelease sales “will offer parcels in appropri-ate locations and avoid the contention andlitigation that have characterized manydevelopment proposals over the past sev-eral years.”
Interior is also developing anAdvanced Notice of ProposedRulemaking or ANPR which will look atincentives to encourage timely onshoredevelopment. The ANPR will include roy-alty rate options to encourage productionearlier in the life of a lease.
The State of Alaska began changingleasing terms in recent years to encouragemore rapid exploration and development,increasing minimum bid amounts andsteeply increasing annual rental rates afterthe first few years. For example, in theCook Inlet areawide lease sale held May16, the minimum bid was $25 an acre ($10an acre was previously common), andrental rates were $10 an acre for the firstthrough seventh years, increasing to $250an acre for the eighth through tenth years,unless the lease is in sustained productionor the state determines there has been rea-sonable diligence in exploring and devel-oping the lease, in which case the rentalwould remain $10 an acre. �
6 PETROLEUM NEWS • WEEK OF MAY 20, 2012
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The “directly affected” provisionwould not retroactively remove any evi-dence presented since January, but couldspeed up completion of the remainingreview process, affecting some of the4,500 people and organizations who haveregistered to comment.
Daniel said he is “not an expert onexactly who can and cannot participate (inthe National Energy Board hearings), butI wouldn’t expect that any rules ofengagement would change from the startof the process.”
The NEB is not commenting on howthe new rules might apply until the legis-lation before parliament is passed, mean-ing the real showdown has yet to happenfor Northern Gateway, the parallel plan byKinder Morgan to expand its TransMountain system and offer an alternativeroute to Asia and a host of other large-scale energy projects that are pending. �
continued from page 5
DEFENDING GATEWAY
Contact Gary Park through [email protected]
� L A N D & L E A S I N G
BLM calls for NPR-A sale nominationsInterior updates report on oil, gas lease utilization; new rule in works to encourage timely onshore development of unused leases
“The administration claims thatjust 3 percent of leases in Alaska
are producing, withoutacknowledging that the federalbureaucracy is largely to blame
for that dismal percentage.” —Sen. Lisa Murkowski, R-Alaska
Contact Kristen Nelson at [email protected]
� E X P L O R A T I O N & P R O D U C T I O N
New round of oil sands actionProjects from Canadian Natural Resources, Imperial Oil and Cavalier Energy targeting a combined 370,000 bpd of bitumen production
By GARY PARKFor Petroleum News
Amix of veterans and a newcomer haveraised the curtain on Alberta oil sands
projects that are designed to produce a com-bined 370,000 barrels per day of bitumen.
Despite occasional setbacks with itsHorizon oil sands mine, Canadian NaturalResources, CNR, is ready to embark ondeveloping two in-situ leases — one atKirby to yield 140,000 bpd and one atGrouse to add 40,000 bpd.
Company President Steve Laut said cur-rent estimates for Kirby South indicate cap-ital costs will run to C$32,000 per flowingbarrel of bitumen, with the initial injectionof steam into the deposit scheduled forNovember 2013
For Kirby North, CNR has filed a regu-latory application and is targeting initialsteam in early 2016.
The Kirby Expansion Project will usesteam-assisted gravity drainage, SAGD,over the 30-year operating life of the projectto melt and extract the deep bitumendeposits.
The same technology will apply to theGrouse project, which is due to inject itsfirst steam in 2017, assuming regulatoryapproval.
The company’s flagship Horizon oilsands mining project is budgeted forC$1.88 billion of capital spending this yearto expand the nameplate capacity to250,000 bpd from 110,000 bpd.
Laut said CNR has divided the expan-
sion into five segments to keep a tightercontrol on costs, which are currently com-ing in 5 percent below estimates.
CNR said it is also hoping to make asanctioning decision later this year for a150,000 bpd project in partnership withNorth West Upgrading to turn bitumen intosynthetic crude for subsequent refining intofuels.
The upgrader is designed for completionin three phases of 50,000 bpd each, with thefirst carrying a price tag of C$5 billion.
Imperial in-situ facilitiesSeparately, Imperial Oil (69.6 percent
owned by ExxonMobil), is in the earlystages of developing two new in-situ facili-ties in Alberta.
The first, at a 100 percent-owned leasecalled Aspen, will have SAGD capacity of80,000 bpd. An application is expected tobe completed for a regulatory application inearly 2014.
The second, unnamed project, is current-ly undergoing resource delineation andassessment, setting the stage for potentialproduction in the early 2020s.
Otherwise, Imperial is on track to startproduction by late 2012 at its Kearl oilsands mine, which has an eventual goal of340,000 bpd, while its 40,000 bpd Nabiyefacility received corporate approval inFebruary.
New oil sands producerA new oil sands entry was announced
by Calgary-based mid-size oil and natural
gas producer Paramount Resources.It is creating a standalone oil sands
producer called Cavalier Energy to turnits leases in northeastern Alberta into a100,000 bpd operation.
President and Chief Operating OfficerJim Riddell told the company’s annualmeeting that the objective, through devel-oping the oil sands and liquids-rich gasplays, is to reduce Paramount’s gas expo-sure to 40 percent by 2013 from about 79percent now.
The company hopes to file a regulato-ry application this year to develop192,000 acres of mostly 100 percent-owned oil sands leases, starting with a10,000 bpd pilot project, followed bythree phases of 30,000 bpd each over thenext decade.
Paramount estimates the first commer-cial phase would cost C$1.4 billion, withthe next two phases coming in at slightly
over C$1 billion each. Cavalier will trade as a separate entity,
although Paramount will retain anunspecified interest.
Paramount also reported that it plansto spend C$180 million building a liquidsextraction facility to process 200 millioncubic feet per day of gas from its liquids-rich Kaybob play in Alberta.
The facility is expected to be commis-sioned in the second half of 2013 and willbe designed to double current productionof 13,500 barrels of oil equivalent perday.
Paramount also owns 127,000 netacres in the gas-rich Liard Basin of north-ern British Columbia which it said will bedeveloped as gas prices recover. �
PETROLEUM NEWS • WEEK OF MAY 20, 2012 7
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Contact Gary Park through [email protected]
ASSOCIATIONSEnergy economics association to meet
The Anchorage Association for Energy Economics’ May meeting will be heldat noon, Tuesday, May 22 at the Loussac Library. The speaker, Marcus Hartley ofNorthern Economics, will be discussing “Modeling Impacts to Fisheries in 5-yearPlans for Outer Continental Shelf Leasing.”
Also note a change in the group’s name, from the Anchorage Chapter of theInternational Association for Energy Economics to the Anchorage Association forEnergy Economics.
—PETROLEUM NEWS
By ERIC LIDJIFor Petroleum News
Following an Alaska Superior Courtruling in its favor last fall, the Alaska
Department of Natural Resources is ter-minating the Arctic Fortitude unit on theNorth Slope of Alaska.
The decision comes six years after thestate approved the 6,363-acre unit adja-cent to the southern edge of the PrudhoeBay unit and follows nearly four years oflegal actions between the state and theSan Antonio, Texas-based unit operatorAlaskan Crude Corp.
“Given the record here, coupled withyour longstanding failure to abide bywork commitments, I have no reason to
believe that further extensions of(Alaskan Crude Corp.’s) AFU obligationswill result in any activity by the companyin the AFU,” DNR Commissioner DanSullivan wrote to company President JimWhite on May 14.
Alaskan Crude believes the termina-tion is premature because the company isworking through an appellate reviewbefore the Alaska Oil and GasConservation Commission and asked thestate for permission to begin its drillingwork in the upcoming winter.
Alaskan Crude claimed state agencieshave put “roadblocks” in front of thecompany as it tries to work on the NorthSlope. “Unfortunately, trying to navigatethose roadblocks has required one admin-istrative proceeding after another, withsubsequent appeals, and (Alaskan CrudeCorp.’s) efforts to negotiate a settlementhave been met with stony indifference bythe state,” the company wrote in an April22 letter to oil and gas officials.
The ruling is open to a 30-day appeal.
AOGCC appealThe debate revolves in part around oil
spill response planning.When DNR approved the three-lease
Arctic Fortitude unit in June 2006, theunit agreement called for Alaskan Crudeto workover and test the 1980’s Burglin33-1 well, drill two additional wells andshoot a 3-D seismic campaign over theentire unit. A late 2007 settlementbetween the state and the company gaveAlaskan Crude until May 2008 to delivera rig to the unit in preparation for begin-ning well work that October.
Alaskan Crude revised its descriptionof the Burglin project from an oil and nat-ural gas well to a “gas only” well, achange that would trigger a large reduc-tion in its response planning standard.When the AOGCC denied that request,Alaskan Crude appealed.
Because the issue remains unsettled,Alaskan Crude believes that it could notmeet the May 2008 rig deadline. The statedisagreed, placing the unit into defaultand requiring the company to bring a rigto Arctic Fortitude by March 2009 or risklosing the unit.
A lower court argued in favor of thestate, saying the AOGCC appeal did notconstitute a force majeure situation. TheAlaska Superior Court upheld the rulingthis past October.
Alaskan Crude continues to argue thatit cannot cure the default until theresponse planning standard issue isresolved and wants to drill in late 2012and early 2013.
“(Alaskan Crude Corp.) cannot mobi-lize a drilling rig without a contingencyplan, and it cannot get a contingency planwithout knowing what the (response plan-ning standard) is going to be,” the compa-ny wrote. “That question remains in thecourt’s hands.”
The state, though, remains skeptical.“In essence, (Alaskan Crude Corp.) pro-poses a remedy that is virtually assured tolead to significant additional delay,”Sullivan wrote. �
8 PETROLEUM NEWS • WEEK OF MAY 20, 2012
� L A N D & L E A S I N G
State terminates Arctic Fortitude unitDepartment of Natural Resources ruling follows favorable courtdecision this past October, but company calls action premature
GOVERNMENTBLM seeks nominations for Alaska council
The Bureau of Land Management has extended the deadline for nominationsfor five open positions on its Alaska Resource Advisory Council to June 4.
Resource Advisory Councils make recommendations to BLM regarding publicland and resource management, including land-use planning, recreation, and firemanagement. BLM said it is looking for a diverse group of people representingindustry, environmental organizations, historical and archaeological groups, stateand local governments, Indian tribes, Native organizations and groups, and thegeneral public.
“The RAC provides feedback on the unique values and issues on BLM-man-aged land in Alaska,” said Bud Cribley, BLM-Alaska State Director. “They are avaluable resource I can call on for perspectives and suggestions on the manage-ment of our resources such as recreation, land use planning, subsistence, mining,and oil and gas development.”
BLM evaluates candidates based on training, education and knowledge of thecouncil’s geographical area. Nominees must be residents of Alaska, complete anomination form and submit a letter of reference.
Three-year termsMembers are appointed by the Secretary of the Interior to serve an initial three-
year term and may be reappointed to serve additional three-year terms. One vacancy is for public land ranchers and representatives of organizations
associated with energy and mineral development, the timber industry, transporta-tion or rights of way, off-highway vehicle use and commercial recreation.
Contact Eric Lidji at [email protected]
see BLM NOMINATIONS page 9
PETROLEUM NEWS • WEEK OF MAY 20, 2012 9
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W W W . D O Y O N . C O M ( 9 0 7 ) 4 5 9 - 2 0 0 0
GOVERNMENTBLM Director Bob Abbey retiring
Bob Abbey, director of the Department of the Interior’s Bureau of LandManagement, will retire at the end of May.
Abbey, appointed BLM director by President Obama in 2009, has a 34-yearcareer of state and federal service.
Secretary of the Interior Ken Salazarsaid that under Abbey’s leadership therehad been real and positive changes atBLM, “from the renewable energy revo-lution he helped lead and the oil and gasreforms he implemented to the spectac-ular conservation lands he has helpedprotect for future generations.”
Abbey called his period as BLMdirector the highlight of his career andsaid he was proud of what BLM hadaccomplished.
Abbey oversaw the approval of 29large-scale renewable energy projectson public lands, including 16 solar projects, five wind farms and eight geothermalplants.
He implemented reforms to BLM’s oil and gas leasing process to improve cer-tainty, reduce conflict and ensure that development occurred in the right places andthe right ways.
Abbey also saw a significant expansion of the National Landscape ConservationSystem, led BLM toward more landscape-scale and partnership-driven planning andhelped the agency incorporate climate change more fully into its planning.
Abbey, a native of Clarksdale, Miss., is a graduate of the University of SouthernMississippi, and is retiring to rejoin his family full-time in Mississippi.
BLM Deputy Director Mike Pool will serve as acting director followingAbbey’s retirement.
—PETROLEUM NEWS
One vacancy is for representatives ofnationally or regionally recognized envi-ronmental organizations, archaeologicaland historical organizations, dispersedrecreation activities, and wild horse andburro organizations.
Three vacancies are for representa-tives of state, county, or local electedoffice; representatives and employees ofa state agency responsible for the man-agement of natural resources; representa-tives of Indian Tribes or Native organiza-tions and groups within or adjacent to thearea for which the RAC is organized; rep-resentatives and employees of academicinstitutions who are involved in naturalsciences; and the public-at-large.
Nominations should be sent by June 4to BLM-Alaska, Thom Jennings, 222 W.7th Avenue, #13, Anchorage AK 99513.Nominations may also be faxed to (907)271-5421 or emailed to [email protected]<mailto:[email protected]>.
—PETROLEUM NEWS
continued from page 8
BLM NOMINATIONS
� E X P L O R A T I O N & P R O D U C T I O N
Statoil probesCanadian frontiers
By GARY PARKFor Petroleum News
Norway’s Statoil is wasting no timemoving ahead with recently negoti-
ated partnerships to explore Canada’s off-shore frontiers in the Beaufort Sea andNewfoundland.
It will participate with 60 percentoperator Chevron Canada in gathering 3-D seismic in the Beaufort this summerand, as operator, has secured a deepwaterrig to drill three wells (two in the FlemishPass and one in the Jeanne d’Arc basin ofNewfoundland) in 2012 and 2013.
The Beaufort operations will be con-ducted on Exploration License 460 and
cover 1,000-2,500 square kilometers inwater depths of 800-1,800 meters,Chevron spokesman Leif Sollid toldPetroleum News.
He said that after a year of planning,the partnership has submitted a regulato-ry application, aiming to start work about120 kilometers north of Herschel Islandby late summer, depending on ice condi-tions.
A program description submitted tothe National Energy Board said the ship-borne marine geophysical program isexpected to last from 40 to 70 days.
It’s a key part of renewed interest inexploring for oil in the Beaufort, although
Statoil will use Seadrill’s West Aquarius deepwater rig.
CO
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see STATOIL PLANS page 10
Secretary of the Interior KenSalazar said that under Abbey’sleadership there had been realand positive changes at BLM,“from the renewable energy
revolution he helped lead andthe oil and gas reforms he
implemented to the spectacularconservation lands he has helpedprotect for future generations.”
By WESLEY LOYFor Petroleum News
The Paris-based International EnergyAgency is questioning a key aspect
of President Obama’s recently announcedplan to curb oil market manipulation.
Some political leaders have blamedspeculators for high retail gasoline prices.
The Obama administration on April 17called on Congress to give theCommodity Futures Trading Commissionauthority to direct exchanges to raisemargin requirements for traders as a wayto prevent excessive speculation ormanipulation and reduce price volatilityin oil markets.
But the IEA, in its latest monthly OilMarket Report, says raising marginsmight have just the opposite effect.
Margins explainedIn a May 14 press release on the new
Oil Market Report, available only to sub-scribers, the IEA explained how marginswork and why Obama’s proposal mightbackfire.
“All futures exchanges — such as theChicago Mercantile Exchange — have aclearing house, which intermediates alltransactions and acts as guarantor of alltrades that it has accepted from its mem-bers,” the press release said.
“In order to prevent defaults by traders,clearing houses require that whenever anindividual or a company wishes to buy orsell any form of futures contract on themarket, they must pay a ‘margin,’ which
serves as collateral or as a ‘good faith’deposit given by the trader to the broker,ensuring the necessary funds are there incase of a default.
“At present, margins in commodityfutures markets are relatively low, typical-ly less than 10% of the value of the con-tract. Some policy makers argue that theselow margins make it relatively cheap tospeculate, which will lead to greater pricevolatility in futures markets.
“The U.S. government’s proposed rule... is that significantly increasing the mar-gin that has to be paid with every trade willact as a deterrent to aggressive speculationas traders will not want to take the risk oflosing a large amount of money they putdown as collateral. This will, the govern-ment contends, reduce price volatility andprevent excessive speculation.
“The OMR, however, argues that thismeasure will limit the participation of cer-tain traders, hedgers and cash constrained
small speculators due to higher tradingcosts. This will leave the playing fieldopen only to large traders with a smalldiversity of views.
“In such a situation, the OMR believesthat far from reducing volatility in oil mar-kets, increasing the margin cost may welllead to a rise in volatility.”
Other Obama proposalsThe IEA describes itself as an
autonomous organization working toensure reliable, affordable and clean ener-gy. It has 28 member countries, includingthe United States and Canada.
Raising margin requirements was onecomponent of the five-part plan the WhiteHouse rolled out April 17 to crack downon manipulation in oil markets.
The plan includes a request thatCongress fund more “cops on the beat” atthe CFTC to oversee oil futures markettrading.
The president also wants funding forinformation technology upgrades at theCFTC to “strengthen monitoring of energymarket activity.”
And the administration proposed “aten-fold increase in maximum civil andcriminal penalties for manipulative activi-ty in oil futures markets.”
For more details on the Obama plan, goto http://1.usa.gov/IXpqUs. �
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Chevron is not saying whether it is pri-marily targeting oil or natural gas.
Newfoundland plansStatoil said it hopes to become an
operator in Newfoundland, where it holdsa 50 percent interest in the two FlemishPass licenses, while Chevron has 40 per-cent and Spain’s Repsol 10 percent.
Statoil is operator of an exploration pro-gram on the Fiddlehead prospect in Jeanned’Arc, where it also participated in theSuncor Energy-operated Ballicatters dis-covery.
“We have ambitious exploration targetsoffshore Newfoundland and securing rigcapacity is essential for reaching those tar-gets,” said Geir Richardsen, head of explo-ration for Statoil in Canada.
The two parcels are west of Statoil’sMizzen discovery, which is now catego-rized as a Significant Discovery License,based on indications of sufficient hydro-carbons to support commercial develop-ment over a prolonged period.
The rig is Seadrill’s West Aquarius,which was built in South Korea in 2009and can operate in difficult conditions ofup to 3,000 meters of water depth. It is cur-rently working for ExxonMobil in Asia. �
continued from page 9
STATOIL PLANS
Contact Gary Park through [email protected]
� F I N A N C E & E C O N O M Y
Obama anti-speculation plan questionedParis-based International Energy Agency says requiring higher trading margins could cause more oil price volatility, not less
Raising margin requirements wasone component of the five-part
plan the White House rolled outApril 17 to crack down on
manipulation in oil markets.
Statoil said it hopes to become anoperator in Newfoundland, whereit holds a 50 percent interest inthe two Flemish Pass licenses,
while Chevron has 40 percent andSpain’s Repsol 10 percent.
Contact Wesley Loy at [email protected]
By ALAN BAILEYPetroleum News
Known to exist in vast quantities inmany parts of the world but with as
yet no means of commercial production,methane hydrate could eventually becomea prolific source of natural gas. This win-ter’s test of the production of methane, themain component of natural gas, from theI nik Sikumi No. 1 methane hydrate testwell on Alaska’s North Slope represents anotable step for methane hydrate researchin that, among other achievements, it suc-ceeded in producing methane fromhydrate for a record-breaking duration of30 days.
However, determining the next steps inresearching gas production from hydrateswill depend on the analysis of dataobtained from the test, David Schoderbek,ConocoPhillips director, gas hydrates,told Petroleum News May 10. A teaminvolving ConocoPhillips, the U.S.Department of Energy, and the Japan Oil,Gas and Metals National Corp. conductedthe test.
Methane hydrate consists of a whitecrystalline substance that concentratesnatural gas by trapping methane mole-cules inside an ice-like lattice of watermolecules. The material is only stablewithin a narrow range of temperaturesand pressures: Move the temperatures andpressures outside that range, and thematerial dis-associates into methane andwater.
Using carbon dioxideResearchers have been investigating
the possibility of extracting methane fromhydrate by de-pressuring a subsurfacehydrate accumulation, thus moving thehydrate out of its stability range and caus-ing dis-association of the material.However, ConocoPhillips with its partnershas been researching an alternativeapproach involving the injection of car-bon dioxide into the hydrate, causing thecarbon dioxide to exchange with methanein the hydrate lattice. The process releasesmethane while also trapping carbon diox-ide inside the hydrate.
Schoderbek said that in laboratorytests scientists had successfully displacedall methane from hydrate samples byflooding the samples with carbon dioxideover an extended time period. This tech-nique, if replicated in the field on a com-mercial scale, might provide a means ofsequestering unwanted carbon dioxide aswell as enabling natural gas productionfrom the hydrates.
According to information in theDepartment of Energy website, the use ofcarbon dioxide for gas production frommethane hydrates could present addition-al benefits: The procedure does not liber-ate water from the hydrates, would notimpact the mechanical stability of thehydrate deposits and, unlike de-pressur-ization of the hydrates, would not causethe formation of pore-clogging ice or sec-ondary hydrates as a consequence of dis-association-induced cooling.
The purpose of the test with the I nikSikumi well was to see if the results fromthe laboratory test could be replicated infield conditions, Schoderbek explained.
Test locationThe North Slope is an especially suit-
PETROLEUM NEWS • WEEK OF MAY 20, 2012 11
� N A T U R A L G A S
A piece of the methane hydrate puzzleExperts are assessing the data from the Ignik Sikumi test well to more fully understand a potential future source of natural gas
Advertising has its benefits with Petroleum News Bakken
B A K K E N
By XXXXX XXXXXXXPetroleum News Bakken
Uaskcpmamcamocmasdcm asmxcoamoasc asx-cmiueuyvbb nfbdbdfbvuevsjjjsd v devbjusd-
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oevrnvn asw c vkj erv jhf vhg fsvjhd vjh ervaqvo-qwepifnibviervb wervhbeviieorqwevyer berygeqonnvbeurpopermvomvb ewrnvfnvnueru uertvbnwieurvuergioer awdijvber. askcpmamcamocmasdcm asmx-coamoasc asxcmiueuyvbb nfbdbdfbvuevsjjjsd vdevbjusdkv8wefb wyufbwabbavcao msocaovsadnvinviiwef wieucvaoo asnviufrbvaeva.
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asxcmiueuyvbbas jhhsdfbbb nfbdbdfbvuevsjjjsd vdevbjusdkv8wefb wyufbwabbavcao msocaovsadnvinviiwef wieucvaoo asnviufrbvaeva.
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Vol. 1, No. 2 • www.PetroleumNewsBakken.com Note: Spoof headlines for display only Released May 6, 2012 • $2
� T R A N S P O R T A T I O N & P I P E L I N E S
� N A T U R A L G A S
� F I N A N C E & E C O N O M Y
B A K K E Npage17
Major proves Sheffield right,making “beeline to the Wolfcamp”
The company hard at work on new rig designs for tight oil drilling inthe Bakken and Eagle Ford petroleum systems remains silent ondetails, including visuals. See story on page 23. Existing rig fromanother firm pictured above.
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Obama shockerPresident orders agencies to speed up review of northern Keystone route
By XXXXXX XXXXXPetroleum News Bakken
Taskcpmamcamocmasdcm asmx-coamoasc asxcmiueuyvbb nfbdbdf-
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Capital from Hong Kong?2 small Bakken, Three Forks producers look to Hong Kong Stock Exchange for capital
By XXXXX XXXXXXXPetroleum News Bakken
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wyufbwabbavcao msocaovsadnv inviiwef wieuc-vaoo asnviufrbvaeva.
oevrnvn asw c vkj erv jhf vhg fsvjhd vjh ervaqvo-qwepifnibviervb wervhbeviieorqwevyer berygeqonnvbeurpopermvomvb ewrnvfnvnueru uertvbnwieurvuergioer awdijvber. askcpmamcamocmasdcm asmx-coamoasc asxcmiueuyvbb nfbdbdfbvuevsjjjsd vdevbjusdkv8wefb wyufbwabbavcao msocaovsadnvinviiwef wieucvaoo asnviufrbvaeva.
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askcpmamcamocmasdcm asmxcoamoasc asx
Pressure up to use gasAs gas flaring becomes less palatable to the Bakken public, a strong option emerges
see XXXXXXXXX page xx
see XXXXXXXXX page xx
Hush is word on new rig designs
Flush with oil, potash revenuesSaskatchewan debt at 25-year low
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Refiners talk buying criteria,what attracts them to Bakken oil
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see XXXXXXXXX page xx
see XXXXXXXXX page xx
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askmmamsckkak-skcm kaksciuryerv.
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By XXXXX XXXXXXXPetroleum News Bakken
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Vol. 1, No. 3 • www.PetroleumNewsBakken.com Note: Spoof headlines for display only Released May 20, 2012 • $2
� N A T U R A L G A S
� G O V E R N M E N T
� F I N A N C E & E C O N O M Y
B A K K E Npage11
Japanese group funds new E&P firmformed by Montana, ND ranchers
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Flare gas solution?$7.5M study on commerciality of using wasted gas to fuel electricity offers optimism
By XXXXXX XXXXXPetroleum News Bakken
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Targeting best workersSaskatchewan puts ads in farm magazines world-wide, touting high paying oil jobs
By XXXXX XXXXXXXPetroleum News Bakken
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Schweitzer: Taxes okayMontana’s outgoing governor says state’s regs and taxes not discouraging development
see XXXXXXXXX page xx
see XXXXXXXXX page xx
Case study on well performancedrivers full of holes says producer
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E&P firm donates disposableurine bottles, garbage bags for truckers; IRR Chatter debuts
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oevrnvn asw c vkj erv jhf vhg fsvjhd vjh ervaqvo-qwepifnibviervb wervhbeviieorqwevyerberygeqon nvbeurpopermvomvb ewrnvfn-vnueru uertvbnwieurv uergioer awdijvber.askcpmamcamocmasdcm asmxcoamoasc asx-cmiueuyvbb nfbdbdfbvuevsjjjsd v devbjusd-kv8wefb wyufbwabbavcao msocaovsadnvinviiwef wieucvaoo asnviufrbvaeva.
oevrnvn asw c vkj erv jhf vhg fsvjhd vjhervaqvoqwepifnibviervb wervhbeviieorqwevy-er berygeqon nvbeurpopermvomvb ewrnvfn-vnueru uertvbnwieurv uergioer awdijvber.
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askcpmamcamocmasdcm asmxcoamoasc asxcmiueuyvbbnfbdbdfbvuevsjjjsd v devbjusdkv8wefb wyufbwabbavcao mso-
see XXXXXXXXX page xx
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askmmamsckkak-skcm kaksciuryerv.
Top Republican contender said permitting is less expen-sive in North Dakota, including permitting of gravel pits,necessary for tight oil operations (pit near Watford City,ND pictured here).
Introducing Petroleum News BakkenYou’ve heard that newspaper advertising creates awareness, telling the marketplace you’re a player.
But creating awareness isn’t all Petroleum News Bakken does for you.
Whether you’re seeking attention from the investment community, looking for new customers, or affirming your leadership, we go “beyond advertising” to market your business.
For example, Petroleum News Bakken’s contracted advertisers are included in each issue in a Bakken Players company list alongside Oil Patch Bits, which features three or four advertisers each issue, announcing everything from new hires to expansions and awards.
There’s more.
Your firm will be included in our monthly Bakken Oil & Gas Directory that companies inNorth Dakota, Montana, Saskatchewan, Alberta and Manitoba turn to purchase goods or services—or make an investment. The directory, which debuts in September, will give you the chance to promote your business through articles, briefs, standalone photos, and listings that describe what you have to offer.
To find out more information on advertising, please contact: Susan Crane at [email protected] or 907.770.5592
see TEST WELL page 14
CO
URT
ESY
CO
NO
CO
PHIL
LIPS
ALA
SKA
The methane hydrate test in progress on an ice pad in the Prudhoe Bay unit on Alaska’s North Slope.
By BILL WHITEResearcher/writer for the Office
of the Federal Coordinator
Propane or wet gas for road-system towns?
Away from the city, North Slope gasfor Alaskans becomes an iffy prospect.However, no one has fully analyzed thesubject.
The state’s Alaska Gasline InducementAct deal with TransCanada requires thecompany to provide at least five placesalong its pipeline where gas can be with-drawn for in-state use. Fairbanks and theAnchorage area areobvious in-statemarkets — theyharbor over 60 per-cent of Alaska’s722,000 residents.
Perhaps the gas could be tapped bymines, such as a proposed gold mine atLivengood, or other industry.
But what about other locations? Howabout the hamlets the pipeline wouldskirt?
A 2010 study by Northern Economicson potential in-state demand for gas froma major North Slope pipeline was skepti-cal.
“Many of the communities along thepipeline routes have very small popula-
tions and typicallyhave relatively smalldemand for naturalgas or propane,” thestudy said. “Thecapital cost for tak-ing natural gas orpropane off of thegas pipeline is veryhigh per unit ofenergy, and for mostsmall communities it would be more cost-effective to truck propane from Fairbanksor another location to meet their energyrequirements.”
The 2011 AGDC report echoed thatopinion: “Due to the need for NGLremoval, it is not economical to serve thesmaller areas along the pipeline route,regardless of the alignment, except via anew distribution system developed off theproposed Fairbanks Lateral. Even if themain pipeline transported only utility-grade gas (as opposed to methane lacedwith propane and other gas liquids),development of local distribution systemsfor the smaller communities and usersalong the pipeline would very likely becost-prohibitive regardless of the align-ment.”
An AGDC consultant, R.W. Beck,found that rural residents along Alaska’sroad system might benefit from propaneextracted from a big pipe’s gas stream.Propane might be cheaper than heating
oil for them, Beck concluded. The esti-mated savings could be as great as 51cents a gallon in the Big Lake and Nikiskiareas of Southcentral Alaska, and 76cents a gallon in rural Fairbanks.
In late 2011 another study came alongthat planted a small seed of hope for resi-dents of pipeline-corridor towns. At a rel-atively low cost, they might be able to tapthe great stream of gas flowing past them.
A small community right next to thepipeline would need solutions to threeproblems:
• How to ramp down the gas’s highpressure to make it usable.
• What to do with the natural gas liq-uids mixed in with the methane.
• How to pay for piping gas from thebig line to their homes.
The November 2011 study by Black &Veatch for the state showed a paththrough the first two problems. It didn’tdiscuss the third problem (some along thepipeline corridor believe the state shouldpay the cost of piping gas to homes).
To depressurize the gas, Black &Veatch recommended something called a“stub gas delivery” system. It would cost$150,000 to $200,000 to install at eachlocation when the big pipeline is built.Each one would cost $50,000 to $75,000a year to operate and maintain. (Thosemodest sums might not feel too modest if
prorated among, say, the seven year-round households of Wiseman orLivengood or the six of Coldfoot.)
“It is anticipated that the small diame-ter stub size will allow for sufficient gassupply volumes for all potential deliverypoint sites except for Fairbanks orAnchorage,” the consultant said.
Here’s how it would work:A small pipe stub would be welded
onto the side of the big pipeline where thegas offtake would occur. Once gas cus-tomers are secured, the pipeline would betapped at the stub.
The gas would flow to a meter-ing/regulating station. There the gaswould get heated and cooled in fourstages to ease the pressure from 2,500 psito a more usable 125 psi. Gas pressure isreduced further to a usable level when itpasses through a regulator on a home’smeter.
What about the propane, butane and
At Flowline Alaska, we’ve spent decades helping to keep oil flowing on the North Slope.It’s a record we’re proud of, and we look forward to a future where we can provide the service and support necessary to grow and expand Alaska’s energy industry.Because we want to keep Alaska’s oil flowing, today and tomorrow.
flowlinealaska.com
907.456.4911
We know pipes.Inside and out.
12 PETROLEUM NEWS • WEEK OF MAY 20, 2012
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An AGDC consultant, R.W. Beck,found that rural residents along
Alaska’s road system might benefitfrom propane extracted from a big
pipe’s gas stream.
� N A T U R A L G A S
Distributing North Slope gas challengingEnough gas exists to meet Alaska’s needs for decades, but at a cost; and getting gas to rural areas more difficult and costly yet
BILL WHITE
see GAS DELIVERY page 13
OFF
ICE
OF
THE
FED
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OO
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INA
TOR
other gas liquids? They’re normallyextracted because they have their ownmarkets and they’re more valuable thanmethane. Black & Veatch says: For thesesmall communities, keep the liquidsblended with the methane.
Channeling pure propane intomethane-based household applianceswould be a bit like trying to funnel a tor-nado through a windsock. The Btu con-tent of both propane and butane is overtwo times that of methane. Propane alsoflows into propane appliances at higherpressure than methane into methaneappliances.
But propane and butane togetherwould comprise less than 5 percent of thegas stream. They raise the Btu content ofthe entire gas stream above what mostmethane pipelines carry, but they don’tpush the Btu content off the scale, Black& Veatch suggested. While the targetedheat content of marketed gas is 1,035 Btuper cubic foot, Black & Veatch said theheat content of the big pipeline’s gaswould be about 1,118. (A cubic foot ofpure propane contains 2,520 Btu.) Black& Veatch said a handful of communitiesin the United States and Canada burn gasthat rich without “any significant issues.”
Still, the North Slope gas stream couldbe near the upper end of acceptable Btu-richness for home and commercial use,and if the liquids separate from themethane, the community gas-distributionsystem could encounter big problems.
Remote towns could be out of luckResidents of remote towns and vil-
lages disconnected from Alaska’s roadsystem endure some of the highest fuelprices in the United States.
This winter, when Fairbanks home-owners were suffering $4-a-gallon heat-ing oil, residents of Ruby paid $5.30,Bethel $5.78, Gambell $6.75 andMcGrath $7.47. McGrath residents paidabout $53 per million Btu of energy.
The best-case scenario for gettingNorth Slope gas to these towns would beto ship propane to them.
But the Beck study last year concludedthis scenario simply won’t work unless oilprices were sky-high. Propane would costso much that no one would switch to it.
How high is sky-high?Beck looked at delivering propane to
two towns — Tanana and Seldovia — justoff the road system. If propane is tooexpensive to transport to these towns, itwill be too expensive everywhere else offthe road system, Beck reasoned.
For Tanana, Beck said, the price ofcrude oil must top $165 a barrel to justifyconverting from heating oil to propane forspace heating, and $186 a barrel to con-vert to propane for water heating.
For Seldovia, oil prices must exceed$215 and $246 a barrel to trigger switch-ing to propane for space heating andwater heating, respectively.
“Rural consumers that lack highwayaccess are only likely to switch fuelsunder extreme oil price(s) due to veryhigh intermodal transportation, storage,and distribution costs for propane,” Beckconcluded.
As with other analyses of in-state gasdelivery, no one has done the kind ofdetailed engineering, precise demandstudies and humorless financial numbercrunching that, say, a bank would requirebefore lending money to build the gas-delivery infrastructure. And the cost ofswitching to propane could look very dif-ferent to consumers if the state subsidizedconstruction.
Older reports also have explored the
economics of widespread in-statepropane delivery from North Slope gas:
A 2005 report from PND Inc.Consulting Engineers for the AlaskaNatural Gas Development Authority saidpropane might work in some ice-freecoastal communities that could takedeliveries year-round. Propane could pro-vide less expensive electricity for cook-ing. In larger towns, propane could workfor water and space heating. Coastalpower plants could use propane if theycould get year-round deliveries of the fuelto minimize storage costs, or if the gov-ernment subsidized propane deliveries. Akey to making all of this work: Most ofthe gas liquids extracted from the NorthSlope gas must get sold outside of Alaskato create economies of scale that make thein-state propane price more affordable.
A 2009 study for the same stateagency said a small amount of propaneprobably could be extracted at the NorthSlope oil fields and trucked to InteriorAlaska towns for a lower price than oil-based fuels. �
Please see part 1 of the story in theMay 6 issue and part 2 in the May 13issue.
Editor’s note: This is a reprint from theOffice of the Federal Coordinator, AlaskaNatural Gas Transportation Projects,online at www.arcticgas.gov/challenges-distributing-north-slope-gas-alaskans.
PETROLEUM NEWS • WEEK OF MAY 20, 2012 13
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m a n a g e m e n t , w e p r o v i d e q u a l i t y s u p p o r t s e r v i c e s t o A l a s k a ’s t o p i n d u s t r i e s .
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continued from page 12
GAS DELIVERY PIPELINES & DOWNSTREAMAlyeska plans multiple summer shutdowns
Alyeska Pipeline Service Co. has three shutdowns scheduled in May and June,and two more tentatively scheduled for late July and early August.
Alyeska said the shutdowns will last from eight to 18 hours and include main-tenance shutdowns in the next month and two shutdowns later in the summer toinstall straight pipe at Pump Station 6.
The major maintenance shutdowns are a critical part of Alyeska’s ongoingpipeline integrity management program, the company said, and involve a signifi-cant investment of resources.
The first shutdown, May 18, will last for eight hours and allow installation oftemporary bypass piping around Pump Station 5, allowing the station to be iso-lated while piping inside the station is modified over an eight-day period.
The bypass piping will be removed and normal flow restored at Pump Station5 during an eight-hour shutdown May 27. Safety integrity pressure protection sys-tem, SIPPS, work will also be done at Pump Station 3 during the May 27 shut-down.
An 18-hour shutdown June 2 is for mainline valve testing from Pump Station5 to Pump Station 7 and SIPPS work at Pump Station 11.
The shutdowns for pipe installation at Pump Station 6 are tentatively scheduledfor July 28 and Aug. 5.
Alyeska said it conducts line-wide shutdowns annually to allow maintenancecrews time to work on projects simultaneously along the line and at the ValdezMarine Terminal. The shutdowns typically coincide with producers’ routine main-tenance on equipment and facilities on the North Slope.
—PETROLEUM NEWS
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able location for this type of test becauseof the known existence of hydrate accu-mulations in cold rocks under the per-mafrost, with a high saturation of thehydrates in clean sandstone close to anexisting oil and gas infrastructure,Schoderbek said.
ConocoPhillips used log data fromexisting wells to home in on a suitable sitefor the test well, eventually opting for alocation next to an existing well pad with-in the Prudhoe Bay unit. The test locationwas close to wells known to have passedthrough methane hydrate deposits underthe permafrost, in a situation where sub-surface pressures and temperatures
appeared close to those used in the labo-ratory tests.
The well location was convenientlyclose to infrastructure on the existing wellpad. At the same time the use of an icepad as a base for the drilling would avoidany conflict with regular oilfield opera-tions, Schoderbek said. The research teamused subsurface and seismic data toextrapolate the position of hydrate bearingsands from under the existing well pad outto the location of the test well.
Drilled in 2011ConocoPhillips drilled the well in
April 2011 to a depth of 2,597 feet, 900feet below the permafrost and also belowthe base of the hydrate accumulations.
Subsequent well logging with gamma ray,resistivity, sonic, density, and magneticresonance imaging logs provided neces-sary data for the characterization of themethane hydrate reservoir, in particularfor determining the hydrate and water sat-urations in the pores of the subsurfacereservoir sands.
“That allowed us to make a higherquality estimate of what conditions wouldexist during the test,” Schoderbek said.“So we were able to narrow down whatthe basis of the (test) design needed tobe.”
This winter, having completed the testdesign, the team rebuilt the ice pad; re-entered and perforated the well; andinstalled a downhole screen to preventsand from clogging the well bore. Theteam then injected a mixture of nitrogenand carbon dioxide into the methanehydrate reservoir over a period of 13 days,thus replicating what had been done on asmaller scale in the laboratory.
Gas mixtureFor this phase of the test, the nitrogen
and carbon dioxide were transported inliquid form to a built-for-purpose gasmixing skid at the well site. In the skid theliquids were gasified and pressurized forinjection down the well. The team alsomixed in a couple of other gases to act asmarkers, used later to determine howmuch of the injected gas returned to thesurface during the production phase of thetest.
After injecting the gases into the sub-surface rock formation, the team spent acouple of days converting the well forproduction by, among other things, re-directing the gas injection equipment andinstalling a downhole pump in the well —the pump, powered by produced waterfrom the I nik Sikumi wellbore, wouldbe necessary to cause fluid to flow to thesurface from the producing formation.
In the production test the downholepump drove a mixture of methane, carbondioxide, nitrogen and tracer gases to thesurface, where the production of the vari-ous gas types was measured.
No delayThe team had determined that there
would be no technical advantage to shut-ting in the well long enough to allow thecomplete replacement of methane in thehydrate by carbon dioxide as had beendone in the laboratory test, Schoderbekexplained. By the time that the gas injec-tion process had been completed, thereservoir close to the well bore — the sec-tion of the reservoir that would likely pro-duce first — would have already beenpermeated with carbon dioxide, he said.The measurement of what came out of thewell in comparison with what waspumped in would enable the effectivenessof the carbon dioxide replacement to bedetermined.
With the pressure in the reservoirdrawn down by the downhole pump, theprocedure transitioned from a test involv-ing carbon dioxide replacement ofmethane to a multi-day test of methaneproduction through depressurization.
Data analysisChemical engineers, reservoir engi-
neers and reservoir modelers are now ana-lyzing the huge volumes of data obtainedfrom the test to determine the extent towhich methane production resulted fromcarbon dioxide exchange rather thandepressurization, Schoderbek said.
Until this data analysis has been com-pleted and the results of the test assessedit will not be possible to say what mightbe an appropriate next step, or for thatmatter what the research timeframe mightbe, he said. And, with many uncertaintiesremaining regarding the practicalities oflarge-scale methane hydrate development,the possibility of commercial gas produc-tion from the resource is still many yearsaway.
“The hydrate resource, globally, couldbe larger than all conventional hydrocar-bons, but turning it into a reserve is farinto the future,” Schoderbek said. �
14 PETROLEUM NEWS • WEEK OF MAY 20, 2012
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continued from page 11
TEST WELL
Contact Alan Bailey at [email protected]
� G O V E R N M E N T
Groups appeal Kulluk air quality permitBy DAN JOLINGAssociated Press
Environmental and Alaska Native groups on May 16appealed an air permit granted by the
Environmental Protection Agency to a Shell Oil drillingship that could be used this summer in the Arctic Oceanoff Alaska’s northern shore.
The groups claim the Kulluk and support vessels willput harmful pollutants into the skies, adding problems toa region already beset by climate warming, and that theEPA granted the permit without consideration of allnational environmental laws and regulations.
“EPA did not analyze whether the Kulluk will complywith all standards, and they relied on modeling tricks toreduce the measured impact,” Earthjustice attorneyColin O’Brien said.
The eight groups asked the 9th Circuit Court ofAppeals to intervene and send the permit back to theEPA for reconsideration.
The appeal was expected. A similar appeal was filedfor an air permit granted to a second Shell drilling ship,the Noble Discoverer.
The EPA Appeals Board in April rejected review peti-tions for the Kulluk and earlier had done the same for theNoble Discoverer. Shell Alaska spokesman Curtis Smithrepeated that the company expects the permits to standup to court review.
“The EPA finding of no significant impact to theArctic air shed and the subsequent validation of that per-mit by the EAB gives us a great deal of confidence thatthe permit, like the others we have achieved, will beupheld by the court,” Smith said.
Kulluk to be used in BeaufortShell plans to use the Noble Discoverer to drill three
exploratory wells in the Chukchi Sea off Alaska’s north-west coast. The company hopes to use the Kulluk to drilla pair of exploratory wells in the Beaufort Sea offAlaska’s north coast.
The presence of two drill ships, according to the com-pany, means that if there’s a blowout, a backup vesselwould be on hand to drill a relief well.
Drilling in Arctic waters is bitterly opposed by envi-ronmental groups and some Alaska Native groups, whocontend oil skimmers and other mechanical cleanupdevices will not work in waters that contain ice, fromslush to icebergs.
They also fault the government for allowing drilling
see KULLUK PERMIT page 15
Price volatility“We don’t know where all of this is
actually leading,” Chow said. “The mostobvious indicator of that (rapid change) isprice volatility in the oil and gas market.”
Things that used to take decades towork through now seem to happen in daysor even hours, he said. The price of oilmore than doubled between the summerof 2007 and the summer of 2008, hitting apeak of $147 before crashing back to $32and then climbing back up again.
“Last year, 2011, was the highest aver-age price in the history of the petroleumindustry,” Chow said.
Chow said that there is probably now a$20 risk premium factored into the oilprice, reflecting oil traders’ concerns overpossible supply disruption because ofissues such as the Libya uprising last yearand the Iranian situation this year.
And at the moment market psychologyhas taken over from supply and demandfundamentals in oil futures trading, Chowsaid.
“People are speculating on sentiment,as opposed to speculating on supply anddemand. It’s no longer strictly a hedgingphenomenon,” he said.
At the same time, oil demand is slug-gish to respond to price changes — peo-ple do not immediately change their carswhen prices go up. And it takes the oilindustry a long time to respond to highprices because of the lead time involvedin bringing new oilfield projects tofruition.
Debunking peak oilHowever, the high oil prices have
brought to light the weakness of a theorythat the world is about to pass an unsus-tainable peak in oil supplies. New oil andgas resources have magically appeared inimprobable locations such as Uganda,offshore Mozambique and the eastern
Mediterranean, Chow said.“The other thing that we’ve learned in
the last few years … is the peak oil theo-ry is bunk,” he said.
It turns out that the availability of oiland gas supplies is determined by peo-ple’s imagination, their ability to harnessinnovative technology and by the amountof investment that people are willing torisk, and not so much by geology, he said.
Shale gasNothing perhaps illustrates this phe-
nomenon better than the spectacularresurgence of North American natural gasproduction as a consequence of new tech-nologies for shale gas development.
“If you had told me five or seven yearsago that the United States would be pro-ducing more gas than Russia I would havethought you were crazy,” Chow said.
High gas prices at around $13 per mil-lion British thermal units originally drovethe shale gas revolution, but as NorthAmerican gas prices have dropped, nowto around $2, the shale gas technologieshave improved and become cheaper.
There are large disparities in the priceof natural gas and liquefied natural gas, orLNG, around the world. Gas is currentlyworth $16 to $18 per million British ther-
mal unit in Japan and $8 to $10 in Europe,Chow said. But with the United Statesmoving into a position where it can exportLNG and with regional gas marketsbecoming increasingly linked by the glob-al LNG trade, in the next 10 to 15 yearsthe international gas market will probablyconverge, becoming more like the global-ly connected oil market, rather than bedominated by gas supply contractsindexed to the price of oil, Chow said.
Asian opportunityMeantime there is such a price premi-
um in the northeast Asian gas market thatsomeone is going to capture that marketbefore the window of opportunity in thatmarket closes.
“There is a window of opportunity forAlaska gas, perhaps in Asia, but it is notan infinitely wide window of opportuni-ty,” Chow said. “You need to move quick-ly in order to seize that opportunity.”
In a few years Australia will be export-ing more LNG than Qatar, world-classdiscoveries in Africa will go into the LNGmarket and China is talking about pro-ducing more gas, including shale gas. Ifthe shale gas revolution can be replicatedinternationally, then the Chinese will doit, Chow said.
But Chow cautioned against the statetaking on the business risk involved in aproject such as bringing Alaska gas tomarket. In a free market investors need totake the risks, with government providingthe appropriate conditions to encourageinvestment, Chow said.
Oil vulnerabilityDespite the renaissance in the U.S. oil
and gas industry, Chow said that the con-tinuing high level of U.S. dependence onoil makes him less optimistic about thesituation than some observers. The 4.9million barrels of oil spilled into the Gulfof Mexico from BP’s Macondo well isequivalent to six hours of U.S. oil con-sumption every day, Chow said.
“We have 4 percent of the world’s pop-ulation and we consume more than 20percent of the world’s oil,” he said.
And, although the U.S. has plenty ofdomestic coal, hydropower, nuclear ener-gy and natural gas, the country has toimport substantial volumes of oil. Theworld as a whole consumes 8 million to 9million barrels of oil per day, Chow com-mented while also questioning the sus-tainability of the continuing rise of this
Lynden Family of Companies McKinnon & Associates, LLCNANA Development CorporationNorthern Economics, Inc.Oasis Environmental, Inc. Pacific Star Energy Shell Exploration & Production CompanyStaser Consulting Group, LLC Stoel Rives, LLP Trident Seafoods CorporationUdelhoven Oilfield System Services, Inc. XTO Energy, Inc.
Lead Corporate Partners ($25,000 & above)Alaska Airlines & Horizon Air. . Alaska Journal of CommerceBP . ConocoPhillips Alaska, Inc. . Petroleum News
Join UsCorporate PartnersABR, Inc.Accent Alaska.com-Ken Graham AgencyAlaska Business Monthly Alaska Rubber & Supply, Inc.Alaska Steel CompanyAlaska Wildland Adventures Alyeska Pipeline Service Company American Marine Corporation Arctic Slope Regional CorporationArctic Wire Rope & SupplyBristol Bay Native Corporation Calista Corporation
Carlile Transportation Systems, Inc. Chevron CIRI Clark James Mishler Photography CONAM Construction Company Denali National Park Wilderness Centers, Ltd. Fairweather, LLCFlint Hills Resources Holland America Lines Westours, Inc. Kim Heacox PhotographyKoniag, Inc.LGL Alaska Research Associates, Inc.
Thank You
The Nature Conservancy715 L Street . Suite 100 . Anchorage, AK 99501 . [email protected] . 907-276-3133 . nature.org/alaska
Corporate Council on the Environment
Fish printing workshop at Salmon Camp, a conservation program of the Bristol Bay Economic Development Corp. with support from The Nature Conservancy
© O
SC
AR
AV
ELL
AN
ED
A
PETROLEUM NEWS • WEEK OF MAY 20, 2012 15
in a region with some of the harshestweather in the country and withoutbasic infrastructure. Alaska’s north-ern coastlines lack deepwater ports.The nearest permanent Coast Guardfacility is in Kodiak, more than1,000 miles away.
Shell in 2008 spent $2.1 billionon Chukchi leases in a sale that envi-ronmental groups contend was ille-gal because the federal governmenthad not performed required environ-mental studies.
The May 16 appeal was filed byEarthjustice on behalf of AlaskaWilderness League, Center forBiological Diversity, NaturalResources Defense Council,Northern Alaska EnvironmentalCenter, Pacific Environment,Resisting EnvironmentalDestruction on Indigenous Lands,Sierra Club and The WildernessSociety.
The groups say the Kulluk andsupport vessels will spew carbonmonoxide, nitrous oxide and blackcarbon that will accelerate the lossof snow and sea ice., hurting both afragile Arctic ecosystem that’s hometo endangered or threatened whales,polar bears and seals, and AlaskaNative coastal communities that relyon the ocean for subsistence life. �
continued from page 14
KULLUK PERMIT
continued from page 1
ENERGY INVESTMENT
see ENERGY INVESTMENT page 17
16 PETROLEUM NEWS • WEEK OF MAY 20, 2012
ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS
Companies involved in Alaska and northern Canada’s oil and gas industry
Oil Patch Bits
All of the companies listed above advertise on a regular basis with Petroleum News
AAcuren USAAECOM EnvironmentAir LiquideAIRVAC Environmental GroupAlaska Air CargoAlaska Analytical LaboratoryAlaska DreamsAlaska Frontier ConstructorsAlaska Interstate Construction (AIC)Alaska Marine LinesAlaska Railroad Corp.Alaska Rubber Alaska Steel Co.Alaska West ExpressAlaskan Energy Resources Inc.Alpha Seismic CompressorsAlutiiq Oilfield SolutionsAmerican Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Arctic ControlsArctic FoundationsArctic Fox EnvironmentalArctic Slope Telephone Assoc. Co-op.Arctic Wire Rope & SupplyARCTOSArmstrongAspen Hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6ASRC Energy ServicesAT&TAvalon Development
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G-MGBR Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13GCI Industrial TelecomGeokinetics, formerly PGS OnshoreGlobal Diving & SalvageGMW Fire ProtectionGolder AssociatesGreer Tank & WeldingGuess & Rudd, PCHawk Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Hoover Materials Handling GroupInspirationsIntertek MoodyJackovich Industrial & Construction SupplyJudy Patrick PhotographyKenworth AlaskaKiska MetalsKuukpik Arctic ServicesLast Frontier Air VenturesLinc EnergyLister IndustriesLounsbury & Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Lynden Air CargoLynden Air FreightLynden Inc.Lynden InternationalLynden LogisticsLynden TransportMapmakers of AlaskaMAPPA TestlabMaritime HelicoptersM-I SwacoMRO SalesM.T. Housing
N-PNabors Alaska Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10NalcoNANA Regional Corp.NANA WorleyParsons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20NASCO Industries Inc.Nature Conservancy, The . . . . . . . . . . . . . . . . . . . . . . . . . . .15NEI Fluid TechnologyNordic CalistaNorth Slope TelecomNorthern Air CargoNorthwest Technical ServicesOil & Gas SupplyOpti Staffing GroupPacWest Drilling SupplyPENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Pebble PartnershipPetroleum Equipment & ServicesPND Engineers Inc.Polyguard Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2PRA (Petrotechnical Resources of Alaska)Price Gregory International
Q-ZSAExplorationSalt + Light CreativeSeekins FordShell Exploration & ProductionSourdough Express Inc.STEELFABStoel RivesTaiga VenturesTanks-A-Lot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14TEAM Industrial ServicesThe Local PagesTire Distribution Systems (TDS)Total Safety U.S. Inc.TOTE-Totem Ocean Trailer ExpressTotem Equipment & SupplyTranscube USATTT EnvironmentalUdelhoven Oilfield Systems ServicesUMIAQUnique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Univar USA URS AlaskaUsibelliWeston SolutionsXTO Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
CH2M HILL welcomes Lasswell as president and GMCH2M HILL said May 14 that Mark Lasswell was previously named
president and general manager of its Alaska office, transferring toAnchorage from Denver, Colo., in January 2011.
Lasswell joined CH2M HILL in 1989 and holds a Bachelor of Sciencedegree and Masters of Science degree in Engineering from Oregon StateUniversity.
With his 20 plus years experience, he brings with him the insight ofwhat the company has to offer, including expertise that in many cases isnot currently present in Alaska, including CH2M HILL’s current participa-tion in the Port of Anchorage project with the Army Corps of Engineers,where it was able to bring in experts from around the world.
CH2M HILL has been in Alaska since the 1960s. It is the sixth largestprivate employer in the state and second largest employer in the oil and gas industry; with over70 percent of its Alaska hires residing in the state; additionally it runs a bi-annual training pro-gram for 20 individuals in maintenance and operation, historically hiring all of them.
CH2M HILL holds the safety of its employees as part of a critical mission “Target Zero”, zeroincidents, zero accidents, has reduced on the job accidents by 80 percent.
For more information visit www.ch2m.com.
Daily new operations manager for Global Diving & SalvageGlobal Diving & Salvage Inc. said May11 that it is pleased to
announce the promotion of Ben Daily to Dive Operations Manager-Alaska Region. Daily, with over 10 years in the commercial divingindustry, has been with Global since 2004. During his tenure, he hasbeen involved in all facets of the commercial diving industry inAlaska, spending the majority of his time working in the Cook Inletas well as throughout the state.
Daily’s emphasis over the past few years has increasingly been inproject management and supervision. In this new role, he will betasked with responsibilities including the scheduling of all day today diving projects, working with customers to identify their needsand ensure their expectations are being met and exceeded, workingwith the divers and dive supervisors to assist and enhance training, assisting managementwith proposals and estimating and with research and develop of new technology as appro-priate.
“Ben takes ownership of all projects he is involved with, his passion for the diving
MARK LASSWELL BEN DAILY
see OIL PATCH BITS page 17
PETROLEUM NEWS • WEEK OF MAY 20, 2012 17
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industry is seen directly in the quality of his work. We look forward to watching Ben’scareer at Global grow,” said Alaska Regional Manager Deirdre Daily.
Jet A1 dash completes first flight across AustraliaLinc Energy Ltd. announced May 14 the successful completion of the Jet A1 Dash, a
world-first flight using synthetic jet fuel created by using the company’s world-leadingcombination of Underground Coal Gasification and Gas to Liquids technology at itsChinchilla Demonstration Facility in Queensland, Australia.
The Jet A1 Dash began on May 7 when the CJ2 Citation jet took off from Perth withLinc Chief Executive Officer Peter Bond, media representatives, and other guests onboard. The three-day journey included stops in Adelaide, Melbourne, Canberra, Sydneyand finally Chinchilla on May 10. In total, the jet flew 2,654 miles. The Jet A1 Dash fol-lows last year’s successful Diesel Dash, when Bond drove a Volkswagen diesel Polo motorvehicle powered by the company’s diesel fuel, 3,700 miles across Australia from east towest.
“This is a proud moment for the Linc Energy team,” said Bond. “The Jet A1 Dashdemonstrates that jet fuel can be made from coal resources using processes such as LincEnergy’s UCG to GTL technology.”
Linc Energy’s synthetic fuel has the potential to be a part of the solution to theworld’s energy security challenges. It has the additional benefit of being produced frombillions of tons of stranded coal resources all over the world, creating the opportunity forbillions of barrels of clean synthetic diesel and jet fuel that can feed the energy economyfor generations. For more information visit www.lincenergy.com.
Editor’s note: All of these news items — some in expanded form — will appear inthe next Arctic Oil & Gas Directory, a full color magazine that serves as a marketingtool for Petroleum News’ contracted advertisers. The next edition will be released inSeptember.
continued from page 16
OIL PATCH BITS
to it overheating. It soon lost power to itsport engine as well, and the tug began todrift with the current.
This put a “shock load” on the tug’sassist line, which was attached up towardthe tanker’s bow. The force damaged some40 feet of the tanker’s railing, and ripped afitting known as a chock from the deck.
No injuriesNo one was hurt, the Tesoro report said,
and the tug’s ship assist line stayedattached to the tanker.
The tanker captain sounded the generalalarm and called for all hands on deck.
By 6:45 a.m. the tug was able to regainpower partial engine power, and later wasable to help the tanker get away from thedock and travel to a safe anchorage inKachemak Bay.
Crowley determined that ice hadblocked the Vigilant’s cooling waterintakes.
The incident builds on Cook Inlet’sdangerous reputation for shippers.
In February 2006, at the same dock, thetanker Seabulk Pride broke away from itsmooring amid surging ice floes andwound up beached about a half-milenorth.
Responders feared the ship might
break apart on the beach, but with the helpof rescue tugs the Seabulk Pride wasrefloated the next day with its cargo tanksintact.
Notice of violationIn response to the Overseas Martinez
incident, the Alaska Department ofEnvironmental Conservation hit Tesorowith a notice of violation dated Jan. 27.
The agency alleged Tesoro had violatedits oil discharge prevention and contin-gency plan by continuing to transfer oilproducts during the hazardous current andice conditions seen on the date of the inci-dent.
“Failure to cease loading operationscontributed to a near miss incident involv-ing the Tesoro-chartered tank vesselOverseas Martinez,” the notice said.
DEC ordered Tesoro to perform a“thorough investigation of the events,”and submit a “corrective action plan.”
The notice discussed potential civil andcriminal penalties, but DEC didn’t imposeany.
In a Feb. 27 letter to Tesoro, DECmarine vessels section manager JohnKotula said the information the companypresented “adequately addressed” thenotice of violation.
—WESLEY LOY
consumption rate.“It’s oil where the vulnerability is,”
Chow said.
Transformation neededThe preponderance of oil consumed
in the U.S. goes as liquid fuels into thetanks of private vehicles — there are240 million passenger vehicles regis-tered in the country, Chow said. TheU.S. needs to transform its energyusage, with a different transportationsystem and a rethink on issues suchcountry living and the need to commuteto work. But such a transformationwould take decades to bring about.
“In order to do this we need a nation-al dialogue about the challenges that areinvolved, an honest dialogue, not onethat is marked only by slogans,” Chowsaid.
That will take brave politicians whoare willing to talk about these issues ina serious way, he said.
Gasoline taxChow said that he personally favors
a major hike in the federal gasoline tax
— by at least 50 cents or perhaps by adollar or more — as a means of damp-ening oil demand. A price signal suchas this is a better means of guiding con-sumer and producer behavior than gov-ernment mandates or regulations, hesaid. And the regressive aspects of agasoline tax — the way in which itwould hit the poorer members of socie-ty harder than those better off — couldbe offset by tax rebates, say on thesocial security tax, for the workingpoor.
Right now high oil prices are pro-ducing a surplus economic rent that isgoing to oil producers such as Russiaand Venezuela, rather than to the UnitedStates. Directing that economic rentinto the U.S. through the gasoline taxcould help reduce the federal deficit
and reduce concerns about the viabilityof programs such as social security,while at the same time achieving a pub-lic policy objective, Chow said.
However, no one who favors highergasoline taxes will be elected intooffice, he admitted.
But, Chow said, it is a role of thinktanks such as his to ask the sometimesuncomfortable questions that peopleneed to address, even if that means say-ing unpopular things.
“If we are going to wander foolishlyinto an unsustainable path, at leastsome of us are raising the alarm bell,”he said.
—ALAN BAILEY
continued from page 15
ENERGY INVESTMENT
continued from page 1
NEAR MISS
“The other thing that we’velearned in the last few years …is the peak oil theory is bunk.” —Edward Chow, senior fellow, Center for
Strategic and International Studies
Contact Alan Bailey at [email protected]
Contact Wesley Loy at [email protected]
Expro’s business is well fl ow management, providing the products and service you need to measure, improve, control and process fl ow from high-value oil and gas wells. We provide tailor-made solutions across the lifecycle of a well, from exploration and appraisal to abandonment.
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Expro Delivers well fl ow management
18 PETROLEUM NEWS • WEEK OF MAY 20, 2012
the highest bid per acre $82.50 by CookInlet Energy on tract 374 (on the west sideof Cook Inlet astride CIGGS, the CookInlet Gas Gathering System).
The three major bidders are all large cur-rent Cook Inlet leaseholders, two of themproducers, and much of the biddingappeared to be filling in around existingleasehold positions.
Hilcorp Alaska purchased Chevron’sCook Inlet assets last year and is in theprocess of acquiring Marathon’s Cook Inletassets.
Cook Inlet Energy bought assets of abankrupt Pacific Energy Resources in 2009and has been bringing production backonline since early 2010.
The tractsApache was apparent high bidder on
seven of 14 tracts, picking up an offshoretract which filled in a large block the com-pany acquired last year stretching fromAnchor Point north almost to Kenai off-shore the Kenai Peninsula, and a block ofsix tracts northeast of Nikiski, which lookto fill in acreage the company already hasin that area.
Lisa Parker, Apache Alaska’s govern-ment relations manager, said after the salethat the company was filling in on acreageit already has. Apache is doing 3-D seismicover its Cook Inlet acreage, and is in thefirst year of a three-year shoot.
David Hall, chief executive officer forCook Inlet Energy, said after the sale thatthe company “got everything we went after,so we’re very happy there.” Already a pro-ducer, Cook Inlet Energy is in the processof getting rig 35 assembled on the Ospreyplatform and has rig 34 mobilized to anexploration well behind the Beluga gasfield, Hall said.
continued from page 1
LEASE SALE
see LEASE SALE page 19
quick to respond,” he said.“These countries are already well on
track to developing the necessary infrastruc-ture to fulfill the needs of this expandingmarket — leaving little room for Canada.”
Mortlock also noted that seven U.S.LNG terminals have also been filed for reg-ulatory approval and, if they proceed, couldput them ahead of Qatar in export capacity,changing the regional dynamics in Asia sig-nificantly.
Canada lacks marketWhile Canada has immense domestic
gas reserves, it lacks the population to con-sume supply, the report said.
Add to that the steadily shrinking shareof the U.S. market for Canadian gas, alongwith sustained low gas prices for the indef-inite future, Canada is suddenly facing lim-ited opportunities for LNG development,Mortlock wrote.
“To avoid losing out on opportunities inemerging demand markets, Canada mustaccelerate infrastructure development, seeknew capital sources and tie down long-termcustomers,” he said.
Ernst & Young estimated that $50 billionin industry investment will be needed overthe next five to 10 years if WesternCanadian producers are to take full advan-tage of the prospects in Asia.
But, because of their size, LNG projectsare often too risky for companies to tackleon their own, putting pressure on Canadiancompanies to pursue joint ventures andpartnerships — although those options alsocome with many complexities.
Companies must consider the variousaspects of their business operating model,including strategy, business processes,information systems, structure and gover-nance, leadership people management andcorporate culture — all of them critical forsuccess, Ernst & Young cautioned.
Possibility of 12 million tonsThe report predicted Canada could have
12 million metric tons per annum of LNGexport capacity in place by 2015, butMortlock said that figure depends onwhether U.S. Gulf Coast LNG proponents
and other competitors worldwide move in.The firm’s capacity outlook for Canada
is more than double the initial size of themost advanced British Columbia proposal— the Apache-operated Kitimat LNG ven-ture.
Qatar, the most ambitious LNG player,has more than six times Canada’s capacityplanned by 2015.
Ernst & Young said Canada is faced withlaying hundreds of miles of pipelines toconnect the gas fields to liquefaction termi-nals on the British Columbia coast, whileconstruction has yet to start on the exportterminals.
“Those pipelines need to go across pret-ty sensitive environmental lands, so over-coming those challenges from an environ-mental perspective and First Nations per-spective will be very important,” Mortlocksaid.
Oliver said the slow pace of progresscould see Canada miss out on the globalLNG boom.
“I am concerned about that,” he said.
“Japan has a very strong interest in our gas,as does China and other countries, but theAustralians have been moving very rapidlyto secure long-term LNG contracts.
“And that’s where Canada could lose out,because, while the Asian countries want toexpand their sources of supply, they are notgoing to wait. It’s in their strategic interest totie-up as much of the resources in long-termcontracts as they can, so timing is crucial,”Oliver said.
BC LNG Export Cooperative, whichplans to liquefy only 125 million cubic feetper day, is targeting initial shipment in 2014,but the Kitimat project is targeting late 2015at the earliest.
Over that wait time the economics ofLNG should shift dramatically, said ratingsagency Moody’s Investors Services.
“Proposals for new LNG terminals inAustralia and other countries could lead to acapacity glut for LNG, which could causeglobal LNG prices to drop,” said analystTerry Marshal in a note to clients.
“So North American producers could
face some risk from poor future economics,although no project will be built withoutlong-term contracts ensuring each specificproject’s economic returns,” he said.
In another twist, the United ArabEmirates Abu Dhabi National Energy Co.,better known as TAQA, is weighing the pos-sible export of Canadian LNG to morelucrative markets outside North Americabecause of the low commodity prices inCanada.
TAQA, which has interests in Canadiangas properties, views the option of export-ing LNG as “something we should look intobecause of the great dislocation in the priceof gas,” said Carl Sheldon, the head ofTAQA, which is 75 percent owned by theAbu Dhabi government.
“Clearly the disequilibrium (in gasprices) will have to be addressed, althoughwe have no specific plans in that regard,” hesaid. �
The company outbid Apache on a four-tract block north of Clam Gulch on theKenai Peninsula and also acquired a tractoffshore Nikiski and another farther west,adjacent to the company’s Redoubt unit,along with two tracts on the northern shore-line of the peninsula south of PointPossession. On the west side Cook InletEnergy acquired five tracts north of its WestMcArthur River unit and outbid Apache forthree tracts adjacent to both Cook InletEnergy and Apache acreage northwest ofthe Trading Bay unit. These three tracts,373, 374 and 377, had the highest per-acrebids in the sale: $77.50, $82.50 and $77.50,respectively.
Hilcorp took a number of tracts whichadded to existing acreage: a tract east ofKenai on the peninsula and four tracts inCook Inlet north and northwest of theHilcorp-operated Trading Bay unit. On thesouthern Kenai Peninsula Hilcorp took atract north of Anchor Point, filling in exist-ing Hilcorp acreage, and another at thesouthern boundary of the sale area betweenArmstrong and Apache acreage southeast ofthe North Fork unit. On the southeasternboundary of the sale area Hilcorp took 10tracts, outbidding Buccaneer on one ofthem.
The block of southern tracts is in anundeveloped area west of the Deep Creekunit, north of a block of leases held byBuccaneer. Hilcorp paid $50 an acre for oneof the tracts and $60 an acre for an adjacenttract; overall Hilcorp bid an average of$37.76 per acre, comparable to the $36.26per acre average bid by Cook Inlet Energy,and above the $25.50 per acre average byApache.
DNR encouragedIn a statement after the sale, Department
of Natural Resources Commissioner DanSullivan called the results encouraging andsaid DNR has worked to get the word out onthe world-class resources in the state. Hesaid the Cook Inlet basin “continues toattract explorers on the basis of its hydro-carbon resources” and generous financialincentives.
“Cook Inlet is an excellent example ofhow a combination of a solid resource baseand an attractive financial environmentencourages exploration and development,”Division of Oil and Gas Director BillBarron said.
There is no tax on oil production in CookInlet, where production has dropped from apeak of more than 227,000 barrels per dayin 1970 to some 10,000 bpd currently. Theproduction tax on Cook Inlet natural gas is18 cents per thousand cubic feet for newproduction and producers pay a 5 percent
royalty on any new Cook Inlet discovery forthe first 10 years of production, in contrastto the usual 12.5 percent royalty.
The state also offers tax credits, and dueto 2010 legislation, a special incentive forthe first three exploration wells drilled froma jack-up rig.
Solidifying holdingsAfter reading bids at the sale, Barron
said major Cook Inlet players — Apache,Cook Inlet Energy and Hilcorp — were pri-marily filling in around existing positions.
He said it was positive, that “... peopleare solidifying land holdings to continue todo their exploration and development activ-ities.”
Crawford was the only bidder in the salewithout a major land or production position.Typically Cook Inlet sales attract bidderswithout production or large land positionslooking to put together prospects.
This year’s Cook Inlet terms were steep-er, with a minimum bid of $25 an acre,compared to a minimum bid of $10 an acrein previous sales, and much steeper rentals,starting at $10 an acre through the seventhyear and jumping to $250 an acre in theeighth through tenth year if the lease is notproducing.
As Barron noted before he read the bids,if production has begun or if the DNR com-missioner determines the lessee has exer-cised reasonable diligence in exploring and
developing the lease, the annual rental canremain at $10 an acre.
These are the type of terms the state usedin last year’s North Slope and Beaufort Sealease sales. DNR has characterized the newterms as designed to motivate more rapidexploration and production on leases.
Previous salesThe state held its first Cook Inlet oil and
gas lease sale in 1959, offering 37 tracts andleasing 31.
Beginning in 1999, sales were held on anareawide basis, with non-leased acreage inthe Cook Inlet basin offered on an annualbasis. The state has leased more than 2 mil-lion acres under its Cook Inlet areawidelease sale program, averaging almost155,000 acres per sale, and bringing in atotal of $32.5 million, an average of $1.8million per sale.
The largest sale was in 2011, when575,202 acres were sold for $11.13 million.
Apache Alaska Corp. was the largestbidder in that sale, bidding on 94 tracts andwinning 92, with a total of almost $9 mil-lion in high bids. �
A copyrighted oil and gas lease mapfrom Mapmakers Alaska was a researchtool used in preparing this story.
PETROLEUM NEWS • WEEK OF MAY 20, 2012 19
continued from page 18
LEASE SALE
continued from page 1
LNG HEAT
Contact Kristen Nelson at [email protected]
Contact Gary Park through [email protected]
service.
Workshop plannedThe Drift River terminal is where
tankers load west Cook Inlet crude fordelivery to refineries, chiefly Tesoro’srefinery on the opposite side of the inlet.
The Redoubt eruption sent mud flowsknown as lahars down the Drift River.Berms built around the tank farm saved itfrom a potentially disastrous inundation.
Hilcorp took over the terminal Jan. 1as part of its purchase of Chevron’s CookInlet properties. A Hilcorp subsidiary,Cook Inlet Pipe Line Co. or CIPL, oper-ates the terminal.
Hilcorp has applied to the state forrenewal of the oil spill prevention andresponse plan for the terminal and the 42-mile pipeline that feeds into it from fieldsto the north. The company proposesusing two of the terminal’s seven storagetanks as a way to improve handling ofwest inlet oil production.
Each tank can hold 270,000 barrels.Hilcorp is planning a “public work-
shop” on the Drift River terminal reopen-ing on May 23 at the Soldotna SportsCenter. Hilcorp hopes to have a range ofpeople on hand to answer questions,including representatives from the U.S.Coast Guard, the Cook Inlet RegionalCitizens Advisory Council, the AlaskaDepartment of EnvironmentalConservation and the Alaska VolcanoObservatory. Also expected at the work-shop is Jim Aldrich of Fairbanks, whohelped design the flood control systemafter Redoubt’s 1989-90 eruption pro-duced a lahar that partially flooded theDrift River terminal.
Redoubt is located 106 miles south-west of Anchorage. It rises to 10,198 feetabove sea level. The Drift River terminalis about 22 miles northeast of the vol-cano.
The Drift River is on one side of thetank farm, with an offshoot called RustSlough running along the other side. Theriver currently is sediment-filled and dry,said DEC environmental program spe-cialist Shannon DeWandel.
Summer constructionHilcorp spokeswoman Lori Nelson, in
a May 15 interview, said Hilcorp is plan-ning summer construction to improve thefortifications around the tank farm.
But it’s unclear exactly what that workwill entail. The company is still awaitinga final engineering report from Aldrich,Nelson said.
The 2009 lahars deposited a lot ofmaterial up against the tank farm berms,reducing their “freeboard,” so the barrierswill have to be raised a few feet. This willinvolve building up the earthen berms, orinstalling sheet piling.
“We’ve already ordered the sheetpipe,” Nelson said.
The engineering report, she said, willhelp determine the height needed andwhat forces the barriers will need towithstand.
“We’re hoping to have the projectcompleted by early fall. Oct. 1 is thedeadline we’re shooting for,” Nelsonsaid.
Brice Construction, which helpedinstall the original tank farm protectionsafter the 1989-90 volcanic event, will beinvolved in making the improvements,she said.
The original fortifications workedwell to protect the tank farm in 2009,Nelson said.
“It was a nonincident. There was not asingle drop of oil spilled,” she said, andno one was hurt.
One tank cleared for useDEC on April 27 approved CIPL’s
request to use Drift River Tank 3 for oilstorage. The approval is good until Sept.30.
The company cited a number of cir-cumstances as the basis for its April 24request, including a disruption in tankerarrivals at the terminal.
Since the tank farm shutdown, opera-tors have used a “tight line” technique topipe crude from upstream producersdirectly onto tankers.
But due to unscheduled maintenanceon one of the ships hauling for Tesoro —the tanker Overseas Boston — west CookInlet oil producers were facing shut-insfor lack of storage and tankers callingoften enough at Drift River.
Not only was Hilcorp production sub-ject to shut-in, but also that of Cook InletEnergy and ExxonMobil, CIPL said.
The company also noted it had lost40,000 barrels of storage capacity due totank maintenance at the Trading Bay pro-duction facility.
Finally, CIPL said having Drift Riverstorage available would alleviate prob-lems in trying to pig its pipeline duringtight line operations. A pig is a devicethat slides through a pipeline to test foranomalies such as corrosion. CIPL said ithas a regulatory obligation to conduct apig run by August.
In granting approval to use Tank 3,DEC is requiring CIPL to schedule atanker to respond right away to drain thetank should the volcano observatory raisethe Redoubt alert level. And the tank maybe used “only as needed to avoid shuttingin the producing wells.”
‘Stupid’ locationResuming regular storage operations
at the Drift River terminal would havesignificant benefits.
Tight lining requires tankers to call atDrift River more often. Arrivals nowaverage one vessel every two weeks.Storage availability would reduce tankervisits.
Further, ships can load faster by with-drawing oil from Drift River storagerather than tight lining. This has the ben-efit of shortening tanker berthing times atthe Christy Lee offshore loading plat-form, which currently is somewhat hob-bled as it awaits replacement of a “fend-er” damaged by Cook Inlet ice,DeWandel said.
The Drift River terminal was con-structed in 1966, and sits in a flood plain.
Bob Shavelson, with the Homer-basednonprofit Cook Inletkeeper, said hebelieves it’s a poor idea to revive the tankfarm, given what he considers the facili-ty’s unwise siting.
It’s good to reduce the number oftankers calling at Drift River, he said, but“the fact remains that putting an oil stor-age facility at the base of a volcano is oneof the stupidest things you could ever do.”
Shavelson believes the real solution islaying a subsea pipeline to carry westCook Inlet oil to the refinery.
John Barnes, Hilcorp’s senior vicepresident for Alaska, addressed thepipeline idea in a May 10 talk to theAlaska Support Industry Alliance.
With Hilcorp just now embarking onefforts to increase inlet oil production, hesaid, it’s not yet clear how to size apipeline that obviously would be quite acost commitment. �
20 PETROLEUM NEWS • WEEK OF MAY 20, 2012
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DRIFT RIVER
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