barrow welcomes coast guard better ... · mackenzie delta wells will be determined in the cur-rent...

Fairbanks pursues CTL to lowerenergy costs, wants Air Force in

Vol. 13, No. 33 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of August 17, 2008 • $1.50

● F I N A N C E & E C O N O M Y

● N A T U R A L G A S

B R E A K I N G N E W S

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

4 Billions of barrels left behind: Study: A third of Alberta’s

original oil has been recovered; balance can be lifted economically

10 Bald Eagle flies north: Texas firm picks up six Donkel/Cadeleases south of Prudhoe, all exploration plans tied to financing

18 Points of contention in Arctic claims: Resource poten-tial, history both play parts in offshore jurisdiction around Arctic Ocean

Barrow welcomes Coast Guard

Trial deployment of aircraft and boats to Alaska’s northernmostcommunity enables evaluation of permanent summer presence inthe region. See page 11.

Better days ahead Canada drillers face bleak winter, but some say gas will soar to $15 in 2009

By GARY PARKFor Petroleum News

ith natural gas prices retreating to a six-month low, industry hopes that the upcom-ing winter drilling season in Canada willend a two-year tailspin are in doubt, despite

new reports that gas is undervalued.Steve Laut, president of Canadian Natural

Resources, told a conference call that gas projectswill have a tough time competing with crude oilfor capital spending because of softening pricesand higher royalties that take effect in Alberta nextyear.

He said the “returns for oil are significantly bet-ter than gas, even at the higher gas price,” and now

Canadian Natural is “concerned that we will see afurther softening of gas prices.

“Even if they do rebound they may not reboundto levels that will be required (to compete) on acapital allocation basis with oil,” Laut said.

WSteve Laut, president of Canadian Natural

Resources, said many wells in Albertaneed prices above $12 to be profitableunder the new royalty regime, but noteveryone is taking such a bleak view of

the gas outlook. Some economists say gasshould climb to a record $15 next year.

see BETTER DAYS page 19

MGM rolls out winter plansJunior explorer first to roll out 2008-09 drilling plans for Canadian Arctic


unior explorer MGM Energy is first out of theblocks with drilling plans for the Canadian Arcticthis winter as it pursues a farm-in with ChevronCanada Resources and BP.Final drilling locations and depths for the

Mackenzie Delta wells will be determined in the cur-rent quarter. Depending on those decisions, MGMsaid it is hopeful four wells can be completed withone rig for a cost of about C$70 million.

The program will be funded from proceeds of arecent equity issue of C$80.1 million and workingcapital as of June 30, the company said.

The equity offering consisted of 82 million com-mon shares for 55 cents per share and 52.25 millioncommon shares on a flow-through basis for 67 cents

per share.MGM is required to drill a minimum of three

wells this winter to earn a 50 percent interest in exist-

J

MGM Energy drilling the Langley E-07 well.

CO

URT

ESY

MG

M E

NER

GY

see MGM page 20

Senate decision to postponefunding could delay in-stategas project, ANGDA says

A few days after issuing an exclusivelicense under the Alaska GaslineInducement Act, state lawmakers also setaside money to let the state start imple-menting that license. But lawmakers did-n’t approve the entire slate of appropria-tions requested by Gov. Sarah Palin inearly July, postponing most fundingdecisions until the next regular session.

BERT STEDMANsee ANGDA page 17

Hosie: Cook Inlet producershave market power but can’thold gas ransom over price

What is a fair price to pay for Cook Inlet utility gas? That’sthe question that’s been at the core of the RegulatoryCommission of Alaska’s July 28 to Aug. 13 hearing into EnstarNatural Gas Co.’s new gas supply contracts with Marathon OilCompany and ConocoPhillips Alaska.

Enstar and the producers have negotiated gas prices indexedto baskets of prices at various North American gas trading hubs,with additional price markups to cover different levels of peak

Exxon OK with TC AlaskaSays gas line will require support of ANS producers, state, to move forward

By KRISTEN NELSONPetroleum News

ollowing early August approval of theTransCanada Alaska AGIA license by theAlaska Legislature, ExxonMobil Corp. said ina statement that the company is ready to work

with other parties to move a North-Slope-to-Lower-48 natural gas pipeline project forward.

The Alaska Gasline Inducement Act licenseprovides incentives, including $500 million inreimbursement for authorized work, for moving anAlaska natural gas pipeline project that meets staterequirements forward through a Federal EnergyRegulatory Commission certificate.

“ExxonMobil is committed to the timely devel-

opment of Alaska’s North Slope gas resources andwe want to be part of the solution,” the companysaid.

“We continue to believe a successful gas

F“We continue to believe a successful gas

pipeline project will require the support ofall three major producers and the State of

Alaska. We are ready to work with thestate, TransCanada, ConocoPhillips and

BP to move forward one of the largest andmost complex projects ever undertaken inthe United States.” —ExxonMobil Corp. statement

see EXXON page 19

see CI PRICE page 15

ALA

N B

AIL

EY

http://www.PetroleumNews.com/

contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska

2 PETROLEUM NEWS • WEEK OF AUGUST 17, 2008

18 Points of contention in Arctic claims

Resource potential, past history both play their partsregarding offshore jurisdiction around the Arctic Ocean

10 Bald Eagle flies north for first gig

The small Texas independent picks up six Donkel-Cade leases south of Prudhoe, all exploration plans tied to future financing

OIL PATCH BITS

ALTERNATIVE ENERGY

CHARITY EVENT14 Peak, Nabors host cystic fibrosis run

13 Competition at work in gas stations

17 Colville steps up to plate on ULSD

17 EFS hires Kingston

17 Tikigaq-ESS charity golf tournament raises $23,500

17 NAC has new Bethel manager

GOVERNMENT

INTERNATIONAL

15 Oil company earnings chart

11 Barrow welcomes Coast Guard presence

14 Governor, lawmakers seek gas probe

14 Feds: Stevens’ trial should stay in D.C.

9 Total wraps up Synenco acquisition

9 DOI wants changes to ESA regulations

4 Riverstone makes bid for Gibson

6 Weak demand outweighs Georgia conflict

PIPELINES & DOWNSTREAM9 Agrium delivers last load

4 MMS extends comment deadline for Bristol Bay sale

LAND & LEASING

FINANCE & ECONOMY4 Billions of barrels left behind in Alberta

Study says one-third of Alberta’s original oil in place has been recovered; balance can be lifted for cost of tapping new pools

7 Alaska Legislature sends $ to residents

AGIA reimbursement fund only gets $30M; highwayprojects, workforce development, not funded; DNR gets partial funds

5 Fairbanks looks at CTL to lower energy

Pursuing a project to turn nearby coal into liquid fuel,hoping to get Air Force on board as buyer

Senate decision to postpone funding coulddelay in-state gas project, ANGDA says

Hosie: Cook Inlet producers have marketpower but can’t hold gas ransom over price

ON THE COVERBetter days ahead

Canada drillers face bleak winter, but some say gas will soar to $15 in 2009

Exxon OK with TC Alaska

Says gas line will require support of ANS producers, state, to move forward

MGM rolls out winter plans

Junior explorer first to roll out 2008-09 drilling plans for Canadian Arctic

http://www.colvilleinc.com/

PETROLEUM NEWS • WEEK OF AUGUST 17, 2008 3

Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Prudhoe Bay H-11 BPSky Top Brewster NE-12 15 (SCR/TD) Kuparuk rig maintenance ConocoPhillipsDreco 1000 UE 16 (SCR/TD) Prudhoe Bay DS 13-29 BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD2-467 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk annual maintenance ConocoPhillipsTSM 7000 Arctic Fox #1 Stacked in Yard Pioneer Natural Resources

Arctic Wolf #2 Stacked in yard FEX

Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay AvailableDreco 1000 UE 2-ES Prudhoe Bay DS 02-40 BPMid-Continental U36A 3-S Milne Point MPS-07 BPOilwell 700 E 4-ES (SCR) Prudhoe Bay B-18 BPDreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay D-22C BPDreco 1000 UE 9-ES (SCR/TD) Orion V-207 BPOilwell 2000 Hercules 14-E (SCR) Stacked AvailableOilwell 2000 Hercules 16-E (SCR/TD) Stacked AvailableOilwell 2000 17-E (SCR/TD) Stacked, Point McIntyre AvailableEmsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point AvailableEmsco Electro-hoist 28-E (SCR) Stacked, Deadhorse AvailableOIME 2000 245-E Oliktok Point OPi2 AnadarkoEmsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Stacked Brooks Range PetroleumAcademy AC electric Canrig 105-E (SCR-TD) Stacked on ice pad at Chandler #1 AnadarkoAcademy AC electric Canrig 106-E (SCR/TD) Stacked Chevron

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site PM1-24-L2 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay well V-115 BPIdeco 900 3 (SCR/TD) Kuparuk well 1C-109 ConocoPhillips

North Slope - OffshoreNabors Alaska DrillingOIME 1000 19-E (SCR) Oooguruk ODSN-45i Pioneer Natural ResourcesOilwell 2000 33-E Stacked BP

Cook Inlet Basin – OnshoreAurora Well ServiceFranks 300 Srs. Explorer III AWS 1 Moving to west side of Cook Inlet Aurora Gas

Marathon Oil Co. (Inlet Drilling Alaska labor contractor)Taylor Glacier 1 KDU 9 Marathon

Nabors Alaska DrillingContinental Emsco E3000 273 Stacked, Kenai AvailableFranks 26 Stacked AvailableIDECO 2100 E 429E (SCR) Stacked, removed from Osprey platform AvailableRigmaster 850 129 Beluga River Unit 211-26 ConocoPhillips

Rowan CompaniesAC Electric 68AC (SCR/TD) On site at Cosmopolitan Pioneer Natural Resources

Cook Inlet Basin – Offshore

Chevron (Nabors Alaska Drilling labor contract)428 AN-32 Anna platform Chevron

XTO EnergyNational 1320 A Platform A no drilling or workovers at present XTONational 110 C (TD) Idle XTO

Kuukpik 5 Well A-16 Tyonek platform ConocoPhillips

Mackenzie Rig StatusCanadian Beaufort Sea

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

Mackenzie Delta-Onshore

AKITA EqutakDreco 1250 UE 62 (SCR/TD) Rig Racked in Inuvik, NT AvailableModified National 370 64 (TD) Rig racked in Inuvik, NT Available

Central Mackenzie Valley

Akita/SAHTUOilwell 500 51 Drilling; Bear Island, Norman Wells NT Imperial Oil

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of August 17, 2008.

Active drilling companies only listed.

TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig

This rig report was prepared by Alan Bailey

Baker Hughes North America rotary rig counts*August 8 August 1 Year Ago

US 1,967 1,951 1,798Canada 475 451 377Gulf 66 67 71

Highest/LowestUS/Highest 4530 December 1981US/Lowest 488 April 1999Canada/Highest 558 January 2000Canada/Lowest 29 April 1992

*Issued by Baker Hughes since 1944

The Alaska - Mackenzie Rig Report is sponsored by:

JUD

Y P

ATR

ICK

http://www.xtoenergy.com/


Kay Cashman PUBLISHER & EXECUTIVE EDITOR

Mary Mack CHIEF FINANCIAL OFFICER

Kristen Nelson EDITOR-IN-CHIEF

Susan Crane ADVERTISING DIRECTOR

Amy Spittler ASSOCIATE PUBLISHER

Theresa Collins MARKETING DIRECTOR

Bonnie Yonker ALASKA /NATIONAL REPRESENTATIVE

Heather Yates BOOKKEEPER

Shane Lasley IT CHIEF

Clint Lasley GM & CIRCULATION DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Tim Kikta COPY EDITOR

Alan Bailey SENIOR STAFF WRITER

Eric Lidji STAFF WRITER

Gary Park CONTRIBUTING WRITER (CANADA)

Rose Ragsdale CONTRIBUTING WRITER

Ray Tyson CONTRIBUTING WRITER

John Lasley STAFF WRITER

Allen Baker CONTRIBUTING WRITER

Sarah Hurst CONTRIBUTING WRITER

Paula Easley DIRECTORY PROFILES/SPOTLIGHTS

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Mapmakers Alaska CARTOGRAPHY

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Dee Cashman CIRCULATION REPRESENTATIVE

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

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

tract services to PetroleumNewspapers of Alaska LLC or are

freelance writers.

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

NEWS [email protected] [email protected]

CIRCULATION 907.522.9469 [email protected]

ADVERTISING Susan Crane • [email protected]

Bonnie Yonker • [email protected]

FAX FOR ALL DEPARTMENTS907.522.9583

OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 13, No. 33 • Week of August 17, 2008

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

P.O. Box 231647 Anchorage, AK 99523-1647)Subscription prices in U.S. — $78.00 for 1 year, $144.00 for 2 years, $209.00 for 3 years.

Canada / Mexico — $165.95 for 1 year, $323.95 for 2 years, $465.95 for 3 years.Overseas (sent air mail) — $200.00 for 1 year, $380.00 for 2 years, $545.95 for 3 years.

“Periodicals postage paid at Anchorage, AK 99502-9986.”POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647.

www.PetroleumNews.com

● F I N A C E & E C O N O M Y

Billions of barrelsleft behind in AlbertaStudy says one-third of Alberta’s original oil in place has beenrecovered; balance can be lifted for cost of tapping new pools


ith few exceptions, barely one-thirdof the original oil in place has beenrecovered from Alberta oil fields,meaning billions of barrels are

being left behind, a study by the PetroleumTechnology Alliance Canada says.

And the study, entitled Ramping UpRecovery, estimates what is left behindcould be recovered for about the same costas finding new pools.

The study said a combination of properincentives, research funding and pilot pro-grams could boost Alberta’s conventionaloil reserves by 3.6 billion barrels over thenext 10 to 20 years.

The findings are contained in separate200-page reports on Alberta, Saskatchewanand British Columbia. The details weremade public after the expiration of a two-year confidentiality agreement.

The study estimates finding and devel-opment costs of C$1.92 to C$8.49 per bar-rel for enhanced oil recovery projects inAlberta are more than competitive withexploration finding and development(F&D) costs, based on West TexasIntermediate crude prices of $45 per barrel.

The study estimated that waterfloods“typically have two- to five-year payouts”for return on revenue exceeding 30 percent.

It also estimates reserves added byincreased infill drilling would carry an F&D

cost of C$7.54 a barrel and pay out in 1.7years.

Reserves added by carbon dioxide EORwould cost C$8.49 per barrel and pay out in4.2 years, not including the cost of CO2capture and transportation.

Study author Richard Baker, president ofEpic Consulting Services, said it is under-standable that the Alberta governmentwould focus on the oil sands because of theresource’s size.

But it only needs a shift from traditionaltechnology and a business-as-usualapproach to recover billions of barrels ofconventional crude that would otherwise beignored, he said.

The report was completed almost twoyears before the Alberta governmentannounced this year it was earmarking C$2billion to help finance three to five largecarbon capture and storage projects,although it is not yet known how much willgo to EOR projects. ●

WThe study said a combination of

proper incentives, researchfunding and pilot programs couldboost Alberta’s conventional oil

reserves by 3.6 billion barrels overthe next 10 to 20 years. … The

details were made public after theexpiration of a two-year

confidentiality agreement.

FINANCE & ECONOMYRiverstone makes bid for Gibson

Riverstone Holdings, which manages a group of energy-focused private equityfunds, said it is acquiring midstream company Gibson Energy Holdings for C$1.1 bil-lion.

The offer represents a multiple of 13 times Gibson’s profit from operations in 2007.Founded in 1953, Gibson has a wide array of assets in Canada, including 11 oil and

49 propane distribution terminals, a natural gas liquids fractionation plant for inde-pendent producers, 290 miles of pipelines and 3.4 million barrels of tank storage.Italso operates a fleet of 1,180 trailers moving more than 205 million barrels of crudeoil, gas and other energy products through its facilities annually.

The purchase is being made from Hunting, based in London, England, which isseeking shareholder approval on Aug. 26. The deal also needs a tax certificate fromthe Canadian government. Riverstone managing director Andrew Ward said his com-pany was pleased to do a deal with Gibson, which has strategic assets and infrastruc-ture located “in the heart of the Western Canadian oil and gas producing region” andis well positioned to “continue delivering quality service.”

—GARY PARK

LAND & LEASINGMMS extends scoping commentsdeadline for Bristol Bay lease sale

The Minerals Management Service has extended its deadline for accepting com-ments from the public about what the federal agency should consider as it weighs theenvironmental impacts of future oil and gas development in Bristol Bay.

That formal “scoping process” will now run through Oct. 17, 2008, although theMMS will still consider new information as it begins preparing an environmentalimpact statement after that deadline.

This effort to define the scope of that EIS is part of a larger information gatheringeffort. The lease sale for the North Aleutian Basin is still just a proposal, the MMSsaid.

The MMS decided to extend the deadline for comments to accommodate the busysummer fishing season in the Bristol Bay area, where the proposed lease sale wouldtake place in 2011.

Between now and the middle of September, the MMS will host seven meetings incommunities throughout the Bristol Bay region to hear thoughts and concerns frompeople who would be most directly impacted by oil and gas drilling.

“We want to be sure we’re capturing topics that may have changed from the lastEIS we did,” said Robin Cacy, spokeswoman for the MMS in Alaska.

The North Aleutian Basin hasn’t been leased since 1988. The federal governmenteventually bought back those leases following a congressional moratorium on drillingin the area. Congress lifted that moratorium in 2004, and President George W. Bushlifted a similar presidential moratorium in 2007, opening the way for future develop-ment.

— PETROLEUM NEWS

http://www.astac.net/

By ERIC LIDJIPetroleum News

round the turn of the 19th century,cities on the East Coast put awaytheir lanterns and began lightinghomes and factories with “town

gas,” a synthetic fuel made from coal. Today, the city of Fairbanks hopes to

do something similar. For more than a year, a public-private

coalition in Alaska’s second largest cityhas been looking at ways to turn an abun-dant nearby coal source into synthetic gasand diesel to heat and light buildings in aplace with some of the coldest andlongest winters onearth.

The goal is to cutthe historicallyexpensive energycosts in Fairbanksby getting the cityoff heating oil.Currently, a gallonof heating oil inFairbanks costsaround $4.50, whilea kilowatt-hour ofelectricity madefrom diesel costsaround 11 cents.

But just 100miles south ofFairbanks are prolif-ic coalfields in Healy. FairbanksEconomic Development Corp. believes acompany can easily gasify that coal andconvert it into liquids using the Fischer-Tropsch process developed in Germanyin the 1920s.

Because Fairbanks only uses around5,000 barrels of fuel oil per day, anamount considered technically sufficientfor a coal-to-liquids facility, but probablynot economically sufficient, local leaderswant to get a large user like the Air Forceon board to justify a facility capable ofproducing between 20,000 and 40,000barrels per day.

That idea grew from a yearlong seriesof meetings held by a broad spectrum ofbusiness and community leaders inFairbanks. Earlier this year, FEDC hiredHatch Ltd out of Toronto to prepare abusiness plan that could be taken to theprivate sector. Hatch expects to finish theproject by this fall.

Two main steps to productionThe project involves two main steps:

turning raw coal into a gas, and then turn-ing that gas into a liquid that can berefined into various products from jet fuelto diesel.

Combining coal, air and water in achamber, and subjecting the mixture toextremely high temperatures and pres-sure, creates a gas made of carbonmonoxide and hydrogen.

The Fischer-Tropsch process works byfeeding that synthesis gas through a sec-ond chamber, where a catalyst like iron orcobalt speeds up the chemical reactionfrom a gas to a petroleum-like liquidproduct. The process can be used to cre-ate many different products by changingthe catalyst, the gas and the conditions inthe chamber.

The Fairbanks project under consider-ation would primarily produce jet fueland smaller amounts of diesel, naphthaand liquefied petroleum gas. Because thegasification and Fischer-Tropsch process

can be adapted to other feedstock, thecommunity is also looking at ways tomake fuel from biomass.

CTL history based on oilCoal-to-liquid plants make fake petro-

leum products, and therefore technologi-cal advancements have depended largelyon the availability and cost of the compe-tition: oil.

The two biggest moves for coal-to-liq-uids came from unfortunate sources: theNazi regime in Germany and apartheid inSouth Africa.

The Germans and the British both usedFischer-Tropsch to make transportationfuels during World War II, and the UnitedStates began exploring the technologyduring the late 1940s and early 1950s,according to Dan Cicero with theNational Energy Technology Laboratory,a branch of the U.S. Department ofEnergy.

But as the United States began import-ing crude oil from overseas, the federalgovernment discontinued coal-to-liquidresearch, Cicero said.

During the 1960s and 1970s, SouthAfrica picked up on the technology as away to become energy independent in theface of economic sanctions surroundingapartheid. The country now producesmore than 150,000 barrels per day at sev-eral plants, supplying around 30 to 40percent of liquid fuel demand in the coun-try.

Oil prices make CTL look goodThe current coal-to-liquids effort in

Fairbanks is part of a larger nationaltrend.

The dramatic run up in crude oil pricesover the past few years has made coal-to-liquid more economic than it has been fordecades.

A year and a half ago, the NETL esti-mated crude oil prices would need to be$61 a barrel for a coal-to-liquid plant tobreak even. With the increase in com-modities prices since then, Cicero esti-mated the break-even point is now closerto $75 per barrel. Today, crude oil costsaround $115 per barrel, although down

from record highs earlier this summer.“A lot of companies can see a profit

incentive there,” Cicero said.The NETL counts 17 projects in vari-

ous stages of development in coal pro-ducing regions across the country, likeOhio and Mississippi, and new projects

pop up “almost every month or so,”Cicero said. The proposals range from5,000-bpd to 100,000-bpd plants.

Of the projects under development,five have already reached the point of


Transportation on a RollThroughout Alaska and beyond, Carlilehas the expertise and equipment tokeep your shipments rolling alongquickly and efficiently. No matter what

it is or where it’s going, Carlile delivers.

www.carlile.biz l 1.800.478.1853

● A L T E R N A T I V E E N E R G Y

Fairbanks looks at CTL to lower costsAlaska’s second largest city is pursuing a project to turn nearby coal into liquid fuel, hoping to get Air Force on board as buyer

A

“If we can’t reducethe life-cycle carbonfootprint, then theproject doesn’t goforward,” FairbanksNorth Star BoroughMayor Jim Whitakertold the FairbanksDaily News-Miner inJuly. “That’s thedeal.”

JUD

Y P

ATR

ICK

see CTL page 6

http://www.carlile.biz/

http://www.birchwoodhomesak.com/

spending tens of millions of dollars onfront-end design work.

But despite the general lack of concernabout commodities prices, economics havestill challenged recent efforts at introducingpieces of the coal-to-liquids process inAlaska.

After a three-year study, Agriumannounced earlier this year that it wouldn’tpursue a coal gasification facility to supplyfuel for its mothballed fertilizer plant on theKenai Peninsula. The project, called BlueSky, was simply uneconomic, the companysaid.

Still, uneconomic means different thingsto different entities.

The group in Fairbanks hopes to create apublic-private energy corporation capableof delivering fuel as cheaply as possiblewhile still returning a profit for the compa-ny willing to operate the facility, accordingto Jim Dodson, president and CEO ofFEDC.

Looking for cash, commitmentsEven with the relative comfort of com-

modity prices, risks remain.Cicero said entrepreneurs have two other

large concerns: uncertainty about financingand uncertainty about a national carbon pol-icy.

To get around the financing concern,

many companies have begun building plantsincrementally as funding becomes available.Each expansion increases the total price ofthe project, but lowers the cost of producingan individual barrel of synthetic fuel.

Cicero said each barrel of fuel producedat a 10,000 bpd facility could cost 25 percentmore than a barrel from a 50,000 bpd facili-ty.

Using a similar range of cost estimates,Dodson said the Fairbanks plant could runfrom $1.7 billion to $6.4 billion, dependingon the ultimate size of the facility.

Hoping to increase interest in the project,FEDC hosted an energy summit inFairbanks in July where members of theAlaska Congressional delegation, federalenergy secretaries and military officialsheard details about the project.

Dodson said Sen. Ted Stevens (R-Alaska) pledged to seek $10 million in fed-eral funding, and that the project has statesupport from Gov. Sarah Palin and her newenergy coordinator Steve Haagenson,although no state funding has yet been allo-cated.

FEDC and the Fairbanks North StarBorough hope to get the nearby Eielson AirForce base to commit to buy fuel from thefacility. That would provide a much-neededindustrial anchor to improve the economicsof the project.

The Air Force is the largest user of ener-gy in the U.S. Department of Defense,spending almost $6 billion on jet fuel alonelast year, and over the past year, fuel costs atEielson have nearly doubled, according toU.S. Air Force Gen. Carroll Chandler,Commander of the Pacific Air Forces.

“We’re very, very interested in newideas,” Chandler said at the energy summit.

Carbon still a talking pointAlthough coal-to-liquids technology is

cleaner than traditional coal fired powerplants, many still worry about initiating anynew coal-based facility. The project advo-cates have said the worries are unfounded.

“If we can’t reduce the life-cycle carbonfootprint, then the project doesn’t go for-ward,” Fairbanks North Star BoroughMayor Jim Whitaker told the FairbanksDaily News-Miner in July. “That’s the deal.”

The project will likely come of age in anew carbon era: both Sens. John McCainand Barack Obama, the presumptiveRepublican and Democratic presidentialnominees, have proposed new national car-bon policies. ●

Editor's note: Before the start of histenure at FEDC, Jim Dodson served asan executive vice president with AndexResources, the company once involved ingas exploration in the Nenana basin, andClearflame Resources, a Denver-basedindependent looking at Alaska prospects.


continued from page 5

CTL

Contact Eric Lidji at 907-770-3505or [email protected]


Weak demand outweighs Georgia conflictBy STEVENSON JACOBS

The Associated Press

il prices pulled back slightly on Aug. 14, a dayafter surging almost $3 a barrel, as waning U.S.demand for energy outweighed supply threatsfrom the conflict in Georgia.

At the pump, retail gas prices slid further. A gallon ofregular fell about a penny overnight to a new nationalaverage of $3.778, according to auto club AAA, the OilPrice Information Service and Wright Express. Gasprices in Alaska remained above $4 a gallon, the highestin the nation.

Crude dipped below $115 a barrel as traders contin-ued to ponder the U.S. Energy Department report onweekly fuel inventories released Aug. 13. The depart-ment’s Energy Information Administration reported abigger-than-expected drop in gasoline supplies but alsosaid U.S. demand for refined fuel products continues tofall as Americans grapple with almost $4-a-gallon gaso-line. The data seemed to confirm oil market analysts’beliefs that Americans are still cutting back on their driv-ing despite slightly lower pump prices.

Light, sweet crude for September delivery fell $1.25to $114.75 on the New York Mercantile Exchange afteralternating between positive and negative territory formost of the morning. Some pullback was expected astraders sought to cash in on the rally on Aug. 13, whichtemporarily halted a month long slide that took crude$35 below its July 11 high of $147.27.

“It’s just a market that has all the feeling of continu-

ing to work lower until we get some definitive evidencethat demand is going to improve because of lower pumpprices, and that seems a long ways off,” said JimRitterbusch, president of energy consultancy Ritterbuschand Associates in Galena, Ill.

Concerns from central AsiaThe moderate sell-off on Aug. 14 was tempered by

ongoing tensions in the near weeklong conflict betweenRussia and Georgia over two breakaway provinces.Secretary of State Condoleezza Rice on Aug. 14 urgedRussia to honor a cease-fire with Georgia, a day afterMoscow refused to leave the country despite havingsigned the EU-sponsored peace accord.

British oil company BP PLC said on Aug. 14 it hasresumed pumping gas into the Baku-Tbilisi-Erzurumpipeline that runs through Georgia, but two oil pipelinesremained closed. BP’s Baku-Supsa oil pipeline was shutas a precaution, and the larger Baku-Tbilisi-Ceyhan lineremains out of action after a fire earlier this month on the

Turkish section of the line.“I think buyers are a bit edgy about the Russia-

Georgia situation, knowing that’s not completelyresolved. They’re looking for some geopolitical risk pre-mium,” Ritterbusch said.

Dollar also impacting pricesFluctuations in the value of the U.S. dollar have also

played a role in setting oil prices, with the currency mak-ing a recent comeback on evidence that Europeaneconomies are flagging. The 15-nation euro bought$1.4872 in morning trading, down from its level of$1.4934 in late trading on Aug. 13.

“According to our calculations, the exchange ratedevelopment has contributed $12.30 per barrel to thedecline in oil prices since mid-July, when the US dollarhit a low of 1.6 against the euro,” said Vienna’s JBCEnergy in a research note. “Since then the greenback hasimproved by 6.9 percent.”

Oil normally rises when the dollar is weak asinvestors move out of the currency and look to crude asa safe haven.

In other Nymex trading, heating oil futures slipped2.66 cents to $3.105 a gallon while gasoline fell 3.79cents to trade at 2.8944 gallon. Natural gas futures fell30.8 cents at $8.148 per 1,000 cubic feet.

In London, Brent crude for September delivery fell 40cents to $113.07 a barrel.●

—Associated Press writers George Jahn in Vienna,Austria and Alex Kennedy in Singapore contributed tothis report.

Crude dipped below $115 a barrel as traderscontinued to ponder the U.S. Energy

Department report on weekly fuel inventoriesreleased Aug. 13, (which) … reported a bigger-

than-expected drop in gasoline supplies butalso said U.S. demand for refined fuel products

continues to fall as Americans grapple withalmost $4-a-gallon gasoline

O

Because Fairbanks only usesaround 5,000 barrels of fuel oilper day, an amount considered

technically sufficient for a coal-to-liquids facility, but probably not

economically sufficient, localleaders want to get a large userlike the Air Force on board to

justify a facility capable ofproducing between 20,000 and

40,000 barrels per day.

http://www.friendsofpets.org/

http://www.northlandwood.com/



Alaska Legislaturesends $ to residentsAGIA reimbursement fund only gets $30M; highway projects,workforce development, not funded; DNR gets partial funds

By KRISTEN NELSONPetroleum News

he Alaska Legislature gaveled outAug. 7 after this summer’s secondspecial session, signing off on someof Gov. Sarah Palin’s appropriation

requests, refusing others and adding somethings the administration hadn’t request-ed.

The administration’s request was for$1.53 billion in energy rebates and AlaskaGasline Inducement Act-related funding;legislators approved $945.9 million.

The largest item approved was $744.6million for a one-time resource rebate.The governor requested $800 million andthe Senate cut that to$310.1 million, butthe House’s $744.6million was approvedby both bodies, with$1,200 to be added toeach 2008 permanentfund dividend check.The governor hadwanted to send theenergy rebate checkin August to thosequalified for this year’s PFD and add tothe list those who had been in the state forsix months — and aren’t yet qualified toreceive a PFD check — and others whodon’t apply for the PFD. Legislatorsobjected to costs of administering thegovernor’s program, $10.7 million, com-pared to $1.9 million for the House ver-sion, and went with tacking $1,200 on tothe PFD check, extracting a promise fromthe Department of Revenue that it wouldtry to get the PFD distribution done earlythis year so that rural residents wouldhave money for winter fuel needs.

The goal of the governor and legisla-tors was to find a way to provide someshort-term relief to Alaskans for the highcost of energy, which has benefitted thestate treasury but hurt Alaskans, especial-ly those in rural Alaska whose energycosts are already high.

AGIA implementation cutThe largest single reduction in the

governor’s request came when legislatorsdeclined to fund the entire $500 million inreimbursement under the AGIA licenseapproved for TransCanada Alaska, butinstead appropriated $30 million, tellingthe administration they wanted to look atcosts a year at a time. The Houseapproved $50 million, but the Senate’s$30 million number was in the final bill.

The Legislature approved the AGIAlicense, but not the immediate effectivedate, so the license becomes effectiveonly 90 days after the bill is signed by thegovernor. Any work TransCanada doesprior to the effective date of the license isnot reimbursable.

The governor also requested $15 mil-lion for AGIA implementation by theDepartment of Natural Resources; theHouse reduced that to $5.5 million. TheSenate zeroed out this amount, but the$5.5 million in the House bill wasapproved.

The governor requested $25 millionfor work on an in-state pipeline segmentby the Alaska Natural Gas Development

Authority. The House approved thatappropriation, but the Senate dropped itand it was not in the final bill.

Some $130 million was dropped fromthe administration request for infrastruc-ture work to facilitate gas pipeline con-struction: $75.4 million in DaltonHighway work; $31 million in site devel-opment and corridor surveys; and $23.5million for the Haines Highway. TheHouse kept the first two items, reducingthe amounts; the Senate zeroed out theappropriation to the Department ofTransportation and Public Facilities.

Both bodies zeroed out a $42.7 millionrequest for workforce development forthe gas pipeline.

What was added?The administration requested $9 mil-

lion for power cost equalization —money provided to rural areas to lowerthe high cost of electricity. The Housekept that amount; the Senate increased itto $107 million; the final bill contained$23 million. PCE currently pays powergeneration costs up to 57 cents per kilo-watt hour; that limit was raised to $1 perkilowatt hour.

The Alaska Housing Finance Corp.received an additional $60 million to fundhome weatherization programs. This wasnot requested by the administration, butwas added by both bodies: $50 million inthe Senate and $60 million in the House;the House amount was in the final bill.

Legislators also added some $31 mil-lion to bulk loan programs and $50 mil-lion to a renewable energy fund.

Energy plan in worksThe administration is working on an

energy plan for presentation to the nextLegislature; items passed in the special ses-sion are intended to address short-termissues.

“Legislators provided Alaskans with astrong and diverse package of short-termenergy assistance,” Palin said in an Aug. 7statement. “We can build on this good workas we bring forward a much more compre-hensive energy package for consideration inthe next regular session.”

Senate Finance Co-Chair Bert Stedman,R-Sitka, called what legislators accom-plished “some important groundwork forsome long-term fixes” to the state’s energyissues. “Next year we’ll be ready to createan energy plan because of the hard work theLegislature put in this summer,” he said.

House Speaker John Harris, R-Valdez,said the resource rebate, “suspension of themotor fuel tax, additions to power costequalization and the bulk fuel loan pro-grams ... pretty well covered the water-front.” ●

“Legislators provided Alaskanswith a strong and diverse packageof short-term energy assistance.

We can build on this good work aswe bring forward a much more

comprehensive energy package forconsideration in the next regular

session.” —Alaska Gov. Sarah Palin

T

GOV. SARAH PALIN

http://www.umalaska.com/

http://www.univarusa.com/

http://www.flowlinealaska.com/


“ ”– Scott Digert, Prudhoe Bay Waterflood Team, BP

http://alaska.bp.com


CO

URT

ESY

AG

RIU

M

The final 20-ton load of fertilizer leaves the Agrium Kenai Nitrogen Operations on the Kenai Peninsula on Aug. 13, ending a 40-yearoperation. The company chose to close the plant because of declining feedstock. Agrium donated the final load to the Alaska WildlifeConservation Center, which will use it to grow hay to feed its herd of wood bison, a species that has been extinct in Alaska since theearly 1900s.

Agrium delivers last loadFINANCE & ECONOMY

GOVERNMENT

Total wraps upSynencoacquisition

French oil major Total has success-fully wrapped up its acquisition of oilsands startup Synenco Energy forC$530.5 million after hiking its per-share offer.

It said 94 percent of Synencoshares have been tendered to theC$10.25 per share offer, which wasincreased by 14 percent last monthafter a C$9 offer in April failed to winthe support required.

Total said it can now force thehold-out investors to tender to theoffer and delist Synenco shares fromthe Toronto Stock Exchange.

Synenco has a 60 percent stake andis managing partner in the NorthernLights oil sands project. A Canadiansubsidiary of China’s Sinopec holdsthe remaining 40 percent.

—GARY PARK

DOI wantschanges to ESAregulations

On Aug. 11 Secretary of theInterior Dirk Kempthorne announcedproposed changes to the EndangeredSpecies Act regulations that deal withresponsibilities of different federalagencies in administering the act.According to the U.S. Department ofthe Interior, the proposed changesreflect current practices and recentcourt cases.

“The changes will make it easierfor agencies to understand when andhow the regulations apply,” DOI said.“While this rulewill help avoidmisuse of theESA to regulateclimate change,the rule willalso generallyimprove theconsul ta t ionprocess.”

And accord-ing to the pro-posed regula-tion changes“these regulations would reinforce theServices’ current view that there is norequirement to consult on greenhousegas (GHG) emissions’ contribution toglobal warming and its associatedimpacts on listed species (e.g., polarbears).”

The U.S. Fish and Wildlife Serviceand the National Marine FisheriesService (a branch of the NationalOceanic and AtmosphericAdministration) administer theEndangered Species Act — a federalagency must consult with Fish andWildlife or NMFS before undertakingan action that may affect an endan-gered species. The clarification of theregulations will reduce the number ofunnecessary consultations betweenagencies while continuing the require-ment for consultations regardingimpacts on listed species, DOI said.

The proposed changes also include

Secretary of theInterior DirkKempthorne

see ESA REGS page 20

http://www.ch2mhill.com/energy

By ERIC LIDJIPetroleum News

laska’s North Slope is a tough placeto start life as a small oil company,but a newly created independentfrom Texas hopes to make a go of it.

Bald Eagle Energy Inc recentlyacquired a 100 percent working interest insix state leases in the central North Slope,the company announced on Aug. 11.

The leases cover 18,418 acres startingalong the southern border of the BP-oper-ated Prudhoe Bay unit, and previouslybelonged to Daniel K. Donkel and SamuelH. Cade. Bald Eagle bought the leasesfrom Donkel and Cade for $621,608.

The leases are not contiguous, but fiveof the six leases sit along the trans-Alaskaoil pipeline and the Dalton Highway. Asixth lease sits south of the Jacob’s Ladderunit operated by Anadarko. All six leasesexpire on Jan. 31, 2012.

Although several previous explorationwells dot the area around the six leases,only one exploration well has been drilledwithin the Bald Eagle leases. AtlanticRichfield Co. drilled the North FranklinBluffs Unit No. 1 on ADL 390956 in 1972and 1973 to test for gas.

Small company, small purseAlthough Bald Eagle signed the agree-

ment for the leases back in April, the com-pany still needs to take care of some pre-liminary paperwork before it can beginany exploration activities in Alaska. As ofAug. 13, the company did not have a statebusiness license, and had not notified thestate Division of Oil and Gas about thepurchase of the leases.

Bald Eagle is a very new company. Itbegan in October 2005 as ColumbiaVentures Inc, a mining exploration compa-ny with a prospect in British Columbia.The company appointed new senior man-agement in March, and changed its nameto Bald Eagle at the end of June after shift-ing its focus to oil and gas exploration.

The name Bald Eagle is meant to sym-bolize a commitment to producing domes-tic sources of oil “toward enhancing

America’s energy independence,” thecompany wrote in a prepared statement.

“Our business model stresses reduced

capital expenditures through a minimizedteam of experienced management, retain-ing the consulting services of industry

experts only when needed, and utilizingthird party drilling companies to limitequipment and operating expenses,” thecompany said.

Bald Eagle plans to create an explo-ration program for its North Slope leasesbased on the amount of financing it cansecure, according to U.S. Securities andExchange Commission filings madetoward the end of May. However, as iscommon with small companies known as“penny stocks,” Bald Eagle is not current-ly flush with cash.

Between October 2007 and March2008, “our sole source of financing camein the form of short-term loans advancedto us by our sole executive officer anddirector, Alvaro Vollmers,” the companywrote in those filings.

Before starting with Bald Eagle,Vollmers was the manager of Marine andAviation Insurance with AmericanInternational Group Inc, and has previ-ously worked for Procter & Gamble Coand the government of Peru, according tothe company Web site.

The company is based in Dallas, butlists an Alaska office on its Web site withan address of 310 K Street, Suite 200 inAnchorage.

Vollmers did not return calls to discussthe company’s plans in Alaska. ●


● L A N D & L E A S I N G

Bald Eagle flies north for first gigThe small Texas independent picks up six Donkel/Cade leases south of Prudhoe, all exploration plans tied to future financing

A


Bald Eagle Energy claims to have taken 100 percent workinginterest in six leases south of Prudhoe Bay. The company can

be found online at http://www.baldeagleoil.com.

http://www.mapmakersalaska.com/

http://www.nmsemployeeleasing.com/

By ALAN BAILEYPetroleum News

he U.S. Coast Guard has put its firsttoe in the waters of an Arctic opera-tional base by deploying some per-sonnel, aircraft and vessels to the

City of Barrow for a few weeks duringthe summer. And in an Aug. 7 media pres-entation in Alaska’s northernmost city,Rear Admiral Gene Brooks, commanderof the 17th U.S. Coast Guard District,characterized this year’s presence inBarrow as a test, to evaluate what theCoast Guard can usefully do around theNorth Slope.

“We’ve cometogether to learnhow best to supportthe North Slope,”Brooks said of theCoast Guard contin-gent in Barrow. “… Idon’t have theresources to stay allsummer, and I don’treally know if I needto stay all summer. Idon’t know if I needboats here at all. I’mpretty sure I’mgoing to need heli-copters and aircraftsupport.”

In addition toplacing two helicop-ters and two CoastGuard responseboats in Barrow,USCG has been fly-ing fixed wing mis-sions to the northfrom Nome andKodiak, Brooks said.

“Part of the test is we’ve been flying inand out of Nome at different periods dur-ing the summer, based primarily on theRussian fishing vessel pressure on themaritime boundary line of the BeringSea,” he said.

Bi-weekly flightsThe Coast Guard has been operating

biweekly surveillance flights up theChukchi Sea coast since October 2007using a Kodiak-based Hercules HC-130aircraft, Brooks said. The Hercules has tooperate from somewhere with a suitablysized hangar, thus limiting possible baselocations to Kodiak or Eielson Air ForceBase in Fairbanks, he said. The surveil-lance flights enable the Coast Guard todocument coastal erosion near coastalcommunities, monitor sea ice conditionsand observe marine activities in theregion, as well as support scientific activ-ities and familiarize flight crews withArctic operations.

“We started going out because we didnot know what was here,” Brooks said.“And … the best way to verify what’shere is to use the mark one modular eye-ball. You go out and see … who’s here.That’s what we’ve been doing with theseflights.”

In fact a prime motivation for theCoast Guard’s interest in the north hasbeen increased marine activity in theregion as a consequence of the recedingsea ice cover of recent summers.

“We had seven cruise ships comingthrough this summer into the Arctic onour side,” Brooks said. “… We’re seeingmore research vessels — the Chinese are

up here. We’re seeing increased ship traf-fic of all kinds.”

But the Coast Guard also recognizesthe differences between the Arctic coastalregions and its more familiar territory fur-ther south.

“The challenge in the Arctic, ofcourse, is the fact that the things we do inJuneau or Ketchikan are not necessarilythe things that the people of the NorthSlope need,” Brooks said. The question ishow best to support the North Slope com-munities, he said.

“This has been a wonderful learningopportunity for us, to learn what the mar-itime issues are in this part of Alaska andthis part of the world and what the peopleneed,” Brooks said.

Community welcomeAnd the North Slope communities


● G O V E R N M E N T

Barrow welcomes Coast Guard presenceTrial deployment of aircraft and boats to Alaska’s northernmost community enables evaluation of permanent presence in the region

T

Pilots Jerred Williams (left) and Bill Sportsman at the controls of the U.S. Coast Guard HC-130 Hercules, flying along the Chukchi Sea coastnorth of Point Lay.

see COAST GUARD page 12

Mayor Edward Ittaof the North SlopeBorough

Harry Brower Jr.,chairman of theAlaska EskimoWhalingCommission

ALA

N B

AIL

EY

ALA

N B

AIL

EYA

LAN

BA

ILEY

http://www.judypatrickphotography.com/


have welcomed the Coast Guard pres-ence.

Mayor Edward Itta of the North SlopeBorough thanked the Coast Guard forworking with the borough and otherorganizations of the region.

“We sincerely appreciate that,” Ittasaid. “… I applaudthe Coast Guard forthe approach thatthey have taken tocome up here andlearn. They satdown. They calledin and said ‘who dowe need to talk to?’”

And HarryBrower Jr., chair-man of the AlaskaEskimo WhalingCommission, saidthat the Coast Guardhad delayed some ofits operations toavoid the whalehunt.

“I’d also like tothank them for lis-tening to our con-cerns as a whalingc o m m u n i t y , ”Brower said.

Itta said that withincreased activity inthe Arctic seas, hehoped that the Coast Guard would estab-lish a more permanent presence in theregion.

“We need traffic cops here out on ouroceans,” Itta said. “We’re looking at themnow, the Coast Guard, and we welcometheir presence.”

“With the ice cap receding and …anticipated ship travel through theNorthwest Passage … it’s reassuring that

our own boys are out there on the oceanwatching out for us,” said Michael Stotts,mayor of Barrow.

Itta commented on the surprise appear-ance of a German cruise ship with 400tourists in Barrow earlier in the summer.Nobody, including the Coast Guard, hadbeen aware that the ship was going toarrive.

“Somebody has to know who is outthere and doing what,” Itta said. “… Weexpect more as the transportation corri-dors open up here. I just think that initial-ly we need to have a plan on how to dealwith that and an Arctic policy of somesort.”

Search and rescueItta also welcomed Coast Guard assis-

tance with search and rescue activities —Coast Guard helicopters had recentlyhelped in a search for a villager lost atsea.

“Our North Slope Borough search andrescue department has been the only enti-ty up here that does any search and rescueor recovery … above the Brooks Range,”Itta said.

And Itta commented on communityconcerns about the potential impact of oilindustry offshore seismic activities onsubsistence whaling.

“We expect there will be clashes, butwe’re always sitting at the table and wel-come industry to come and talk to us,”Itta said. “… Hopefully we’re going tocoexist. We have to coexist.”

“We live in a time of change,” saidRichard Glenn, vice-president of ArcticSlope Regional Corp. and president of theBarrow Arctic Science Consortium.“Change in our climate. Change in ourculture. ... And we’re still involved in ourtraditional lifestyle, even although manythings around us have changed. And sowe’re glad the Coast Guard has comehere. We’ve got together the communityto tell them that.” ●


COAST GUARD

The U.S. Coast Guard HC-130 Hercules at Barrow Airport.

Above left, the Chukchi coast village of Wainwright seen from the U.S. Coast Guard HC-130Hercules. USCG surveillance flights monitor coastal erosion near coastal communities.

A barrier island off Kivilina on the Chukchi Sea coast see through the open rear door of theU.S. Coast Guard HC-130 Hercules

Rear Admiral GeneBrooks of the U.S.Coast Guard

Richard Glenn, vice-president of ArcticSlope RegionalCorp. and presidentof the Barrow ArcticScience Consortium

ALA

N B

AIL

EY

ALA

N B

AIL

EYA

LAN

BA

ILEY

ALA

N B

AIL

EYA

LAN

BA

ILEY

http://www.dowlandbach.com/

● P I P E L I N E S & D O W N S T R E A M

Competition at work in gas stationsResults of a Canadian study shed light on how competing gas stations within a single town adjust their prices at the pumps


hy is it that gasoline prices alwaysseem to rise faster than they fall?And do variations in gasolineprices from one area to another

indicate a lack of competition in the gaso-line market?

To try to answer these questions andenable a better understanding of how gasstations set their prices a Canadianresearch team recorded gas prices at 27gas stations in Guelph, Ontario, every twohours between 8 a.m. and 10 p.m. fromAug. 14 to Nov. 24, 2005. At the time ofthe research Guelph had a population ofabout 106,000, and there were a total of28 gas stations in the town.

Benjamin Atkinson, Andrew Eckertand Douglas West published the researchresults in the June 2008 issue ofEconomic Inquiry.

Competitive pricing?An informal theory for gasoline pric-

ing, promoted by the oil industry andgovernment, says that consumers shoparound for the lowest possible gas pricesin a region, with large price placards atgas stations helping with the consumers’search, the Economic Inquiry article says.

Gasoline retailers should set pricesnon-cooperatively. As a consequence,prices should tend to be fairly uniform,with price changes moving rapidlythrough the market. The majority of gasstations should respond to price levels setby a small number of key competitors,with price reductions radiating outwardsfrom an initial source, like a tumblingpack of dominoes.

But is this theory correct?There are a number of factors that

could complicate a simple picture of pricecompetition. For example, a gas stationmay be located conveniently next to a carwash or a store.

And the business structure of the gasstation could impact pricing policy. Somegas stations form part of oil company-owned chains; others are lease-operatedwithin a brand-name chain while someare independently owned. To what extentdo oil companies set prices within ownedor leased gas station chains? And do inde-pendent operators tend to focus more on aprimary business such as automotiverepair rather than jumping onto everyregional change in retail gas prices?

Four categoriesIn fact the Canadian researchers distin-

guished four general categories of gas sta-tion in Guelph: brand-name stationswhere the prices were known or thoughtto be controlled by the brand; brand-namestations where the prices were thought tobe controlled by the local operator; largeindependent stations; and small inde-pendent stations.

The researchers found little differencebetween the different types of gas stationwhen it came to the frequency of gasprice rises — on average during the 103-day study stations of each type raisedtheir prices between 17 and 23 times.

But price reductions occurred muchmore often. And the frequency of reduc-tions varied substantially between differ-ent types of station. Stations with pricescontrolled by the brand lowered prices162 times, brand-name stations with inde-pendent pricing lowered prices 84 times,

large independents lowered prices 120times and small independents loweredprices 46 times.

However, the fact that many of the sta-tions with brand control of pricing arelocated in a similar part of the towncaused some uncertainty about the extentto which location played a role in pricereduction frequency.

Pricing cycleWhen the researchers plotted the most

frequent gas price in each two-hour datacollection period, they found that the


W

see COMPETITION page 14

The data suggested that eachstation tends to match the prices

at a group of other stations, ratherthan at all of the gas stations in

town, the article said.

HEA

THER

YA

TES

http://www.pxd.com/

variation of price over time cycled up anddown in a saw-tooth pattern; relativelyslow price declines followed rapid pricerises. The price changes did not appear tocorrelate with any variation in the cost ofthe crude oil used to refine the gasoline(during the period of the study the oilprice did not vary greatly).

The researchers concluded that the pat-tern of observed gas price fluctuations cor-responded to what economists term an“Edgeworth cycle.” In this type of cycle,different retailers undercut each other’sprices to cause an overall price decline dur-ing a period of one week or more.However, once the price reaches a floorequal to the wholesale cost of the product,one company will raise its prices back to amore profitable level. Once the price rise isinitiated, all other companies will rapidlyfollow suit. Competition then starts to pushprices down again.

But although this finding lends credenceto the retail gas market being competitive,the data from Guelph show significantvariations in gas prices between differentgas stations at any one time, rather than theuniform pricing predicted by gasoline pric-ing theory.

“Excluding the first two days of each(pricing) cycle, 47 percent of prices are atleast one-half of a cent above or below thecurrent mode price,” the EconomicEnquiry article says.

The researchers also found that varyingpolicies regarding which digit to use at theend of a price created artificial pricing dis-crepancies between some stations. Forexample, some stations always ended theirprices with the digit six, while others endedtheir prices with the digit nine.

The data suggested that each stationtends to match the prices at a group of otherstations, rather than at all of the gas stationsin town, the article said. Each station’sprice had a high degree of correlation withat least one other station in town. And eightof the 17 major brand stations most fre-quently matched the price of another sta-tion in the same brand chain.

ProximityThe extent to which the proximity of

gas stations determines the correlationbetween their gas prices was not entirelyclear from the data — in some case rivalstations close to each other showed fairly

well-correlated pricing, while on averagethe price correlation for closely located sta-tions was quite low.

An analysis of price changes betweensuccessive two-hour observation periodsalso showed an uncertain impact of gas sta-tion proximity. In some cases the analysisshowed that one station responded to pricechanges in a neighboring station while inother cases factors other than proximityseemed to come into play.

And it appeared that brand-name sta-tions tended to be price leaders in drivingprice reductions.

A further examination of the timing ofprice reductions revealed that many sta-tions responded to price reductions byother stations within two hours. The dataindicated that independent gas stations tendto respond to price changes more slowlythan the brand-name stations.

Domino effectAn examination of the speed with which

price cuts propagated from one of the priceleader gas stations revealed broad consis-tency with the concept of a domino effect,with more distant stations lowering theirprices later than the closer stations.However, the contract type of the gas sta-tion (brand owned vs. independent, forexample) appeared to have more impactthan distance between stations in determin-ing the speed of response. And the propa-gation of price reductions took several daysto occur, a slower response to the initialprice cut than pricing theory would sug-gest.

When it came to price increases, theresearchers found that all of the gas stationsraised their prices within 24 hours of aprice increase by a price leader, although ittook some stations several hours to respondto the increases posted by competitors.

As a general result of their study, theresearchers concluded that the informaltheory for retail gasoline pricing is essen-tially correct, in that gas stations tend to setprices to match small numbers of rival sta-tions; price leaders tend to initiate pricechanges that then ripple though all the gasstations in town.

However, the theory considerably over-simplifies reality, the researchers found.Stations within the same brand chain tendto follow a consistent pricing pattern; thereare significant variations in the speed withwhich different gas stations respond toprice changes; and gas stations do not nec-essarily react to the prices set by their near-est neighbors. ●



COMPETITION

CHARITY EVENT

Peak, Nabors host cystic fibrosis runOn August 23 Peak Oilfield Services and Nabors Alaska Drilling will be defend-

ing their title in the annual Lost Lake Breath of Life Run for Cystic Fibrosis, whichthe companies are sponsoring.

Since its inception 15 years ago the race has raised more than $600,000 for theCystic Fibrosis Foundation. The nonprofit, donor-supported organization seeks tocure and control CF, an inherited chronic disease that affects the lungs and digestivesystem of about 30,000 children and adults in the United States, and to improve thequality of life for those with the disease.

The race takes place every year in Seward, Alaska, covering approximately 15.75miles cross-country at a peak elevation of 2,100 feet, using the U.S. Forest ServiceTrail through Lost Lake, Chugach National Park.

This is the second year Peak and Nabors have sponsored the event. The team wasinitially organized by Peggy Spittler, marketing director for Carlile Transportation,with the help of Mike O’Conner, president of Peak, and a close personal friend.Growing up Spittler’s family was greatly affected by CF, so as for many participantsthe event signifies more than a foot race.

Registration is still open for the event if you’d like to put together a team or par-ticipate as an individual. Sponsorship and donations are also available.

If you want to make a donation online contact [email protected] if you’d likethe Peak/Nabors team to get credit. Visit www.lostlakerun.org for more details.

—AMY SPITTLER

Feds: Stevens’ trial should stay in D.C.Two Alaska politicians facing federal indictments for their ties to a defunct oil field

services company were subjects of court proceedings nearly 3,500 miles apart onAug.11.

In Anchorage, state Sen. John Cowdery, 78, pleaded not guilty to federal counts ofbribery and conspiracy. He’s accused of trying to bribe a fellow state senator with$25,000 in VECO Corp. money.

Cowdery is a three-term state senator not seeking re-election.He has been absent from the Legislature much of the last year, citing poor health.

He was pushed into court in a wheelchair by his attorney, Kevin Fitzgerald.Neither Cowdery nor Fitzgerald commented after the hearing. His trial was set for

Oct. 6.Meanwhile, in Washington, D.C., prosecutors argued that the trial for U.S. Sen.Ted Stevens, R-Alaska, should be tried in the nation’s capital because that is “wherethe crimes were committed,” according to a Justice Department court filing.

Stevens, the longest-serving Republican in Senate history, has been charged withseven counts of failing to disclose on congressional forms more than $250,000 inrepairs to his Alaska home and gifts from former VECO chief executive Bill Allen.

Stevens is trying to have the trial moved to Anchorage, where he might face a moresympathetic jury.

His attorneys argue that holding the September trial in Washington would be ahardship on Stevens, who is in the midst of a re-election campaign.

A judge is scheduled to take up the venue question Aug. 20, six days before theAlaska primary election.

—THE ASSOCIATED PRESS

Peak/Nabors team shirt with Spittler’s siblings

GOVERNMENT

GOVERNMENTGovernor, lawmakers seek gas probe

Alaska Gov. Sarah Palin and two state senators are asking for an investigationinto why Alaska’s gasoline prices are so much steeper than anywhere else in thenation.

They’re asking Attorney General Talis Colberg to look into why Alaskans arepaying about 75 cents a gallon more than the national average even though thestate has one of the lowest gasoline taxes in the United States.

In an Aug. 12 letter to Talis, Anchorage Democratic Sens. Bill Wielchowskiand Bettye Davis said they want to know if Alaskans are being gouged.

The letter says a year ago the gap between Alaska prices and national priceswas just 13 cents a gallon.

Palin also has asked Colberg to look into gasoline prices.—THE ASSOCIATED PRESS

http://www.amarinecorp.com/

winter demand. Enstar will pass the price itpays for gas through to its customers as partof the company’s fees for gas supplies.

Attract investmentBoth the Cook Inlet producers and

Enstar have long argued that gas prices inthe Cook Inlet need to be indexed to priceselsewhere to attract new oil companyexploration dollars into the Cook Inletregion. Cheap gas supplies in the past havereflected an excess of gas discovered duringoil exploration many decades ago — anincreasingly tight gas supply situation in theregion is now drivingthe need for highergas prices to encour-age new gas explo-ration, people havesaid.

And with short-falls in Enstar’s cur-rent contracted gassupplies scheduled toappear in January2009, the clock isticking for RCA approval of some form ofnew Enstar gas supply agreement.

But although the RCA commissionershave a gun at their heads to give the goahead for some form of new gas supplydeal, the producers cannot use the threat ofsupply shortages as a means of forcing a gassupply agreement at unreasonably highprices, Spencer Hosie told the RCA hearingon Aug. 8. Hosie, a top U.S. trial attorney,was testifying for Chugach Electric, a majorAnchorage electric utility. Chugach is itselfnegotiating with the Cook Inlet gas produc-ers over new supply contracts for gas forpower generation.

“If the producers were to throttle backtheir production in the Cook Inlet to policea commercial price negotiation they wouldviolate their agreements with the State ofAlaska,” Hosie said.

Plan of developmentThe operator of a state unit with a well

certified as capable of production mustagree on a detailed plan of developmentwith the state, Hosie said. That plan ofdevelopment will typically spell out targetsfor production — failure to meet those pro-duction commitments can result in unit ter-mination.

“There are these obligations,” Hosiesaid. “The producers can’t hold develop-ment hostage in a commercial pricing nego-tiation.”

Loss of the profitable units in the CookInlet is an inconceivable outcome for theproducers, Hosie said. And Hosie also dis-missed as inconceivable the idea that theproducers would cut supplies to local utili-ties while maintaining production by boost-ing LNG exports from the Kenai PeninsulaLNG plant. And the producers would runafoul of technical issues with the gas fieldsif they tried to warehouse gas in the fields,rather than produce it, he said.

“They are going to produce. They aregoing to develop. They are going to havegas to sell. I think at the end of the day theyare going to have to take care of the localindustries first,” Hosie said. “Local con-sumers should not be penalized becausethey live in a production basin.”

Internal targetsHosie said that although oil companies

set their own internal targets for rates ofreturns from gas field development and pro-duction, those targets come into play whennegotiating unit plans of development withthe state, not as part of gas supply contractnegotiations.

So, is there enough information in the

record to determine a reasonable price forthe gas, asked Commissioner Kate Giard?

“I have certainly seen no evidence tosuggest that production in the Cook Inlet athistorical gas prices has been viewed otherthan profitable,” Hosie said.

Hosie said that in his view the new con-tract prices were intended to make analready profitable situation more profitable.But the only people who have the real infor-mation (on the economics) are the produc-ers, Hosie said. And the producers are notparticipating in the hearing, he said.

Historically, gas prices in Alaska havebeen lower than in the Lower 48. Hosie saidthat he suspects that under the terms of thenew Enstar contracts the producers wouldbenefit from their most profitable gas pricesanywhere and he questioned why thisshould happen. If Cook Inlet prices arebrought into line with the Lower 48, whyshould all the Cook Inlet reserves berepriced? And, why should the producersenjoy Lower 48 city gate prices for gas thatis produced close to market in the CookInlet?

Hosie also said that, despite great con-cern in the early 2000s about pending CookInlet gas supply shortages, the gas reservessituation in the Cook Inlet didn’t seem espe-cially unusual when compared with theLower 48.

“To the extent people believe there’s ashortage, producers have the ability toextract a higher price,” Hosie said.

The producers have market power in theCook Inlet, he said.

—ALAN BAILEY


GCI’s Industrial Telecom Group has a solid reputation in consultation,

design and support of telecommunications for a wide variety of

North Slope clients. Our Industrial Telecom Group delivers innovative

solutions to the most complex voice and data issues facing our

clients, and we safely operate under the most severe working

conditions in the world, at a competitive price.

- Remote Satellite Communications- Fiber Optic and Network Cabling- 2-way Radio and RoIP- LAN / WAN Network- IP PBX / Voice Networks

GCI—your best choice for full life cycle, expert, proven, industrial communications.

c a l l 1 8 7 7 4 1 1 1 4 8 4 o r 9 0 7 8 6 8 0 4 0 0 w w w. g c i . c o m

Industrial StrengthExpertise.

Design, Implementationand 24 x 7 x 365 Support.

Company symbol earnings % liquids % gas %

ExxonMobil XOM $11,680 +14 2,393,000 –10 8,448 -3

RD/Shell RDS-A $7,902 +5 1,783,000 –7 7,789 +6

Chevron CVX $5,975 +11 1,669,000 –7 5,209 +4

Total TOT $7,392 +61 1,471,000 -0- 4,772 +4

ConocoPhillips COP $5,439 +1707 949,000* -10 4,818* -6

Eni E $5,393 +52 998,000 -3 4,442 +9

Occidental OXY $2,297 +63 455,000 +2 825 +20

Can. Natural CNQ.TO -C$347 — 319,077 -3 1,526 -11

Marathon MRO $774 -50 182,000 -9 1,004 +20

Talisman TLM C$426 -23 219,307 -11 1,276 +4

Imperial IMO C$1,148 +61 401,000 -7 310 -37

Petro-Canada PCZ C$1,498 +77 286,000 -3 705 -2

XTO XTO $575 +33 66,853 +9 1,795 +35

Pioneer PXD $159 +332 50,738 +15 380 +3

Newfield NFX -$289 — 25,560 -4 486 -77

Bow Valley BVX.TO C$10 +133 2,819 +466 2 +34

EOG EOG $178 -42 56,300 +36 1,563 +8

Swift SFY $82 +156 19,690 -12 61 +57

Anadarko APC $23 -98 236,000 -13 1,869 +4

Devon DVN $1,301 +44 221,500 -3 2,527 +8

Husky HSE.TO C$1,360 +89 256,100 -7 618 0

Apache APA $1,443 +128 271,689 +2 1,679 -9

Suncor SU.TO C$829 +12 174,600 -14 226 +8

Nexen NXY.TO C$380 +3 213,600 -2 244 +13

Chesapeake CHK -$1,597 — 31,290 +21 2,167 +25

StatoilHydro STO $3,724 +36 1,039,000 –2 671 +10

EnCana ECA $1,221 -16 128,000 -4 3,841 +10

BP BP $8,465 +28 2,408,000 –2 8,248 +5

Earnings from Petroleum News Top 25Earnings second quarter 2008 • Change from second quarter 2007

Liquids production second quarter 2008 • Change from second quarter 2007Natural gas production second quarter 2008 • Change from second quarter 2007

Liquids production in barrels per day. Natural gas production in millions of cubic feet per day.* Does not include Lukoil investment

Top companies chosen based on exploration spending and commitment to Alaska and Canada

OIL COMPANY EARNINGScontinued from page 1

CI PRICE

SPENCER HOSIE

Both the Cook Inlet producers andEnstar have long argued that gasprices in the Cook Inlet need to be

indexed to prices elsewhere toattract new oil company

exploration dollars into the CookInlet region.

http://www.gci.com/


Companies involved in Alaska and northern Canada’s oil and gas industry

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS

AACE Air CargoACS Acuren USAAir LiquideAir Logistics of AlaskaAirport EquipmentAlaska Air CargoAlaska Analytical Laboratory . . . . . . . . . . . . . . . . . . . . . . . .11Alaska AnvilAlaska Computer BrokersAlaska CoverallAlaska Dreams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Alaska Frontier ConstructorsAlaska Interstate Construction (AIC)Alaska Marine LinesAlaska Railroad Corp.Alaska Regional Council of Carpenters (ARCC)Alaska Rubber & SupplyAlaska Steel Co.Alaska TelecomAlaska Tent & TarpAlaska TextilesAlaska West ExpressAlliance, TheAmerican Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14American Tire Corp.Ameri-Tech Building SystemsArctic ControlsArctic FoundationsArctic Slope Telephone Assoc. Co-op. . . . . . . . . . . . . . . . . . .4Arctic StructuresArctic Wire Rope & SupplyASRC Energy Services

ASRC Energy Services AlaskaASRC Energy Services Houston Contracting (HCC)

Aurora GeosciencesAvalon Development

B-FBadger ProductionsBaker HughesBombay Deluxe RestaurantBP Exploration (Alaska) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Brooks Range SupplyCalista Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Canadian Mat Systems (Alaska)Carlile Transportation Services . . . . . . . . . . . . . . . . . . . . . . .5CGG VeritasCH2M HILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Colville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2CONAM ConstructionConocoPhillips AlaskaConstruction Machinery IndustrialCosco Fire ProtectionCrowley AlaskaCruz ConstructionDelta P Pump and Leasing

Dowland-Bach Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Doyon DrillingDoyon LTDDoyon Universal ServicesEEIS Consulting EngineersEgli Air HaulEngineered Fire and Safety . . . . . . . . . . . . . . . . . . . . . . . . .18ENSR Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Epoch Well ServicesEquipment Source Inc.ESS Support Services WorldwideEvergreen Helicopters of AlaskaFairweather Companies, TheFlowline Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7FoundexFriends of Pets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Frontier Flying Service

G-MGBR Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14GCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Great Northern EngineeringGPS EnvironmentalHawk ConsultantsHeating & Ventilation SalesHoladay-ParksIndustrial Project ServicesInspirationsJackovich Industrial & Construction SupplyJudy Patrick Photography . . . . . . . . . . . . . . . . . . . . . . . . . .11Kenai AviationKenworth AlaskaKing Street StorageKuukpik Arctic ServicesKuukpik - LCMFLaBodegaLister IndustriesLounsbury & AssociatesLynden Air CargoLynden Air FreightLynden Inc.Lynden InternationalLynden LogisticsLynden TransportMACTEC Engineering and ConsultingMapmakers of AlaskaMAPPA TestlabMarathon OilMarketing SolutionsM-I SwacoMRO SalesMWH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

N-PNabors Alaska DrillingNANA/Colt EngineeringNatco Canada

Nature Conservancy, TheNEI Fluid TechnologyNMS Employee Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Nordic CalistaNorth Slope TelecomNorth Star Equipment Services (NSES)North Star Terminal & Stevedore (NSTS)Northern Air CargoNorthern Transportation Co.Northland Wood Products . . . . . . . . . . . . . . . . . . . . . . . . . . .6Northwest Technical ServicesOffshore Divers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Oilfield ImprovementsOpti Staffing GroupP.A. LawrencePanalpinaPDC Harris GroupPeak Civil TechnologiesPeak Oilfield Service Co.Penco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Petroleum Equipment & ServicesPetrotechnical Resources of AlaskaPGS OnshorePrice Gregory (formerly HC Price)Prudhoe Bay Shop & StoragePTI Group

Q-ZQUADCORain for RentSalt + Light CreativeSchlumbergerSeekins FordShaw AlaskaSpenard Builders SupplySTEELFAB3M AlaskaTaiga VenturesTire Distribution Systems (TDS) . . . . . . . . . . . . . . . . . . . . . . .6Total Safety U.S. Inc.TOTETotem Equipment & SupplyTTT EnvironmentalTubular Solutions AlaskaTutkaUdelhoven Oilfield Systems ServicesUnique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Univar USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7URS Corp.UsibelliU.S. Bearings and DrivesVictaulicWesternGecoWeston SolutionsXTO Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

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

Business SpotlightTotem Ocean TrailerExpress, Inc.

TOTE has brought the world to Alaska since1975 with its fleet of cargo ships sailing twiceweekly from Washington State to the Port ofAnchorage. In addition to cargo loaded inenclosed and flatbed highway trailers, TOTEoffers competitive, responsive solutions for ship-ping cars, trucks and RVs. The M. V. MidnightSun and M. V. North Star each accommodateabout five hundred 28- to 53-foot highway trail-ers and 250 vehicles.

After 10 years in transportation, ChadBaskett is happy to be celebrating his firstanniversary with TOTE. Life couldn’t be better, hesays, than having a great job and great family. Chad’s wife Shannon and three boys –Tyler, Bryce and Mark – have devious ways to keep him super busy when not at work.

—PAULA EASLEY

Chad Baskett, Operations Supervisor

FOR

RES

T C

RA

NE Peak Oilfield Service Co.

Peak provides cost-effective support servicesto the North Slope including oilfield trucking, rigmoving, crane support and ice road construction.Operations in Kenai provide plant and drillingsupport, construction, and platform maintenancein Cook Inlet. Peak's Valdez operation providestank cleaning and other services at the trans-Alaska oil pipeline terminal.

Karen Heinrichsohn started her CPA careerwith Coopers & Lybrand in Seattle and hasworked for NW Inupiat Housing Authority, Boeingand Nabors Alaska Drilling. She joined Peak ascontroller in October 2005. Karen enjoys music,the outdoors, dogs, and all things culinary. Herultimate escape would be to spend a month (ormore) traveling with Anthony Bourdain on his “No Reservations” excursions.

—PAULA EASLEY

Karen Heinrichsohn, Controller

FOR

RES

T C

RA

NE

Senate leaders said the move allowedlawmakers to give money only to thoseprojects requiring immediate funding. Theother projects will be considered throughthe traditional funding cycle tackled bylawmakers every year.

But among the appropriations left onthe table was $25 million for the AlaskaNatural Gas Development Authority toadvance an in-state gas project. ANGDAChief Executive Officer Harold Heinzebelieves the delay in funding could threat-en the timing of that project.

According to Heinze the $25 millionwould have given ANGDA a chance tohire contractors to fill major pieces of thein-state gas puzzle.

Because stateprocurement rulesrequire appropria-tions to be in placebefore contracts goout to bid, ANGDAnow must wait untilnext year to know ifit can move forwardon the project, whichcould mean missingsome or all of the next summer work sea-son.

“Sometimes being a month aheadkeeps you from being a year behind,”Heinze said.

Inappropriate appropriationsState lawmakers bundled the supple-

mental AGIA appropriations into a broadenergy assistance package passed on Aug.7. Like that energy package, the Houseand Senate initially took a differentapproach to those supplemental appropria-tions.

But nowhere did they differ more thanon the ANGDA funding.

The House version of the bill intro-duced on Aug. 4 reduced or eliminated sixof the seven administration requests, leav-ing only the $25 million for ANGDAintact. The Senate version introduced onAug. 7 made further cuts, including theentire ANGDA funding.

The administration originally requestedfull funding of the $500 million in match-ing grants to TransCanada, the licenseeunder AGIA. Most of that funding wouldhave come from a re-appropriation fromthe previous administration. The Housecut the $500 million down to $50 millionand the Senate further dropped it to $30million.

The administration also requested $15million for the state Department of NaturalResources to start work on the pipeline.Both chambers cut that to $5.5 million.

Several of the appropriations involvedroad and bridge improvement projects.

The House partially funded a $31 mil-lion request for improvements on fivestate highways, and a $75.4 millionrequest for a Dalton Highway reconstruc-tion project. It also eliminated a $23.5 mil-lion appropriation to improve the HainesHighway and the Chilkat River Bridge.The Senate pulled all three appropriationsfrom the bill.

Both the House and the Senate elimi-nated a $42.7 million appropriation forworkforce development activities.

The infrastructure and workforce cutsshouldn’t be seen as a challenge to thesubstance of those appropriations, but tothe timing, according to Burt Stedman, aSitka Republican and co-chair of theSenate Finance Committee responsible forthe final bill.

“The common thread of all four is thatthey should be put forward in the normalcapital cycle,” Stedman said, adding:

“There’s nothing with these projects thatwould lead you to think that they shouldnot be in the normal capital process.”

Funding needed for pre-buildStedman included the ANGDA funding

in that assessment, questioning the need toimmediately fund a spur line while the twomain line proposals are still in earlystages.

Heinze said ANGDA is in a hurrybecause of its long-standing goal of build-ing a spur line to Southcentral Alaskabefore construction begins on the mainline.

This “pre-build” option would letANGDA hire contractors before the mas-sive mainline project clears the market-place of eligible companies, Heinze said.And should the main line get delayed,ANGDA wants to take its spur line direct-ly to northern gas sources.

To gather enough information for a

“go-no go decision” about the spur line,Heinze said ANGDA wants to immediate-ly bid out two large contracts, one for aproject manager to handle logistics andanother for a design firm.

“Basically, those two contracts woulduse up just about all of the $25 million,”Heinze said.

A $25 million appropriation woulddwarf all previous funding to the voter-created state agency, which has neverspent more than $2 million on an individ-ual project.

ANGDA still has $6 million in the bankto spend on contractors this year. Most ofthat money comes from a special $4 mil-lion appropriation lawmakers approvedduring the last regular session to study thevarious options for getting North Slopenatural gas to markets within the state.

In early July, the Palin administrationannounced that ANGDA would partnerwith Enstar Natural Gas, a private utility,on efforts to build an in-state gas pipeline.Those three parties plan to start negotia-tions soon to see whether a partnership isviable. Heinze said his concerns about thedelay in funding don’t extend to thosenegotiations.

—ERIC LIDJI



ANGDA

HAROLD HEINZE


Because state procurement rulesrequire appropriations to be inplace before contracts go out to

bid, ANGDA now must wait untilnext year to know if it can move

forward on the project, whichcould mean missing some or all of

the next summer work season.

Oil Patch Bits

Colville steps up to plate on ULSD

Colville’s new ultra-low sulphur dieseltank farm being built in Deadhorse thissummer will have four 435,000-gallontanks set in a concrete secondary contain-ment. According to Colville exec BeckyGay, the tank farm was designed byLCMF. The ground work is being done byPeak, the tanks constructed by Rockford,and Roger Graff is doing the concretework. “It is very substantial, and includesa tertiary containment design, which isthe Best of the Best environmentally,” shesaid. Colville expects to fill the tanks byNovember.

EFS hires KingstonEngineered Fire and Safety said it has

appointed Antrone Kingston to the posi-tion of purchasingspecialist, effectiveJuly 16. Kingstonwill be responsiblefor ordering allparts, supplies andmaterial for proj-ects and maintain-ing sufficientinventory for main-tenance contractsin addition to inventory control and keep-ing in compliance with Material SafetyData Sheets – experience he gained in his10 years with the U.S. Air Force.

Tikigaq-ESS charityevent raises $23,500

Tikigaq-ESS Support Services JointVenture recently hosted a charity golftournament for Tikigaq EducationalFoundation Native youth programs forthe Tikigaq village of Hope, raising$23,500. Mel Porter, business develop-ment director of ESS Support Services inAlaska, said 16 teams competed atSettlers Bay Golf Course, competing forprizes provided by ESS suppliers andother Tikigaq business partners. Porter isalready planning a 2009 tournament withbigger prizes and fundraising goals.

NAC has new Bethelmanager

Northern Air Cargo said July 28 thatHeather Pike is its new customer servicemanager in NAC’sBethel office.Heather is a veter-an of the AlaskaArmy NationalGuard where sheserved as aBlackhawk heli-copter mechanic.More recently shewas a lead, trainer,and supervisor for a large air passengerand cargo operation in Bethel. “Heatherbrings a wealth of knowledge and workexperience to leading NAC’s BethelStation,” the largest and busiest of all ofNAC’s rural hubs, the company said.

Editor’s note: Watch for full sto-ries in the next Petroleum Directorymagazine.

ANTRONE KINGSTON

HEATHER PIKE

CO

URT

ESY

CO

LVIL

LE

FOR

RES

T C

RA

NE

FOR

RES

T C

RA

NE

http://www.ensr.aecom.com/

http://www.mwhglobal.com/


● I N T E R N A T I O N A L

Points of contention in Arctic claimsThe resource potential and past history both play their parts when it comes to offshore jurisdiction around the Arctic Ocean


he Arctic claims map recently pub-lished by researchers at Britain’sUniversity of Durham (see story inlast week’s Petroleum News) high-

lights the areas where various nations arescrambling to lay claim to resource rightsunder the waters of the Arctic Ocean. Butan examination of the map reveals wherecontention over land claims is particularlyhigh.

The map shows both the agreed bound-aries of national jurisdiction and the areaswhere one of the six nations that surroundthe Arctic Ocean may be able to lay claimsbased on existing laws and treaties. Themap also depicts areas that are currentlythe subject of international territorial dis-putes.

And the July publication of a newassessment by the U.S. Geological Surveyof the oil and gas resource of the Arctic hashighlighted the potential economic impor-tance of the polar region — USGS hasestimated the possible existence of 90 bil-lion barrels of oil and 1,670 trillion cubicfeet of natural gas in the Arctic, with sub-stantial amounts of those oil and gasresources lying offshore.

Russian flagAlthough some Arctic nations have for

several years been assembling claims toparts of the Arctic Ocean under the termsof the international Convention on theLaw of the Sea treaty, the August 2007planting of a Russian flag on the seabed onthe Lomonosov Ridge at the North Polecatapulted the whole issue of Arctic sover-eignty into the forefront of world attention.

The Arctic claims map reflects the flagplanting event by showing the North Poleat the apex of an extensive triangularshaped area of Russian-claimed territory,extending to a broad area of undisputedRussian continental shelf under theLaptev, East Siberian and RussianChukchi Seas.

But Canada says that the LomonosovRidge, including the area of the Russianflag planting, is actually an extension ofthe Canadian continental shelf. And theproximity of the Lomonosov Ridge toGreenland has also caused Denmark toenter the fray over territorial rights in theregion.

Source rock?In 2004 an international team drilling a

well on the Lomonosov Ridge near theNorth Pole discovered a horizon contain-ing the remains of azolla plants in Tertiaryrocks, thus raising the possibility of theexistence of a hydrocarbon source rock inthe region. However, in its new Arcticassessment, USGS assigned the somewhatmodest oil and gas resources of 1.1 billionbarrels and 7 trillion cubic feet to what ittermed the Lomonosov-Marakov

province, a geologic province that encom-passes much of the Russian-claimed terri-tory.

On its eastern side, the Russian-claimedterritory abuts a huge area of theAmerasian basin, north of the BeaufortSea, where the United States could make aterritorial claim.

And extensive parts of the Beaufort Seacontinental shelf include some of the moreprospective parts of what USGS terms theAmerasian province, a region with rela-

tively high oil and gas potential thatincludes the Arctic Ocean continentalslope offshore Canada and the UnitedStates.

Beaufort Sea boundaryHowever, there has been a long-stand-

ing disagreement between these two coun-tries regarding the location of the offshoreinternational boundary in this petroliferousregion. According to the DurhamUniversity researchers Canada argues thatan 1825 treaty between Canada and Russiadefines the boundary as running throughthe Beaufort Sea along the 141-degrees-west meridian. The United States, on theother hands, says that there is no definedmaritime international boundary and thatthe boundary should follow the medianline between the U.S. and CanadianBeaufort Sea coastlines.

Further east, both Canada and Denmark(via Greenland) could claim extensiveareas of the Arctic Ocean to the north oftheir current areas of jurisdiction.However, these areas do not appear tohave high oil and gas potential.

Barents Sea disputeTo the north of Europe, there has been

a long-standing dispute over the interna-tional boundary between Norway andRussia in the Barents Sea, a region rich inoil and gas, as well as rich in fisheries.The Durham University researchers saythat Norway wants the boundary to followthe median line between the two countriesthrough the sea, while Russia wants a sec-tor boundary extending due north butdeviating around the Svalbard area.

And the area of the Svalbard archipel-ago, a group of islands that includesSpitzbergen and lies on the petroliferousBarents platform, has also been the focusof international contention. A treatysigned in 1920 gave Norway sovereigntyover the archipelago but rights of accessfor residence and industrial activities tothe countries that signed the treaty. Thereare currently 39 countries that are regis-tered to the treaty, according to theDurham University researchers. However,there is an on-going dispute betweenRussia and Norway about whether thetreaty rights extend over the entireSvalbard economic exclusion zone, ratherthan just the archipelago’s land and terri-torial waters. ●

T

RU

SS

IA

USA

CCCAAA

NNNAAA

DDDAAA

( DE

NM

AR

K)

ICELAND

NORWAYNORWAYNORWAY

SWEDENSWEDENSWEDEN

FINLANDFINLANDFINLAND

NorthNorthNorthPolePolePole

Lo

m

on

os

ov

Ri

dg

e

RUSSIA

G

r e e n l a n d

Polar stereographic project ion

0 400nautical miles at 66°N

0 600kilometres

180° E / W180° E / W180° E / W

0°E / W0°E / W0°E / W

45°W45°W45°W 45°

E45°

E45°

E

135°E135°E135°E

135°W

135°W

135°W

90°E90°E90°E90°W90°W90°W

ArcticCircle(66°33'N)

Denmark territorial sea and EEZ

Denmark claimed continental shelfbeyond 200 nm

Canada territorial sea and EEZ

Iceland EEZ

Iceland claimed continental shelfbeyond 200 nm

Norway territorial sea and EEZ / Fishery zoneJan Mayen) / Fishery protection zone (Svalbard)

Internal waters

Potential Canada continental shelfbeyond 200 nm

Potential Denmark continental shelfbeyond 200 nm)

Norway claimed continental shelf beyond 200 nm

Russia territorial sea and EEZ

USA territorial sea and EEZ

Russia claimed continental shelf beyond 200 nm

Potential USA continental shelfbeyond 200 nm

Overlapping Norway / Russia claimedcontinental shelf beyond 200 nm

Overlapping Norway EEZ / Russia claimedcontinental shelf beyond 200 nm

Overlapping Norway / Russia EEZ

Overlapping Canada / USA EEZ

Straight baselines

Agreed boundary

Median line

350 nm from baselines

100 nm from 2500 m isobath(beyond 350 nm from baselines)

Svalbard treaty area

Iceland - Norway joint zone

Canada EEZ boundary claim

Norway - Russia 'Grey Area'(agreed fishing regime)

Eastern Special Area

Find out more at www.dur.ac.uk/resources/ibru/arctic.pdf

INTE

RN

ATI

ON

AL

BO

UN

DA

RIE

S R

ESEA

RC

H U

NIT

http://www.efs-fire.com/


He said the Alberta royalty hikes in2009 will see “gas drilling in Albertadecline markedly.”

Laut said a month ago he would havebeen among those forecasting a ramp upin activity, especially in BritishColumbia.

“I still think B.C. will be very strong,particularly the shale gas plays,” he said.“I don’t believe Alberta will be.”

After peaking at $13.31 a month ago,natural gas has tumbled about 35 percentto under $9 per million British thermalunits in New York.

Prices must be $12 with new royaltyLaut said many wells in Alberta need

prices above $12 to be profitable under thenew royalty regime, although shallow gaswill pass the break-even point at $6-$7under the royalty changes.

He said Alberta gas drilling can nolonger compete with British Columbia,where the province has not hiked royalties,or in the United States, where supplies

have surged from the rapid development oflow-cost shale plays.

Laut said Canadian Natural is well-positioned to add significant value from itsgas assets, but the “relative economics ofgas and oil need to move to more normallevels before we will choose to do so.”

As Canada’s second largest gas produc-er, he said Canadian Natural is one of thelargest landholders in British Columbiaand is well positioned to capture “signifi-cant value from the emerging shale plays,“particularly in Montney where we haveover 70,000 acres of prime shale lands.”

Quick payouts on heavy oilAnswering a question on the annual

cash flow per produced barrel of oil equiv-alent in Western Canada divided by find-ing, development and acquisition costs,Laut said there are “very, very quick pay-outs on heavy oil, primarily heavy oil (atcurrent) prices. We are making in excess of$90 a barrel for heavy oil.”

As a result, rather than drilling more gaswells, Canadian Natural will direct moreof its capital in 2009 to oil, especiallyheavy oil, which he said could be prof-itable even if oil dropped to $60 per barrel.

Gas prices will go way upBut not everyone is taking such a bleak

view of the gas outlook.FirstEnergy Capital Partners said gas

prices are grossly undervalued after theJuly price dive and should start to recover.

Analyst Martin King said the “massiveimplosion in gas prices that swept throughthe market caught everyone by surprise …however, we see the current market arebeing grossly undervalued … as theresimply has been no real change in under-lying fundamental drivers.”

He believes gas prices will bottom at$9.

CIBC World Markets also takes anupbeat view, predicting electricity and gasprices will surge as North American utili-ties shift from coal-fired generation to nat-ural gas.

Although that will drive consumerprices for gas-fired electrical power high-er that should also benefit Alberta produc-ers and the provincial government, thereport said.

CIBC said gas prices are tied to oilprices, which are forecast to remain strongdespite the recent stumbles.

“That means utilities seeking gas tofuel generating plants will have to pay sig-nificantly more than at present,” the reportsaid.

CIBC economists Krishen Rangasamyand Benjamin Tal said the shift to gas-gen-erated power will be driven by concernsabout the greenhouse gas emissions emit-ted by coal-fired power plants.

“Simply put, global warming is bullishfor gas,” they said. “Many coal-fired-gen-eration capacity plans are likely to be can-celled all over North America and bereplaced by nuclear and natural gas facili-ties.”

Regardless of the current swoon in oilprices, the economists believe crude willaverage $150 next year and increase evenmore in the next few years.

The report calculates roughly a 10-to-one ratio between the true price of oil andgas, based on the cost of an equivalent unitof energy. Gas is still below that ratio, butit has crept up from $6 to $9 since lastwinter.

As oil moves toward $150, the reportsaid gas prices, which usually experiencea 12-month lag in adjusting, should climbto a record $15 next year. ●


BETTER DAYS

pipeline project will require the supportof all three major producers and the Stateof Alaska. We are ready to work with thestate, TransCanada, ConocoPhillips andBP to move forward one of the largestand most complex projects ever under-taken in the United States.”

The company also said it believes“Point Thomson gas is essential for asuccessful gas pipeline project,” and thatExxonMobil and the other workinginterest owners “are the only producersthat could commit PTU gas to either theTransCanada or Denali pipeline on theirproposed schedules.”

The Alaska Department of NaturalResources terminated the PointThomson unit in April; in early AugustDNR terminated the leases that had beenpart of the unit with the exception of asingle lease that is still in its primaryterm.

The Alaska Legislature approvedTransCanada Alaska’s AGIA licenseAug. 1; as of Aug. 13 the bill had notbeen signed by either Senate PresidentLyda Green, R-Matanuska-Susitna, or byHouse Speaker John Harris, R-Valdez,requirements before the bill can be trans-mitted to the governor for her signature.The Legislature did not pass the immedi-

ate effective date clause for the bill, so ittakes effect 90 days after the governorsigns the bill.

Massey said Exxon ‘committed’The statement issued after passage of

AGIA reflected testimony MartyMassey, ExxonMobil’s U.S. joint inter-est manager, gave to Alaska legislatorsJuly 10 during the AGIA hearings inJuneau.

He said he knew legislators had ques-tions about ExxonMobil’s involvement:It did not submit an application underAGIA and is not in partnership with BPand ConocoPhillips on the Denali gaspipeline proposal.

“Today, my intention is to demon-strate that we are committed to the time-ly development of Alaska’s gasresources and we want to be part of the

solution,” he said in prepared testimony. He said ExxonMobil was “ready to

work with the administration,TransCanada, ConocoPhillips and BP toadvance this project” and “to put in placethe ‘necessary ingredients’ for a success-ful gas pipeline project.”

Massey said ExxonMobil believes a4.5 billion cubic-foot-a-day line balancestariff, revenue and resources. The studythe North Slope producers did in 2001and 2002 determined that 4.5 bcf a daywould provide the best opportunity foran economically viable gas pipeline,based on “a detailed technical evaluationof pipeline hydraulics and cost.”

He also said the producers’ 2001-02analysis indicated that a 4.5-bcf a dayline should provide low cost expansions,keeping the tariff essentially the same upto 5.9 bcf and possibly to 6.5 bcf a day.

Point Thomson essentialMassey told legislators what the com-

pany repeated in its August statement:Point Thomson is a critical element for asuccessful gas pipeline.

Open access is also essential, he said,because additional gas needs to be foundto fill the base case 4.5 bcf a day line andwith expected low-cost expansions, theline could handle another 20 trillioncubic feet. He said ExxonMobil believesopen access will be assured by the needfor additional gas, FERC and National

Energy Board regulations and additionalrules established by Congress and FERCfor the Alaska gas pipeline.

Massey told legislators that whileExxonMobil believes there are ampleassurances of open access in place, thecompany is willing to discussion otherassurances that would make the statecomfortable that explorers would haveaccess to the line for newly discoveredgas.

While ExxonMobil is willing toaccept price risk, it is not willing toaccept fiscal and tariff risk: “At somepoint we will need to align with the stateon fiscal and tariff predictability,” hesaid in his prepared testimony.

ExxonMobil also wants some controlover project cost: Ownership in the lineequal to its shipping commitment wouldmean pipeline profits would come toExxonMobil, rather than to a third-partypipeline owner.

Massey told legislators ExxonMobilhas had discussions with Denali andexpects to have more discussions withthem.

He emphasized that there won’t be asuccessful project until the state and theproducers align and said he didn’t knowif Denali or AGIA would produce thatalignment, but said ExxonMobil’s goalwas to get that alignment as soon as pos-sible. ●


EXXONThe Alaska Legislature approved

TransCanada Alaska’s AGIAlicense Aug. 1; as of Aug. 13 thebill had not been signed by eitherSenate President Lyda Green, R-Matanuska-Susitna, or by HouseSpeaker John Harris, R-Valdez,requirements before the bill canbe transmitted to the governor

for her signature.

http://www.calistacorp.com/


ing discoveries. An additional three wellsare required in 2009-2010 to complete thefarm-in with Chevron and BP, MGM said.

MGM said it has no plans for otherdrilling or seismic programs this winter.

It expects to spend C$6 million on land,geological and geophysical costs by thesecond quarter of 2009.

MGM reported a second-quarter net lossof C$4.3 million, compared with a C$1.85million loss a year earlier, with losses forthe first half of 2008 at C$49.9 million.

It expects to continue generating lossesfor several years given that it has no pro-duction and none is possible until comple-tion of a pipeline from the Mackenzie Deltato carry crude oil and natural gas.

MGM recorded a dry hole expense ofC$32.43 million in the first half, down fromC$36.4 million in the same period of 2007related to costs incurred for Atik P-19 andAput C-43 which were drilled during the2008 winter and were determined to be dry.

But MGM achieved some success withits fifth well earlier this year when theLangley E-07 well tested at restricted flowrates of 13 million cubic feet per day on a2-inch choke.

It said the primary target consists ofabout 25 feet of net pay with 28 percentporosity in the middle Taglu formation.

The tests give MGM hope that it canobtain a significant discovery license fromthe Canadian government.

The company believes the find could bedeveloped as a satellite of the existingLangley field, where Langley K-30 wasdiscovered in 2002 and tested at 18 millioncubic feet per day. It is also expected thatthe discovery could increase MGM’s netcontingent gas resources on the Delta, cur-rently estimated at 300 billion cubic feet.

Of the C$28.29 million MGM spent ongeophysical and geological work in the firsthalf, C$27.3 million was allocated to threeseismic programs — two on the Deltafarm-in lands and one in the CentralMackenzie Valley. ●


MGM

Final drilling locations and depthsfor the Mackenzie Delta wells will

be determined in the current quarter.Depending on those decisions, MGMsaid it is hopeful four wells can becompleted with one rig for a cost of

about C$70 million.

required timelines, intended to “help limitthe duration of informal consultation andlend greater certainty to the process,” DOIsaid.

“ESA consultations in the 21st centuryaddress increasingly complex issues. Weneed a regulatory framework to guidethose consultations that is consistent withthe ESA and will address new challengessuch as climate change,” saidKempthorne. “The existing regulationscreate unnecessary conflicts and delays.The proposed regulations will continueto protect species while focusing the con-sultation process on those federal actionswhere potential impacts can be linked tothe action and the risks are reasonablycertain to occur. The result should be aprocess that is less time-consuming and amore effective use of our resources.”

The proposed regulation changes canbe found on the DOI web site athttp://www.doi.gov/news/08_News_Releases/AT50PR2008_08_13_FR.pdf.

—ALAN BAILEY


ESA REGS

barrow welcomes coast guard better ... · mackenzie delta wells will be determined in the cur-rent...

Documents