arctic gas gaining access - petroleum newsfeb. 3anadarko, phillips hope to declare npr-a prospect...

Vol. 7, No. 19 $1 • www.PetroleumNewsAlaska.com Alaska’s source for oil and gas news Week of May 12, 2002

I N S I D EAlaska mining news summary 12

Skintight margins squeeze refiner 5

Katalla EA released by Forest Service 10

Chevron ready to explore B.C. offshore 7

Foothills, Cook Inlet lease sale stats by company 8

“An appeaser is one who feeds the crocodile— hoping it will eat him last.”

—WINSTON CHURCHILL

■ A R C T I C G A S

■ A R C T I C G A S

■ C O O K I N L E T

Gaining accessAccess to gasline addressed in U.S. Senate energy bill; explorers sayprovision adequate, but proposed state law further encourages access

By: Steve SutherlinPNA Managing Editor

The energy bill passed by the U.S. Senate inApril contains language designed to ensureaccess to an Alaska gas pipeline for new gasdiscoveries, and that language is probably

adequate to safeguard explorers who will need theline to get future discoveries to market, MarkHanley told PNA in early May. Hanley is Alaskapublic affairs manager for Anadarko PetroleumCorp.

The Senate bill, which must go through jointconference committee and full congressional votebefore becoming law, allows owners of newly dis-covered gas to ask the Federal Energy RegulatoryCommission for a hearing on expansion of the lineto accommodate new shipments. The commission

then may order the expansionof the project if it “deter-mines that such expansion isrequired by the present and

future public convenience and necessity.” The expansion provision is crucial, Hanley

said, because the Alaska gas transportation projectis likely to be the only way to get gas off the NorthSlope for the foreseeable future. In other states,

Mark Hanley

“There will be moreexplorers if there is more

access.” —Mark Hanley, Anadarko

Petroleum Corp.

Canada ready to react if United Statesimplements subsidies for Alaska gaslineDhaliwal warns Abraham that two-thirds of Alaska Highway route crossesCanadian territory; Abraham offers assurances that Bush remains ‘route neutral’

By Gary Park PNA Canadian Correspondent

If President George W.Bush does the unthinkableand signs into law U.S.energy legislation that puts

Canadian natural gas at risk,Canada will be ready to scuttle its free-marketapproach to Arctic gaslines and put a MackenzieValley project on an equal footing, Natural ResourcesMinister Herb Dhaliwal said.

While stopping short of pledging to introducematching subsidies for the Mackenzie project, he told

U.S. Energy Secretary Spencer Abraham at a May 2meeting of energy ministers from the Group of Eightindustrial powers that Canada may have to reconsiderits “route-neutral” position on shipping Arctic gas tomarket.

“We have an agreement which said both countrieswill be route neutral,” he said. “If (the Americans)move away from that we will have to reconsider ourposition to make sure we don’t allow our gas to bestranded. If that means looking at other measures, beassured we will look at them.”

Canadian government officials who attended the

see ACCESS page 2

Court rules againststate on RedoubtDGC director says scope of reviewswill be broadened to includeactivities covered by general permits

By Kristen Nelson PNA Editor-in-Chief

The Alaska Supreme Court has overturned aDivision of Governmental Coordination consis-tency determination for exploration activities atRedoubt Shoal in Cook Inlet.

Because Redoubt operator Forest Oil Corp. hadother permits, such as a general wastewater dischargepermit from the U.S. Environmental ProtectionAgency, DGC did not include wastewater dischargein its review.

In its May decision, the court said the state needsto look at all proposed activities, including those cov-

ered by existing general permits and a wastewaterpermit from the EPA.

Cook Inlet Keeper had appealed DGC’sSeptember 1999 consistency determination for Forest

Yukon, Northwest Territoriesduel for attention with gaslinespin-off projections

The battle of numbers hasbeen ratcheted up as rivals inCanada’s Arctic gas pipelinecontest vie for attention, withthe Yukon government releas-ing claims that an AlaskaHighway route would pumpabout C$26 billion (US$16.6billion) into Canada’s grossdomestic product over 24years.

A parallel report for theNorthwest Territories government claimed a stand-aloneMackenzie Valley pipeline would inject from C$40.8 billion(US$26.1 billion) to C$77 billion (US$49.3 billion) into GDP.

The Yukon study, developed by the research group

Mapmakers releases Foothillsareawide lease sale map

Mapmakers Alaska has released a map showing the results ofthe state’s North Slope Foothills areawide lease sale held May 1in Anchorage (see page 9).

Mapmakers President Brit Lively said the Cook Inlet areaw-ide sale map will be available by the end of the week. (Watch forit in PNA’s May 19 issue. PNA news bulletin subscribers willreceive an electronic link to the map by May 10.)

The Foothills sale brought in $10,266,086.40 in apparent highbonus bids (see chart on page 8); the Cook Inlet areawide gar-

… the economic benefits ofan Alaska Highway pipelineare “substantial, but theyare short and sharp. The

benefits from a MackenzieDelta project would be longterm.” —Doug Matthews,

director of minerals, oil andgas, Northwest Territories

see CANADA page 15

see DUEL page 15

see SALE MAP page 8

Judy

Pat

rick

Redoubt operator Forest Oil has drilled four wells fromthe Osprey platform, pictured here, and currently hascrews doing additional work at those wells before goingback to work on the fifth well.

see REDOUBT page 8

most gas finds are close enough to thegrid that a pipeline can be economicallybuilt from the well to the network if adeal can’t be made with nearby pipelineowners.

Pipeline owners would be asked

In the case of gaining access to theAlaska line, Hanley said the first stepwould be to go to the owners of thepipeline and ask for an expansion.Ideally that would be all the explorerwould need to do. However, in the eventthe explorer is unable to make satisfacto-ry arrangements with the pipeline ownersfor transport, the FERC hearing provi-sion in the Senate energy bill is addition-al assurance that explorers can get gas tomarket.

He said Senate Bill 360 now underconsideration in Juneau contains similarprovisions to the federal bill, and thatstate laws would likely involve theRegulatory Commission of Alaska inpipeline governance.

The federal law is most crucial for theexplorers, Hanley said, but he added thatstate language gives further encourage-ment to access, and adds weight to theeffort to expand the project.

“There will be more explorers if thereis more access,” he said. “It helps to havea forum here in the state.”

Hanley said the state bill is alsoimportant because the federal bill hasn’tpassed yet and could be changed in con-ference.

Scott Ransom of EnCana Corp. saidthe federal bill provides a framework foraccess and expansion but that furtherdetails need to be worked out. Languagein a state bill would ideally further advo-cate access and provide key steps forimplementation of access provisions.

FERC must ensure no harm to line owners

Under the language in the Senate bill,FERC must ensure that the line ownersand existing shippers won’t suffer finan-cially if an expansion is ordered. Thecommission must approve or establishrates for expansion service that allowline owners to recover, on an incrementalor rolled-in basis, expansion costsincluding a reasonable rate of return oninvestment. The rates must be set at a

level that doesn’t require existing ship-pers to subsidize expansion shippers, andthe proposed facilities must not interferewith the contract rights of existing ship-pers to previously subscribed certificatedcapacity.

Proposed facilities must not adversely

affect the financial or economic viabilityof the project, or impair the overall oper-ations of the project. FERC must alsofind that adequate downstream facilitiesexist or are expected to exist to deliverincremental Alaska natural gas to mar-ket. ◆

ON DEADLINE2 Petroleum News • Alaska Week of May 12, 2002

State worked access language Alaska Division of Oil and Gas Director Mark Myers

told PNA that both the state administration and theLegislature’s Joint Natural Gas Pipelines Committee,chaired by Sen. John Torgerson, R-Kasilof, worked on theaccess language in the Senate energy bill.

Myers said after the May 1 state Foothills oil and gaslease sale that access to a gas pipeline for explorers “is a bigproblem” because of the way contract carrier pipelineswork. The state did not believe there were guarantees ofaccess under current FERC statutes and regulations. “Andthat a disagreement that we had with Phillips, BP andExxon,” he said.

“The state was insistent,” Myers said, “as much as wecould be, on getting specific language in the federal enabling legislation to ensuremandatory expansion” in a gas pipeline. Torgerson’s committee on the gasline“summed it up very accurately,” Myers said, referring to concerns voiced by thejoint committee that without federal statutory changes new gas discoveries prob-ably wouldn’t be able to get into a gas pipeline.

“We have similar observations from multiple other sources and multiple otherexperts in the field.”

—Kristen Nelson

continued from page 1

ACCESS

Alaska Division of Oiland Gas DirectorMark Myers

Want to know more?If you’d like to read more about gas pipeline access for the explorers, go to

Petroleum News • Alaska’s Web site and search for these recently published articles.

Web site: www.PetroleumNewsAlaska.com

2002■ April 28 Kleeschulte, Torgerson clarify Murkowski’s position on gasline bills ■ April 21 Driving a good bargain ■ April 15 Royalty board meeting on gas contracts postponed■ April 7 Pourchot puts RIK on hold; delay likely to affect Foothills exploration■ April 7 DNR commissioner okays royalty gas contracts with Anadarko, AEC■ March 24 Alaska, Alberta, or Chicago — who will get North Slope gas liquids? ■ March 3 AEC investing $32M in Alaska in 2002■ Feb. 24 If producers control gas, they control gasline, attorney says■ Feb. 17 State defends royalty-in-kind sale at House Oil and Gas Committee■ Feb. 10 Producers, explorers duke it out in House oil and gas committee■ Feb. 3 Anadarko, Phillips hope to declare NPR-A prospect commercial in 2002■ Feb. 3 Affordable access to facilities key to attracting new oil companies■ Jan. 6 State offers 70 percent of Prudhoe Bay, Point Thomson royalty gas

2001■ Dec. 16 Cross-border legislators launch promotion of highway pipeline■ Dec. 2 Williams wants to operate gasline■ Nov. 18 Alberta Energy, Anadarko looking for space in gas pipeline■ Nov. 4 Federal action key to gas policy council recommendations

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ON DEADLINEPetroleum News • Alaska 3Week of May 12, 2002

COOK INLET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11FINANCE & ECONOMY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5GOVERNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13LAND & LEASING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8MINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12ON DEADLINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2WORLD OIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

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GOVERNMENTPetition of consistencydeterminations passes Legislature

The House concurred May 6 with Senate amendments to House Bill 439, whichremoves “the opportunity to petition for review of proposed or final consistencydeterminations under the Alaska coastal zone management program.”

Rep. Scott Ogan, R-Palmer, chair of the House Special Committee on Oil andGas, the bill sponsor, presented the Senate changes on his first day back after hesuffered a heart attack March 16. Rep. Beth Kerttula, D-Juneau, addressed someof the Senate changes and also recommended passage.

All members present, 39 of 40, voted in favor of passage. The bill has had the support of the administration and even of those who have

opposed development projects in the state. The petition right removed by the law only allowed the Alaska Coastal Policy

Council to decide if a petitioner’s comments on a proposed or final consistencydetermination had been fairly considered. There had been no successful challengesto projects under the petition right.

A petition may still be filed challenging whether a district coastal managementplan is being implemented.

The bill is awaiting transmittal to the governor’s office and is expected to besigned.

Status of other oil, gas bills as of May 8Senate Bill 319

Short title: Shallow natural gas: leasing and discharges This bill, by Sen. John Torgerson, R-Kasilof, expands the state’s shallow nat-

ural gas leasing program to make it commercial. It has been passed by the

see LEGISLATURE page 6

ON DEADLINE4 Petroleum News • Alaska Week of May 12, 2002

ENVIRONMENT & SAFETYGreen Star hands out 3 awards

A nonprofit environmental group has recognized three Alaska businesses forrecycling, reducing waste, preventing pollution and increasing energy efficiency.

Green Star presented Green Star Awards to Alaska Interstate Construction, theAlaska Wilderness Recreation & Tourism Association/Alaska Institute forSustainable Recreation & Tourism, and Alaska Industrial Development and ExportAuthority/Alaska Energy Authority.

AIDEA/AEA also received an air quality award. Programs at the agency includ-ed updating lighting fixtures and windows and installing motion sensors for light-ing.

Alaska Interstate Construction recycles fluorescent lamps, lead-acid batteries,used oil, antifreeze, aerosol cans and pallets. It also recycles more common materi-als like plastic bottles, aluminum cans, cardboard, toner cartridges and office paper.

Tourism organization AWRTA/AISTR recycles in its offices as well as at itsannual eco-tourism conference.

—The Associated Press

■ F I N A N C E & E C O N O M Y

Evergreen earnings decline,but production keeps rising

By Allen BakerPNA Contributing Writer

Evergreen Resources Inc. reportedprofits of $2.4 million for the firstquarter, down 84 percent as pricesslumped for the company’s coal bed

methane.The Denver-based company made $5.3

million in the fourth quarter.Evergreen kept boring holes at its

Raton Basin field, adding 50 news wells inthe first quarter alone. That raised the totalnumber of producing wells to 713 from518 at the end of the first quarter of 2001.

The company plans to add a total of 152wells in the basin during 2002, and it alsois completing five exploratory wells todepths of 4,000 to 6,000 feet to see if thegas sands under the coal seams hold com-mercial potential.

Production up 27%

Evergreen’s new wells pushed produc-

tion up 27 percent from a year ago to anaverage of 98.1 million cubic feet daily.The company sold 94.5 million cubic feeteach day in the fourth quarter.

But gas prices have come down dra-matically, and higher production couldn’tmake up the difference.

Evergreen’s gas sold for $2.29 perthousand cubic feet in the first quarter ofthis year, a drop of 58 percent from theprice a year ago. It was also down from theaverage price in the fourth quarter of$2.77.

Revenues for the quarter slid 46 percentto $20.3 million. The company collected$24.1 million in the fourth quarter. ◆

■ F I N A N C E & E C O N O M Y

Forest reports first quarterloss; drills 13 new wells with77 percent success rateProduction slips in quarter; partly due to tanker lifting delaysin Alaska cutting production by more than 2,000 daily barrels


Forest Oil Corp. reported a loss of$1.8 million in the first quarter asproduction slid along with prices.Forest, based in Denver, had a

much bigger loss in the fourth quarter —$29.7 million, due partly to unusualitems such as a $10 million Enron write-off.

In the year-ago quarter, Forest earned$81.3 million.

The company’s daily liquids produc-tion slid 27 percent to 21,500 barrelsdaily from 29,500 daily barrels a yearago. Forest said tanker lifting delays inAlaska pushed inventories up by210,000 barrels, which cut the produc-tion figure by more than 2,000 daily bar-rels. Liquids sold for an average of$18.76 a barrel, down 30 percent from ayear earlier.

Gas production was down 20 percentto 246.7 million cubic feet daily from308.5 million.

Forest sold some producing proper-ties in the Gulf of Mexico to Unocal late

last year. The company said there wasalso some normal decline in the Gulf dueto reduced capital spending there.

Average sale price for gas was $2.68for a thousand cubic feet, down 60 per-cent from $6.72 a year ago.

Production permits in forRedoubt

Forest participated in the drilling of13 new wells and had a 77 percent suc-cess rate to show for the work. Amongthose was the Redoubt Number 4 well inCook Inlet, which boosted the estimateof recoverable oil at Redoubt Shoal to100 million barrels or more. The compa-ny just received permits to begin the pro-duction phase for that field from itsOsprey platform. (See related story onpage 1.)

A well in the Trading Bay field,where Forest has a 47 percent workinginterest, was drilled to 15,042 feet and isexpected to produce 3,200 barrels a day.

Forest is planning to invest about$130 million in Alaska this year, rough-ly half its total exploration budget.Exploration and development spendingin the first quarter totaled $79.8 millioncompany-wide.

Revenue for the quarter was $149.2million, a drop of 59 percent from the$367.9 million Forest took in a year ago.Fourth-quarter revenues were $174 mil-lion. ◆

Forest is planning to invest about$130 million in Alaska this year,roughly half its total exploration

budget.

Evergreen’s gas sold for $2.29 perthousand cubic feet in the first

quarter of this year, a drop of 58percent from the price a year ago. It

was also down from the averageprice in the fourth quarter of $2.77.

Week of May 12, 2002

FINANCE & ECONOMY

Petroleum News • Alaska 5

MICHIGANEnstar parent Semco profitsrise for quarter; gas utilitiesshow improvement

Semco Energy Inc., parent of Enstar, showed improved earn-ings for the first quarter of the year, with profits up 24 percent to$11.3 million.

The gain came mostly from the gas distribution arm of thebusiness, which includes Enstar and a similar gas utility inMichigan. Semco is based in Farmington Hills, Mich. Operatingincome for the segment was $30.2 million, up from $28.0 mil-lion a year ago.

Temperatures on average were about 7 percent warmer thannormal in the two regions where Semco sells natural gas, but thesame was true a year ago, so that balanced out. Still, if the win-ter had been a normal one, profits would have been $2.4 millionhigher.

The company’s construction services business posted a small-er loss for the quarter, $1.3 million versus $2.1 million. The divi-sion normally loses money in the winter since little undergroundwork is done then in northern regions of the country.

Earnings in information technology services and propane,pipelines and storage were essentially flat. Those operationscombined brought in less than a million dollars. Operating rev-enue was $156.9 million, up 5 percent from the same quarter of2001.

—Allen Baker, PNA contributing writer

■ L O N D O N

BP earnings shrink by 57%, ascompared to ExxonMobil’s 68%Overall first quarter earnings dropped substantially, but BP still had profitsof $1.58 billion; the LNG segment’s profits were up from 2001’s first period


First-quarter earnings were sharply lower at BPPLC, 57 percent lower than last year’s figure,in fact. But that still put BP well ahead of manybig rivals in the competitive oil industry.

ExxonMobil earningssank 68 percent, andChevronTexaco profitsdropped 70 percent.Among somewhat smallercompanies, Marathon andPhillips both had losses. The figures aren’t directlycomparable since BP provides only pro forma num-bers.

BP’s pro forma earnings, adjusted for specialitems, came to $1.58 billion, down from $3.71 bil-lion a year ago and $1.77 billion in the fourth quar-ter. BP doesn’t supply net earnings that are morecomparable with figures from U.S. and Canadiancompanies.

But oil and gas prices went down across theboard, and BP was fairly typical in its explorationand production sector — profits were down 53 per-cent even though overall production was up slight-ly.

E&P brought in $2.40 billion, down from $5.14billion a year ago and a shade above the fourth quar-ter’s $2.37 billion.

Downstream was tough for the whole industry,with ExxonMobil and ChevronTexaco both show-ing red ink in the segment. BP’s earnings in thatsegment dropped substantially — 71 percent. Butthe company still had downstream profits of $287million.

Refinery margins down 60 percent

Refinery throughputs rose 3 percent to 2.99 mil-lion barrels a day even though BP sold refineries inUtah and North Dakota to Tesoro. The Veba Oiladdition more than made up the difference. Refiningmargins were down 60 percent worldwide, and U.S.

■ S A N A N T O N I O

Tesoro swings to loss in quarter;skin-tight margins squeeze refiner


With the big integrated oil companies show-ing losses on their downstream operations,it’s no surprise that Tesoro PetroleumCorp. posted a loss for the first quarter.

The San Antonio,Texas, refining andmarketing companyhad a net loss of $55.6 million for the quarter,about $10 million of that in special costs related tothe pending acquisition of a new refinery inCalifornia.

In the same quarter of last year, Tesoro earned$21.7 million, while the fourth quarter broughtprofits of $4.0 million. Capital spending was $19million more than in the 2001 quarter, and interestexpense rose to $30.3 million from $7.5 million a

year ago as debt rose $114 million to $1.25 billionwith the acquisition of the refineries in Utah andNorth Dakota.

“Industry crack spreads declined nearly 50 per-cent in our market areas compared to last year’srecord margins,” noted Tesoro chairman and CEOBruce A. Smith.

The company also took its Washington staterefinery out of operation for 70 days to complete aheavy oil conversion project. But the addition ofthe two refineries purchased last year broughtthroughput up 27 percent, to 313,000 barrels ofcrude daily from 246,500 a year ago.

The margin on each barrel of crude shrunk dra-matically, however. For all five refineries, thegross margin was cut in half, to $3.41 per barrelfrom $7.30.

see BP page 6

see TESORO page 6

Low prices hurt Agrium’snet; Argentina currencyadds to overall woes

Agrium Inc. lost $36 million in the first quarter of the year asproblems in Argentina hurt a company already pummeled bylow prices for nitrogen fertilizers.

Agrium has a nitrogen fertilizer plant in Nikiski. The losses from currency translation in Argentina con-

tributed $9 million of the loss for Agrium, which had a $7 mil-lion profit in the same quarter a year ago. Agrium is based inCalgary, but uses U.S. dollars in its financial reporting.

Fertilizer inventories rose last year as bad weather in thespring planting season cut demand about 3 percent, and the fallbrought a global economic decline. Fertilizer prices plunged.

In the North American market for nitrogen fertilizers pro-duced at the Nikiski plant and elsewhere, Agrium had a grossprofit of $7 million in the first quarter of this year, comparedwith $62 million a year ago. Sales dropped a bit to 921,000 tons

CALGARY

see AGRIUM page 6

retail margins were down 60 percent com-pared with the year-ago quarter, BP report-ed. The chemicals business showed somesigns of coming out of the doldrums, witha profit of $108 million, up from $81 mil-lion a year ago and $39 million in thefourth quarter.

LNG group nets $111 million

LNG powered the gas, power andrenewables segment to a profit of $111million, up from $100 million in 2001’sfirst period.

Liquids production rose 2.7 percent to1.99 million barrels a day, while gas vol-umes dropped 1.7 percent to 8.75 billioncubic feet.

The London-based company has set animpressive target of boosting production5.5 percent by the end of the year, and theoverall rise was just 0.75 percent for thequarter, with production from Alaska’sNorthstar helping that cause, along withthe Tambor project in Norway andGirassol in Angola. OPEC quotas limitedflow in Abu Dhabi, Venezuela andNorway. BP says it’s still on track to meetthe 5.5 percent goal.

Average oil price declined 24 percent to$18.77 a barrel for the quarter, comparedwith a year ago. Gas price on average was$2.27 per thousand cubic feet, a 68 percentdrop.

BP doesn’t report quarterly revenues. ◆

FINANCE & ECONOMY6 Petroleum News • Alaska Week of May 12, 2002


BP

For the Washington and Alaskarefineries, which are reported together,the decline was even greater, from $8.04to $3.45.

With that, refining showed an operat-ing loss of $35.8 million, compared witha $50.8 million operating profit a yearago.

Retail margins also down

Retail margins also tanked, to 9 cents agallon from 24 cents. And even the gro-ceries and other items sold at the compa-ny’s stations had a smaller profit margin,26 percent compared with 31 percent a

year ago. Retail operations lost $9.7 mil-lion, compared with a $2 million operat-ing income in the 2001 quarter.

Fuel sales nearly tripled to 173 milliongallons from 61 million a year earlier.

The company had 679 stations at theend of the quarter, compared with 277 ayear ago. Company-owned outlets rose to218 from 94.

Tesoro had a small operating profit forits marine services division, collecting$400,000 on that operation in the recentquarter, still just one sixth of the $2.7 mil-lion a year ago.

Revenues for the quarter climbedslightly to $1.24 billion from $1.23 bil-lion a year earlier. The company took in$1.28 billion in the fourth quarter. ◆


TESORO

from 985,000 tons, but the margin oneach ton tumbled to $8 from $63.

While Agrium has a long-term con-tract for the natural gas that feeds theNikiski plant, the company hedged priceson its natural gas feedstocks elsewherewhen the cost was higher, and showed

hedging losses of $17 million for the firstquarter.

The company sold 11.2 million com-mon shares to underwriters in March for$9.85 a share. That raised $106 million,which was used to pay down debt. Salesin the quarter were $338 million, adecline of 18 percent from $410 million ayear ago.

—Allen Baker, PNA contributing writer


AGRIUM

OIL COMPANY EARNINGSFirst Quarter 2002

1Q 2002 profits in millions, % change from 1Q 20011Q revenues in millions, % change from 1Q 2001

1Q daily production, % change from 1Q 2001

profits % revenues % production %

Agrium AGU -$36 — $338 -18 — —

Anadarko APC $88 — $1,373 -54 553,000BOE/1,805MMCF +5/-1

BP BP $1,582 -57 —- —- 1,989,000BBL/8,746MMCF +3/-2

ChevronTexaco CVX $725 -70 $20,844 -28 1,975,000BBL/4,457MMCF +1/-4

Conoco COC $127 -77 $8,019 -25 860,000BOE +26

EnCana ECA C$186 — $2,080 — 246,846BBL/2,724MMCF -1/+21

Evergreen EVG $2.4 -84 $20.3 -46 98.1MMCF +27

ExxonMobil EOM $2,090 -68 $43,531 -24 2,538,000BBL/11,744MMCF -3/-3

Forest FST -$1.8 —- $149.2 -59 21,500BBL/246.7MMCF -27/-20

Marathon MRO -$67 -87 $6,454 -26 424,000BOE -4

Murphy MUR $2.5 -97 $830 -30 74,292BBL/309MMCF +8/+24

Petro-Canada PCZ C$88 -79 C$1,708 -33 229,700BOE +14

Phillips P -$25 — $9,398 +77 834,000BOE -1

Semco SEN $11.3 +24 $156.9 +5 —- —-

Tesoro TSO -$55.6 — 1,243 +1 — —

Unocal UCL -$22 -93 $1,040 -53 477,000BOE -4

Williams WMB $107.8 -46 $2,185 -29 — —

XTO XTO $45.1 -3 $180 -28 464MMCF/13,212BBL +21/-3

Dollar figures in millionsBOE: barrels of oil equivalent

BBL: barrels of crude oil and condensateMMCF: billions of cubic feet of natural gas

BARTLESVILLEBartlesville staff numbers toremain static; Houston will losestaff, say Phillips and Conoco

Phillips Petroleum Co. and Conoco said May 3 that employment reductions areexpected in Houston, but not in Bartlesville, as a result of decisions the companieshave made regarding locations for staff and support functions for ConocoPhillips.

The changes will begin when the merger is cleared by the U.S. Federal TradeCommission, expected in the second half of the year.

In Houston, along with the company’s headquarters, will be: worldwideupstream operations including Lower 48 headquarters and upstream technology;downstream refining; wholesale marketing; marine; carbon, lubes and specialtiesbusinesses; and the company’s commercial center including supply and trading forcrude oil, refined products, natural gas liquids and gas and power.

ConocoPhillips will locate a new global information technology center inBartlesville, Okla., along with global financial services and human resources sup-port organizations and the research and development activities currently donethere.

Some functions will remain in Ponca City, Okla., including operation of therefinery and the research and development activities based there, including devel-opment of gas-to-liquids technology.

ConocoPhillips’ retail marketing organization will be in Tempe, Ariz.The companies said that employment reductions are expected in Houston and

Tempe, with slight reductions in Ponca City. “Employment in Bartlesville will remain unchanged,” Phillips and Conoco

said, “as it transitions from a corporate headquarters to a global support center.”

Legislature. The bill is awaiting transmit-tal to the governor’s office and is expect-ed to be signed.

Senate Bill 360

Short title: Alaska natural gas projectact

This bill would give gasline ownerstax-exempt railroad bonding; property taxand royalty relief if, among other things,construction begins by a specified date. Itwould expedite permitting from all stateagencies, limit judicial review for claimsbrought by state entities and providewaivers of law from the governor if a pro-vision of law impedes the project.

An aide to Sen. John Torgerson, R-Kasilof, told PNA May 8 that “SB 360

isn’t going to move. If an incentive pack-age moves these next few days, HB 519will be the vehicle. But they will have tomake some substantive changes to itbefore it will pass the House.”

House Bill 519

Short title: Natural gas pipeline: spe-cial provisions

In House Rules as of 8 a.m., May 9This is the bill which would provide a

property and sales tax holiday duringconstruction and the first year of opera-tion of a gas pipeline and revive thestranded gas act.

HB 519 has been scheduled for theHouse floor several times but each time ithas been pulled back into the Rules com-mittee. Supporters say they don’t have thevotes needed to pass the bill, so they arenegotiating with the administration andothers to amend it.


LEGISLATURE

WORLD OILPetroleum News • Alaska 7Week of May 12, 2002

CANADABritish Columbia joins land salesslump in Western Canada

Even British Columbia has entered a tailspin, as E&P companies across WesternCanada opt for caution in bidding for government exploration rights, apparentlyignoring the highly-touted gas potential of northeastern British Columbia.

Although the average price paid for land in British Columbia easily outstrips therest of Canada, the province has gone into sharp retreat, collecting a meager C$7.35million from its latest auction on April 24, the second lowest take from any sale in thelast two years. For the year to date, the British Columbia government has collectedC$92.56 million on the sale of 193,686 hectares (478,598 acres) at an average priceof C$477.86 per hectare.

At the same period of last year, bidders had paid C$245.42 million to secure387,446 hectares (957,379 acres) of exploration prospects at an average price ofC$633.44 per hectare. The high bid in the latest auction went to Maverick LandConsultants (87) Inc., which paid C$3.7 million or C$1,212.11 per hectare for a 3,055hectare drilling license near Ring Border in northeastern British Columbia, about 15miles west of the Alberta border.

The area combined gas exploration and development prospects, with BurlingtonResources Inc. and Canadian Natural Resources Ltd. the dominant players in the area.

Chevron Canada Resources Ltd. also holds a license to drill an exploration well ona nearby parcel.

—Gary Park, PNA Canadian correspondent

■ C A N A D A

Chevron ready to exploreBritish Columbia offshoreif moratorium is liftedCompany backs British Columbia government attempts to endthe ban on searching for oil and gas; province Premier GordonCampbell promises announcement on the ban within two weeks

By Gary Park PNA Canadian Correspondent

Chevron Resources Canada has becomethe first of British Columbia’s offshoreleaseholders to show strong interest instarting to explore for oil and gas if the

Canadian and British Columbia govern-ments lift the ban on drilling.

The Calgary-based subsidiary ofChevronTexaco Corp. is ready to make themove, company President Jim Simpson toldthe annual meeting of the CanadianAssociation of Petroleum Producers.

But a spokeswoman said that althoughthe company is back-ing the BritishColumbia govern-ment in its push toremove the moratori-ums “there are manyissues to be discussedbefore we can discussoffshore drilling.”

Petro-Canada, oneof the other lease-holders, has show lessenthusiasm for dust-ing off its exploration plans unless there is aclear federal-provincial regulatory regimefor the offshore, settlement of all unresolvedFirst nations land claims and protection ofecologically sensitive areas.

Announcements expected

In his address to the CanadianAssociation of Petroleum Producers, BritishColumbia Premier Gordon Campbell saidhis government expects to make anannouncement regarding the moratoriumwithin the next couple of weeks, along withreleasing the findings of an independent sci-entific panel.

Following earlier meetings with federalNatural Resources Minister Herb Dhaliwal,Campbell said British Columbia is willing towork with the federal government and theproducers association to coordinate publicpolicy on energy matters. “We’re trying tohave one process instead of two,” he said.

Canada’s Environment Minister DavidAnderson continues to speak cautiouslyabout moving too quickly on the issue ofexploration.

“We want to make sure a clear analysis

of the risks and a clear analysis of the bene-fits shows that it is desirable to lift the mora-torium,” he said.

“We have not got those studies. The stud-ies are going to be very expensive” to coverwave patterns, ocean conditions and thecondition of the seabed, including the vol-canic fault line.

As well, Anderson, said studies of fish,bird and other sea and shore life will berequired to assess the likely impact of explo-ration and drilling.

“I hope (the oil companies) are willing tobring their checkbook to the table ... becauseI can see them spending tens of millions ofdollars,” he said.

Having the scientific research done bythe private sector “saves the public sectormoney,” Anderson said.

Intensive opposition

Meanwhile, environmentalists and FirstNations are mounting an intensive cam-paign, pressuring the Canadian governmentto maintain its moratorium.

Greenpeace Canada said any attempt tolift the ban would be in direct contradictionof the government’s pledge to ratify theKyoto protocol on reducing greenhouse gasemissions.

Jennifer Lash, executive director of theLiving Oceans Society and a spokeswomanfor the Free Coast Alliance, argued “scienceand experience from around the world havedemonstrated that oil and water don’t mix,causing harm to the environment, coastaleconomy and coastal communities.”

The Haida First Nation and TsimsianNations are demanding that their land claimsmust be settled before any moves are madeto lift the moratorium as well as pressing foran “independent environmental, economic,social and legal impact analysis” of offshoredevelopment. ◆

“I hope (the oil companies) are willingto bring their checkbook to the table... because I can see them spending

tens of millions of dollars.” Having thescientific research done by the private

sector “saves the public sectormoney.” —Canadian Environment

Minister David Anderson

British ColumbiaPremier GordonCampbell

Tesoro, Valero renegotiate refinery dealTesoro Petroleum Corp. has renegotiated the price it will pay Valero Energy Corp.

for a refinery and 70 service stations in California, and the deal will close this month,the companies said May 6.

The San Antonio-based oil companies said they agreed to trim Tesoro’s purchaseprice by $50 million, to $1.075 billion, and defer payment of $150 million.

The amended agreement has been approved by the California attorney general andis subject to review by the Federal Trade Commission, the companies said.

“Obviously, we were disappointed that the transaction did not go through as origi-nally outlined, but the revised terms of the transaction are still very favorable for all par-ties and an expedited close is also in the best interest of all parties,” said Valero chair-man and CEO Bill Greehey.

Tesoro’s original refinery is in Nikiski. The company has added four more since —in Hawaii, Washington state, Utah and North Dakota.

Tesoro chief executive Bruce A. Smith stunned Valero executives and analysts lastweek when he announced — during a conference call to discuss the company’s first-quarter loss — that Tesoro might back away from the refinery purchase.

The comment sent Tesoro’s stock down 30 percent May 2, although it reboundedby 17 percent May 3.

News of the renegotiated deal lifted Tesoro shares 52 cents, or 6.1 percent, to $9 inlate trading May 6, but it sent Valero shares down $1.36, 3.2 percent, to $41.63.

The sale of the Golden Eagle refinery in Martinez, Calif., near San Francisco, isexpected to close May 17. But it could close sooner depending on Tesoro’s receipt offinal documentation of a change in its credit facility as well as other factors, the com-pany said.

Federal regulators required Valero to sell the refinery and service stations as a con-dition of approving its acquisition of Ultramar Diamond Shamrock Corp. last year.

Part of Tesoro’s purchase price would be deferred in the form of two 10-year notes. A $100 million promissory note would include a zero coupon for the first five years

and an interest rate of 7.5 percent after that. A $50 million note would be interest-freefor the first year and carry rates of 7.47 percent to 7.5 percent after that.

—The Associated Press

SAN ANTONI0

LAND & LEASING8 Petroleum News • Alaska Week of May 12, 2002

Cook Inlet areawide lease sale2002: net statistics by individual Name Net Acres % Acres Amount % Amount Per Acre

Monte J Allen 15,360 18.60% $78,502.66 13.49% $5.11Robert Bolt 7,680 9.30% $41,356.80 7.11% $5.39Paul Craig 10,240 12.40% $129,792.00 22.30% $12.68Daniel Donkel 7,680 9.30% $41,356.80 7.11% $5.39Forest Oil 7,680 9.30% $61,772.80 10.61% $8.04Marathon Oil 11,520 13.95% $108,633.60 18.67% $9.43Northstar Energy 17,280 20.93% $91,238.40 15.68% $5.28Richard Wagner 5,120 6.20% $29,286.40 5.03% $5.72

TOTAL 82,560 100.00% $581,939.46 100.00% $7.05

Note: Final acreage will be determined by state after title work; figures abovebased on gross tract acreage. Individuals broken out of bidding groups by per-cent participation.

COOK INLET

Foothills areawide lease sale2002: net statistics by companyCompany Net Acres % Acres Amount % Amount Per Acre

Anadarko Petroleum 60,480 5.40% $915,984.00 8.92% $15.15EnCana Corp 37,440 3.34% $787,651.20 7.67% $21.04Petro-Canada 1,015,680 90.74% $8,526,681.60 83.06% $8.40Unocal 5,760 0.51% $35,769.60 0.35% $6.21

TOTAL 1,119,360 100.00% $10,266,086.40 100.00% $9.17

Note: Final acreage will be determined by state after title work; figures abovebased on gross tract acreage. Companies broken out of bidding groups by per-cent participation.

NORTH SLOPEnered $581,290.02. (See full story on bothsales in last week’s PNA.)

There were 201 bids on 197 tracts total-ing 1,119,360 acres in the Foothills sale,making it the most acreage ever leased in astate sale. Petro-Canada Alaska Inc. domi-

nated the sale, with apparent high bonusbids of $8,526,681.60 on 179 tracts, whichrepresented 83 percent of the sale dollars.

Companies that took acreage in theCook Inlet sale included Marathon OilCo., Northstar Energy Group and ForestOil Corp.; individuals were Monte J.Allen, Robert Bolt, Paul L. Craig, DanielK. Donkel and Richard E. Wagner. (Seechart on page 8.)


SALE MAP

Oil’s exploration program at Redoubt. Thesuperior court ruled DGC “properly exclud-ed the Osprey’s exploration-related dis-charges from the project’s consistencyreview process because those activities hadalready been considered and found to beconsistent with the Coastal Program in thestate’s consistency review…”

Cook Inlet Keeper appealed to theAlaska Supreme Court, which ruled that“the state had a statutory duty to conduct aproject-specific consistency review encom-passing all activities for which the Ospreyprojected needed a permit, including a gen-eral permit that already existed…”

Department of Law reviewing

With exploration activities at Redoubtalmost complete, DGC issued a consisten-cy determination for development atRedoubt on May 1.

DGC Director Pat Galvin told PNAMay 8 that the Department of Law isworking with his agency to figure out theimplications of the court’s May 3 decisionon the development determination.

“It’s possible that it could affect thedevelopment phase,” but, Galvin said,discharges which were the subject of con-cern on appeal are not an issue in thedevelopment phase because they are notallowed.

The project is being converted from anexploration project to a development pro-ject, he said, “and so the production con-sistency determination is the one thatwe’re looking at to see if it still stands. …As of today, the consistency determina-tion for the production activities is still inplace and that permitting for productionactivities is also in place.” Galvin said “adetermination is expected shortly inregard to whether that consistency deter-mination has to be withdrawn.”

Review timeframe will remain thesame

This uncertainty won’t be there forprojects in review now or in the future,Galvin said.

“The problem for Forest Oil is thattheir timing is such that their activitiesmay be directly affected by the court’sruling. But the program can conform withthe court’s decision without majorchanges in the process that projects gothrough,” he said.

The court decision means that DGChas to do consistency determinations dif-ferently.

“And we can do that, and I think wecan do that without any major implica-tions for the program,” Galvin said.

The state will have to broaden thescope of its review to include activitiesthat are covered in general permits, “butthe process that a project would gothrough would remain the same and thetimeframe would remain the same,” hesaid.

Forest defends DGC

“We’re disappointed with the ruling bythe Alaska Supreme Court,” Don Stevens,vice president and treasurer for Denver-based Forest Oil, told PNA May 7.

“And we believe that the state had

complied with the Alaska coastal man-agement program requirements” in issu-ing the consistency determination forexploration work at Redoubt.

Redoubt development phase

The Redoubt Shoal oil and gas devel-opment project includes conversion of theOsprey exploration platform for develop-ment and building the onshore Kustatanproduction facility and pipelines.

The Kustatan production facility willbe on an existing gravel pad on privateland.

Pipeline placement will be through aboring through the West Foreland bluff,underneath the intertidal zone. Thepipelines will be pulled from shore to theplatform with a winch system installed ona barge moored near the Osprey platform.

Muds, cuttings and produced waterwill be reinjected in the Class II well atthe platform; gray water will be dis-charged under an EnvironmentalProtection Agency NPDES permit.

Pipelines for the project include: a six-inch natural gas pipeline; an eight-inchpipeline to carry wet oil onshore; an eight-inch pipeline to carry treated producedand fresh water from the onshore produc-tion facility back to the platform; one ortwo utility pipelines for power cables.

Platform changes from exploration todevelopment include: electrical switchesand controls, manifolding for projection,injection and disposal, and deck exten-sions. ◆

Fifth Redoubt well halted

Cook Inlet Keeper said May 6 thatthe Alaska Supreme Court has alsoaffirmed an April 19 injunction haltingdrilling of the fifth exploration well atthe Redoubt field in Cook Inlet.

The issue with the fifth well,according to Trustees for Alaska, thepublic interest law firm representingCook Inlet Keeper, is that the consis-tency determination for Osprey explo-ration drilling included four explo-ration wells and a disposal well.Trustees argued in an April 15 letter tothe Alaska Oil and Gas ConservationCommission — which issues drillingpermits — and to the state Departmentof Natural Resources that becauseonly four exploration wells wereincluded in the exploration consisten-cy determination, the agencies permit-ted the fifth exploration well without acoastal consistency review.

Don Stevens, vice president andtreasurer for Redoubt operator ForestOil Corp., told PNA May 7 that ForestOil is reviewing the impact of the rul-ing on its operations.

“We’ve drilled four wells and areconducting additional work on thosewells but are not currently drilling theNo. 5 well,” he said. Work willresume on the fifth well, Stevens said,“when we can do so without any legalconstraints.”

“More than anything else,” he said,“we hope the situation is clarified inthe very, very near future.”


REDOUBT

LAND & LEASINGPetroleum News • Alaska 9Week of May 12, 2002

LAND & LEASING10 Petroleum News • Alaska Week of May 12, 2002

STATEWIDEPotential State and Federal Oiland Gas Lease SalesAgency Sale and Area Proposed Date

BLM NE NPR-A June 3, 2002MHT Cook Inlet Fall 2002 DNR North Slope Areawide Oct. 23, 2002DNR Beaufort Sea Areawide Oct. 23, 2002MMS Sale 186 Beaufort Sea 2003DNR Cook Inlet Areawide May 2003DNR Foothills Areawide May 2003DNR North Slope Areawide October 2003DNR Beaufort Sea Areawide October 2003MMS Sale 191 Cook Inlet/Shelikof Strait 2004MMS Sale 193 Chukchi Sea/Hope Basin 2004DNR Cook Inlet Areawide May 2004DNR Foothills Areawide May 2004BLM NW NPR-A mid-2004DNR North Slope Areawide October 2004DNR Beaufort Sea Areawide October 2004MMS Sale 195 Beaufort Sea 2005DNR Cook Inlet Areawide May 2005DNR Foothills Areawide May 2005DNR North Slope Areawide October 2005DNR Beaufort Sea Areawide October 2005MMS Sale 199 Cook Inlet/Shelikof Strait 2006MMS Sale 202 Beaufort Sea 2007MMS Sale 203 Chukchi Sea/Hope Basin 2007

Agency key: DNR, Alaska Department of Natural Resources, division of oil and gas, managesstate oil and gas lease sales onshore and in state waters; MHT, Alaska Mental Health TrustLand Office, manages sales on trust lands; MMS, U.S. Department of the Interior’s MineralsManagement Service, Alaska region outer continental shelf office, manages sales in feder-al waters offshore Alaska.

This week’s lease sale chart sponsored by:PGS Onshore, Inc.

ANCHORAGENo industry interest in Norton Basin

The Minerals Management Service said May 3 that there is no current industry inter-est in its proposed North Basin oil and gas lease sale.

The agency’s first call for information for the area closed April 22. “We didn’t expect much interest from companies at this time,” said MMS Regional

Director John Goll. “This first call for information got the idea of a small focused saleout to the companies. I hope that they will consider the area and its needs and how work-ing in Norton Sound might work into upcoming exploration plans.”

MMS said areas off Western Alaska are largely unexplored and have no infrastruc-ture to support oil and gas exploration. The agency believes the area “may contain sub-stantial natural gas resources” which could be used by local communities and alsoexported. Nome, St. Lawrence Island and Yukon Delta communities are interested innew energy sources, the agency said.

MMS said this special interest process is a first for Alaska. The call requested thatindustry nominate small, very specific areas where they would commit to explore.

MMS said since there was no industry interest this year, it would defer the sale for ayear and reissue the call next year. Although only one round of leasing would occur inthis five-year program, MMS said it would continue to issue a call during through 2007until there is sufficient interest.

—Petroleum News • Alaska

KATALLAForest Service completes Katalla EA

The U.S. Forest Service has completed its environmental assessment for CassandraEnergy Corp.’s proposed exploration drilling at the historic Katalla oil field, triggeringa 30-day public comment period on the proposed plan of operations.

The plan of operations consists of two parts. The first part addresses activities thatwill take place on private land within the boundaries of Chugach National Forest andincludes the establishment of a crew camp and drill site. The second part deals withactivities on National Forest System lands, including drill site access to the drill sitewhich involves construction of a barge offloading site, establishment of a temporarystaging area, and use of an existing access road.

Cassandra plans to directionally drill from private land into Chugach Alaska Corp.’sreserved oil and gas estate. The proposed project area is near the old town site ofKatalla, approximately 56 miles southeast of the city of Cordova.

According to the Forest Service, Cassandra plans to drill a well to a depth of 9,000-9,500 feet with a horizontal displacement of approximately 3,000 feet.

—Kay Cashman

By Patricia JonesPNA Contributing Writer

With a scheduled startup thismonth, the new gas-to-liquidsplant being built in Nikiski byBP Exploration (Alaska) Inc.

will test plant design characteristics aswell as evolving technology in a com-bined effort to increase efficiency — andlower costs — of the chemical conver-sion process.

During an energy workshop held inearly April in Fairbanks, Steve Fortune,BP Exploration’s GTL program manag-er, provided an overview of the three-stage chemical process in which naturalgas is converted to a usable liquid, suchas diesel, jet fuel ornaphtha. He alsodescribed in detailthe company’s latestefforts to utilize thatconversion process,by building a $86million GTL plantin Nikiski.

BP Explorationexpects the plant toconvert 3 millioncubic feet of natural gas per day into 300barrels of liquids, Fortune said.

“We’ve got some clever engineeringto try to make this reaction much moreefficient,” he said. “Theoretically, it’sonly 78 percent thermally efficient, sothere are some challenges in there, tryingto make this a commercial applicationand a process that will really work, and totry to recover some of our energy back.”

Some of the unique design character-istics of the GTL plant in Nikiski, such aswater recycling, use of hydrogen as afuel source and a small, modular-type ofconstruction, are attributes which wouldgreatly enhance the economics of build-ing and operating a similar facility on theNorth Slope.

“What we’re building in Nikiski isoff-the-shelf design reactor and an off-the-shelf catalyst, so there’s no realdevelopment there,” Fortune said. “Whatwe’re looking at is the operating enve-lope.”

Conventional technology in new,smaller design

During his presentation, Fortune dis-played a slide showing a scaled drawingof a conventional world class GTL plant,one already built and operating inTrinidad, he said. Contained inside theconventional plant drawing was themuch smaller GTL plant that BP is build-ing in Nikiski.

“Using our compact reformer technol-ogy, it’s one quarter of the size of con-ventional technology,” Fortune said.“That’s the real breakthrough. It’s notreally the chemistry or the reactions.”

Reducing the size of the reformer,where the first stage of the gas-to-liquidsconversion takes place, enhances theoverall economics of the process, he said.And those cost savings are particularlyapplicable to construction and operationof such a plant on the North Slope.

“If you’ve got equipment that’s one-quarter the size of conventional technol-ogy, not only is your equipment cheaper,but the modules are now much smaller,”Fortune said. “You can see how theeffect of making everything smaller cancompound and produce quite a signifi-cant savings for a project on the NorthSlope.”

Recycling water, hydrogen forimproved efficiencies

During the second stage of the gas-to-liquids conversion process, water is pro-duced as a by-product. BP’s plant inNikiski will recycle 97 percent of thatwater, Fortune said, a great operationalbenefit if such an operation were locatedon the arid North Slope.

“That helps reduce the actual amountof freshwater needed,” Fortune said.“That helps for somewhere like theslope, which is an Arctic desert, wherewater is not in abundance. That’s anotherunique characteristic to our reformer.”

During the initial stage, where naturalgas is liquefied, hydrogen is also pro-duced in the chemical process. Unique tothe BP Exploration plant in Nikiski is amethod of separating that hydrogen andrecycling it as a fuel source for the com-pact reformer.

“The hydrogen separated out provides80 percent of the energy input needed forthat syngas reaction,” Fortune said. “Indoing that, we’re actually minimizingour carbon losses. Now we’re not justburning natural gas to provide that heat.”

In addition, by burning the hydrogeninstead of more fossil fuels, CO2 emis-sions from the conversion plant are great-ly reduced, he added. “That’s quite aunique feature in the flow sheet of theplant down in Nikiski.”

Plan of operations for GTL plant

Construction of the GTL plant inNikiski started in February 2001. Duringhis presentation in early April, Fortunesaid the plant was 96 percent complete. Heanticipated startup sometime in May.

Currently, BP Exploration plans tooperate the $86 million GTL plant inNikiski for about five years, although itshould take up to 18 months to test out thedesign and technology, Fortune said.

“We say five years because we alreadyhave things coming along in the laboratorythat will help reduce the cost even furtherfor GTL,” he said.

Owning and operating a plant in Nikiskican “accelerate bringing the technologyfrom lab to commercial use,” he added.

Installing the “latest, greatest” technol-ogy for control, transmitter and communi-cation devices will aid in that effort. Datafrom the plant will be sent immediately viaInternet to team members of the BP-ledGTL research effort all over the world.

“We’ll be able to communicate infor-mation in real time — not waiting for datato get to London and back,” Fortune said.“That will be really beneficial to provingthe technology.”

Why is BP interested in GTL?

Besides the obvious — a huge resourceof natural gas on the North Slope deemeduneconomic to develop using convention-al, pipeline transportation systems, BPExploration sees a future demand for GTLproducts.

“The transportation fuels produced byGTL are very environmentally friendly,”Fortune said. “They’re very clean fuels,with no sulfur, very low nitrogen com-pounds and no aromatics. From an envi-ronmental aspect, the (GTL) fuels are verysuperior, high quality fuels produced.”

In addition, development of the cleanfuel source could open the door to otheremerging technologies, he said. “Not justtransportation fuels, but other chemicalfeedstocks and power fuels in the GTLprocess.”

For example, the hydrogen produced in

the chemical process could be used forother fuel sources. Right now, costs areprohibitive to produce hydrogen as astandalone product, but the GTL process“could be a bridge to the hydrogen econo-my.”

As part of operations at the Nikiskiplant, a separate research project will beconducted. Under a U.S. Department ofEnergy grant, a natural gas fuel cell will beinstalled to produce 250 kilowatts of elec-

tric power. Some of the electricity will beused at the GTL plant, both for its admin-istration building and for plant lighting,and the remaining amount, about 100 kilo-watts, will be sent out on the existingpower grid.

Fortune said the natural gas fuel cell isa $6.5 million demonstration project, withpartial funding from DOE. BPExploration is partnering with Siemens inthe project. ◆

COOK INLETPetroleum News • Alaska 11Week of May 12, 2002

■ F A I R B A N K S

Nikiski GTL plant tests new, economical designBP Exploration to start $86 million GTL plant, testing smaller design and implementing water, hydrogen recycle systems

“Using our compact reformer technology, it’s one quarter of the size ofconventional technology. That’s the real breakthrough. It’s not really the

chemistry or the reactions.” —Steve Fortune, BP Exploration (Alaska) Inc.

Steve Fortune

Forr

est

Cra

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By Curtis J. Freeman, CPG #6901PNA Contributing Columnist

Is it my rose colored glasses or has themining industry brightened considerablyin the past month? The bump in the goldprices along with the slow but steady

increase in the abysmal prices for othermetals seems to have infused the miningindustry with, dare I say it, optimism!

Quite frankly I’m not sure how to reactsince we have not seen an industry-wide“smile” since the heady days at the end ofthe last millennium before the Busangscam devastated the industry and helpedhasten the plunge of the already declininggold price.

As a result of all this, Alaska’s explo-ration season is shaping up to be one com-posed of several large projects, like DonlinCreek and Pebble, and lots of smaller onesspread from the west coast to far southeast.

The commodities of interest range frombase metals and gold to platinum group andrare metals.

Oddly enough, with a few exceptions,most of Alaska’s exploration efforts arebeing funded and directed by junior explo-ration companies. While money is stilltight, the increased optimism has translatedinto increased venture capital that is avail-able to the starved junior and intermediatemarkets.

In a perfect world, the ultimate benefi-

ciaries of both the optimism and the capitalwill be the state of Alaska and the majorcompanies that bring the new discoveriesto production.

And the band played on…

Western Alaska

Teck-Cominco’s Red Dog mine sawincreased production in the first quarter of2002 but low zinc prices contributed to a$3 million loss during the quarter. For thequarter, the mine generated 141,700 tonnesof zinc in concentrate, a 12 percent increaseover the first quarter of 2001. The minealso produced 25,400 tonnes of lead in con-

centrate during the first quarter of 2002 andsold 128,800 tonnes of zinc and 9,400tonnes of lead during the first quarter. Zincprices average $0.36 per pound during thefirst quarter, a drop of 22 percent fromprices in the first quarter of 2001.

NovaGold Resourceshas begun its2002 drilling program at its 23 millionounce Donlin Creek deposit in southwest-ern Alaska. The program is part of an $8million pre-feasibility study budgeted for2002. In addition to drilling, the programwill include additionalengineering, environmen-tal and economic analyses.The focus of the core andreverse circulation drillingprograms will be furtherdefinition of areas contain-ing plus-five gram pertonne gold values. By mid-April the company hadcompleted 1,076 meters ofdrilling in 11 holes andreported intersectingquartz-arsenopyrite miner-alization in all holes. Results are pending.NovaGold also reported completion of an$18.5 million equity financing andannounced that 2001 operating revenue of$2,824,024 was nearly identical to 2000revenue while first quarter 2002 revenue of$494,426 from its Nome holdings wasnearly double that generated in the firstquarter of 2001.

Northern Dynasty Minerals said itwill start working its newly acquiredPebble copper-gold project near Iliamnathis month (May). Initial drilling willinclude 22,000 feet of drilling in approxi-mately 40 holes designed to test a series ofpreviously defined geochemical and geo-physical targets within a 34 square mile IPchargeability anomaly. Most holes will bedrilled on at least one-half mile centers. Aprimary focus of this year’s work is delin-eation of additional higher-grade copper-gold resources similar to one previouslyoutlined within the property which containsestimated resources of 54 million tonnesgrading 0.54 percent copper and 0.46grams of gold per tonne.

Alaska newcomer Rio FortunaExploration Corp. acquired the Divideproject north of Nome from well-knowngeologist Dave Lajack and partners.Limited trenching and drilling at Divide

was conducted on the property within acoincident gold-arsenic anomaly measur-ing 8,000 feet by 4,500 feet. Coarse visiblegold was discovered in trenches thatreturned values up to 55 feet grading 0.473ounces of gold per ton. Subsequent drillingreturned intercepts up to 18.9 feet grading0.236 ounces of gold per ton. Rio Fortunacan earn a 100 percent interest in theDivide prospect by making cash paymentsof $1 million over five years and issuingone million shares of its stock. The compa-

ny is planning to conductmapping, geochemicalsampling, trenching andgrid drilling on the projectin 2002. Welcome toAlaska Rio Fortuna!

Rio Fortuna alsoannounced acquisition ofthe Full Auto prospectwest of Nome from RoyalPretoria Gold. The prop-erty has been mined inseveral areas for placergold but has received vir-

tually no lode gold exploration. The prop-erty is situated along the Penny River faultwhich is known to be associated with goldat the Mt. Distin and Divide prospects tothe northeast. Placer gold operations on theproject returned gold with associated nativebismuth, scheelite and gold-bearing nativebismuth. Anomalous gold (to 2,900 partsper billion) with elevated arsenic and anti-mony was detected in rock samples collect-ed by the state Division of Geological andGeophysical Surveys in 1994. Terms of theacquisition and exploration plans for 2002were not released.

Eastern Interior

Kinross Gold reported first quarterresults from its Fort Knox operations. Themine produced 93,160 ounces of gold at atotal cash cost of $256 compared to103,347 ounces of gold at a total cash costof $186 per ounce during the first quarter of2001. Total production costs increased to$377 per ounce versus $270 per ounce forthe first quarter of 2001. Productiondeclines were due primarily to plannedmaintenance expenditures and to lowerthan reserve grade production from the FortKnox pit. Mining of this lower grade por-tion of the pit is expected to be completed

MINING12 Petroleum News • Alaska Week of May 12, 2002

TheauthorCurt Freeman,

CPG #6901, is awell known geolo-gist who lives inFairbanks. He pre-pared this columnfor PetroleumNews • Alaska onApril 30. Curt Freeman

Freeman can be reached by U.S. Mailat P.O. Box 80268, Fairbanks, AK99708. His work phone number at AvalonDevelopment is (907) 457-5159 and hisfax is (907) 455-8069. His email is [email protected] and his Web site iswww.avalonalaska.com

■ S T A T E W I D E

Alaska mining news summary: Several exploration projects in the works for the season; most funded by junior companiesGeologist Curt Freeman says optimism, caused by bump in gold prices, is creeping back into Alaska’s mining industry;Alaska newcomer Rio Fortuna Exploration acquired the Nome region’s Divide project and Full Auto prospect

see MINING page 13

Project operator GolcondaResources and partnerShear Minerals have

announced completion of asix-hole, 3,600 foot coredrilling program at their

Shulin Lake diamond projectnear Talkeetna. … Analysisof the core is under way for

diamond and diamondindicator minerals.

MINING/GOVERNMENTPetroleum News • Alaska 13Week of May 12, 2002

during the second quarter of 2002.Production grades exceeded reserve gradesat the True North satellite pit. During thefirst quarter the mill processed 3.5 milliontonnes of ore grading 0.98 grams of goldper tonne compared to 3.3 million tonnes

of ore grading 1.09 grams of gold per tonneduring the first quarter of 2001. Goldrecovery was 83 percent down from 87percent in the year previous period.

Teck-Cominco said feasibility work iscontinuing at its Pogo gold project in theGoodpaster District. The company indicat-ed that a revised mine plan and water man-agement plan have been submitted to stateand federal permitting agencies. Theseplans include a revised mine-mill site loca-tion plan that is expected to improve capi-tal and operating cost parameters at the pro-ject.

Alaska Range

Project operator Golconda Resourcesand partner Shear Minerals said they havecompleted a six-hole, 3,600 foot coredrilling program at their Shulin Lake dia-mond project near Talkeetna. The drillingwas designed to follow-up four reversecirculation drill holes completed earlier inthe year. The core holes were placed overan area measuring 300 meters by 600

meters and intersected clay-altered tuffand pyroclastics that are thought to be thecrater facies of a volcanic pipe. Analysisof the core is under way for diamond anddiamond indicator minerals.

Southeast Alaska

Kennecott (70.3 percent) and Hecla(29.7 percent) announced first quarter2002 production from the Greens Creekmine on Admiralty Island. The total cashcost per ounce of silver at Greens Creekfor the quarter was $1.91, a slightincrease compared to the first quarter of2001. The average grade of ore during thequarter was 21.07 ounces of silver perton. During the first quarter the mine pro-duced 2,789,095 ounces of silver, 23,800ounces of gold, 6,545 tons of lead and19,434 tons of zinc. Total productioncosts for the quarter were $4.45 per ounceof silver produced.

Other news

The shape of things to come: BritishColumbia is instituting map-staking tosupplant previous ground staking regula-tions for mining claims. The move isdesigned to increase mineral explorationand development activities by reducingnon-productive activities and costs andopening the mining arena to a wider usergroup.

Alaska took a tentative first-step inthis direction a few years ago with imple-mentation of grid-based MTRSC staking.

When British Columbia’s new regula-tions come into effect in 2004, an inter-ested party can acquire mining rights bydesignating an area on a map which willbecome immediately available in digitalform. No more back-dating, no moreboundary disputes, no more humpingclaim posts back into the woods fromwhence they were harvested by the timbercompanies!

The shape of things to come: BritishColumbia is instituting map-stakingto supplant previous ground stakingregulations for mining claims. The

move is designed to increasemineral exploration and developmentactivities by reducing non-productiveactivities and costs and opening themining arena to a wider user group.


MINING ANCHORAGEState looks to federal grant toimprove oil and gas permitting

When the state asks industry what it can do it improve its leasing program toaccelerate exploration and development, it is often told to improve its permitting pro-gram and provide access to data, Alaska Division of Oil and Gas Director MarkMyers said May 1.

“The state has been looking at ways tomake our processes more efficient,” he said,and has identified “a potential Department ofEnergy grant that will help us in multiple areashere and that we believe we can qualify for.”

Pat Galvin, director of the state’s Divisionof Governmental Coordination, said the U.S.Department of Energy “has made some moneyavailable to government agencies, state andlocal level, to use GIS technology to improveand speed up the permitting process and to use that technology in ways that make oiland gas development occur quicker.”

Galvin said that if the state got the DOE grant, it would implement a standardizedonline application system for the Alaska Coastal Management Program consistencyreview process. The state would also provide information online, including well data,geophysical data, cultural data and current lease land status, providing “a one-stop loca-tion for companies who are looking to acquire this information, particularly those whomay not have developed their own database of this kind of information.”

Galvin said the state would submit is application by May 14.

AOGCC well data online

Myers said one of the goals of the grant would be to get all of the released well dataon file at the Alaska Oil and Gas Conservation Commission on a server from whichcompanies could download to their own systems.

Well logs, which now have to be viewed at the commission, would be availableonline and on demand, Myers said, along with publicly available gravity and magneticdata.

“So the view is that explorers that aren’t Alaska based or explorers that haven’t main-tained their data bases to the current level will have access to the critical well test data,”he said.

Permitting could also be standardized, he said, by providing better interagency coor-dination between the Division of Governmental Coordination, the AOGCC and DNR.

—Kristen Nelson, PNA editor-in-chief

Myers said one of the goals of thegrant would be to get all of thereleased well data on file at theAlaska Oil and Gas Conservation

Commission on a server fromwhich companies could download

to their own systems.

ADVERTISER INDEX14 Petroleum News • Alaska Week of May 12, 2002

AAdvancial Federal Credit UnionAir Logistics of Alaska . . . . . . . . . . . . . . . . . . . .3Alaska Airlines CargoAlaska Anvil . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Alaska Diesel ElectricAlaska Industrial HardwareAlaska Interstate ConstructionAlaska Marine LinesAlaska Railroad Corp.Alaska Rubber & SupplyAlaska SteelAlaska TelecomAlaska Tent & TarpAlaska TextilesAlaska WalkFit Orthotics . . . . . . . . . . . . . . . . . .15Alaska West ExpressAlliance, TheAmerican MarineArctic ControlsArctic Industrial & Automotive SupplyArctic Slope Telephone Assoc. . . . . . . . . . . . . . . .3Arctic Wire Rope & SupplyArmy/Navy Store . . . . . . . . . . . . . . . . . . . . . . . .3Arrow HealthASCG Inspection, Inc. (AII)Avalon Development

B-FBadger Productions . . . . . . . . . . . . . . . . . . . . . . .8Baker Hughes InteqBaroid Drilling Fluids . . . . . . . . . . . . . . . . . . . . .8Brooks Range SupplyCafe AmsterdamCal Worthington FordCameronCarlile Transportation ServicesCCICentral Trading SystemsChiulista Camp ServicesChugach North Technical ServicesClarion SuitesCleanaire Alaska . . . . . . . . . . . . . . . . . . . . . . . . .6CN AquatrainColvilleConam ConstructionContinental Auto GroupCook Inlet Tug & BargeCrowley AlaskaCruz ConstructionDowland - Bach Corp.Doyon DrillingDura-Wrap ContainmentsDynamic Capital ManagementEagle EnterprisesEngineered Fire SystemsENSR AlaskaEpoch Well ServicesEra Aviation . . . . . . . . . . . . . . . . . . . . . . . . . . .12Eurest Support ServicesExecutive Suite HotelF.A.T.S.FMC Energy SystemsFlight Alaska dba Yute AirFlowline AlaskaForest Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Frontier Flying ServiceFundamental Publishing

G-MGBR EquipmentGolden North Van LinesGolder AssociatesGreat NorthwestHawthorne Suites . . . . . . . . . . . . . . . . . . . . . . . .7H.C. PriceHilton Anchorage HotelInspirationsIRF GroupJackovich Industrial & Construction Supply Judy Patrick PhotographyKenai AviationKenworth AlaskaKuukpik Arctic Catering Kuukpik - Fairweather - Veritas

Kuukpik - LCMFLounsbury & AssociatesLynden Air CargoLynden Air FreightLynden Inc.Lynden InternationalLynden LogisticsLynden TransportLynx EnterprisesMachinery Technical SupportManaged Integrity Services (MIS)Mapmakers of AlaskaMarathon Oil Co.Mattracks . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4McLane Consulting GroupMI SwacoMIAC Materials . . . . . . . . . . . . . . . . . . . . . . . . .11Michael Baker Jr.Midtown Auto Parts & MachineMillennium HotelMontgomery Watson HarzaMT Housing

N-PNabors Alaska DrillingNANA/Colt EngineeringNatco CanadaN.C. MachineryNeeser ConstructionNEI Fluid TechnologyNordic Calista ServicesNorth Coast Electric Co.North Star Terminal & StevedoreNorthern Air CargoNorthern Lights/LuggerNorthern Testing LaboratoriesNorthern Transportation Co.Offshore Divers . . . . . . . . . . . . . . . . . . . . . . . . .4Oil and Gas Supply Co.PDC/Harris GroupPacific Rim Leadership DevelopmentPeak Oilfield Service Co.PencoPetroleum Equipment & ServicesPetrotechnical Resources of AlaskaPGS Onshore . . . . . . . . . . . . . . . . . . . . . . . . . . .10Phillips AlaskaPinkerton SecurityPSI Environmental & Instrumentation . . . . . . . . . .2

Q-ZQUADCORolls Royce Energy Systems . . . . . . . . . . . . . . . .16R & R Scaffold ErectorsSchlumberger Oilfield ServicesSECORP IndustriesSecurity Aviation . . . . . . . . . . . . . . . . . . . . . . . .4Seekins FordSimplexGrinnellSnap-on IndustrialSOLOCO (DURA-BASE)Sourdough Express . . . . . . . . . . . . . . . . . . . . . .15Span-Alaska ConsolidatorsSpenard Builders SupplySTEELFAB . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Taiga AdventuresTec LabsTesting Institute of AlaskaThrifty Car RentalTOTETotem Equipment & SupplyUdelhoven Oilfield Systems ServicesUmiat CommercialUnitech of Alaska . . . . . . . . . . . . . . . . . . . . . . . .5United Rentals . . . . . . . . . . . . . . . . . . . . . . . . .13United Van LinesURS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Vopak USAWelding ServicesWesternGecoWood Group (Alaska)XTO EnergyZY-TECH Global Industries . . . . . . . . . . . . . . . . . .6

Companies involved in Alaska’soil and gas industry

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS

All of the companies listed above advertise on a regular basis with Petroleum News • Alaska.

MIAC Materials, Inc.MIAC Materials, Inc. was

founded in 1998 by MartyAnderson in Sterling, Alaska, andmoved to Kenai in June 2001.The divisions of the companyinclude materials, inspection andconsulting. MIAC sells corrosionproducts to oil, municipalities,marine and transportation indus-tries. It inspects welding andcoating, performs non destructiveexaminations, and writes specifi-cations for the application prod-ucts it sells in Alaska and theLower 48.

Marty Anderson came toAlaska from Chicago, graduatedfrom high school in Soldotna andhas worked with BP Exploration(Alaska) Inc., ARCO Alaska Inc.and Udelhoven Oilfield SystemsServices beginning as a welderand moving into QC. He is activein the local chamber, fishes fortrout, and drag races his ownvehicle.

Arctic Controls, Inc.Arctic Controls, Inc., estab-

lished in 1985 by Jerry and ScottStewart, is a manufacturer’s rep-resentative firm that sells processcontrol and instrumentation toengineers and end users in thestate of Alaska. The company spe-cializes in industrial applicationsfor oil and gas, as well as waterand wastewater management.Arctic Controls is an Alaskaowned business, based out ofAnchorage and employs six peo-ple.

Jerry came to Alaska fromWisconsin in 1976. ArcticControls, Inc. was founded whenScott returned from the Universityof Wisconsin-Madison with aneconomics degree. Another son,Basil, who joined the company in1988, and Kelly Snodgrass areoutside sales specialists. All sixenjoy life in Alaska.

BusinessSpotlight

Jerry Stewart, CEO

Marty Anderson, president

Forr

est

Cra

ne

THE REST OF THE STORYPetroleum News • Alaska 15Week of May 12, 2002

G8 session in Detroit said Abraham soughtto ease Canadian fears by stating the Bushadministration is firmly opposed to subsi-dies.

Abraham also told a news conferencethat Washington is unchanged in its “routeneutral” stance on pipeline decisions, favor-ing a market-based decision.

Canadian remains concerned

But the officials say Canada remains con-cerned when so many observers on CapitolHill believe Bush would be reluctant to vetothe long-awaited energy bill because of thepressure on him to develop an energy strate-gy that boosts domestic production.

In a letter to U.S. Senate Majority LeaderTom Daschle, the Texas IndependentProducers and Royalty Owners Associationwarned that Arctic pipeline subsidies wouldundermine gas production in other parts ofthe U.S. and Canada and impose a heavyfinancial burden on consumers because ofthe market distortion.

“Supply and demand are in exceedinglydelicate balance for this most volatile of allcommodities,” the letter said. “Sudden gov-ernment action that skews investment deci-sions among regions could be disastrous.”

Dhaliwal described U.S. Senate moves tooffer loan guarantees and tax credits toAlaska producers as a violation of bilateralCanada-U.S. energy agreements and theNorth American Free Trade Agreement.

Free trade?

“Are they really interested in free trade?”he asked. “They talk about it, but theiractions indicate otherwise. Everybody seesthis for what it is — it’s a subsidy forExxonMobil and some of the other majorplayers in Alaska. That’s all it is.”

“I made it pretty clear to the Americansthat they can pass all the amendments theywant on the energy bill, but two-thirds of the(Alaska Highway) pipeline will go throughCanada,” he said, without going as far asthreatening to withhold right of way permits.

Before the G8 meeting, Dhaliwal said theCanadian government will closely watch theenergy bill as the Senate and House ofRepresentatives attempt to reconcile a num-ber of issues.

Dhaliwal ‘s comments mirrored those ofPetro-Canada chief executive officer RonBrenneman on April 30, who suggested thatsubsidies for the Alaska Highway routewould destroy the free market for NorthAmerican gas which has evolved over 15years.

But Brenneman did not share the viewsof Northwest Territories Premier StephenKakfwi that U.S. subsidies would flood thecontinental market with cheap gas and pum-mel prices.

“I think the viability of the MackenzieValley pipeline stands on its own,” he said.“With or without an Alaska pipeline, we’llsee gas coming out of the Mackenzie Delta

probably in 10 years or so.”

Some believe supplies slipping

Paul Beique, an analyst with DundeeSecurities Corp., also sought to soften therhetoric by suggesting production of gasacross North America is slipping faster thannew reserves are being discovered, increas-ing the urgency of bringing both the NorthSlope and Mackenzie Delta online.

“We can’t bring in gas from theMackenzie Delta fast enough. We can’tbring in (other supplies) fast enough. NorthAmerica is going to need it all,” Beique said.

The Canadian Association of PetroleumProducers has registered its unease over thedirection of U.S. legislation, but VicePresident Greg Stringham cautioned that theSenate bill is “still very preliminary. ButCanada has to watch this very closely.”

He said the Canadian government stillhas ample time and is well-placed to makethe case to Washington “that the govern-ment’s role isn’t to pick winners and losers.”

Others argue need uncertain

Other analysts are not so certain about theneed for gas in North America, or the marketrisks of a floor price for Alaska gas.

Roland George, a principal with consul-tants Purvin & Gertz Inc., who has beenretained by the Northwest Territories gov-ernment to assess the impact of Alaska taxcredits, said there would be little reason forAlaska producers to limit output if they didnot have to face the usual market risks.

George’s own firm is forecasting a gasprice at the AECO-C hub in Alberta of

almost US$1 per million British thermalunits below the US$3.25 level where taxcredits would kick in under the Senate pro-posal.

He also said that if annual volumes of 2trillion cubic feet are shipped from Alaska,the subsidies could cost U.S. taxpayers aboutUS$30 billion over 30 years, although thatlevel would fall if gas prices remainedstrong.

George said the impact of tax creditscould spread across North America and ifgas prices faltered non-Alaska producers,including those in Texas and Louisiana,would be punished as investment declined.

Later, as the supply-demand equationcame back into balance, consumers wouldface tighter supplies and substantially higherprices.

Anger at U.S. trade policies

Swirling around the pipeline debate,anger is building in Canada against otherU.S. trade polices.

The U.S. International TradeCommission on May 2 upheld 27.2 percentduties on C$10 billion a year of Canadiansoftwood lumber, despite opposition fromU.S.-based lumber producers in Canada andU.S. homebuilders.

Trade Minister Pierre Pettigrew saidCanada will still rely on its challenges to theU.S. decision at the World TradeOrganization and a North American FreeTrade Agreement panel.

On top of that the U.S. Senate passed afarm bill to boost existing subsidies byUS$50 billion provoking anger fromCanada’s Agriculture Minister LyleVanclief, who said U.S. agriculture is notmarket-driven “it’s mailbox driven,” allow-ing U.S. farmers to decide what to producebased on subsidy checks from Washington.

With his government prepared to wagetrade war on three fronts — energy, lumberand agriculture — Prime Minister JeanChretien for the third time in nine monthssaid Canada is being forced to use its energyexports as leverage to resolve the disputes. ◆


CANADA

Informetrica Ltd. at a cost ofC$126,000, said the major splashfrom a highway pipeline would befelt in the territory, but the rippleeffect would spread across Canada.

It said the Yukon’s GDP wouldbe lifted by an average 30 percent asthe pipeline, which Informetrica pre-dicted would cost C$13.6 billion(US$8.7 billion) within Canada, wasinstalled and operated.

Potential person-years of employ-ment in the Yukon would rangefrom 32,000 to 50,000, with con-struction jobs peaking at up to 8,000a year and dropping to 2,000 overthe long term.

Elsewhere, Ontario and Quebec,which dominate Canada’s steel andequipment manufacturing sector,could expect 165,000 person-yearsof employment; British Columbiawould gain 68,000; and up to 45,000could accrue to Alberta.

The Mackenzie Valley pipelinewould create about 157,000 person-years of employment, said a studyreleased in February by Calgary-based Wright Mansell Research Ltd.

Two pipelines better than one

Yukon Energy, Mines andResources Minister Scott Kent saidthe Informetrica findings establishedthe strength of a highway pipelinefor all of Canada, not just Alaskaand the Yukon.

He again made the Yukon’s casefor two pipelines being better thanone.

“These two routes are very


DUEL… Washington is unchanged in its“route neutral” stance on pipelinedecisions, favoring a market-based

decision. But the officials say Canadaremains concerned when so many

observers on Capitol Hill believe Bushwould be reluctant to veto the long-

awaited energy bill.

see DUEL page 16

THE REST OF THE STORY16 Petroleum News • Alaska Week of May 12, 2002

important,” Kent said. “I don’t see themas competing with one another.”

Michael McCracken, chairman andchief executive officer of Informetrica,agreed that building the highway systemfirst lays the groundwork for theMackenzie project.

He noted that much of the regulatorywork for a highway pipeline is alreadycompleted and Alaska’s North Slopefields are already producing gas, whichis reinjected to maintain oil reservoirpressures and because there is no meansto sell the gas.

McCracken said construction of bothpipelines could be timed so that con-struction crews could move from thehighway project to the Mackenzie.

But that does not sit well with theNorthwest Territories government,whose director of minerals, oil and gasDoug Matthews said the economic ben-efits of an Alaska Highway pipeline are“substantial, but they are short andsharp. The benefits from a MackenzieDelta project would be long term.”

He also said U.S. Senate moves tooffer loan guarantees and tax credits toensure development of North Slope gas

could have a severe impact on gas pro-ducers in Canada.

“The economic benefits of theAlaska Highway might be high, but atwhat price?” he told the Canadian Pressnews service. “The existence of a floorprice guarantee means that all otherbasins in Canada will be at a competi-tive disadvantage.”

—Gary Park, PNA Canadian correspondent


DUEL

arctic gas gaining access - petroleum newsfeb. 3anadarko, phillips hope to declare npr-a prospect...

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