Petroleum News Article - Western Alaska Copper and Gold

page DC Court rules on polar bear rule,
6 agrees with F&WS, but requires EA
Vol. 16, No. 43 • www.PetroleumNews.com
A weekly oil & gas newspaper based in Anchorage, Alaska
ALASKA NATURAL GAS DEVELOPMENT AUTHORITY
Propane delivery routes
The Alaska Natural Gas Development Authority envisages the possibility of transporting North Slope propane to communities around
Alaska, primarily by barge by river and sea routes. See page 3.
EXPLORATION & PRODUCTION
$15 million fine
Escopeta fined by US Customs for Jones Act violation in jack-up transport
By KAY CASHMAN
Petroleum News
O
n Oct. 13, the Anchorage office of U.S.
Customs and Border Protection levied a $15
million fine against Escopeta Oil Co. for violating
the federal Jones Act, 46 U.S.C. § 55102, when it
“caused” the Spartan 151 jack-up rig to be transported “between coastwise points in the United
States,” from Freeport, Texas, to Esquimalt,
Canada, using a foreign-flagged vessel, after
which the rig was towed to Cook Inlet, arriving in
Alaska on Aug. 11.
Customs, which is part of the U.S. Department
of Homeland Security, or DHS, also said if
Escopeta feels “there are extenuating circum-
$19.5 million Cook Inlet Energy
rig headed for Osprey platform
Cook Inlet Energy LLC’s new drilling rig has arrived in
Alaska — sort of.
Rig components are coming up by ship to the Port of
Anchorage. The rig fills about 40 truck
trailers.
“Part of it is here,” David Hall, chief
executive of Cook Inlet Energy, told
Petroleum News on Oct. 19.
From
Anchorage,
Carlile
Transportation is hauling the trailers to
Nikiski. From there, the components
will go to the Osprey platform out in
Cook Inlet, where Hall aims to put the
rig to work on well workovers and side- DAVID HALL
tracks.
The new rig is a major step for fledgling Cook Inlet
Energy, which organized in January 2009 and operates a collection of oil and gas properties on the west side of the inlet.
The company is a subsidiary of Miller Energy Resources
see OSPREY RIG page 15
Savant takes over at Badami,
as 5th ANS operator-producer
Savant Alaska is now the operator of the Badami unit.
The Alaska Department of Natural Resources approved
the designation on Oct. 14, making the Denver-based independent the smallest operator-producer on the North Slope.
It also makes Savant the only privately held operator-producer on the North Slope.
BP Exploration (Alaska) Inc. formed Badami in 1995, but
after more than a decade of stops and starts at the eastern
North Slope unit the company partnered with Savant in 2008
to see if horizontal drilling and hydraulic fracturing could
boost production.
“As BPXA struggled with the unit, we have searched for
an opportunity to transfer the unit to another company or
companies that saw more potential in Badami than BPXA.
… It is BPXA’s desire to take the next step in this transition
by allowing farmees to take an active role in unit operations,” the company wrote to state officials in late August.
2010 restart
After three years of renewed operations, Savant restarted
see SAVANT AT BADAMI page 15
Week of October 23, 2011 • $2
see ESCOPETA FINE page 14
Barron gives Escopeta
thumbs-up to drill down
In an Oct. 13 letter to Escopeta Oil Co.,
Division of Oil and Gas Director Bill Barron
said the independent could resume drilling its
upper Cook Inlet well after the integrity of the
offshore well’s newly set 13 and 3/8-inch casing
and its blowout preventer equipment had been
successfully tested. Both tests will be observed
by an inspector from the Alaska Oil and Gas
Conservation Commission.
Barron said Escopeta must also remain in
compliance with all other state and federal
see DRILLING OK page 14
EXPLORATION & PRODUCTION
Moving on Chukchi plan
Agencies hope to complete plan review so Shell can decide on 2012 drilling
By ALAN BAILEY
Petroleum News
A
sked by Sen. Lisa
Murkowski, R-Alaska,
about the Department of the
Interior’s progress in reviewing Shell’s plan for exploration drilling in the Chukchi
Sea, on Oct. 18 Michael MICHAEL BROMWICH
Bromwich, director of the
Bureau of Safety and Environmental Enforcement,
told the U.S. Senate Committee on Energy and
Natural Resources that “we’ll certainly do everything we can” to complete a full review of the plan
in time for Shell to decide on whether to com
mence its drilling program in
2012.
“We’re working hard on
it,” Bromwich said.
New agencies
The Bureau of Ocean
Energy
Management,
Regulation and Enforcement
had been dealing with Shell’s
LISA MURKOWSKI
exploration plan, but on Oct.
1 BOEMRE formally divided into two new agencies within the Department of the Interior: the
Bureau of Ocean Energy Management and the
see CHUKCHI PLAN page 13
NATURAL GAS
Kitimat gets go-ahead
Operator Apache says NEB’s license approval allows pursuit of Asian customers
By GARY PARK
For Petroleum News
C
anada has taken a giant leap towards Asia by
approving the Kitimat LNG project, which
provides the first major outlet for an estimated 300
trillion cubic feet of stranded shale gas deposits
from British Columbia and Alberta and the first
LNG exports from Canada.
It took the National Energy Board little more
than four months to conduct public hearings and
issue a 20-year export permit.
The authorization to export 200 million metric
tons of LNG is equivalent to 9.36 trillion cubic feet
— about 50 percent more than the proven reserves
currently backing the Mackenzie Gas Project — or
The authorization to export 200 million
metric tons of LNG is equivalent to 9.36
trillion cubic feet — about 50 percent
more than the proven reserves currently
backing the Mackenzie Gas Project — or
a maximum 468 billion cubic feet a year.
a maximum 468 billion cubic feet a year.
It was the first application for a gas export
license since the deregulation of Canada’s gas
market in 1985 and has raised some concerns
about the impact on domestic gas prices and supplies.
see KITIMAT APPROVAL page 16
2
PETROLEUM NEWS
contents
ON THE COVER
•
WEEK OF OCTOBER 23, 2011
Petroleum News North America’s source for oil and gas news
6
$15 million fine
Judge to hear debate on ‘reopener’ issue
Exxon looks to kill government request for $92 million
to deal with lingering oil from 1989 spill
in Alaska’s Prince William Sound
Escopeta fined by US Customs for Jones Act
violation in jack-up transport
Moving on Chukchi plan
9
Agencies hope to complete plan review
so Shell can decide on 2012 drilling
11 Upward, downward pressures on oil prices
EIA: Supply uncertainty from unrest in oil-producing
regions v. fears about rate of global economic
recovery, European debt crisis
Kitimat gets go-ahead
Operator Apache says NEB’s license approval
allows pursuit of Asian customers
$19.5 million Cook Inlet Energy
rig headed for Osprey platform
GOVERNMENT
8
5
Parnell takes over as IOGCC chairman
ENVIRONMENT & SAFETY
6
DC Court rules on polar bear rule
LAND & LEASING
4
7
3
9
UltraStar still permitting Dewline well
FINANCE & ECONOMY
4
China raises Canadian stakes
Sinopec bids for outright ownership of Duvernay
shale gas play producer Daylight Energy,
testing Canadian foreign investment rules
ANGDA continues to push for propane
Heinze argues for use of this abundant North
Slope resource as an alternative to diesel fuel
or gasoline for commercial vehicles
5
Who produces crude oil in Alaska?
ConocoPhillips heads the list of the Top 15 oil
producers thus far in 2011, data from the
state Division of Oil and Gas shows
Call out for inlet, Alaska Peninsula info
NATURAL GAS
Judge agrees that Fish & Wildlife can exclude
greenhouse gas emissions from polar bear
protection but says agency must do an EA
EXPLORATION & PRODUCTION
Pushing in Congress for US icebreakers
U.S. icebreaker capacity is far behind those of Russia
and Canada; new bills would require supply
of new icebreakers to Coast Guard
Savant takes over at Badami,
now 5th operator-producer
ASSOCIATIONS
BP, Anadarko settle Gulf disaster claims
NSB completes first new Barrow gas well
Major project to upgrade Barrow gas fields moves
forward after completion of first horizontal
well and pipeline modifications
10 LiDAR data on gas line routes released
PIPELINES & DOWNSTREAM
8
Enstar and Marathon settle KNPL dispute
Marathon will file a rate case for the major Cook Inlet
pipeline next year in preparation for injections
into CINGSA this coming April
10 Alyeska to mount operation to heat crude
PETROLEUM NEWS
•
N A T U R A L
3
WEEK OF OCTOBER 23, 2011
G A S
ANGDA continues to push for propane
Heinze argues for use of this abundant North Slope resource as an alternative to diesel fuel or gasoline for commercial vehicles
ALASKA NATURAL GAS DEVELOPMENT AUTHORITY
By ALAN BAILEY
Petroleum News
F
or a number of years the Alaska
Natural Gas Development Authority
has been pushing for the use of propane
from North Slope oil fields as a fuel for
rural Alaska, to alleviate the impacts of the
crippling costs of fuel oil and diesel fuel
for rural residents. And in an Oct. 19 interview ANGDA President and CEO Harold
Heinze talked to Petroleum News about
the latest status of the
ANGDA propane
initiative and about
his ideas on propane
use.
With the ultra low
sulfur fuel that is
now mandated for
diesel engines being
expensive, tightly
regulated and requir- HAROLD HEINZE
ing dedicated storage tanks, diesel fuel
usage has become especially expensive in
rural Alaska. Propane is a significantly
cheaper fuel option that could be transported conveniently in tanks, especially
around the Alaska river system. And
propane would also prove cheaper than
fuel oil for applications such as heating
buildings and cooking, Heinze said.
Cheap and clean
Propane has a lower energy density
than diesel fuel or gasoline — in other
words, for a given weight or volume of
fuel, propane has a lower energy content.
Nevertheless, propane turns out to be
cheaper than traditional liquid fuels, in part
because it is relatively simple to extract
from the product streams of oil or gas
fields, and in part because its price tends to
be linked to natural gas prices rather than
oil prices, Heinze explained. And propane,
having few impurities and a relatively high
hydrogen content, enjoys the additional
advantage of being a clean burning fuel.
The fuel is easy to transport, store and handle.
The ANGDA concept involves establishing a wholesale propane distribution
point that would tap into the North Slope’s
huge propane resource, with a primary
rural distribution point where the North
Slope Haul Road crosses the Yukon River.
Propane tanks, already widely available
for propane transportation and storage,
could easily be carried by barge along the
Yukon, to villages around the Yukon
drainage system, ANGDA thinks.
In fact, the economic and environmental advantages of using propane in rural
Alaska are so overwhelming that many
communities, particular river communities, will likely transition to the use of
propane, regardless of whether the
propane comes from Alaska or Canada,
Heinze said.
ANGDA plans to prepare a proposal to
use the ice resistant ferry, the M/V Susitna,
for the transportation of propane in northwestern Alaska or on the Yukon River,
Heinze said. Funded primarily by the U.S.
Navy, the Susitna is intended for use as a
ferry in the Cook Inlet, but has not gone
into operation because of a lack of suitable
docking facilities.
Delivery point
Although ANGDA originally envisaged drawing propane from a future North
Slope gas line at the Yukon River crossing,
the authority now favors establishing a
able at least some volume of propane,
using the existing facilities, with a slight
add on,” Heinze said. At this point
ANGDA is comfortable that at least two of
the three unit owners are ready to sell
propane, he said.
Steve Rinehart, spokesman for BP, the
Prudhoe Bay operator, confirmed Oct. 19
that BP has discussed the propane proposal with ANGDA.
“We understand the important role
energy plays across Alaska, including rural
communities, so we will evaluate this
carefully,” Rinehart said.
Commercial fleets
ANGDA envisages the possibility of transporting North Slope propane to communities
around Alaska, primarily by barge by river and sea routes.
wholesale delivery point at the Central Gas
Facility on the North Slope, pulling
propane from the rich gas stream passing
though that facility. The gas facility cools
down gas produced at Prudhoe Bay to
extract propane and other natural gas liquids that are used for enhanced oil recovery and that are also mixed with crude oil
for delivery to market.
But about 75,000 barrels per day of
propane remain mixed with the natural gas
and are re-injected underground into the
Prudhoe Bay oil field reservoir, Heinze
said. Could not some of that propane be
extracted for sale as a useful product, he
asked.
“If you added a fairly simple propane
recovery facility … you could make available a much larger (propane) stream,”
Heinze said.
Heinze said that there is already a small
plant at the Central Gas Facility for the
production of propane for use as a refrigerant in NGL production. But that plant,
used to periodically top up the refrigerant
stock, only runs one or two days per
month, Heinze said. Why not run the plant
full time, selling the excess propane
through a propane loading facility that
could be set up quite simply, he asked.
“That’s basically been ‘the ask’ at this
point, that the (Prudhoe Bay) unit, and in
particular the unit operator, makes avail-
North Slope propane, in addition to
being used in rural Alaska, could prove a
major benefit as an alternative to ultra low
sulfur diesel in fueling Alaska’s commercial vehicle fleets, including commercial
vehicles operating on the North Slope and
the trucks that ply the Haul Road, Heinze
said. Nationwide, the pollution from diesel
engines and the high cost of ultra low sulfur diesel, are pushing trucking companies
towards the use of gasoline-fueled vehicles, while on the North Slope ultra low
sulfur diesel has to be trucked in from elsewhere, Heinze said. At the same time, new
Ford trucks now come with gasoline
engines that can be very simply converted
for propane use. And Rousch CleanTech
has developed an engine conversion that
uses liquid propane, rather than propane
40 Years...
Thanks to our customers and employees, we’ve been
privileged to serve Alaska’s oil industry for over 40 years.
Our goal is to build a company that provides a service or builds a project to the complete satisfaction of its customers.
We shall strive to be number one in reputation with our customers and our employees.
We must perform safely.
We must provide quality performance.
We must make a profit.
We shall share our successes and profits with our employees.
Work can be taken away from us in many ways, but our reputation is ours to lose.
Our reputation is the key that will open doors to new business in the future.
see PROPANE PUSH page 9
4
PETROLEUM NEWS
F I N A N C E
&
•
WEEK OF OCTOBER 23, 2011
E C O N O M Y
China raises Canadian stakes
Sinopec bids for outright ownership of Duvernay shale gas play producer Daylight Energy, testing Canadian foreign investment rules
By GARY PARK
For Petroleum News
T
he Asian roundup of Western
Canadian oil and natural gas assets
has entered new territory with a C$2.2 billion bid by a unit of Sinopec, one of
China’s stable of energy giants, to take over
Canadian natural gas producer Daylight
Energy.
After two years of investing about C$20
billion in the Alberta oil sands, either
acquiring minority equity stakes or entering joint ventures, Sinopec has moved the
deal-making up a notch by seeking outright
ownership.
That puts to the test the Canadian government’s professed support for two-way
investment and trade so long as foreign
buyers can demonstrate a clear economic
benefit to Canada.
Under 2007 revisions to the Investment
Canada Act, a review is automatic for any
transaction valued at more than C$312 million.
The federal Industry Minister Christian
Paradis is prevented by confidentiality
clauses in the legislation from comment on
a specific case, but the Alberta government
did not hesitate to endorse the deal as a
“continuing sign of confidence in the
province as a secure energy supply.”
Sands transactions OK’d
To date, major oil sands transactions
have sailed through the regulatory process,
notably Sinopec’s acquisition for C$4.65
billion of ConocoPhillips’ 9.03 percent
stake in the Syncrude Canada consortium
and PetroChina’s C$1.9 billion purchase of
60 percent stakes in two oil sands leases,
now held by France’s Total.
The only previous takeover to be
approved was CNOOC’s purchase earlier
this year of OPTI Canada for US$2.1 billion, although the Canadian company held
only 35 percent of Nexen’s Long Lake
project.
Daylight Chief Executive Officer
Anthony Lambert said the transaction will
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Kay Cashman
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build on a “highly attractive asset portfolio” and accelerate “our development and
exploration opportunities.”
Previously an energy trust, Daylight has
accumulated 300,000 acres of exploration
land, including 130,000 acres in the highly
rated Duvernay shale gas play in Deep
basin, which straddles the northern
Alberta-British Columbia border.
The company’s proven and probable
reserves are estimated at 174 million barrels of oil equivalent, including a gas holding of 750 billion cubic feet, with the latest
daily production numbers reported at 140
million cubic feet of gas and 13,379 barrels
of liquids.
Daylight potential constrained
Martin Pelletier, managing director of
TriVest Wealth Counsel, said Daylight is
among the mid-cap Canadian producers
whose unexplored resource potential has
been constrained by the overall pace of
development.
He said that makes them an ideal target
for Asian buyers, given their management
experience and technical knowhow.
Pelletier said others in the same category include PetroBakken Energy and
Resources, Progress Energy Resources,
Birchcliff Energy and NAL Energy.
“There is still a tremendous amount of
interest among Asian investors in the oil
sands, but now they’re going to the next
stage in terms of trying to gain more operational experience,” said Chris Lee, an analyst with Deloitte Canada.
“You’ll see more investments over and
above what we’ve seen in the oil sands into
all facets of the oil and gas industry.”
Sinopec, CNOOC and Sinochem,
which has yet to invest in Canada, have
openly declared their interest in making
acquisitions outside the oil sands, focusing
on shale gas and shale oil assets, like those
owned by Daylight, which offer the
prospect of quicker returns and fewer environmental challenges.
Company of moderate size
Wenran Jiang, research chair at the
University of Alberta’s China Institute, said
the deal marks a “bolder step forward” for
a Chinese company after political backlash
in the United States scuttled CNOOC’s
2005 bid for Unocal.
He said there is no reason why the
Canadian government should use its foreign investment rules to block outright
ownership of a company “of this moderate
size,” given that Sinopec would likely take
a hands-off approach to Daylight’s day-today operations.
While the British Columbia government
has set a goal of completing three LNG
export projects by 2020, Alberta has
flagged its desire to step up business with
Asia by naming Gary Mar, a former cabinet minister and envoy to Washington,
D.C., as its trade representative to the
region.
A spokesman for the Canadian
Association of Petroleum Producers said
the appointment is “phenomenal” for the
oil and gas industry, given the billions of
dollars in equity and development spending Asian state-owned companies have
pumped into Western Canada’s oil sands
and shale gas development. Contact Gary Park through
[email protected]
LAND & LEASING
Call out for inlet, Alaska Peninsula info
The Alaska Department of Natural Resources’ Division of Oil and Gas has
issued a call for new information for the state’s 2012 Cook Inlet and Alaska
Peninsula areawide oil and gas lease sales.
The division said that based on information received it will either issue supplements to the findings or decisions of no substantial new information for the
lease sales, tentatively scheduled to the held next spring.
The most recent Cook Inlet areawide best interest finding was issued in 2009
and the most recent Alaska Peninsula BIF was issued in 2005. The latest supplement to both findings was issued Deb. 8, 2011.
Findings
and
supplements
are
available
online
at
www.dog.dnr.alaska.gov/Leasing/BestInterestFindings.htm.
Deadline for information is Nov. 14.
—PETROLEUM NEWS
Petroleum News and its supplement, Petroleum Directory, are
owned by Petroleum Newspapers
of Alaska LLC. The newspaper is
published weekly. Several of the
individuals listed above work for
independent companies that contract services to Petroleum
Newspapers of Alaska LLC or are
freelance writers.
OWNER: Petroleum Newspapers of Alaska LLC (PNA)
Petroleum News (ISSN 1544-3612) • Vol. 16, No. 43 • Week of October 23, 2011
Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518
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PETROLEUM NEWS
•
N A T U R A L
5
WEEK OF OCTOBER 23, 2011
G A S
NSB completes first new Barrow gas well
Major project to upgrade Barrow gas fields moves forward after completion of first horizontal well and pipeline modifications
By ALAN BAILEY
Petroleum News
W
ith the first of a series of new gas
wells completed and modifications made to a gas transportation
pipeline, work is moving ahead in a major
North Slope Borough project to upgrade
the gas fields that supply the City of
Barrow with natural gas. The borough is
upgrading the East Barrow field and the
Walakpa field, two of the Barrow gas
fields that also include the South Barrow
field.
Matthew Dunn, North Slope Borough
director for the capital improvement program, told Petroleum News Oct. 17 that
the new well, drilled in the East Barrow
field, was the first horizontal well that
had ever been drilled in the Barrow
region.
“We are very excited about that,”
Dunn said. “We did finish the well last
week and got things buttoned up.”
Second well starts
The Kuukpik No. 5 rig that is doing
the drilling has been moved to the location of a second new East Barrow well,
with the drilling of that well expected to
start on Oct. 18.
In addition to two new wells in the
East Barrow field the project will involve
the drilling of four wells in the Walakpa
field. And to boost gas production by
accessing as much gas reservoir volume
as possible, all of the new wells will be
horizontal. The first well resulted in
1,500 feet of well bore being exposed to
productive reservoir rock, Dunn said.
The gas field upgrade, having already
involved a major sealift of equipment to
Barrow, is the largest project that the
North Slope Borough has undertaken for
a number of years; the project should
ensure an adequate gas supply for the
Barrow community for the next 25 to 30
years, Dunn said.
And the sealift to Barrow during the
summer open water season was completed ahead of schedule.
“We completed barging operations in
the third week of August,” Dunn said.
Most of the barges arriving in Barrow
brought equipment from Oliktok Point in
the central North Slope. However, one
barge came from Seattle and another
barge carried the Kuukpik rig from
Nikiski on Alaska’s Kenai Peninsula.
The borough’s project plan
envisages completing the new
Walakpa wells by the spring, so
that the drilling equipment can be
returned to Barrow for barging
south in the summer.
Learning experience
The first East Barrow well, characterized by Dunn as a learning experience, took
a little longer to complete than the borough
had planned. However, with that well now
under its belt, the project team anticipates
moving ahead more quickly with the next
well, to maintain the project schedule.
“We learned a lot from the first well and
we have a strong plan in place to apply
those lessons learned to our next well,”
Dunn said.
Access to the drilling sites in the
Walakpa field will require the construction
of an ice road. The borough has already
started staking out the road route and
expects to start pre-packing the road with
ice fairly soon. However, actual road construction will likely start in December, once
the ground is adequately frozen and there is
adequate snow cover. Drilling at Walakpa
is expected to start early in 2012.
The project team accelerated the schedule for making some necessary upgrades to
the pipeline that transports gas from the
East Barrow field. That work was completed in mid-September, Dunn said. The
upgrades involved increasing the operating
pressure of the line to enable, among other
things, the carriage of sufficient gas from
the East Barrow field to meet gas demand
during any summer maintenance shutdown
of the Walakpa field.
Well tie-ins
Once both of the new East Barrow wells
have been completed, the project team will
install well houses and tie the wells into the
upgraded transmission line. The borough
hopes to complete that work by the end of
the year, Dunn said.
In addition to tying in the two East
Barrow wells, the project team plans to use
the time period between the drilling at East
Barrow and the drilling at Walakpa to plug
and abandon some old, disused gas wells.
There are eight wells to be plugged and
abandoned, with some of those wells accessible on the existing gravel pad system and
some requiring temporary ice pads for
access.
The idea is to use equipment available
as part of the field upgrade project to properly seal the old wells, thus addressing any
safety concerns with these wells, Dunn
said.
The borough’s project plan envisages
completing the new Walakpa wells by the
spring, so that the drilling equipment can be
returned to Barrow for barging south in the
summer. It will be possible to hook the
Walakpa wells into the existing gas pipeline
infrastructure using relatively short runs of
infield piping.
Despite the large overall scope of the
complete gas fields project, the borough
feels confident that its very strong project
team can meet the aggressive schedule for
project completion, Dunn said. The borough anticipates completing the project on
time, he said. Contact Alan Bailey
at [email protected]
ASSOCIATIONS
Parnell takes over as IOGCC chairman
Alaska Gov. Sean Parnell took over as chair of the Interstate Oil and Gas
Compact Commission Oct 17. The IOGCC represents 30 oil-and-gas producing
states and has international members including Canadian provinces.
The governor’s office said in a statement that as chairman, Parnell will set the
direction for IOGCC and provide a leading voice for domestic oil and gas production, while ensuring protection of the environment.
Recent Alaska governors have served terms as chair, including Steve Cowper,
Tony Knowles, Frank Murkowski and Sarah Palin.
In a keynote speech at the IOGCC’s 2011 annual meeting in Buffalo, N.Y.,
Parnell discussed challenges to new energy production and called on the states to
work together and help make the case that increasing domestic energy production
makes sense.
Parnell told IOGCC members that the solution to the nation’s federal debt “is
right in front of us.”
“We can regain our economic footing through producing more American energy.
To boil it down to one simple truth: More American oil and gas production means
jobs. And jobs translate into stable communities, vibrant states and a strong nation.”
—PETROLEUM NEWS
6
PETROLEUM NEWS
F I N A N C E
&
•
WEEK OF OCTOBER 23, 2011
E C O N O M Y
Judge to hear debate on ‘reopener’ issue
Exxon looks to kill government request for $92 million to deal with lingering oil from 1989 spill in Alaska’s Prince William Sound
By WESLEY LOY
For Petroleum News
A
n Alaska judge has scheduled oral argument on
ExxonMobil’s motion to effectively kill a government demand for $92 million from the company to
address lingering pollution from the 1989 oil spill in
Prince William Sound.
U.S. District Judge H. Russel Holland of Anchorage
will hear arguments in mid-November, with the exact
date still undecided as Petroleum News went to press.
Exxon’s attorneys on Sept. 30 filed court papers arguing the joint federal-state demand for the money is
“doomed.” The demand is flawed, and the governments
have missed the deadline to submit a perfected request,
the company says.
A demand, but no collection
A $900 million civil settlement in 1991 between
Exxon and the governments over the Exxon Valdez oil
spill contained a “reopener” clause. The clause allowed
the governments to request up to $100 million more from
the company to deal with unanticipated injury to habitat
or species.
In 2006, as the deadline for a reopener request
E N V I R O N M E N T
&
approached, the governments jointly demanded
$92,240,982 of Exxon.
But to date, the company hasn’t paid and the governments haven’t sued to enforce the demand.
Rick Steiner, an oil industry critic and former
University of Alaska professor, triggered the current
court flurry when, in December, he asked the judge to
order ExxonMobil to pay. Steiner said the governments
had shown a lack of resolve in going after the money.
Holland in March denied Steiner’s request. But he did
ask the governments and Exxon to submit September status reports on the reopener issue.
That, apparently, inspired Exxon’s motion to disqualify the $92 million demand.
Disagreement on timing
ExxonMobil argues that the governments want the
money to resume cleanup of oiled beaches, and not for
“restoration,” which the company argues is “something
separate from and in addition to” cleanup. The reopener
precludes demanding additional funds merely for
cleanup, and anyway, Exxon long ago was released from
any further cleanup liability, the company’s lawyers
argue.
The company wants Holland to rule right away on the
reopener demand, and urges the judge to effectively kill
it.
The governments oppose Exxon’s motion, and argue
the judge should not rule now. That’s because certain
habitat and wildlife studies remain incomplete, government lawyers say. One study tests the feasibility of a
bioremediation technique to break down lingering oil discovered in the subsurface of beaches.
“Exxon’s argument that any action designed to accelerate natural degradation of lingering oil is exclusively a
‘clean-up’ action, and therefore not a valid ‘restoration’
action under the Reopener, is merely an attempt to create
an exception to the Reopener that was not negotiated by
the Parties,” the governments argue.
ExxonMobil contends the studies are immaterial, as
the 2006 deadline has passed for the governments to propose a qualifying restoration plan.
The company says that if the governments want to
conduct further cleanup, the Exxon Valdez Oil Spill
Trustee Council still has more than $175 million in
investment accounts. The council is a federal-state partnership formed to oversee ecosystem restoration using
the $900 million civil settlement. Contact Wesley Loy at [email protected]
S A F E T Y
DC Court rules on polar bear rule
Judge agrees that Fish & Wildlife can exclude greenhouse gas emissions from polar bear protection but says agency must do an EA
By ALAN BAILEY
Petroleum News
S
upporters of either side of a legal
argument over the Endangered
Species Act listing of the polar bear have
claimed some element of victory following an Oct. 17 ruling from the U.S.
District Court in Washington, D.C.
The court ruling came in response to
appeals against a special ESA rule introduced by the U.S. Department of the
Interior for the listing. That rule says that
activities generating greenhouse gas
emissions outside the polar bear’s range
cannot be considered as harassment of
the bears. The rule also says that the
bears can be conserved under the terms
of the Marine Mammal Protections Act.
The loss of Arctic sea ice is seen as the
main threat to the bears’ future wellbeing, with that ice loss being attributed by
many scientists to climate change associated with human-generated greenhouse
The loss of Arctic sea ice is seen
as the main threat to the bears’
future wellbeing, with that ice loss
being attributed by many
gases.
In the Oct. 17 ruling District Court
Judge Emmet Sullivan rejected an argument put forward by environmental
groups that the U.S. Fish and Wildlife
Service must address greenhouse gas
emissions as a consequence of the polar
bear listing.
“Climate change poses unprecedented
challenges of science and policy on a
global scale, and this court must be at its
most deferential where the agency is
operating at the frontiers of science,”
Sullivan wrote in his court order. “Here
the agency concluded based on the evidence before it that section 4(d) of the
ESA is not a useful or appropriate tool to
alleviate the particular threat to the polar
bear from climate change … and plaintiffs have offered no compelling evidence to the contrary.”
EA needed
However, Sullivan has upheld another
claim in the appeal, a claim that the Fish
and Wildlife, by not conducting an environmental assessment for the introducsee POLAR BEAR RULE page 7
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PETROLEUM NEWS
•
7
WEEK OF OCTOBER 23, 2011
E X P L O R A T I O N
&
P R O D U C T I O N
Who produces
crude oil in Alaska?
ConocoPhillips heads the list of the Top 15 oil producers thus
far in 2011, data from the state Division of Oil and Gas shows
By WESLEY LOY
For Petroleum News
H
eadlines in the trade press tend to
focus on the cutting edge — new
oil and gas developments, or plans and
aspirations for future development.
It’s easy to lose sight of yesterday’s
glories.
With that said, Petroleum News wondered: Who produces oil from past
Alaska discoveries? And how much?
The state Division of Oil and Gas provided data allowing us to develop a Top
15 list of producers.
Perhaps
not
surprisingly,
ConocoPhillips is the leading producer
by a good margin. The Houston-based
integrated giant operates the prolific
Kuparuk and Alpine oil fields on the
North Slope, and owns 36 percent of BPoperated Prudhoe Bay, the nation’s
largest oil field.
Please keep the following important
qualifications in mind when reviewing
the list.
These are working interest volumes
produced on state land for the period
January through August 2011. No production is included from federal or private acreage. That’s OK, because the vast
majority of Alaska oil is produced from
state lands and waters. Contact Wesley Loy
at [email protected]
Alaska crude oil producers
Company
Net oil production
Daily average
(barrels)
(barrels)
ConocoPhillips
59,459,630
245,701
BP
42,764,110
176,711
ExxonMobil
29,906,865
123,582
State of Alaska*
26,600,635
109,920
Anadarko
4,206,018
17,380
Chevron
2,581,870
10,669
Pioneer
1,247,757
5,156
Unocal
962,364
3,977
XTO
621,825
2,570
Eni
534,753
2,210
Pacific Energy**
529,841
2,189
Cook Inlet Energy
258,811
1,069
Savant
215,196
889
ASRC
103,613
428
49,451
204
Murphy
* State of Alaska royalty production included for comparison purposes. Chart doesn’t
include royalty volumes from nonstate leases.
** Pacific Energy Resources Ltd. filed for bankruptcy and is no longer an Alaska operator. Unocal reported this volume of oil as operator of the Trading Bay unit and field in
Cook Inlet. A Pacific Energy subsidiary held a stake in Trading Bay, but the interest was
abandoned and the matter remains unresolved.
continued from page 6
nabors.com
POLAR BEAR RULE
tion of the polar bear rule, violated
the terms of the National
Environmental Policy Act — the
agency had argued that such rule
making was exempt from NEPA.
The court now requires Fish and
Wildlife to conduct an environmental assessment for the rule, with a
timetable for completing the assessment to be submitted to the court by
Nov. 17.
“Today’s decision reinforces the
position of the U.S. Fish and
Wildlife Service that the ESA is not
an appropriate tool to address greenhouse gas emissions,” said Sen. Lisa
Murkowski in response to the court
order. “The misapplication of well
intentioned statutes carries the risk
of serious consequences for our
struggling economy.”
“The court’s decision confirms
that additional protections under the
ESA are unnecessary,” said Alaska
Attorney General John Burns.
“There was no sound reason to roll
back those Marine Mammals
Protection Act measures and rely on
other untested programs on the
North Slope or other areas within
the polar bear’s range.”
Environmental groups have
focused more on the court directive
for an environment assessment, saying that this directive has in effect
struck down the polar bear special
rule.
“Today’s decision squarely
places the fate of the polar bear back
in the hands of the Obama administration,” said Brendan Cummings
from the Center for Biological
Diversity in response to the court
ruling. “Rather than continue to
defend an ill-conceived Bush-era
rule, the Obama administration
should take this opportunity to carefully craft a new rule that meaningfully addresses greenhouse gas
emissions, the primary threat to the
polar bear.” Contact Alan Bailey
at [email protected]
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8
PETROLEUM NEWS
P I P E L I N E S
&
•
WEEK OF OCTOBER 23, 2011
D O W N S T R E A M
Enstar and Marathon settle KNPL dispute
Marathon will file a rate case for the major Cook Inlet pipeline next year in preparation for injections into CINGSA this coming April
By ERIC LIDJI
For Petroleum News
E
nstar Natural Gas Co. plans to withdraw its complaint
against the Kenai Nikiski Pipeline after settling with
Marathon Oil Co., the owner of the Cook Inlet pipeline.
The Regulatory Commission of Alaska must now
approve the settlement.
Enstar and two affiliates filed a complaint in midAugust to force Marathon to detail certain financial information about the 17.5-mile pipeline on the Kenai
Peninsula, particularly its operating costs, throughput volumes, affiliates and depreciable life.
Because there hasn’t been a full rate case for KNPL
since 2004, Enstar and its affiliates argued that the current
tariff structure on the pipeline isn’t based on actual costs.
Marathon, as well as current and future KNPL customers Union Oil Co. of California, Chugach Electric
Association, ConocoPhillips and the Homer Electric
Association-affiliate Alaska Electric and Energy
Cooperative Inc. joined the case in early September.
The RCA held a settlement conference in midSeptember, but two weeks after the conference those parties and the Alaska Attorney General reached a settlement.
Under the terms of the agreement, KNPL’s existing
firm and interruptible rates would remain in effect until
the end of the year, at which point they would become
interim and refundable. Marathon would be required to
file a new rate case by April 1, 2012. A secondary interruptible rate, used for natural gas that reached KNPL by
first traveling through the Cook Inlet Gas Gathering
System, would remain unchanged until that case.
Supplied LNG and Agrium
The case highlights the changing nature of the Cook
Inlet natural gas market.
KNPL started its life in 1965 as a private pipeline built
by Marathon and Union Oil to supply a liquefied natural
gas export terminal and a nitrogen fertilizer plant under
construction with gas from the Kenai gas field and later
from the Cannery Loop field.
The pipeline took on added importance in the region in
2003, when Marathon and Unocal built the Kenai
Kachemak Pipeline connecting southern fields including
Ninilchik, Happy Valley and Kasilof to gas-consuming
facilities on the northern Kenai Peninsula.
Still, those facilities remained major customers for
decades. The KNPL sent 70 percent of its volumes to the
LNG plant and 17 percent to the Agrium fertilizer plant
between April 2005 and April 2006, according to testimony given by Marathon in December 2006.
That KKPL connection prompted KNPL to become a
public and rate regulated utility. In 2004, Marathon negotiated a rate structure with state regulators based on anticipated transportation volumes, but because of declining
throughput, KNPL requested and received a total of nine
changes to its rate structure between early 2008 and mid2010.
With natural gas production falling in the region,
Agrium mothballed the fertilizer plant in 2007 and
ConocoPhillips plans to soon do the same with the LNG
plant. (ConocoPhillips recently bought out Marathon’s
ownership stake in the facility.)
Worried about declining deliverability, Enstar began
planning the CINGSA storage facility that should become
the largest customer of KNPL. Not only will CINGSA buy
supplies of its own to maintain storage pressures at the
facility, but third-party customers of CINGSA will be
forced to use the pipeline to store and retrieve excess supplies. Contact Eric Lidji at [email protected]
G O V E R N M E N T
Pushing in Congress for US icebreakers
U.S. icebreaker capacity is far behind those of Russia and Canada; new bills would require supply of new icebreakers to Coast Guard
By ALAN BAILEY
Petroleum News
W
ith the U.S. Coast Guard currently
having only one operational icebreaker in an era when the Arctic Ocean is
opening up for increased marine traffic
and offshore industrial operations,
Alaska’s representatives in the U.S.
Congress have been pushing to beef up the
U.S. icebreaker fleet. Both of the Coast
Guard’s existing heavy icebreakers are
decades old and are currently inoperable.
The one icebreaker in operation, the Healy,
is a medium duty vessel used primarily for
scientific research.
Fallen behind
On Oct. 18, during a hearing of the U.S.
Senate Committee on Energy and Natural
Resources, Sen. Lisa Murkowski asked
Vice Admiral Brian Salerno, deputy commandant for operations, U.S. Coast Guard,
about Russian and Canadian icebreaker
capabilities. The Russians have eight
heavy icebreakers and 13 light ice breakers, while the Canadians have two medium
icebreakers and four light icebreakers,
Salerno responded.
“I have suggested many, many times
that the current status of our icebreaking
capacity, as an Arctic nation, simply is
unacceptable,” Murkowski commented.
Salerno said that one of the inoperable
U.S. heavy icebreakers, the Polar Sea, is
about to be placed on a continuing inactive
status. The other heavy icebreaker, the
Polar Star, is being refurbished. The Polar
Star should go back into service in 2013, at
which point the aging vessel should have a
remaining service life of seven to 10 years,
Salerno said.
The question of what happens when the
Polar Star finally retires is the subject of an
ongoing analysis of the Coast Guard’s and
nation’s needs in the Arctic, he said.
House bill
A bill introduced recently to the House
of Representatives by Congressman Don
Young and called the Polar Protection Act
would require the Coast Guard to enter
into long-term leases for two new icebreakers within four years of the bill being
enacted. Each lease would need to last at
least 10 years. To avoid any dependency
on the leasing of foreign vessels, the icebreakers would need to be built and maintained in the United States.
“The race for the Arctic has begun and
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we are getting beaten by the likes of China
and Russia,” Rep. Young said. “Too much
is at stake up there for us to not act now.
With the ice melting and the Arctic region
becoming more and more accessible, the
potential is enormous for new resource
development and transportation opportunities.”
Leasing rather than owning icebreakers
needs to be considered as an option for
relieving stress on the annual federal budget, Young said.
Asked by Murkowski about the possibility of leasing icebreakers, Salerno said
that option is being considered as part of
an independent business case analysis for
the Coast Guard’s Arctic needs. That
analysis is currently undergoing review, he
said.
Re-authorization Act
In the U.S. Senate, Sen. Mark Begich,
chair of the Senate Commerce, Science,
and
Transportation
Committee
Subcommittee on Oceans, Atmosphere,
Fisheries, and Coast Guard, introduced the
Coast Guard Re-authorization Act, an act
which would authorize financial appropriations for U.S. Coast Guard operations in
financial years 2012 and 2013. One section of the act requires the U.S. administration to acquire two heavy polar icebreakers for Coast Guard use, by building
new icebreakers or refurbishing existing
icebreakers.
The re-authorization act in its entirety
covers the complete spectrum of Coast
Guard operations, including personnel,
equipment and facilities.
“Last year Congress passed into law the
first Coast Guard authorization act in
many years,” Begich said. “With this new
authorization bill, we renew our nation’s
commitment to the Coast Guard and make
sure they have the cutters, aircraft, small
boats, shore facilities and statutory authorities to perform their varied and necessary
missions.”
Contact Alan Bailey
at [email protected]
PETROLEUM NEWS
•
F I N A N C E
9
WEEK OF OCTOBER 23, 2011
&
E C O N O M Y
BP, Anadarko settle
Gulf disaster claims
By ROBERT BARR
Associated Press
A
nadarko Petroleum Co. has agreed to
pay $4 billion to BP PLC as part of a
settlement related to last year’s Gulf of
Mexico oil spill.
BP said Oct. 17 that Anadarko’s payment will form part of the British company’s $20 billion trust fund, which has paid
out $7 billion so far to settle claims from
individuals and businesses. Eleven workers
were killed when the Deepwater Horizon
rig exploded off Louisiana on April 20,
2010.
Anadarko held a 25 percent share in the
Macondo well which blew out in April last
year, causing the largest oil spill in U.S.
history. Anadarko, based in The
Woodlands, Texas, is also handing over its
stake in the well to BP as part of the settlement.
The agreement also gives Anadarko a
potential share in funds which BP recovers
from third parties or insurance. If BP’s total
recovery exceeds $1.5 billion, Anadarko
would get 12.5 percent of the excess, or up
to $1 billion, BP said.
BP shares were up 4.3 percent at 434.3
pence in early trading on the London Stock
Exchange.
In May, BP announced a settlement with
the other partner in the well, MOEX
Offshore 2007 LLC, which owned 10 percent of the well. It agreed to pay BP $1 billion.
Weatherford International Inc., a contractor based in Switzerland, also agreed in
June to pay $75 million to the trust fund to
settle claims between it and BP.
Weatherford manufactured the float collar,
designed to help contain cement, used in
the blown-out well.
continued from page 3
PROPANE PUSH
gas, thus eliminating problems associated
with gasifying the propane in cold winter
weather.
“The engine itself is totally compatible
with propane,” Heinze said. “As a matter
of a fact it actually works better on
propane than on gasoline.”
ANGDA has spoken to BP, North
Slope contractors and the State of Alaska
about the potential to use propane fueled
vehicles in Alaska, Heinze said.
Sea route
Heinze also thinks that propane could
be shipped by sea direct from the North
Slope, using shallow draft barges that
could ply the notoriously shallow water
around Alaska’s Arctic coastline. In addition to shipping propane to rural villages
by this means, the export of propane from
the slope could open up broader markets.
For example, Hawaii, where propane has
become the primary road vehicle fuel, has
told ANGDA that it would be interested in
importing Alaska propane, should the
opportunity arise, Heinze said. There is a
huge untapped Alaska business opportunity, he said.
“The scale of the propane resource at
Prudhoe Bay is world class,” Heinze
said. Contact Alan Bailey
at [email protected]
“This settlement represents a positive
resolution of a significant uncertainty and it
resolves the issues among all the leaseholders of the Macondo well,” said BP Chief
Executive Bob Dudley.
“There is clear progress with parties
stepping forward to meet their obligations
and help fund the economic and environmental restoration of the Gulf,” Dudley
said. “It’s time for the contractors, including Transocean and Halliburton, to do the
same.”
BP is still embroiled in suits and countersuits with Transocean Ltd., operator of
the Deepwater Horizon drilling rig, and
Halliburton Co., which was responsible for
cementing the well. The suits are scheduled
to go to trial in New Orleans in February. EXPLORATION & PRODUCTION
UltraStar still permitting Dewline well
Although its funding and rig availability remain unknown, UltraStar
Exploration is continuing to permit an exploration well at its Dewline unit for this
coming winter.
The Alaska independent
North Dewline No. 1 would be a
recently applied to drill the directional well from an onshore pad to
North Dewline No. 1 well from
an offshore target in the Ivishak that
an ice pad to be located about
passes
through a potential target in the
two miles northwest of the
Kuparuk.
The company might also drill
Point McIntyre No. 1 drill site.
The Alaska Department of a sidetrack with a bottomhole location
Natural Resources is taking
3,000 feet to the southeast
comments through Nov. 14.
The project would require a
2.2-mile ice road — less than a mile of it onshore and the remainder on grounded sea ice — from an existing gravel pad to an onshore ice pad.
UltraStar would build the road in January or February and drill the well sometime between January and April. The well is expected to take 45 days to complete.
North Dewline No. 1 would be a directional well from an onshore pad to an
offshore target in the Ivishak that passes through a potential target in the Kuparuk.
The company might also drill a sidetrack with a bottomhole location 3,000 feet to
the southeast.
—ERIC LIDJI
10
PETROLEUM NEWS
N A T U R A L
•
WEEK OF OCTOBER 23, 2011
G A S
LiDAR data on gas line routes released
Aerial laser survey can detect faults, other features important for making design and permitting decisions along pipeline corridors
DNR DIVISION OF GEOLOGICAL & GEOPHYSICAL SURVEYS
By WESLEY LOY
For Petroleum News
T
he Alaska Department of Natural Resources has
released the first batch of LiDAR survey data along
proposed natural gas pipeline routes.
LiDAR is an acronym for light detection and ranging.
It’s a laser-powered technology deployed from the air to
survey terrain for faults and other features.
DNR’s Division of Geological & Geophysical Surveys
announced Oct. 10 it was releasing the first of several highresolution LiDAR datasets for two proposed gas line projects, one known as the Alaska Pipeline Project and the other
as the Alaska Stand Alone Pipeline.
The Alaska Pipeline Project, a partnership of
TransCanada Corp. and ExxonMobil, proposes to build a
large-diameter gas line from the gas-rich Prudhoe Bay field
on Alaska’s North Slope to either Alberta or Valdez.
The Alaska Stand Alone Pipeline is a state-sponsored
effort proposing to build a smaller-diameter gas line from
the North Slope to Cook Inlet.
The survey areas
A contractor, Watershed Sciences Inc. of Corvallis, Ore.,
conducted the airborne LiDAR survey over proposed transportation and infrastructure corridors from Prudhoe Bay to
the Canada border, Delta Junction to Valdez, and
Livengood to the Point MacKenzie area at Cook Inlet.
The project covered a total area of about 3,000 square
miles.
Funding came from three sources: the Alaska Gas
Pipeline Project Office; the Alaska Gasline Development
Corp., which is proposing the Alaska Stand Alone Pipeline;
and the Office of the Federal Coordinator for Alaska
Natural Gas Transportation Projects.
The Oct. 10 DNR press release did not specify the cost
of the LiDAR survey.
Survey corridors were a minimum of one mile wide
along proposed pipeline routes, but much wider in some
areas of known potential hazards such as active faults and
slope instability, the release said.
A map accompanying the press release shows the areas
surveyed and the location of the first LiDAR data release of
approximately 660 square miles.
DGGS plans to release data for the remaining areas over
the next few months following delivery from the contractor.
The data products are available for download by quadrangle from the DGGS website, www.dggs.alaska.gov.
LiDAR’s advantage
LiDAR is a technology developed over the past 20 years
or so. It’s similar to radar but uses light energy instead of
radio waves.
To acquire LiDAR data, aircraft fly over the study area
with equipment that fires rapid laser pulses to scan the
ground. The reflected signals can be used to create high-resolution imagery of the land surface, including “bare-earth”
terrain models with trees, brush and manmade structures
edited out.
The beauty of LiDAR is that it can see faults in the land
surface better than other technologies such as satellite imaging or aerial photography. LiDAR can penetrate thick vegetative cover to map the ground, and it can handle very
steep or rough terrain than can hamper human investigators.
“LiDAR data can be used to generate detailed bare-earth
digital elevation models (DEMs) and hillshade images,
which allow geologists and engineers to view and analyze
the earth’s surface as if all vegetation were stripped away,”
the DNR press release said. “These products make it possible to identify hazards such as active faults and landslides
that may otherwise be undetectable, especially in areas of
dense vegetation. This type of information is critical for
making permitting and design decisions along these corridors. Because the LiDAR data also contain above-ground
points representing vegetation, power lines, pipelines,
bridges, and other features, many other uses are also possible, such as vegetation biomass studies and structure inventories.” Contact Wesley Loy at [email protected]
PIPELINES & DOWNSTREAM
Alyeska to mount operation to heat crude
The operator of the trans-Alaska oil pipeline plans a project this winter to heat up
the crude by recirculating it through one of the pump stations.
It’s part of efforts to deal with issues arising from declining throughput on the
pipeline, which carries North Slope oil 800 miles to the Valdez tanker port.
Because less oil is entering the pipeline as field production wanes, the oil is taking longer to travel to the other end. As a result, oil that enters the line at around 110
degrees Fahrenheit is cooling excessively, inviting problems such as water freeze-ups
in the line, greater wax buildup, and frost heaves stressing buried sections of pipe.
Pump Station 7 recirculation
A June 15 study from Alyeska Pipeline Service Co., operator of the pipeline, discusses possible solutions such as heating the crude and better insulating the line.
For the upcoming winter, Alyeska plans to “perform enhanced recirculation of
crude oil passing through Pump Station 7,” company spokeswoman Katie
Pesznecker told Petroleum News in an Oct. 6 email.
“We will begin recirculation this month (October) and continue through the winter,” the email said. “Recirculation adds heat to the crude oil by passing a portion of
the oil through pumps twice: It enters at one temperature, gains heat, then passes
through the pump again, exiting at a higher temperature. This will improve our thermal profile going into the colder winter months.”
Alyeska is an Anchorage-based consortium that runs the pipeline on behalf of
owners BP, ConocoPhillips, ExxonMobil, Chevron and Koch Industries.
—WESLEY LOY
Creative photography for the oil & gas industry.
judypatrickphotography.com
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• Casing Services
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PETROLEUM NEWS
•
F I N A N C E
11
WEEK OF OCTOBER 23, 2011
&
E C O N O M Y
Upward, downward pressures on oil prices
EIA: Supply uncertainty from unrest in oil-producing regions v. fears about rate of global economic recovery, European debt crisis
By KRISTEN NELSON
Petroleum News
O
il prices face both upward and downward pressures, the Energy
Information Administration said in its Oct.
12 short-term energy and winter fuels outlook.
Upward pressure comes from supply
uncertainty because of ongoing unrest in oilproducing regions. EIA said the turmoil in
Syria, which produced an average 400,000
barrels per day in 2010, and potential for
more sanctions on the country’s energy sector “is one source of risk to non-OPEC supply.”
But, the agency said, “downside demand
risks predominate, as fears persist about the
rate of global economic recovery, contagion
effects of the debt crisis in the European
Union, and other fiscal issues facing national governments.”
If Libya is able to ramp up production
and exports sooner than anticipated, that
would put downward pressure on prices on
the supply side.
U.S. real gross domestic product is forecast to grow by 1.5 percent this year and by
1.8 percent in 2012, slightly lower than
September’s forecast, and world oil-consumption-weighted real GDP is forecast to
grow by 3 percent this year and 3.5 percent
in 2012, down from a forecast of 3.1 percent
and 3.8 percent in EIA’s September forecast.
expected non-OPEC oil production growth.
Annual growth in each of those countries is
projected at more than 100,000 bpd.
Russian, Mexican and North Sea production is expected to be lower by the end of
2012.
OPEC crude oil production is expected
to decline by 30,000 bpd this year, a sharp
contrast to EIA’s September forecast of a
drop of 360,000 bpd. The agency said the
change is largely due to increased production in Saudi Arabia.
EIA said it still believes Libya will get
about half of its pre-disruption production
back online by the end of 2012, contributing
to an overall growth in OPEC crude oil production of 270,000 bpd next year.
The agency said it expects that OPEC
surplus crude oil production capacity fell
from 4 million bpd in the fourth quarter of
2010 to 2.8 million bpd in the fourth quarter
this year, but will increase to 3.5 million bpd
by the end of 2012 as Libyan production
capacity comes back online.
Domestic crude oil
EIA said that domestic crude oil production increased by 110,000 bpd last year to
5.5 million bpd, increased a further 180,000
bpd this year and is projected to increase by
70,000 bpd in 2012, “driven by increased
oil-directed drilling activity, particularly in
unconventional shale formations.”
U.S. marketed natural gas production is
expected to average 66 billion cubic feet per
day this year, a 4.2 bcf per day (6.7 percent)
increase over 2010. The increase is from
onshore production in the Lower 48 states,
which will more than offset a 0.9 bcf per day
(15 percent) decline in the Gulf of Mexico
and a small decline in Alaska.
EIA said it expects overall production
will grow in 2012, but at a slower pace,
increasing 1.4 bcf per day (2.1 percent) to an
average of 67.4 bcf per day. Contact Kristen Nelson
at [email protected]
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Crude oil prices
EIA reports both “U.S. average refiner
acquisition cost of crude oil” and the more
traditional West Texas Intermediate crude
oil spot prices.
The agency said it expects the U.S. average refiner acquisition cost of crude oil to
average $99 per barrel this year and $98 per
barrel next year — down from its forecast in
September of $100 and $103 per barrel for
the two years.
WTI crude oil spot prices fell from an
average of $97 per barrel in July to $86 per
barrel in August and September and the
WTI spot price for October began below
$80 per barrel. EIA said it revised projected
oil prices down from its September forecast.
“The significant price discount for WTI
relative to other U.S. and world crude oils is
expected to continue until transportation
bottlenecks restricting the movement of
crude oil out of the mid-continent region are
relieved,” EIA said.
U.S. refiner acquisition cost, which had
averaged almost $2.70 per barrel below
WTI in 2010, has averaged about $7 above
WIT in 2011 and is expected to average $10
above WTI next year.
EIA said the Henry Hub spot price for
natural gas averaged $3.90 per million Btu
in September, 15 cents lower than the
August average, and the agency expects
spot prices to fall further in October before
rising above $4 in December.
The average 2011 spot price is lower
than the 2010 average, EIA said, but “the
forecast price over the winter 2011-12 is
higher than last winter’s average.”
November 16-17, 2011
Dena’ina Convention Center
Anchorage, Alaska
Crude oil supply
EIA is projecting that non-OPEC,
Organization of the Petroleum Exporting
Countries, liquids fuels production will
grow by 0.49 million barrels per day this
year and 0.85 million bpd in 2012 to an
average of 53.1 million bpd, with Brazil,
Canada, China, Colombia, Kazakhstan and
the United States the largest sources of
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12
PETROLEUM NEWS
• WEEK OF OCTOBER 23, 2011
URS’ Trimble appointed to AK Minerals Commission
Alaska Dreams to represent Guard-All building line
URS Alaska said Oct. 11 that Stephen Trimble was appointed to
the Alaska Minerals Commission on Sept. 8.
The Alaska Minerals Commission, authorized until January 2014,
was created by the 14th Legislature and signed into law on June 6,
1986. The enabling legislation instructs the commission to make
recommendations to the governor and Legislature on ways to mitigate constraints, including governmental constraints, on the development of minerals, including coal, in the state.
Trimble comes from a mining family, is a third-generation Alaska
natural resource professional and owner of the Gold Cord Mine in
Hatcher Pass, Alaska. He is very active in the community, and holds STEPHEN TRIMBLE
the following appointments; vice chair, Alaska Emerging Energy
Technology Advisory Committee; vice chair, UAA Geology Advisory Board; member, UAA
College of Arts & Sciences Advisory Board; vice president, Alaska Museum of Natural
History; member, UAA Economic Geology Fundraising Committee; member, Alaska
Ratepayers.
Alaska Dreams Inc. announced Oct. 17
its agreement with Guard-All Building
Solutions to represent the Dallas, Texasbased tension fabric building manufacturer
as a dealer in Alaska and Washington. By
joining the Guard-All Building Solutions
dealer network Alaska Dreams takes responsibility for maintaining outstanding regional
sales, installation and service for the large
line of tension fabric buildings that GuardAll Building Solutions manufactures.
“The Alaska Dreams Inc. name is built on client satisfaction, quality, integrity, innovation
and teamwork,” said Meini Huser, owner of Alaska Dreams Inc. “We’ve produced millions of
square feet of construction for the oil, gas and mining industries over the years; we look forward to continuing that legacy with Guard-All Building Solutions.”
Alaska Dreams Inc. and Guard-All Building Solutions plan to focus their initial efforts on
COURTESY ALASKA DREAMS
Oil Patch Bits
see OIL PATCH BITS page 13
Companies involved in Alaska
and northern Canada’s oil and gas industry
ADVERTISER
PAGE AD APPEARS
A
Acuren USA
AECOM Environment
Air Liquide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
AIRVAC Environmental Group . . . . . . . . . . . . . . . . . . . . . . . .6
Alaska Air Cargo
Alaska Analytical Laboratory
Alaska Cover-All
Alaska Division of Oil and Gas
Alaska Dreams
Alaska Frontier Constructors
Alaska Interstate Construction (AIC)
Alaska Marine Lines
Alaska Railroad Corp.
Alaska Rubber
Alaska Steel Co.
Alaska Telecom
Alaska Tent & Tarp
Alaska West Express
Alaskan Energy Resources Inc. . . . . . . . . . . . . . . . . . . . . . . .4
Alpha Seismic Compressors
Alutiiq Oilfield Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . .13
American Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Arctic Controls
Arctic Foundations
Arctic Fox Environmental
Arctic Slope Telephone Assoc. Co-op.
Arctic Wire Rope & Supply
Armstrong
Aspen Hotels
ASRC Energy Services
Avalon Development
B-F
Baker Hughes
Bald Mountain Air Service . . . . . . . . . . . . . . . . . . . . . . . . . .14
Bombay Deluxe
Bristol Bay Native Corp.
Brooks Range Supply
Calista Corp.
Canadian Mat Systems (Alaska)
Canrig Drilling Technology
Carlile Transportation Services . . . . . . . . . . . . . . . . . . . . . . .5
CGGVeritas U.S. Land
CH2M Hill
Chiulista Services
Colville Inc.
Computing Alternatives
ConocoPhillips Alaska
Construction Machinery Industrial
Craig Taylor Equipment
Crowley Alaska
Cruz Construction
Delta P Pump and Equipment
ADVERTISER
PAGE AD APPEARS
Denali Industrial
Donaldson Company
Dowland-Bach Corp.
Doyon Drilling
Doyon Emerald
Doyon LTD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Doyon Universal Services
Egli Air Haul
Era Alaska
ERA Helicopters
Everts Air Cargo
Expro Americas LLC
ExxonMobil
Flowline Alaska
Fluor
Foss Maritime
Friends of Pets
Fugro
G-M
Garness Engineering Group
GBR Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
GCI Industrial Telecom
Geokinetics, formerly PGS Onshore
Global Diving & Salvage . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Golder Associates
Greer Tank & Welding
Guess & Rudd, PC
Hawk Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Hoover Materials Handling Group
Inspirations
Jackovich Industrial & Construction Supply
Judy Patrick Photography . . . . . . . . . . . . . . . . . . . . . . . . . .10
Kenworth Alaska
Kuukpik Arctic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Last Frontier Air Ventures
Lister Industries
Lounsbury & Associates
Lynden Air Cargo
Lynden Air Freight
Lynden Inc.
Lynden International
Lynden Logistics
Lynden Transport
Mapmakers of Alaska
MAPPA Testlab
Maritime Helicopters
M-I Swaco
MRO Sales
M.T. Housing
N-P
Nabors Alaska Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ADVERTISER
PAGE AD APPEARS
Nalco
NANA Regional Corp.
NANA WorleyParsons
NASCO Industries Inc.
Nature Conservancy, The . . . . . . . . . . . . . . . . . . . . . . . . . . .15
NEI Fluid Technology
Nordic Calista
North Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Northern Air Cargo
Northwest Technical Services
Oil & Gas Supply
Oilfield Improvements
Opti Staffing Group
PacWest Drilling Supply
PDC Harris Group
Peak Civil Technologies
PENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Pebble Partnership
Petroleum Equipment & Services
PND Engineers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
PRA (Petrotechnical Resources of Alaska) . . . . . . . . . . . . . .2
Price Gregory International
Q-Z
Rain for Rent
SAExploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Salt + Light Creative
Seekins Ford
Shell Exploration & Production
STEELFAB
Stoel Rives
Taiga Ventures
Tanks-A-Lot
TEAM Industrial Services
The Local Pages
Tire Distribution Systems (TDS)
Total Safety U.S. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
TOTE-Totem Ocean Trailer Express
Totem Equipment & Supply
Transcube USA
TTT Environmental
Udelhoven Oilfield Systems Services . . . . . . . . . . . . . . . . . .3
UMIAQ
Unique Machine
Univar USA
URS Corp.
US Mat Systems
Usibelli
Western Steel Structures
Weston Solutions
XTO Energy
All of the companies listed above advertise on a regular basis
with Petroleum News
PETROLEUM NEWS
•
13
WEEK OF OCTOBER 23, 2011
continued from page 1
CHUKCHI PLAN
Bureau of Safety and Environmental
Enforcement. This division completed the
breakup of the old U.S. Minerals
Management Service following the
Deepwater Horizon disaster.
Shell filed its Chukchi Sea exploration
plan with BOEMRE in May. However,
with a court injunction in place against
Chukchi Sea lease activities as a consequence of an appeal against the 2008 lease
sale in which Shell purchased its leases,
the agency placed its review of Shell’s
plan on hold. On Oct. 3 BOEM issued a
new supplementary environmental impact
statement and associated record of decision for the lease sale, affirming the sale
and thus potentially allowing the review of
Shell’s plan to proceed.
The U.S. District Court in Alaska has
scheduled a hearing for Oct. 26 in the
appeal case, to review the status of the
appeal and to clarify the situation regarding the legality of BOEM’s review of
Shell’s Chukchi Sea plan. It is also possible that the plaintiffs in the appeal case
will challenge BOEM’s new SEIS, placing
another question mark over the status of
the Chukchi Sea lease sale.
Beaufort Sea approval
Shell wants to drill in both the Beaufort
Sea and the Chukchi Sea during the 2012
Arctic open water season and in August
BOEMRE granted conditional approval
for Shell’s Beaufort Sea exploration plan
— the company has said that it needs to
make a go/no-go decision in late October
for its 2012 drilling plans. That decision
depends on the company’s confidence in
obtaining final approval of all of the various permits that it needs.
BSEE has been in repeated contact with
Shell over the permitting situation,
Bromwich said.
Shell has separately submitted a
Chukchi Sea oil spill prevention and
response contingency plan for BSEE
approval, and Murkowski asked
Bromwich if the need to separately review
two different plan documents was slowing
the plan review process. Bromwich
responded that the new interagency working group mandated by President Obama
was helping to facilitate the permitting
process and that the various agencies
involved were on track to conduct the plan
reviews in a timely manner.
Vice Admiral Brian Salerno, deputy
commandant for operations, U.S. Coast
Guard, told the Energy and Natural
Resources Committee that the Coast
Guard had been discussing Shell’s oil spill
contingency plan both with Shell and with
BSEE.
“It appears that Shell has been doing its
homework as to what is needed there,”
Salerno said.
Logistical challenge
The logistical challenges of mounting
an oil spill response in the Chukchi Sea
would be enormous and, given the paucity
of a land-based support infrastructure,
much of what needs to be provided would
need to be sea based, he said. Salerno said
that the Coast Guard has indicated to
BSEE some areas where the Coast Guard
thinks that Shell’s contingency plan needs
to be strengthened, but that those recommended changes appear to be achievable
by Shell.
Sen. Al Franken, D-Minn., asked
Salerno whether the Coast Guard is ready
to respond to an Arctic offshore oil spill.
Salerno said that Shell would have to
provide much of the response capability,
with the Coast Guard fulfilling its obligation to oversee and direct any spill
response operation. The Coast Guard is
considering deploying some ice-capable
buoy tenders in the Arctic region during
drilling operations, but will rely heavily on
Shell for logistical support, such as the
provision of hangars; refueling capabilities
for helicopters and aircraft; and command
and control personnel. Hotel capabilities in
the region are very limited, he said.
“Having people housed at sea would be
a major consideration,” Salerno said. Contact Alan Bailey
at [email protected]
continued from page 12
OIL PATCH BITS
their combined strength, servicing the oil, gas
and mining industries.
Founded in 1994, Alaska Dreams Inc. is
leading the industry in tension fabric buildings
and pre-engineered steel buildings.
Guard-All Building Solutions manufactures
an innovative selection of advanced tension
fabric buildings to provide medium to large
unobstructed superstructures for a range of
markets from agricultural to industrial.
Global’s Daily advanced
to GM Alaska region
Global Diving & Salvage Inc. said Oct. 17
that it is proud to announce the advancement
of Deirdre Daily to general manager of the
Alaska Region. Throughout her time with
Global as the Alaska
region office manager
she has been involved
in all aspects of the
daily operations including assisting with estimating and project
management. She has
built strong relationships with clients, parDEIRDRE DAILY
ticipating in industry
associations and
exhibiting at various tradeshows, and has fostered overall business development in the
region.
“During her tenure at Global Diving,
Deirdre has continued to show great aptitude
in management capabilities” said David
DeVilbiss, Alaska regional manager. “Her willingness to accept responsibility and step up
when needed has led her to performing much
of her new role already.”
14
ESCOPETA FINE
stances,” it can object and file a written
“petition for relief” within 60 days with
Customs fines, penalties and forfeitures
officer in Anchorage, Patrick McGownd,
who signed both the letter and the accompanying penalty notice.
The $15 million dollar fine is equivalent to the value of the Spartan 151, a
determination that was made by Customs,
McGownd said.
When Petroleum News emailed
Escopeta Oil’s current president, Ed
Oliver, for a reaction to the $15 million
fine, the company’s Strategic Officer
Steve Sutherlin replied by email,
“Escopeta is reviewing its options.”
Danny Davis, president of Escopeta
when the jack-up left Freeport on March
WESLEY LOY
continued from page 1
PETROLEUM NEWS
ED OLIVER
DANNY DAVIS
18, told Petroleum News Oct. 19, “I don’t
think we owe any fine whatsoever. I don’t
think Escopeta broke any laws taking the
rig from Galveston to the Cook Inlet.
“When the facts come out in a court
room or in an agency review, they will be
able to see we actually broke no laws,”
said Davis, who resigned in August, but
remains a minority interest owner in the
Kitchen Lights unit leases. Davis has
been president of the Escopeta group of
agencies, including continuing to conduct
drilling operations based on the plan
approved by AOGCC.
AOGCC Commissioner Cathy Foerster
told Petroleum News Oct. 20 that weekly
blowout preventer tests are required on the
offshore Cook Inlet exploratory well, with
an agency inspector on hand for each of
them.
So far Escopeta’s equipment has passed
muster, she said.
“We’re keeping a close eye on them,
helping them stay in compliance.”
The KLU No. 1 well is being drilled by
the Spartan 151 jack-up rig in the Corsair
prospect, which is one of four oil and gas
prospects in the Escopeta-operated,
83,394-acre Kitchen Lights unit.
Escopeta Strategic Officer Steve
Sutherlin said drillers had reached a depth
of 4,933 feet, the approximate depth at
which Barron had asked the company in a
Editor’s note: Steve Sutherlin is a former Petroleum News reporter and a
minority member of the limited liability
corporation that owns the newspaper.
Contact Kay Cashman
at [email protected]
STEVE SUTHERLIN
DRILLING OK
The Spartan 151 jack-up rig
Sept. 2 letter to temporarily stop work in
order to evaluate and determine “the reasonableness and prudence of moving forward with additional drilling.” The request
was made at Escopeta’s suggestion.
Factors in Barron’s review included
weather and ice formation in the inlet. He
could have suspended drilling until spring,
which he didn’t do, but he did remind
Escopeta that drilling into hydrocarbon formations had to stop Oct. 31, per condition
7 of the company’s Oil Discharge
Prevention and Contingency Plan. The Cplan was approved in June by the Alaska
Department
of
Environmental
Conservation.
Barron had said in September that the
arrival of the Spartan 151 jack-up in Cook
Inlet was welcome news, but “a well control incident in Cook Inlet could have devastating consequences for the state and the
state’s most vital industry.”
Drilling into gas bearing formations
“Once the cement is set up, Escopeta
will perform a new blowout preventer test
and a casing pressure test,” Sutherlin said
Oct. 19. “All aspects of the 13 3/8-inch casing operation have gone very smoothly, so
we anticipate positive results of testing and
subsequent approvals by AOGCC.
“We may be drilling down again as early
as Sunday.
“Escopeta then will drill on into gasbearing formations,” he said.
WEEK OF OCTOBER 23, 2011
“I think … (when) we drill down to
12,000-12,500 feet, we’ll find all the gas
they need (in Southcentral Alaska) for
many years to come. There’s 2-3 tcf of
gas there. It’s loaded with gas,” Davis
said.
The 83,394-acre Kitchen Lights unit is
made up of four main oil and gas
prospects: Corsair, which is being drilled
first; Northern Lights, identified and then
lost by Mark Landt and associates under
various company names; and Kitchen and
East Kitchen, which were identified by
Escopeta under Davis. companies since the first one was founded in 1993, an investor with Stewart
Petroleum in the Cosmopolitan play. He
was also the driving force behind bringing the jack-up to Alaska, the first jack-up
in Cook Inlet since 1994.
In the Oct. 19 interview, Davis pointed
out that within two weeks of denying
Escopeta a Jones Act waiver, the Obama
administration issued 46 waivers to foreign companies.
“I love the United States. I love our
industry. If the government is going to
start charging us to do business in the
United States, then they need to start
charging everybody,” Davis said.
“There is a gas shortage in the Cook
Inlet basin, even though the Department
of Energy denied that fact with DHS,”
which needed DOE’s concurrence to
issue a waiver.
continued from page 1
•
On Oct. 12 Sutherlin said, “The company’s key strategy for 2011 is to learn as
much as possible about the natural gas
bearing structures in the Corsair prospect,
with an eye on expediting gas production.
We think that Cook Inlet exploration, in
concert with efforts such as Enstar’s new
gas storage facility, can avert a crippling
gas supply shortage in the region.”
“We’ve been very pleased with our
drilling performance so far,” he said Oct.
19. “If recent results are any indication we
can expect a rapid rate of penetration going
forward.
“Safety and best oil field practices for
Cook Inlet will guide any decisions.
Escopeta will continue to communicate,
coordinate and cooperate with all state and
federal agencies to meet its drilling commitments,” Sutherlin said, declining to predict whether or not Escopeta would reach
full depth of 16,000 feet, into the Jurassic
formation, by Oct. 31.
Oct. 31 is also the deadline for Escopeta
to have reached the Jurassic formation in
order to comply with a Division of Oil and
Gas-approved plan of operations for the
Kitchen Lights unit. Failure to meet the
deadline could conceivably mean the loss
of the unit and most of its leases.
In the event Escopeta does not reach the
Jurassic by Oct. 31, Sutherlin said the company was operating on the assumption that
it and the division would come to an agreement, “putting safety before economic considerations.”
Editor’s note: Steve Sutherlin is a former Petroleum News reporter and a minority member of the limited liability corporation that owns the newspaper.
—KAY CASHMAN
Contact Kay Cashman
at [email protected]
PETROLEUM NEWS
•
15
WEEK OF OCTOBER 23, 2011
continued from page 1
OSPREY RIG
Inc., a small, publicly traded independent
based in Tennessee.
August was a record-setting month for
Cook Inlet Energy, which reported 46,882
barrels of oil shipped for an average of
1,512 barrels per day. That’s significant in
a basin that averaged 11,991 bpd overall
in August.
Osprey plans
Rig 35, as the company calls it, is a
2,000-horsepower National 1320 model
designed for both offshore and onshore
drilling. Voorhees Equipment and
Consulting Inc. fashioned the $19.5 million
rig in Houston.
The rig builders are scheduled to arrive at
the end of October to begin the 60-day job of
assembling the machine on the Osprey platform, Hall said.
Osprey is the newest and southernmost
of the 16 platforms in Cook Inlet. It sits in
the Redoubt unit.
Forcenergy Inc. completed installation in
2000, but production from the platform
proved a serious disappointment.
It was in “lighthouse mode” and in danger of becoming a ward of the state when
Cook Inlet Energy acquired the platform in
late 2009. Its previous operator, Pacific
Energy Resources Ltd., had filed for bankruptcy.
Hall wants to turn around Osprey’s fortunes.
One problem was that wells on the platform had design problems, with casings that
were too light for the formation pressure,
Hall said. As a result, the casings collapsed.
Hall intends to sidetrack four wells,
which should restore the 2,000 bpd that the
original wells once produced, he said.
Hall isn’t sure yet who will operate the
rig. He’s been soliciting for a labor contractor.
To limber up both the rig and crew, Hall
said he might start out with a couple of well
workovers before mounting an actual
drilling operation.
Focus on Susitna basin
The company has been outfitting another
rig brought up from Tennessee to target shallow gas prospects on Cook Inlet’s west side.
Rig 34 is a truck-mounted Atlas Copco
RD20 model.
Cook Inlet Energy has done “intensive
renovation” on the rig, adding eight modules
to house the mud system, tanks and the like,
Hall said. The rig also was winterized.
The company soon will use the rig to
workover a natural gas well at the company’s Kustatan onshore production facility, he
said.
Aside from Osprey, Cook Inlet Energy
operates the West McArthur River oil field.
Another big focus for Cook Inlet Energy
is the Susitna basin.
In September 2010, the state Division of
Oil and Gas granted Cook Inlet Energy a
three-year extension of its Susitna basin
exploration license in exchange for
$750,000 in work commitments.
The license gives the company exclusive
exploration rights on 471,474 acres in the
Susitna basin north of Cook Inlet, near the
Willow community.
Hall said he recently gave a technical
presentation to the Division of Oil and Gas
on the company’s Susitna basin progress.
Cook Inlet Energy has a collection of 2D seismic data Forest Oil shot in the basin in
2006, Hall said. Over the past year, the data
has been under review with help from a
third-party engineering firm, he said.
The company also did a “boots on the
ground” field study, looking for outcrops
and other signs of hydrocarbons.
Ultimately, the goal is to drill a hole in the
basin, though nothing is firm yet, Hall said.
More work is needed, perhaps a 3-D seismic
shoot. Hall said he sees the Susitna basin as
a potential company changer.
Miller’s legal troubles
While Cook Inlet Energy has made
steady strides over its short history, parent
company Miller Energy has had a tougher
go.
Beginning in July, Miller began to
encounter trouble including a crash of its
stock price and accusations of securities
fraud.
After its acquisition of Cook Inlet Energy
in late 2009, the small Tennessee company’s
star began to rise rapidly. Miller’s shares
went from the OTC Bulletin Board to the
Nasdaq exchange to the New York Stock
Exchange. The company’s stock price
soared from around 30 cents in mid-2009 to
as high as $8.02 on July 15.
By early August the stock had plunged to
$2.36 after online reports suggested Miller
had overstated the value of its Alaska holdings, and after the company advised the U.S.
Securities and Exchange Commission that it
needed to correct erroneous financial statements.
The stock slide precipitated the filing of
several lawsuits in Tennessee against Miller.
The suits generally claim that Miller’s stock
traded at artificially inflated prices due to
false statements by the company, and
investors were hurt when the price fell.
Miller has stood by the valuation of its
Alaska assets, saying their worth was independently verified. Miller said it hired global law firm DLA Piper to defend the lawsuits, which appear headed for consolidation.
—WESLEY LOY
Contact Wesley Loy
at [email protected]
continued from page 1
Badami in November 2010 and the
unit is currently producing 1,300
barrels per day, well below the
30,000 to 35,000 bpd that BP originally expected but more than the
unit has produced in years.
Originally, BP simply farmed-out
the leases at the unit to Savant, but
earlier this year BP transferred four
Badami leases to Savant and partner
ASRC Exploration LLC.
Although Savant is now the operator of the unit, BP is retaining its
responsibility to decommission the
existing Badami facilities and to
plug and abandon all wells that
aren’t transferred to Savant and
ASRC through previous farm-out
agreements. If BP relinquishes its
working interest in the remaining
Badami leases, though, the Division
of Oil and Gas might require BP and
Savant to work out a “financial
assurance agreement.”
With the decision, there are now
five producer-operators on the
North Slope: BP, ConocoPhillips,
Pioneer Natural Resources, Eni
Petroleum and Savant Alaska.
BP, ConocoPhillips and Eni are
all giant multinational companies,
and Pioneer is a large independent
with nearly $10 billion in assets in
Alaska, the midcontinent and
Africa.
—ERIC LIDJI
Contact Eric Lidji
at [email protected]
© OSCAR AVELLANEDA
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16
continued from page 1
KITIMAT APPROVAL
But the NEB said the “proposed term
volume is unlikely to cause Canadians
difficulty in meeting their energy requirements at fair market prices.”
“The board is of the view that the proposed export will not only open new markets for Canadian gas production, but that
ongoing development of shale gas
resources in B.C. and Alberta will ultimately further increase the availability of
natural gas for Canadians,” the regulator
said.
Apache operator
The Kitimat partnership — operator
Apache, with a 40 percent stake, and
Encana and EOG Resources, each holding
30 percent — will now complete its engineering and design work, including cost
estimates and labor force requirements,
and make a final investment decision in
the first quarter of 2012, said Apache
spokesman Paul Wyke.
The partners also have vital ammunition as they target potential customers in
China, Japan, South Korea and India. So
far, Encana said it is negotiating with six
prospective buyers.
PETROLEUM NEWS
The authorization to export 200
million metric tons of LNG is
equivalent to 9.36 trillion cubic
feet — about 50 percent more
than the proven reserves currently
backing the Mackenzie Gas
Project — or a maximum 468
billion cubic feet a year.
Wyke said the NEB decision is a “fantastic milestone, letting us move forward
and move forward quickly.”
He said the final cost, including a supply pipeline from British Columbia’s Horn
River basin, where the Kitimat partners
are the leading producers, should be close
to previous estimates of C$5.5 billion.
Kitimat LNG President Janine
McArdle said the project is a “remarkable
opportunity to open up Asia-Pacific markets to Canadian natural gas and we’re
leading the way in being able to deliver
long-term, stable and secure supply to the
region.”
Edward Kallio, director of gas consulting with Ziff Energy Group, said the
export license provides another “cornerstone” that will help attract buyers and
financing.
Toehold in Asian LNG market
It also gives Canada in a toehold in a
fast-emerging battle for Asian LNG markets with Australia, which has an estimated C$200 billion of plans in various stages
of development.
The NEB said the “forecast demand
growth for LNG in the Asia-Pacific region
provides a new opportunity for Canadian
producers to diversify their export markets,” adding that long-term oil-indexed
sales contracts could provide for higher
netbacks to Canadian producers.
Encana Vice President Dave Thorn said
the Kitimat partners anticipate that
Canadian gas will sell in Asia for the
equivalent price of crude oil in Japan and
expect that level to remain strong through
2020.
He said Asian countries are “seeking to
both meet their forecast growth as well as
to diversify their sources of supply. The
highest growth regions are expected to be
India and China.”
Thorn said negotiations of potential
off-take agreements for Kitimat are based
on volumes associated with a two-train
facility, each designed to process 700 million cubic feet per day, with the first coming on line in 2015
Peter Tertzakian, chief energy econo-
•
WEEK OF OCTOBER 23, 2011
The Kitimat partnership has
circumvented most of the bitter
opposition from environmentalists
and First Nations that has
hindered progress on Enbridge’s
planned 525,000 barrels per day
Northern Gateway oil sands crude
pipeline along a similar route to
the deepwater port at Kitimat.
mist with ARC Financial, said a steep drop
in exports to the United States – because
of rapid shale gas development and an
economically depressed market – is costing producers “tens of millions of dollars
each day” has forced Canada to “act on
market diversification … at least the
industry buzz is now all about tapping into
a new era of growth.”
In addition to Kitimat, BC LNG Export
Co-operative is waiting for an NEB decision on its application to start exports in
2013 of 125,000 thousand cubic feet per
day. The proponent is a 50-50 joint-venture of Houston-based LNG Partners and
the Haisla First Nation.
Six producers doing evaluation
Evaluation work is under way by six
producers: Shell Canada, with Mitsubishi
and Korea Gas as possible partners, to possibly process 1.8 billion cubic feet per day;
Penn West Energy, as 50 percent operator,
with Mitsubishi holding 30 percent and the
balance distributed among five South
Korean and Japanese utilities, is eying a
500 million cubic feet per day venture;
Malaysia’s Petronas, as 80 percent operator, and Progress Energy, are eying LNG
exports from their North Montney development joint venture; Nexen has signaled
its interest in LNG, drawing on gas from
British Columbia’s Horn River, Cordova
Embayment and Liard basins; and
Talisman Energy and South Africa’s Sasol
are keeping an LNG option open while
examining the feasibility of building two
gas-to-liquids plants in Western Canada.
The Kitimat partners are in the final
stages of engineering and design work on
the C$1.2 billion Pacific Trail Pipelines
that will cover 280 miles and provide
capacity of 1 billion cubic feet per day to
the planned LNG terminal from Spectra
Energy’s gas processing complex at
Summit Lake, British Columbia.
Site clearing at terminal
Over recent months, site clearing has
also taking place at the terminal site, using
previous regulatory approvals for an LNG
import facility before the original Kitimat
ownership switched to an export project to
take advantage of Asian demand.
The Kitimat partnership has circumvented most of the bitter opposition from
environmentalists and First Nations that
has hindered progress on Enbridge’s
planned 525,000 barrels per day Northern
Gateway oil sands crude pipeline along a
similar route to the deepwater port at
Kitimat.
Using C$35 million from the British
Columbia government, 15 First Nations
are positioned to take an equity stake in the
Kitimat pipeline and collect about C$550
million over 25 years from pipeline profits.
But some First Nations are starting to
register concern over the impact on their
water supplies from hydraulic fracturing
and forecasts that up to C$65 billion in
new pipelines and liquefaction terminals
will be needed over the next years if
Western Canadian producers are take full
advantage of LNG opportunities and target
7 billion cubic feet per day for export. Contact Gary Park through
[email protected]