Winter shutdown · Trans-Alaska pipeline down for 4 days after leak found at Pump Station 1 By...

Vol. 16, No. 3 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of January 16, 2011 • $2

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

� G O V E R N M E N T

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

Alberta, B.C., Saskatchewan bounceback with C$3.73B in ’10 land sales

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Point Thomson drill site this past summer.

EXX

ON

MO

BIL

Corps now 8 months behind on EISfor Point Thomson development

The schedule has slipped again for completing an environ-mental impact statement on ExxonMobil’s Point Thomsondevelopment on Alaska’s eastern North Slope.

The U.S. Army Corps of Engineers, which is in charge ofpreparing the EIS, tells Petroleum News a draft document isscheduled to be published on June 24 for a 45-day publicreview and comment period. The “record of decision” isscheduled for signature on March 15, 2012.

This adds two months to a schedule that already hadslipped by about six months.

The Corps originally estimated it would have a record ofdecision by August 2011, but the agency at last report had seta revised target date of Jan. 19, 2012.

ExxonMobil’s application for a Corps wetlands permit trig-gered the need for an EIS.

Point Thomson is a remote field on the Beaufort Sea coastsome 60 miles east of Prudhoe Bay. Aside from ExxonMobil,major stakeholders include BP, Chevron and ConocoPhillips.

Located on state acreage, the field is a hugely valuableasset with an estimated 8 trillion cubic feet of natural gas plus200 million barrels of condensate.

ANWR wilderness bill back again;Begich pans ‘predictable’ offering

An East Coast congressman has reintroduced perenniallegislation to designate the coastal plain of the Arctic NationalWildlife Refuge as wilderness.

Rep. Edward Markey, D-Mass., has offered the ArcticWilderness Act in every Congress since 2001. The last time heintroduced the bill, in January 2009, it died in committee.

After Republicans took control the House ofRepresentatives on Jan. 5, Markey rose to become the top-ranking Democrat on the House Natural ResourcesCommittee.

Alaska Sen. Mark Begich, a Democrat, quickly blastedMarkey’s wilderness bill.

“I’ll make Congressman Markey a deal. I won’t legislatefor Massachusetts and he stays out of Alaska’s business,”Begich said in a Jan. 6 press release.

‘Our last pristine wild places’A release from Markey’s office said the reintroduction of

the ANWR wilderness bill presages “the coming debate in theNatural Resources Committee over the expansion of danger-ous drilling practices into America’s last pristine public lands.”

The release cited concerns about the oil industry’s capaci-ty to respond to a spill in light of the Deepwater Horizon dis-aster. It also cited “recent studies” indicating that respondingto a spill in colder environments would be more difficult and

see POINT THOMSON EIS page 13

see ANWR BILL page 14

Winter shutdownTrans-Alaska pipeline down for 4 days after leak found at Pump Station 1

By KRISTEN NELSONPetroleum News

Alyeska Pipeline Service Co. — and the NorthSlope producers — are dealing with a winter

shutdown of the trans-Alaska oil pipeline, a shutdownwhich for four days beginning the morning of Jan. 8forced producers to cut back production to 5 percent,an amount which could be stored in tanks at PumpStation 1.

The pipeline was restarted on a temporary basislate Jan. 11, but plans were for a 36-hour shutdowntargeted to begin Jan. 14 for installation of a bypassline.

The pipeline is shut down regularly for mainte-nance but those shutdowns occur in the summer,when North Slope weather is at its mildest and lines

and equipment aren’t threatened by the brutal cold ofwinter.

This unplanned shutdown occurred after Alyeskapersonnel at Pump Station 1 discovered oil leaking

Aerial View of Pump Station 1 showing location ofbooster pump building and leaking pipe.

ALA

SKA

DEC

A chain of mistakesCommission points to systematic failures leading to Deepwater Horizon explosion

By ALAN BAILEYPetroleum News

The 380-page report from the NationalCommission on the BP Deepwater Horizon

Oil Spill and Offshore Drilling, published on Jan.11 and containing a wealth ofinformation on the tragic blowoutof BP’s Macondo well, seemed topoint to one key message,expressed near the front of thereport’s introduction: “The explosive loss of theMacondo well could have been prevented.”

Systematic failuresThe fact that the blowout did in fact occur “can

be traced to a series of identifiable mistakes madeby BP, Halliburton and Transocean that reveal suchsystematic failures in risk management that they

see SHUTDOWN page 16

see SPILL REPORT page 14

The fact that the blowout did in fact occur“can be traced to a series of identifiablemistakes made by BP, Halliburton andTransocean that reveal such systematicfailures in risk management that theyplace in doubt the safety culture of the

entire industry.” —report from NationalCommission on the BP Deepwater Horizon Oil Spill and

Offshore Drilling

Step by step to AsiaKinder Morgan lays out next stage of plans to meet demands to reach Asian markets

By GARY PARKFor Petroleum News

K inder Morgan Canada has quietly, persistent-ly been telling those who would listen that it

has the edge over Enbridge in the undeclared con-test to ship Canadian crude to Asia. The ranks ofbelievers may be starting to expand.

It’s more than five years since Kinder Morgancompleted a C$6.9 billion takeover of BritishColumbia-based utility Terasen, gaining, amongother things, ownership of Trans Mountainpipeline, the sole transportation link from theAlberta oil fields to the west coast of NorthAmerica.

In the process, it acquired a system that has

been operating for 57 years, along an establishedright of way, and is now delivering 300,000 barrelsper day to a tanker terminal in the Port ofVancouver and to refineries in Washington state.

Over that same period, Kinder Morgan has beenloading tankers at its Westridge terminal for deliv-eries to the U.S. West Coast and, more recently,Asia and Europe.

The latest statistics available from Canada’sNational Energy Board show that an average31,800 bpd were exported from Canada in the thirdquarter of 2010 for destinations other than theUnited States. Of that total, 66 percent leftVancouver for Asian buyers and 34 percent wasshipped from Eastern Canada to Europe. Non-U.S.

see ASIAN MARKETS page 15

http://www.PetroleumNews.com/

2 PETROLEUM NEWS • WEEK OF JANUARY 16, 2011

contents Petroleum News North America’s source for oil and gas news

LAND & LEASING

EXPLORATION & PRODUCTION

ENVIRONMENT & SAFETY

ALTERNATIVE ENERGY

NATURAL GAS

FINANCE & ECONOMY

11 PTTC, DOE offer Alaska geology workshop

11 US drilling rig count up by 6 to 1,700

13 Kuparuk well has gas kick; mud released

6 Sullivan names two new DNR directors

9 Lawsuit over ban returns to court in La.

4 Gas exports vital for Canada

6 Canadian land sales show optimism

9 Co-op to finish geothermal work by March

8 Oil prices rise on report of supply drop

8 Record low December Arctic ice extent

GOVERNMENT

INTERNATIONAL

ASSOCIATIONS

5 ACES changes likely legislative topic

Pre-session indications Alaska production tax system will be up for debate, especially progressivity which ties rate to oil price

4 ACI gets stake in North Fork leases

AVCG transfers interest to partners; Conoco gives Exxon stake in Kuparuk area leases; Stellar gets Southern Cross interest

7 UK: No need to stop North Sea drilling

Deepwater spill in North Sea would be more difficult to handle than Gulf disaster, but Britain already has tough safety standards

10 EIA expects $99 WTI by 4th quarter 2012

Energy Information Administration projects Henry Hubgas spot price average of $4.02 per million Btu this year, $4.50 in 2012

ON THE COVERWinter shutdown

Trans-Alaska pipeline down for 4 days after leak found at Pump Station 1

A chain of mistakes

Commission points to systematic failures leading to Deepwater Horizon explosion

Step by step to Asia

Kinder Morgan lays out next stage of plansto meet demands to reach Asian markets

Corps now 8 months behind on EIS for Point Thomson development

ANWR wilderness bill back again; Begich pans ‘predictable’ offering

SIDEBAR, Page 14: Individual evaluations, not moratoriums

http://www.colvilleinc.com/

PETROLEUM NEWS • WEEK OF JANUARY 16, 2011 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 W-202 BPSky Top Brewster NE-12 15 (SCR/TD) Kuparuk 2L-320 ConocoPhillipsDreco 1000 UE 16 (SCR/TD) Prudhoe Bay B-01/OH BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD2-77 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 1E-08A ConocoPhillipsTSM 7000 Arctic Wolf #2 Stacked at Prudhoe Bay FEX/Available

Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay AvailableAC Coil Hybrid CDR-2 Kuparuk 1B-19 ConocoPhillipsDreco 1000 UE 2-ES Prudhoe Bay Stacked out AvailableMid-Continental U36A 3-S Prudhoe Bay Stacked out AvailableOilwell 700 E 4-ES (SCR) Milne Point MPF-65 BPDreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay DS-05 BPDreco 1000 UE 9-ES (SCR/TD) Rig Stacked AvailableOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay Stacked out AvailableOilwell 2000 Hercules 16-E (SCR/TD) Prudhoe Bay Stacked out AvailableOilwell 2000 17-E (SCR/TD) Prudhoe Bay Stacked out AvailableEmsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point AvailableEmsco Electro-hoist 28-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Stacked at Point Thompson AvailableAcademy AC electric Canrig 105-E (SCR/TD) Stacked at Deadhorse AvailableAcademy AC electric Heli-Rig 106-E (SCR/TD) Stacked at Deadhorse AvailableOIME 2000 245-E Oliktok Point 0107-04 ENI

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site F-27 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Drill Site 15-11C BPIdeco 900 3 (SCR/TD) Kuparuk Dirll Site 3A-07 ConocoPhillips

North Slope - Offshore

BP (rig built & being assembled by Parker)Top drive, supersized Liberty rig Endicott SDI for Liberty oil field BP

Nabors Alaska DrillingOIME 1000 19-E (SCR) Oooguruk ODSN-18 Pioneer Natural ResourcesOilwell 2000 33-E Prudhoe Bay Stacked out Available

Cook Inlet Basin – OnshoreAurora Well ServiceFranks 300 Srs. Explorer III AWS 1 Stacked out on the west side of Available

Cook Inlet near TyonekCook Inlet EnergyAtlas Copco RD20 34 Undergoing winterization Cook Inlet Energy

at W. McArthur River UnitDoyon DrillingTSM 7000 Arctic Fox #1 Beluga Stacked Available

Marathon Oil Co. (Inlet Drilling Alaska labor contractor)Taylor Glacier 1 Rig released by Armstrong Cook Inlet Available

Nabors Alaska DrillingContinental Emsco E3000 273 Stacked, Kenai AvailableFranks 26 Stacked AvailableIDECO 2100 E 429E (SCR) Stacked, removed from Osprey platform AvailableRigmaster 850 129 Kenai Stacked out Available

Rowan CompaniesAC Electric 68AC (SCR/TD) Stacked Kenai, Cosmopolitan Pioneer Natural Resources

Kuukpik 5 Stacked, Kenai Available

Cook Inlet Basin – Offshore

Chevron (Nabors Alaska Drilling labor contract)428 M-11 Steelhead Platform Chevron

XTO EnergyNational 1320 A Coil tubing cleanout planned off Platform XTO

A in the near futureNational 110 C (TD) Idle XTO

Mackenzie Rig StatusCanadian Beaufort Sea

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

Central Mackenzie Valley

Akita/SAHTUOilwell 500 51 Racked in Norman Wells, NT MGM Energy Corp.

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of January 13, 2011.

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. 7 Dec. 30 Year Ago

US 1,700 1,694 1,220Canada 422 246 342Gulf 25 24 41

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

http://www.xtoenergy.com/


Kay Cashman PUBLISHER & EXECUTIVE EDITOR

Mary Mack CHIEF FINANCIAL OFFICER

Kristen Nelson EDITOR-IN-CHIEF

Clint Lasley GM & CIRCULATION DIRECTOR

Susan Crane ADVERTISING DIRECTOR

Bonnie Yonker AK / NATL ADVERTISING SPECIALIST

Heather Yates BOOKKEEPER

Shane Lasley IT CHIEF

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Alan Bailey SENIOR STAFF WRITER

Wesley Loy CONTRIBUTING WRITER

Gary Park CONTRIBUTING WRITER (CANADA)

Rose Ragsdale CONTRIBUTING WRITER

Ray Tyson CONTRIBUTING WRITER

John Lasley STAFF WRITER

Allen Baker CONTRIBUTING WRITER

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Mapmakers Alaska CARTOGRAPHY

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Amy Spittler MARKETING CONSULTANT

Dee Cashman CIRCULATION REPRESENTATIVE

Petroleum News and its supple-ment, Petroleum Directory, are

owned by Petroleum Newspapersof Alaska LLC. The newspaper ispublished weekly. Several of theindividuals listed above work forindependent companies that con-

tract services to PetroleumNewspapers of Alaska LLC or are

freelance writers.

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

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OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 16, No. 3 • Week of January 16, 2011

Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518(Please mail ALL correspondence to:

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CORRECTIONNatural gas port plan financing

In a story reprinted in the Jan. 9 issue of Petroleum News about a financingplan to expand natural gas supplies in Fairbanks, The Associated Press reportederroneously that the Alaska Industrial Development and Export Authoritydeclined two years ago to finance an expansion project proposed by FairbanksNatural Gas. An AIDEA spokeswoman said the firm never approached them witha request and there was nothing to decline.

NATURAL GASGas exports vital for Canada

North America’s natural gas glut and a strengthening Canadian dollar translate intoa tough year ahead for Canadian producers.

Calgary-based AJM Petroleum Consultants says the outlook is so discouraging thatthe development of alternative export markets for Western Canadian hydrocarbons iseven more urgently needed.

But so far the only hope is that a joint venture by Apache Canada and EOGResources Canada will gain National Energy Board approval and proceed with plansfor the Kitimat LNG project to deliver Canadian gas to Asian markets.

AJM economist Ralph Glass said that Canadian gas can only compete with UnitedStates prices if it can sell for less.

“A high Canadian dollar and an increased supply of gas from American shale plays,combined with the U.S. economic recovery strategy to ‘keep America working,’ ispushing Canadian gas out of the U.S. markets,” he said.

“We have to maintain bargain basement prices to keep natural gas moving (into theU.S.) until we develop viable alternative markets.”

Glass said that signs of an early economic rebound in the U.S. should see the U.S.dollar regain some of its lost ground “and reduce the speculation that is driving cur-rent price premiums.”

In its quarterly domestic oil and gas price forecast, AJM is holding the line for theAECO trading hub in Alberta at C$4.10 per thousand cubic feet for 2011, but has low-ered its 2012 prediction to C$4.50 from the C$4.70 prediction in its third-quarter fore-cast. AJM is predicting a Nymex price of US$4.50 in 2011 and a long-term price ofUS$6.75 by 2022. It anticipates WTI crude prices of US$85 per barrel in 2011,US$87.50 in 2012 and US$88 in 2013.

—GARY PARK

� L A N D & L E A S I N G

ACI gets stake in North Fork leasesAVCG transfers interest to partners; Conoco gives Exxon stakein Kuparuk area leases; Stellar gets Southern Cross interest

By ERIC LIDJIFor Petroleum News

Armstrong Cook Inlet continues toexpand its lease holdings on both the

North Slope and in the Cook Inlet basin ofAlaska, according to recently released statelease reports.

Union Oil Company of California andMarathon Alaska Production transferredportions of three North Fork area leases tothe local subsidiary of the Denver-basedindependent.

Unocal, an affiliate of Chevron, trans-ferred a minority working and royalty inter-est in two leases around the North Fork unit,located 10 miles north of Homer. The first,ADL 2095, is a lease from the 1960s thatsits about a mile northeast of the unit andthe second, ADL 391211, is a lease from the1950s just west of the North Fork produc-tion pad.

Marathon Alaska Production transferreda small working and royalty interest in ADL733, a lease from the 1950s contiguous tothe southern boundary of the North Forkunit.

Armstrong is close to bringing the NorthFork unit, an undeveloped discovery fromthe mid-1960s, into production and couldtheoretically expand drilling if successful.

GMT royalty transferOn the North Slope, GMT Exploration

Co. LLC transferred a 3.33 percent royaltyinterest in 10 nearshore Beaufort Sea leasesto Bill Armstrong, CEO of Armstrong Oiland Gas. Armstrong brought Denver-basedGMT to Alaska in 2010 and the companiesjointly hold significant North Slopeacreage, but have not yet announced anyplans.

Also on the North Slope, the AlaskaVenture Capital Group transferred minorityworking and royalty interest in 12 BeecheyPoint unit leases to Brooks RangeDevelopment Corp. and RamshornInvestments Inc., two members of the jointventure developing the unit.

Farther west, ConocoPhillips transferreda 0.3648 percent working interest and a0.304 percent royalty interest in sixKuparuk area leases to ExxonMobil. Theleases fill the un-unitized fairway between

Kuparuk River unit and its Tarn satellite,and expire on Jan. 31, 2012.

Badami lease transactionsIn December 2010, the state also final-

ized a lease transaction at the Badami uniton the eastern North Slope. Unit operatorBP transferred four Badami leases to SavantAlaska and ASRC Exploration, the inde-pendent and its partner that brought theeastern North Slope unit back online latelast year. BP transferred a 67.5 percentworking interest in the leases to SavantAlaska, the Denver-based company that ledthe development effort, and 32.5 percent toASRC Exploration, the subsidiary of ArcticSlope Regional Corp.

Savant Alaska in turn transferred a 22.5working interest and an 18.75 percent royal-ty interest on two leases in the Badami areato ASRC Exploration. The first lease, ADL391380, is adjacent to the northwest cornerof the unit and expires on Aug. 31, 2014.The second lease, ADL 391431, is adjacentto the southeast corner of the unit andexpires on May 31, 2014. Previously, inApril 2010, Savant transferred a 10 percentworking interest and an 8.33 royalty interestin those same two leases to ASRCExploration.

Finally, Buccaneer Alaska transferred avery small royalty interest in three leases inthe proposed Southern Cross unit to StellarOil and Gas. Buccaneer is the local sub-sidiary of an Australian independent.Buccaneer arrived in Alaska after buyinglease holdings from Stellar Oil and Gas, anindependent that shared executives withBuccaneer.

Southern Cross is a proposed offshoreunit in the upper Cook Inlet. �

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

Savant Alaska transferred a 22.5working interest and an 18.75percent royalty interest on twoleases in the Badami area to

ASRC Exploration.

Contact Eric Lidji at [email protected]

http://www.PetroleumNews.com/

http://www.gdiving.com/

By KRISTEN NELSONPetroleum News

Last year reconsideration of Alaska’s oiland gas production tax was an issue

before legislators, but never reached criti-cal mass. If what legislators are sayingprior to this year’s session is any indication,ACES — the tax passed under the name“Alaska’s Clear and Equitable Share” whenSarah Palin was governor — will be anissue again in the Legislature which beginsJan. 18.

The state’s production taxes wererevised under Gov. Frank Murkowski andthe old ELF or “economic limit factor” tax,in place from 1977 to April of 2006, wasreplaced by the “Petroleum ProductionTax,” or PPT, with a base tax of 22.5 per-cent and a progressivity factor, which kicksthe tax up as the priceof crude oil increas-es.

ACES, passed bythe Legislature in late2007, increased thebase tax to 25 percentand raised progres-sivity to 0.4 percentwhen the net value ofa barrel of oil is morethan $30 (under PPT, progressivity was0.25 percent; the trigger was $40 net).

The 2007 passage of ACES was a bipar-tisan affair, with Democrats teaming withsome Republicans to pass the tax.

The Speaker of the House in 2007, JohnHarris, R-Valdez, who voted for the bill,voiced his concerns after passage.

“The governor and her administrationhave crafted a bill and pushed it through theLegislature that will either tap the produc-ers for another $1.5 billion without harm,or end up hurting our economy by drivingaway oil industry investment,” Harris said.“We will need billions of dollars of invest-ment to keep our production up, so I amhopeful the governor has not made a seri-ous mistake with this legislation. But wewon’t really know for sure for a couple ofyears.”

The jobs issueOne issue that has been raised about

ACES is its impact on jobs in the industry,and House Speaker Mike Chenault, R-Nikiski, told the Resource DevelopmentCouncil Jan. 6 that he would be asking pro-ducers for job numbers as he looks atACES.

“A number of us feel and have felt sinceACES was passed that it is an unfair tax;and that needs to be addressed,” he said.

Chenault said he didn’t know if therewas enough support in the Legislature tomake changes, but said a number of mem-bers of the House “are interested in lookingat ACES overall, whether it’s the progres-sivity or the base tax.”

Chenault said he thinks major changesare necessary and said he believes theLegislature needs to “rewrite the wholepiece of legislation.”

“We’re not seeing investment in thestate,” he said.

Chenault said he has asked major pro-ducers for “information dealing withemployment in the state, especially atPrudhoe Bay, and employment related tonot only operations, but maintenance andexploration.”

He said the information he’s asked com-panies to provide is an employment break-

down between main-tenance and opera-tions. Chenault saidhe wasn’t asking fordetails, but for “somegeneralities so that Ican make the argu-ment that those jobsare affected; that theyare going away.”

Senate Resources will take a lookAlso speaking to the Resource

Development Council was Sen. JoePaskvan, D-Fairbanks, who will co-chairSenate Resources.

Paskvan said he believes “there is a con-cern going forward that needs to be lookedat” on production taxes.

He said he wasn’t in the Legislature forthe passage of either PPT or ACES, “so Iam coming in, I’m looking at these issueswith a fresh set of eyes, trying to find out

what is going to be the solution that’s goingto make sure that we have an economicfuture for the next 50 years.”

Sen. Tom Wagoner, R-Kenai, the otherco-chair of Senate Resources, told RDC thestate can’t prosper with a tax regime thatstrangles growth.

“I was part of the ACES; I was part ofthe PPT,” Wagoner said. “And we thoughtwe were doing the right thing at that time.”

But, he said, he told the producers whenACES was passed that if the state wasn’tdoing the right thing, “show us wherewe’ve made mistakes; I’ll work with you tocorrect it.”

Wagoner said he thinks the problem iswith progressivity. He said he thinks “wedid get it wrong and I’ve got the figuresand it’s a lot of money.”

He said he will be proposing legislationpromoting reinvestment, which would havecompanies reinvest money in partnershipwith the state on projects to improve the

industry, such as pro-viding more accessto lands.

From zero percentBoth sides of the

ACES argument gotairings at theAnchorage Chamberof Commerce inearly December,when legislators, among them Sen. BillWielechowski, D-Anchorage, talked aboutlegislative priorities.

Answering an audience question aboutACES Wielechowski said:

“We had an oil tax structure just a fewyears ago that had zero percent tax rate on16 out of the 19 fields. And when we hadthat zero percent tax rate, guess what, jobswent down and investment went down.”


300 years of combined professional experience167 years of combined industry experienceA team of petroleum geoscientists and engineers

“In my opinion, Alaska DNR has one of the most impressive subsurface teams in the country.”

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We have the capacity, experience, and integrity to work with potential investors to

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ACES changes likely legislative topicPre-session indications Alaska production tax system will be up for debate, especially progressivity which ties rate to oil price

MIKE CHENAULT

JOE PASKVAN BILL WIELECHOWSKI

see ACES CHANGES page 13

http://www.dog.dnr.state.ak.us/oil


GOVERNMENTSullivan names two new DNR directors

Commissioner Dan Sullivan has named two new directors in the Alaska Departmentof Natural Resources.

The commissioner said Jan. 11 that Tom Crafford will be director of the Office ofProject Management and Permitting and Ben Ellis will be director of Parks andOutdoor Recreation.

“Both gentlemen are a tremendous asset to the department and to the people ofAlaska. I look forward to having them on board as we look ahead to challenging proj-ects in our future” Sullivan said in a statement.

Crafford has years of mining and geological experience in Alaska dating back to1974 and has worked at DNR since 2005 with a focus on management of permittingfor large mining projects.

Ellis comes to DNR from his own company most recently, and from the Institute ofthe North where he focused on international Arctic issues. He has an extensive back-ground in recreational policy development, media, public relations and fund raising andhas been in Alaska since 1990, living on the Kenai Peninsula and in Anchorage.

—PETROLEUM NEWS

� L A N D & L E A S I N G

Canadian land salesshow optimism

By GARY PARKFor Petroleum News

Alberta, British Columbia andSaskatchewan have succeeded

where others are struggling these days.They’ve managed to make money in realestate.

The three governments raised C$3.73billion in 2010 by selling land rights toexploration companies, decisively affirm-ing renewed confidence in Canada’supstream sector.

In the process they bounced back fromthe weak, recession-induced showing in2009, when producers spent a combinedC$1.76 billion to secure land, but fell farshort of the record-setting years ofC$4.24 billion in 2008 and C$5.01 billionin 2008.

Last year’s average price per hectare(2.471 acres) across Western Canada wasC$771.22, up 12 percent from 2009’sC$686.72, and also the third highestreturn, trailing C$961 in 2008 andC$783.71 in 2006.

Companies also secured rights to 4.84million hectares, a strong recovery fromthe slide to 2.56 million hectares in 2009.

In addition to the cash bids, the indus-try made work commitments of C$278million for 2.28 million hectares, includ-ing C$112.7 million for 500,545 hectaresin Newfoundland, C$110.7 million for569,874 hectares in Northern Canada andC$52 million for 1.09 million hectares inNew Brunswick.

Key drilling indicatorLand sales are rated as a key indicator

of future drilling intentions, with lastyear’s bidding leaving no doubt that theindustry has shifted its emphasis tounconventional, often-prolific resourceplays that are being exploited with hori-

zontal drilling and multiple-stage fractur-ing.

The latest year was also notable forAlberta’s return to top spot among theprovinces after an absence of two yearswhen British Columbia led the way forthe first time.

Producers invested C$1.83 billion for2.77 million hectares in Alberta, whichgovernment and industry leaders said wasa vote of confidence in the province’snow-stabilized royalty regime, after earli-er attempts to overhaul the system drovebillions of dollars out of the province.

Alberta drilling upAlthough final figures have yet to be

released for 2010, Alberta operators com-pleted drilling on 7,207 wells for theJanuary-November period, up 43 percentfrom 2009; Saskatchewan surged 58 per-cent to 1,581 wells; and British Columbiawas up 16 percent at 595 wells.

Over the 11 months, Alberta approved3,522 licenses for wells targeting oil orbitumen and 3,405 for natural gas orcoalbed methane targets, while 2,329 ofSaskatchewan’s wells were aimed at oilprospects and only 92 targeted gas.

Alberta’s energy regulator has alsoreported a ramp up of oil sands activity,issuing permits for 985 evaluation wellsthis winter, compared with 387 a yearago, with Cenovus Energy leading theway with 479 licenses.

Most of the money invested in Albertaland in 2010 went to the province’s north-ern region, where producers spent C$1.83billion on 2.77 million hectares, whileSaskatchewan’s southeastern region setthe pace in that province at C$322 mil-lion. �

Your environmental, engineering and sustainability partner.

Program and Project ManagementConstruction/Design BuildPermitting and ComplianceRemediation and RehabilitationNational Environmental Policy Act Contact:

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0166.672

Contact Gary Park through [email protected]

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By DAVID STRINGERAssociated Press Writer

Amajor oil spill at a deepwater well inthe North Sea would be more diffi-

cult to handle than the Gulf of Mexico dis-aster, but a moratorium on drilling isn’tnecessary because Britain already hastough safety standards, lawmakers saidJan. 6.

Saying any ban on deepwater drillingwould leave the U.K. too reliant on import-ed energy, a committee of lawmakersbacked the government’s decision not toimpose new restrictions on oil and gas rigsoff the coast of Scotland.

After hearing months of testimony onthe U.S. spill from regulators and oil exec-utives — including from BP’s former CEOTony Hayward — Parliament’s Energy andClimate Change committee said it was sat-isfied Britain has more stringent safetyrules than were previously in place in theGulf of Mexico.

The British legislators were reviewingthe impact on the U.K. energy sector of theApril 20 explosion at the BP-operatedDeepwater Horizon drilling platform,which killed 11 people and sparked thebiggest oil spill in U.S. history.

Environmental groups includingGreenpeace had urged Britain’s govern-ment to suspend deepwater extraction untilthe full implications of the explosion wereunderstood. But committee chairman TimYeo, a Conservative Party lawmaker, saidhis panel had concluded that a moratorium“would undermine the U.K.’s energy secu-rity and isn’t necessary.”

Industry called complacentHowever, his panel criticized the global

energy industry for complacency inpreparing for unlikely but potentially cata-strophic events, and urged Britain’s gov-ernment not to rely on “controversial con-clusions” in BP’s internal report on thespill.

In the U.S., a 48-page excerpt of a pres-idential commission report into the Gulfdisaster concluded that decisions to savetime and money contributed to the Gulfspill. The passages of the U.S. report, pub-lished Jan. 6 ahead of its full release Jan.11, criticized both the offshore oil and gasindustry and government regulators. Itwarned that without significant reforms, asimilar incident could happen in the future.

Britain tightened regulation in theNorth Sea after the country’s worst off-shore accident, a 1988 explosion on theOccidental Oil-owned North Sea PiperAlpha rig that killed 167 workers. SinceApril, the U.K. government has increasedthe number of rig inspectors in the NorthSea, where there are 24 drilling rigs and280 oil and gas installations.

Yeo’s panel said any North Sea oil spillwould be more difficult than one in theGulf, chiefly because the remote locationmeans there are only a limited supply ofrigs that could be deployed to drill reliefwells. Lower sea surface temperatures alsomean that natural evaporation of the spillwould be slower in the North Sea.

“There are serious doubts about the

ability of oil spill response equipment tofunction in the harsh environment of theopen Atlantic in the west of Shetland,” thecommittee’s report said.

Hayward: domestic sources neededIn his testimony in September,

Hayward — who has since been replacedby Bob Dudley — told legislators thatdeepwater extraction would continue to benecessary to meet current energydemands. He also said BP was not solelyto blame for the Gulf disaster.

Though pressed on BP’s safety record,there was no repeat in Britain of theonslaught of criticism Hayward enduredwhen he appeared before the U.S. HouseEnergy and Commerce Committee inJune.

Robert Smith, a lawmaker and memberof the British committee, said the panelbroadly agreed with Hayward’s assessmenton a universal ban. “It is important not tooverreact,” he said.

Ministers argue that Britain mustexploit its domestic oil and gas reserves,particularly until the country is able to pro-duce more energy from renewable sources.

“Oil and gas are set to remain a key partof our energy system for years to come andit is vital that we search for and producethe U.K.’s own resources as safely as pos-sible,” Energy Minister Charles Hendrysaid.

The U.K. government estimates thereare still around 20 billion barrels of oil tobe discovered and produced from Britishwaters in the North Sea. But overall oilproduction is expected to drop to around 1million barrels per day within five years,from 1.36 million barrels per day in the2009-10 financial year.

The committee’s report urged regula-

tors to consider whether extra safety meas-ures are required on deepwater rigs,including an additional fail-safe device tocut and seal pipes following any blowout.

Lawmakers also warned that currentlegislation could lead to confusion overwho would pick up the bill following a

major U.K. spill. Energy companies presently have their

liability limited to $250 million per inci-dent, which lawmakers said is too little. Itis also unclear whether they would need topay compensation for damage to wildlifeand habitats. �


energy in focusCreative photography for Alaska’s oil and gas industry

� I N T E R N A T I O N A L

UK: No need to stop North Sea drillingDeepwater spill in North Sea would be more difficult to handle than Gulf disaster, but Britain already has tough safety standards

The U.K. government estimatesthere are still around 20 billion

barrels of oil to be discovered andproduced from British waters in

the North Sea.

Britain tightened regulation in theNorth Sea after the country’s

worst offshore accident, a 1988explosion on the Occidental Oil-owned North Sea Piper Alpha rig

that killed 167 workers.

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Enriching our Native way of life.

Our people. Our land. Our companies.

RESPONSIBLE DEVELOPMENT

ENVIRONMENT & SAFETY

Record low December Arctic ice extentThe December Arctic sea-ice extent was at its lowest level for that month since

Arctic satellite observations began in 1979, the National Snow and Ice DataCenter reported Jan. 5. The average area of 4.63 million square miles of sea icewas 104,000 square miles less than the previous record low for December, set in2006, and continued a trend of December ice loss of 3.5 percent per decade.

In something of a rerun of a weather pattern seen last winter, an extreme neg-ative phase of a weather phenomenon known as the Arctic oscillation resulted inhigher-than-normal atmospheric pressures in the Arctic, causing circumpolarwinds to slacken and allowing cold air to slide south into lower latitudes than nor-mal, leading to frigid winter conditions in northern Europe and severe winterstorms down the East Coast of North America.

High Arctic temperaturesBut this abnormal air-flow pattern in the northern hemisphere, coupled with

warming from unfrozen areas of ocean, resulted in higher than normal tempera-tures over large areas of the Arctic, slowing and at times halting the annual freeze

The average Arctic sea-ice extent in December has been declining at a rate of 3.5 per-cent per decade.

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see ICE EXTENT page 9

� F I N A N C E & E C O N O M Y

Oil prices rise onreport of supply drop

THE ASSOCIATED PRESS

Oil prices rose Jan. 12 after the gov-ernment reported a larger-than-

expected drop in crude oil supplies andstock markets climbed on Europe’s improv-ing financial picture.

Benchmark oil for February deliveryrose 75 cents to settle at $91.86 a barrel onthe New York Mercantile Exchange.

Oil prices have hovered between $88 abarrel and just above $92 a barrel since thenew year began on expectations that theU.S. economy was getting stronger.Demand for oil has remained robust inemerging markets, particularly in Asia.Some analysts expect the price to top $95 abarrel and perhaps push toward $100 a bar-rel in coming weeks.

“All systems appear to be ‘go’ for somehigher lift in oil values here, at leastthrough the balance of this month anywayand probably well into next,” energy ana-lyst Jim Ritterbusch said.

Gas pump prices continue to climb, withthe national average on Jan. 12 just above$3.09 for a gallon of regular. That’s nearly12 cents more than a month ago and 34cents higher than a year ago, according toWright Express, AAA and the Oil PriceInformation Service.

Commercial oil supplies downThe Energy Department said the coun-

try’s commercial oil supplies fell by 2.2million barrels to 333.1 million barrels the

week ending Jan. 7. Analysts surveyed byPlatts, the energy information arm ofMcGraw-Hill Cos., expected a decline ofonly 300,000 barrels.

Gasoline supplies increased by 5.1 mil-lion barrels to 223.2 million barrels, theEnergy Information Administration said.Demand rose 1.9 percent from a year ago to9.1 million barrels a day in the past fourweeks. Supplies of distillates, whichinclude heating oil and diesel fuel, grew by2.7 million barrels to 164.8 million barrels.

Supplies for all three categories remainat or above the average level for the pastfive years. Refineries ran at 86.4 percent oftotal capacity on average, which was 1.6percent less than a week ago.

Meanwhile, the economic picturebrightened in Europe as Portugal borrowed$1.6 billion to help its troubled economy.The successful bond auction sent stockmarkets up. The Dow Jones IndustrialAverage rose over 83 points Jan. 12. TheStandard & Poor’s 500 and the Nasdaqcomposite were higher as well. Oil tradersoften watch the stock markets to gaugeconsumer sentiment about the economy.

In other Nymex trading in Februarycontracts, heating oil rose 0.98 cent to set-tle at $2.6186 a gallon, gasoline futures fell1.53 cents to settle at $2.7484 per gallon.February natural gas futures gained 5 centsto settle at $4.531 per 1,000 cubic feet.

In London, Brent crude rose 51 cents tosettle at $98.12 a barrel on the ICE Futuresexchange. �

http://www.bbnc.net

By MICHAEL KUNZELMANAssociated Press Writer

An offshore drilling services companyasked a federal judge Jan. 12 to rule

that government regulators have unrea-sonably delayed action on deepwaterdrilling permit applications even after lift-ing a drilling moratorium imposed in thewake of the massive Gulf oil spill.

Ensco Offshore Company asked U.S.District Judge Martin Feldman to issue apreliminary injunction that would requirethe Interior Department to “expeditious-ly” process five pending permit applica-tions in which the company has a contrac-tual stake.

Ensco attorney Adam Feinberg sug-gested Feldman could rule that theInterior Department’s Bureau of OceanEnergy Management must process theseapplications within 30 days.

The judge said he hoped to rule on thatrequest later this month.

No permits approvedThe government lifted its temporary

ban on deepwater drilling in October.Since then, offshore operators have sub-mitted 13 permit applications for drillingactivities that were barred under themoratorium, but none have beenapproved, Feinberg said.

“We believe there’s been a pattern ofbad faith,” Feinberg said.

Feldman, who said the government’sdrilling restrictions have cost an estimat-ed 9,000 to 12,000 jobs, asked JusticeDepartment attorney Guillermo Monteroto define what would be a reasonable timeperiod for the government to act on per-mit applications.

“When will these jobs be restored?”the judge asked.

Montero said every application is dif-ferent.

“I cannot say in the abstract what areasonable time is to process any particu-lar application,” he said. “Every applica-tion is its own different monster.”

Adam Babich, a lawyer for environ-mental groups that supported the morato-rium, suggested Ensco is asking Feldmanto micromanage a government program.

“I’m not going to do that,” the judgeinterjected. “Nobody elected me senatoror congressman”

Initial moratorium after explosionThe government imposed its initial

version of the moratorium after theDeepwater Horizon drilling rig explodedin the Gulf of Mexico on April 20, killing11 workers and triggering the spill.

Feldman struck down the ban in June,concluding the government simplyassumed that because one deepwater rigwent up in flames, others were dangeroustoo. The Interior Department respondedby imposing a second moratorium that itscritics, including Ensco, claim was virtu-ally identical to the first.


up of the sea ice. The ice cover is espe-cially low in Hudson Bay, Hudson Straitand Davis Strait, on the northeast side ofCanada, NSIDC said.

In the past a negative phase of theArctic oscillation has helped preserve oldsea ice during the winter, and has resultedin an increased ice cover at the end of thesummer, NSIDC said. But this patternappears to be changing, with windsresulting from the oscillation in the win-ter of 2009-10 shifting much old ice intothe southern Beaufort and Chukchi seas,where the ice later melted during the sum-mer thaw.

“It may be that with a warmer Arctic,old rules regarding links between theatmospheric pressure patterns and sea-iceextent no longer hold,” NSIDC said.

—ALAN BAILEY

continued from page 8

ICE EXTENT

Contact Alan Bailey at [email protected]

ALTERNATIVE ENERGYCo-op to finish geothermal work by March

Naknek Electric Association is hopeful a workover of its troubled geothermalwell “can be completed in March or earlier,” say papers filed in U.S. BankruptcyCourt in Anchorage.

The small electric power cooperative inSouthwest Alaska was forced to file forChapter 11 protection from creditors inSeptember due to cost overruns and otherissues with its geothermal drilling project.

The co-op has received a bankruptcyjudge’s permission to pursue a $1.5 millionloan to finish work on the 10,433-footwell, specifically to lift water, cuttings anddrilling mud so the well’s temperature andflow can be tested.

The loan would come from the NationalRural Utilities Cooperative Finance Corp., a private, nonprofit lender based inHerndon, Va.

Goal geothermal power plantUltimately, NEA wants to drill several wells and install a geothermal power

plant to produce electricity for villages in the region. The goal is to reduce the co-op’s reliance on expensive diesel fuel to run generators.

The co-op serves the villages of King Salmon, Naknek and South Naknek,including some of Bristol Bay’s big salmon processing plants.

The G-1 well site is northeast of King Salmon.NEA began looking at geothermal several years ago, as the boundary of the

volcanic Katmai National Park and Preserve is just a few miles from the co-op’selectric lines.

—WESLEY LOY

Ultimately, NEA wants to drillseveral wells and install ageothermal power plant to

produce electricity for villagesin the region. The goal is to

reduce the co-op’s reliance onexpensive diesel fuel to run

generators.


Lawsuit over banreturns to court in La.Offshore drilling services company Ensco asks judge for injunctionrequiring Interior to ‘expeditiously’ process applications

see LAWSUIT page 11

http://www.alaskaalliance.com/

PETROLEUM NEWS

The Energy InformationAdministration said Jan. 11 that it

expects the price of West TexasIntermediate crude oil to average $93 perbarrel this year, $14 higher than the aver-age price in 2010. EIA, part of the U.S.Department of Energy, expects WTIprices to continue to rise in 2012, and toaverage $99 per barrel in the fourth quar-ter of that year.

EIA said in its short-term energy out-look that its forecast is based on theassumption that U.S. real gross domesticproduct grows 2.2 percent in 2011 and 2.9percent in 2012, while world real GDP(weighted by oil consumption) is expect-ed to grow by 3.3 percent this year and by3.7 percent in 2012.

The Henry Hub natural gas spot priceis expected to average $4.02 per millionBtu this year, 37 cents lower than the

2010 average. EIA said it expects the nat-ural gas market to begin to tighten nextyear, with the Henry Hub spot priceincreasing to an average $4.50 per millionBtu in 2012.

World oil markets tightenEIA said it expects a continued tight-

ening of world oil markets over the nexttwo years, with world oil consumptiongrowing an average of 1.5 million barrelsper day through 2012 and growth in sup-ply from non-Organization of thePetroleum Exporting Countries averagingless than 100,000 bpd.

The market is expected to rely on bothinventories and significant productionincreases from OPEC to meet demandgrowth.

On-shore commercial storage inOrganization for Economic Cooperationand Development countries remained

high in 2010 but floating oil storage fellsharply, and EIA said it expects OECDinventories to decline through 2012.

Factors which could push oil priceshigher or lower than expected include: Afailure by OPEC to increase productionas global consumption recovers; uncer-tainty in the rate of economic recovery,with fiscal issues facing governmentsdomestically and globally; and unfore-seen production issues.

Energy price forecasts uncertainWTI crude oil spot prices averaged

more than $89 per barrel in December,EIA said, about $5 per barrel higher thanthe November average, “as expectationsof higher oil demand, combined withunusually cold weather in both Europeand the U.S. Northeast, lifted prices.”

EIA said it had raised the first-quarter2011 WTI spot price forecast by more

than $7 per barrel from its December out-look, to some $92 per barrel, and expectsthe WTI spot price to rise to an average of$99 in the fourth quarter of 2012.

The agency’s projection for WTI spotprices averages $93 per barrel this yearand $98 per barrel in 2012.

Last year at this time WTI for Marchdelivery averaged $82 per barrel; thisyear WTI futures for March deliveryaveraged $91 per barrel.

“Based on futures and options pricesover the first week in January, the proba-bility that the monthly average price ofWTI crude oil will exceed $100 per bar-rel in December 2011 is about 36 per-cent,” EIA said, with the probability thatthe price will be below $80 about 31 per-cent.

U.S. consumption growsEIA said preliminary data indicate

total U.S. consumption of petroleum andnon-petroleum liquid fuels increased by350,000 bpd in 2010, up 1.9 percent, withmajor consumption growth in diesel fueland heating oil (up 3.7 percent) and motorgasoline (up 0.7 percent).

With the ongoing economic recovery,U.S. liquid fuels consumption is expectedto increase by 0.8 percent this year and by0.9 percent in 2012, with motor gasolineand distillate fuel (diesel and heating oil)accounting for much of the growth.

Domestic crude oil productionincreased by 150,000 bpd to 5.51 millionbpd in 2010, but is expected to decline by20,000 bpd in 2011 and by an additional130,000 bpd in 2012.

EIA said the 2011 forecast includesdeclines of 50,000 bpd in Alaska and220,000 bpd in federal Gulf of Mexicoproduction, almost offset by a projected250,000 bpd increase in Lower 48 non-Gulf of Mexico production.

Lower 48 non-Gulf production isexpected to increase by 70,000 bpd in2012, while Alaska production declinesby 20,000 bpd and Gulf of Mexico outputis down by 180,000 bpd.

Imports of crude oil and refined prod-ucts fell from 57 percent of U.S. con-sumption in 2008 to 49.4 percent in 2010.The EIA attributed the drop to the reces-sion-driven decline in consumption andrising exports.

Liquid fuel net imports are forecast toaverage 9.6 million bpd in 2011 and 9.9million bpd in 2012, some 50 percent and51 percent, respectively, of total U.S. con-sumption.

Natural gas consumption downEIA said it expects total U.S. natural

gas consumption to decline by 0.9 percentin 2011, led by a 2.7 percent drop in resi-dential and commercial consumption duepartly to a forecast of 1.3 percent fewerheating degree days this winter, but alsobecause of changes in the way EIA col-lects and reports natural gas consumptiondata.

Natural gas consumption in the elec-tric power sector is expected to fall bynearly 1 percent this year because of theforecast of a return to near-normal sum-mer weather compared to very warmsummer weather in 2010.

In 2012, total natural gas consumptionis projected to grow by 1.6 percent to 66.5billion cubic feet per day.

Total marketed natural gas productionincreased significantly last year, the EIA


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EIA expects $99 WTI by 4th quarter 2012Energy Information Administration projects Henry Hub gas spot price average of $4.02 per million Btu this year, $4.50 in 2012

see EIA FORECAST page 11

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Ensco, which filed a lawsuit challeng-ing the second moratorium, claims thegovernment lifted it for tactical reasons.

“The only reason was to avoid the judi-cial review that might come from thiscourt at any moment,” Feinberg said.

The Justice Department is askingFeldman to dismiss Ensco’s claims thatthe Obama administration has engaged ina “pattern and practice” of delaying theissuance of drilling permits.

“There isn’t any incentive to preventdrilling from going forward,” Monterosaid, adding that the three-month wait forapplicants seeking permits “is the cost ofdoing business in a regulated industry.”

“The regulations are meant to promote

safety. They are valid,” he said. A trial for the case was scheduled to

start July 25, but Feldman ordered theparties to settle on an earlier date, in mid-May.

“This dispute is almost a year old nowand it involves issues of enormous publicimportance,” the judge said. �


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said, by an estimated 2.4 bcf per day,4.1 percent, with declines in productionin Alaska and the Gulf of Mexico offsetby an increase in Lower 48 onshoreproduction.

2011 production is expected to fallby 0.3 percent.

EIA said the latest data for monthlynatural gas production, for October,showed a slight decline in Lower 48production from September and said itexpects this gradual decline to continuein 2011 because of a falling rig count inresponse to lower prices.

Baker Hughes reported rigs drillingfor natural gas increased from 665 inJuly 2009 to 973 in April 2010, and

then stayed relatively stable for sixmonths. The rig count has fallen in thelast several weeks, EIA said, and endedDecember at 919.

With a projected decline in produc-tion this year and an increase in con-sumption in 2012, natural gas pricesshould be stronger late this year and in2012, the agency said, then as pricesincrease, production redounds, up 2.2percent in 2012.

EIA said it expects higher forecastproduction during the first half of 2011compared to last year, combined withdecreased consumption, to moderatenatural gas spot prices. It projects aspot price of $3.73 per million Btu inJune to rise to $4.61 in December, aver-aging $4.02 for 2011. The spot price isexpected to rise to $4.50 per millionBtu in 2012. �


EIA FORECAST

ASSOCIATIONSPTTC, DOE offer Alaska geology workshop

The Petroleum Technology Transfer Council and the U.S. Department ofEnergy’s Arctic Energy Office are presenting a workshop Jan. 20 at the SheratonAnchorage Hotel & Spa.

Main speakers at the workshop areRobert Blodgett, geological consult-ant; David Hite, consulting petrole-um geologist; and Wayne Wooster ofASRC Energy Services.

Workshop topics include:overview of Alaska petroleum geolo-gy; history of oil and gas explorationin Alaska; geology and future potential of the North Slope; review of the permit-ting process; hydrocarbon geology and future potential of Cook Inlet; and hydro-carbon geology and future potential of the other potential basins around Alaska.

The workshop is from 8 a.m. to 5 p.m.; cost is $195. For more information and to register online go to:

http://pttc012011.eventbrite.com/. —PETROLEUM NEWS

Main speakers at the workshopare Robert Blodgett, geological

consultant; David Hite, consultingpetroleum geologist; and Wayne

Wooster of ASRC Energy Services.

GOVERNMENT

US drilling rig count up by 6 to 1,700The number of rigs actively exploring for oil and natural gas in the U.S.

increased by six the week ending Jan. 7 to 1,700. Houston-based Baker Hughes Inc. reported that 914 rigs were exploring for gas

and 777 for oil. Nine were listed as miscellaneous. A year ago, the count was 1,220. Of the major oil- and gas-producing states, Colorado and Oklahoma each

gained four rigs, Texas and Wyoming added two apiece and North Dakota gainedone.

Louisiana lost eight rigs and Alaska and West Virginia each lost one. The rigcounts in Arkansas, California, New Mexico and Pennsylvania were unchanged.

The rig count peaked at 4,530 in 1981, the height of the oil boom. The recordlow of 488 was in 1999.

—THE ASSOCIATED PRESS


LAWSUIT

EXPLORATION & PRODUCTION

Parnell warns of too much federal controlGov. Sean Parnell says Alaskans need to

push for a stronger state role in their eco-nomic and political future to avoid toomuch federal control.

The Fairbanks Daily News-Miner saidthe governor’s remarks Jan. 6 to a Rotaryclub in Fairbanks were similar to commentsin recent interviews with top state attor-neys. Parnell suggested a handful of state-federal disagreements over resource development and environmental protection arecentral to the state’s long-term ability to self-govern.

Parnell also acknowledged drawing some criticism for having gone to court witha number of challenges to federal regulatory decisions. But he said he follows thatpath only when other means are exhausted.

—THE ASSOCIATED PRESS

Parnell suggested a handful ofstate-federal disagreements

over resource development andenvironmental protection are

central to the state’s long-termability to self-govern.

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Unique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Univar USA

Universal Welding

URS Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Usibelli

West-Mark Service Center

Western Steel Structures

Weston Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

XTO Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Yenney & Associates

Oil Patch BitsCrowley Names Ketra Anderson new director of SSQE

Crowley Maritime Corp. said Jan. 5 that it has named KetraAnderson director of safety, security, quality and environmental. She isdomiciled in Crowley’s Seattle, Wash., office, and will report to ColeCosgrove, vice president of SSQE. In her new role, Anderson will ensurethat the services Crowley provides to its customers conform to estab-lished procedures and requirements. She will be primarily responsible forCrowley’s adherence to international and domestic quality standardswhile defining processes to prevent deficiencies and encourage continu-al improvement as they relate to four key elements: safety, security,quality and environment. Anderson will oversee Crowley’s quality man-agement system that provides the framework for the business unitsaffected by those certifications. The management system includes annu-al internal vessel, facility and office audits; third-party verification audits; document control; andmonthly measurements of key metrics. “Ketra has continually demonstrated her ability to man-age and improve Crowley’s quality process on-board our vessels as well as ashore,” Cosgrovesaid. “Her strategic view and approach to our quality system and document control processesmake her well deserving of the promotion.”

AECOM joint venture awarded U.S. Army contract AECOM Technology Corp., a leading provider of professional technical and management sup-

port services for government and commercial clients around the world, said Jan. 10 that a jointventure with ANHAM that it manages, Afghanistan Integrated Support Services, was awarded amaintenance and capacity-building contract by the U.S. Army to support the Afghanistan NationalArmy’s Technical Equipment Maintenance Program. The new program supports the ongoingefforts of the U.S. Army in Afghanistan. The contract has a performance period of one base yearwith four option years and has a funded value of approximately US$29.9 million with a potentialvalue of US$181.9 million, if all options are exercised. Under the new program, the joint ventureteam will provide maintenance services to Afghanistan National Army military vehicles andequipment; develop and train local nationals in vehicle maintenance operations; and enhance theskills of local nationals in areas of management, administration and leadership. The mission willbe performed at eight equipment maintenance sites, and associated training will be conducted byadvisory maintenance teams within 23 Afghan battalions throughout Afghanistan.

Nalco announces price increaseNalco, providing essential expertise for water, energy and air, said Jan. 10 its Water and

KETRA ANDERSON

see OIL PATCH BITS page 13

He said that he’s asked every personcoming to him about a tax break or incen-tives, “what do we get out of it?”

“And I haven’tbeen able to get a sin-gle assurance that weget more investmentor that we get morejobs,” he said.

Alaska’s tax rateis not the highest inthe world and it’s notthe lowest, he said.“We’re comparableto the countries thathave similar types of mature basins as wedo.”

Sen. Lesil McGuire, R-Anchorage, toldchamber members that there are tensionson tax policy issues, and said she’s a believ-er in “if you build it they will come,” butalso said she doesn’t think you can exactpromises from industry in advance.

She said the state needs to position itselfto be competitive globally on taxes and saidshe believes “ACES did go too far in thearea of progressivity” and wants to see acompetitiveness review done on Alaska’stax system.

Incentives need to lead to investmentSen. Hollis French and Rep. Les Gara,

both Anchorage Democrats, co-authored atwo-part compass piece on ACES whichappeared in the Anchorage Daily News inearly December. Thetwo said “it’s impor-tant to have a fair dis-cussion on the meritsof Alaska’s currentoil tax investmentincentives and the taxoil companies paynow, which they onlypay when fields areprofitable.”

Rather than just lowering the tax, thestate “should focus on tax incentives thatlead directly to Alaska investment, andshould craft tax breaks that don’t just letcompanies take more Alaska profits out-side,” they said.

Because ACES is a net profits tax, “itself-adjusts to the economics of each indi-vidual reservoir,” they said, so profitablefields pay more tax than fields which aren’t

so profitable. And for projects

like heavy oil, whichrequires more invest-ment before produc-tion occurs, underACES the costs forthose challengingfields can be sub-tracted from a com-pany’s revenuesbefore tax is paid.

And, they noted, ACES allows creditsagainst the tax, credits “specificallydesigned to reward companies that investtheir money here in the state.”

They said that just lowering oil taxesand hoping for the best isn’t the way to go.

“A general reduction in oil taxes thatdoes not work to produce greater invest-ment in Alaska does nothing to promote ahealthy long-term industry here,” the mensaid. “Conversely, any reasonable tax reliefproposal that will lead to more Alaska jobsand more Alaska oil will get serious con-sideration from the Legislature.” �


Process Services division is implementing aprice increase for all water services industrysegments, effective immediately or as con-tracts permit. Pricing for most Nalco pro-grams will increase between 7 and 15 per-cent, depending on product mix. Priceincreases will vary by country and industry,driven by local cost increases and will supple-ment previously announced increases for thepaper services segment which were effectiveDec. 1 of last year. The need for these priceincreases is driven by the continued and sig-nificant escalation of energy and raw materialcosts, tightening availability of some rawmaterials and rising freight and personnelcosts. Nalco sales engineers will contact indi-vidual customers to discuss the impact of

these increases. “Price pressure and the avail-ability of key raw materials in particular aremaking it necessary to appropriately increaseprices to help offset these ongoing costhikes,” said David Flitman, senior executivevice president and president, Water andProcess Services. “These increases will enableNalco to continue to invest in research anddevelopment, manufacturing processimprovements and the development of ourpeople, which allows us to provide sustain-able solutions and the value and service thatour customers expect.”

Editor’s note: All of these news items —some in expanded form — will appear inthe next Arctic Oil & Gas Directory, a fullcolor magazine that serves as a marketingtool for Petroleum News’ contracted adver-tisers. The next edition will be released inMarch.

EXPLORATION & PRODUCTIONKuparuk well has gas kick; mud released

Doyon Drilling Inc.’s rig 15 had a gas kick while drilling at the KuparukRiver field on Alaska’s North Slope Jan. 9, resulting in some 45 barrels of min-eral oil based drilling mud being released to a snow-covered gravel pad, snow-covered tundra, onto the wind walls and within the secondary containment areaof the rig.

The Alaska Department of Environmental Conservation said in a situationreport that the volume released was estimated by the rig crew based on theamount of make-up mud required to fill the bore hole.

The well, Kuparuk 2L-320, is a development well at the Tarn area on thewestern edge of Kuparuk.

DEC said ConocoPhillips Alaska, the field operator, was notified by Doyon.Alaska Clean Seas responders and trained volunteers from the KuparukOperations Center identified the spill area on the pad and tundra and mobilizedother resources for cleanup response work.

Drilling progressingDrilling is progressing on the well, ConocoPhillips Alaska spokeswoman

Natalie Lowman told Petroleum News Jan. 11. Lowman said some of the drilling mud sprayed onto snow cover on the tun-

dra, but has been cleaned up off the snow and never actually hit tundra. Well safety system and kill procedures worked just as expected, she said. The well “was quickly controlled and shut-in and then we resumed drilling

operations,” Lowman said. The drilling mud spread over a 66- by 200-foot area of snow-covered tundra

and a 200- by 300-foot area of the gravel pad along with the rig wind walls andcellar. DEC said spill response technicians used hand shovels and brooms toremove mud from the snow-covered tundra and stockpiled removal material fortransport and disposal.

Drilling mud recovered from the rig’s secondary containment area will berecycled or transported offsite for disposal.

—KRISTEN NELSON


OIL PATCH BITS

LESIL MCGUIRE

HOLLIS FRENCH

LES GARA


ACES CHANGES

Contact Kristen Nelson at [email protected]

Two recent wellsUnder pressure from the state, which

has taken steps to void leases in thefield for lack of development,ExxonMobil recently drilled two wellsat Point Thomson to kick off a promised$1.3 billion condensate development.

ExxonMobil has pledged to beginproducing 10,000 barrels a day of con-densate by year-end 2014, but needs thefederal permit to develop and operatethe Point Thomson production facili-ties.

Hank Baij, the Point Thomson EISmanager for the Corps, has said part ofthe reason for the schedule slippage isto allow more time for certain studiesand analyses.

One such study is to evaluate noiseimpacts from Point Thomson construc-tion and operations on the ArcticNational Wildlife Refuge, located justeast.

Alaska Gov. Sean Parnell said last

October the state might sue the U.S.Environmental Protection Agency,which he said was holding up the PointThomson project with the ANWR noisestudy. The EPA, the U.S. Fish andWildlife Service and the AlaskaDepartment of Natural Resources are“cooperating agencies” on the EIS.

In a Jan. 11 e-mail provided toPetroleum News through the AlaskaCorps public affairs office, Baij saidregarding the noise study: “The noisestudy is complete to the draft stageexcept for some additional informationrequested of the cooperating agencies.”

—WESLEY LOY


POINT THOMSON EIS

Contact Wesley Loy at [email protected]

Hank Baij, the Point ThomsonEIS manager for the Corps, hassaid part of the reason for theschedule slippage is to allowmore time for certain studies

and analyses.

place in doubt the safety culture of theentire industry,” the report says.

The report’s account of the eventsleading to the April 20, 2010, uncon-trolled blowout of the Macondo wellmakes riveting reading and portrays aseries of errors of judgment, missedwarning signs and communication fail-ures, any one of which, had it been avoid-ed, might have averted the eventual catas-trophe.

The commission investigated BP’swell design and the report questions BP’sdecisions to use a long casing string in thewell and only six devices for centralizingthe drill pipe in the well bore, given thatthese design features increase the diffi-culty of reliably plugging the downholesection of the well with cement — at thetime of the blowout, the drilling of thewell had been completed, and the drillerswere in the process of plugging the wellfor later re-activation for oil production.

A string of errorsThe report says that during the course

of the well plugging and temporary aban-donment operations the following mis-takes and oversights occurred, involvingBP and its contractors, Halliburton andTransocean:

• BP personnel inadequately consid-ered the possible reasons for abnormal

mud pressures needed to circulate mudthrough the well prior to sealing the wellwith cement.

• BP inadequately evaluated the effec-tiveness of the cement seal, once the bot-tom of the well had been cemented.

• Halliburton failed to communicatethat testing of the cement to be used in theMacondo well had indicated potentialproblems with cement stability.

• Without extra vigilance, BP relied onthe downhole cement as the only barrierto hydrocarbon flow from the well,despite some known risk factors associat-ed with the cement seal.

• BP relied on an improperly conduct-ed pressure test for evaluating the integri-ty of the downhole cement plug. In retro-spect, pressure anomalies observed dur-ing this test indicated that hydrocarbonswere flowing into the well, but poor com-munications and a lack of adequate pro-cedures compounded an assumption bythe drilling crew and BP supervisors thatthe well was not flowing oil and gas.

• BP decided to place an upholecement plug unnecessarily far down thewell and then to displace all of the mud inthe well riser with seawater beforeinstalling that plug.

• The drilling crew and others observ-ing well instrument readings initiallyfailed to spot a slow but anomalous rise inpressure in the drill pipe while the crewwas preparing to complete the sealing ofthe well, and then failed to recognize thesignificance of the pressure rise once ithad been spotted. In the event, the pres-sure rise signaled hydrocarbons flowinginto the well, but by the time the ejectionof mud from the top of the riser flagged ablowout in progress, much gas hadalready escaped from the well.

• When drilling mud started spewingfrom the rig floor as the blowout erupted,the drilling crew did not minimize the gasignition risk by diverting the escapingdrilling mud over the side of the rig. Andthe crew did not immediately activate theblowout preventer blind shear rams whenthe mud started flowing from the well.


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ENGINEERING

less effective.“If we don’t enact permanent protec-

tions for the Refuge, oil companies andtheir allies in Congress will continue topush for shortsighted plans to drill ourlast pristine wild places,” Markey said.“Rather than drilling in the Arctic Refuge,we should be using safer, cleaner forms ofenergy made here in America to create arefuge from foreign oil.”

Markey continued: “When we lookupon the Refuge decades from now, willwe see a monument to America’s commit-ment to our natural heritage, or will wesee the abandoned wells and spilled oil asa monument to our insatiable thirst foroil? Will the Refuge remain a monumentto America’s wisdom or will our childrenand grandchildren only be able to seepolar bears, caribou and other iconic ani-mals carved in stone, monuments to ourlack of foresight and innovation?”

Calls for conservationMarkey’s bill adds to recent pleas from

mostly Democrats and environmentalgroups to strengthen protections forANWR and the coastal plain, which isconsidered highly prospective for perhapsbillions of barrels of oil.

In letters to the president, they haveurged the Obama administration to desig-nate ANWR as a national monument.

The 50th anniversary of the refuge’sbirth has provided a rallying cry for thosewho would put essentially the entirerefuge off-limits to industry activity.

On Dec. 6, 1960, Fred Seaton, Interiorsecretary under President Eisenhower,signed the public land order creating whatoriginally was called the Arctic NationalWildlife Range. In 1980, the unit wasgreatly expanded and renamed ArcticNational Wildlife Refuge, which todayencompasses 19.3 million acres inAlaska’s northeast corner.

Aside from the calls for monumentstatus, the U.S. Fish and Wildlife Service,

which manages the refuge, is consideringwhether to recommend new wildernessdesignations for ANWR including thecoastal plain.

‘Will not be locked up’Markey’s ANWR legislation would

appear to have a tough road through thefull Congress, with Republicans holdingthe majority in the House. Democratsretained control of the Senate after thelast election.

Rep. Doc Hastings, R-Wash., the newchairman of the House Natural ResourcesCommittee, has expressed support forANWR drilling. Rep. Don Young, R-Alaska, is a member of the committee.

“The barren tundra in the northernplain of the Arctic National WildlifeRefuge is home to an estimated 3-9 bil-lion barrels of recoverable oil whichcould provide roughly 1.5 million barrelsper day for at least 25 years,” Young saidin a Dec. 6 statement commemorating theANWR anniversary.

Alaska’s Sen. Begich panned Markey’sreintroduced Arctic Wilderness Act.

“This annual piece of legislation tolock up one of America’s most promisingoil and gas reserves is as predictable asNew Year’s resolutions. But it has nomore merit today than it did the first timeit was introduced,” Begich said.

“The vast majority of ANWR isalready off limits to development, butCongress specifically set aside 1.5 mil-lion acres along the coastal plain for oiland gas exploration. It has enormouspotential and should be part of a nationalenergy policy that will bring economicand national security to our country.

“I agree that we need to do more todevelop alternative energy forms as partof our national plan, but to put ANWR offlimits is shortsighted. ANWR will not belocked up.”

—WESLEY LOY


ANWR BILL Individual evaluations, not moratoriumsThe National Commission on the BP Deepwater Horizon Oil Spill and Offshore

Drilling has concluded that it is better to evaluate the risk of specific drilling situ-ations rather than to impose blanket drilling moratoriums in response to concernsraised by the Deepwater Horizon disaster.

“We’re recommending that drilling on specific sites be evaluated in terms of theriskiness and preparations to deal with the consequences of that risk in that partic-ular (oil) field,” said Sen. Bob Graham, co-chair of the commission, during a Jan.11 press conference announcing the publication of the commission’s final report.

And in the Alaska Arctic offshore that would translate to a careful evaluation ofdrilling risks, but not a blanket drilling moratorium.

“The commission is not asking for a moratorium in Alaska, recognizing thatthere are very important questions still ahead … to be answered through addition-al research and additional investment in Arctic-specific technologies,” said FranUlmer, chancellor of the University of Alaska Anchorage and a member of thecommission.

And the commission’s report reflected that position.“The need for additional research should not be used as a de facto moratorium

on activity in the Arctic, but instead should be carried out with specific timeframesin mind in order to inform the decision-making process,” the report said.

“As the major leaseholder in both the Beaufort and Chukchi seas, we appreciatethat the presidential commission considered offshore activities beyond the Gulf ofMexico and agree with the finding that a blanket moratorium is not warranted inthe Arctic,” said Shell spokesman Curtis Smith in a Jan. 11 statement respondingto the report. “We look forward to achieving a more thorough understanding of thecommission’s recommendations and assessing perceived gaps against the unprece-dented steps Shell has taken to pursue safe, environmentally responsible explo-ration in the shallow waters off the coast of Alaska.”

“I commend the ground-breaking work of this national commission, which Ihope will lead to the increased safe development of America’s domestic oil and gasresources including those in the Arctic,” said Sen. Mark Begich. “Producing theenormous energy resources available within our borders is vital for our economicand national security, but we must develop these resources in a safe and environ-mentally responsible manner.”

—ALAN BAILEY


SPILL REPORT


Contact Wesley Loy at [email protected]

http://www.amarinecorp.com/


exports in the same quarter of 2009 were22,000 bpd.

NEB approval neededIf Kinder Morgan, through an applica-

tion by Trans Mountain, gains NEBapproval, it will be able to send 79,000bpd to offshore markets, 54,000 bpdunder long-term contracts, the first in thepipeline’s history.

Those numbers are only modest com-pared with Canada’s total oil exports,which totaled 1.93 million bpd in thethird quarter, of which 1.9 million bpdwas carried by overland pipelines to var-ious U.S. markets.

But they do represent careful, meas-ured, step-by-step progress by KinderMorgan to tighten its hold on the Asianmarkets, while Enbridge becomesimmersed in a showdown with environ-mentalists and First Nations over itsattempt to build the Northern Gatewaypipeline to Kitimat, with the bulk of theplanned 525,000 bpd capacity earmarkedfor Asia.

While the issues confronting Enbridgeare daunting, notably the opposition tosupertankers navigating in northernBritish Columbia waters, Kinder Morganhas loaded tankers that have slipped, vir-tually unnoticed, through waters in thedensely populated Vancouver region.

How much longer Kinder Morgan willbe able to avoid the public spotlight is anopen question, given that Vancouver portauthorities support the use of Aframaxtankers with capacity of 700,000 barrelsand are pondering whether Suezmaxtankers at 1 million barrels can safely useWestridge.

Kinder Morgan lays out its caseWhatever the potential obstacles,

Kinder Morgan does not hesitate to layout its perceived advantages overNorthern Gateway that are endorsed byobservers such as Vincent Lauerman,president of Calgary-based GeopoliticsCentral, who said the “incredible opposi-tion” to Enbridge suggests the KinderMorgan option could be an easier pathforward.

Ian Anderson, Kinder Morgan’sCanadian president, said in a newsrelease last year that expansion of theTrans Mountain pipeline, along an exist-ing right of way, would have less impacton the environment and traditional FirstNations’ territory, along with lower busi-ness risk and costs, than Enbridge’sgreenfield proposal.

He said Trans Mountain has providedsafe, reliable and efficient transportationservice to the Greater Vancouver areaand other destinations via Westridge.

Kinder Morgan has already made itscase to the NEB that, without “at leastsome real and substantial evidence ofneed and necessity,” such as bindingcommercial support, Enbridge appears tobe seeking regulatory approval to createan “option to build” that will be part ofits marketing process.

In its own NEB application, KinderMorgan said Trans Mountain is “facingcircumstances where it is critical that itbe able to respond to competitive marketforces and meet the needs of its ship-pers.”

Anderson has said his companyintends to build offshore exports“through rational and market-basedexpansions that align Canadian produc-ers with Asian demand.”

Open season oversubscribedThe Trans Mountain open season held

last year demonstrated a “clear marketdemand for long-term firm service toWestridge,” the NEB application said,adding that contractual certainty wouldgive producers and buyers the chance toobtain better prices and higher producernetbacks.

It said the open season was oversub-scribed, with seven parties submittingnine transportation service agreementsfor 95,000 bpd of capacity, resulting inan initial allocation of five 10-year con-tracts totaling 54,000 bpd.

Currently, Trans Mountain allocates248,000 bpd to land shipments and52,000 bpd to Westridge. The applicationto the NEB would reallocate 27,000 bpdof land capacity to Westridge for a totalof 79,000 bpd, of which 25,000 bpdwould be available for uncommittedcapacity.

Over the past two years, since 75,000bpd were added to the Trans Mountainsystem in 2008, nominations toWestridge exceeded capacity by 54 per-cent in 2009 and 78 percent in 2010,while land capacity nominations havedeclined by 18 percent and 6 percent,respectively, the application said.

Although Kinder Morgan decided lastyear to slow plans to further increaseTrans Mountain capacity, the NEB appli-cation said proposed TMX-2 and TMX-3expansions could add 80,000 bpd and320,000 bpd by 2016-18. It also has inreserve plans for a 400,000 bpd “north-ern leg” from Trans Mountain to thesame deepwater port at Kitimat thatEnbridge plans to use.

Energy consultant Muse Stancil esti-mates there is an opportunity forCanadian producers to export 1.75 mil-lion bpd to China, Japan, South Koreaand Taiwan, with Chinese refineries tak-ing 630,000 bpd. �


ASIAN MARKETS

In addition, the blowout preventerfailed to operate correctly once it wasactivated, although the cause of thatfailure is still the subject of a federalinvestigation.

Management failuresThe report says that the various

errors leading to the disaster provideevidence of management failures by allof the companies involved. Andalthough the report did not accuse thecompanies of making reckless deci-sions to save money, many decisions

did save cost and time, while at thesame time there appeared little evalua-tion of the relative risks involved inusing different techniques.

The report also slams governmentregulatory oversight of the Macondooperation, saying that government reg-ulations were inadequate for deepwaterdrilling and that the U.S. Minerals


SPILL REPORT


The report says that the variouserrors leading to the disaster

provide evidence ofmanagement failures by all of

the companies involved.

Contact Gary Park through [email protected]

http://www.peakalaska.com/

http://www.canrig.com/

into what the Alaska Department of NaturalResources described as a concrete “sump”in the station’s booster pump building, aleak coming from a section of pipingencased in concrete adjacent to the building.

The oil was discovered at about 8:15a.m. Jan. 8; the pipeline was shut down at8:50 a.m.

Production was prorated to 5 percent; ittook producers until the evening of Jan. 9 toreach that level.

Oil recovery began the afternoon of Jan.8, after the building had been vented suffi-ciently that it was safe for crews to work.DEC said the oil was half an inch to an inchdeep on the approximately 30-by-40-footfloor of the basement.

Alyeska will install a bypass around theaffected piping during the 36-hour shut-down.

Emergency responseAlyeska established a full incident man-

agement team at the Fairbanks EmergencyOperations Center, DEC said. State and fed-eral representatives were notified and joinedthe response.

Engineers and technical specialistsarrived at Pump Station 1 the evening ofJan. 8 to design a temporary pipe plan.

DEC said there was no damage to boost-

er pumps or other facility infrastructurefrom the oil release.

Vacuum trucks are being used to removethe oil, some 52 barrels prior to the Jan. 11restart and an additional 55 barrels by 4p.m. Jan. 12, day two of the restart. The oilwill be reinjected into the pipeline and DECsaid it would be measured at the reinjectionpoint. Workers installed an 800-gallon con-tainment vault at the seep site in the boosterpump building to facilitate oil collection.

DEC said no oil has been observed dur-ing ongoing surface and subsurface moni-toring of soil in the vicinity of the boosterpump building or during inspections of theperimeter of the pump station’s gravel pad.

Temperature issuesAlyeska took steps to prevent problems

with the line due to cold temperatures andthe length of the shutdown, includinginstalling temperature sensors at numerouspoints on the line and periodically circulat-ing oil within the pump stations to keeppumps, oil and facility piping warm.

DEC said Alyeska staff planned for botha normal restart and a cold restart. A coldrestart could be required after an extendedwinter shutdown, and is a more complexrestart process involving temperature moni-toring of the pipe, periodically circulatingoil through equipment, implementing vari-ous freeze-up prevention measures andinstalling additional piping and equipmentat pump stations and other locations on the

pipeline. Cold weather shutdown risks include ice

formation and buildup of paraffin waxwithin the pipe, which can damage or dis-able the system, DEC said.

Ice and wax could impede the progressof a cleaning pig that stopped near mile 420of the line at shutdown and cause interfer-ence with the flow of oil and damage to thepipeline, valves and other critical equip-ment.

“Such damage could result in a moreextended TAPS shutdown, with subsequentimpacts to other North Slope facilities,including production facilities,” DEC said.

Restart Jan. 11The startup sequence began at about 7

p.m. Jan. 11. DEC said regulators approved the restart

plan because of weather concerns andbecause of the time Alyeska estimated itwould take to fabricate and install the 157-foot, 24-inch bypass line needed to move oilaround the area of the leak.

Alyeska-chartered C-130s began deliv-ering parts and equipment for the bypass tothe North Slope Jan. 9.

The temporary restart would increase thetemperatures of oil and equipment andmove the pig at mile 420 to Pump Station 8where it can be removed from the pipeline.

DEC said the restart “will entail pump-ing oil through the compromised under-ground discharge piping, which mayincrease the flow of oil into the boosterpump building and increase the potential forsoil contamination.”

The agency said that aerial and ground-based monitoring of the main line wouldcontinue and normal operation would allowinstalled leak monitoring systems to resumefunctioning.

The restart was authorized by the unifiedcommand at 5:20 p.m. Jan. 11; restart pro-cedures began at 5:30 p.m.; oil began flow-ing just after 9 p.m.

By noon Jan. 12, DEC said the rate offlow through the line was approximately400,000 barrels per day. North Slope pro-ducers were providing oil at a rate of330,000 to 350,000 bpd with the remainingvolume coming from the Pump Station 1storage tanks.

North Slope production was at 647,255bpd Jan. 1 and dropped to 298,856 bpd Jan.7. Northstar production dropped to zero;other fields remained some production level

throughout the shutdown. The cleaning pig which was of concern

was expected to reach Pump Station 8 onJan. 13. DEC said it would be trappedbetween two valves in the main line whileoil flows around it through a bypass pipe. Asecond pig, in a warmer section of the linenear Valdez, was expected to arrive at theValdez Marine Terminal around middayJan. 13.

DEC said Alyeska is planning for theupcoming shutdown and continues to pre-pare for a cold restart, should that be neces-sary. Field crews have installed 95 tempera-ture monitors on the main line and plan toadd up to 18 more. DEC said crews alsocontinue to install additional piping andequipment at pump stations, includingPump Station 12, which is normally inactivebut could play a role in a cold restart.

AOGCC emergency orderThe shutdown was also affecting the

North Slope’s producing fields, and on Jan.11 the Alaska Oil and Gas ConservationCommission issued an emergency orderallowing BP Exploration (Alaska) to pumpoil into specified development wells at theBadami, Endicott, Milne Point and PrudhoeBay fields so that it could produce fuel gasand keep equipment and lines from freezingwhile the pipeline was shut down.

The commission said that while “normalproduction is not possible, some amount ofproduction must be maintained to protectthe safety of operating personnel in thefields and Deadhorse by providing fuelgas.”

It also said that if production equipmentand pipelines are damaged due to freezing,state resources are at risk of environmentaldamage and public safety will be furtherthreatened.

BP proposed a plan to maintain a mini-mum production rate to produce fuel gasand prevent freezing in field lines.

“In order to prevent waste, oil can bepumped into development wells to be laterproduced,” the commission said.

Since the unavailability of the pipeline“constitutes an emergency situation thatmay result in harm to public health and safe-ty,” the commission issued the emergencyorder to allow pumping crude oil into devel-opment wells at the listed fields. �


Expro Americas, LLCemail: [email protected]+1 (907) 344-5040www.exprogroup.com


SHUTDOWN

Management Service, the regulatingagency, had allowed industry to makemany critical decisions without agencyreview. Resistance by industry, congres-sional lawmakers and several federaladministrations to ramp up regulatoryoversight had led to a situation where nei-ther the regulations nor the regulatorswere posing the kind of tough questionsthat could have prevented the Macondodisaster, the report says.

The report praised the efforts of themany responders who dealt with the oilspill resulting from the blowout but point-ed out significant limitations in the tech-nologies and organizational proceduresused for the response. Spill responsetechnologies have not kept pace with theneeds of contingency planning for deep-water drilling in large, high-pressurereservoirs far offshore, the report said.

Part 2 of this story will review the les-sons learned and recommendations forthe future contained in the commission’sreport. �


SPILL REPORT

Contact Kristen Nelson at [email protected]

Contact Alan Bailey at [email protected]

http://www.umalaska.com/

http://www.exprogroup.com/

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