Wilkins: Hilcorp committed to Alaskainvestments; in state for long haul
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l E X P L O R A T I O N & P R O D U C T I O N
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Vol. 22, No. 21 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 21 2017 • $2.50
page8
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 21, 2017
Newmont readies to explore Yukon;targeting high-grade gold at Plateau
PEB
BLE
LIM
ITED
PA
RTN
ERSH
IP
Field work at Pebble, such as this drilling at the project in 2010, provided jobs to many residents near the world-class copper deposit. Successfully settling its dispute with EPA, the Pebble Partnership is now planning the firstfield program at Pebble in several years.
l E X P L O R A T I O N & D E V E L O P M E N T
NEWS NUGGETSCompiled by Shane Lasley
TESL
A I
NC
.
Coated spherical graphite is the primary anode material in mostrechargeable lithium-ion batteries that power electric vehicles, homeenergy storage units and other rechargeable electrical devices.
AIDEA finds potential sites forAlaska-based graphite refinery
Graphite One Resources Inc. May 17 said that it hasreceived a report from the Alaska Industrial Developmentand Export Authority that assess potential locations for afacility to refine graphite from its Graphite Creek deposit inwestern Alaska into advanced-materials such as coatedspherical graphite used as an anode in lithium-ion batteries.In its report, AIDEA identified Homer, Kenai, PortMackenzie and Seward as potential Alaska-based sites forthe graphite refinery. The report comes on the heels of amemorandum of understanding between AIDEA andGraphite One to explore opportunities to collaborate on thedevelopment of the Graphite One project. "TappingAIDEA's expertise in helping us assess potential refinerysites is the first step towards making Alaska a key player inthe clean-tech energy sector," said Graphite One CEOAnthony Huston. "The AIDEA report confirms the consider-able interest Alaska localities have in serving as a base forour advanced-material spherical graphite refinery." Homer,Kenai, Port Mackenzie and Seward are all SouthcentralAlaska locations with year-round ports with barge landings,docks, and container handling capacity. From these ports,refined graphite could be delivered to the Lower 48 states,generally via the ports of Seattle and Tacoma. These poten-tial sites also "have the capacity in-place to meet the refin-ery's power needs,” according to AIDEA. As for powercosts, the AIDEA report notes that "while Alaska can'tdirectly compete on power generation costs, there are poten-tial accumulated benefits to the location criteria that willhelp balance the overall capital and operating costs of theproject." Each potential site offers available industrial zonedland for the project. A number of property, sales, and otherspecial taxes on commercial and industrial activities withinthe municipal areas of the four locations, however, must betaken into consideration when evaluating the costs of operat-ing a graphite refinery at each. Graphite is a critical materialfor electric vehicle batteries and energy storage systems. TheU.S. is presently 100 percent import-reliant for graphite, acritical ingredient in the lithium-ion batteries that powerelectric vehicles and other electronic devices.
CopperBank funds Pyramid drillingCopperBank Resources Corp. May 12 reported the clos-ing of a C$1.4 million non-brokered private placement thatincluded the issuance of 17.5 million common shares at C8cents each. In April, CopperBank announced plans to carryout a roughly US$750,000 exploration program at Pyramid,a copper-molybdenum-gold project on Aleut Corporationlands on the Alaska Peninsula. The program, slated for mid-2017, is expected to include 1,500 meters of drilling. The
see NEWS NUGGETS page 8
Pebble door opensEPA agrees to lift pre-emptive restrictions, allowing normal permitting
By SHANE LASLEYMining News
After five long years of bat-tling inside and outside of
the courtroom, Pebble LimitedPartnership and the U.S.Environmental ProtectionAgency have negotiated anagreement that opens the doorfor the enormous Pebble cop-per-gold-molybdenum project in Southwest Alaskato enter the permitting process unencumbered by pre-determined restrictions.
“This settlement represents a major step for-ward for the Pebble project,” said PebblePartnership CEO Tom Collier. “It allows us to startadvancing Pebble to the next phase of develop-ment and provides us with the opportunity to initi-ate the normal permitting process for this project.”
A sentiment reflected by EPA AdministratorScott Pruitt.
“We are committed to due process and the ruleof law, and regulations that are 'regular',” said theformer Oklahoma attorney general. “The agree-ment will not guarantee or prejudge a particularoutcome, but will provide Pebble a fair process fortheir permit application and help steer EPA awayfrom costly and time-consuming litigation. We arecommitted to listening to all voices as this processunfolds.”
While this is an important milestone forNorthern Dynasty Ltd., currently the sole owner ofPebble, the outcome has implications well beyondone copper project in Alaska, or even the U.S. min-ing sector at large. Stopping EPA from usingSection 404 (c) of the Clean Water Act to ban orrestrict a project prior to permitting prevents aprecedent that could have significantly expandedthe environmental agency’s regulatory reach.
Time limitsWhile considered a major
victory for the PebblePartnership – a company thathas some US$750 millioninvested in the exploration,environmental studies, engi-neering and other work needto ready the world-class cop-per project for permitting –
the settlement with EPA involved give and takefrom both parties.
One of the major limitations for the PebblePartnership is time.
Under the terms of the settlement, the hopefulmine developer has 30 months to file permit appli-cations, which initiates the permitting processunder the National Environmental Policy Act, and48 months for a final environmental impact state-ment to be filed by the US Army Corps ofEngineers.
This time limit was included to ensure the set-tlement does not violate rules that would constrainthe authority of a federal cabinet officer.
Pebble leaders, however, do not see the timelimits as much of an impediment.
Both Collier and Northern Dynasty Presidentand CEO Ron Thiessen told Mining News thatthey expect to have permit application in by theend of 2017 and have a final environmental impactstatement from the U.S. Army Corps of Engineersby May, 2021.
As long as these two deadlines are met, the EPAhas agreed not to take any pre-emptive CWA 404(c) action against Pebble. If either deadline ismissed, however, the regulator has the option todust off and activate its previous decision.
Pebble has also agreed to withdraw its legal
TOM COLLIER RON THIESSEN
see PEBBLE AGREEMENT page 9
This week’s Mining News
EPA agrees to lift pre-emptive restrictions, allowing normal per-mitting for Pebble project. Read more in Mining News, page 7.
page3
1Q drilling downNorth Slope development drilling down sharply in first quarter of 2017
By ERIC LIDJIFor Petroleum News
North Slope development drilling dropped
sharply in the first quarter from a year earlier,
driven largely by the steep reduction in activities at
the Prudhoe Bay unit as well as the continued sus-
pension of development activities at the Oooguruk
and Nikaitchuq units.
BP, ConocoPhillips and Hilcorp, the three most
active of the seven producer-operators on the
North Slope, drilled 28 development wells in the
first three months of the year. Those figures repre-
sent the lowest first quarter development drilling
totals for the North Slope in at least five years —
down from 47 in 2016, 46 in 2015, 36 in 2014 and
32 in 2013.
The figures only include wells labeled “devel-
opment” in weekly well reports published by the
Alaska Oil and Gas Conservation Commission.
Some exploration wells are later converted to
development wells. Some development wells are
reported at a delay after completion. As a result,
revised totals could be higher but are unlikely to be
lower.
Prudhoe BayBP Exploration Alaska Inc. drilled just three
development wells at Prudhoe Bay in the first
quarter, the lowest first quarter activity in at least a
decade and probably longer.
By comparison, BP drilled 18 development
see 1Q DRILLING page 12
A major challengeState processing massive amounts of seismic data under exploration tax credits
By ALAN BAILEYPetroleum News
A deluge of seismic data has been hitting the
office of Alaska’s Division of Oil and Gas as
a consequence of exploration tax credits enacted in
2003 by the Alaska Legislature. The legislation,
designed both to encourage new oil and gas explo-
ration and to make seismic data available to com-
panies interested in exploring in the state, has
motivated exploration efforts. But, as the number
of surveys conducted under the terms of the credits
has peaked, and as the volume of data obtained
from each survey has escalated, division staff have
had to deal with the challenge of keeping ahead of
the resulting unanticipated data flood.
“This is a challenge on many different levels,”
Mark Wiggin, deputy commissioner of the Alaska
Department of Natural Resources, told Petroleum
News. “It’s literally a wave front of … ever
increasing datasets coming in the door.”
The complete process for a single surveytakes up to a year to complete, a similar
timeframe to that required for theDepartment of Revenue to audit thesurvey financial data, Decker said.
see SEISMIC DATA page 16
Nikaitchuq North planEni proposes two extended reach wells from Spy Island starting next winter
By ALAN BAILEYPetroleum News
Eni US Operating Co. has filed a plan of opera-
tions amendment with Alaska’s Division of
Oil and Gas proposing the drilling of two extended
reach exploration wells from Spy Island into the
Nikaitchuq North prospect, in the federal outer
continental shelf of the Beaufort Sea. The prospect
lies immediately north of the operating Nikaitchuq
field, which is in state waters of the Beaufort. The
drilling would take place from an existing
Nikaitchuq field pad on Spy Island, a man-made
gravel island about three miles off Oliktok Point.
The surface locations of the two wells, the
NN01 and NN02 wells, would be adjacent the
existing row of production wells on the Spy Island
drill site, Eni’s plan amendment says. Two strings
of conductor pipe, well houses and new well con-
tainment structures will be needed for the wells,
with the wells being drilled along S-shaped trajec-
tories into the target rocks. Eni plans to drill the
wells to vertical depths of 8,000 feet in federal
blocks OCSY-1757 block 6423 and OCS-Y-1754
block 6374. The extreme extended reach of the
The extreme extended reach of the wellswill result in measured depths of about
34,000 feet, the plan says.
see NIKAITCHUQ NORTH page 15
HB 111 rolls to special sessionThe Alaska Legislature gaveled out May 17 without pass-
ing capital or operating budgets, a fiscal plan or House Bill
111, the oil tax and credit bill.
Those items are among those listed on Gov. Bill Walker’s
call for a special session beginning May 18.
HB 111 originated in the House Resources Committee and
a House Finance Committee substitute for the bill passed the
House April 11.
Icewine reaches target depthThe Icewine No. 2 well has reached its target depth.
Drilling crews working on the onshore North Slope explo-
ration well reached a total depth of 11,450 feet on May 15,
according to a May 17 announcement from 88 Energy Ltd.
Through its operating subsidiary Accumulate Energy
Alaska Inc., the Australian independent is now completing
wireline logging, cementing the production liner and demobi-
lizing the Arctic Fox drilling rig, in preparation for flow test-
Commissioners win confirmationGov. Bill Walker’s industry-related appointments all won con-
firmation when the Alaska Legislature met in joint session May
16, day 120 of the constitutionally mandated 121-day
Legislature, but well beyond the 90-day session imposed by voter
mandate in 2006.
The governor had called legislators into joint session in late
April for confirmation votes but there was an immediate move to
adjourn, with Republicans in the House minority and Senate
see HB 111 page 14
see ICEWINE WELL page 14
see CONFIRMATION page 12
2 PETROLEUM NEWS • WEEK OF MAY 21, 2017
Petroleum News North America’s source for oil and gas newscontents
ENVIRONMENT & SAFETY
EXPLORATION & PRODUCTION
6 Kenai Loop compression pushed to 2018
AIX believes Cook Inlet gas field can hold out anotheryear; touts major reduction in water handling costs; eyes other upgrades
1Q drilling downANS development drilling down sharply in first quarter of 2017
A major challengeVast amounts of seismic data processed under tax credits
Nikaitchuq North planEni proposes 2 extended reach wells starting next winter
ON THE COVER
HB 111 rolls to special sessionIcewine reaches target depthCommissioners win confirmation
11 DEC acts on Fairbanks air quality
13 Senate upholds methane leak regulations
GOVERNMENT
13 CBP withdraws new Jones Act proposal
11 State OKs changes to Alpine PA
11 Alpine annual turnaround set for mid-June
13 GAO recommends improved BLM data management
PIPELINES & DOWNSTREAM
FINANCE & ECONOMY
LAND & LEASING
5 EIA: US ’18 production at 10 million bpd
6 AOGCC lists topics for idle wells workshop
2 Repsol adds more interest at Pikka
3 Hilcorp committed to Alaska investments
l L A N D & L E A S I N G
Repsol adds more interest at PikkaAcquires 25-49 percent interest in 122 Armstrong leases; Alliance adds acreage at Hemi Springs; Anadarko drops Foothills leases
By ERIC LIDJIFor Petroleum News
Armstrong Energy LLC has transferred sizable work-
ing and royalty interests in a large package of North
Slope leases to its longtime exploration partner Repsol
E&P USA Inc.
In a series of decisions dated April 5, the state
Division of Oil and Gas approved the assignment of
working and royalty interest for approximately 122 leas-
es in the North Slope and Beaufort Sea regions. Among
the acreage under consideration were 22 leases at the
Pikka unit, where the two companies have made big dis-
coveries in recent years.
Through the series of transactions, Armstrong trans-
ferred 25 percent working interest and either 20.83333 or
21.875 percent royalty interest in 79 leases, and also
transferred 49 percent working interest and either
40.83333 or 42.875 percent royalty interest in 43 leases
to Repsol. The assignments were approved retroactive to
the start of the year.
The assignments appear to cover leases where
Armstrong held 100 percent working interest, which
means that the company will retain a majority stake in
those leases.
Not included in the package of leases were ADL
392048 or ADL 392049, where Armstrong drilled the
Horseshoe No. 1 well and No. 1A sidetrack earlier this
year.
Under the original terms of their partnership,
Armstrong held a 45 percent interest in exploration
acreage and a 30 percent interest in the development
acreage. Following a restructuring in late 2015,
Armstrong assumed a 75 percent interest and operator-
ship in the exploration acreage and a 45 percent interest
in the development acreage with an option to acquire
another 6 percent and operatorship — an option the com-
pany took.
Hemi Springs Also in April, the state approved a series of deals
between Daniel K. Donkel, Samuel H. Cade and
Alliance Exploration LLC involving a package of North
Slope leases.
Through the deals, Donkel transferred 100 percent
working interest and 81.83333 percent royalty interest in
12 leases to Alliance Exploration. Those leases are ADL
391750, ADL 391757, ADL 391758, ADL 391759, ADL
391766, ADL 391767, ADL 391768, ADL 391774, ADL
391775, ADL 391776, ADL 391777 and ADL 391778. In
turn, Alliance Exploration transferred a 1.5 percent roy-
alty interest in the leases back to Donkel.
Donkel also transferred 25 percent working interest
and 20.45833 percent royalty interest in four other leases
to Alliance Exploration. Those leases are ADL 391544,
ADL 391545, ADL 392104 and ADL 392109. Cade
transferred to remaining 25 percent working interest and
61.375 percent royalty interest in those same four leases
to Alliance Exploration. In turn, Alliance Exploration
transferred 0.375 percent royalty interest in the leases
back to Donkel and 1.125 percent royalty interest in the
leases back to Cade.
The leases are part of the Hemi Springs prospect,
immediately south of the Prudhoe Bay Unit. Pioneer
Natural Resources drilled the Hailstorm No. 1 well on
ADL 391757.
Alliance already holds at least five leases adjacent to
the newly acquired block.
Alliance Exploration LLC was officially formed in
November 2016, according to Alaska corporations’
Anadarko Petroleum Corp. surrendered eightleases in the foothills of the Brooks Range
Mountains.
see REPSOL INTEREST page 4
PETROLEUM NEWS • WEEK OF MAY 21, 2017 3
Each year, BP invests millions of dollars and our employees give thousands of volunteer hours in Alaska. From the Alaska Native Science and Engineering Program (ANSEP), to sponsorship of the Alaska Food Bank, to local disaster relief through the American Red Cross, we’re constantly looking for new ways to give back to the communities where our employees live and work.
Learn more about what BP is doing to strengthen Alaska communities for today and tomorrow at bp.com/Alaska
BP Volunteers
Habitat for Humanity
Anchorage
BP supports more than
450 communityprogramsthroughout Alaska REGISTER NOW
2017 AOGA Annual Conference
Wednesday, May 31, 2017Anchorage, AK
To register, or for more information, visit: www.aoga.org.
l E X P L O R A T I O N & P R O D U C T I O N
Hilcorp committed to Alaska investmentsWilkins says his company is operating in the state for the long haul; planning several new development projects
By ALAN BAILEYPetroleum News
In a talk to the Resource Development Council on May
4 David Wilkins, Hilcorp Alaska senior vice president,
emphasized the significance of Hilcorp’s Alaska invest-
ments to his company.
“Overall, Alaska is important to Hilcorp,” Wilkins
said. “We’ve invested quite a bit of
money. We believe it’s a good place
for Hilcorp to invest money.”
Hilcorp entered the Cook Inlet oil
and gas industry in 2011 and
embarked on a program of rejuve-
nating the aging oil and gas fields of
the region. In 2014 the company
expanded its Alaska operations by
purchasing some North Slope oil
field assets from BP.
Wilkins said that since coming to
the state Hilcorp has paid $1.8 billion for its Alaska
assets, has injected $1.3 billion into new projects for driv-
ing up oil and gas production, and spent $1.4 billion on
the operation and maintenance of its various facilities.
“This is not a strategy to come and leave. We’re here
for decades to come,” Wilkins said.
Asked about the potential impact to Hilcorp’s opera-
tions of any changes to Alaska’s oil and gas production
tax system, Wilkins said that tax increases could delay
future oil and gas production.
“What increased taxes will do to us is we’ll reduce
capital projects,” Wilkins said. “We will cut drill wells
from the budget.”
However, Wilkins said that he appreciates the difficult
situation that the legislators in Juneau find themselves in.
“But, from Hilcorp’s perspective, if we leave the rules
the same, I think we go forward. I think we increase pro-
duction. I think we drill more,” Wilkins said.
Rejuvenating old fieldsWilkins recounted that prior to Hilcorp’s arrival in
Alaska, there had been looming natural gas shortages in
Southcentral Alaska, with the Cook Inlet producers
preparing to leave the region.
“We came up with a business model that said let’s
come to Alaska and invest in an old tired, basin and reju-
venate it,” Wilkins said.
In the years since then there have been no gas supply
interruptions in Southcentral; gas supply agreements
with utilities have been moving from very short-term
contracts to agreements covering timeframes well into
the next decade; and long-term planning between
Hilcorp and he utilities has become possible, Wilkins
said.
This success has resulted from Hilcorp’s investments
in Alaska, he said.
“After this year we will have drilled in Alaska over
100 wells, and we’re not stopping,” he said. “I’m proud
to tell you that we currently have four drilling rigs run-
ning in Alaska and we are the most active driller in
Alaska at this time.”
Given that the company had drilled sufficient wells in
the Cook Inlet basin to support the current gas market in
the region, Hilcorp slowed its rate of drilling during the
last couple of years. However, this year the company has
increased its Alaska spend, increasing its drilling rate on
the North Slope and offshore in the Cook Inlet.
“We plan on drilling 40 wells this year,” Wilkins said.
In addition to drilling wells, Hilcorp has increased its
investment in upgrading the old infrastructure that it
owns, to ensure that the company’s pipelines, platforms
and wells can continue to perform effectively for a long
time into the future, he said.
North Slope projectsOn the North Slope Hilcorp has started construction
on the Moose Pad, on the western side of the Milne Point
unit. Drilling should start next year. With, eventually, 70
production and injection wells drilled into the Schrader
Bluff and Kuparuk formations, ultimate recovery from
the project will be 30 million to 50 million barrels of oil,
with first production by the fourth quarter of 2018 and
peak production rates of 12,000 to 18,000 barrels of oil
per day, Wilkins said.
This year’s construction season at Moose Pad has
been successfully completed and pre-ordering is under-
way for next winter’s season. Construction during the
coming season will involve the completion of the access
road, work on the pad and the start of facility construc-
tion. For the drilling, Hilcorp will bring in a brand new
drilling rig, which is already located on the North Slope,
Wilkins said.
Hilcorp is also planning to develop the Liberty oil
field, offshore under the Beaufort Sea, and sees the field
coming on line in five years or so, with peak production
of some 70,000 barrels per day and a 20- to 30-year field
life. The total development cost would be more than $1
billion.
“We’re full go in our mind,” Wilkins said.
Hilcorp expects to move forward with Liberty after
the completion of the project’s environmental impact
statement, which should be issued in mid-summer.
Pipeline leakReflecting on recent news about Hilcorp’s gas
pipeline leak in the Cook Inlet and questions over the
condition of the company’s Cook Inlet infrastructure,
Wilkins said that his company is passionate about the
integrity of its systems and about its management philos-
ophy.
“We have a very robust integrity and management
program on all our facilities and all our lines,” Wilkins
DAVID WILKINS
see HILCORP INVESTMENTS page 4
said. “We go above and beyond what is
required from the regulators.”
He said that, although a full investiga-
tion is underway, looking into the cause
of the gas leak, it appears that the leak
resulted from the gas line rubbing
against a rock on the seafloor, with the
rock wearing a hole in line.
Wilkins said that Hilcorp is looking to
the use of new technologies for its facil-
ity inspection programs. The company is
planning to use drones, starting next
year, for annual inspections of its off-
shore platforms for mechanical and
structural integrity. The drones will
enable the gathering of data more quick-
ly and safely, without the need to have
people descending using ropes, as at
present, to inspect the platform exteriors.
Hilcorp is already using inertial map-
ping, a technology that uses a precise
gyroscopic navigation system, to detect
small pipeline movements, to rapidly
obtain pipeline data. The company also
uses inline inspection tools, known a
smart pigs, to monitor the condition of
pipelines — these devices are often cus-
tom made. The company plans to expand
its use of multi-beam sonar, a technology
that enables the external inspection of
pipelines in the murky waters of the
Cook Inlet, where divers experience dif-
ficulties in conducting visual inspec-
tions.
Hilcorp also uses a risk-based safety
program in its operations, applying
money, time and effort to safety issues
that need to be addressed, Wilkins said.
For example, in the Cook Inlet region the
company is upgrading the fire and gas
systems on its aging infrastructure, he
said.
Cook Inlet oil transportationAs reported in the May 14 issue of
Petroleum News, Wilkins also
announced a plan to transport crude oil
direct to the Tesoro oil refinery by
pipeline from oil fields on the west side
of the inlet. The idea is to eliminate the
use of the Drift River terminal on the
west side of the inlet, the oil terminal
that is used to load tankers for the ship-
ment of oil to the Tesoro refinery.
The $75 million project would
involve converting one of the twin
pipelines of the existing Cook Inlet Gas
Gathering System for the carriage of oil
and building a new subsea gas pipeline
across the northern part of the inlet from
the Tyonek platform to Ladd Landing,
north of Tyonek.
For a number of years the Drift River
terminal has been a cause of concern
because of its proximity to the Redoubt
volcano. In 2009 an eruption of the vol-
cano forced an evacuation of the termi-
nal and an emergency drawdown of oil
stored at the terminal site.
Long-term commitmentWilkins commented that Hilcorp’s
new pipeline proposal demonstrates his
company’s long-term commitment to
Cook Inlet.
“We see much more development in
the Cook Inlet. Many more drill wells.
And we see decades worth of production
in the Cook Inlet and we’re going to re-
invest in the Cook Inlet,” Wilkins said.
Citing the Swanson River oil field on
the Kenai Peninsula as an illustration of
how the life of an aging field can be pro-
longed, Wilkins commented that after 60
years in operation this field is still deliv-
ering more than 2,000 barrels per day of
oil. Hilcorp is still drilling in the field
and the company estimates there are
more than 7 million barrels of recover-
able oil remaining to be produced. With
the use of new technology, the field
could continue operating into the next
century, Wilkins said. l
4 PETROLEUM NEWS • WEEK OF MAY 21, 2017
Kay Cashman PUBLISHER & EXECUTIVE EDITOR
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records. The company is a wholly owned
subsidiary of the Linger Trust.
AnadarkoAnadarko Petroleum Corp. surren-
dered eight leases in the foothills of the
Brooks Range Mountains. The leases —
ADL 392375, ADL 392376, ADL
392377, ADL 392378, ADL 392379,
ADL 392380, ADL 392381 and ADL
392382 — were located in a bundle along
the Kuparuk River unit, near the E.
Kuparuk Unit No. 1 and Kuparuk Unit
No. 1 wells.
For a time starting in 1998, Anadarko
was the largest leaseholder in Alaska,
with some 3.3 million acres in its portfo-
lio. But the company has been relinquish-
ing leases throughout the region for sev-
eral years, following a pioneering gas
exploration program.
Other news•The state is currently considering 15
separate transactions involving four work-
ing interest owners in five leases at the
offshore Kitchen Lights unit. Lee Higgins
& Terrie L. Stull-Higgins and Paul W &
Lori A. Lokke have asked to transfer a
0.25 percent royalty interest in five leases
to Proak LLC, and Proak Royalties L has
asked to transfer a 2.656248 percent roy-
alty interest in the leases to Northern
Lights Royalties LP. The leases are ADL
389927, ADL 389928, ADL 389929, ADL
390374 and ADL 390381.
•A lease in the Foothills region held by
Dan Donkel — ADL 391035 — expired.
•Hilcorp Alaska LLC surrendered lease
ADL 392240. The offshore Cook Inlet
lease was adjacent to the North Trading
Bay unit and was set to expire at the end
of May 2023. l
—A copyrighted oil and gas lease mapfrom Mapmakers Alaska was a researchtool used in preparing this story.
continued from page 2
REPSOL INTEREST
continued from page 3
HILCORP INVESTMENTS
By KRISTEN NELSONPetroleum News
The average for North Sea Brent
crude oil spot prices was $52 per
barrel in April, up $1 per barrel from
March, the U.S. Energy Information
Administration said May 9 in its monthly
Short-Term Energy Outlook. EIA said
April was the fifth consecutive month
that Brent averaged between $50 and $55
per barrel. The agency forecasts Brent to
average $53 per barrel this year and $57
in 2018, with West Texas Intermediate
crude forecast to average $2 per barrel
less than Brent in both years.
Crude oil prices rose in the first half of
April, but fell during the second half and
on May 4 reached the lowest point since
the end of November, EIA said. The April
3 to May 4 decline for Brent front-month
futures was $4.74 per barrel, to $48.38,
while WTI was down $4.72 per barrel to
$45.52. The April spot price average was
still 72 cents above March for Brent and
$1.73 per barrel above March for WTI.
“Upside support for crude oil prices
resulting from voluntary production cuts
or unplanned outages over the past
months has been countered by rising
crude oil production in Libya and in the
United States,” EIA said. At the begin-
ning of May, Libya said its crude oil pro-
duction had increased to the highest level
since late 2014, and U.S. crude oil pro-
duction was estimated to have reached
9.1 million barrels per day in April, “the
highest level since March 2016,” EIA
said.
Lower price forecastThe agency said it is projecting more
supply growth in the global crude oil
market this year and next, “resulting in a
lower forecast of crude oil prices in the
coming months.”
The agency’s current 2017 forecast for
Brent of $53 per barrel is down $1 per
barrel from its April forecast; the 2018
forecast remains the same at $57 per bar-
rel.
“Higher oil production from the
United States, along with rising oil output
from Canada and Brazil, is expected to
curb upward pressure on global oil prices
through the end of 2018,” Acting EIA
Administrator Howard Gruenspecht said
in a statement.
In the U.S. the number of drilling rigs
targeting oil reached a two-year high at
the beginning of May.
“Increased drilling rig activity is
expected to boost U.S. crude oil produc-
tion this year and next, with forecast pro-
duction in 2018 averaging 10 million bar-
rels per day,” Gruenspecht said.
There is a lag between deployment of
drilling rig and oil production, EIA said,
with recent rig increases indicating that
U.S. production “will likely rise further in
the coming months.”
Extension possibleEIA said that reports from the Joint
Organization of the Petroleum Exporting
Countries and the non-OPEC Ministerial
Monitoring Committee suggested com-
pliance with production cuts remained
high in March and said because global oil
inventories remain high, “oil ministers of
several OPEC countries, including those
of Saudi Arabia, Kuwait, and Iraq, have
suggested their respective countries
would support an extension of the crude
oil production cut agreement for six
months beyond the current end date in
June.”
The agency said the combination of
expectations of supply growth this year,
plus concerns that a proposed extension
of the production cut agreement will not
reduce inventories as quickly as expected
both contributed to the sharp drop in
crude oil prices in the first week of May.
More global oil supply growth is
expected compared to April, EIA said,
and this results in a lower forecast of oil
prices for the coming months. Current
growth projections are higher by some
200,000 bpd this year and by 100,000 bpd
in 2018, with expected liquid fuels con-
sumption growth largely unchanged. EIA
is projecting liquids fuel supplies to grow
by an estimated 1.4 million bpd this year
and 1.9 million bpd in 2018, compared to
growth in consumption of 1.6 million bpd
this year and next.
Natural gasThe Henry Hub price for natural gas
averaged $3.10 per million Btu in April,
up 22 cents from March, EIA said, with
U.S. dry natural gas production forecast
to average 74.1 billion cubic feet per day
this year, up 1.8 bcf per day from 2016.
“This increase reverses a 2016 production
decline, which was the first annual
decline since 2015,” the agency said.
U.S. natural gas production is forecast
to be 3.2 bcf per day more in 2018 than
this year.
EIA said Henry Hub is expected to
average $3.43 per million Btu next year,
up from an expected $3.17 this year, with
the increase due to new natural gas export
capabilities and growing domestic con-
sumption.
Natural gas storage injections aver-
aged 51 bcf per week in the four weeks
ending April 28, almost 10 bcf per week
more than the five-year average for those
weeks.
“With natural gas production returning
to growth in recent months after declining
in 2016, higher natural gas exports have
helped moderate inventory builds this
year,” EIA said. l
l F I N A N C E & E C O N O M Y
EIA: US ’18 production at 10 million bpdOverall higher production expected to curb oil prices this year, next; North Sea Brent spot averaged $52 in April, up $1 from March
PETROLEUM NEWS • WEEK OF MAY 21, 2017 5
:DeliveredReal Alaskans. Real cargo.
Orange juice. Fresh produce. Refrigerators. Whatever you need, we deliver.
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By ERIC LIDJIFor Petroleum News
AIX Energy Inc. is considering a range
of facility upgrades at the Kenai Loop
field.
The Texas-based independent is not
planning to drill any new wells at the
onshore Cook Inlet natural gas field over the
coming year. But the company is continuing
to evaluate several infrastructure projects,
including an upgrade to compression sys-
tems, a plan to revive a currently dormant
production well and a plan to decommission
an existing pad.
Average daily gas production at Kenai
Loop appears to have peaked at approxi-
mately 11.5 million cubic feet per day in the
first quarter of 2016, a little more than four
years after startup. The field produced 3.159
billion cubic feet in the year ending March
31, down from 3.657 billion cubic feet dur-
ing the previous year. Condensate produc-
tion also declined to 507 barrels in the year
ending March 31 from 649 barrels the pre-
vious year.
A drop in daily production earlier this
year appears to be related to the unpre-
dictability of two non-firm contracts — one
with Tesoro and the other with an un-named
customer.
A firm contract with Tesoro and a larger
firm contract with Enstar Natural Gas Co.
will both expire later this year. “AIX has
multiple contracts which are likely to lead to
additional non-firm sales in 2017. AIX is
also pursuing additional firm commitments
beyond the termination of the Tesoro and
Enstar contracts in 2018,” according to
AIX.
The company described its current strat-
egy as an attempt to “to maximize field
recovery and net present value by aligning
production capacity with commercial
opportunities.”
Future drilling plans unclearWhether that strategy will call for
drilling in 2018 or beyond is unclear.
In its nearly five years as the operator of
Kenai Loop, predecessor Buccaneer Energy
Ltd. drilled four wells. The KL 1-1 and KL
1-3 wells are currently in production. AIX is
considering plans to convert the temporarily
suspended KL 1-2 production well into a
disposal well. The shut-in KL 1-4 produc-
tion well is not currently tied into the sys-
tem.
Earlier this year, AIX hired a geophysi-
cal/petrophysical team “to evaluate addi-
tional rate enhancing opportunities” at the
four Kenai Loop wells but is still reviewing
the results.
In its 2016 plan of development for
Kenai Loop, for the year ending March 31,
AIX proposed a range of facilities projects
to improve production and operations at the
field.
Among those was an attempt to address
water-handling costs, which represent the
second-highest lease operating expense at
the field after personnel, according to the
company. Last year, AIX negotiated a 29
percent decline in water-handling fees.
l E X P L O R A T I O N & P R O D U C T I O N
Kenai Loop compression pushed to 2018AIX believes Cook Inlet gas field can hold out another year; touts major reduction in water handling costs; eyes other upgrades
6 PETROLEUM NEWS • WEEK OF MAY 21, 2017
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Better.
Average daily gas production atKenai Loop appears to have
peaked at approximately 11.5million cubic feet per day in the
first quarter of 2016, a little morethan four years after startup.
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AOGCC liststopics for idlewells workshop
The Alaska Oil and Gas
Conservation Commission has a work-
shop scheduled for 10 a.m. June 17 at
its Anchorage office to discuss possible
changes in regulation of idle wells.
On May 17 the commission released
discussion topics for the workshop,
including.
•Should idle wells be treated more
like suspended wells with an applica-
tion for the well to remain shut-in and
periodic reports? If so, what should the
time parameters and frequency of the
reports be?
•Since there is a significant aban-
donment liability for idle and suspend-
ed wells, should the commission adopt
regulations in this area to better protect
the state and future operators?
•Considering the safety and environ-
mental risks of idle and suspended
wells, should the commission adopt
regulations for better protection?
•How long should the commission
allow a well to be idle before suspen-
sion or plugging is required?
—PETROLEUM NEWS
GOVERNMENT
see KENAI LOOP page 11
page8
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 21, 2017
Newmont readies to explore Yukon;targeting high-grade gold at Plateau
PEB
BLE
LIM
ITED
PA
RTN
ERSH
IP
Field work at Pebble, such as this drilling at the project in 2010, provided jobs to many residents near the world-class copper deposit. Successfully settling its dispute with EPA, the Pebble Partnership is now planning the firstfield program at Pebble in several years.
l E X P L O R A T I O N & D E V E L O P M E N T
NEWS NUGGETSCompiled by Shane Lasley
TESL
A I
NC
.
Coated spherical graphite is the primary anode material in mostrechargeable lithium-ion batteries that power electric vehicles, homeenergy storage units and other rechargeable electrical devices.
AIDEA finds potential sites forAlaska-based graphite refinery
Graphite One Resources Inc. May 17 said that it has
received a report from the Alaska Industrial Development
and Export Authority that assess potential locations for a
facility to refine graphite from its Graphite Creek deposit in
western Alaska into advanced-materials such as coated
spherical graphite used as an anode in lithium-ion batteries.
In its report, AIDEA identified Homer, Kenai, Port
Mackenzie and Seward as potential Alaska-based sites for
the graphite refinery. The report comes on the heels of a
memorandum of understanding between AIDEA and
Graphite One to explore opportunities to collaborate on the
development of the Graphite One project. "Tapping
AIDEA's expertise in helping us assess potential refinery
sites is the first step towards making Alaska a key player in
the clean-tech energy sector," said Graphite One CEO
Anthony Huston. "The AIDEA report confirms the consider-
able interest Alaska localities have in serving as a base for
our advanced-material spherical graphite refinery." Homer,
Kenai, Port Mackenzie and Seward are all Southcentral
Alaska locations with year-round ports with barge landings,
docks, and container handling capacity. From these ports,
refined graphite could be delivered to the Lower 48 states,
generally via the ports of Seattle and Tacoma. These poten-
tial sites also "have the capacity in-place to meet the refin-
ery's power needs,” according to AIDEA. As for power
costs, the AIDEA report notes that "while Alaska can't
directly compete on power generation costs, there are poten-
tial accumulated benefits to the location criteria that will
help balance the overall capital and operating costs of the
project." Each potential site offers available industrial zoned
land for the project. A number of property, sales, and other
special taxes on commercial and industrial activities within
the municipal areas of the four locations, however, must be
taken into consideration when evaluating the costs of operat-
ing a graphite refinery at each. Graphite is a critical material
for electric vehicle batteries and energy storage systems. The
U.S. is presently 100 percent import-reliant for graphite, a
critical ingredient in the lithium-ion batteries that power
electric vehicles and other electronic devices.
CopperBank funds Pyramid drillingCopperBank Resources Corp. May 12 reported the clos-
ing of a C$1.4 million non-brokered private placement that
included the issuance of 17.5 million common shares at C8
cents each. In April, CopperBank announced plans to carry
out a roughly US$750,000 exploration program at Pyramid,
a copper-molybdenum-gold project on Aleut Corporation
lands on the Alaska Peninsula. The program, slated for mid-
2017, is expected to include 1,500 meters of drilling. The
see NEWS NUGGETS page 8
Pebble door opensEPA agrees to lift pre-emptive restrictions, allowing normal permitting
By SHANE LASLEYMining News
After five long years of bat-
tling inside and outside of
the courtroom, Pebble Limited
Partnership and the U.S.
Environmental Protection
Agency have negotiated an
agreement that opens the door
for the enormous Pebble cop-
per-gold-molybdenum project in Southwest Alaska
to enter the permitting process unencumbered by pre-
determined restrictions.
“This settlement represents a major step for-
ward for the Pebble project,” said Pebble
Partnership CEO Tom Collier. “It allows us to start
advancing Pebble to the next phase of develop-
ment and provides us with the opportunity to initi-
ate the normal permitting process for this project.”
A sentiment reflected by EPA Administrator
Scott Pruitt.
“We are committed to due process and the rule
of law, and regulations that are 'regular',” said the
former Oklahoma attorney general. “The agree-
ment will not guarantee or prejudge a particular
outcome, but will provide Pebble a fair process for
their permit application and help steer EPA away
from costly and time-consuming litigation. We are
committed to listening to all voices as this process
unfolds.”
While this is an important milestone for
Northern Dynasty Ltd., currently the sole owner of
Pebble, the outcome has implications well beyond
one copper project in Alaska, or even the U.S. min-
ing sector at large. Stopping EPA from using
Section 404 (c) of the Clean Water Act to ban or
restrict a project prior to permitting prevents a
precedent that could have significantly expanded
the environmental agency’s regulatory reach.
Time limitsWhile considered a major
victory for the Pebble
Partnership – a company that
has some US$750 million
invested in the exploration,
environmental studies, engi-
neering and other work need
to ready the world-class cop-
per project for permitting –
the settlement with EPA involved give and take
from both parties.
One of the major limitations for the Pebble
Partnership is time.
Under the terms of the settlement, the hopeful
mine developer has 30 months to file permit appli-
cations, which initiates the permitting process
under the National Environmental Policy Act, and
48 months for a final environmental impact state-
ment to be filed by the US Army Corps of
Engineers.
This time limit was included to ensure the set-
tlement does not violate rules that would constrain
the authority of a federal cabinet officer.
Pebble leaders, however, do not see the time
limits as much of an impediment.
Both Collier and Northern Dynasty President
and CEO Ron Thiessen told Mining News that
they expect to have permit application in by the
end of 2017 and have a final environmental impact
statement from the U.S. Army Corps of Engineers
by May, 2021.
As long as these two deadlines are met, the EPA
has agreed not to take any pre-emptive CWA 404
(c) action against Pebble. If either deadline is
missed, however, the regulator has the option to
dust off and activate its previous decision.
Pebble has also agreed to withdraw its legal
TOM COLLIER RON THIESSEN
see PEBBLE AGREEMENT page 9
8NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF MAY 21, 2017
Shane Lasley PUBLISHER & NEWS EDITOR
Rose Ragsdale CONTRIBUTING EDITOR
Mary Mack CEO & GENERAL MANAGER
Susan Crane ADVERTISING DIRECTOR
Heather Yates BOOKKEEPER
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
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]
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 weekly newspaper, Petroleum News.
NORTHERN NEIGHBORSCompiled by Shane Lasley
Goldstrike, Newmont move toward PlateauGoldstrike Resources Ltd. May 15 announced that crews and equipment are
being mobilized to the Plateau gold property in central Yukon for the maiden
exploration campaign under partnership with Newmont Mining Corp. This pro-
gram will start off by outlining the full extent of numerous high-grade gold show-
ings at Plateau in prepara-
tion for drilling later in the
year. "This will prove to be
a defining season for the
Plateau property," said
Goldstrike Chief Geologist
James Moors. "Our recent
partnership with Newmont
allows us to advance to the
next stage of development
by committing the
resources and technical
expertise necessary to fur-
ther focus our efforts and
understand the nature of
the extensive new gold
system.” This effort will
begin with an intensive
geological mapping and
sampling to increase the resolution of information over a 60-square-kilometer (23
square miles) area and allow crews to vector into key areas with the strongest
potential for additional discoveries. The program will also involve the use of
Newmont’s proprietary geochemistry surveys, ground geophysics and detailed
geological mapping along the interpreted trend of showings will help define the
extent of mineralization both on surface and at depth. Property scale geophysics
and detailed surface modelling will refine understanding of the geology and struc-
tural framework that control the high-grade gold mineralized zones across the dis-
trict and identify key areas having strong potential to host additional gold mineral-
ization. In the final preparation for the most extensive drill program ever carried
out at Plateau, the partners will trench and sample the most promising of the gold
discoveries. Separately, Goldstrike is preparing for the largest exploration pro-
gram ever completed at its Lucky Strike property in Yukon’s White Gold District.
Colorado budgets C$4M to expand stake in KSPColorado Resources Ltd. May 11 said it has made a final cash payment of
C$150,000 and completed C$6 million of work at KSP, satisfying an agreement
with SnipGold Corp., a subsidiary of Seabridge Gold Inc., to earn an initial 51
percent interest in the northern British Columbia gold property, a stake it hopes to
increase to 80 percent by the end of the year. After completing a detailed review
of the 2016 exploration results in the context of updated geological, geochemical
and geophysical data, Colorado has budgeted C$4 million for a 2017 exploration
program at KSP that is expected to include roughly 7,500 meters of drilling that
will focus on areas to the west and north of the area drilled at the Inel target last
year. One hole drilled at Inel last year cut 52 meters averaging 4.93 grams per
metric ton gold and 2.7 percent zinc; including a two-meter intercept with 89.1 g/t
gold and 2.3 percent zinc. Colorado said that many of the 2016 holes drilled on
the margins of the areas being targeted this year ended in mineralization and are
overlain by very strong gold-in-soil anomalies. Slated to get underway in July, the
2017 exploration at KSP been designed to meet the spending requirements to earn
an additional 29 percent interest in the project. Once this earn-in requirement has
been met, Colorado and Seabridge will form an 80-20 joint venture at KSP.
l C O L U M N
Settlement putsPebble back in playThe renewed opportunity for development of a once sidelinedcopper mine in Southwest Alaska give us all hope for the future
By J. P. TANGEN Special to Mining News
L ast week the Pebble Project
announced that it had reached a set-
tlement with the EPA of pending litiga-
tion in conjunction with the agency’s pre-
vious determination to block the develop-
ment of the project. Essentially, the settle-
ment means that Pebble will be able to
resume the permit application process
with the hope of ultimately opening a
mine.
This good news, besides the obvious
possibility of a major mine going for-
ward in Southwest Alaska, is that it lets
us dream of a turnaround in the attitude
of the federal government with regard to
the development of domestic resource
projects, especially in Alaska.
It is fair to say that for too long the
regulatory agencies have forgotten how
to get to “yes” when it comes to dealing
with permit applications. There can be
no doubt that the EPA led the way in
ballooning its statutory authority to
envelope every effort on the part of the
private sector to do virtually anything.
The appointment of a new Administrator
may put the brakes on to some extent;
however, how long that will last and
what good it will do is still an open
question.
I am not at all sure that the EPA in
particular or the regulatory agencies in
general actually define their respective
mandates as an obligation to bring
domestic industry to its knees. On the
other hand, that is the track record.
Generally, it is called the Law of
Unintended Consequences. Under that
law “any action will have at least one
consequence not intended by its author.”
In science, it is the Chaos theory.
Under the Chaos theory, every time a
butterfly flaps its wings, the entire world
is changed ever so slightly. So too, in
our society, every time a bureaucrat taps
a keyboard to implement some bright
idea, the unintended and chaotic conse-
quences often change our lives randomly
and imperceptibly forever.
It is indisputable that Congress and
the progressive administrations of the
past several decades have given the fed-
eracracy ample fodder to flap its wings.
The impact on Alaska has been palpable,
but no more so than in the case of the
Pebble Project.
With Pebble, there is a known deposit
of significant size containing copper and
gold, as well as other commodities, that
are needed and in demand. The deposit
is located in a remote region where
unemployment is high, social services
are marginal and infrastructure is non-
existent. The impact of the environment
on a mine will not only be minimal, due
to Draconian oversight, but temporary,
because even the largest mines will be
exhausted over time.
The competing considerations include
a huge Seattle-based fishery and a local
culture oriented around a subsistence
lifestyle. These critics feel an undifferen-
tiated threat from Pebble; but, the region
is already calamity prone - witness the
local earthquakes, volcanoes and
extreme weather conditions. Any theo-
retical hazard that might befall the mine
would not pose an extraordinary jeop-
ardy.
Despite how we arrived at the point
where the Pebble Project and the EPA
have come to an understanding as to
how to proceed, at least through the per-
mit application process, the very fact of
that settlement should give us all com-
fort.
Alaska hosts tremendous reserves of
natural resources, many of which are
ripe for harvest. It is not uncommon for
them to die on the vine. From the
molybdenum deposit at Quartz Hill to
the Chuitna Coal project on the west side
of Cook Inlet, many mining opportuni-
ties have been defined and left for others
to develop.
In the short run, the flap of a butter-
fly’s wing in the District of Columbia
can affect all Alaskans adversely. In the
long run, it will not change either the
demand for our commodities or our tech-
nical ability to recover them.
It is heartening that the new
Administration has afforded the Pebble
Project the opportunity to proceed with
applying for permits for the project. We
cannot forget, however, that it took
developers of the Kensington Mine two
decades and a trip to the U. S. Supreme
Court to get that mine permitted. Pebble
is just being allowed to take an early
step down a very long road.
All that we can do now is extend our
congratulations, cross our fingers and
wish Pebble Godspeed. l
Mining & thelaw
The author,J.P. Tangen hasbeen practicingmining law in J.P. TANGENAlaska since 1975. He can be reached [email protected] or visit his Web site atwww.jptangen.com. His opinions do notnecessarily reflect those of the publishersof Mining News and Petroleum News.
company’s objective is to expand the
current resource at Pyramid in advance
of infill drilling planned for 2018.
Expansion of high-grade resources
around hole PY11-16, which cut 155
meters of 0.71 percent copper, 0.18
grams per metric ton gold and 0.018 per-
cent molybdenum, is the primary target
area for this year’s drilling. The bottom
34 meters of this hole returned 0.844
percent copper, indicating the depth
extension of this deposit. l
continued from page 7
NEWS NUGGETS
GO
LDST
RIK
E R
ESO
UR
CES
LTD
.
Sampling of this quartz riddled outcrop at the newly dis-covered Big Bang zone on Goldstrike Resources’ Plateauproperty returned grades of 4.15 and 3.38 grams per met-ric ton gold.
action against EPA.
Being able to take Pebble into permit-
ting without limitations, however, was the
primary reason for the legal action.
"From the outset of this unfortunate
saga, we've asked for nothing more than
fairness and due process under the law --
the right to propose a development plan
for Pebble and have it assessed against the
robust environmental regulations and rig-
orous permitting requirements enforced in
Alaska and the United States," Thiessen
said. "Today's settlement gives us precise-
ly that, the same treatment every develop-
er and investor in a stable, first-world
country should expect."
Precedent avertedWhile of vital importance to the Pebble
Partnership, the lifting of EPA’s CWA 404
(c) restrictions on permits to develop
Pebble averted a precedent that had the
potential to change the way EPA assessed
project development in the United States.
In 2015, Collier informed the U.S.
House Science Committee that the Pebble
Partnership has uncovered documents
revealing that at least part of EPA’s over-
arching intent in pre-emptively stopping
the Pebble Mine is to set a precedent that
would allow the agency to decide where
industrial development could and could
not take place in the U.S.
“They want to be able to zone the
watersheds of America,” Collier summa-
rized.
EPA’s internal discussions seem to con-
firm this assertion.
In 2010, while tossing around the idea
of taking pre-emptive 404 (c) action
against Pebble, upper level EPA manage-
ment said that a successful pre-emptive
veto of the Pebble permits would “serve as
a model of proactive watershed planning”
in the United States and listed this asser-
tion in the pro column of a matrix evaluat-
ing the potential of taking a pro-active
stance at Pebble.
The settlement between the Pebble
Partnership and the EPA does not preclude
the environmental agency from attempt-
ing to extend its authority to pre-permit-
ting in the future. The fact that it’s attempt
to do so at Pebble was stopped short, how-
ever, prevents the precedent from being
set and lessens the odds of the agency pre-
vailing if it tried to veto a permit prior to
permitting in the future.
Collier, a 40-year Washington D.C.
insider who has worked alongside some of
the juggernauts of the modern environ-
mental movement, told Mining News that
he believes the level of backlash EPA has
received from lawmakers and others “will
discourage any administration from taking
this direction, forever.”
Major milestones aheadWith the settlement reached, precedent
averted and clock set, the Pebble
Partnership is wasting no time in achiev-
ing the next major milestones – bringing a
major mining company on board and sub-
mitting a mine plan for permitting.
Since any global mining company that
joins the Pebble Partnership would want
to be involved in the mine design, bring-
ing such a partner onboard tops this list of
priorities.
The Pebble Partnership and Northern
Dynasty CEOs see no lack of potential
suitors.
“As a world-class mineral deposit,
there remains significant interest in Pebble
among major mining companies. This set-
tlement removes a major stumbling block
to attracting new investment in the Pebble
project and in Alaska,” said Collier.
This world-class deposit hosts roughly
56.8 billion pounds copper, 70.4 million
ounces gold, 3.4 billion lb molybdenum
and 343.6 million oz silver in measured
and indicated resource, an attractive asset
in a world where new stores of copper and
gold are getting harder to find.
“When it comes to undeveloped assets,
Pebble is both the largest copper and
largest gold resource in the world,”
Thiessen explained.
“This is the kind of long life asset that
most major mining companies covet,” he
added.
Thiessen said Northern Dynasty is cur-
rently in advanced talks with a number of
mining companies and the new Pebble
partner may be a consortium of three or
four of them.
When asked if he anticipates that a new
Pebble partner will be in place and permits
will be submitted by the end of 2017,
without hesitation, Collier’s answer was
an emphatic “yes”.
Designing a mineWhile the coming Pebble partner(s)
will want to weigh in on the final design
presented for permitting, Northern
Dynasty has not been idle on this front.
Thiessen told Mining News that his
company has been working on the poten-
tial scenarios for a Pebble Mine and it is
likely that the mine to be presented for
permitting will be significantly smaller
than ideas that have been considered in the
past.
In 2011 Northern Dynasty published a
preliminary economic assessment that
considered a 220,000-metric-ton-per-day
operation at Pebble that would produce 31
billion lb of copper, 30 million oz of gold,
1.4 billion lb of molybdenum, 140 million
oz silver, 2.6 million lb of rhenium and
907,000 oz of palladium over a 45-year
mine-life.
While robust in its own right, this mine
plan only accounts for about 32 percent of
the overall resource found at Pebble.
Though capable of supporting a multi-
generational mine of world-class propor-
tions, the Pebble deposit comes to surface
and is high enough grade to be scalable.
“Pebble has a lot of scale but, more
importantly, it has a lot of optionality,”
Thiessen told Mining News.
Traditionally, Pebble has been consid-
ered two deposits – Pebble West, a lower
grade but comes right to the surface, mak-
ing it ideal for starting a low-cost open-pit
mine, and the higher grade Pebble East
deposit, which would likely be mined
from underground later on.
Pebble West has a higher grade core
that spans some 3,000 feet across that
would make the ideal place to start min-
ing.
“I think we get away with 10 to 12
years of mining with very little waste gen-
eration,” the Northern Dynasty CEO said.
While mining this easiest section of the
deposit, the Pebble Partnership can sink a
shaft to further evaluate Pebble East and
decide whether to underground mine this
higher grade ore body, which also pro-
duces little waste, or widen the open-pit at
Pebble West.
Collier said that the designs for the var-
ious mine, tailing storage, mill location,
supporting infrastructure, etc. have
already been completed and the exercise
of determining the best project to present
for permitting is akin to a smorgasbord –
selecting a combination of these various
scenarios that strikes the right balance of
economic viability, environmental stew-
ardship and public acceptability.
“The design work is not the challenge
for us, because we have all of the designs
rights there on the shelf,” the Pebble CEO
explained. “The issue for us is, among all
these options, which ones are we going to
choose.”
He told Mining News that the Pebble
Partnership has already substantially nar-
rowed down these options “and made
some decisions that are going to surprise
people because it is going to be so dramat-
ically different what people have been
expecting Pebble to look like when it
finally puts its plan on the table.”
Repositioning PebbleA newly formed advisory committee
will likely be the first at the table when the
mine plan is presented.
Consisting of strong personalities with
high integrity, many of which are skeptical
of any plans to develop a mine at Pebble,
this panel is going to be a tough audience.
Willie Hensley, a respected Alaska
Native leader; Kim Williams, former
executive director, Nunamta Aulukestai;
Jim Maddy, former president, League of
Conservation Voters; General Joseph
Ralston, former vice chairman, Joint
Chiefs of Staff; and Terrence ‘Rock’ Salt,
former deputy assistant secretary, Army
Corps of Engineers are the founding mem-
bers.
The Pebble Partnership welcomes the
critiques it anticipates from this panel.
The formation an advisory group is one
of the facets of a larger strategy to make
people living and working in the region
more comfortable with having a world-
class mine as a neighbor.
Providing tangible economic benefits
across the Bristol Bay region is another.
One such way to ensure the people
across this vast section of Southwest
Alaska benefit from development of a
mine is to set up some type of revenue
sharing for residents and Native village
corporations.
Other world-class deposits in Alaska,
such as the Red Dog zinc mine and Donlin
Gold mine project, are located on Native
owned lands. This is an advantage to the
local populations, who see tangible bene-
fits from the operation.
While Pebble, located on state lands,
would help to send badly needed money to
Alaska coffers and would be an extremely
significant economic contributor to the
Lake and Peninsula Borough, which cov-
ers the area where Pebble is located, the
larger Bristol Bay region does not current-
ly have a way to directly draw economic
benefits from the rich copper-gold-molyb-
denum-silver deposit.
Collier said the Pebble Partnership is
currently considering a program that
would extend revenue sharing to the larger
Bristol Bay region.
Providing contracting opportunities to
Native village and regional corporations
in the region and across Alaska is another
advantage a Pebble Mine could offer.
A key aspect to this is for the Pebble
Partnership to let these Alaska Native cor-
porations know what type of contracting
needs the mine will have and help ensure
that they are prepared to fill as many of
those needs as possible.
Collier said Pebble is planning to bring
in a mentor who can match Native corpo-
rations with specific contracting opportu-
nities at Pebble. This would be followed
up with training to ensure the groups have
a workforce ready to fill the roles when
the time comes.
Another major economic benefit the
mine could provide to Bristol Bay resi-
dents and fishermen is low-cost power.
Thiessen believes the power brought
into the region for a mine a Pebble could
cut the cost of power across the region by
as much as 80 percent, a substantial sav-
ings for Bristol Bay residents and fish
processors.
“I think there are going to be whole
series of things we are going to start talk-
ing about, now that we don’t have to talk
about EPA killing our project,” Collier
said. “And I think it is going to be a much
better and more interesting discussion for
us, the people of the region and the people
of Alaska.”
Boots on the groundWith the permitting door now open and
plans to enter that door by the end of the
year, the Pebble Partnership is gearing up
for a field program at the project.
“We will have boots on the ground, on
the site, doing some work, and that is the
first time in a number of years,” Collier
said.
Thiessen told Mining News that a rela-
tively modest program to collect the final
bits of data needed prior to applying for
permits is planned.
This is good news for area residents
who have worked at the Pebble project or
provided services to the Pebble camp in
the community of Iliamna in the past.
"We're very pleased the project is mov-
ing forward, and that we're in a position to
begin to re-hire local residents and Alaska
firms that have contributed so much to
Pebble's advancements in years past,"
Collier said. l
9NORTH OF 60 MINING
PETROLEUM NEWS • WEEK OF MAY 21, 2017
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continued from page 7
PEBBLE AGREEMENT“This settlement removes a majorstumbling block to attracting newinvestment in the Pebble project
and in Alaska.” –Pebble Partnership President
and CEO Tom Collier
10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF MAY 21, 2017
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A plan to install a gas compression sys-
tem at the field remains unresolved. In its
May 2016 plan of development, AIX said it
expected to install such a system within 12
to 18 months. But after updating internal
models based on “flowing and shut-in data,”
the company is now forecasting that the
compression system can wait until mid-
2018.
The questions to be resolved are the
same as last year: whether to purchase a sys-
tem or to lease it, and whether the system
should be gas-fired or electric-fired. The
proposal to revive the KL 1-4 well is part of
the larger question of planning a compres-
sion system.
In its current plan of development, AIX
also said it had decided in April 2017 not to
renew its land lease for the Kenai Loop Pad
No. 2 with the Alaska Mental Health Trust
Land Office and was “currently working
with TLO to evaluate the way forward.”
The lease expired at the end of 2016,
according to the Trust Land Office. As part
of those discussions with the Trust Land
Office, AIX will be required to decommis-
sion the pad. l
continued from page 6
KENAI LOOP
ENVIRONMENT & SAFETYDEC acts on Fairbanks air quality
Following a new ruling by the Environmental Protection Agency, changing the
status of Fairbanks’ inability to fix its air quality problems from moderate to seri-
ous, the Alaska Department of Environmental Conservation has mandated meas-
ures to address air quality in the city.
The problem arises from the widespread usage of wood burning stoves for the
heating of homes in the Interior city, given the high cost of alternative methods of
heating. Thermal inversions during cold winter weather cause smoke from the
stoves to accumulate close to ground level, raising the concentration of smoke-
related particles in the air well above the levels at which health issues arise.
DEC is introducing two measures in response to the EPA ruling.
The first measure requires building owners selling, leasing or conveyancing
their properties within the area impacted by air quality problems to replace inef-
ficient wood-fired heating equipment with EPA-certified wood or pellet stoves.
The stove certification must meet current emission standards.
Secondly, DEC requires wood sellers in Fairbanks to register with the agency
and document the moisture content of the wood that they sell. The wood sellers
must provide information about the wood’s moisture content to their customers.
The burning of wet wood exacerbates the emission of smoke from wood stoves.
ADEC says that a water content in excess of 20 percent causes increased emis-
sions.
“These measures are designed to improve air quality and help bring the area
closer to compliance with current standards,” said Denise Koch, DEC director of
air quality. “Controlling particulate matter will benefit public health throughout
the Fairbanks North Star Borough community.”
—ALAN BAILEY
State OKs changesto Alpine PA
The state has approved a change to
the boundaries of the Alpine participat-
ing area at the Colville River unit to
accommodate drilling activities at the
new CD-5 pad.
In a decision dated May 9, Division
of Oil and Gas Director Chantal Walsh
allowed operator ConocoPhillips
Alaska Inc. to contract a portion at the
northeast corner of the Alpine partici-
pating area and expand the participat-
ing area along its western border.
The change essentially brings recent
CD-5 drilling into the participating area
boundaries.
The Alpine participating area is the
largest producing segment of the
Colville River unit and often referred to
as the “main Alpine field,” as opposed
to the Alpine satellites.
—ERIC LIDJI
LAND & LEASING
Alpine annualturnaround setfor mid-June
Alyeska Pipeline Service Co. per-
formed an 18-hour major mainte-
nance shutdown of the trans-Alaska
oil pipeline beginning 6 a.m. May 6,
the first shutdown of the year.
Various projects were scheduled,
including isolation of below-ground
piping at the Valdez Marine
Terminal; functionality confirmation
for newly installed control systems;
and routine maintenance.
Producers frequently take advan-
tage of the shutdowns for their own
maintenance projects.
ConocoPhillips Alaska spokes-
woman Natalie Lowman said neither
Alpine nor Kuparuk, both operated
by ConocoPhillips, had scheduled
maintenance during the May trans-
Alaska oil pipeline shutdown. She
E&P
see ALPINE TURNAROUND page 13
12 PETROLEUM NEWS • WEEK OF MAY 21, 2017
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with Petroleum News
majority Republicans carrying that motion.
The May 16 joint session was, as is the normal practice,
by agreement between the House and Senate. Some
appointments failed to win approval, but none of those were
oil and gas industry related.
All cabinet-level appointments were approved:
Department of Natural Resources Commissioner Andy
Mack was confirmed along with Attorney General Jahna
Lindemuth and Department of Public Safety Commissioner
Walt Monegan.
Three seats on the board of the Alaska Gasline
Development Corp. were up for approval — Warren
Christian of North Pole, Hugh Short of Girdwood and
David Wight of Anchorage — and all won approval with a
58 to 1 margin.
Dan Seamount, who holds the geologist seat on the
Alaska Oil and Gas Conservation Commission, won confir-
mation for his reappointment without objection.
The case was not the same for his fellow commissioner,
Hollis French, whose confirmation faced headwinds.
French was nominated for the public seat on the commis-
sion, and did win confirmation in a 35 to 24 vote, but only
after lengthy discussion following a call on the House
(requiring all members to be present) and failure, by a 29 to
30 vote, of a motion to table consideration of his name to
the last item of the day.
After that motion, House Majority Leader Chris Tuck,
D-Anchorage, questioned whether the move was intended
to leave some appointments hanging and said he wanted
French’s confirmation taken up immediately. The House
voted 17 for and 22 against tabling, with the Republican
minority all voting for tabling; in the Senate, where French,
a Democrat, formerly served, eight members voted to table
and 12 opposed, with some Republicans voting with the
minority Democrats against tabling.
In debate on French’s confirmation, Sen. Peter Micciche,
R-Soldotna, the Senate majority leader, said he had process
concerns, saying French had been a great senator, but that
he was concerned about French’s ability to work on what
Micciche characterized as a consensus board.
Sen. Anna MacKinnon, R-Anchorage, called French a
thoughtful man but said constituents had urged her to vote
no on his confirmation which spurred some investigation on
her part and raised issues, including whether French was
advocating for additional jurisdiction for the commission
over the loss of fuel gas in Cook Inlet due to a pipeline leak.
Sen. Tom Begich, D-Anchorage, argued that French
would represent the public fairly while Sen. Bill
Wielechowski, D-Anchorage, said the other AOGCC com-
missioners supported French in testimony and he hadn’t
heard that support had been withdrawn.
Rep. Geran Tarr, D-Anchorage, said House Resources
asked French about the waste issue and said she believed he
was acting in his role as a commissioner on a commission
charged to prevent resource waste.
—KRISTEN NELSON
continued from page 1
CONFIRMATION
wells in the first quarter of 2016, 18 in the first quarter of
2015, nine in the first quarter of 2014 and 17 in the first
quarter of 2013.
The sharp reduction is not a total surprise, given that
the company had previously announced plans to signifi-
cantly reduce drilling at the largest oil field in the state.
Through various efficiencies, BP was able to maintain
relatively steady production at Prudhoe Bay in 2016,
despite fewer new wells. In a recent plan of development
for the Initial participating Areas — the largest produc-
ing segment at the unit — the company said it expected
to again reducing drilling rates this year without a major
hit to production.
Kuparuk and Colville ConocoPhillips Alaska Inc. also reduced drilling
activities at the Kuparuk River unit. But those losses
were mostly offset by an increase in drilling work at the
Colville River unit.
The company drilled 14 development wells at
Kuparuk during the first quarter of this year, down from
20 development wells in both 2016 and 2015 but up from
the 10 development wells the company drilled during the
first quarters of both 2014 and 2013.
A widespread campaign of multilateral drilling con-
tinues to be a major component of the development pro-
gram at the Kuparuk River unit. In the first quarter,
ConocoPhillips drilled a sidetrack and associated lateral
at 1H, a dual lateral well at 2T, a trilateral well at 3H and
a quad-lateral well at 3M, plus two single wells at 2M
and a single well at 3R.
The company also drilled nine development wells at
the Colville River unit during the first quarter, up from
four in 2016, two in 2015, one in 2014 and two in 2013.
The sharp increase reflects the impact of the initial
development program at the new CD-5 pad.
Milne PointHilcorp Alaska LLC slightly reduced drilling activity
at the Milne Point unit, although the results are largely a
quirk of the calendar. The company drilled two develop-
ment wells at the unit in the first quarter but completed
two more in the first week of April.
By comparison, the company drilled three develop-
ment wells at Milne Point in the first quarter of 2016 and
continued from page 1
1Q DRILLING
see 1Q DRILLING page 14
PETROLEUM NEWS • WEEK OF MAY 21, 2017 13
said ConocoPhillips has “no significant
turnarounds planned at Kuparuk this sea-
son.”
The annual turnaround for Alpine is
schedule for mid-June.
As reported last week, BP has a sched-
uled turnaround later this summer, while
Hilcorp took advantage of the May shut-
down for some planned maintenance.
—KRISTEN NELSON
continued from page 11
ALPINE TURNAROUND
GOVERNMENTGAO recommends improved BLM data management
The Government Accountability Office has recommended that the Bureau of
Land Management improve its management and tracking of data relating to the
environmental impacts of permitted oil and gas operations on federal lands. In a
newly published report GAO says that, although BLM has a process for approving
exceptions to environmental mitigation measures when issuing permits, procedures
for these approvals are inconsistent across the agency’s field offices and the agency
has no policy for consistently tracking exception requests. As a consequence, BLM
may be unable to provide reasonable assurance that it is meeting its environmental
responsibilities, GAO says.
Moreover, whereas BLM requires certain key practices in conjunction with per-
mitted activities, the agency does not consistently document the results of its inspec-
tions, conducted to ensure that these practices are carried out. The key practices
relate to issues such as standards for road construction, the use of secondary con-
tainment for protection against oil spills, and the reclamation of impacted land. In
the absence of detailed information about inspection results or the effective use of
data from inspections, BLM cannot fully assess the effectiveness of its best man-
agement practices policy, GAO says.
GAO has made a series of recommendations for BLM, including the develop-
ment of bureau-wide written procedures for making exception decisions during per-
mitting; the making of exception decisions public; and the clarification of guidance
for documenting the results of environmental inspections. Field offices also need
guidance on the collection and use of field inspection data, GAO says.
BLM has in general concurred with the GAO recommendations. However, the
agency has expressed concern over the possibility of public involvement in the per-
mit exception decision making process. Exception requests are available to the pub-
lic but public involvement in the exception process would require a formal rule
change, BLM says. The public can currently review and comment on documents
relating to exception requests, including land planning and National Environmental
Policy Act documents, the agency says.
—ALAN BAILEY
ENVIRONMENT & SAFETYSenate upholds methane leak regulations
On May 10 the U.S. Senate rejected a resolution that had been passed by the House
of Representatives that would have annulled regulations issued by the Obama admin-
istration for limiting methane emissions from oil and gas drilling operations. The
Department of the Interior published the regulations on Nov. 18, 2016, and on Jan. 30
Rep. Rob Bishop, R-Utah, introduced the resolution to cancel the new rule — Congress
can act to cancel a federal rule within 60 days of the rule being implemented.
There have been several resolutions passed by Congress undoing regulations intro-
duced near the end of the Obama administration, but the Senate voted against this latest
resolution by a vote of 51-49. All Democrat and independent senators voted against the
resolution, as did three Republicans: Lindsay Graham, John McCain and Susan
Collins.
The regulations that remain in force apply to federal onshore land administered by
the Bureau of Land Management. The regulations include criteria for when flared gas
may be considered waste and, thus, be subject to royalty payments, and which uses of
gas may make the gas exempt from royalties. The venting of gas is prohibited, except
under specific circumstances. Operators must use an instrument-based system for gas
leak detection. Old, leaky equipment must be replaced. And there are regulations per-
taining to the maintenance of pneumatic pumps; for limiting toxic emissions from gas
storage vessels; for minimizing gas losses associated with the handling of liquids; and
for the capture of gas during the completion of wells completion and when conducting
hydraulic fracturing.
The rule also clarifies the regulations for the setting of royalty rates for BLM oil and
gas leases.
—ALAN BAILEY
CBP withdraws new Jones Act proposalU.S. Customs and Border Protection has withdrawn a proposal that would have
placed vessels engaged in the repair of offshore oil and gas installations within the
constraints of the Jones Act. The Jones Act requires vessels transporting passengers or
merchandise between U.S. ports to be manufactured, owned and flagged in the United
States.
In a 1976 ruling the Customs Service confirmed a longstanding position that a ves-
sel engaged in the laying of an offshore pipeline is not engaged in coastwise trade and
can, therefore, be foreign flagged. That ruling included a clarification that a vessel
engaged in pipeline repair would also be exempt from the Jones Act, even although
the vessel may be transporting material required for the repair work. The agency
included within that exemption vessels engaged in connecting pipelines to offshore
platforms, and conducting platform repairs, provided that materials not required for
that work are not delivered to the platform.
In January of this year CBP issued a proposed order, confirming that offshore
repair work is not coastwise trade but saying that the carriage of materials for the
repairs does constitute the transportation of merchandise. Thus, an operator of an off-
shore repair operation would require a U.S. vessel to carry repair materials to the site
of the operation. The agency said that changes in the pertinent laws since 1976 had
made the 1976 interpretation of the law invalid.
On the other hand tools used to conduct an offshore repair are viewed to be vessel
equipment and, as such, would not trigger Jones Act vessel ownership restrictions, the
proposed order said.
On May 10 CBP announced that, after receiving more than 3,000 comments, both
supporting and opposing its proposal, it was withdrawing its January notice. The
American Petroleum Institute promptly issued a statement welcoming the proposal
withdrawal.
“By rescinding the proposal, CBP has decided not to impose potentially serious
limitations to the industry’s ability to safely, effectively, and economically operate,”
said API Upstream Director Erik Milito. “The responsible development of America’s
abundant oil and natural gas resources is a critical part of a forward-looking energy
policy that will secure our energy future and help meet our nation’s energy needs.”
—ALAN BAILEY
PIPELINES & DOWNSTREAM
Senate Resources substantially amend-
ed the bill, which was further amended in
Senate Finance. That bill passed the
Senate May 15, and the House, as expect-
ed, rejected the Senate version May 16.
On day 121 of the regular session,
May 17, the Senate voted against rescind-
ing its amendments to the House bill.
Legislation passed last year, HB 247,
ended the refundable credit system for
Cook Inlet. A goal of all versions of HB
111 has been ending refundable credits on
the North Slope.
The Department of Revenue fiscal
note for the Senate Finance CS describes
the bill as “a comprehensive attempt to
reform and reduce the cost of Alaska’s
current program of providing direct tax
credit rebates and other advantages to oil
and gas companies.”
State repurchase of credits began in
2007, with some $8 billion in tax credits
received by companies through the end of
fiscal year 2016, including credits against
tax liability and credits repurchased by
the state.
Revenue said the Senate Finance CS
would provide additional revenue up to
$12.5 million per year, with no new addi-
tional revenue expected in FY 2017 due
to phased implementation.
The department said changes in the bill
would require “somewhat substantial
reprogramming of the Tax Revenue
Management System and Revenue Online
tax portal,” at an estimated one-time cost
of $1.2 million.
Revenue said the CS repeals certain
credits and closes loopholes with the car-
ried forward annual loss credit reduced to
15 percent and sunset in 2018 for Cook
Inlet and Middle Earth. Unlike previous
versions, the CS does not create a Cook
Inlet legislative working group but
instead extends the current Cook Inlet tax
cap, averaging 17.5 cents on Cook Inlet
gas, indefinitely, and establishes a new
tax, not to exceed $1 per barrel, for Cook
Inlet oil.
The CS keeps the current North Slope
$70 million per company cap on annual
credit certificate repurchases, but allows
only the first $35 million to be repur-
chased at full face value, with the remain-
der at 75 percent. A company can also
choose to carry the second part forward.
Operating losses for larger companies
continue to be carried forward against
future taxes.
The gross value reduction for new oil
only applies for the first seven years of
production and is lost on Jan. 1, 2023, for
fields receiving it prior to the bill’s effec-
tive date. The GVR can be terminated
early if the price of oil exceeds $70 for
three years of production.
Revenue said the Finance CS also
repeals several older and currently unused
exploration credit programs and authoriz-
es the department to use credit certificates
to offset a company’s other obligations to
the state prior to repurchase.
Reactions to Senate versionAlaska Oil and Gas Association
President and CEO Kara Moriarty said in
a May 15 statement that the Senate CS is
“the seventh change to Alaska’s oil tax
structure in 12 years. It eliminates cash
payments to companies, and adds $1.2
billion to the State of Alaska’s treasury
over the next 10 years.”
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continued from page 1
HB 111
see HB 111 page 15
none in the first quarter of 2015, shortly
after taking over control of the unit. The
previous unit operator BP drilled 12 in the
first quarter of 2014 as it completed an
atypically large development at F pad,
and none in the first quarter of 2013.
Hilcorp is in the early stages of rede-
veloping the Milne Point unit and recent-
ly announced a major drilling program
for the remainder of this year. The com-
pany also plans to begin drilling activities
at the Duck Island unit, which has not had
any new drilling since 2009.
Oooguruk and NikaitchuqThe first three months of the year saw
no new development drilling at either the
Oooguruk unit or the Nikaitchuq unit,
which have both been suspended for near-
ly a year.
Eni recently announced plans to
resume development activities at the
Nikaitchuq unit this year, although the
lack of first quarter activities falls short of
company timelines.
Caelus has announced no timetable for
resuming drilling at Oooguruk. l
ing in late June.
In early June, the company plans to
perform “micro stimulations … to cali-
brate the stress profile in the zone of
interest. This data will then be combined
with the processed and interpreted log
information in order to select the optimal
location of perforations for the main stim-
ulation operation,” according to 88
Energy. The company expects to conduct
the “main stimulation” in the third week
of June, followed by a one-to-two-week
cleanup and a production test at a choked
back rate to prevent proppant from being
displaced.
—ERIC LIDJI
continued from page 1
ICEWINE WELL
continued from page 12
1Q DRILLING
Moriarty said the state takes in
more revenue than industry “at
every oil price — at high and low oil
prices.”
HB 111 originated in House
Resources, co-chaired by Rep.
Geran Tarr and Rep. Andy
Josephson, both Anchorage
Democrats.
“The Senate version of the bill
follows the lead of the House in
stopping the unsustainable practice
of the State of Alaska paying for tax
credits,” Tarr said in a May 16 state-
ment.
“However,” she said, “the Senate
version of the bill has major prob-
lems that we just could not accept.”
Tarr cited changes in the House
version designed “to make Alaska’s
tax system work better in the current
low oil environment.”
“The Senate Majority took our
good bill that was developed in the
open, with advice from the experts
and the input of Alaskans, and
replaced it with a bad bill that con-
tinues many of the flaws that have
placed Alaska in our current precari-
ous financial position,” Josephson
said. “The best course of action is to
take this bill to a conference com-
mittee where an acceptable compro-
mise can be reached that protects the
state during these low oil prices,
while still keeping Alaska competi-
tive as a place for future oil industry
investments.”
Senators have argued that any
substantial rewrite of the state’s oil
tax system requires time and expert
testimony than time allows this year.
—KRISTEN NELSON
PETROLEUM NEWS • WEEK OF MAY 21, 2017 15
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wells will result in measured depths of
about 34,000 feet, the plan says.
Further drillingEni told the division that, depending
on the initial results of the drilling, the
company may take further action, starting
with bypass drilling for rock coring. From
either well, following an analysis of well
logs and core data, the company may later
drill a 1,000-foot horizontal sidetrack
well for production testing. The produc-
tion testing would involve the flowback
of oil to surface test equipment on the Spy
Island pad.
The drilling of the NN01 well is sched-
uled to start at the beginning of December
this year, potentially continuing until the
beginning of March. Eni may then drill
the second well, the NN02 well, during
the summer of 2018. Depending on
results, Eni may conduct the horizontal
sidetrack drilling during the winter of
2018-19.
Eni will presumably require an espe-
cially powerful drilling rig for the
extreme extended reach drilling involved
in its Nikaitchuq North project. The com-
pany’s plan anticipates the use of the
Doyon Rig 15, or a similar rig.
The company is in the process of seek-
ing approval from the federal Bureau of
Ocean Energy Management for an explo-
ration plan involving the proposed wells.
The project will require a drilling permit
from the Alaska Oil and Gas
Conservation Commission.
At the end of February the federal
Bureau of Safety and Environmental
Enforcement approved the formation of
the Harrison Bay Block 6423 unit, a unit
encompassing 13 federal leases that
include the Nikaitchuq North prospect.
Schrader Bluff formationThe producing oil reservoir in the
Nikaitchuq field under state waters of the
Beaufort Sea lies in the upper Cretaceous
OA sands of the Schrader Bluff forma-
tion, although Eni has also been consider-
ing development in another sand unit, the
Schrader Bluff N sands. The Schrader
Bluff formation is known to extend a long
way out into the Beaufort Sea continental
shelf. The formation lies within the
Brookian sequence, the youngest and
shallowest of the major North Slope
petroleum bearing rock sequences.
Development of the Schrader Bluff in
the Nikaitchuq field has been challenging
because of the compartmentalized nature
of the sands and the relatively viscous oil.
Eni has been using a combination of hor-
izontal injection and production wells,
with both electric submersible pumps and
water injection boosting oil production.
The company has been threading horizon-
tal, multilateral sidetrack wells through
the sand bodies.
On the continental shelf the Brookian
typically lies on top of older rocks that
have been faulted into large blocks. The
Brookian sands are though to thicken in
the more downthrown rock sections
between the faults. l
continued from page 1
NIKAITCHUQ NORTH
continued from page 14
HB 111
Development of the Schrader Bluffin the Nikaitchuq field has been
challenging because of thecompartmentalized nature of the
sands and the relatively viscous oil.
Conducting an appraisalWiggin likened the process of receiv-
ing the data from a survey to conducting
an appraisal on a house prior to making a
house purchase. The division must verify
that the data from a survey is complete,
that the data can be loaded and that the
data are usable before the state can issue
a tax credit certificate, he explained. In
addition, the Alaska Department of
Revenue must go through a parallel mas-
sive process, validating all of the receipts
for payments associated with the survey,
tying the receipts back to the specific sur-
vey, to verify the size of the credit that is
due.
And, ultimately, under the terms of the
tax credit rules, after 10 years the data
from the survey needs to be made avail-
able to the public in some appropriate for-
mat.
The catch in the process is the quantity
of data involved.
Raw measurementsThe data consists of the raw measure-
ments collected in the field when a survey
was carried out. In a survey, seismic
sound sources create sound waves, the
subsurface echoes of which are recorded
using a series of geophones placed along
a line or on a grid pattern. For each sound
signal, each geophone will record echoes
as a seismic trace, digitized into thou-
sands of individual numbers in a digital
recording. Each echo represents a single
point in the subsurface halfway between
the sound source and the geophone.
Seismic processing involves combining
and filtering the individual traces to con-
struct images of the subsurface.
But with the raw data consisting of a
multiplicity of individual traces, collected
using multiple seismic shots conducted at
multiple locations, and with surveys
increasing in size and complexity over the
years, the scale of the data involved has
grown exponentially since the seismic tax
credit program went into operation.
Between 2004 and 2011 a survey
might typically involve less than 5 ter-
abytes of data (5,000 gigabytes). But,
starting in 2012, the data volumes sky-
rocketed, said Paul Decker, the division’s
resource evaluation manager. A recent
survey involved a staggering 277 ter-
abytes of data, he said.
Delivered on computer drivesThe data are delivered to the division
in batches at various times on a series of
detachable hard computer drives — divi-
sion staff have to download the data from
each drive into the division’s own com-
puter system. Each drive may contain 6 or
7 terabytes of data. And on a large survey
up to 100 drives may be required to hold
all of the data. Especially given that com-
puter software has to reconcile the bit
count for the downloaded data, to ensure
data integrity, it may take two days to
process a single disk, Decker explained.
And issues can arise with having to deal
with data in different variants of seismic
data formats.
It doesn’t end there.
Quality controlIn the interests of data security, the
division makes a duplicate copy of the
data as a backup. Division staff also take
the uploaded data and transfer it into the
division’s own seismic processing sys-
tem, converting the data into the process-
ing system’s data format. The examina-
tion of the data in this system forms an
essential component of the data quality
control, enabling division staff to verify
data completeness, accuracy and self-
consistency, Decker explained. The divi-
sion could also use its own system to
process the data as part of its resource
evaluation function.
The processing system enables divi-
sion staff to determine the exact geo-
graphic location from which the seismic
reflections in each individual seismic
trace originated. This location determina-
tion serves several purposes. First of all, it
becomes possible to determine what per-
centage of the data was gathered from
within an oil and gas unit, an essential
parameter in determining what proportion
of a survey is eligible for a tax credit. In
addition, when the data become available
to the public, it will be possible, on
request, to deliver just the data for a spe-
cific unit or land area, rather than for a
complete survey or for a broader area of
territory.
Another critically important reason for
linking individual raw seismic traces to
geographic locations is a need to exclude
from the data available to the public any
data gathered from privately owned sub-
surface land where the land owner does
not wish the data to be released, Decker
explained.
Data copy for exportHaving quality controlled the data and
tied the seismic traces back to locations,
division staff then have to make another
copy of the raw data, excluding from that
data any seismic traces that need to be
withheld because of land ownership con-
siderations. This third data copy, stored in
a standard format and file structure, then
becomes the pool of data eventually
available to the public.
The complete process for a single sur-
vey takes up to a year to complete, a sim-
ilar timeframe to that required for the
Department of Revenue to audit the sur-
vey financial data, Decker said.
Alaska’s Division of Geological and
Geophysical Services’ Geologic
Materials Center is responsible for pro-
viding access to publicly available seis-
mic data, although the mechanism for
doing this is a work in progress. The
eventual concept is something akin to an
online shop, where people would be able
to order data based on various selection
criteria. However, people would have to
go to the GMC with a set of hard drives to
actually pick the data up, Decker said.
And, given constraints on state funding,
DNR is working up a fee structure for
obtaining data, with the fees used to cover
the cost of the data management, he said.
Processing limitationsThe processing that the division has
been conducting requires a huge amount
of data storage, and it only has one high-
speed computer server for conducting the
work. But the division has made good
progress in its quality control efforts and
is now about three-quarters of the way
through processing the tax credit applica-
tions expected to be submitted, Decker
said. Given that the number of these
applications is now expected to drop and
given current constraints on state expen-
diture, it is necessary to be cautious about
spending money on further computer sys-
tem upgrades for what will likely prove a
temporary bulge in processing, Decker
commented.
But the division is beginning to feel
time pressure over completing the seismic
data management. It has improved the
technology that it is using, has significant-
ly improved the efficiency of the data man-
agement process and is looking to
rearrange some staff assignments, to make
more people available to help with the
effort, despite reductions in the state
administration’s headcount, Decker said. l
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continued from page 1
SEISMIC DATAIn a survey, seismic sound sources
create sound waves, thesubsurface echoes of which are
recorded using a series ofgeophones placed along a line or
on a grid pattern.
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