l exploration & production lagniappe to explore2 petroleum news † week of november 25, 2018...

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



Vol. 23, No. 47 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of November 25, 2018 • $2.50

New LLC set for AGDC: 8-Starto have public, 3rd party investors

page2

Three more key members ofDunleavy team know oil biz;AIDEA award; Lynden land swap

IN ADDITION TO SOON-TO-BE CHIEF

OF STAFF Tuckerman Babcock and

Commissioner of Natural Resources Corri

Feige, there are three other key members of

Gov.-elect Mike Dunleavy’s team who are

knowledgeable about oil and gas — former

Alaska Gov. Sean Parnell, Rep. Dan Saddler

and Brett Huber.

All three men are members of the transition

team; Parnell as special adviser on the proposed $43 billion

Alaska liquefied natural gas project, Saddler as director of the

transition policy council, and Huber as both senior policy advis-

see INSIDER page 7

North Slope, Beaufort Sea salesgenerate $28.1 million high bids

The Alaska Division of Oil and Gas received $28.1 million

in apparent high bids in its 2018 areawide Beaufort Sea and

North Slope oil and gas sales. Bids were opened in Anchorage

Nov. 15. The state received no bids in the other sale offered,

the North Slope Foothills (see map on page 11).

Division Director Chantal Walsh said after the sale that the

North Slope sale, at $27.3 million, was the third largest since

1998 when areawide sales began. And the average bid per acre

in that sale, $121, was the highest since 1998, she said.

The state received 147 bids on 133 tracts, 223,680 acres, in

the North Slope sale from six bidding groups.

A new bidder, Lagniappe AK LLC, was the high bidder on

120 tracts, the division said (see page 1 story on Lagniappe).

see LEASE SALE page 10

Another methane hydrate testwell planned for the North Slope

Apparently BP is planning to drill another methane hydrate

test well on Alaska’s North Slope. On Nov. 15, during a talk

to the Resource Development Council’s annual conference,

Tom Walsh, managing partner of Petrotechnical Resources of

Alaska, commented that the plan is to start drilling the well in

December and to use the well to test the long-term production

of natural gas from the hydrates. Both BP and ConocoPhillips

have been involved with the U.S. Department of Energy in

North Slope methane hydrate research. The Japan Oil, Gas

and Metals National Corp. has also been involved in the

research.

According to data published by the Alaska Oil and Gas

Conservation Commission, the well is called the Hydrate 01

see METHANE WELL page 8

Alberta over a barrel: pure-play v.integrated companies; low prices

A rift without parallel is tearing through the ranks of

Canada’s oil industry.

Pure play oil sands operators are lined up against integrat-

ed companies — those who both produce and refine.

As the West Texas Intermediate price has tumbled under

US$60 a barrel it has dragged down the return on Western

Canada Select bitumen-blend to US$18 and, briefly, below

US$15 when a U.S. federal judge halted work on

TransCanada’s Keystone XL pipeline.

The Canadian Association of Petroleum Producers has

estimated that the price discount cost Canada C$13 billion in

the first 10 months of 2018, or about C$50 million a day.

see OVER A BARREL page 8

Lagniappe to exploreNorth Slope’s latest player has similarities, differences to Armstrong

By KAY CASHMANPetroleum News

Taking a page from Bill Armstrong’s play

book, Alaska’s newest North Slope player,

Lagniappe, is committed to an aggressive explo-

ration program in an area where previous drilling

might have missed oil.

The only differences between the two compa-

nies are that Lafayette, Louisiana-based Lagniappe

AK LLC, part of Lagniappe AK Holdings, bid

much higher than Denver-based Armstrong Oil &

Gas has ever bid in Alaska — and that very little

previous drilling has occurred in the area in which

Lagniappe chose acreage.

Lagniappe, formed in Alaska just prior to the

Nov. 15 bid opening for the 2018 state areawide

North Slope oil and gas sale, was the high bidder

on 120 tracts (see page 1 story and map on page

11), bidding an average of more than $72 an acre

for a total of $14.1 million. The 195,200-acre

block is on the eastern North Slope, versus where

The key to the futureBP sees improved efficiency through new technologies as vital for Prudhoe Bay

By ALAN BAILEYPetroleum News

K eeping the giant Prudhoe Bay field

operating for another 40 years will

be critical to future generations of

Alaskans, Janet Weiss, president of BP

Alaska, told the Resource Development

Council’s annual conference on Nov. 14.

And a key to the longevity of the field is

the use of new technologies, to improve

operational efficiency and produce more oil out of

the field’s reservoir rocks, Weiss said.

Industry foundationThe legacy North Slope fields of Prudhoe Bay

and Kuparuk River provide the foundation for the

continuing health of the North Slope oil

industry.

“This is not just a one-generation

wonder, but it’s there for the next gener-

ation and the generation after that,”

Weiss said.

Sustaining Prudhoe Bay through the

next four decades will take the type of

grit and innovation that has enabled the

stemming of production decline over the

past three years, she said. BP will be car-

rying out a major new seismic survey across the

field this winter. The company has another drilling

rig starting up in the field in December, and anoth-

er rig starting in January, Weiss said.

And efficiency matters — last year BP reduced

Milne Point progressesDrilling about to start at Moose Pad; polymer flooding proving successful


Hilcorp Alaska is moving ahead,

upping the oil production from the

Milne Point field on the North Slope,

David Wilkins, the company’s senior vice

president for Alaska, told the Resource

Development Council’s annual conference

on Nov. 14. The company is about to start

drilling on the new Moose Pad at the west-

ern edge of the Milne Point unit. The company has

also seen success in injecting water and polymer into

the field reservoir to boost the production of viscous

oil, Wilkins said.

The Moose Pad, the first new well pad at Milne

Point since 2002, can accommodate 50 to 70 wells

and, unusually for the North Slope, has pro-

cessing facilities on the same pad as the

wells, Wilkins said. Construction of the 14-

acre pad began in 2017 and, including the

construction of a three-mile access road,

cost $120 million. Construction also

included the installation of a 15-megawatt

turbine generator plant. The processing

facility can handle 85,000 barrels of fluid

per day. Hilcorp anticipates an eventual

price tag of about $400 million for the

development, with a potential to recover some 60

million barrels of oil. That represents a development

cost of $6 to $7 per barrel, Wilkins said.

“We need more of that and we’ve got more ideas,

with our partner BP,” Wilkins said. In 2014 Hilcorp

see NEW PLAYER page 10

see PRUDHOE FUTURE page 12

see HILCORP PRODUCTION page 6

Petroleum News, or PN, tracked downLagniappe’s founder and top executive

who said the company planned toaggressively explore the block.

JANET WEISS

DAVID WILKINS

2 PETROLEUM NEWS • WEEK OF NOVEMBER 25, 2018

EXPLORATION & PRODUCTION

FINANCE & ECONOMY

LAND & LEASING

NATURAL GAS

5 National drilling rig count up 1 to 1,082

4 BOEM to prepare EIS for 2019 Beaufort Sea

5 Study finds healthy polar bears in Chukchi

3 IEA predicts a volatile world oil market

Sees possible oil supply shortfall in early 2020s, rising naturalgas demand, growing use of renewables for power generation

2 AGDC OKs 8-Star limited liability company

8-Star will have public, 3rd-party investors, be controlled byAGDC; 8-Star will control Alaska LNG, which will hold assets

ENVIRONMENT & SAFETY

Lagniappe to exploreNorth Slope’s latest player has similarities, differences to Armstrong

The key to the future BP: Efficiency through new technologies vital for Prudhoe Bay

Milne Point progressesDrilling to start at Moose Pad; polymer flooding proving successful

ON THE COVER

Oil Patch Insider: More key members of Dunleavyteam know oil biz; AIDEA award; Lynden land swapNorth Slope, Beaufort Sea salesgenerate $28.1 million high bids

Another methane hydrate testwell planned for the North SlopeAlberta over a barrel: pure-play v.integrated companies; low prices

Petroleum News Alaska’s source for oil and gas newscontents

Alaska’sOil and GasConsultants

GeoscienceEngineeringProject ManagementSeismic and Well Data

3601 C Street, Suite 1424Anchorage, AK 99503

(907) 272-1232(907) 272-1344

[email protected]

l N A T U R A L G A S

AGDC OKs 8-Star limited liability company8-Star will have public, 3rd-party investors, be controlled by AGDC; 8-Star will control Alaska LNG LLC, which will hold assets

By KRISTEN NELSONPetroleum News

K eith Meyer, president of Alaska Gasline

Development Corp., told the board Nov.

8 that the project structure for the Alaska lique-

fied natural gas project will include two new

limited liability companies. The first LLC, 8-

Star Alaska LLC, will be controlled by AGDC

and will have both public and third-party

financial investors.

At the Nov. 8 meeting the board unanimously

approved two resolutions related to 8-Star. The first

notes that the Alaska Legislature tasked AGDC with

establishing the operating structure for a natural gas

pipeline project and allowed it to acquire ownership or

participation interest in an Alaska LNG project or an

entity that has ownership interest in or is engaged in the

project.

The resolution further states that “AGDC’s liquefied

natural gas project has advanced to the point

where potential customers, investment bankers,

and investors require an understanding of the

operating structure,” and to that end “AGDC

seeks to acquire an ownership interest in a

Delaware limited liability company with the

name of 8-Star Alaska, LLC, or a name that is

available and substantially similar thereto.”

The board approved a purchase price not to

exceed $10,000 for purchase of interest in 8-

Star.

The second resolution authorizes AGDC to “license,

share, transfer, or otherwise convey corporate assets to

8-Star which AGDC deems appropriate or necessary to

advance an Alaska liquefied natural gas project and

facilitate 8-Star’s business operations,” including but not

limited to “Alaska LNG Project or ASAP content and

agreements, permits and authorizations, rights-of-way,

and geographical information system databases.”

The 8-Star LLC will allow Alaskans and others to

invest in the project at the appropriate time.

The second entity, Alaska LNG LLC, will be con-

trolled by 8-Star, have strategic partner investors and

hold project assets. Both the LLCs will be tax pass-

throughs

Alaska LNG will be the entity which will construct,

own and operate the project.

The new administrationMeyer said AGDC is working with the incoming

administration and Legislature.

Gov.-elect Mike Dunleavy has named former Gov.

Sean Parnell to be his special advisor on the AKLNG

KEITH MEYER

see AGDC COMPANIES page 5

A draft environmental impact statement for theAlaska LNG project is scheduled from FERC

in February.

SIDEBAR, Page 10: Armstrong on Dunleavy

SIDEBAR, Page 12: New BP system improves operational efficiency

PETROLEUM NEWS • WEEK OF NOVEMBER 25, 2018 3

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I n its recently published World Energy Outlook 2018

report, the International Energy Authority sees major

changes impacting world energy markets, with the grow-

ing use of electrical power, the increasing use of renew-

able energy sources, instability in oil markets and the

globalization of natural gas markets, as gas demand

grows.

The EIA sees oil consumption continuing to grow,

driven by petrochemical, trucking and aviation demand.

However, in the absence of an uptick in the number of

conventional oil development projects, shale oil devel-

opment could experience difficulty in keeping up with

that increasing demand, possibly leading to a supply gap

in the early 2020s.

Demand for natural gas continues to rise as China

becomes a major gas consumer. The use of solar photo-

voltaic power is expanding rapidly, but there is a need to

drive other low-carbon technologies and to push for fur-

ther improvements in energy efficiency, the IEA sug-

gests.

Three scenariosThe report considers three possible future energy sce-

narios: the continuation of current energy policies; the

introduction of new policies and energy targets that have

been announced; and the implementation of more radical

policies that fully address the need to meet global cli-

mate change goals. In all cases the report sees govern-

ment policies as decisive in determining what route ener-

gy usage and supply will take.

In general, energy demand is expected to grow, as the

center of gravity for energy consumption continues to

shift towards Asia. In its new policies scenario, the

report anticipates global energy demand increasing by

more than 25 percent by 2040, requiring more than $2

trillion per year in investment in new energy supplies.

“Our analysis shows that over 70 percent of global

energy investments will be government driven and as

such the message is clear — the world’s energy destiny

lies with government decisions,” said Dr. Fatih Birol,

IEA executive director. “Crafting the right policies and

proper incentives will be critical to meeting our common

goals of securing energy supplies, reducing carbon emis-

sions, improving air quality in urban centers, and

expanding basic access to energy in Africa and else-

where.”

Transformation of electricity sectorThe electricity sector is undergoing a particularly dra-

matic transformation. Its share in global energy use is

approaching 20 percent and is expected to grow further.

A combination of government policies and cost reduc-

tions for renewable energy sources is fueling a rapid

growth in the use of renewable energy power generation.

However, the characteristics of this form of electricity

supply require changes in the manner in which electrical

systems operate, to ensure supply reliability.

Even in advanced economies, where there are well

developed electricity supply systems, major investment

in the infrastructure will be needed, to accommodate

changes in the power generation mix. But lack of suffi-

cient revenues generated by wholesale power markets to

finance system upgrades could compromise supply reli-

ability, the report suggests. And continuing improve-

ments in energy efficiency have been dampening elec-

tricity demand and causing declines in electricity usage

in the developed world.

In developing countries, on the other hand, there is

rapidly increasing electricity demand with, for example,

the increasing use of cooling systems driven by electric

motors. While the implementation of cleaner and more

universally available and affordable electricity supplies

plays a crucial role in economic development and emis-

sions reductions in these countries, there are questions

over whether investments will appropriately match the

development needs.

Importance of solar PVThe report sees solar photovoltaic technology,

referred to as solar PV, as a key technology in future

electricity generation. With this technology becoming

increasingly competitive, the IEA sees solar PV installed

capacity moving past that of wind, hydropower and

eventually coal in the coming decades. The majority of

this capacity would be in utility-scale installations,

although there would also be strong support for installa-

tion of the technology by individual households.

However, the IEA also predicts that the operation of

electrical systems will need to become increasingly flex-

ible, to support the intermittency of solar PV generation.

The cost of battery technology is declining rapidly,

enabling batteries to increasingly compete with gas-fired

peaking plants in the task of leveling out the varying

solar powered generation. However, conventional power

plants remain the chief means of providing system flex-

ibility, supported by new system interconnections, the

use of electricity storage, and adjustments on the demand

side, the IEA says.

One interesting question revolves around the extent to

which the increasing use of electrically powered vehi-

cles, the use of electric heating and improved electricity

access will push up global electricity demand in the next

l F I N A N C E & E C O N O M Y

IEA predicts a volatile world oil marketSees possible oil supply shortfall in early 2020s, rising natural gas demand and growing use of renewables for power generation

However, the IEA also predicts that theoperation of electrical systems will need tobecome increasingly flexible, to support the

intermittency of solar PV generation.

see IEA OUTLOOK page 4

l L A N D & L E A S I N G

BOEM to prepare EISfor 2019 Beaufort Sea


The federal Bureau of Ocean Energy

Management said Dec. 15 that it will

prepare an environmental impact statement

for a potential 2019 oil and gas lease sale in

the Beaufort Sea. In a Federal Register

notice published Nov. 16, BOEM referred to

regulations implementing the National

Environmental Policy Act and said the EIS

would be for the proposed 2019 Beaufort

Sea lease sale in the Beaufort Sea planning

area.

The National OCS Oil and Gas Leasing

Draft Proposed Program was released Jan.

4. This proposed lease sale area includes all

available OCS blocks in the Beaufort Sea

planning area, 11,876 whole and partial

lease blocks covering some 65 million acres.

Two potential exclusion areas are identi-

fied in the draft: the Barrow and Kaktovik

whaling areas.

The current proposal calls for leasing and

an EIS for the entire Beaufort Sea planning

area, including the proposed whaling exclu-

sion areas.

BOEM’s Nov. 1 leasing report shows 40

Beaufort Sea leases active: Eni holds a block

of 13 leases off Nikaitchuq; ASRC

Exploration holds a block of 21 leases at the

Taktuk unit on the east side, offshore

between Deadhorse and Kaktovik; Hilcorp

and BP jointly hold three leases at Liberty;

and Hilcorp holds three leases off Northstar,

which it operates.

Scoping meetingsBOEM has scheduled four scoping meet-

ings, each of which will be from 7-9 p.m.:

•Dec. 3, Barrow High School, Utqiagvik;

•Dec. 4, Kisik Community Center,

Nuiqsut;

•Dec. 5, Community Center,

Kaktovik; and

•Dec. 8, Dena’ina Civic and Convention

Center, Anchorage.

In announcing the EIS preparation, Dr.

James Kendall, director of BOEM’s Alaska

region, said: “We look forward to receiving

thoughtful, substantive input on this EIS. We

especially need to hear from residents of the

Beaufort Sea communities, letting us know

how the proposed leasing area is currently

being used and what specific areas need

extra attention. To address these issues, we

will use rigorous science together with tradi-

tional knowledge and other input we receive

from this early step in the leasing process.”

The draft proposed leasing program pro-

poses lease sales in the Beaufort Sea in

2019, 2021 and 2023, BOEM said. The last

BOEM Beaufort Sea sale was in April 2007,

resulted in leasing of 90 blocks and brought

in more than $42 million.

Draft alternativesBOEM said the Federal Register notice

is a continuation of information gathering

“and is published early in the environmental

review process in furtherance of the goals

of NEPA.”

The agency said comments received dur-

ing scoping would help inform the EIS for

the lease sale, and if a decision is made to

hold the lease sale, “that decision and the

details related to the lease sale (including

the lease sale area and any mitigation) will

be announced in a Record of Decision and

Final Notice of Sale.”

BOEM said there are draft alternatives

on which it is also seeking public input:

•Offshore whale area alternative — pro-

posed to minimize conflicts between sub-

sistence whaling and oil and gas activities;

•Environmentally important areas alter-

native — proposed to reduce impacts to

known environmentally important areas,

Barrow Canyon, Harrison Bay/Colville

River Delta, the Bolder Patch and Kaktovik.

•Deepwater exclusion alternative —

focus environmental analyses while offer-

ing leases in areas with highest known

resource potential.

BOEM said maps and more details on

the alternatives can be found at

https://www.boem.gov/beaufort2019.

The agency said the draft alternatives are

based on previous OCS oil and gas leasing

programs and on response to stakeholder

comments during development of the

2019-24 draft proposed program. l


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few decades. A more aggressive move in

this direction could lead to a 90 percent

increase in electricity demand by 2040,

relative to the 60 percent increase envis-

aged in the IEA’s new policies scenario.

Increasing electrification would bring

benefits in terms of reducing local pollu-

tion, but power generation would require

further decarbonization if climate

change goals are to be met. And some

aspects of the energy system, including

road freight, shipping and aviation, are

not amenable to electrification using cur-

rent technologies, the IEA report says.

Impact on oil and gas demandAlongside this increasing use of elec-

tricity in a number of energy arenas, in

its new policies scenario the IEA sees the

use of oil-based fuels in cars peaking in

the mid-2020s. However, the use of

these fuels in aviation and the trucking

industry, coupled with growing petro-

chemical demand, would drive the

demand for oil to continue to grow. But

the use of oil and oil products in devel-

oping countries would account for all of

that demand growth.

The IEA anticipates global demand

for coal remaining somewhat static.

Although fewer new coal-fired power

plants are now planned than has been

typical in the past, a number of new

plants are currently coming into opera-

tion.

The IEA expects natural gas to over-

take coal as a global energy source in

2030, as trade in liquefied natural gas

more than doubles in response to

demand from developing countries,

especially China. Although the increas-

ing use of solar PV and wind power in

Europe will likely dampen the demand

for gas for power generation there, gas

supplies will remain vital for the heating

of buildings and for ensuring uninter-

rupted power supplies.

Climate change targetsBut the IEA’s new policies scenario

falls far short of meeting targets for

addressing global climate change.

Achieving those targets would require

much more aggressive moves towards

the use of renewable energy sources.

Interestingly, IEA’s report also points to

connections between people’s need for

access to water and how this may impact

fuel and energy technology choices.

The report also comments on steps

that industry can take to reduce green-

house gas emissions from fossil fuel

usage, including the elimination of gas

flaring, reducing methane emissions,

and the use of carbon dioxide for

enhanced oil recovery from oil fields.

Another possibility being investigated is

the conversion of hydrocarbons to

hydrogen, coupled with the capture of

the carbon. l

continued from page 3

IEA OUTLOOKThe IEA expects natural gas to

overtake coal as a global energysource in 2030, as trade in

liquefied natural gas more thandoubles in response to demand

from developing countries,especially China.

The agency said the draftalternatives are based on previousOCS oil and gas leasing programs

and on response to stakeholdercomments during development of

the 2019-24 draft proposedprogram.

By DAN JOLINGAssociated Press

The first formal count of polar bears in

waters between the United States and

Russia indicates they’re doing better than

some of their cousins elsewhere.

Polar bears are listed as a threatened

species because of diminished sea ice due to

climate change. But university and federal

researchers estimate a healthy and abundant

population of nearly 3,000 animals in the

Chukchi Sea off Alaska’s northwest coast,

according to a study published Nov. 14 in

Scientific Reports.

“It the near-term, it’s absolutely good

news,” said lead author Eric Regehr, who

began the project more than a decade ago as

a U.S. Fish and Wildlife Service biologist

and last year joined the University of

Washington’s Polar Science Center.

In the longer term, it doesn’t mean the

Chukchi Sea bear population will not be

affected.

“Polar bears need ice to hunt seals, and

the ice is projected to decline until the

underlying problem of climate change is

addressed,” Regehr said.

The study shows there is variation

around the world in the effects of sea ice

loss on polar bears, he said Nov. 15.

“Some subpopulations are already

declining while others are still doing OK,”

he said.

Polar bears are classified as marine

mammals because they spend most of their

lives on sea ice. Less sea ice means less pro-

ductive time to hunt ice seals, more time on

shore and longer, energy-sapping swims.

The world’s polar bears are divided into

19 subpopulations, including two in U.S.

waters. Besides Chukchi bears, the United

States shares the southern Beaufort Sea

population with Canada.

Stress in southern Beaufort bears from a

loss of sea ice was partly why the United

States in 2008 declared polar bears a threat-

ened species.

Fewer cubs were surviving into their

second year and adult males weighed less

and had smaller skulls, the U.S. Geological

Survey found. Researcher Steven Amstrup


229-6000

®Providing integrated environmental and engineering solutions for the oil and gas industryRick Farrand (907) 343-2705

project. Parnell, responsible for pas-

sage of Senate Bill 138 in 2014 which

allowed state equity participation in an

LNG project, was defeated in a re-elec-

tion bid by Gov. Bill Walker, who engi-

neered the state takeover of the Alaska

LNG project when industry partners

BP, ConocoPhillips and ExxonMobil

wanted to put the project on hold for

economic reasons.

In discussing the Parnell appoint-

ment, Tuckerman Babcock,

Dunleavy’s chief of staff, told KTUU

“No one knows more about the project

than the former governor.” Babcock

said Parnell had moved the project to a

point never achieved before.

After the state takeover of the proj-

ect, it moved ahead but funding has

been an issue. In the last legislative ses-

sion Walker budgeted for designated

program receipts for AGDC, allowing

it to accept money from third parties.

As proposed, the authority was open

ended, allowing AGDC to accept any

amount of money from third parties.

The House limited the amount to $1

billion for the fiscal year ending in

June and a separate $1 billion for the

fiscal year ending June 30, 2019. The

Senate dropped the $1 billion provi-

sions, but left references to designated

program receipts in the bill.

AGDC has been operating on what

Meyer has called an austerity budget,

stretching funds previously allocated

by the Legislature. During the session

Meyer said he wanted third-party fund-

ing in place in 2018 to keep up the pace

of the project, so funding issues won’t

cause slippage in the schedule to have

first gas in 2024-25. He has said that as

long as the project is in construction in

2020, AGDC can make the 2024-25

online schedule.

Project updatesIn an update on negotiations, Lieza

Wilcox, AGDC vice president commer-

cial and economics, said Chinese parties

visited Alaska in October to advance the

joint development agreement. Sales and

purchase agreement negotiations are

ongoing she said, with workshops for

key parties planned in November.

Meyer noted that a delegation from

Vietnam visited Oct. 22 and said the

JDA parties’ top negotiators were in

town Oct. 22-26, advancing agreements

and conducting upstream resource

reviews.

Wilcox said AGDC has been work-

ing with the Department of Revenue and

the Department of Natural Resources on

aligning economic model assumptions.

She said AGDC provided assumptions

for both a two-train and a phased three-

train scenario.

DNR, she said, is using their project

economic model in the department’s

royalty best interest finding process.

AGDC Senior Vice President of

Program Management Frank Richards

reviewed fulfillment of Federal Energy

Regulatory Commission data requests

and noted that on the Alaska Stand

Along Pipeline the U.S. Army Corps of

Engineers and the federal Bureau of

Land Management are expected to sign

a joint record of decision in mid-

November. A draft environmental

impact statement for the Alaska LNG

project is scheduled from FERC in

February. l


AGDC COMPANIESAGDC has been operating on

what Meyer has called anausterity budget, stretching

funds previously allocated bythe Legislature.

EXPLORATION & PRODUCTIONNational drilling rig count up 1 to 1,082

The number of rigs drilling for oil and natural gas in the U.S. was up by one the

week ending Nov. 16 to 1,082.

At this time last year there were 915 active rigs.

Houston oilfield services company Baker Hughes reported that 888 rigs target-

ed oil (up two from the previous week) and 194 targeted natural gas (down by one).

The company said 71 of the U.S. holes were directional, 939 were horizontal

and 72 were vertical.

Among major oil and gas producing states, Texas was up by three rigs and

Pennsylvania was up one.

Alaska, California, Colorado, Louisiana, North Dakota and Wyoming were

unchanged.

New Mexico was down by one and Oklahoma was down by two.

Baker Hughes shows Alaska with six active rigs, up one from a year ago.

The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May 2016 at 404.

—PETROLEUM NEWS

l E N V I R O N M E N T & S A F E T Y

Study finds healthypolar bears in Chukchi

see CHUKCHI BEARS page 6

purchased 50 percent of BP’s interests in

Milne Point and became field operator.

Gross production from Milne Point is

currently flowing at about 23,000 barrels of

oil per day. Wilkins said that production

could increase to around 24,000 or 26,000

barrels per day by the end of the year,

depending on which new wells come on

line by then. Hilcorp will have two drilling

rigs operating in the field next year and

anticipates drilling more than 20 wells,

bringing the production up to around 35,000

barrels per day by the end of 2019.

Viscous oilOne challenge at Milne Point is the

increasing proportion of viscous oil coming

from the field reservoir. Currently around

10,500 barrels per day of the field produc-

tion consists of this type of oil, oil that has a

relatively high viscosity and that, therefore,

is difficult to flow from the field reservoir

rock.

To address the challenge of viscous oil

production, Hilcorp has installed a small

polymer injection system on J pad at Milne

Point, injecting polymer along with water

into the reservoir for enhanced oil recovery,

Wilkins said. Apparently this technique has

a 30-year track record in the oil industry but

has not previously been tried at Milne Point.

J pad has two horizontal production wells

and two horizontal injection wells that are

being used for the polymer flooding pro-

gram.

Without polymer flooding it may only be

possible to recover some 10 to 15 percent of

the viscous oil that is in the reservoir. The

use of polymer flooding should enable the

production of an additional 2 million barrels

of oil using the four J pad wells, Wilkins

said. But, with the current polymer plant

being quite small, there is potential to

expand the use of this technology.

“I think it’s going to play a big role on

the North Slope,” Wilkins said.

In total there are 1.3 billion barrels of rel-

atively heavy oil at Milne Point. If, say 40

percent of that could be recovered, that

would represent a major boost to oil produc-

tion, he said.

In many ways Hilcorp’s efforts at Milne

Point reflect the company’s core business,

targeted at squeezing as much production as

possible from aging oil and gas assets.

“We do something different. We focus

our whole company … on the tail end of the

asset life,” Wilkins said.

LibertyIn Alaska, however, Hilcorp has also

been forging ahead with some projects

aimed more at the front end of field life. In

particular the company is planning to devel-

op the Liberty oil field from a gravel island

on the federal outer continental shelf of the

Beaufort Sea. Liberty will involve a more

than $1 billion investment for Hilcorp, with

the potential to produce more than 70,000

barrels per day of oil and a field life of 20 to

30 years. In October the Bureau of Ocean

Energy Management issued a record of

decision, approving development of the

field essentially in the manner that Hilcorp

had proposed.

The development plan involves the con-

struction of a 9.3-acre gravel island in 19

feet of water, and the laying of 5.6 miles of

a pipe-within-a-pipe pipeline to deliver oil

into the onshore Badami pipeline. Hilcorp

has commented that the field design reflects

the design of other Beaufort Sea offshore

fields.

“Keep it simple and work on what’s

worked in the past,” Wilkins said.

Wilkins commented that Hilcorp needs

to talk to its partners about the approved

development plan and to obtain a federal

permit for the pipeline design. The compa-

ny anticipates obtaining a Bureau of Safety

and Environmental Enforcement permit for

a worst-case discharge contingency plan-

ning. This should happen at some time in

the first half of next year, following which

the project should move ahead.

Cross-inlet pipeline projectIn the Cook Inlet region, Hilcorp recent-

ly completed its cross-inlet pipeline project.

This project has connected the oil produc-

tion infrastructure on the west side of the

inlet via a subsea pipeline to the oil refinery

at Nikiski on the Kenai Peninsula. The new

pipeline arrangements have eliminated the

need for the Drift River oil terminal on the

west side of the inlet, a terminal beset with

safety concerns because of its proximity to

the Redoubt Volcano.

At this point the reconfigured pipeline

system is delivering 15,000 barrels of oil

per day to the Nikiski refinery, Wilkins said.

The project also involved laying a new sub-

sea gas pipeline, to maintain the capacity of

cross-inlet gas transportation. During the

past summer Hilcorp laid 24 miles of

pipeline and reconfigured 115 miles of

existing pipeline. The project, which cost

$90 million, provided 300 construction

jobs, involving 500,000 manhours of work

and 53 contractors, Wilkins said. Wilkins

commented on the successful coordination

with government agencies, with 92 permits

being issued without delaying the project.

“Everybody wanted to see this project

done right and wanted to see it done the

right way,” he said.

Wilkins also commented on Hilcorp’s

philosophy of pushing responsibility to the

lowest possible level in the company’s

organization, making work enjoyable and

encouraging people to be creative. He par-

ticularly commented on Hilcorp Alaska

safety record, which has been improving

steadily since the company started operat-

ing in the state. It seems that 2018 is seeing

a particularly low rate of recordable safety

incidents. l


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Better.

at the time said the trends were consistent

with changes in nutritional status likely

associated with declines in sea ice.

A more recent study by USGS researcher

Karyn Rode found that Chukchi bears

spend more time on shore and have almost

30 fewer days to hunt seals on ice than 20

years ago, Regehr said. However, that does-

n’t appear to have affected the population,

he said. Polar bears have an amazing ability

to build fat reserves, Regehr said, and the

Chukchi’s abundant seal population appar-

ently allows bears to compensate for the

loss of hunting time. The difference with the

southern Beaufort was obvious from an air-

plane, he said.

When ice melts, many Chukchi bears

rest on Russia’s Wrangell Island, where they

occasionally can find a whale or walrus car-

cass.

The Chukchi population study used data

collected by sampling about 60 polar bears

between 2008 and 2016. Some were fitted

with GPS transmitters. The data was used in

a model designed to estimate population

size for highly mobile large carnivores.

Blaine Griffen, an associate professor of

biology at Brigham Young University, said

the study was good news.

“It’s nice to see that there’s at least one

population that’s doing better than others,”

he said.

The difference may be geography, he

said. The Chukchi Sea has a more extensive

continental shelf area with primary produc-

tivity that enables the food chain to support

seals. l


CHUKCHI BEARS


HILCORP PRODUCTION

er and co-chair of the transition policy

council. While Parnell and Huber will con-

tinue to serve in the position of special

adviser on AK LNG and senior policy

adviser/special assis-

tant, respectively,

after Dunleavy is

sworn in on Dec. 3,

Dan Saddler’s role

“remains to be seen,”

transition team

spokesperson Sarah

Erkmann Ward told

Petroleum News

Nov. 18.

According to Babcock the transition

will not have separate teams working on

each policy area like previous transitions.

Instead, the policy council will form sepa-

rate advisory teams as needed. The coun-

cil’s job is to take the policy statements

that Dunleavy made during the campaign

and flesh them out for the commissioners

of each state government department.

Sean Parnell ‘well positioned’ to work on LNG project

Parnell, who was the state’s 10th gov-

ernor from 2009 to 2014, will be analyz-

ing the Alaska LNG

project as it stands

today and making

recommendations to

Dunleavy on the

next steps.

Babcock said

Parnell is “well posi-

tioned” for the task:

“No one knows

more about the proj-

ect than the former

governor. Sean Parnell, in his previous

work on AK LNG, moved the project

along to a point it had really never reached

before. And he stands ready to evaluate

where we are as we move forward and

advise the governor-elect.”

The former governor took over from

Gov. Sarah Palin when she stepped down

to run for U.S. vice-president at the

request of Republican presidential candi-

date John McCain.

Parnell, who lost to current Gov. Bill

Walker when he later ran for re-election,

had served as Alaska’s lieutenant gover-

nor, an Alaska state senator, a state repre-

sentative, deputy director of the Alaska

Department of Natural Resources Division

of Oil and Gas and also worked for oil and

gas company ConocoPhillips. He has been

an attorney in private practice for more

than 20 years in the areas of commercial

transactions and commercial litigation.

As a legislator in the 1990s, as lieu-

tenant governor and as governor, Parnell

was involved in negotiating and passing

gas line legislation. As governor, he spon-

sored or helped pass several pieces of leg-

islation creating and authorizing the

Alaska Gasline Development Corp., or

AGDC. While serving at DNR’s Division

of Oil and Gas, Parnell served as an alter-

nate lead negotiator on the state’s gas line

team. As an attorney, his experience

includes work on oil and gas transactions.

He currently works for the Anchorage

law office of Holland & Hart LLP.

Dan Saddler: conservative,communicator, pro-resourcedevelopment

Saddler, R-Eagle River, who was

defeated in this year’s Republican primary

for Senate District G by Rep. Lora

Reinbold, R-Eagle River, will leave his

seat in the state House in January.

His professional

experiences include

being an engineering

magazine editor, a

newspaper reporter,

a legislative staffer

for four Republican

lawmakers in

Alaska, DNR

spokesman, deputy

press secretary for

former Gov. Frank

Murkowski and a public relations execu-

tive for Arctic Slope Regional Corp.

He has also served as an alternate

member for the state of Alaska on the U.S.

Department of Interior’s royalty policy

committee, which advises Interior

Secretary Ryan Zinke on policy and strate-

gies to improve management of the multi-

billion-dollar federal and American Indian

mineral revenue program, including oil

and gas policy and regulations.

Originally from Ohio, he got his bache-

lor’s degree from Miami University in

1983 and his master’s degree in journal-

ism from Ohio State University in 1987.

Saddler worked as a newspaper reporter in

Ohio and later at the Anchorage Times,

where he covered military, resource devel-

opment and finance.

Saddler and his wife Chris raised their

children in Eagle River where they have

spent the last 26-plus years.

When running for the Senate earlier

this year, Saddler said, “After my journal-

ism career, I entered public service

because I believe our founding fathers had

it right — free men must step up and gov-

ern themselves to protect their God-given

rights. … I’m a conservative, pro-life, pro-

gun, pro-business, pro-resource develop-

ment, small government kind of guy.”

Brett Huber: legislative, naturalresources policy savvy

Brett Huber Sr., a veteran legislative

staffer who managed Dunleavy’s cam-

paign, will be a senior policy advisor in

the administration.

He has a low-key

manner and years of

experience in legisla-

tive and natural

resource issues. He

was chief of staff

and policy advisor to

state senators Rick

Halford, Lesil

McGuire and Pete

Kelly as well as Dunleavy.

According to Must Read Alaska, Huber

has an “in-depth knowledge of natural

resource policy and fish and game man-

agement. He previously worked as execu-

tive director of the Kenai River

Sportfishing Association and as a program

director for the Alaska Department of Fish

and Game. Huber is past president of the

Alaska Outdoor Council and AOC

Political Action Committee. He also

served as chairman of the public advisory

committee for the Exxon Valdez Oil Spill

Trustee Council.

—KAY CASHMAN

AIDEA gets prestigiousnational award

THE COUNCIL OF DEVELOPMENT

FINANCE AGENCIES, or CDFA, recently

announced the Alaska Industrial

Development and Export Authority

(AIDEA) as winner of the 2018 CDFA

Distinguished Development Finance State

Agency Award.

“The CDFA Excellence in

Development Finance Awards recognize

outstanding development finance pro-

grams, agencies, leaders, projects, and

success stories,” said Toby Rittner, presi-

dent and CEO of CDFA. “These awards

honor excellence in the use of financing

tools for economic development, as well

as individuals who champion these

efforts.”

On hand to receive the award for

AIDEA were CEO and Executive Director

John Springsteen; Chief Investment

Officer Alan Weitzner; Infrastructure

Development Sr. Finance Officer Jeff San

Juan; Business Development and

Communications Director Michael Catsi.

—KAY CASHMAN

Ayakulik Island landswap benefits Lynden

AYAKULIK ISLAND IS PARTIALLY

OWNED by Jim Jansen, chairman of

Lynden Inc., a shipping and logistics com-

pany. A funding bill recently passed by the

U.S. Senate authorizing a land swap


Fire Protection Specialists

(907) 336-5000www.gmwfireprotection.com

GMW has many years of experience working in Deadhorse, supporting oil field activities on the North Slope of Alaska.

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• Fire Sprinkler Inspections and Maintenance• Fire Alarm Design and Installation

• Fire Alarm Inspections and Maintenance• Special Hazards Design and Installation

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• Fire pump certification and inspections• Portable gas monitors and systems installation and calibration

• Kitchen hood service and maintenance• CO2 system maintenance and recharge

GMW Fire Protection has offices in Anchorage and DeadhorseAnchorage Honolulu Los Angeles

• Commercial Diving• Marine Construction Services• Platform Installation, Maintenance and Repair• Pipeline Installation, Maintenance and Repair• Underwater Certified Welding• NDT Services• Salvage Operations• Vessel Support and Operations

• Environmental Services• Oil-Spill Response, Containment and Clean-Up• Hazardous Wastes and Contaminated Site Clean-

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Maintenance, Management, and Operations

American MarineServices Group

6000 A Street, Anchorage, AK 99518

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907-659-9010www.amarinecorp.com • www.penco.org

[email protected]


INSIDER

SEAN PARNELLDAN SADDLER

BRETT HUBER

see INSIDER page 9

MIKE DUNLEAVY

JUD

Y P

ATR

ICK

“The differential has blown out to

such an extreme level for two reasons:

the lack of access to markets and the fact

that we have only one customer (the

U.S.),” said Tim McMillan, chief execu-

tive officer of CAPP.

He suggested the cloak of secrecy that

surrounds transportation and marketing

makes it impossible to get a precise esti-

mate on how much the discounts are

costing, but said it is entirely possible the

real costs could reach C$100 billion a

year.

Campaign for curtailmentCenovus Energy and Canadian

Natural Resources — accompanied by

junior producers Athabasca Oil and

Whitecap Resources — are campaigning

for the Alberta government to temporari-

ly curtail oil output in the province to

cope with the bottleneck in pipelines.

Athabasca CEO Ron Broen said the

government has legislation on the books

to ask producers to restrain production

and that would “have an immediate

impact on the (price) differentials.”

He said Premier Rachel Notley should

determine “what is best for the people of

Alberta and not any particular company

or big industry.”

Cenovus CEO Alex Pourbaix said

Canadian crude is “now the lowest-price

oil in the world. This is a crisis for gov-

ernments, the industry and every person

in Alberta who relies on services that

depend on resource revenues.”

The company said, “this is an extraor-

dinary situation brought on by extraordi-

nary circumstances.”

“Our inability as a country to build

critical new pipeline projects means we

are now in a situation where we can’t get

our growing oil production to market.

This has resulted in a market failure.”

Cenovus pointed out that Alberta used

the current legislation nearly 40 years

ago to impose mandatory production cuts

during a dispute with the Canadian gov-

ernment over a national energy program,

adding that “government has a duty to

protect the value of its oil resources on

behalf of Albertans.”

Pourbaix said companies on both

sides of the issue are unable to negotiate

a settlement because that would be seen

as collaboration, whereas the Notley gov-

ernment can use its existing legislation to

order a temporary reduction to alleviate

the price discounts.

Integrated companies don’t want cutsOn the other side of the fence, the

leading integrated companies — Suncor

Energy, Imperial Oil and Husky Energy

— show no signs of endorsing the cam-

paign for production cuts.

They all argue that market forces

should prevail, which means the lower

the price of WCS the cheaper they can

acquire feedstock for refineries.

That view was endorsed by Martin

King, an analyst with GMP FirstEnergy,

who said it would be simply better to let

the market deal with excess supplies than

to have the province intervene.

“It’s going to be ugly to watch, but the

market will end up correcting this faster

than any kind of government edict would

bring about,” he told the Calgary Herald.

Whitecap CEO Grant Fagerheim said

he generally prefers market solutions, but

he noted the transportation system is bro-

ken because of the Canadian govern-

ment’s inability to see construction pro-

ceed on pipelines such as the Trans

Mountain expansion and Enbridge’s

Northern Gateway.

He said a market failure caused by

governments can only be fixed through

political intervention, calling for a

“roundtable discussion” to determine the

benefits of suspending output.

Report: Voluntary reductionA report by Peters & Co. estimates the

industry has already voluntarily reduced

production by about 140,000 barrels per

day of bitumen and heavy oil.

Pourbaix estimated that an effective

solution would need cutbacks of 200,000

to 300,000 bpd.

So far, the Notley government has

skirted a public debate on the issue of

curtailment, opting instead to lobby the

Canadian government to buy more tanker

cars to boost crude-by-rail shipments out

of Alberta, while pressing for more

pipelines to be built.

Alberta Energy Minister Marg

McCuaig-Boyd said the crude-by-rail

option is currently receiving the most

attention.

Warning letter from large investorThe sense of urgency, as companies

start preparing capital budgets for 2019,

got a sharp jolt from Darren Peers, an

analyst at Los Angeles-based Capital

Group, which runs about US$1.7 trillion

in global assets, including a stake of

US$30 billion in Canada’s oil patch and

is the largest shareholder in Suncor,

Canadian Natural, Enbridge and Keyera,

along with significant stakes in

TransCanada, Cenovus and Whitecap.

In a letter to Prime Minister Justin

Trudeau, Peers warned that investors and

companies will avoid the Canadian ener-

gy sector unless more is done to improve

market access.

“Capital Group’s energy investments

are increasingly shifting to other jurisdic-

tions and that is likely to continue with-

out strong government action,” he wrote.


We thank these companies for sharing our vision of a healthy environment and a vibrant economy for many generations to come.

Nature is Alaska’s business

Corporate Catalysts | $50,000+ConocoPhillips Alaska, Inc.Spawn Ideas

Corporate Leaders | $25,000+Alaska Airlines and Horizon AirBPPetroleum News

Corporate Partners | $10,000+The Chariot Group

Corporate Members | $1,000+49th State Brewing Co.ABR Inc.Alaska Wildland Adventures Inc.Allen MarineBristol Bay Native Corp.Chugach Alaska Corp.Denali National Park Wilderness Centers Ltd.Icy Strait PointPacific Star EnergyPrice Gregory International Inc.

Corporate Council on the Environment

715 L Street, Suite 100 Anchorage, Alaska 99501 907-865-5700 Photo: © Lance Nesbitt © Ami Vitale

natureconservancyalaska

nature_ak

To join us visit nature.org/alaska

well. The well location appears to be on

the western side of the Prudhoe Bay unit.

BP is operator for the well, but there is no

public information about how the well

would be funded.

Methane hydrate is a solid in which

molecules of methane, the primary com-

ponent of natural gas, are held inside a

lattice of water molecules. Huge quanti-

ties of the material, which remains stable

within a certain range of relatively high

pressures and low temperatures, are

known to exist around the base of the per-

mafrost under the North Slope. The mate-

rial represents a major gas resource with

the possibility of commercial production,

should a viable production technique be

developed. Production would involve

some combination of reducing the pres-

sure or increasing the temperature around

the hydrates.

Several methane hydrate test wells,

including two on the North Slope, have

been drilled in various parts of the world

in the past. So far, although short-term

gas production from hydrates has been

demonstrated, no one has demonstrated

sustained production. In addition to the

demonstrating the technical feasibility of

achieving gas production over extended

periods of time, it would be necessary to

assess the development and production

costs, to determine whether production is

economically viable.

—ALAN BAILEY


METHANE WELL


OVER A BARREL

see OVER A BARREL page 9


Oil Patch Bits

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“I hope that your government will be

even more proactive in securing mar-

ket access which will assure the com-

petitiveness of Canadian energy com-

panies.”

Peers candidly warned Trudeau that

if market access continues to be under

threat “global investors will seek

opportunities elsewhere and the

Canadian companies will be further

impaired. (They) will struggle to

access capital, create jobs, develop

resources and provide a significant

revenue stream (for Canada).”

Martin Pelletier, portfolio manager

at TriVest Wealth Counsel in Calgary,

said “desperate times call for desperate

measures,” but he would sooner see

the industry come up with a solution

that have the government impose one.

Where the province could play an

important role would be to involve oil

executives to mediate an industry-led

agreement.

A spokeswoman for Canada’s

Natural Resources Minister Amarjeet

Sohi said the government understands

“that market access is an essential

component to Canadian competitive-

ness and that is why we are working

hard to expand to non-U.S., global

markets.”

—GARY PARK


OVER A BARRELbetween the federal government and a pri-

vate owner would give Jansen complete

ownership of a roughly 11-acre stretch of

federally owned tideland from Lash Dock

to Shannon’s Point in Womens Bay south

of the city of Kodiak, the Kodiak Daily

Mirror reported.

The Coast Guard funding bill, if

signed into law, would allow the swap of

the privately owned Ayakulik Island off

southwest Kodiak Island in the Kodiak

Archipelago for the Womens Bay

acreage.

Tiny Ayakulik Island is a nesting place

for red-faced cormorants, a bird native to

the Aleutian Islands but observed infre-

quently on Kodiak. The 11-acre island

would be set aside for conservation under

the U.S. Fish and Wildlife Service.

The land in Womens Bay is in an area

of Coast Guard activity. The Coast Guard

has final authority on development in the

area and can place “operational restric-

tions on commercial activity,” the bill

states.

Republican Sen. Dan Sullivan intro-

duced the land swap provision in the bill.

“The land transaction could occur

without congressional involvement, were

it not for the need to provide the U.S.

Coast Guard with the tools necessary to

protect operations,” the senator’s office

said in a statement.

More information can be found from:

Kodiak (Alaska) Daily Mirror,

http://www.kodiakdailymirror.com.

—ASSOCIATED PRESS


INSIDER

Don’t miss another issue!Subscribe to Petroleum News: Call 907.522.9469

Preliminary results from the sale show

Lagniappe bidding a total of $14.1 mil-

lion, an average of more than $72 per acre

for 195,200 acres, a large block south of

Badami. This acreage is immediately east

of a block of 12 tracts held by Oil Search,

and south of a large block of acreage

which Eni acquired earlier this year from

Caelus Energy Alaska. The tracts drew no

competing bidders.

Repsol E&P, a partner at Pikka, was

apparent high bidder on 12 tracts, some

26,560 acres, for $13.1 million, an aver-

age of $492 per acre, on tracts primarily

east of Pikka.

Two of those were the only unleased

tracts between Repsol and Oil Search

acreage some distance south of Pikka.

One of the Repsol tracts is at the south-

ern tip of the Pikka unit. The remaining

nine are generally between Brooks Range

Petroleum Corp. acreage and that compa-

ny’s Southern Miluveach unit south of

Kuparuk in an area east of Pikka.

On four those tracts Repsol placed the

highest bid per acre in the sale, $586. The

totals bid for those four tracts, more than

$1.5 million each, were also the highest

bonus bids on sale tracts.

Prior to the sale Repsol held 234,533

acres of state oil and gas leases.

A bidding group of J. Andrew

Bachner, 90 percent, and Keith C.

Forsgren, 10 percent, tied with

Regenerate Alaska Inc. (each bidding

$26.11 per acre) for a tract on the eastern

edge of the sale, adjacent to existing

Regenerate acreage and ExxonMobil

acreage south of Point Thomson.

Regenerate is an 88 Energy subsidiary,

and currently holds some 14,194 acres of

state oil and gas acreage. Bachner and

Forsgren are frequent oil and gas lease

sale bidders: Bachner currently holds

some 15,513 acres of state oil and gas

leases; Forsgren holds some 1,724 acres.

ASRC Exploration LLC and Caracol

Petroleum LLC were unsuccessful bid-

ders in the North Slope areawide sale.

Caracol is a working interest owner in the

Southern Miluveach unit and currently

hold some 25,789 acres of state oil and

gas leases; ASRC Exploration is the oper-

ator of the Placer unit and currently holds

some 14,715 state oil and gas lease acres.

Neither of those units are in production.

Beaufort Sea saleOil Search dominated the Beaufort Sea

sale, taking four of eight tracts in that sale

for $529,368 of the $848,198 bid. The

state received 12 bids on eight tracts,

20,270 acres, in that sale.

The Oil Search tracts are north of

Pikka, operated by Oil Search, and adja-

cent to existing Oil Search acreage. The

company bid from $48.03 to $57.17 per

acre for the tracts, which range in size

from 2,080 to 2,880 acres, a total of

10,080 acres.

Hilcorp Alaska took a single tract,

1,680 acres, for $57.52 per acre, at the

northwestern corner of the Liberty

prospect which Hilcorp is in the process

of developing. Hilcorp is a Cook Inlet and

North Slope producer, with some 329,677

acres of state oil and gas leases prior to

this sale.

J. Andrew Bachner, 90 percent, and

Keith C. Forsgren, 10 percent, took three

of the seven tracts on which they bid, los-

ing out to Oil Search on the other four.

The bidding group paid $26.11 an acre for

a total of 10,080 acres. The three tracts

are adjacent to each other at Harrison

Bay.

SALSAThe division had no takers for three

packages of tracts, each offered as a

block, for which there is publicly avail-

able data.

In announcing the block offerings —

called Special Alaska Lease Sale Areas or

SALSA — in July, Walsh said the divi-

sion “has gathered and highlighted large

amounts of publicly available data that

bears on the SALSA areas.”

Each of the three SALSA areas,

Harrison Bay, Gwydyr Bay and Storms,

has 3-D seismic available, data which was

acquired through the state’s tax credit

program and available through the

Department of Natural Resources for a

modest fee, Walsh said in announcing the

program this summer.

Two of the SALSA areas were in the

Beaufort Sea sale area, Harrison Bay on

the coast west of the Colville River unit

and Gwydyr Bay on the central North

Slope coast between Milne Point and

Northstar north of Prudhoe Bay. Storms

was in the North Slope sale area, south of

Prudhoe Bay and immediately east of the

Guitar unit.

Bidders were required to bid on the

blocks as a whole. The block sizes varied,

with Harrison Bay the largest at some

66,430 acres, Storms at some 30,720

acres and Gwydyr Bay at some 23,040

acres.

—KRISTEN NELSON


Armstrong and its partners are developing

their acreage west of the central Slope.

Lagniappe top exec speaksPetroleum News, or PN, tracked down

Lagniappe’s founder and top executive

who said the company planned to aggres-

sively explore the block, which is exactly

what Armstrong did when it acquired its

leases in the Cook Inlet basin and west of

the central North Slope where it found a

huge oil deposit that was missed by previ-

ous drilling and is currently being devel-

oped by Armstrong partner Oil Search

(Repsol is also a major partner).

Beyond that, PN was sworn to secrecy

until the company is ready to say more.

As reported by a PN news bulletin on

Nov. 15, titled “Lagniappe connected to

Armstrong???” another similarity with

Armstrong is that Lagniappe used a dif-

ferent company name and agent for a

major lease sale transaction.

In Armstrong’s case it was 70 & 148

LLC, the latitude and longitude coordi-

nates for Prudhoe Bay, then North

America’s largest oil field, bidding about

$6.9 million on 200,000 acres-plus in the

October 2008 state North Slope and

Beaufort Sea areawide lease sales and

using Bill Armstrong’s assistant’s name

and address as the agent. (Google maps

showed her apartment was close to

Armstrong’s Denver office.)

Armstrong and its partners could have

as much oil at their Pikka and Horseshoe

discoveries west of the central North

Slope as that of Prudhoe Bay, says former

Commissioner of Natural Resources

Mark Myers, who has seen the well logs.

The discoveries prompted a re-think of

North Slope oil potential and new explo-

ration and development, although it is still

in its early stages.

Which company savvyenough to hide identity?

In the case of Lagniappe, which means

“a little extra” in Cajun, the principal in

charge of the firm at the address on

Lagniappe's Alaska business license is

attorney Durelle Allen of Allen & Kirmse

Ltd., who declined to comment on the

lease sale.

The individuals from the many nation-

al and international oil companies that

gave Allen & Kirmse glowing recommen-

dations, posted on the firm’s website, in

everything from land services to broker-

ing deals included Armstrong Vice

President and minority owner Ed Kerr,

who said their “technical expertise was

the very best … while their diligence and

timeliness allowed us to maintain a com-

petitive edge on our competition. Over

the past 32 years,” Kerr said he has

worked with Allen & Kirmse “in 12 dif-

ferent states as well as the Beaufort Sea.”

When PN asked Bill Armstrong if he

was behind the huge North Slope lease

acquisition, he said “no comment.”

So, which company with deep enough

pockets to gamble $14.1 million is savvy

enough to use a fake name and an agent to

hide behind?

Stay posted. l

Armstrong on DunleavySo what does Bill Armstrong of Armstrong Oil & Gas

think of Gov.-elect Mike Dunleavy?

“This is a great time to be in Alaska. Politically, maybe

the best it has been in the 17 years I have working been in

the state. Republicans control both houses and there is a pro-

development governor,” he told Petroleum News Nov. 19.

“The new governor, Mike Dunleavy, is a really smart guy

who appreciates the importance of proper resource (oil and

gas) development. Gov. Dunleavy knows that Alaska, par-

ticularly the North Slope, still has a lot of remaining potential and realizes that the

state can work together with the industry for smoother regulatory/permitting

issues, access to infrastructure, buildout of roads and facilities, the importance of

a fair, stable fiscal regime, etc.,” Armstrong said.

“The governor’s appointment of Sean Parnell as adviser on the AK LNG proj-

ect is a good example of his practicality. Sean really understands the business. He

has been in the oil business prior to public service and he knows the relationships

between government and industry well. As governor, Sean put in place a fair,

competitive tax law, SB 21, that replaced the disastrous ‘windfall profits’ tax

(called ACES). Sean and the new governor know the importance of a gas pipeline

and what it could do for the state,” he continued.

“Corri Feige is another good example of Dunleavy’s practicality. Corri was

DNR Division of Oil and Gas director before. She knows the importance of work-

ing with big and small companies alike. She understands that the state can work

hand in hand with the industry and everyone can win.”

—KAY CASHMAN


NEW PLAYER

BILL ARMSTRONG


LEASE SALEHilcorp will have two drilling rigs

operating in the field next yearand anticipates drilling more than20 wells, bringing the productionup to around 35,000 barrels per

day by the end of 2019.

Catch thesefall savings


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

l N A T U R A L G A S

Vol. 23, No. 37 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of September 16, 2018 • $2.50

page2

Newfield looking at Alaska;Begich, Dunleavy weigh in;L48 shale boom tapering off TEXAS-BASED INDEPENDENT

NEWFIELD EXPLORATION has people visit-ing Alaska to look at the North Slope’s geo-logic potential.Headquartered in The Woodlands, Texas,the visiting scientists are not handing out busi-ness cards to everyone they meet, so the visitis very hush-hush.Per the big independent’s website,

Newfield is an oil company focused on profitably growing liq-uids-rich unconventional resource plays in the Anadarko andArkoma basins of Oklahoma, the Williston basin (Bakken) of

State looks for RIK gas interest;includes Prudhoe, Point ThomsonThe Alaska Department of Natural Resources, Division of Oiland Gas, is soliciting interest in potential royalty in-kind naturalgas from the Prudhoe Bay and Point Thomson units. The solicitation, dated Aug. 31, asks for expressions of interestby letter within 30 days.

DNR said it is considering whether to take the state’s royaltyon future natural gas production from Prudhoe Bay and PointThomson in value or in kind. “If DNR takes the royalty in kind, it is currently considering anoncompetitive contract,” solicitation says. The department saidthat to consider a noncompetitive contract it “first considerswhether there is a lack of competition and whether a noncompet-

GAO questions lack of preliminarydesign review for polar icebreakersThe U.S. Government Accountability Office has issued areport raising questions over the reliability of the estimatedcost and schedule for developing new heavy polar icebreakersfor the U.S. Coast Guard. The Department of HomelandSecurity, the agency that includes the Coast Guard, hasaccepted the GAO’s findings.

Currently the Coast Guard only operates two polar capableicebreakers: the Healy, a medium duty icebreaker, much usedas a base for polar research, and the Polar Star, which is aheavy-duty icebreaker but is 41 years old. A third icebreaker,the Polar Sea, sister ship to the Polar Star, is laid up in port andhas become a source of spare parts for the Polar Star.

Colville barges diesel to SlopeTransportation company Colville has transported 2 milliongallons of diesel fuel by barge to Prudhoe Bay on the NorthSlope, the company has announced. This was the first bulkdelivery of fuel to the Slope by barge since the 1990s, andpossibly the largest shipment of its type ever, the companysaid. The supply barge, owned and operated by CrowleyMarine, arrived at Deadhorse on Sept. 6. Because of the shal-low water depths, the barge had to be moored 3 miles off-shore, with the fuel being carried to shore in smaller vessels.Onshore, the fuel was pumped into tanker trucks for transferto Colville’s tank farm in Deadhorse.

The U.S. Coast Guard and BP oversaw the operation, saidDave Pfeifer, Colville president and chief executive officer.More typically, fuel for use on the North Slope is deliveredto Deadhorse from a refinery in Valdez, using tanker trucks

see INSIDER page 10

see GAS INTEREST page 8

see POLAR ICEBREAKERS page 8

see DIESEL DELIVERY page 7

EIA: Brent averaged $73/barrel inAugust; US crude 10.9 million bpd

Pt Thomson extensionState stays 2019 date in 2012 settlement on Alaska LNG project progress


The state has stayed a deadline in its 2012 set-tlement with Point Thomson operatorExxonMobil Production Co. The settlement required a plan for expansion ofPoint Thomson production by the end of 2019 if amajor gas sale hadn’t been sanctioned by June2016. Late last year the state and ExxonMobilreached agreement on the company’s expansionplan. The settlement required either increasingproduction to 30,000 barrels per day of condensate(the current facilities support 10,000 bpd, althoughthat rate has rarely been achieved) or moving nat-ural gas to Prudhoe Bay for injection there (requir-ing an agreement with the Prudhoe Bay working

interest owners and construction of a gas pipelinebetween the fields). Moving natural gas to Prudhoe wasExxonMobil’s choice. That work has now been deferred.

An optimistic outlookConocoPhillips ups GMT-2 forecast; moves ahead on Willow, further explorationBy ALAN BAILEY

Petroleum News

In a highly upbeat presentation to ajoint meeting of the Alaska House andSenate Resources committees on Sept.10, Scott Jepsen, ConocoPhillips Alaskavice president of external affairs andtransportation, overviewed his compa-ny’s current exploration and develop-ment plans in Alaska, and the resultingmajor uptick in the company’s expectations for itsfuture Alaska oil production.

Increased production estimateJepsen said that his company has upped the esti-

mated peak production for its GreaterMooses Tooth 2 development in thenortheastern National PetroleumReserve-Alaska from 30,000 barrels ofoil per day to 38,000 bpd. The federalBureau of Land Management has pub-lished a final environmental impact state-ment for the project, with a record ofdecision anticipated in October. Thatcould lead to a final investment decision

for the project later this year, Jepsen said.Meanwhile the Greater Mooses Tooth 1 devel-opment is moving ahead, with first oil anticipatedby the end of the year. Peak production is expectedto run at about 30,000 bpd.

Trudeau treads carefullyAdministration examining options to salvage Trans Mountain, including an appeal

By GARY PARKFor Petroleum News

T he future of large-scale resourceprojects in Canada depends heavilyon how his government responds to afederal court ruling that has stalledprogress on the Trans Mountain pipelineexpansion, said Prime Minister JustinTrudeau.

“What we need is not just thispipeline. We need to be able to build resource proj-ects of all different types with appropriate sociallicense,” he told reporters.He said the objective is to ensure that TransMountain and other projects do not get “bogged”down in endless court battles.

Trudeau, firing back at his critics,noted that TransCanada’s Keystone XLproject was long ago approved inCanada, but has become entangled in theUnited States over a failure to engage indetailed consultations with communitiesalong the pipeline right of way.

“This is the way that the world isgoing and if we can demonstrate clarityand certainty for businesses through theprocess to the investors we will be ableto get more built,” he said.

Decision impacts communitiesTrudeau called the court decision on TransMountain “frustrating and devastating” for com-

see POINT THOMSON page 12

see CONOCO OUTLOOK page 11

see TRANS MOUNTAIN page 9

Also Sept. 10, the Alaska GaslineDevelopment Corp. announced thatExxonMobil and AGDC had agreed towhat the corporation called “certain keyterms including price and a volume basisfor a Gas Sales Agreement,” captured ina “Gas Sales Precedent Agreement”

signed Sept. 10.

SCOTT JEPSEN

JUSTIN TRUDEAU

A limited offer from Petroleum News!

First time subscribersmention this ad to receive 15% off.

CONTACT

Renee Garbutt [email protected]

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operational costs at Prudhoe Bay by 6 percent, thus adding years to the

expected life of the field.

“It’s exciting times,” Weiss said.

To illustrate some of the types of technical innovation that are improv-

ing operational efficiencies in the field, Weiss introduced some BP

employees, who described technologies that they are now using.

Drone useRandy Sulte, program execution manager, described the use of drones

to carry out inspection operations more efficiently and safely. For exam-

ple, following flooding and subsequent road damage on the North Slope

last spring, it was possible to use a drone to obtain high quality images for

appraising the situation. Previously it would have been necessary to do an

overflight in an aircraft, an operation that would not have been immediate-

ly possible because of low clouds. And the drone can be used to eliminate

personnel safety risks in operations such as inspecting flares.

Remote accessHolly Willman, Prudhoe Bay East Area operations support team leader,

demonstrated technology in which a 3-D virtual reality headset is now

used to remotely move around in and inspect facilities on the North Slope.

This technology enables, for example, a facilities engineer to make meas-

urement of pipework in a facility without having to leave BP’s Anchorage

office. That enables planning to be conducted efficiently offsite, while also

eliminating any personnel safety issues during the planning process.

Commercial dataDakota Chastain and Bridger Vance, commercial analysts in BP’s

finance department, described how new computer applications are enabling

people to interact with financial data in new ways, thus enabling rapid

insights into what is happening from a commercial perspective. The com-

mercial team is also developing mobile apps that can simplify and speed up

people’s access to the data. Ultimately the idea is to save money, and to be

able to work faster and smarter, to extend the life of the Prudhoe Bay assets,

they said. l

New BP system improves operational efficiencyBP is deploying a new computer system, called the Apex system, to improve operational

efficiencies in the company’s global oil field operations. In Alaska the system is starting to

help the company streamline the manner in which it routes fluids around the Prudhoe Bay

field infrastructure, Amy Adkinson, BP systems optimization engineer, has told Petroleum

News.

Much effort in maximizing field production goes into the planning and use of production

and injection wells, to best access oil remaining in the field reservoir, and into the optimum

use of water injection, gas injection and enhanced oil recovery techniques to maintain reser-

voir pressures and entice as much oil as possible to the surface.

The routing of fluidsBut there is a whole other aspect of operational efficiency involving the routing of fluids

coming from the wells through the complex of pipework and production facilities that enable

oil to be separated and transported to the trans-Alaska pipeline for export from the North

Slope, while also recycling produced water and gas back through the field. The pipelines and

facilities have operating limitations, but presumably work at optimum efficiency if fully used.

At the same time, if some component of the infrastructure is working at full capacity, that

may limit the possibility of bringing some wells on line, a factor that in turn impacts the

potential to maximize field production.

Prudhoe Bay is particularly complex, with hundreds of wells, multiple gathering centers

and flow stations, and a field pipeline network that can enable choices over how to route flu-

ids through various facilities for maximum efficiency. In addition, as the field matures, it now

produces much more gas and water than oil, making the management of the various fluids

particularly important. The idea is to route the fluids in a manner that supports the appropriate

mix of well and facility usage, keeping the best wells in operation, Adkinson explained.

Faster processingAlthough BP has modeling systems for managing the fluid flow, these systems are slow

to use. The new Apex system, which is being tuned to the complexities of the Prudhoe Bay

field, is much faster. Essentially, engineers can simulate different operational scenarios, eval-

uate the results and decide on an optimum course of action.

“Apex can unlock that efficiency, so that we can ask a question of our system, model it

and have an answer in a matter of a day, versus a week,” Adkinson said.

Also the field operators are able to move from static modeling of the fluid flows, to more

dynamic modeling, assessing how the fluid flows will evolve over time.

Hooked into well modelsThe system models fluid flows from the interfaces between wells and the reservoir

through to first stage fluid separation. The system is hooked into the production models for

individual wells, enabling well production to be simulated, feeding fluid production data into

the surface infrastructure simulation. Currently the focus is on gas flows through to the field’s

central gas processing facility, although attention is also moving to using the new system to

help figure out how to deal with produced water.

“We’ve got a team of engineers that are working on (the system) … trying to find all of

the useful ways we can use it … to leverage what we already have,” Adkinson said.

For example, if there is a plan to bring on new production in one part of the field, it is pos-

sible to use the system to simulate the impact of this on field operations as a whole —

because of facility and pipeline constraints it is possible that bringing on the new production

might force production to be backed out somewhere else in the field. And one concern is to

ensure that the velocity of fluids through the pipelines is maintained below prescribed limits,

to ensure that pipeline corrosion inhibitors mixed into the fluids will work effectively.

Rapid evaluationsOnce the Apex system is fully operational, a reservoir engineer will be able to use the sys-

tem to quickly evaluate the impact of some planned well work on the surface systems, more

accurately assessing the impact on overall production at the field.

And it will be possible to use the system to evaluate the impact on production of recon-

figuring some aspect of the surface infrastructure.

The Apex system represents the next step in optimizing Prudhoe Bay operations, using

technology in a new way to find things that are not intuitively evident, and then to test the

impact of changes before putting those changes into effect, Adkinson said.

—ALAN BAILEY


PRUDHOE FUTURE

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l exploration & production lagniappe to explore2 petroleum news † week of november 25, 2018...

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