l GOVERNMENT is week’s ining News …

l G O V E R N M E N T

l F I N A N C E & E C O N O M Y

l L A N D & L E A S I N G

page5

Johnson says ANWR action showsAlaska pawn in bigger game

Vol. 20, No. 5 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of February 1, 2015 • $2.50

page12

Hecla CEO Baker praises GreensCreek 2014 performance

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of February 1, 2015

NEWS NUGGETSCompiled by Shane Lasley

Bokan drilling cuts deeper REEsUcore Rare Metals Inc. Jan. 28 reported that all five holes

drilled beneath the existing resource at the Bokan-Dotson

Ridge heavy rare earth element project in Southeast Alaska

intercepted mineralization with grade and rare earth content

consistent with what has already been delineated. The exist-

ing Bokan resource currently extends to an average depth of

220 meters and the five deeper holes drilled in 2014 cut the

mineralized zone an average of 100 meters below all previ-

ous drill intersections. This confirmation that the REE min-

eralization continues to depth could result in significant

resource expansion at Bokan. A total of 17 diamond holes

(3,960 meters) were drilled at Bokan in 2014. In addition to

the five deep holes, 12 infill holes were designed to upgrade

the existing Bokan resource.

Palmer expansion slated for 2015Constantine Metal Resources Ltd. Jan. 26 reported final

drill results and summarized key advancements of the 2014

exploration program at its Palmer copper-zinc-gold-silver

project in Southeast Alaska. Two of the newly reported holes,

CMR14-64 and CMR14-65, intersected the massive sulfide

electromagnetic plate target of the South Wall zone. Hole 64

cut 4.1 meters grading 0.55 percent copper, 4.98 percent zinc,

21.1 grams per metric ton silver, 0.16 g/t gold and hole 65

cut 11.3 meters grading 0.30 percent copper, 3.95 percent

zinc, 27.2 g/t silver, 0.23 g/t gold along the western, up-dip

edge of the South Wall expansion area. Constantine says the

wide-spaced drilling completed in 2014 has confirmed the

target is developing into a sizeable new zone with excellent

potential for expansion. The third hole, CMR14-67, cut 3.9

meters grading 0.19 percent copper, 5.11 percent zinc, 92.5

g/t silver, 0.37 g/t gold at the Palmer project’s RW zone, a

flat-lying continuation of the nearly vertical South Wall zone

. The company says hole 67 substantially expands the RW

zone footprint, and extends the total unfolded length of con-

tinuous RW-South Wall mineralization to more than 1,500

meters. The 2014 program at Palmer involved 9,796 meters

of drilling in 16 exploration holes and one geotechnical hole.

Constantine says the results from drilling completed in 2010,

2013 and 2014 will be incorporated in a new resource esti-

mate for Palmer to be initiated in early 2015. Dowa Metals &

Mining Co. Ltd. has the option to earn a 49 percent joint ven-

ture interest in Palmer by investing US$22 million over four

years. Through 2014, the second year of its option agree-

ment, the Tokyo-based smelting and mining company has

spent roughly US$10 million at Palmer. Dowa has notified

Constantine of its intent to continue its participation in their

partnership at Palmer, with this year’s

budget and program

scope to be finalized early in 2015.

Senators seek to limit EPA vetoSens. David Vitter (R-LA) and Joe Manchin (D-WV) Jan.

7 re-introduced legislation aimed at prohibiting the

Environmental Protection Agency from pre-emptively or

retroactively vetoing a permit under Section 404 of the

Clean Water Act. The re-introduced legislation, “Regulatory

Fairness Act of 2015”, has been designated S.54. The EPA

previously used CWA Section 404 authority to revoke per-

mits issued for the Mingo Logan coal mine project in

Manchin’s home state of West Vi

rginia. If passed, the

Regulatory Fairness Act of 2014 would prevent EPA from

pre-emptively vetoing CWA permits needed to develop the

Pebble copper-gold-molybdenum deposit in the Bristol Bay

region of Southwest Alaska.

Bumpy road aheadAlaska mining faces ups, downs from low oil prices, budget-cutting moves

By SHANE LASLEYMining News

Plummeting oil prices have put Alaska resi-

dents and Alaska miners in the same boat.

Suddenly, it’s less expensive to top off the tank of

an SUV or a haul truck, but the state budget, fueled

by oil revenue, is teetering on the edge of an esti-

mated $3.5 billion deficit. That’s $10 million a day

for 2015.

“We know Alaska is experiencing a significant

drop in revenue – the price of oil has dropped more

than 50 percent over the past six months,” Alaska’s

new governor, Bill Walker, said during his inaugu-

ral State of the State Address.

While this oil money shortfall will likely gouge

into state-funded projects across the board, from

fundamental programs such

as schools to the most ambi-

tious like building a 200-mile

road to the Ambler mining

district in Northwest Alaska,

Walker told Alaskans and

their legislators that there is

no reason to panic about the

state of the state.

“Some might call this a

crisis – I call this a challenge

and an opportunity,” Walker

said in his Jan. 21 speech. “We have an opportuni-

ty to make impactful and constructive changes, to

challenge the traditional ways of doing business.”

“Now is not the time to sound the alarm my fel-

low Alaskans. Now is the time to pull together; to

make a plan; to sharpen our focus; and to get to

work,” he rallied.

Natural gas pipelineHigh on the list of Walker’s planned initiatives

is bolstering Alaska’s income and lowering

expenses by reducing the high cost of energy in the

state, an agenda item that appeals to Alaska’s resi-

dents and miners.

“This administration will not rest until Alaska is

squarely on track to become an economic power-

house, thanks to low-cost energy that will bolster

and diversify our economy,” the governor vowed.

He envisions a large portion of this low-cost

energy being delivered to Alaskans and world mar-

kets via a large-diameter pipeline that taps vast

reserves of natural gas on the North Slope.

“Under my administration we will finally begin

building the Alaska gas-line to tidewater,” Walker

said.

Companies developing the next generation of

mega-mines in Alaska, such as the Donlin Gold

and Pebble copper-gold-molybdenum projects in

western and southwestern Alaska, respectively,

have already determined that natural gas is the

most economical and environmentally sound way

to fuel their operations, even if it means importing

the fuel from outside of the state.

Donlin Gold LLC – an operating company

equally owned by subsidiaries of Novagold

Resource Inc. and Barrick Gold Corp. – believes

so much in the natural gas idea that it is willing to

invest $1 billion to build a 14-inch diameter

pipeline spanning the 315 miles between tidewater

in Southcentral Alaska and the 40-million-ounce

gold deposit located in the Yukon-Kuskokwim

region to the northwest.

In April, the company applied for a state right-

of-way lease and a public comment period on the

company’s proposal closed Jan. 28.

Donlin Gold hopes to have authorizations in

hand to begin pipeline construction in 2016 with a

goal of delivering natural gas to the mine site by

mid-2019.

The U.S. Army Corps of Engineers, meanwhile,

continues its preparation of an environmental

impact statement for the proposed Donlin gold

mine. The regulatory agency estimates that a deci-

sion on the final EIS for Donlin will be determined

in 2016.

Though the estimated 2020 startup at Donlin is

likely at least three years prior to the most opti-

mistic timeline for completion of a natural gas

pipeline from the North Slope, the companies

developing the mine are not dismissing the possi-

bility of using an in-state source of natural gas.

“There may be an opportunity in the future to

source natural gas from within Alaska,” Novagold

explains on its website.

If Walker’s

vision is realized, it would reverse

the irony of importing natural gas into a state that

has roughly 37 trillion cubic feet of this clean-

burning fuel in known reserves.

In addition to an in-state supply of gas for

l D E V E L O P M E N T

GOV. BILL WALKER

see BUMPY ROAD page 13

PETR

OLE

UM

NEW

S FI

LE

Gov. Bill Walker vows Alaska will begin to build anatural gas pipeline from the North Slope to tidewa-ter under his watch, a development that would like-ly lower energy costs for many existing and futuremines across the state.

This week’s Mining News

The Alaska mining sector is facing some ups and downs in thewake of sliding oil prices and state budget cuts. See page 11.

It’s off limitsFish & Wildlife ANWR plan bans oil development in coastal plain of refuge

By ALAN BAILEYPetroleum News

The U.S. Fish and Wildlife Service has pub-

lished a final environmental impact statement

for the agency’s conservation plan for the Arctic

National Wildlife Refuge. In that EIS the agency

has selected a plan alternative that recommends

that Congress should designate the entire refuge as

wilderness, (see map page 23) including the coastal

plain area, sometimes known as the 1002 area.

This wilderness designation would place the

entire refuge off limits for oil and gas exploration

and development. Land in the immediate vicinity

of the coastal village of Kaktovik would be exclud-

ed from the wilderness designation but would still

require Congressional approval for oil and gas

exploration.

Highly prospectiveThe coastal plain area, an eastward extension of

Land in the immediate vicinity of thecoastal village of Kaktovik would be

excluded from the wilderness designationbut would still require Congressionalapproval for oil and gas exploration.

see ANWR PLAN page 23

An OCS sales proposalNew lease sale plan includes the Chukchi and Beaufort seas but has exclusions


O n Jan. 27 the Department of the Interior pub-

lished its draft five-year outer continental

shelf oil and gas lease sale plan for 2017-2022. In

what the agency characterized as “a regionally tai-

lored approach” the plan proposes one sale each in

the Chukchi Sea, Beaufort Sea and Cook Inlet areas

of Alaska. Interior said that it is scheduling those

sales late in the five-year program, “to provide addi-

tional opportunity to gather and evaluate information

regarding environmental issues, subsistence use

needs, infrastructure capabilities, and results from

any exploration activity associated with existing

leases from previous sales.” (see map page 22)

Responsible development“The safe and responsible development of our

Canadian ‘price shock’Bank of Canada cuts key interest rate, calls crude prices ‘unambiguously negative’

By GARY PARKFor Petroleum News

Bank of Canada Gov. Stephen Poloz stunned

money markets Jan. 21 when he lowered

Canada’s trend setting interest rate to 0.75 percent

from 1 percent — a move that none of the 22 econ-

omists surveyed by Bloomberg had forecast.

The central bank explained that it had no choice

at a time when the impact of low crude prices was

“unambiguously negative” for the Canadian econ-

omy.

“We have an oil price shock, which will reduce

the income flowing into Canada and lead probably

to some increase in unemployment overall,” Poloz

told a news conference, describing the rate cut as

“insurance” that could be needed for two years.

Prime Minister Stephen Harper was less

inclined to focus on the wider economic role of

energy, arguing the industry “isn’t remotely the

entire Canadian economy.”

He said there are many benefits to other seg-

ments of the economy, notably manufacturing,

from cheaper oil and natural gas costs, although

the oil-producing regions “are going to face some

pretty significant adjustments.”

Just how “significant” was laid out in blunt

In an order coinciding with thepublication of the draft lease sale planPresident Obama announced that he is

withdrawing indefinitely from future leasesales the exclusion areas that are

specified for the Chukchi and Beaufortseas, including the Hanna Shoal.

see OCS SALES page 22

In updating its short-term forecast, CAPPestimated capital spending will total C$46

billion compared with C$69 billion in2014.

see PRICE SHOCK page 19

Shell Chukchi drilling this yearShell remains committed to drill in the Chukchi Sea this

year, provided the company can obtain the necessary permits

and clear some continuing legal challenges, Ben van Beurden,

the company’s CEO, said during the company’s fourth quar-

ter earnings call on Jan. 29.

“We have retained a very significant capability to be ready

this year to go ahead,” van Beurden said. “And we’ve kept all

our capability in place, tuned it, upgraded it just to be ready

Conoco slowing Mooses Tooth paceConocoPhillips Alaska said Jan. 29 that it is slowing the

pace of investment on the Greater Mooses Tooth 1 project in

the National Petroleum Reserve-Alaska.

“We are deferring the final investment decision for

GMT1,” ConocoPhillips Alaska President Trond-Erik

Johansen said in a statement. “The project is challenged by

permitting delays and requirements, as well as the current oil

price development. In 2015, we will continue to shoot seismic

AIDEA buying FNG to move gasAIDEA said Jan. 28 that, in conjunction with Gov. Bill

Walker, it has signed a letter of intent to purchase Pentex

Alaska Natural Gas Co. LLC and its assets, including

Fairbanks Natural Gas.

The Alaska Industrial Development and Export Authority

said it would immediately commence due diligence on the

proposed Pentex purchase at the letter of intent price of $52.5

million. AIDEA said that if its board approves the purchase,

the investment would enable it to “effectively advance the

see CHUKCHI DRILLING page 19

see SLOWING PACE page 24

see AIDEA BUY page 19

http://www.petroleumnews.com

2 PETROLEUM NEWS • WEEK OF FEBRUARY 1, 2015

Petroleum News North America’s source for oil and gas newscontents

ENVIRONMENT & SAFETY7 Climate action clock running

Canadian prime minister’s chances of holding powerin 2015 seen as tied to his willingness to implementa carbon tax; BC levy model

17 On the move in BC Montney

18 Nikaitchuq primed for royalty reduction

18 Oil sector should see job growth in 2015

19 Walker names new AOGCC commissioner

10 Minor lease transactions in December

17 Chugach, AIX sign supply agreement

17 EPA proposes revised spill response regs

18 DOE cites carbon sequestration success

16 Operations, gas line transition focus

Report from governor’s oil and gas team prioritizes fieldoperations, gas, tax policy, government efficiency,offshore development

10 RCA subpoenas former FNG employee

Upcoming deposition will ask Kirby why he emailedRegulatory Commission of Alaska Chairman Pickett

6 Corps favors Nome for deep-draft port

Proposes dredging to 28-foot depth, expandingcauseway and installing new dock in western Alaska harbor; could take supply vessels

FACILITIES

LAND & LEASING

FINANCE & ECONOMY

NATURAL GAS

GOVERNMENT5 Johnson: Alaska is pawn in bigger game

Anchorage Republican says federal government hasbroken statehood agreement, cites ANWR wildernessdesignation; overreach in OCS

8 Obama orders Arctic coordination group

4 British Columbia caught in shaky LNG outlook

EXPLORATION & PRODUCTION4 Repsol gets three exploration permits

It’s off limits

Fish & Wildlife ANWR plan bans oildevelopment in coastal plain of refuge

An OCS sales proposal

New lease sale plan includes the Chukchi and Beaufort seas but has exclusions

Canadian ‘price shock’

Bank of Canada cuts key interest rate, calls crude prices ‘unambiguously negative’

ON THE COVER

Shell Chukchi drilling this year

Conoco slowing Mooses Tooth pace

AIDEA buying FNG to move gas

D I V E R S I F I E D D E V E L O P M E N T A N D S U P P O R T S E R V I C E S I N T H E A R C T I C & B E Y O N D

U I C U M I A Q . C O MUMIAQ Anchorage 6700 Arctic Spur RoadAnchorage, AK 99518 P: (907) 677-8220 F: (907) 677-8286

UMIAQ BarrowP.O. Box 955

Barrow, AK 99723 P: (907) 852-7447F: (907) 852-6488

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PETROLEUM NEWS • WEEK OF FEBRUARY 1, 2015 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 Y-32 BPDreco 1000 UE 16 (SCR/TD) Prudhoe Bay PBU D-24 BPDreco D2000 Uebd 19 (SCR/TD) Nanuq CD3-130 ConocoPhillipsAC Mobile 25 Kuparuk 2L-308 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 2F-22 ConocoPhillips TSM 7000 Arctic Fox #1 Deadhorse, being prepped Nordaq for load out to Smith Bay to drill NordAq Energy's Tulimaniq #1 exploratory well.

Kuukpik 5 Prudhoe Bay Available Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Deadhorse, under contract to Repsol Repsol for winter explorationMid-Continental U36A 3-S Prudhoe Bay AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay AvailableDreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Kuparuk ConocoPhillipsOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location, Brooks Range Petroleum Under contract to Brooks Range PetroleumEmsco Electro-hoist-2 18-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Varco 22-E (SCR/TD) Prudhoe Bay StackedTDS3Emsco Electro-hoist Canrig 27-E (SCR-TD) Deadhorse, under contract 1050E to ExxonMobil for 2015

Emsco Electro-hoist 28-E (SCR) Prudhoe Bay StackedOilwell 2000 33-E Prudhoe Bay Available Academy AC Electric CANRIG 99AC (AC-TD) Deadhorse , under contract to Repsol Repsol for winter explorationOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Deadhorse, under contract to Repsol Repsol for winter explorationAcademy AC electric Heli-Rig 106-E (AC-TD) Deadhorse, under contract to Great Bear Petroleum Great Bear for winter drilling

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site 11-30 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Drill Site 3-31a BPIdeco 900 3 (SCR/TD) Milne Point Drill Site MP-E-19 Hilcorp

Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay DS 18 BPNOV ADS-10SD 273 Prudhoe Bay DSW-59 BP

North Slope - Offshore

BPTop Drive, supersized Liberty rig Inactive BP

Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Spy Island SP31-W7 ENI

Nabors Alaska DrillingOIME 1000 19AC (AC-TD) Oooguruk ODSN-02 Caelus Alaska

Cook Inlet Basin – Onshore

Miller Energy ResourcesMesa 1000 Rig 37 Mobilized to North Fork to begin Miller Energy Resources drilling this winter

All American Oilfield AssociatesIDECO H-37 AAO 111 In All American Oilfield’s yard in Kenai, Alaska Available

Aurora Well ServicesFranks 300 Srs. Explorer III AWS 1 Sterling, Stacked out at D&D yard Available

Nabors Alaska DrillingContinental Emsco E3000 273E Kenai AvailableFranks 26 Kenai StackedIDECO 2100 E 429E (SCR) Kenai Stacked

SaxonTSM-850 147 Ninilchik Unit, Bartolowits pad Hilcorp Alaska drilling Frances #1TSM-850 169 Swanson River Hilcorp Alaska

Cook Inlet Basin – Offshore

XTO EnergyNational 110 C (TD) Idle XTO Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Furie Upper Cook Inlet KLU#1Cook Inlet EnergyNational 1320 35 Osprey Platform RU-1, workover Cook Inlet Energy Hilcorp Alaska LLC (Kuukpik Drilling, management contract) Monopod Platform, Workovers Hilcorp Alaska LLC

Patterson UTI Drilling Co LLC 191 West McArthur River Unit #8 Cook Inlet Energy

Kenai Offshore Ventures LeTourneau Class 116-C, Endeavor Port Graham Buccaneer Energy Ltd. jack-up

Mackenzie Rig Status

Canadian Beaufort Sea

SDC Drilling Inc.SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available

Central Mackenzie Valley

AkitaTSM-7000 37 Racked in Norman Well, NT Available

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of January 29, 2015.

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* Jan. 23 Jan. 16 Year AgoUS 1,633 1, 676 1,777Canada 432 440 590Gulf 53 53 56

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


Kay Cashman PUBLISHER & EXECUTIVE EDITOR

Mary Mack CEO & GENERAL MANAGER

Kristen Nelson EDITOR-IN-CHIEF

Susan Crane ADVERTISING DIRECTOR

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Heather Yates BOOKKEEPER

Shane Lasley NORTH OF 60 MINING PUBLISHER

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

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Alan Bailey SENIOR STAFF WRITER

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Ray Tyson CONTRIBUTING WRITER

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Mapmakers Alaska CARTOGRAPHY

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Ashley Lindly RESEARCH ASSOCIATE

Dee Cashman RESEARCH ASSOCIATE

ADDRESSP.O. Box 231647Anchorage, AK 99523-1647

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OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 20, No. 5 • Week of February 1, 2015

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freelance writers.

l N A T U R A L G A S

British Columbiacaught in shakyLNG outlook


The number-crunching on British

Columbia’s chances of becoming a

global LNG player continues against the

backdrop of spreading unease over the out-

look for commodity prices.

A report by Sanford C. Bernstein & Co.

said the province may have to settle for

only two major projects, down from the

revised target of three set by Premier

Christy Clark, which, in turn, is two short

of the total she had originally targeted by

2020.

Now the Bernstein report projects one

project will be on stream in 2021 and a sec-

ond in 2023, starting with Shell’s C$40 bil-

lion LNG Canada venture, followed by the

Chevron-operated Kitimat LNG which

now has Australia’s Woodside as a 50 per-

cent partner.

“Outside of the United States, we expect

continued expansion in Papua New Guinea

and the emergence of new centers in

Canada and Mozambique over the coming

years, assuming costs can be lowered,” the

investment bank said in a note to clients.

Bernstein makes no reference to Pacific

NorthWest LNG, which was once rated as

the frontrunner until Malaysian state-

owned Petronas started juggling its

timetable because of declining oil prices

(which the firm hopes to use to index its

LNG sales deals) and a grim outlook for

construction costs.

However, Clark’s government and some

industry observers remain hopeful Petronas

will sanction the project during the current

quarter.

The Eurasia Group said in December

that British Columbia’s LNG prospects

were increasingly facing commercial chal-

lenges, including an inability to negotiate

sales contracts and construction cost infla-

tion.

Eurasia said that “monitoring both oil

prices and cost mitigation in coming

months will be crucial to determine

whether Petronas could still take its invest-

ment decision in 2015.”

“If not, it will be unlikely that that

British Columbia would see major LNG

production from a mega project before

2020.”

British Columbia, which has a com-

bined capacity of well over 100 million

metric tons a year of proposed LNG

exports, is also casting a wary eye south of

the border where plans are in the works for

exports of 278 million metric tons a year

from the United States, without even fac-

toring in the chances of an Alaska project

going ahead.

The latest spot Asian LNG prices have

dropped below US$10 per million British

thermal units, down 50 percent from a year

earlier because of the efforts to tie contracts

to oil prices, softening demand and abun-

dant supplies, said Citibank.

Citibank analyst Seth Kleinman said

that if LNG prices slide to US$8-US$10,

unsanctioned projects will “look over-

whelmingly uneconomic, with even U.S.

exported LNG to Asia and Europe uneco-

nomical at current prices.”

Bernstein analyst Neil Beveridge was

more emphatic, declaring that most of the

proposed U.S. projects will “never be built”

because of the slump in crude prices, sug-

gesting buyers’ appetite for U.S. LNG will

diminish “as they reappraise supply options

in a lower oil price environment.” l

Citibank analyst Seth Kleinmansaid that if LNG prices slide to

US$8-US$10, unsanctionedprojects will “look overwhelmingly

uneconomic, with even U.S.exported LNG to Asia and Europeuneconomical at current prices.”

EXPLORATION & PRODUCTIONRepsol gets three exploration permits

With a bundle of recently approved drilling permits, Repsol E&P USA Inc. is

ready to move ahead with a three-well exploration program in the Colville River

Delta this winter.

The Alaska Oil and Gas Conservation Commission recently gave the company

permits to drill the Qugruk No. 301, Qugruk No. 8 and Qugruk No. 9 exploration

wells.

In late 2014, Repsol began permitting five wells for a proposed three-well pro-

gram to continue appraisal of its leasehold between the Kuparuk River and

Colville River units.

Qugruk No. 301 would have a surface location almost identical to the Qugruk

No. 3 well and Qugruk No. 3A sidetrack Repsol drilled in early 2013. Its bottom

hole location would head slightly to the north, following a deviation similar to the

Qugruk No. 3A. Qugruk No. 8 would be a vertical well located less than a mile

to the south of Qugruk No. 301.

Qugruk No. 9 would be a nearly vertical well located about a mile to the north

of Qugruk No. 301. Qugruk No. 9 is nestled among six wells and sidetracks from

previous seasons.

—ERIC LIDJI

—A copyrighted oil and gas lease map from Mapmakers Alaska was a researchtool used in preparing this story.

http://www.northamerica.repsol.com



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By STEVE QUINNFor Petroleum News

Most may see Rep. Craig Johnson as someone

entering his third term as Rules Chairman, a key

leadership post.

But the Anchorage Republican is also entering his

fifth term as a member of the House Resources

Committee. He served as co-chair for the first two

terms, the first with the late Carl Gatto and then with

Rep. Mark Neuman, now the co-chair of the Finance

Committee.

Johnson is back on Resources,

but he’s also a member of the

House Economic Development,

Tourism and Arctic Policy

Committee. The committee has

already had one hearing on House

Bill 1, the state’s Arctic policy bill.

Like most in the Legislature,

Johnson found himself somewhat

blindsided by the Obama adminis-

tration’s decision to withdraw sec-

tions for offshore development and

designate ANWR as a wilderness.

He discussed those concerns with Petroleum News

earlier this week.

Petroleum News: Let’s start with the news from overthe weekend. President Obama announced his decisionto give ANWR a wilderness designation, further remov-ing that area from the prospects of development. Whatwas your initial thought?

Johnson: It’s probably different from most. I’m not

surprised at what this is. This is payday for the extreme

environmentalists that got Obama elected. I think he is

paying them back with this withdrawal. I think that’s

been the target of extreme environmentalists from

inside and outside of Alaska well, since ANWR has

been announced. He is a lame-duck president paying

his debts to those groups. So I’m not surprised at all.

Am I disappointed? Absolutely. Do I think the rule of

law has been honored? No. The contract with Alaska

has not been honored, so once again I’m not surprised

but disappointed it.

Petroleum News: Would you have predicted it?Johnson: You know, I wouldn’t have predicted it. In

light of the battle I think it would cause as a result of

the Senate changing. I thought that might have given us

a stay. Had the Democrats retained control, I think it

would have been predictable. But I didn’t think he

would take it on as an issue with Congress the way it is

now. I don’t know the rules of that body, but to say

there are irritated legislators today would be very much

an understatement.

Look at someone like (House Resources co-chair)

Bennie Nageak is a perfect example of that, and he’s

got the distinction of being the only legislator born in

ANWR.

Petroleum News: Now, he’s one of these people whothe administration believes it’s protecting? Does thatstrike you as odd?

Johnson: That depends on your definition of protec-

tion. If you are protecting people from having a liveli-

hood, from having a job, from being able to educate

their children, from being able to send your kids to col-

lege, then my definition of protection is maybe a little

different from the Obama administration.

I think you give people an opportunity to work, to

utilize the resources. I think that is the greatest protec-

tion, when you don’t need government to do this kind

of stuff. So I think we differ on our definition on pro-

tecting those people

Petroleum News: So if there are not a lot of legaloptions for the Legislature, what do you do?

Johnson: Well, I’m not sure there aren’t legal

options. We are exploring it quite frankly. If there is a

law passed, we want to make sure that we

can as a state have standing in that, so it’s

important that the Legislature continue to

work with the governor to protect the

state’s sovereignty to prevent these things

from happening. We can use the environ-

mentalists’ tack by suing. We actually won

a couple of lawsuits. Now we are in the 9th Circuit

with the ringed seal and bearded seal. This is a little bit

different declaring this a wilderness area.

To me, it’s pretty cut and dried, even though I’m not

an attorney. They violated a contract (ANILCA, the

Alaska National Interest Lands Conservation Act). We

had a contract with them and they have been violating

it forever — they being the federal government. I think

they are in clear violation of ANILCA and the

Statehood Act. It doesn’t do any good to convey

wilderness. That’s not the reason we are a state. We

were given the lands to fund our government and to

support ourselves so we wouldn’t be a burden on the

federal government. That was kind of the premise. That

was the main objection for voting against Alaska’s

statehood because they didn’t think we would be able

to take care of ourselves and we would be a burden on

the treasury. They are just reneging on the contract.

Honorable people keep their agreement. I’ll just leave it

at that. Honorable people keep their agreement.

Petroleum News: And now you got more news aboutthe feds withdrawing more areas of the Arctic waterswhile opening up sections of the Atlantic. Did it sur-prise you that the administration chose the Atlanticover the Arctic?

Johnson: More federal overreach. I have a prediction

that may or may not come to fruition. I think he may

not veto Keystone and we are the tradeoff. He’s telling

the environmentalists, don’t beat me up on this and I’ll

give you Alaska. I think we are being served up as a

pawn in a much bigger game.

Petroleum News: Still, did you find it surprising the

Obama administration allowed drilling in the Atlantic?Johnson: Yeah, I’m surprised by that. I really don’t

know what to make of this administration. I’m to the

point of being numb. It’s like here we go again. So sur-

prise is probably not a word I would affix to it. It’s a

little curious. The East Coast has got valuable

resources: fisheries that are troubled; recreation oppor-

tunities, probably more so than the Arctic.

Petroleum News: The U.S. takes over as chair forthe Arctic Council in April. There have been concernsthat the Obama administration’s agenda for this leanstoward climate change while Alaska’s leaders wouldprefer an economic development agenda. Given whathappened over the weekend, how do you see it?

Johnson: Anyone who thinks the state of Alaska

could have even a miniscule impact on climate change,

well until we bring in countries like China and until

you get everyone on board, Alaska shouldn’t bear the

burden for the world. If we shut down all

the development in Alaska, it wouldn’t

be a blip on the radar for the climate

change. We can’t be the whipping boy

for the world when it comes to climate

change.

We do happen to be a great fundraiser

for a lot of the environmental groups, because you see a

nice polar bear — even on the release from the

(Obama) administration, I saw a polar bear. To think by

shutting down ANWR, maybe it’s a moral victory, but

it’s empty. It’s not going to have a long-term effect on

the outcome of climate change. Once again until you

bring in the other countries who are burning coal —

dirty coal — it’s just lip service.

Petroleum News: Do you think Alaska will have ameaningful seat at the table to help advance thenation’s Arctic policy?

Johnson: I was hopeful. Quite frankly I was hopeful

that we could have someone from Alaska chair that. We

have very capable people who are involved. Let’s not

forget the only reason the United States is an Arctic

country is because of Alaska. North Dakota although

sometimes seems like an Arctic country but it’s not. So

again the only reason we are an Arctic country is

because of Alaska, and that’s what we’ve been position-

ing for. You’ve seen resolutions from chambers to make

sure we have a seat at the table.

We will have a voice because of the indigenous peo-

ple, but I think it’s important that we be there. To go

back to your original question, I’m not optimistic at this

point. What I saw over the weekend, I think Al Gore

has got a better chance of chairing that Arctic Council.

Petroleum News: OK, looking ahead at the next twoyears, as someone who will have been on the HouseResources Committee for nine then 10 years, what doyou believe the priorities are for the committee?


Johnson: Alaska is pawn in bigger gameAnchorage Republican says federal government has broken statehood agreement, cites ANWR wilderness designation; overreach in OCS

REP. CRAIG JOHNSON

see JOHNSON Q&A page 21

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The U.S. Army Corps of Engineers is in

the process of completing a report rec-

ommending an expansion to the harbor at

Nome as a preferred option for a deep-draft

port in Arctic Alaska, Lorraine Cordova,

economic section chief in the Corps’ Alaska

District, told a meeting of the Alaska

Association of Environmental

Professionals on Jan. 20. Cordova said the

Corps has developed what it calls a “tenta-

tively selected plan” for the Nome harbor

expansion — the process for selecting a

port site remains far from complete, with

several reviews of the proposal still to be

conducted.

Harbor expansionThe plan, as currently envisaged, would

entail adding a 450-foot caisson dock to the

existing Nome harbor, demolishing an

existing spur breakwater, expanding the

harbor’s causeway and dredging the floor

of the harbor to achieve a water depth of 28

feet, Cordova explained. The modified har-

bor could accommodate offshore oil indus-

try supply vessels, for example, but would

not be deep enough to take an icebreaker.

The total cost of the development would be

some $207 million.

The Corps has been conducting a joint

study with the Alaska Department of

Transportation and Public Facilities into the

Arctic deep-draft port concept.

Cordova said that the Corps is currently

evaluating options for optimizing the har-

bor depth at Nome. But, although it may be

possible to deepen the harbor for icebreak-

ers, the additional cost of doing this would

probably turn out to be greater than the ben-

efit gained, she said.

Public comment periodThe study report, which should be pub-

lished soon, will undergo a public comment

period. The study team will then review the

comments it receives, looking for “show

stoppers” and making modifications as nec-

essary. The report must then go through

several other reviews, including a Civil

Works Review Board review, a state agency

review and external peer review, before

being signed off by the Corps chief of engi-

neers. The U.S. Congress would then have

to authorize the project and appropriate the

necessary federal funding before the port

expansion could proceed, Cordova said.

Assuming that the water depth in the

harbor would end up being more than 20

feet, the federal government would pay 75

percent of the cost of modifying the harbor,

with non-federal sponsors picking up the

remainder of the cost and the cost of any

new local service facilities associated with

the port, Cordova said.

Minimal environmental impactMichael Noah, environmental resources

section chief in the Corps’ Alaska District

said that the relatively modest amount of

dredge material that would need to be

removed from the harbor could be dis-

charged onto a local beach with minimal

environmental impact. Existing environ-

mental assessments for the placement of

maintenance dredging material onto that

beach and for major modifications made to

the Nome harbor a few years ago would

meet the needs of the National

Environmental Policy Act assessment for

the project — no environmental impact

statement would be required, Noah said.

However, deepening the harbor further, to

say 35 feet, would involve the handling of a

huge volume of dredge material, he said.

A long debateThe question of whether and how to

establish a deep-draft port in Arctic Alaska

has been a subject of debate for several

years, especially as the volume of Arctic

shipping builds up and interest in Arctic off-

shore oil exploration increases, in response

to the multi-year shrinkage of the summer

Arctic sea ice extent. When Shell conduct-

ed exploratory drilling in the Chukchi and

Beaufort seas in 2012, the company had to

use Dutch Harbor in the Aleutian Islands,

hundreds of miles to the south, as its main

logistics base.

The deep-draft port study that the Corps

and the state of Alaska are conducting

resulted from conferences held in 2008 and

2010, and a subsequent planning meeting,

in which Arctic stakeholders brainstormed

Arctic infrastructure needs, identifying

deep-draft vessel support as a top priority,

Cordova said.

In 2012 the Alaska Northern Waters

Task Force, established by the Alaska

Legislature, identified a number of potential

deep-draft port sites.

And a subsequent meeting in April 2013,

involving, among others, people from

Arctic communities, the U.S. Coast Guard,

the U.S. Navy, and the National Oceanic

and Atmospheric Administration, came up

with a long list of infrastructure needs,

Cordova said.

14 possible sitesAs a starting point for the joint study

between the Corps and the state, there

appeared to be 14 possible sites for a deep-

draft port, Cordova said. To narrow down

the choices, the study team applied five

selection criteria: proximity to operations

such as shipping and mining that might use

the port; connections to other modes of

transportation; size of the local population

that might support development on the land

adjacent the port; natural depth of the water

at the site; and navigation accessibility,

bearing in mind wind, wave and ice condi-

tions.

This line of analysis led to just three pos-

sibilities: Nome, Point Spencer and Cape

Riley. Of these choices, only Nome has an

existing man-made harbor. Point Spencer

and Cape Riley are locations with relatively

deep water in Port Clarence, a natural har-

bor to the northwest of Nome, Cordova

said.

However, neither of the two Port

Clarence sites showed a positive benefit to

cost ratio for port development. The team

quickly dropped Cape Riley as an option —

a mine that has not yet started up would

have been the only operation to be support-

ed by a port at that location, Cordova

explained. And, although Point Spencer has

an existing navigation station and airport,

there was a lack of supporting data and offi-

cial support that might have justified this

choice. That left Nome, the location that has

now become the focus of the study team’s

attention.

Three scenariosLooking at the economic justification for

an expansion of the Nome harbor, the team

considered three scenarios: a no-growth

case; a base case assuming the continuation

of past growth rates for the port; and a high

scenario involving use of the port for sup-

port vessels from three offshore oil projects.

And, while the cost of the low case signifi-

cantly exceeded the potential benefits, the

high scenario showed a modest margin of

benefits over costs. On the other hand, there

are many unknowns and much uncertainty

in the potential future use of the port,

Cordova commented.

On Dec. 16 the Corps headquarters

accepted the Nome project as a tentatively

selected plan, thus setting the stage for the

draft study report that the study team is

about to publish, she said. l

l F A C I L I T I E S

Corps favors Nome for deep-draft portProposes dredging to 28-foot depth, expanding causeway and installing new dock in western Alaska harbor; could take supply vessels


On Dec. 16 the Corpsheadquarters accepted the Nomeproject as a tentatively selected

plan, thus setting the stage for thedraft study report that the study

team is about to publish, she said.

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For the Canadian petroleum industry the uppermost

question for 2015, except for the imponderables of

commodity prices, hangs over whether the government of

Prime Minister Stephen Harper decides that its chances of

a fourth straight election victory depend on implementing

carbon reduction promises.

Amid the clamor for action from Harper’s political

opponents and environmentalists, there is a common view

that he has no choice but to deliver

on his promise extending back to

when he was first elected in 2006

and release a plan for reducing

greenhouse gas emissions from the

oil and natural gas sector and stop

waiting for the United States to act.

But Harper, if nothing else, does

not react well to those telling him

what action he should or must take.

His latest message to the carbon

tax advocates occurred in December

when he told the House of

Commons that “under the current

circumstances of the oil and gas sec-

tor, it would be crazy economic pol-

icy to impose unilateral penalties on

the oil and gas sector. With the (cur-

rent price conditions in the industry)

this government will not consider

unilateral regulations.”

Instead, Harper left the impres-

sion that his government will continue avoiding demands

for a comprehensive GHG reduction strategy, opting to

continue its so-called sector-by-sector approach, leaving

the petroleum industry largely untouched.

Prentice hints at breaking ranksOn this issue, however, he could get left behind by one

of his most trusted allies, Alberta Premier Jim Prentice.

In the short time since getting elected premier, Prentice

has hinted he may be willing to break ranks with Harper

and adopt a new approach to energy, the environment and

climate change, including changes to the province’s own

carbon tax on large emitters.

“One of the surest methods of securing Canada’s pros-

perity and the market access we need for all of our prod-

ucts is for the provinces involved to find common ground

on energy and the environment and enforce fair, clear,

well-thought-out rules,” he told the Vancouver Board of

Trade before Christmas.

Prentice later told reporters that Alberta’s tax, levied on

the biggest industrial emitters at a rate of C$15 per metric

ton, needs an overhaul.

The tax has collected almost C$500 million so far that

is earmarked for use on technological advancements to

reduce emissions.

He said a tentative new framework for Alberta’s

approach to energy and the environment should soon be

released, indicating how the province will tackle the sta-

tus quo.

Need to harmonizeEven so, Prentice was adamant that Alberta needed to

harmonize its approach on climate regulations for the

petroleum industry with the Canadian and United States

governments.

“My views and (Harper’s) views have a similarity in

terms of investment,” he said. “As Albertans we want to

be environmental leaders but we are mindful that there

must be jobs and investment in Alberta. Under no circum-

stances are we going to make changes that at a difficult

time may damage the investment climate.”

What steps Prentice proposes are unlikely to be

ignored by Harper, who entrusted the Alberta premier

with three senior cabinet posts (environment, aboriginal

affairs and industry) before Prentice took a top post in

Canada’s banking industry only to return to politics in

2014 when Alison Redford was forced out of Alberta’s top

job.

Paul Boothe, a business professor at the University of

Western Ontario, suggested Prentice holds the key to

Canada’s carbon policy, especially as he seeks a trade-off

with the Ontario and Quebec governments in return for

their endorsement of new crude oil pipelines to Eastern

and Atlantic Canada.

A C$30 carbon tax would give Alberta an opportunity

to “get in front of the carbon issue,” Boothe said.

This may be time to actThe time for Prentice and possibly Harper to act may

never have been better than during the current oil price col-

lapse.

By some estimates every three barrels of oil are respon-

sible for one metric ton of carbon.

As the price of gasoline falls, some observers make a

case that the shortfall in government revenues could be

filled with a direct carbon tax.

Tom Worstall, a columnist with Forbes magazine, wrote:

“The fall in the price of oil means we can impose a sane and

sensible 50-cent gas tax without the pain being too great or

apparent.”

Others, however, suggest that any attempt by govern-

ments to seize that window of opportunity would be instant-

ly viewed as a cynical move and face stiff opposition.

Narrowing the gapIf Harper’s advisers are looking for options, a new

study has concluded that Canada could narrow the gap on

achieving its 2020 GHG targets by adopting the strategies

of British Columbia, Ontario and Quebec, Canada’s three

largest provinces.

The report by the David Suzuki Foundation said those

jurisdictions have shown that Canada could come within

5.6 percent is meeting its emission pledges.

Ian Bruce, the foundation’s science and policy manag-

er, said British Columbia’s seven-year-old gasoline tax,

Quebec’s cap on emissions and Ontario’s phasing out of

coal-fired power plants have all been effective without

harming their economies.

He said the study is not proposing “radical new ideas

... these are proven solutions that work.”

Bruce said the “main obstacle to Canada meeting its

target is a lack of leadership at the national level” and a

reluctance to build a made-in-Canada solution around

successful provincial policies.

British Columbia’s strategy is based on a 7.24 cents a

liter gasoline tax introduced in phases from 2008 to 2012

that the province’s Environment Minister Mary Polack

said has put her government on track to lower GHGs by

33 percent in the 13 years starting in 2007.

At the United Nations’ climate-change conference in

Peru in December, World Bank president Jim Yong Kim

described the British Columbia tax — the first by any

jurisdiction in North America — was “one of the most

powerful examples of carbon pricing.”

B.C. Environment Minister Mary Polak welcomed the

high-level recognition that British Columbia’s “broad-

based, revenue-neutral carbon tax is a successful model

other jurisdictions could follow.”

Refuting claimsNot only has British Columbia refuted claims that car-

bon taxes kill jobs, but the initiatives the province and

governments such as Sweden have taken are quietly gain-

ing support within the oil and gas industry where

ExxonMobil and Royal Dutch Shell have factored in car-

bon prices of US$40-US$60 per metric ton into their long-

term planning, with ExxonMobil publicly endorsing a tax.

Whether that response would carry over to Alberta’s oil

sands sector, where both companies have vast holdings,

has yet to be tested.

Economists agree that the recent trend towards uncon-

strained development of the bitumen deposits cannot con-

tinue indefinitely, given the global supply-and-demand

picture.

But they suggest that a carbon tax would serve as a

prod towards greater innovation, which has never deterred

the petroleum industry in the past, starting with the home-

grown technologies that opened up the oil sands in the

first place and horizontal drilling combined with multi-

stage fracturing that unlocked shale deposits.

A jolt to the established order was indirectly hinted at

by Julie Gelfand, the Canadian government’s commis-

l E N V I R O N M E N T & S A F E T Y

Climate action clock runningCanadian prime minister’s chances of holding power in 2015 seen as tied to his willingness to implement a carbon tax; BC levy model

As the price of gasoline falls, some observersmake a case that the shortfall in government

revenues could be filled with a direct carbon tax.

STEPHEN HARPER

JIM PRENTICE

see CLIMATE ACTION page 8

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Inuvik Gas Limited, the natural gas distribution

company in the town of Inuvik, Northwest

Territories, is requesting proposals for the supply of

liquefied natural gas (LNG).

Interested parties should contact Inuvik Gas to

obtain a copy of the request proposal package.

The deadline for submission of proposals is

February 27, 2015.

For more information, please contact:

Brad Driscoll, General Manager

Inuvik Gas Limited

107 Mackenzie Road

Inuvik, NT X0E 0T0

Phone (867) 777-3422

Email: [email protected]

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inuvikgas.com

sioner of the environment and sustain-

able development, who warned in 2012

that the Harper government was badly

off course in chasing its target of a cut in

GHGs to 17 percent below 2005 levels

by 2020.

She said the evidence now is

stronger than it was two years ago “that

growth in emissions will not be

reversed in time and that the target will

be missed.”

Using Environment Canada data,

Gelfand estimated that by 2020 GHGs

in Canada’s oil and gas industry will be

27 million metric tons higher than it was

in 2012, easily the biggest growth in

any sector.

To remain within its 2020 ceiling,

the Canadian target is 611 million met-

ric tons a year, but without any inter-

vention that is projected to reach 857

million metric tons.

Gelfand pointedly noted that

detailed, proposed regulations have

been sitting on the desk of successive

environment ministers, but the “federal

government has consulted on them

only privately, mainly using a small

working group of one province and

selected industry representatives.” l

continued from page 7

CLIMATE ACTION


P resident Barack Obama has ordered the formation of

an Arctic Executive Steering Committee to coordinate

the implementation of federal Arctic polices across govern-

ment departments and agencies. Where applicable the com-

mittee will also improve the coordination of Arctic policies

across state, local and Native tribal governments, and across

other similar Native organizations; academic and research

institutions; and the private and non-

profit sectors, the president’s order

says.

Chaired by the director of the

Office of Science and Technology or

a designee, the committee will also

include the heads or their designees

of the Council on Environmental

Policy, the Domestic Policy Council

and the National Security Council.

The deputy secretaries or equivalent

officers from a list of 16 federal agencies will also be com-

mittee members.

Long-term valueThe order says that the Arctic has critical long-term

strategic, ecological, cultural and economic value.

“It is imperative that we continue to protect our national

interests in the region, which include: national defense, sov-

ereign rights and responsibilities; maritime safety; energy

and economic benefits; environmental stewardship; promo-

tion of science and research; and the preservation of the

rights, freedoms and uses of the sea as reflected in interna-

tional law,” the order says.

The wording of the order places particular emphasis on

the impact of global warming on the Arctic region, where,

the order says, higher temperatures have led to a dramatic

reduction in sea ice, widespread glacial retreat, increasing

coastal erosion and other impacts.

“The United States has the responsibility to strengthen

international cooperation to mitigate the greenhouse gas

emissions driving climate change; understand more fully

and manage more effectively the adverse effects of climate

change; protect life and property; develop and manage

resources responsibly; enhance the quality of life of Arctic

inhabitants; and serve as stewards for valuable and vulner-

able ecosystems,” the order says.

The new committee will provide guidance and coordi-

nation over the implementation of Arctic policies and plans

that the president has issued, and will also provide guidance

on prioritizing federal activities while the United States

chairs the Arctic Council, the ministerial forum of the eight

Arctic nations. This year the United States will assume

chairmanship of the Arctic Council.

The president’s order also tasks the new committee with

establishing a working group by May 1, 2015, to prepare a

report on overlaps between different government agencies

in the implementation of Arctic policies and to make rec-

ommendations on how to reduce duplication of effort and

how to address any potential gaps in policy implementation.

In the interests of engaging with stakeholders in the

Arctic, including the state of Alaska and Alaska Native trib-

al governments, as well as the private sector and non-profit

organizations, the order requires the new committee to

develop processes to improve coordination and the sharing

of information with these organizations, and for tribal con-

sultation. The committee must identify a federal point of

contact for communication of Arctic matters with the State

of Alaska and with Native tribal governments and similar

Alaska Native organizations, the order says.

Senators commentIn critiquing the president’s order, Sen. Lisa

Murkowski, R-Alaska, commented on the emphasis on cli-

mate change. While the order usefully addresses the need

for coordination across federal agencies, the order fails to

acknowledge the need and opportunities of the indigenous

people of the Arctic and the opportunity to improve the

lives of the people who live in the Arctic, Murkowski said.

“Today’s executive order is a good step forward in

strengthening the coordination of federal agencies on

Arctic policy — and seeks direct input from Alaska’s

Arctic stakeholders — but it is unbalanced in what the

administration’s Arctic priorities should be,” Murkowski

said when the order was released on Jan. 21. “Once again,

the president remains focused on climate change. I agree

that climate change is an issue facing our nation and my

state, but for President Obama and many of his ideological

allies, the plan for the Arctic boils down to two words:

hands off.”

Sen. Dan Sullivan, R-Alaska, expressed similar senti-

ments.

“While I am encouraged to see that the federal govern-

ment is taking steps to coordinate itself in the Arctic arena

— I see this as merely a piece of paper,” Sullivan said.

“With regard to the Arctic, the State of Alaska is not just

another stakeholder as this executive order indicates. We

are the other sovereign. Indeed, the sovereign that makes

the U.S. an Arctic nation. What is troubling about this

executive order is the White House’s continual focus on


Obama orders Arctic coordination groupNew steering committee will coordinate federal Arctic policies across government agencies and improve sharing of information

“I agree that climate change is an issue facingour nation and my state, but for President

Obama and many of his ideological allies, theplan for the Arctic boils down to two words:

hands off.” —U.S. Sen. Lisa Murkowski, R-Alaska

BARACK OBAMA

see ARCTIC PANEL page 10

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By ERIC LIDJIFor Petroleum News

The state is requiring a former

Fairbanks Natural Gas LLC employee

to explain a personal email he recently sent

to the chairman of the Regulatory

Commission of Alaska.

With a Jan. 26 subpoena, Administrative

Law Judge John P. Wood ordered Patrick

Kirby to appear before Fairbanks North

Star Borough outside counsel in Anchorage

on Feb. 5.

He’ll be asked to explain an email he

sent to RCA Chairman Robert Pickett from

a personal account on Jan. 6. In the email,

Kirby complained about working in a “very

hostile and negative environment” and

made accusations about company officials.

According to a copy of the email includ-

ed in regulatory filings, Kirby wrote, “I was

hired not because of my utility experience

but rather my entire body of work which

provides a lot of credibility with regard to

testifying and so forth. Yet now they realize

I am very independent, I do not lie, cheat or

steal and I will not compromise my princi-

pals.” He added, “If something happens to

me, I would appreciate it if you would fol-

low up. There is a lot of money involved

here and I present a clear present danger to

those who benefit.”

Speaking to Petroleum News on Jan. 27,

Fairbanks Natural Gas President Dan

Britton said, “I have never asked anyone to

compromise their principles nor does

Fairbanks Natural Gas compromise its prin-

ciples. I don’t know what Mr. Kirby is talk-

ing about.”

Britton declined to say whether Kirby

quit or was fired, calling it was a personnel

matter.

Formerly regulatory affairs managerAt the time Kirby sent the email, he was

regulatory affairs manager for Fairbanks

Natural Gas, which made him one of the

witnesses in a rate case currently working

its way through the regulatory process. He

provided initial testimony in support of

Fairbanks Natural Gas’ financial informa-

tion when the utility filed its rate case back

in June 2014.

State regulations prohibit a commission-

er from communicating with parties

involved in pending decisions and require

all communications sent to the Regulatory

Commission of Alaska to be addressed to

the commission as a whole, rather than to

individual staff.

Those regulations also provide guide-

lines for how regulator should respond to

such “ex parte communications.” On Jan. 8,

Pickett responded to Kirby through a third

party — Commission Section Manager

Ann Wilde — and also sent a report about

the matter to his fellow commissioners.

State regulations require both actions with-

in two business days.

The entire correspondence became pub-

licly known Jan. 12, when the commission

posted Pickett’s report, which includes a

copy of the original email, to its website.

The next day, Fairbanks Natural Gas

removed Kirby from the “service list,”

which is a list of individuals authorized to

receive paperwork in an ongoing regulatory

proceeding.

Borough wanted dispositionThat same day, the Fairbanks North Star

Borough asked Fairbanks Natural Gas to

make Kirby available for a deposition, only

to be told, on Jan. 20, that Kirby no longer

worked for the utility, according to a Jan. 23

filing from Kelly M. Helmbrecht of the law

firm Brena, Bell and Clarkson, which is

representing the Fairbanks North Star

Borough. The borough then asked regula-

tors to require Kirby to appear at an upcom-

ing deposition.

Several days later, on Jan. 26, Fairbanks

Natural Gas withdrew the original testimo-

ny Kirby provided in June 2014. Britton

formally added the information to his tes-

timony. l


large, abstract concepts such as climate

change. But what is most troubling is that

this executive order fails to acknowledge

the need to develop our Arctic resources in

a responsible manner — which is such a

critical issue for Alaska’s future.”

Environmentalist perspectiveSusan Murray, deputy vice president of

Oceana, an environmental organization,

expressed her organization’s support for

what the president is doing.

“Today’s announcement is another

step toward effective stewardship for the

Arctic region,” Murray said. “The presi-

dent is to be congratulated for recogniz-

ing the challenges and opportunities in

the Arctic and for committing to science,

collaboration, and planning.

Coordination is an important and neces-

sary step, and we hope that it results in

better choices for the Arctic Ocean.” l


ARCTIC PANEL

l N A T U R A L G A S

RCA subpoenas former FNG employeeUpcoming deposition will ask Kirby why he emailed Regulatory Commission of Alaska Chairman Robert Pickett

State regulations prohibit acommissioner from communicating

with parties involved in pendingdecisions and require all

communications sent to theRegulatory Commission of Alaskato be addressed to the commission

as a whole, rather than toindividual staff.

LAND & LEASINGMinor lease transactions in December

Aurora Gas LLC is looking to transfer a small royalty interest in four segments

of ADL 388233 to Apache Alaska Corp, according to the December 2014 lease

report from the Alaska Department of Natural Resources. The lease is on the west

side of Cook Inlet, where Apache and Aurora have previously engaged in small

lease transactions.

Windmill Canyon LLC is looking to transfer a 0.25 percent royalty interest in

some 47 leases in the Nenana basin to Doyon Ltd. The companies previously part-

nered on a Nenana basin exploration venture, along with several other small inde-

pendent companies.

Independent investor J. Andrew Bachner is looking to transfer a 0.1 percent

royalty interest in ADL 391001 to David G. Feddersen and a 0.2 percent royalty

interest in the same lease to Keith C. Forsgren. The Badami unit lease is on the

eastern North Slope.

Rosemary G. Hayes is looking to transfer small royalty interests in five Cook

Inlet leases— ADL 381003, ADL 381201, ADL 381203, ADL 374002 and ADL

378114 — to Cook Inlet Energy LLC. The leases are assigned to the Redoubt unit.

—ERIC LIDJI

http://www.pacificpile.com

http://www.gci-industrialtelecom.com

Hecla CEO Baker praises GreensCreek 2014 performance

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of February 1, 2015

NEWS NUGGETSCompiled by Shane Lasley

Bokan drilling cuts deeper REEsUcore Rare Metals Inc. Jan. 28 reported that all five holes

drilled beneath the existing resource at the Bokan-Dotson

Ridge heavy rare earth element project in Southeast Alaska

intercepted mineralization with grade and rare earth content

consistent with what has already been delineated. The exist-

ing Bokan resource currently extends to an average depth of

220 meters and the five deeper holes drilled in 2014 cut the

mineralized zone an average of 100 meters below all previ-

ous drill intersections. This confirmation that the REE min-

eralization continues to depth could result in significant

resource expansion at Bokan. A total of 17 diamond holes

(3,960 meters) were drilled at Bokan in 2014. In addition to

the five deep holes, 12 infill holes were designed to upgrade

the existing Bokan resource.

Palmer expansion slated for 2015Constantine Metal Resources Ltd. Jan. 26 reported final

drill results and summarized key advancements of the 2014

exploration program at its Palmer copper-zinc-gold-silver

project in Southeast Alaska. Two of the newly reported holes,

CMR14-64 and CMR14-65, intersected the massive sulfide

electromagnetic plate target of the South Wall zone. Hole 64

cut 4.1 meters grading 0.55 percent copper, 4.98 percent zinc,

21.1 grams per metric ton silver, 0.16 g/t gold and hole 65

cut 11.3 meters grading 0.30 percent copper, 3.95 percent

zinc, 27.2 g/t silver, 0.23 g/t gold along the western, up-dip

edge of the South Wall expansion area. Constantine says the

wide-spaced drilling completed in 2014 has confirmed the

target is developing into a sizeable new zone with excellent

potential for expansion. The third hole, CMR14-67, cut 3.9

meters grading 0.19 percent copper, 5.11 percent zinc, 92.5

g/t silver, 0.37 g/t gold at the Palmer project’s RW zone, a

flat-lying continuation of the nearly vertical South Wall zone

. The company says hole 67 substantially expands the RW

zone footprint, and extends the total unfolded length of con-

tinuous RW-South Wall mineralization to more than 1,500

meters. The 2014 program at Palmer involved 9,796 meters

of drilling in 16 exploration holes and one geotechnical hole.

Constantine says the results from drilling completed in 2010,

2013 and 2014 will be incorporated in a new resource esti-

mate for Palmer to be initiated in early 2015. Dowa Metals &

Mining Co. Ltd. has the option to earn a 49 percent joint ven-

ture interest in Palmer by investing US$22 million over four

years. Through 2014, the second year of its option agree-

ment, the Tokyo-based smelting and mining company has

spent roughly US$10 million at Palmer. Dowa has notified

Constantine of its intent to continue its participation in their

partnership at Palmer, with this year’s budget and program

scope to be finalized early in 2015.

Senators seek to limit EPA vetoSens. David Vitter (R-LA) and Joe Manchin (D-WV) Jan.

7 re-introduced legislation aimed at prohibiting the

Environmental Protection Agency from pre-emptively or

retroactively vetoing a permit under Section 404 of the

Clean Water Act. The re-introduced legislation, “Regulatory

Fairness Act of 2015”, has been designated S.54. The EPA

previously used CWA Section 404 authority to revoke per-

mits issued for the Mingo Logan coal mine project in

Manchin’s home state of West Virginia. If passed, the

Regulatory Fairness Act of 2014 would prevent EPA from

pre-emptively vetoing CWA permits needed to develop the

Pebble copper-gold-molybdenum deposit in the Bristol Bay

region of Southwest Alaska.

Bumpy road aheadAlaska mining faces ups, downs from low oil prices, budget-cutting moves

By SHANE LASLEYMining News

Plummeting oil prices have put Alaska resi-

dents and Alaska miners in the same boat.

Suddenly, it’s less expensive to top off the tank of

an SUV or a haul truck, but the state budget, fueled

by oil revenue, is teetering on the edge of an esti-

mated $3.5 billion deficit. That’s $10 million a day

for 2015.

“We know Alaska is experiencing a significant

drop in revenue – the price of oil has dropped more

than 50 percent over the past six months,” Alaska’s

new governor, Bill Walker, said during his inaugu-

ral State of the State Address.

While this oil money shortfall will likely gouge

into state-funded projects across the board, from

fundamental programs such

as schools to the most ambi-

tious like building a 200-mile

road to the Ambler mining

district in Northwest Alaska,

Walker told Alaskans and

their legislators that there is

no reason to panic about the

state of the state.

“Some might call this a

crisis – I call this a challenge

and an opportunity,” Walker

said in his Jan. 21 speech. “We have an opportuni-

ty to make impactful and constructive changes, to

challenge the traditional ways of doing business.”

“Now is not the time to sound the alarm my fel-

low Alaskans. Now is the time to pull together; to

make a plan; to sharpen our focus; and to get to

work,” he rallied.

Natural gas pipelineHigh on the list of Walker’s planned initiatives

is bolstering Alaska’s income and lowering

expenses by reducing the high cost of energy in the

state, an agenda item that appeals to Alaska’s resi-

dents and miners.

“This administration will not rest until Alaska is

squarely on track to become an economic power-

house, thanks to low-cost energy that will bolster

and diversify our economy,” the governor vowed.

He envisions a large portion of this low-cost

energy being delivered to Alaskans and world mar-

kets via a large-diameter pipeline that taps vast

reserves of natural gas on the North Slope.

“Under my administration we will finally begin

building the Alaska gas-line to tidewater,” Walker

said.

Companies developing the next generation of

mega-mines in Alaska, such as the Donlin Gold

and Pebble copper-gold-molybdenum projects in

western and southwestern Alaska, respectively,

have already determined that natural gas is the

most economical and environmentally sound way

to fuel their operations, even if it means importing

the fuel from outside of the state.

Donlin Gold LLC – an operating company

equally owned by subsidiaries of Novagold

Resource Inc. and Barrick Gold Corp. – believes

so much in the natural gas idea that it is willing to

invest $1 billion to build a 14-inch diameter

pipeline spanning the 315 miles between tidewater

in Southcentral Alaska and the 40-million-ounce

gold deposit located in the Yukon-Kuskokwim

region to the northwest.

In April, the company applied for a state right-

of-way lease and a public comment period on the

company’s proposal closed Jan. 28.

Donlin Gold hopes to have authorizations in

hand to begin pipeline construction in 2016 with a

goal of delivering natural gas to the mine site by

mid-2019.

The U.S. Army Corps of Engineers, meanwhile,

continues its preparation of an environmental

impact statement for the proposed Donlin gold

mine. The regulatory agency estimates that a deci-

sion on the final EIS for Donlin will be determined

in 2016.

Though the estimated 2020 startup at Donlin is

likely at least three years prior to the most opti-

mistic timeline for completion of a natural gas

pipeline from the North Slope, the companies

developing the mine are not dismissing the possi-

bility of using an in-state source of natural gas.

“There may be an opportunity in the future to

source natural gas from within Alaska,” Novagold

explains on its website.

If Walker’s vision is realized, it would reverse

the irony of importing natural gas into a state that

has roughly 37 trillion cubic feet of this clean-

burning fuel in known reserves.

In addition to an in-state supply of gas for

l D E V E L O P M E N T

GOV. BILL WALKER

see BUMPY ROAD page 13

PETR

OLE

UM

NEW

S FI

LE

Gov. Bill Walker vows Alaska will begin to build anatural gas pipeline from the North Slope to tidewa-ter under his watch, a development that would like-ly lower energy costs for many existing and futuremines across the state.

http://www.miningnewsnorth.com

12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 1, 2015

Shane Lasley PUBLISHER & NEWS EDITOR

Rose Ragsdale EDITOR-IN-CHIEF (contractor)

Mary Mack CEO & GENERAL MANAGER

Susan Crane ADVERTISING DIRECTOR

Heather Yates BOOKKEEPER

Bonnie Yonker AK / INTERNATIONAL ADVERTISING

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Curt Freeman COLUMNIST

J.P. Tangen COLUMNIST

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Renee Garbutt CIRCULATION MANAGER

Mapmakers Alaska CARTOGRAPHY

ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647

NEWS • [email protected]

CIRCULATION • 907.522.9469 [email protected]

ADVERTISING Susan Crane • [email protected] Yonker • [email protected]

FAX FOR ALL DEPARTMENTS907.522.9583

NORTH OF 60 MINING NEWS is a weekly supplement of Petroleum News,a weekly newspaper. To subscribe to North of 60 Mining News,

call (907) 522-9469 or sign-up online at www.miningnewsnorth.com.

Several of the individualslisted above are

independent contractors

North of 60 Mining News is a weekly supplement of the weeklynewspaper, Petroleum News.

NORTHERN NEIGHBORSCompiled by Shane Lasley

BRITISH COLUMBIA PREMIER CHRISTY CLARK Jan. 26 unveiled C$9

million in new funding to support mining in the province. Clark said the

funds will establish a MAJOR MINES PERMITTING OFFICE to improve

coordination of major mine permits across government, add staff to conduct

more inspections and permit reviews, and maintain improved turnaround

times for notice of work permits. The base budget of the ministry will be

increased by about C$6 million, including a portion to make current contin-

gency funding permanent. New permit fees for producing

mines in B.C. are expected to raise an additional C$3

million annually. The premier said the C$10 million min-

ing flow-through share tax credit program has been

extended to year’s end 2015 to support mining explo-

ration investment. To further encourage exploration, she

also committed to extending the province’s new mine

allowance to 2020. The tax credit combines with other

mineral tax provisions to support new mines and major

expansions by allowing them to deduct 133 percent of

their capital costs. Exploration expenditures in British

Columbia for 2014 are estimated to total C$338 million.

In 2013, comparable spending represented more than 21 percent of all mineral

exploration in Canada. This is a substantial increase from 2001 when B. C.

accounted for just six percent of the nation’s exploration expenditures. “Up to

10 new mines are expected to proceed in the next few years and this new

funding will make sure we are ready to support these projects and ensure the

safety of this important industry as it continues to grow,” said Premier Clark.

SEABRIDGE GOLD Jan. 26 said an independent geotechnical review board

will consider the KSM project’s tailings management facility and water stor-

age dam with a focus on structural stability and integrity. The review board is

charged with providing independent, expert oversight, opinion and advice to

Seabridge on the design, construction, management and closure of the tailings

facility and water dam. Seabridge said this eight-person panel will have unim-

peded access to all technical data necessary to enable them to assess the tail-

ings facility and water dam at KSM on an ongoing basis to ensure that these

structures meet internationally accepted standards and practices. Members of

the review board include a co-founder of SRK CONSULTING, an award-win-

ning civil engineer; a principal of GOLDER ASSOCIATES; and the director

for Québec of the CANADIAN DAM ASSOCIATION.

ROCKHAVEN RESOURCES Jan. 26 reported a maiden inferred mineral

resource estimate of 7.04 million metric tons averaging 4.19 grams per metric

ton (948,348 ounces) gold and 96.23 g/t (21.78 million ounces) silver for its

Klaza property in southern Yukon Territory. The resource also includes 144.3

million pounds of zinc, 121.1 million lbs. lead and 14 million lbs. copper. The

estimated 1.31 million-ounce gold-equivalent resource encompasses drill

Alaska Mental Health Trust Land Office VacancyMinerals-Energy Section Chief – Anchorage, Alaska

The Alaska Mental Health Trust Land Office within the Alaska Department of Natural Resources is recruiting for a Minerals-Energy Section Chief. This is a fully exempt, professional position with a starting salary up to $121,000 annually. Final salary will be negotiated at the time of hire and will be based upon the successful candidates’ qualifications and experience. The position is located in Anchorage, Alaska and is offered with a complete State of Alaska benefit package.

As part of a dynamic team dedicated to the development and management of approximately one million acres of Alaska Mental Health Trust Land, the Minerals-Energy Section Chief will oversee and direct the marketing, analysis and administration of programs for the development of the Trust’s mineral and energy resources.

For a complete list of position requirements, responsibilities and how to apply, view the Trust Land Office website at www.mhtrustland.org.

The State of Alaska is an equal employment opportunity employer and supports workplace diver-sity. Individuals requiring accommodation should call 800-587-0430 V/800-770-8973 TTY/TDD (Relay Alaska).

l E X P L O R A T I O N & P R O D U C T I O N

Mine eyes next decade, beyondGreens Creek replaces reserves, plans tailings expansion projectand pledges financial security for perpetual water treatment

By ROSE RAGSDALEFor Mining News

Greens Creek Mine is preparing for the

next stage of its long-running tenure

as a low-cost primary silver producing mine

in Southeast Alaska.

The underground mine, located on

Admiralty Island about 18 miles southwest

of Juneau, extracts ore from a volcanogenic

massive sulphide deposit with an unusually

high silver content. The mine produces sil-

ver, along with zinc, lead and gold as by-

products.

Idaho-based Hecla

Mining Co. owns the

mine, which has

operated for most of

the quarter-century

since its operations

began in 1989.

Drilling efforts

over the past 10 years

have replaced pro-

duction and added new reserves and

resources. Exploration efforts are ongoing

along the trend of numerous orebodies

underground and aggressively exploring the

highly prospective 27-square-mile land

package on surface. Underground drilling

efforts this year are looking to convert

resources to reserves and define extensions

to the 200 South, Southwest Bench and

NNW. Surface drilling at Killer Creek may

define a new mineralizing center at Greens

Creek.

In 2014, Hecla carried out significant

exploration that is expected to boost the

mine’s resource and reserves.

Hecla President and CEO Phillips S.

Baker Jr. told industry analysts recently

that Greens Creek continued its “solid,

low-cost, consistent cash-generating per-

formance” in 2014.

“At Greens Creek, we continue to deliv-

er high-grade drill intersections that should

add resources all along the Southwest

bench, 200 South, and Deep 200 South

Gallagher Fault Block trends, as shown in

slide 25; and upgrade resources to reserves

at the Northwest West, West Wall zones,

Central West, and Deep 200 South trends.

In the next quarter, we expect to complete

more exploration and definition drilling in

these areas, which should boost resources

and reserves and continue to extend mine

life,” Baker said during a teleconference in

November.

Deep 200 South had some of the widest

and highest grade intercepts in recent histo-

ry at the mine and include 48.0 oz/ton sil-

ver, 0.07 oz/ton gold, 6.6 percent zinc and

3.3 percent lead over 26.7 feet and 32.5

oz/ton silver, 0.46 oz/ton gold, 17.0 percent

zinc and 7.3 percent lead over 35.0 feet.

Similar southward trending mineralization

remains open along the 5250 and Gallagher

trends, and the Southwest Bench and

Northwest-West zones are open to the

southwest.

Greens Creek holds current proven and

probable silver reserves of 92.5 million

ounces, 713,000 ounces of proven and

probable gold reserves, as well as 256,130

tons of lead and 677,940 tons of zinc in

proven and probable reserves.

There are an additional 9.4 million

ounces of silver measured and indicated

resources and 31.8 million ounces of silver

inferred resources. Measured and indicated

gold resources measure 72,000 ounces and

inferred gold resources measure 216,000

ounces.

To facilitate at least another decade of

production at Greens Creek, Hecla is plan-

ning a $30 million expansion of the mine’s

tailings plant to be built in 2015 and 2016.

Luke Russell, Hecla’s vice president of

external and environmental affairs, said the

company has secured the final permit need-

ed for the two-year tailings facility expan-

sion, which will cover 18 additional acres.

Perpetual water treatmentAt Greens Creek, all mine water and

water used in the milling process is treated

in water treatment plants and then released

into Hawk Inlet under strict specific dis-

charge permit limits. The need for water

treatment sometimes results when certain

types of mineral deposits, such as massive

PHILLIPS S. BAKER JR.

see GREENS CREEK page 14

CHRISTY CLARK

see NORTHERN NEIGHBORS page 14

SHA

NE

LASL

EY

http://www.pacrimgeol.com

http://www.mhtrustland.org

13NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF FEBRUARY 1, 2015

Donlin, the governor’s push to get North

Slope natural gas to market could reduce

the notoriously high power costs for

existing Interior Alaska gold mines such

as Fort Knox and Pogo and improve eco-

nomics of the region’s potential future

mines such as Livengood gold and Globe

Creek limestone.

Alaska’s operating mines and other

industries, meanwhile, are already bene-

fitting from lower fuel prices resulting

from less than US$50 per barrel oil.

Globe Creek limestoneIn addition to building a parallel natural

gas pipeline, Gov. Walker’s ideas for boost-

ing Alaska’s income, understandably, are

focused on getting more oil flowing

through the 800-mile trans-Alaska pipeline,

currently running at about 25 percent

capacity. As a result, the state’s mining sec-

tor has been largely lumped with Alaska’s

other industries such as tourism, fisheries

and air cargo.

The one mining opportunity the gover-

nor did single out in his speech to lawmak-

ers is a project few Alaskans are aware of,

the world-class Globe Creek limestone

deposit north of Fairbanks.

“We should be making and exporting

cement north of Fairbanks given all the

limestone available and the rail and high-

way infrastructure available,” he said.

Located near the Elliot Highway about

38 miles north of Fairbanks, Globe Creek is

the largest known high-purity limestone

deposit in the state.

Interior Alaska currently imports about

100 tons of lime per day, a demand that is

driven largely by its use as a neutralizer for

water quality at the Fort Knox and Pogo

mines.

In addition to supplying local needs,

Globe Creek could likely supply at least

50,000 tons of lime per year to other mines

in Alaska and export products overseas via

the Alaska Railroad extension to Port

MacKenzie, according to a 2007 rail link

analysis penned by Paul Metz, a �profes-

sor of geological engineering at University

of Alaska Fairbanks.

The market for Portland cement made

from Globe Creek limestone is considered

to be at least 10 times larger than that for

lime. At the time of Metz’s analysis,

Alaska, alone, used nearly 300,000 tons per

year of this building material.

An economically competitive lime and

cement plant, however, needs a reliable and

low-cost source of fuel for the kilns needed

to transform the limestone into a mar-

ketable product. Located adjacent to the

Dalton Highway, which connects the North

Slope to Fairbanks, and along the presumed

path of any future natural gas pipeline,

Globe Creek is positioned for any scenario

that delivers North Slope natural gas to

Alaska and world markets.

At a quarry rate of 3,320 tons per day,

the 1.6-billion-ton Globe Creek deposit

could provide limestone, Portland cement

and fertilizer to Alaska and the world for

more than 100 years, according to Metz’s

estimates.

Ambler mega-projectWhile getting gas to market and other

economy strengthening initiatives will help

the income side of the equation in the long

term, cuts in state spending are more imme-

diate steps being contemplated by Walker

and state lawmakers.

The governor’s first order of business

was a temporary suspension of all “mega-

projects being funded by the state.

“On Dec. 26, I took immediate action. I

issued an administrative order directing

that all ‘mega-projects’ stand down until

we can access their overall costs and bene-

fits to the state,” said Walker.

Among the big-budget projects being

re-evaluated, the Ambler Mining District

Industrial Access Road is one aimed specif-

ically at supporting mining in Alaska.

This 200-mile road would link the

Ambler Mining District to world markets.

Some $8 million of state funds had been

earmarked for the project in a budget pro-

posed by former Gov. Sean Parnell. The

project has no such support in Walker’s

budget.

The Ambler road project was transferred

from the Alaska Department of

Transportation and Public Facilities to the

Alaska Industrial Development and Export

Authority in 2013.

AIDEA – a private corporation created

by the Alaska Legislature in 1967 to pro-

mote, develop, and advance economic

growth and diversification in Alaska – is

not solely dependent on state funding to

advance the Ambler Road, or any of the

other projects in its portfolio.

In fact, the success of AIDEA’s invest-

ments in large infrastructure projects like

the Delong Mountain Transportation, a

road and port facility linking the Red Dog

zinc mine to world markets, are profitable

for the authority and state.

“These revenues not only cover our

operational expenditure; we also pay an

annual dividend of up to 50 percent of our

revolving fund net income to the State of

Alaska general fund,” said AIDEA exter-

nal affairs executive Karsten Rodvik.

This dividend equaled US$17.65 mil-

lion for 2014, bringing the total AIDEA has

paid to the state’s general fund to US$373.5

million.

To move forward with the Ambler

Road, AIDEA will need the funds to com-

plete an Environmental Impact Statement

for the project.

If federal agencies approve the road

project for permitting, then AIDEA will re-

evaluate whether building the road is a

good investment for the authority and state.

The Upper Kobuk Mineral Projects, a

partnership between NovaCopper Inc., a

mineral exploration company, and NANA

Regional Corp., the Native regional corpo-

ration that represents the Iñupiat of

Northwest Alaska, would likely provide the

financial base for repaying the cost of

building a road to Ambler.

In 2013, NovaCopper and AIDEA

entered into a memorandum of understand-

ing that allows AIDEA to investigate vari-

ous ways to fund the construction and

maintenance of the Ambler Road and cre-

ate the framework by which NovaCopper

will repay the investment by developing

mines at one or more of its high-grade cop-

per deposits in the area.

The two most advanced deposits, Arctic

and Bornite, currently has more than a 9.5

billion-pound copper-equivalent resource,

including zinc, lead, silver and gold by-

products at Arctic. l


BUMPY ROAD“We should be making andexporting cement north of

Fairbanks given all the limestoneavailable and the rail and

highway infrastructure available.”—Gov. Bill Walker, Alaska

ALA

SKA

IN

DU

STR

IAL

DEV

ELO

PMEN

T A

ND

EX

PORT

AU

THO

RIT

Y

http://www.LFAV.com

14NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF FEBRUARY 1, 2015

WHATEVER

WHENEVER

WHEREVER

judypatrickphotography.comCreative photography for the oil & gas industry.

907. 258.4704

sulphide deposits, are mined.

“We work hard to protect water quality

and to conserve usage through efficient

operations, engineering, and training” at

Greens Creek, Hecla said on its website.

Federal and state agencies completed a

review of the mine’s reclamation and clo-

sure plan in 2014, and for the first time,

added a requirement that Hecla provide

financial security to ensure “perpetual”

treatment of water discharged from the

mine after it closes.

Hecla reported in recent regulatory fil-

ings that it updated its asset retirement obli-

gation in early 2014 for Greens Creek to

reflect to reflect the revised reclamation

and closure plan. The company has esti-

mated undiscounted costs of roughly

$102.7 million for the plan, reflecting a

$28.8 million increase from the $73.9 mil-

lion cost estimate in the previous plan.

Hecla said the increase primarily result-

ed from the new requirement to include

perpetual water treatment in the closure

plan.

The new requirement resulted in an

increase to Hecla’s ARO asset and liability

of $8.0 million, after discounting the esti-

mated costs to present value.

In the third quarter of 2014, as part of

the revised reclamation and closure plan,

the company said it increased its bonding

for the mine to roughly $68.9 million.

Sarah Samuelson, a spokesman for the

U.S. Forest Service, said the requirement

for perpetual water treatment at Greens

Creek reflects an anticipated need to treat

water discharged from the mine indefinite-

ly.

“They won’t have a lot of water to treat,

but it must be treated forever,” she added.

Hecla has a solid record of compliance

with Alaska’s water quality standards at

Greens Creek, but the geochemical materi-

als that will remain in the deposit when the

mine closes will likely be very mobile

when they come in contact with water, said

Allan S. Nakanishi, supervisor for the

Mining Section of the Division of Water at

the Alaska Department of Environmental

Conservation.

“If we cannot predict with confidence

when water treatment will no longer be

needed, we say, ‘perpetual’ or 100 years,

which is the foreseeable future,” said Kyle

Moselle, large mine project manager in the

Office of Project Management and

Permitting at the Alaska Department of

Natural Resources. With the new require-

ment in place, there is an expectation that

water draining from the mine site will con-

tinue to be treated, and Alaska has financial

assurance that this will occur going out 100

years, Moselle added.

Massive sulphide depositsGreens Creek is one of only two mines

in Alaska that produce metals from mas-

sive sulphide deposits; the Red Dog Mine

is the other.

Nakanishi said a similar review of the

reclamation and closure plan for Red Dog

is currently underway, but it is still early in

the process.

Ironically, naturally-occurring drainage

into one of the main creeks affected by

mining had no aquatic life before zinc and

lead production began at Red Dog. After

nearly 25 years of production at the

Northwest Alaska mine, Nakanishi said

Red Dog’s owners have actually improved

the water quality of the formerly “sterile”

creek to the point where it is habitable for

aquatic life; “fish and other wildlife are

slowly moving upstream.” l


GREENS CREEK

results from the BRX and Klaza zones,

two of nine main mineralized struc-

tures identified at the Klaza property

to date. Rockhaven CEO Matt Turner

says the company plans “to substan-

tially expand the resource this coming

year while advancing development-

related engineering and metallurgical

studies.”

DOLLY VARDEN SILVER Jan. 23

reported the appointment of former

HECLA MINING CO. consultant

Rosie Moore as interim president and

CEO. Former Dolly Varden President

and CEO George Heard has resigned

and stepped down from the board.

Moore, who formerly represented

Hecla on the Dolly Varden board of

directors, has 30 years mining experi-

ence. She has worked as an analyst

for a globally invested mining-

focused hedge fund and as a mineral

exploration geologist. Moore formerly

served as CEO and director of

GEOINFORMATICS EXPLORATIONINC., managing its takeover of

RIMFIRE MINERALS CORP. to yield

KISKA METALS CORP. Hecla can

now nominate another representative

to the Dolly Varden board. John King

Burns has returned from a leave of

absence and will serve as co-chair-

man of the board with Allan Marter.

KAMINAK GOLD CORP. Jan. 27

reported results from 21 holes of infill

drilling from the Kona deposit and

the discovery of a new mineralized

zone at the company’s Coffee gold

project in the Yukon Territory. The

only granite-hosted of four gold

deposits considered in a 2014 prelimi-

nary economic assessment, Kona con-

tributes roughly 26,000 ounces of

recoverable oxide gold at an average

diluted grade of 1.22 grams per met-

ric ton gold. Though contributing rel-

atively few ounces in the current

PEA, Kaminak says Kona, together

with the recently discovered and

high-grade Kona North, represent key

resource upside targets at Coffee. The

company says the 1,685 meters

drilled at Kona in 2014 confirmed the

existing Kona geological interpreta-

tion, providing additional confidence

in the location, geometry and continu-

ity of the mineralized lodes.

Condemnation drilling at Coffee cut

13.72 meters of 3.24 g/t gold within

the buffer zone of the proposed val-

ley-fill heap leach facility about 900

meters south of the Kona deposit.

While follow-up at this new discov-

ery, known as Dolce, is required, it is

not expected to impact the proposed

location or design of the heap leach

facility. Other notable intercepts from

the 4,175-meter condemnation pro-

gram, included 6.8 g/t gold over 3.5

meters at the northern edge of the

proposed west waste dump, interpret-

ed as the western extension of the

Sumatra deposit, and 1.08 g/t gold

over 13.71 meters at the proposed

north dump, interpreted as the north-

ern extension of the Supremo T7

deposit. Kaminak says this drilling

has not materially impacted the loca-

tion of any infrastructure; however,

some design modifications may be

required.l


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By KRISTEN NELSONPetroleum News

Field operations and gas projects

topped the list of priority issues iden-

tified by the oil and gas working group of

the transition team conference which

Alaska’s governor-elect, Bill Walker, and

Lt. Gov.-elect Byron Mallott assembled

in November after their election. The

transition report was released Jan. 21 and

is available online at

http://gov.alaska.gov/Walker/transition-

2014.html.

In releasing the report Walker said he

doesn’t expect to agree with every sug-

gestion, but said he would use the reports

to measure the interests of Alaskans in

issues at hand.

“This living document, sustained by

the relationships built during the confer-

ence, will be a valuable tool as we begin

to tackle the budget and review legisla-

tion for the coming year,” Walker said in

a statement.

Field operationsIn a summary of comments on the

field operations issue the report said two

themes emerged during the discussion of

field operations — that the administration

should have open discussions with indus-

try to determine how the state can work

more effectively with industry and that

state agencies need to be more responsive

to industry concerns. The report suggest-

ed that technical workshops might be a

way to accomplish that responsiveness.

The group discussed increasing pro-

duction, including incentivizing produc-

ers to explore and develop new opportu-

nities in new and legacy fields.

Providing access for “new competitive

entrants” was discussed, especially pro-

viding them with “reasonable and timely

access to existing field facilities.” The

report said there was contention in the

group as to how best to provide that

access and whether commercial negotia-

tions were sufficient with the majority of

the group of the opinion that commercial

negotiations were not sufficient “due to

disparities in the relative market power

among the stakeholders.”

The report said there was agreement

that regulation by the state of access to

facilities, if adopted, needed to be “time-

ly, on reasonable terms, and sensitive to

an existing owner’s investment in and

legacy use of such facilities.”

Existing regulatory issuesOn existing regulations there was con-

cern among many that requirements for

many routine approvals “were ill-defined

and inconsistently applied,” and that the

administration needed “to issue regula-

tions which more efficiently, consistently,

and timely resolve the approval process”

for routine activities.

DR&R, dismantling, removal and

restoration, were discussed and the group

agreed the state’s approach to DR&R

needed to be reviewed “to make sure that

the risk is equitably shared among stake-

holders.” A problem of potential regulato-

ry overlap was identified, and there were

comments that smaller oil companies “are

frustrated by the introduction of DR&R

bonding requirements into the lease

assignment process.” There was agree-

ment that greater clarity and consistency

is needed and “that the risks associated

with DR&R should be more broadly dis-

tributed.”

Another issue discussed was the

industry-supported 470 fund, used for oil

spills. The report noted that while only

the oil industry pays into the fund, it is

used “largely in support of commercial

shipping and other industry groups.”

The report said the group favored

expanding funding to include other indus-

try groups benefitting from the fund.

Gas projectConstruction of a large-diameter natu-

ral gas line for a liquefied natural gas

project is a “central goal for the new

administration,” the group said, urging

the Walker administration to maintain

momentum on the Alaska LNG project,

but also to “achieve a commitment to

build the AK LNG project through an

appropriately disciplined process.”

The administration should also con-

duct due diligence necessary to under-

stand and assess the project, “move for-

ward without inappropriate risk on either

side,” ensure Alaska’s needs are met and

encourage cooperation between the

Alaska LNG project and the in-state proj-

ect, the Alaska Stand Alone Pipeline.

Some members of the group were con-

cerned that there was not a current com-

mitment to build the Alaska LNG project;

others noted several steps need to be

taken by all participants, including the

state, before a commitment can be made.

There was concern about assessing the

LNG project in terms of how best to bring

the greatest net revenue to Alaska, as well

as contention over the extent to which the

new administration should be bound by

agreements reached by the prior adminis-

tration in Senate Bill 138 and the Heads

of Agreement.

Most in the group wanted a project

team formed to gather information, ana-

lyze the project and establish communi-

cation with the new administration and

the industry on revenue sharing between

the state and industry.

While there was agreement that the

administration should maintain momen-

tum for the construction of a large-diam-

eter gas line; some wanted to also see

momentum maintained for the in-state

line, the Alaska Stand Alone Pipeline.

The group was concerned that industry

may not progress the Alaska LNG proj-

ect, or that the state “may accept an inap-

propriate amount of risk or uncertainty,”

and a request that the Walker administra-

tion communicate and interact with

industry frequently and periodically

report the status and agreements to the

Legislature and the public. l


Operations, gas line transition focusReport from governor’s oil and gas team prioritizes field operations, gas, tax policy, government efficiency, offshore development


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Director, Division of Oil & Gas, Department of Natural Resources,

State of AlaskaThe State of Alaska is recruiting for the Director of the Division of Oil and Gas. This a very exciting and rewarding position that works closely with the Commissioner’s office to manage all Oil & Gas activities for the Department of Natural Resources. The successful candidate will direct the daily activities of a diverse group of professional staff that administers land, oil and gas leases, royalties and sub-surface management of the State’s oil & gas endowment.

Job Duties: • Negotiate, draft and administer agreements between the State, the oil industry, Native corporations, local governments, the federal government, and private individuals to advance and ensure responsible resource management and development • Execute laws, rules, regulations and orders adopted by the Commissioner. • Implement and support initiatives of the Governor and Commissioner. • Consult with the Attorney General’s Office to provide support and/or testimony in litigation or legal negotiations; • Lead and collaborate with a diverse team of geoscientists, engineers, leasing, accounting, permitting, commercial, economic and legal professionals • Implement process management improvement and quality management • Testify at legislative hearings

The successful candidate will demonstrate excellent skills and work experience with: • Alaska oil and gas issues. • Technical aspects of oil and gas exploration and development • Alaska Statutes, especially Title 38 and Title 31, and Alaska Regulations, especially Title 11 and Title 20. • Strong project management, teamwork, and leadership experience and abilities. • Outstanding communication skills. • Strong negotiation and problem solving skills.

Education:Required: College degree in petroleum engineering or geosciences. Secondarily preferred: Master’s degree in a related field including resource management or law.

Selection Process:The interview process may include up to three interviews. The successful applicant will be appointed by the Governor of the State of Alaska, and serves at the pleasure of the Governor and the Commissioner, Department of Natural Resources. Starting salary is dependent upon qualifications and experience.

To Apply:Please submit the following items via e-mail to [email protected] before 5:00 p.m. on February 8, 2015:

1. Resume (detailing applicable knowledge and experience); 2. List of three (3) professional references, at least one of which must be a current or past supervisor.

Notice to Applicants:The State of Alaska complies with Title I of the Americans with Disabilities Act (ADA). Individuals with disabilities, who require accommodation, auxiliary aids or services, or alternative communication formats, please call 1-800-587-0430; or 465-4095 in Juneau; or (907) 465-3412 (TTY); or correspond with the Division of Personnel & Labor Relations at 10th Fl. State Office Building, PO Box 110201, Juneau, AK 99811. The State of Alaska is an equal opportunity employer.

15G-10-053


On the move in BC Montney


A rtek Exploration, a nimble-footed

Canadian exploration and production

junior, has posted some of the strongest ini-

tial results from its program in British

Columbia’s liquids-rich Montney play.

A horizontal well that the company

drilled and completed during the final

quarter of 2014 yielded a controlled 1,147

barrels of oil equivalent per day (70 per-

cent oil and condensate), rated as one of

the best 30-day liquids rates from the

Montney or any other formation in the

province.

It is also a step forward from Artek’s

initial well which averaged 903 boe per

day (77 percent liquids) in its first 30 days,

making the well among the leading two

during the first three quarters in British

Columbia.

Artek has a 59 percent working interest

in almost 100,000 acres of Montney rights

in the greater Inga/Firewood area, which is

being developed with four to eight wells

per section, making it the focus of the com-

pany’s program.

But its other play in the Doig formation

has also generated positive results, with

one of two horizontal wells flowing at

1,959 boe per day (73 percent oil and con-

densate) over its initial 30 days.

The latest Inga/Firewood well was

completed with a 36-stage slickwater

frack, while the Doig well was completed

with a 22-stage slickwater frack.

The second Doig well, completed with

a 29-stage slickwater frack, averaged a

controlled 1,280 boe per day (77 percent

oil and condensate).

To strengthen its prospects in

Inga/Firewood, Artek — in partnership

with Kelt Exploration — acquired 56,000

gross acres (with a 50 percent working

interest) in December, including 2,275

acres of Montney rights, for C$10.6 mil-

lion.

Artek’s stake includes 2.7 million cubic

feet equivalent per day (67 percent gas) of

production and proved plus probable

reserves of 13.2 billion cubic feet equiva-

lent (53 percent gas), plus four compres-

sion facilities, 170 miles of pipeline and an

oil battery/terminal.

The company expected 2014 volumes

to average 25.2 million cubic feet equiva-

lent per day (39 percent liquids) and plans

to release additional guidance for 2015

within a few weeks.

To help finance its operations, Artek

sold non-core assets in the Peace River

Arch area of northwestern Alberta, includ-

ing production of 2.4 million cubic feet

equivalent per day and proved plus proba-

ble reserves of 22.2 billion cubic feet

equivalent as well as 22,690 net acres in

Alberta.

Artek, which started as a private com-

pany 10 years ago, describes its primary

objective as deploying “strong technical

expertise” in its core areas, along with

“opportunistic acquisitions” that have

drilling upside and offer a competitive

advantage. l

ENVIRONMENT & SAFETYEPA proposes revised spill response regs

The Environmental Protection Agency has proposed regulations specifying new and

revised toxicity and efficacy tests for dispersants and other chemicals used in offshore

oil spill responses. The new regulations, which come in reaction to issues raised during

the 2010 Deepwater Horizon oil spill in

the Gulf of Mexico, also include require-

ments for manufacturers to provide addi-

tional health and safety information for

the regulated materials.

The regulations also spell out revised

area planning requirements for the

authorization of the use of chemical and

biological agents, as well as new disper-

sant monitoring requirements when deal-

ing with some oil discharge situations.

“Our emergency officials need the best

available science and safety information to make informed spill response decisions

when evaluating the use of specific products on oil discharges,” said Mathy Stanislaus,

assistant administrator for EPA’s Office of Solid Waste and Emergency Response. “Our

proposed amendments incorporate scientific advances and lessons learned from the

application of spill-mitigating substances in response to oil discharges and will help

ensure that the emergency planners and responders are well-equipped to protect human

health and the environment.”

According to a preamble to the proposed regulations, the response to the Deepwater

Horizon spill involved the deployment of more than 1 million gallons of dispersant

onto surface oil slicks over a three-month period, and the injection of three quarters of

a million gallons of dispersants into the oil flowing from the out-of-control well. EPA

is now trying to address questions over the efficacy, toxicity, environmental tradeoffs

and monitoring challenges that this dispersant usage raised, EPA said in the preamble.

—ALAN BAILEY

The regulations also spell outrevised area planning

requirements for the authorizationof the use of chemical and

biological agents, as well as newdispersant monitoring

requirements when dealing withsome oil discharge situations.

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NATURAL GASChugach, AIX sign supply agreement

Chugach Electric Association could soon start buying natural gas from AIX

Energy LLC under the terms of a supply agreement the two parties closed toward

the end of last year.

The deal is the first since the Houston-based AIX Energy acquired the Kenai

Loop field from previous operator Buccaneer Energy Ltd., which filed for bank-

ruptcy in late May 2014.

“The contract provides flexibility in both the purchase price and volumes, with

specific prices and volumes to be determined by each transaction,” Chugach

Senior Vice President for Strategic Development and Regulatory Affairs Lee D.

Thibert told the Regulatory Commission of Alaska on Jan. 15. That said, the con-

tract caps prices at $6.24 per thousand cubic feet and caps volumes at 300 million

cubic feet, meaning that Chugach would spend no more than $1.9 million during

the nearly yearlong contract.

Interruptible contractThe interruptible contract allows Chugach or AIX Energy to choose to buy or

sell volumes as needed, although Chugach said it expected to need the available

volumes.

Although the companies signed the deal on Dec. 22, 2014, it only came to light

after Chugach asked regulators for permission to recover the gas purchases

through its rates.

While utilities typically seek regulatory approval for gas supply agreements,

Chugach is maintaining that regulatory approval isn’t required for deals lasting

less than a year.

Given the leap year in 2016, the deal between Chugach and AIX Energy holds

the distinction of running for 365 days and also for one day shy of a full calendar

year.

The state is taking comments on the request through Feb. 20.

Although AIX Energy acquired the Alaska assets of Buccaneer through a bank-

ruptcy auction last year, Buccaneer is still the official leaseholder, according to

state records.

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ENVIRONMENT & SAFETYDOE cites carbon sequestration success

The Department of Energy has announced the successful storage of 1 million

metric tons of carbon dioxide in a deep saline formation in Illinois. The project

comes as part of a major DOE sponsored carbon capture and storage research pro-

gram involving partnerships between DOE, state agencies, universities and pri-

vate companies. DOE says that the Illinois project contributes to President

Obama’s all-of-the-above energy strategy.

“This milestone is an important step towards the widespread deployment of

carbon capture technologies in real-world settings,” said Energy Secretary Ernest

Moniz. “The successful testing of these technologies and the lessons learned sup-

port a range of industries in the region, while also reducing the amount of emis-

sions in the atmosphere and protecting the planet at the same time.”

The Illinois project involves the capture of carbon dioxide from the Arthur

Daniels Midland Co.’s ethanol production facility in Decatur, Illinois, the com-

pression of the gas and the transportation of the gas through a mile-long pipeline

for injection into the Mount Simon sandstone formation 7,000 feet below the sur-

face. The injection test, which began in 2011, performed better than expected,

with pressures sustained well below regulatory limits, DOE says. A 300-foot thick

shale formation acts a seal inhibiting upward migration of the injected carbon

dioxide, which is expected to remain hundreds of feet below the shale for 100

years, the department says.

The Illinois State Geological Survey is leading a consortium called the

Midwest Geological Sequestration Consortium to evaluate options for carbon

sequestration and storage in the Illinois basin, a 60,000-square-mile geologic

basin that underlies most of Illinois, southwestern Indiana and western Kentucky,

DOE says.

—ALAN BAILEY

Oil sector should see job growth in 2015Even with declining oil prices, the Alaska Department of Labor and Workforce

Development expects inertia to keep oil industry employment growing this year.

The department expects the oil and gas

sector to add 200 jobs this year, which would

represent 1.4 percent growth over 2014,

according to an analysis from state econo-

mist Caroline Schultz in the January 2015

issue of Alaska Economic Trends. According

to preliminary figures, the oil and gas sector,

which includes service companies, added

some 500 jobs in 2014, which would represent 3.5 percent growth. Current oil

industry employment is about 14,800, up 200 over a year ago, according to the

state.

The growth in employment will come from development work at the

ExxonMobil-operated Point Thomson unit, the ConocoPhillips-operated Kuparuk

River unit and Colville River unit, appraisal activities from Repsol E&P USA and

Caelus Natural Resources Alaska.

Already this year, BP Exploration (Alaska) Inc. laid off some 275 employees

as part of its sale of assets to Hilcorp Alaska LLC. Hilcorp is expected to rehire

many of the employees. And CH2MHill recently ended attempts to sell most of

its Alaska operation.

The small increase in oil sector jobs will be an anomaly this year, according to

the department, which is predicting flat job growth for the state overall, as small

gains in the private sector offset small losses in the public sector, particularly fed-

eral employment.

Oil industry employment in Alaska is closely correlated with oil prices. Over

the past quarter century, the two have moved nearly in lockstep, despite steadily

declining production and various fiscal systems, according to a 2008 study from

the department.

—ERIC LIDJI

FINANCE & ECONOMY

Current oil industryemployment is about 14,800,

up 200 over a year ago,according to the state.


Nikaitchuq primedfor royalty reductionFalling oil prices likely to trigger a reduction in royalty rate onthree leases at Eni US Operating’s offshore North Slope unit

By ERIC LIDJIFor Petroleum News

I f oil prices remain at their current levels

over the coming weeks, they will trigger

a reduction in the royalty rate at the

youngest producing oil field on the North

Slope.

Should the average monthly price of

Alaska North Slope crude oil fall below $48

per barrel, the royalty rate at the Nikaitchuq

unit would automatically drop to 5 percent

under the terms of a royalty modification

the state approved for the unit back in

January 2008.

If the change occurs, the state would take

less revenue from the unit than it currently

does, and unit operator Eni US Operating

Co. Inc. would keep more of the revenue it

currently generates, although the specifics

of the arrangement would temper the

impact.

The exact financial value of the change

is difficult to measure because it depends on

the price of oil and the amount of produc-

tion, both of which are always fluctuating.

But if oil prices remained just below the $48

per barrel threshold and oil production

remained constant, the state would lose

some $1.026 million per month from the

reduced royalty.

Eni requested royalty modification in

October 2007, as it was deciding whether to

sanction a major development effort at the

Nikaitchuq unit, off the coast of Oliktok

Point.

After determining that the project “does

not meet prudent-investor standards for eco-

nomic feasibility,” the Alaska Department

of Natural Resources approved the request

in January 2008. The approval came with

terms, many of which are important today.

First, the 5 percent royalty rate would

only goes into effect when oil prices fell

below $42.64 per barrel, a threshold adjust-

ed for inflation each May for the coming

year.

Through the end of April 2015, the

threshold is $48 per barrel, according to the

state.

Regardless of oil prices, the royalty

modification would also go into effect if

production falls below 4,000 barrels per day

during the first 10 years of sustained pro-

duction.

Second, the royalty rate would only go

into effect if Eni spent $822 million on

Nikaitchuq activities through the first six

years of development and $1.398 billion

through the first 11 years. The company has

met the first target, according to the state.

Third, the royalty reduction would only

cover production from the Schrader Bluff

OA reservoir. Recently, Eni has been

appraising the potential of the Schrader

Bluff N reservoir and has expressed an

interest in a Sag River reservoir at

Nikaitchuq. If the company ultimately sanc-

tions those pools, neither would qualify for

royalty reduction.

Fourth, the royalty reduction only

applies to production from leases commit-

ted to a participating area within six years of

the project being sanctioned. So even

though Eni is currently producing oil from

11 leases at the Nikaitchuq unit, only pro-

duction from the three leases in the

Schrader Bluff participating area qualify for

royalty reduction.

Fifth, the royalty modification program

ends after 25 years of sustained production.

When Eni sanctioned a $1.45 billion

development program at Nikaitchuq in

January 2008, Alaska oil prices were aver-

aging some $91 per barrel. When the unit

entered sustained production in April 2011,

Alaska oil prices were averaging some $120

per barrel.

On January 23, Alaska oil prices aver-

aged $46.74 per barrel.

The royalty modification program has

been used somewhat sparingly in Alaska,

with only three projects approved for modi-

fied royalty terms over the past two

decades.

Before Nikaitchuq, the state modified

the royalty rates on nine leases at the

Pioneer Natural Resources Alaska Inc.

operated Oooguruk unit. Earlier this year,

the state lowered the royalty rate on the five

Oooguruk leases associated with the Nuna

satellite of the offshore field, which is now

operated by Caelus Natural Resources

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terms by Alberta Premier Jim Prentice,

who said low oil prices are removing the

support structure under his province.

He suggested the current conditions

are worse than the crude-price crash in

the 1980s when Alberta lost 50,000 jobs,

house prices dropped by 40 percent and

many, mostly U.S. controlled, oil and gas

companies abandoned Canada and did

not start returning in even small numbers

for many years.

CAPP sees C$23B cutIn the initial response to a gloomy out-

look, the Canadian Association of

Petroleum Producers forecast exploration

and production companies will slash C$23

billion from their capital spending in

Western Canada this year, lowering

expected production in 2016 by 120,000

barrels per day.

In updating its short-term forecast,

CAPP estimated capital spending will total

C$46 billion compared with C$69 billion

in 2014.

But it expects the oil sands sector will

suffer the least, dropping to C$25 billion

from last year’s C$33 billion.

CAPP President Tim McMillan said the

downward trends will not change the need

for the industry to build new pipelines

across North America to expand and diver-

sify export options.

“No question, the effects on the indus-

try are sharp, but we continue to need all

forms of transportation in all directions —

pipelines in particular,” he said.

CAPP forecast that the number of wells

to be drilled in Western Canada will

decline by 30 percent from last year to

7,350 wells — a cutback that will extend

to 2,300 support businesses across

Canada. Job losses are projected to reach

about 23,000.

The revised 2015 forecast for Western

Canadian oil production is now 3.6 million

bpd, about 150,000 bpd higher than 2014,

before the budget cuts take their bite.

Conventional production is expected to

be flat at 1.3 million bpd this year, while

the oil sands will rise to 2.3 million bpd as

projects come on stream from earlier

investments.

Governments expected to lose C$14.3BThe Conference Board of Canada said

the Canadian government alone will lose

C$4.3 billion this year from the collapse of

oil prices, while provincial revenues will

drop by almost C$10 billion.

However, the board is more optimistic

on the price outlook than other forecasters,

with its economists reckoning that the mar-

ket has likely hit bottom.

The report forecasts that West Texas

Intermediate will climb above US$60 a bar-

rel by the end of 2015, with an average

price for the year of US$56, compared with

US$93.20 in 2014.

The board said the Alberta economy

could slip into recession, a claim rejected by

Premier Jim Prentice, while Saskatchewan

and Newfoundland (Canada’s other signifi-

cant oil producing provinces) will feel the

pain from lower royalties.

Suncor Energy, the dominant oil sands

player, offered an even stronger ray of opti-

mism when it rated low prices as a tempo-

rary inconvenience.

Chief Financial Officer Alister Cowan

told investors his company will not delay its

biggest long-term growth projects because

it expects crude oil prices to double from

current levels to a US$90-US$100 range

within the next three or four years. l


GOVERNMENTWalker names new AOGCC commissioner

Alaska Gov. Bill Walker has named a new commissioner to the Alaska Oil and

Gas Conservation Commission. Michael Gallagher replaces David Mayberry in

the public seat on the commission.

In an email the governor’s office said Gallagher has more than 38 years of

experience in the oil and gas, civil and vertical construction industries and cited

his “extensive knowledge in project management, maintenance and operations,

and human resource management.”

Gallagher most recently was project manager for the Alaska Laborers Training

School, overseeing construction of the $11 million facility.

Previously Gallagher spent more than 17 years as business manager for Local

341 of the Laborers International Union of North America. Gallagher also served

as vice president of the Alaska AFL-CIO for more than 10 years.

Mayberry, appointed by former Gov. Sean Parnell in July, had not been con-

firmed by the Legislature.

—PETROLEUM NEWS


PRICE SHOCK

to drill this coming summer season.”

But Shell still needs quite a few of its

key permits for the Chukchi Sea opera-

tions, he said.

The company’s Chukchi drilling plans

have been on hold as a consequence of a

continuing appeal against the legality of

the 2008 lease sale in which the company

purchased its Chukchi Sea leases — the

Bureau of Ocean Energy Management

anticipates issuing a new record of deci-

sion for that lease sale in March, in

response to a court order resulting from

the appeal. The agency cannot approve

Shell’s Chukchi Sea exploration plan

until the new lease decision has been

issued.

In addition, the 9th Circuit Court of

Appeals has yet to rule on an appeal

against the validity of Shell’s oil spill

response plan for its Chukchi Sea opera-

tions.

Shell Chief Financial Officer Simon

Henry said that this year’s drilling opera-

tion would cost more than $1 billion, if it

goes ahead. And if the operation cannot

proceed, it will still cost nearly $1 billion,

because of Shell’s commitment to retain

the fleet of ships that it needs for the

drilling, Henry said, adding that the proj-

ect is as much an exercise in logistics as it

is a drilling operation. Van Beurden

likened the complex supply chain

required for drilling in the remote

Chukchi to running a North Sea drilling

operation out of New York.

Henry said that given the cost of

Shell’s Alaska venture and the company’s

total planned capital expenditure of $4

billion on worldwide exploration in 2015,

spending outside Alaska would be limited

to $3 billion, a reduction from 2014

spending levels.

In the Chukchi Sea, Shell plans to drill

in its Burger prospect, about 80 miles off-

shore the western end of the North Slope,

using two drilling vessels: the Noble

Discoverer and the Polar Pioneer. Burger

contains a known major natural gas pool,

but Shell thinks that the structure is also

likely to hold oil.

—ALAN BAILEY

goal of bringing affordable natural gas to

Interior Alaska” and said its acquisition of

Pentex would promote an integrated gas

distribution system that can be built and

operated in a more efficient manner for

the benefit of Fairbanks and North Pole

residents and businesses.

Fairbanks Natural Gas delivers

trucked liquefied natural gas from Cook

Inlet to Fairbanks, serving some 1,120

customers.

A second gas distribution utility, the

Interior Gas Utility, certified by the

Regulatory Commission of Alaska in late

2013, will serve customers in both

Fairbanks and North Pole, beginning with

deliveries in North Pole in 2016 and

expanding its distribution system to serve

as many as 12,000 customers by 2027.

Hilcorp Alaska LLC subsidiary

Harvest Alaska LLC is in the process of

purchasing the Titan Alaska LNG facility

at Port Mackenzie, with plans to expand

the facility, a purchase announced in

November. Titan and FNG are both sub-

sidiaries of Pentex.

In a Jan. 29 statement Harvest said the

AIDEA announcement was “unexpect-

ed,” but that Hilcorp and Harvest “share

the desire to get cleaner, more affordable

energy to the Interior as soon as possi-

ble,” and said the companies look forward

to collaborating with AIDEA and the state

on the effort.

“We don’t fully understand yet how

this will affect our existing agreement to

purchase the Point Mackenzie LNG facil-

ity, but we think Harvest is the best can-

didate to own, operate and quickly

advance efforts to expand LNG deliveries

to the Alaskan Interior. In fact, we are

working on plans that could provide

incremental LNG capacity within 18

months,” Harvest President Sean Kolassa

said in a statement.

Gov. Bill Walker said, “It is important

that we keep our eye on the immediate

goal of bringing energy relief to Interior

Alaska. AIDEA’s initiative to help

streamline gas distribution systems in the

Interior is a positive development.”

AIDEA Board Chairman Dana Pruhs

said “Pentex, under AIDEA ownership,

will work closely with the community

and utilities to reduce construction and

operation costs for both natural gas distri-

bution systems. This efficient approach

will lead to lower cost energy for con-

sumers.”

—KRISTEN NELSON


CHUKCHI DRILLING


AIDEA BUY

In updating its short-term forecast,CAPP estimated capital spendingwill total C$46 billion compared

with C$69 billion in 2014.


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Oil Patch BitsGCI Industrial Telecom celebrates 5 years in Texas

GCI Industrial Telecom, a division of GCI, said it is celebrating the fifth anniversary ofits field office in Houston, Texas. GCI Industrial Telecom continues to support the commu-nication needs of the energy sector throughout Alaska and the Gulf of Mexico/Texasregions with proven technical and engineering expertise and competitive professionalservices.

“Our clients asked us about 6 years back for a bigger presence in the Houston andGulf of Mexico markets and we responded. Our team continues to grow, and today wemanage over 25 satellite systems and have over 20 full time teammates based out ofTexas and Louisiana. We are building relationships built on trust and performance.” saidGCI Industrial Telecom Senior Director Rick Hansen. GOM Regional Manager Jon Legatoadded “Our clients share our focus on safe, competitive, and professional telecommunica-tion services. Our operations and maintenance team becomes an integrated part of ourclient’s operations, especially on their offshore facilities. We are bringing value to ourclients’ projects.”

With fully staffed offices in Deadhorse and Anchorage, Alaska, and Houston, Texas, GCIIndustrial Telecom employs more than 150 professional telecommunication engineers,project managers and technicians to support the full life cycles of industrial and remoteoperations. For more information visit www.gci.com/industrialtelecom or call toll-free at877-411-1484.

Northern Air Cargo announces new hires and promotionsAnchorage based Northern Aviation

Services said it recently appointed DaveSquier to chief operating officer of the com-pany. Squier previously held the position ofvice president of cargo services ofAnchorage based subsidiary Northern AirCargo. In his new capacity Squier will haveoversight of cargo and ground operations atboth NAC and Honolulu, Hawaii-based sub-sidiary Aloha Air Cargo.

Northern Air Cargo also recently hiredSami Glascott for the position of chief oper-ating officer. Glascott previously served as director of sales for NAC and formerly as presi-dent and CEO of the Anchorage Chamber of Commerce and regulatory affairs manager atthe Alaska Oil and Gas Association. Glascott holds a master’s degree in public administra-tion from the University of Alaska Anchorage, a Foraker Certificate in non-profit manage-ment and a bachelor’s degree in geology from Colorado College.

Brian Heath has assumed the position of general manager of Northern Air

SAMI GLASCOTTDAVE SQUIER

see OIL PATCH BITS page 22

Johnson: I think that we have to contin-

ue to advance a natural gas pipeline.

We’ve worked very hard on that. We’ve

done some very good work on that. That’s

one of my top priorities. I think it’s impor-

tant to the committee and the Legislature

as a whole. I’m a little concerned that

there is a perception that it’s being slowed

down We have to keep an eye on the

future. Budgeting is tough — budgeting is

going to be very difficult. It’s going to be

the weight round everyone’s neck. We

can’t abandon our children. We can’t aban-

don future generations. We’ve put away

money for occasions such as this. As the

governor says, I don’t think we are in a

crisis either but I think we ought to be

very concerned that we spend money

wisely, and we do govern the right way.

Once again we can’t abandon projects that

are going to be a revenue source and a

source of reasonable energy for the

Interior and hopefully all of Alaska, and

diversify our economy. The industries are

available once you get a dependable ener-

gy source. I see it as a way to diversify

and we can’t abandon them. If you go

back to the ’80s, Susitna Dam was aban-

doned because of the price of oil. The

Knik Arm Bridge was abandoned because

of the price of oil. If we had a Susitna

Dam and were paying less for electricity,

who knows what industries could have

sprung up. It’s important to me that we not

lose vision of the future while being very

cognizant of what’s going on today in

terms of money.

Petroleum News: Have you heardenough from the governor yet on his visionfor the gas line?

Johnson: No I haven’t. I’m concerned

about his continued lawsuit for Point

Thomson. If you talk to anyone who has

been around in this building for a while

they will tell you that without Point

Thomson, there will be no gas line. That is

a given. There is not enough gas up there

to continue to bring the oil up and fuel that

pipeline. So without it, it’s gone. I’m con-

cerned that the governor is still involved in

that lawsuit.

Petroleum News: Now, he did say lastweek that it will be resolved. He did sayyes when asked whether that meant out ofcourt.

Johnson: Well, is that a settlement? Is

that him dropping it? Is it going to be

something that adds expense to it? So I

don’t know the answer, so I’m still con-

cerned. Is it settled on his part because

he’s turned it over to someone else? I want

to know the definitions of settled. Is it for

him or is it really going away? So those

are things I want to see. He uses terms like

tidewater. Now he explained that. He also

said he’s been working on a pipeline for

37 years. Those kind of things.

And when you remove that kind of

experience from the AGDC board — that

concerns me. The two projects run paral-

lel. They are designed to come together.

Basically north of Fairbanks is the big

line; south of Fairbanks is ASAP. If the big

line fails then the information from

Prudhoe to Fairbanks goes to the small

line.

If it goes then the information from

south of Fairbanks to Nikiski goes to the

big line, so we are not wasting money.

Everyone says you can’t have two

pipelines. Well, everyone knows you can’t

have two pipelines. It was designed to

work together and merge.

Those confidentiality agreements are

very important to that process. It concerns

me that he won’t let anyone but Marty

Rutherford sign those agreements. It she

going to be the only one making those

decisions? It is going to be made in a vac-

uum? So those kind of things: not under-

standing how it was designed; what was

done; the years of work quite frankly by

the members of this body, members of the

committee; the speaker (Mike Chenault)

and Mike Hawker particularly designing it,

putting it together and building it in such a

way that it was a merger of the two.

I think that is something that the gover-

nor has lost or doesn’t understand that

concept that concerns me. Now can he

learn it? Absolutely. When he and his peo-

ple start reading the bills and seeing what

was done, will a light go off? Hopefully.

He’s a smart man. So those are concerns

that I have. Are they insurmountable? No.

Am I pessimistic? No. But I’m cautious. I

think we need to be ready to respond in

the event that it goes in a different direc-

tion.

Petroleum News: The governor hasbrought two people onboard that in thepast have differed philosophically with theLegislature: Mark Myers and MartyRutherford. How is that working for youright now?

Johnson: I’m not sure Mark and Marty

don’t bring different philosophies between

themselves. Once we have a chance to talk

to Mark and vet him, we’ll know. I’ve

worked with Marty during ACES and

AGIA, so I kind of know where she is

coming from.

Also, she’s been in the private sector

for a number of years. That has a way of

changing someone’s attitude. I don’t want

to say she has been a career bureaucrat but

someone who has been in that game long

enough to know what’s going on then

stepping over to the other side. That’s a

very enlightening opportunity for people.

We don’t have enough private sector peo-

ple in government. Hopefully she can

merge what she knew and what she’s

learned into something that will advance

the state in a project that can help the state

monetize our gas. In my conversations,

I’m not as concerned about Marty. I think

she has a pretty good handle on what we

did in forming the standalone pipeline

project, the bills and legislation that

enabled the creation. I think she sees that

maybe there is some merit to it. But that

remains to be seen. I don’t want to put

words into her mouth. I am cautiously

optimistic that she gets it.

Petroleum News: It sounds like you’rewilling to listen and offer a benefit of thedoubt still.

Johnson: That’s absolutely it. I would-

n’t be doing my job if I wasn’t. I’m not the

smartest in this building. I’ll tell you that

right now. There are people who know a

lot more than me. So I depend on those

people. I’m pretty hard to fool. I’m really

hard to fool twice. I’m going to give them

the benefit of the doubt, but I’m not going

to wait very long if I see things going off

track before I start screaming and hollering

and using what little power I have to bring

it back. The ultimate goal is to monetize

that resource. Every delay and every bit of

lack of confidence in a partner, that indeci-

sion causes great consternation in board

rooms. I can just see the boards of Exxon,

BP and Conoco are sitting around and say-

ing what’s he going to do? I’m sure they

are saying that a lot. I hate to use the term

alignment because it’s over used, but

unless we have a certain alignment, this

isn’t going to work.

Petroleum News: On to the topic thatnever seems to go away: oil taxes. I knowoil taxes didn’t cause the budget shortfallthe state faces, but the issue of getting it

right prevails. What’s your take on that?Johnson: The budget shortfall is

because of oil prices. And we have a

spending problem. And we have a revenue

problem. The way you solve that problem

is the price of oil going up and getting

more oil in the pipeline. I think SB 21 gets

more oil in the pipeline. Will it go away?

No. But there will be disingenuous people

out there who had a different agenda. They

lost the vote saying we need to change it. I

think that the production tax is one ele-

ment of SB 21. Now, are there elements of

that package that may not have been per-

fect, but have we given it a chance? No. If

we don’t have a healthy oil industry we

will not have a natural gas pipeline. If the

oil companies decide they don’t want to

continue to develop and continue to invest,

you’re not going to have a bunch of com-

panies coming in here saying let’s invest in

gas. It’s not going to happen. So we have

to have that healthy oil business to keep

TAPS going and I think SB 21 is our best

shot so far. Time will tell, but I’m very

reluctant to start tweaking some of those

levers. l



JOHNSON Q&A

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nation’s domestic energy resources is a

key part of the president’s efforts to sup-

port American jobs and reduce our

dependence on foreign oil,” said Interior

Secretary Sally Jewell when announcing

the draft plan. “This is a balanced propos-

al that would make available nearly 80

percent of the undiscovered technically

recoverable resources, while protecting

areas that are simply too special to devel-

op.”

The proposed plan adds the Hanna

Shoal area of the Chukchi Sea to the list

of areas excluded from oil and gas leasing

because of environmental concerns.

Interior says that scientific research has

found this area to be of critical impor-

tance to many marine species, including

Pacific walruses and bearded seals. Four

other areas withdrawn from leasing in the

Chukchi and Beaufort seas had already

been excluded from leasing in the current

2012-2017 lease sale plan.

The Hanna Shoal lies under a broad

area of relatively shallow water in the

northeastern Chukchi Sea.

Presidential withdrawalsIn an order coinciding with the publi-

cation of the draft lease sale plan

President Obama announced that he is

withdrawing indefinitely from future

lease sales the exclusion areas that are

specified for the Chukchi and Beaufort

seas, including the Hanna Shoal. The

rights of the holders of existing leases in

the withdrawn areas will not be altered by

the president’s order. Under the terms of

the lease sale plan, the exclusion areas

had been deferred from leasing, leaving

open the possibility of incorporating the

areas into a future lease sale program. The

president’s withdrawal order makes the

exclusions more permanent in nature.

A statement from the White House

says that, in placing 9.8 million acres of

the Beaufort and Chukchi seas indefinite-

ly off limits to leasing, President Obama

is taking another step to protect the

nation’s most valuable natural resources.

“Teeming with biological diversity,

these areas in the Beaufort and Chukchi

are part of one of the last great marine

wildernesses left untouched by develop-

ment,” the statement says.

The statement also comments that the

president’s all-of-the-above energy strate-

gy has supported economic growth and

helped reduce U.S. dependence on for-

eign oil.

“But even as we consider new places

that may be appropriate to responsibly

develop oil and gas, we can take mean-

ingful steps to protect areas that matter

most for our environment, our Native

communities and our cultural identity,”

the statement says.

Plan componentsWhile Interior has placed some new

restrictions on future leasing in the Arctic

offshore, the agency has at the same time

broadened the outer continental shelf

leasing program by including in its pro-

posed five-year lease sale plan a lease

sale in the Atlantic, off the U.S. East

Coast. However, areas offshore the

Pacific coast remain closed to oil and gas

leasing, and a section of the eastern Gulf

of Mexico remains off limits.

Under the proposed plan, a lease sale

for the Beaufort Sea outer continental

shelf would be held in 2020; a sale for the

federal waters of lower Cook Inlet would

take place in 2021; and a Chukchi Sea

lease sale would be scheduled for 2022.

In addition to the new lease-sale exclu-

sion area over the Hanna Shoal, the

Chukchi Sea lease sale would continue to

exclude a 25-mile-wide buffer zone along

the coast, as well as some subsistence

hunting areas in the Chukchi and

Beaufort seas. The proposed plan says

that some other potential areas of deferral,

such as the Barrow Canyon and Camden

Bay, may be considered for the lease sale

program.

Cook InletIn Cook Inlet, Interior proposes limit-

ing its lease sale to the northern portion of

the federal Cook Inlet planning area, to

balance the need to protect endangered

species with the need to make available

areas with the highest hydrocarbon

resource potential. As part of the lease

sale program it may also prove necessary

to instigate some land area deferrals to

protect the critical habitats of the beluga

whales and sea otters, the proposed lease

sale plan says.

The North Aleutian basin in the Bristol

Bay area remains excluded from oil and

gas lease sales following President

Obama’s December 2014 withdrawal of

the area from future leasing.

“Options for the Alaska region take

into account the expressed support of the

State of Alaska for OCS oil and gas activ-

ity in the Arctic areas and Cook Inlet, as

well as the conditional support of the

local Alaska Natives for a targeted leasing

strategy, existing leases and/or activity in

federal and/or state waters; significant

estimated resources, and substantial

industry interest,” the proposed plan says.

For the Gulf of Mexico, Interior plans

to conduct a series of region-wide lease

sales that would each encompass the

entirety of available acreage in western,

central and eastern Gulf — in the past

there have been separate sales for the

each part of the Gulf. The plan envisages

two Gulf of Mexico sales per year,


Providing project management professionals for major projects throughout Alaska and the world for over 30 years.


OCS SALES

see OCS SALES page 24

Maintenance Services, a subsidiary ofNorthern Air Cargo and will oversee themanagement of NAMS ground services.

Bob Reith, a 23.5-year employee ofNAC, most recently serving as director ofground operations of its subsidiary NAMS,has transitioned to the new position ofdirector of Deadhorse operations forNAMS.

Lorrie Rogers joined the NAC staff asmanager of technical publications. Lorriecomes to NAC from PenAir where sheworked for nine years in their technicalpublications department and brings com-prehensive experience in technical writing,editing, proofreading and publishing com-pany manuals. For more information visitwww.northernaircargo.com.

CGG GeoSoftware winsHouston Business MarketingAssociation Award

The North America and Latin Americamarketing team for CGG GeoSoftware hasearned first place in the qualitative andquantitative market research category ofthe 2014 annual marketing research awardbestowed by the Business MarketingAssociation of Houston. This is the firsttime CGG has entered the association’sannual Lantern Awards competition.

The marketing team created a survey togain a greater understanding of its targetaudience under the geological and geo-physical umbrella — geologists, geophysi-cists, petrophysicists, reservoir engineersand completions engineers. An initial tele-phone invitation encouraged prospectiveclients to participate in a comprehensiveand highly confidential research study onG&G software and services. Respondentsreceived a complimentary summary of theresults in an analyzed report.

Mike Eyre, North America region man-ager, GeoSoftware, CGG, said: “We recog-nized that existing industry studies failedto focus on the usage and satisfaction ofG&G software users within the oil and gasexploration and production industry inNorth America. We utilized the researchapproach to gain the trust and attention ofour key prospects while using the surveyas a tool to effectively qualify accounts asgood sales leads for our technology.”

BMA Houston celebrated 26 years ofmarketing excellence during its 2014 pre-miere awards event in Texas. BMA Houstoncreated the Lantern Awards of Texas forone sole purpose — to highlight top-quali-ty creative and strategic business-to-busi-ness communications.

Editor’s note: All of these news items— some in expanded form — will appearin the next Arctic Oil & Gas Directory, afull color magazine that serves as a mar-keting tool for Petroleum News’ contract-ed advertisers. The next edition will bereleased in March.


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the central North Slope area that hosts the

producing oil fields of Arctic Alaska, is

thought to be highly prospective for oil

and gas but for many years has been sub-

ject to a prohibition on oil exploration and

development.

“Designating vast areas in the Arctic

National Wildlife Refuge as wilderness

reflects the significance this landscape

holds for America and its wildlife,” said

Secretary of the Interior Sally Jewell on

Jan. 25 when announcing the publication

of the final ANWR EIS. “Just like

Yosemite or the Grand Canyon, the Arctic

National Wildlife Refuge is one of our

nation’s crown jewels and we have an

obligation to preserve this spectacular

place for generations to come.”

In response to the EIS publication,

President Obama said that he felt proud

that Interior had put forward a compre-

hensive plan that would protect the refuge

and designate new areas, including the

coastal plain, for preservation.

“And I’m going to be calling on

Congress to make sure that they take it

one step forward by designating as a

wilderness, so that we can make sure this

amazing wonder is preserved for future

generations,” the president said.

Walker angryDuring a hastily convened press con-

ference on Jan. 25 Alaska Gov. Bill

Walker expressed his anger at the

Department of the Interior’s decision.

Walker said that during a phone call with

Secretary Jewell he had expressed strong

disappointment over the lack of discus-

sion over the Fish and Wildlife decision

before the decision was made.

“I’m very angry that this is happen-

ing,” Walker said. “They are taking our

economy away from us piece by piece.”

Walker said that he had explained to

Jewell that Alaska is dependent on

resource development and has an oil

pipeline that is now three-quarters empty.

And in response to Jewell’s comparison

between ANWR and Yosemite or the

Grand Canyon, Walker commented on the

amount of commercial tourism-related

activity in the two Lower 48 parks.

“I think it’s quite a bit more than goes

on in ANWR,” Walker said. “I’d love to

be treated like the Grand Canyon or

Yosemite as far as the kind of commerce

that goes on there responsibly.”

This ANWR decision is like banning

tourism in Hawaii to keep Hawaii pris-

tine, he said.

Plan of actionWalker said that litigation against the

Fish and Wildlife decision would not be

his first choice in responding to the deci-

sion. Rather than initiating a four- to six-

year litigation process, the governor said

that he and his team would put together a

plan of action and that he would first

reach out to other states and the public.

Kara Moriarty, president and CEO of

the Alaska Oil and Gas Association, an oil

industry trade association, expressed her

anger at the Fish and Wildlife decision.

“This is offensive,” Moriarty said. “It’s

offensive to Alaskans when we have the

Arctic National Wildlife Refuge, already

92 percent of it is off limits to develop-

ment. … I think this decision sends the

signal that the federal government is not

allowing Alaska to be open for business.”

Congressional delegationOn Jan. 26 Alaska’s Congressional

delegation expressed its displeasure at the

Obama administration’s actions, referenc-

ing not only the ANWR decision but also

a permitting decision in the National

Petroleum Reserve-Alaska and a forth-

coming outer continental shelf lease sale

plan proposal, involving the withdrawal

of some offshore lands from future oil and

gas leasing.

“It is a one, two, three kick to the gut

of Alaska’s economy,” said Sen. Lisa

Murkowski. “We have said as a delega-

tion that we will not stand it, we will not

tolerate it, we will do everything we can

to push back against an administration

that has taken a look at Alaska and decid-

ed it’s a ‘nice little snow globe up there

and we’re going to keep it that way.’

That’s not how you treat a state. Show us

some respect.”

Rep. Don Young claimed that the Fish

and Wildlife action violates ANILCA, the

Alaska National Interest Lands

Conservation Act, the act that established

ANWR. ANILCA has a clause requiring

an act of Congress before ANILCA’s

scope can be extended.

“This brazen assault on Alaska only

strengthens our resolve to push back,”

Young said. “This latest decision, in clear

violation of ANILCA’s ‘no more’ clauses,

completely undermines the law and the

many promises made to the Alaskan peo-

ple. This is unacceptable and I am already

beginning work in the House to ensure

this assault is stopped dead in its tracks.”

“This attack on Alaska families and the

middle class is deeply troubling,” said

Sen. Dan Sullivan. “I pledge to do every-

thing in my power to protect the econom-

ic growth and prosperity of our state, and

defend the promises made to Alaskans

under ANILCA.”

ASRC commentsThe Arctic Slope Regional Corp., the

Native regional corporation for the North

Slope, expressed its opposition to the Fish

and Wildlife decision.

“The people of the Arctic Slope

region, specifically Kaktovik, have

thrived in this area for over 10,000 years,

and therefore fall outside of the definition

of characteristics of wilderness,” ASRC

said in a Jan. 26 statement. “The people

of the Arctic Slope region, especially the

residents of Kaktovik, are conservation

minded, and yet rely on responsible oil

and gas development to sustain our com-

munities. This proposed designation as

announced would effectively slam the

door shut on the substantial economic


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ANWR PLAN

ANWR and the 1002 area of the coastal plainThe story of the Alaska National Wildlife Refuge dates back to 1960 when the

Arctic National Wildlife Range was established in the extreme northeast of Alaska.

In 1980, under the Alaska National Interest Lands Conservation Act, an act that

established a series of national parks in Alaska, the Wildlife Range was renamed the

Alaska National Wildlife Refuge. Most of ANWR lies within a mountainous region

of the eastern Brooks Range. However, recognizing the oil and gas potential of the

northern strip of the refuge, on the eastern extension of the North Slope coastal plain,

section 1002 of ANILCA, while putting much of ANWR off limits to development,

deferred a decision on future development on the coastal plain section of the refuge.

That coastal strip became known as the 1002 area.

Under the terms of ANILCA the 1002 area can only be opened for oil and gas

exploration if the U.S. Congress passes an act authorizing the opening. To date

Congress has not passed the required act, despite strenuous efforts at various times

to gain house, senate and presidential support for the enabling legislation.

However, in 1985 and 1986 Chevron and BP were able to drill a single explo-

ration well, the KIC well, in the 1002 area in Native land southeast of the village of

Kaktovik. The results from that well have remained commercially confidential.

Much promiseWith the geology of the 1002 area being an eastward continuation of that of the

central North Slope, where massive oil fields such as Prudhoe Bay and Kuparuk

River are located, the 1002 area is thought to hold much promise as a target for new

oil and gas exploration. A 2005 assessment by the U.S. Geological Survey estimated

that there may be 10.2 billion barrels of undiscovered technically recoverable oil and

37.5 trillion cubic feet of undiscovered natural gas under the 1002 area.

Other than resources in Native land near Kaktovik, any oil or gas in the 1002 area

belongs to the federal government. However, were oil production to start from the

area, the state would be entitled to tax the production and would be paid a share of

the federal royalties on the oil. And oil passing from ANWR into the trans-Alaska oil

pipeline for transportation to market would improve the overall economics of the

Alaska oil industry, hence indirectly further increasing state revenues.

—ALAN BAILEY

3 MILE LIMIT: STATE/FEDERAL

BOUNDARY

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The Arctic National Wildlife Refuge 1002 area is the eastward extension of the North Slope coast plain. The KIC well, in Native land nearKaktovik, is the only well to have been drilled in the refuge. The findings from the well are commercially confidential.

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see ANWR PLAN page 24

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opportunities associated with future

development of the potential resources in

the coastal plain.”

Environmentalist supportBy contrast, environmental organiza-

tions have expressed their widespread

support of a potential wilderness designa-

tion for ANWR.

“We applaud and thank President

Obama for adopting a conservation plan

that for the first time proposes to desig-

nate a large portion of the pristine Arctic

National Wildlife Refuge as wilderness

to protect it from exploitation and devel-

opment. We call on Congress to follow

the president’s lead,” said Trip Van

Noppen, president of Earthjustice.

“Known as ‘The Sacred Place Where

Life Begins’ to Alaska Native communi-

ties and teeming with rare wildlife, this is

a place of incalculable beauty and value,

to be protected like Yellowstone and

Yosemite, not turned into another pollut-

ed oil patch.”

For its part, the Fish and Wildlife

Service said in the ANWR EIS that its

decision was based on a thorough analy-

sis of the environmental, social and eco-

nomic considerations presented in its

revised ANWR plan and in the EIS. The

agency said that the EIS it did not address

oil and gas development or seismic sur-

veying because ANILCA prohibits oil

and gas operations in ANWR without

approval by Congress. l

including a sale from the current 2012-

2017 lease sale plan.

Alaskans protestPresident Obama’s withdrawal of

areas of the Chukchi and Beaufort seas

from future lease sales has triggered

protests from Alaska officials.

“This administration is determined to

shut down oil and gas production in

Alaska’s federal areas — and this off-

shore plan is yet another example of their

short-sighted thinking,” said U.S. Sen.

Lisa Murkowski, R-Alaska, the chairman

of the Senate Energy and Natural

Resources Committee. “The president’s

indefinite withdrawal of broad areas of

the Beaufort and Chukchi seas is the same

unilateral approach this administration is

taking in placing restrictions on the vast

energy resources in ANWR and the NPR-

A.”

“With today’s announcement, the

Obama administration’s assault on Alaska

moves from blocking development

opportunities on millions of acres of land

to taking enormous portions of the Arctic

offshore off the table,” said Congressman

Don Young, R-Alaska. “In defiance of all

statewide elected officials and the Alaska

legislature, this president has once again

thumbed his nose at the Alaskan people as

he opens another front in his ongoing war

against our people, our communities, and

our social and economic future.”

“The hits just keep coming from the

federal government for Alaskans who

want to control their own economic

future,” said Kara Moriarty, president and

CEO of the Alaska Oil and Gas

Association. “The proposed OCS pro-

gram released today by the U.S.

Department of the Interior and the Bureau

of Ocean and Energy Management prom-

ises more delay, more uncertainty, and

more restrictions.”

Environmentalist responseEnvironmental organizations, while

welcoming restrictions on leasing in areas

such as the Hanna Shoal, blasted the

Obama administration’s decision to

schedule further lease sale for the Arctic

outer continental shelf.

“The Arctic Ocean is the worst possi-

ble place we could allow drilling. The

push to develop the region has put our

oceans at risk, led to controversy, litiga-

tion, government investigations, and, in

2012, near disaster,” said Jacqueline

Savitz, Oceana’s vice president for the

United States. “While we are disappoint-

ed by the inclusion of the Arctic in the

five-year program, we applaud the presi-

dent’s action to protect Hanna Shoal and

coastal areas along the Chukchi Sea and

in the Beaufort Sea.”

“Now is not the time to prospect for

new reserves in the Arctic Ocean,” said

Erik Grafe, staff attorney for Earthjustice.

“President Obama rightly precluded leas-

ing in some important areas in the Arctic

Ocean. But, to protect those areas, the

region, and the planet, the president must

keep any new Arctic Ocean leasing out of

the five-year plan.”

In its next step toward issuing a final

five-year outer continental shelf lease sale

plan the Department of the Interior will

develop a draft environmental impact

statement, or EIS, for the plan. There will

be 60-day public comment period follow-

ing the publication of the draft plan and a

notice of intent for the EIS in the Federal

Register. l


ANWR PLANcontinued from page 22

OCS SALES

over the GMT1 area and progress engi-

neering.”

The company said in April 2013 that it

would begin the regulatory and permit-

ting phase of the project and conduct

engineering leading to project approval.

It submitted permit applications in July

2013.

The Bureau of Land Management

issued a final supplemental environmen-

tal impact statement for GMT1 in

October, and while BLM’s preferred

alternative includes a road, the road and

pad are not ConocoPhillips’ preferred

alternative. BLM has yet to issue a record

of decision.

The U.S. Army Corps of Engineers,

however, issued its record of decision and

wetlands permits in January, and chose

the ConocoPhillips’ alternative as its

environmentally preferred alternative and

the least environmentally damaging prac-

ticable alternative. ConocoPhillips said

when the Corps’ decision was issued that

BLM’s mitigation measures “must be

acceptable in order for the project to

move forward for consideration by our

senior management.”

BLM has yet to issue its record of

decision.

Johansen said ConocoPhillips sup-

ports the Corps’ decision.

“The alternative they have selected

has the least environmental footprint and

requires the least amount of gravel,” he

said, adding that the Corps’ decision has

the support of the Kuukpik village corpo-

ration, Arctic Slope Regional Corp., the

city of Nuiqsut, the North Slope

Borough, Alaska’s congressional delega-

tion and Alaska’s governor.

—KRISTEN NELSON


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