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

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

l N A T U R A L G A S

Vol. 20, No. 16 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of April 19, 2015 • $2.50

page4

Nageak battles health, Obamaadmin, enjoys Resources role

page10

Former Kiska CEO to leadTarsis-Estralla exploration

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of April 19, 2015

NEWS NUGGETSCompiled by Shane Lasley

l E X P L O R A T I O N

High-grade plan for Kensington gold mineCoeur Mining Inc. April 14 released a new high-grade mine

plan for its Kensington gold mine in Southeast Alaska that fore-

casts higher gold production at lower costs. From 2015 through

2020, the Kensington Mine is anticipated to average 128,000

ounces of gold at average costs applicable to sales of US$820

per ounce. Production in 2014 was 117,823 ounces of gold at

costs of US$951 per ounce. This new plan reflects the recent

discovery of the Jualin zone and indicates higher overall pro-

duction and cash flows due to the contribution of higher-grade

material from three nearby zones. The Jualin zone, located

approximately 8,250 feet from current mining activities, aver-

ages 0.619 ounces of gold per ton, which is more than three

times the average reserve grade at Kensington. Coeur says

ongoing drilling continues to expand this deposit. "Our recent

success identifying high-grade mineralization near existing

Kensington infrastructure has added higher-margin production

to our mine plan and significantly improved the expected eco-

nomics of the mine," said Coeur President and CEO Mitchell

Krebs. Expected capital expenditures include roughly US$3.5

million per year through 2018 for capitalized drilling, primarily

to upgrade the inferred mineral resources at Kensington and

Jualin. Spending for underground mine development is expect-

ed to average US$16 million per year through 2018 when pro-

duction from the inferred material is expected to be fully

ramped up. Development of a decline to Jualin is planned to

begin in July with initial production expected in mid-2017.

Greens Creek delivers 2M oz. silver in Q1Hecla Mining Co. April 12 reported that its silver production

for the first quarter of 2015 was 2.9 million ounces, a 16 per-

cent increase over the same period last year. Some 2.0 million

ounces of this silver was recovered from the Greens Creek

Mine in Southeast Alaska, a 14 percent increase from the first

three months of 2014. “Greens Creek, with higher grades and

recoveries, led another strong operating quarter for Hecla – sil-

ver production is among the highest in our history,” said Hecla

President and CEO Phillips S. Baker Jr. The Idaho-based silver

miner attributes this

increased production pri-

marily to mine sequencing,

higher silver grades and

higher silver and gold

recoveries. The company

said changes made to the

flotation circuit in the

fourth quarter is resulting

in higher silver recovery,

the value of which is being outweighed a slight loss in zinc

recovery. The 15,239 ounces of gold produced at Greens Creek

during the first quarter exceeded the same period last year by 2

percent. The Greens Creek mill operated at an average of 2,172

tons per day in the first quarter. Hecla’s Lucky Friday Mine in

Idaho produced 836,719 ounces of silver during the first quarter

of this year, up 20 percent from the same period of 2014. The

mill operated at an average of 825 tpd in the first quarter. The

company’s Casa Berardi Mine in Quebec recovered 25,412

ounces of gold during the first quarter, down 19 percent from

the same period last year. Hecla said the mine experienced

lower grades as a result of mine sequencing and recoveries

were lower due to new metallurgical characteristics of the ore

from the 118 Zone requiring adjustments to the plant which are

expected to improve recoveries in the second quarter. The mill

operated at an average of 2,090 tpd in the first quarter. “In

March we celebrated 50 years on the NYSE, and I see our cur-

rent mix of three operating mines to be the strongest in our his-

see NEWS NUGGETS page 10

Whistler sale pendingProspective buyer could advance Southcentral Alaska porphyry project

By SHANE LASLEYMining News

I t has been nearly four years since any significant

exploration has been carried out at the Whistler

property, but a preliminary deal for Kiska Metals

Corp. to sell it could mean a renewed focus on this

copper-gold project in Southcentral Alaska.

Under a non-binding agreement reached April 9,

Alternative Earth Resources Inc. would acquire full

ownership of Whistler in exchange for issuing Kiska

24.5 million of its shares, which would represent half

of the company’s shares upon completion of the

exchange.

This Whistler deal is part of Kiska’s ongoing strat-

egy to realize value from its extensive portfolio of

exploration properties in Alaska, British Columbia,

Ontario, Nevada and Australia.

“This transaction further strengthens Kiska’s com-

mitment to the prospect generator business model and

greatly increases the company’s flexibility,” explained

Kiska President Grant Ewing. “Kiska will no longer

incur any holding or exploration costs, and it retains

excellent carried participation in the future upside of

the Whistler Project through its large shareholding in

AER.”

Thermal to mineralAlternative Earth Resources, which until recently

was focused on finding and developing geothermal

resources, has been seeking the right project to jump

into mineral exploration sector.

“I believe the timing is right relative to possible

improvement in gold and metal prices; however,

Alternative Earth’s available cash is sufficient to sus-

tain the company and the Whistler assets through sev-

eral years, if necessary,” Alternative Earth CEO Brian

Fairbank said, upon announcing the proposed acquisi-

tion.

At the end of 2014, Vancouver, B.C.-based

Alternative Earth had US$2.18 million in cash and

was expecting to recover US$150,000 from bonds

being held to secure reclamation work on geothermal

wells in Nevada and California.

Much of the money the company has in the bank is

from the sale of its geothermal assets in 2014, funds it

plans to put toward “opportunities in the mining sector

with projects having indicated resources in safe juris-

dictions,” according to Alternative Earth’s financial

filings for the end of 2014.

The company believes the Whistler project fits the

bill.

“Alternative Earth is pleased with the potential

acquisition of the significant Whistler deposit, the

encompassing porphyry gold-copper district and the

physical project assets following an extensive search

and due diligence process,” said Fairbank.

Whistler depositLocated in the Alaska Range about 95 miles north-

west of Anchorage, the Whistler property is situated in

the Kahiltna Terrane, an assemblage highly prospec-

tive for world-class porphyry copper-gold and intru-

sive gold deposits. The massive Pebble copper-gold-

molybdenum project – situated about 165 miles south-

west of Whistler – is the largest such deposit found

there.

“The super-giant Pebble deposit and the Whistler

deposit are the only porphyry copper-gold resources

currently defined in the Kahiltna assemblage, which

speaks to the immature exploration setting of this

belt,” Kiska said in a 2014 report on Whistler.

The 65-square-mile Whistler property, itself, is

known to host at least two porphyry centers and one

area prospective for an intrusive-related gold deposit.

The Whistler property is anchored by its namesake

deposit, which was discovered by Cominco Alaska in

the late 1980s and was further delineated by

Kennecott Exploration, Geoinformatics Exploration

Inc. and Kiska Metals.

A total of 48 holes drilled into the Whistler deposit

through 2011 has outlined an indicated resource of

79.2 million metric tons grading 0.51 grams per met-

ric ton gold, 1.97 g/t silver and 0.17 percent copper

(2.25 million gold-equivalent ounces), and an inferred

resource of 145.8 million metric tons averaging 0.40

g/t gold, 1.75 g/t silver and 0.15 percent copper (3.35

million gold-equivalent ounces).

In addition to upgrading the substantial open-pit

delineated inferred resource at Whistler, infill drilling

is expected to expand upon some higher-grade zones

see WHISTLER SALE page 11

The Idaho-based silver minerattributes this increased

production primarily to minesequencing, higher silver

grades and higher silver andgold recoveries.

SHA

NE

LASL

EY

SHA

NE

LASL

EY

The 65-square-mile Whistler property is known to host at least two porphyry centers, the Whistler depositwhich lies under the ridge to the right; and the Island Mountain prospect located in the mountains about 14miles to the south.

Drilling at Island Mountain has encountered two dis-tinct zones of mineralization: an upper gold-copperbreccia and a deeper pyrrhotite-gold zone.

This week’s Mining News

Prospective buyer could advance Southcentral Alaska Whisterporphyry project. Read more in Mining News, page 9.

Shell plan is outCompany hopes for Chukchi drilling this year; BOEM says plan complete

By ALAN BAILEYPetroleum News

The Bureau of Ocean Energy Management has

deemed Shell’s Chukchi Sea exploration plan

complete, has published the plan on the BOEM web-

site and is inviting public comments on the docu-

ment. Shell wants to resume its Chukchi Sea explo-

ration drilling program during this summer’s Arctic

open water season and has begun mobilizing its

drilling fleet. However, the company will need a gov-

ernment approved plan before it can start drilling —

a public comment period is part of the regulatory pro-

cedure that can lead to plan approval.

The review of Shell’s plan had been delayed as a

result of an appeal against the lease sale in which

Shell purchased its Chukchi Sea leases. BOEM had

to rework the environmental impact statement for the

sale and issue a new record of decision before

reviewing any lease-related documentation.

Careful scrutiny“We will be carefully scrutinizing this revised EP

to determine whether it meets stringent environmen-

tal and regulatory standards,” said Dr. James Kendall,

the director of BOEM’s Alaska OCS Region, when

announcing the publication of the plan on April 10.

“We have posted Shell’s revised EP online, and we

see SHELL PLAN page 20

Interior gas bill movesTwo versions: House passes gas project, AIDEA bonding; Senate Resources just gas

By KRISTEN NELSONPetroleum News

Two versions of a bill to promote natural gas

for the Fairbanks area moved in the Alaska

Legislature April 15.

As introduced, the administration bill removed

the restriction that a liquefied natural gas project

for the Interior must be based on the North Slope.

House Bill 105 passed that body by a 37-2 mar-

gin April 15 and includes the major elements of the

bill as proposed — the elimination of the require-

ment that the Interior gas project use North Slope

natural gas; an adjustment of Alaska Industrial

Development and Export Authority bond authority

amounts to reflect inflation; and termination of old

bond authorizations AIDEA has not used.

Among other changes, House Finance also

added to what AIDEA could bond — a hydroelec-

tric project and the rebuilding of Southcentral elec-

tric transmission lines.

It all started with the goal of removingfour words, “from the North Slope,” fromthe Interior gas project authorized in SB

23 in 2013. —Rep. Steve Thompson, R-Fairbanks

see INTERIOR GAS BILL page 18

Shake up for BC dreamsCombined forces of Shell, BG Group puts at least 1 Canadian LNG plan in doubt

By GARY PARKFor Petroleum News

The proposed merger of Royal Dutch Shell and

BG Group sets the stage for a drastic, long-

predicted weeding out of Canada’s overcrowded

LNG field.

Assuming that anti-trust authorities don’t

attempt to block the deal, the combined company

will make it easier to eliminate one and possibly

two of British Columbia’s 19 LNG ventures.

Shell Chief Executive Officer Ben van Beurden

dropped a clear hint during a conference call when

he said that incorporating the BG portfolio will

“bring important new LNG optionality to Shell.”

“In Canada, for instance, both companies have

plans on the drawing board for LNG exports ...

from British Columbia. There is clearly some

scope for review there, as you can imagine.”

Shell’s investor presentation documents bol-

stered that view by identifying BG’s Prince Rupert

plan as overlapping with its own LNG strategy in

British Columbia.

Decision already stalledThe United Kingdom-based BG had already

stalled an investment decision on its Prince Rupert

Randy Ollenberger, a BMO oil and gasequity analyst, said his company has longanticipated consolidation among Canada’sLNG players even without the Shell-BG

transaction.

see LNG FIELD page 19

Shell’s BG Group takeover, companyrefocus could impact Alaska

Shell’s $66 billion takeover of BG Group, one of the world’s

largest natural gas companies, has sent shock waves around the

energy world. But will any of those merger vibrations reach

Alaska, especially given Shell’s multi-year attempts to explore in

the state’s Arctic offshore?

One thing does seem clear. In the interest of maintaining its

debt at an acceptable level, and given the new business opportu-

nities that the amalgamation with BG Group will bring, Shell

anticipates cutting back on its exploration spending as part of a

complete rework of the company’s business strategy. And the

company merger would seem to indicate a focus by Shell on nat-

ural gas, natural gas liquids and deepwater developments.

Shell’s Alaska venture is part of what the company character-

Governor sets out LNG plan in April 10 letter to legislators

Leaders in the Alaska Legislature

have been asking Gov. Bill Walker what

his plan is for moving forward with the

Alaska LNG project. Former Gov. Sean

Parnell negotiated an equity position for

the state in the project, which the previ-

ous Legislature approved; that project is

in the pre-front end engineering design

phase.

Walker has said he wants to expand

the state-owned Alaska Stand Alone

Pipeline plan from the 500 million cubic feet per day project

the Alaska Gasline Development Corp. has been studying to

see SHELL REFOCUS page 18

see WALKER PLAN page 19

GOV. BILL WALKER

2 PETROLEUM NEWS • WEEK OF APRIL 19, 2015

Petroleum News North America’s source for oil and gas newscontents

GOVERNMENT

FINANCE & ECONOMY

LAND & LEASING

FACILITIES

7 DOI releases well control regulations

Proposed rule addresses offshore well blowout risksthrough new requirements for blowout preventers, well design and drilling reporting

Shell plan is out

Company hopes for Chukchi drilling this year; BOEM says plan complete

Interior gas bill moves

Two versions: House passes gas project, AIDEA bonding; Senate Resources just gas

Shake up for BC dreams

Combined forces of Shell, BG Group puts at least 1 Canadian LNG plan in doubt

ON THE COVER

Shell’s BG Group takeover, companyrefocus could impact Alaska

Governor sets out LNG planin April 10 letter to legislators

ENVIRONMENT & SAFETY

6 AOGCC issues two exploration permits

5 Moving off the sidelines

5 Spillover hits wider area

4 Nageak battles health, Obama administration

6 Persily says fiscal plan best alternative

8 ConocoPhillips expects flat production

13 SAExploration seeking storage site

EXPLORATION & PRODUCTION

14 Selected trucks begin moving on Dalton

13 Spring forecast drops oil prices further

13 State finalizes AVCG deals on North Slope

NATURAL GAS

PIPELINES & DOWNSTREAM15 Stalling threatens Canadian economy

Banking official cites governmental bickering in pipeline,LNG project delays; says nation’s economy, export prospects at risk

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14 Judge issues Greenpeace restraining order

PETROLEUM NEWS • WEEK OF APRIL 19, 2015 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 03-15B BPDreco 1000 UE 16 (SCR/TD) Prudhoe Bay 03-12i BPDreco D2000 Uebd 19 (SCR/TD) Nanuq CD4-93A ConocoPhillipsAC Mobile 25 Kuparuk 2L-316 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 1D-143 ConocoPhillipsTSM 7000 Arctic Fox #1 Wildcat Qugruk-8 Repsol

Kuukpik 5 Prudhoe Bay Available Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Deadhorse, under contract to Repsol Repsol for winter explorationMid-Continental U36A 3-S Prudhoe Bay AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay AvailableDreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Kuparuk ConocoPhillipsOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location, Brooks Range Petroleum Under contract to Brooks Range PetroleumEmsco Electro-hoist-2 18-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Varco 22-E (SCR/TD) Prudhoe Bay StackedTDS3Emsco Electro-hoist Canrig 27-E (SCR-TD) Deadhorse, under contract 1050E to ExxonMobil for 2015

Emsco Electro-hoist 28-E (SCR) Prudhoe Bay StackedOilwell 2000 33-E Prudhoe Bay Available Academy AC Electric CANRIG 99AC (AC-TD) Deadhorse , under contract to Repsol Repsol for winter explorationOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Deadhorse, under contract to Repsol Repsol for winter explorationAcademy AC electric Heli-Rig 106-E (AC-TD) Deadhorse, under contract to Great Bear Petroleum Great Bear for winter drilling

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site 7-33 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site K-06D BPIdeco 900 3 (SCR/TD) Milne Point MP-K-37 Hilcorp

Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay DS 18 BPNOV ADS-10SD 273 Prudhoe Bay DSW-59 BP

North Slope - Offshore

BPTop Drive, supersized Liberty rig Inactive BP

Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Spy Island SP04-SE5 ENI

Nabors Alaska DrillingOIME 1000 19AC (AC-TD) Oooguruk ODSN-02 Caelus Alaska

Cook Inlet Basin – Onshore

Miller Energy ResourcesMesa 1000 Rig 37 Mobilized to North Fork to begin Miller Energy Resources drilling this winter

All American Oilfield LLCIDECO H-37 AAO 111 In All American Oilfield’s yard in Kenai, Alaska Available

Aurora Well ServicesFranks 300 Srs. Explorer III AWS 1 Sterling, Stacked out at D&D yard Available

Nabors Alaska DrillingContinental Emsco E3000 273E Kenai AvailableFranks 26 Kenai StackedIDECO 2100 E 429E (SCR) Kenai Stacked

SaxonTSM-850 147 Ninilchik Unit, Bartolowits pad Hilcorp Alaska drilling Frances #1TSM-850 169 Swanson River Hilcorp Alaska

Cook Inlet Basin – Offshore

XTO EnergyNational 110 C (TD) Idle XTO Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Furie Upper Cook Inlet KLU#1Cook Inlet EnergyNational 1320 35 Osprey Platform RU-1, workover Cook Inlet Energy Hilcorp Alaska LLC (Kuukpik Drilling, management contract) Monopod Platform, Workovers Hilcorp Alaska LLC

Patterson UTI Drilling Co LLC 191 West McArthur River Unit #8 Cook Inlet Energy

Mackenzie Rig Status

Canadian Beaufort Sea

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

Central Mackenzie Valley

AkitaTSM-7000 37 Racked in Norman Well, NT Available

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of April 16, 2015.

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 Marti Reeve

Baker Hughes North America rotary rig counts* April 10 April 2 Year AgoUS 988 1, 028 1,831Canada 99 100 212Gulf 31 29 52

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:

JUDY

PAT

RICK

By STEVE QUINNFor Petroleum News

When House Rep. Bennie Nageak

returned for his second term in

January, he didn’t just want a seat on the

House Resources Committee. No, he

wanted to share the gavel with David

Talerico and serve as co-chair for the next

two years. And why not, he says. After all

this Barrow Democrat who aligns himself

with the majority caucus has the resource

fields in his own backyard.

Nageak arrived in Juneau ready to cut

his teeth into a new position, but with a

hearty resume in leadership. He served as

an assemblyman and mayor for the North

Slope Borough and vice chair of the

Alaska Board of Game. He also founded

the Indigenous Peoples Council on Marine

Mammals.

Upon his arrival,

however, came news

that the Obama

administration

planned to place the

1002 area of the

Arctic National

Wildlife Refuge

under wilderness

designation and that

followed restrictions

placed on offshore drilling.

Nageak, who grew up in Kaktovik,

quickly became a social media sensation

speaking out against the administration’s

actions while calling for Alaskans to have

a greater voice in how the resources on

state and federal land get developed.

While fighting for the state Nageak

fought for his own health, having knee sur-

gery, a subsequent infection and then a

hospitalization when his heart rate escalat-

ed.

Through it all, he kept his sense of

humor, reminding folks how many shop-

ping days remained until his birthday.

A healthy Nageak sat down with

Petroleum News to discuss his views.

Petroleum News: So you’re in yoursecond term. Why were you interested inbecoming co-chair of the ResourcesCommittee?

Nageak: The resources we depended on

are from the most part rural Alaska. Most

of the oil and gas produced right now is

from Prudhoe Bay and other fields, and

our part of the world. I’m always interest-

ed in being a proponent of oil and gas

activity in my part of the world, plus any

activity of resource development —

renewable or non renewable resources —

everywhere.

I know in Bristol Bay,

there is a big fight over who

should be doing what in

what area and in what areas.

What really gets me is

when I talk to people in that area is it’s OK

for you to come up here and make billions

in my part of the world, but you can’t

allow our companies to go down there and

make billions with the resources you have.

We can’t access that. You have potential

right there, but you are blocking it, but

your neighbor just to the west of you is

looking to develop a mine and they are

looking to build a gas line to power all of

that. So, as a side benefit, this has the

potential to go to some of those villages to

reduce the costs in that part of the world,

that part of Alaska.

It gets to me when people say you can’t

do this in my area but we can do it some-

where else and not allow other people to

do what’s being done in my part of the

world.

Petroleum News: You’ve touted howyou strike a balance between subsistenceand resource development. How is it thatyou strike that balance?

Nageak: We’ve done it from the get-go.

We have home rule government and it’s

the size of Indiana and Minnesota com-

bined. In that area we have all kinds of

activity plus fish and game we rely on off-

shore and on shore. We work real hard to

make sure any development done is done

according to state and municipal laws.

Municipal law can’t exceed state law and

state law can’t exceed federal law, and so

we need to work together and we have

worked together to make sure our

resources are developed and it’s done in a

safe manner.

I’ve been involved in this for more than

40 years. We are the only municipality —

I think in the United States — with a divi-

sion of wildlife management. We know

how important renewable resources are to

us. We’ve done fish studies. We’ve done

caribou studies. We’ve done migratory

birds and wild life management.

If you go to the department of wildlife

management, one wall is nothing but stud-

ies that have been done over the years.

And we have the experts. Those people

there have been there for almost over 30

years, a lot of them 20 or more. So we

have continuity on that.

Right now we are ready to go whaling,

and they are still studying the whales.

Every time there is one har-

vest they take the organs and

study them. The bowhead

whale is the most studied

whale in the world — in the

world. We know a lot more

about the bowhead whale. The migratory

routes, everything about the bowhead

whale, is most understood than any other

whale in the world.

When we get the whale, we know

everything about it because our people

have done those studies since back in the

1970s until everything we’ve done today.

You know there are more and more

species of fish coming to our part of

world, and it’s not interfering with

resource development. We depend on

white fish and the ciscoes and Dolly

Varden are there and they have been there,

but now we have more and more salmon

swimming to our part of the world.

Five years ago the Department of Fish

and Game has done pink salmon studies

on the North Slope. We see a lot of it. Me

and my best friend, we start out with white

fish, then the pinks come. There are a

whole lot more coming every year.

That’s my backyard — non-renewable

and renewable resources. That’s why I’m

on resources.

Petroleum News: So in your first yearof resources, what have you learned?

Nageak: I don’t know as much as I

should. I thought I knew a lot of stuff.

I’ve worked for federal government,

state government boards and commissions;

I’ve negotiated treaties; I’ve been to

l G O V E R N M E N T

Nageak battles health, Obama administrationBarrow Democrat enjoying sharing gavel as House Resources co-chair, working resource issues, looks forward to LNG special session

4 PETROLEUM NEWS • WEEK OF APRIL 19, 2015

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Saturday & Sunday, 12:30 pm — 9:00 pm

Ph: 907-277-1200

Conveniently located in Midtown

(Valhalla Center)

555 W. Northern Lights

Anchorage, Alaska

www.BombayDeluxe.com

Order on-line for pick-up or delivery at www.FoodOnTheWay.com

BENNIE NAGEAK

see NAGEAK Q&A page 17

By GARY PARKFor Petroleum News

C anada’s industrial heartland — the

provinces of Ontario and Quebec —

have joined British Columbia in making an

end-run around a sluggish federal govern-

ment and deciding to put a price on carbon

emissions.

But Alberta, the largest provincial con-

tributor to greenhouse gas emissions, is giv-

ing no indication that it is willing to move

beyond its 2007 carbon levy on major emit-

ters by joining Ontario and Quebec in a cap-

and-trade system.

The Canadian government’s position is

even less clear now that it has failed to sub-

mit new carbon emissions reduction targets

to the United Nations by a March 31 dead-

line.

After years of procrastinating, other than

rejecting cap-and-trade as a threat to

Canada’s oil and natural gas production, the

government of Prime Minister Stephen

Harper has made a fresh pledge.

Harper said April 11 he will unveil tar-

gets for GHGs before a G7 meeting in June

and ahead of a pivotal UN climate summit

in Paris before Christmas.

The federal government on April 13

chastised Canada’s 10 provincial govern-

ments for not meeting their own targets to

reduce GHGs — a strategy that was quickly

condemned as a brazen move by Harper to

deflect attention from his own administra-

tion’s failure to meet its 2020 targets or to

produce anything approaching a national

policy.

Provinces jump inAmid the continuing confusion, the pre-

miers of Ontario (Kathleen Wynne) and

Quebec (Philippe Couillard) joined forces

April 13 in the world of cap-and-trade,

upstaging an April 14 Climate Summit of

the provinces and three territories.

When Wynne announced her province

was joining Quebec and California by intro-

ducing a carbon price, she defied the Harper

government which has lampooned cap-and-

trade as a “job-killing tax.”

“We oppose carbon taxes and any

schemes that seek to raise revenue — either

directly or indirectly — from hardworking

Canadians,” said a spokesman for federal

Environment Minister Leona Aglukkaq —

a stance that Liberal party environmental

spokesman John McKay described as

“juvenile drivel.”

But Wynne was not about to waver.

“Call it carbon pricing, cap-and-trade, a

market mechanism, or ... if you must, go

ahead and call it a tax,” she said. “Most of

us will not be fooled because for most of us

the label is not important. What’s important

is that we make progress.

“My hope is that at some point the feder-

al government will work on a process that

will support what the provinces are doing. I

believe that having a federal partner who is

not standing on the sidelines, but is engaged

in the discussion will help.”

Couillard said climate action is likely to

be a theme in the federal election campaign,

expected in October, arguing it is incumbent

on Canada, as an oil-producing nation, to

act.

Prentice in tight raceAlberta Premier Jim Prentice was unable

to attend the Climate Summit. He is

engaged in a tight three-way fight with the

New Democratic Party and Wildrose lead-

ing to a provincial election on May 5, which

could see his governing Conservative party

defeated after 12 consecutive victories and

44 years in power.

During a campaign stop in Calgary,

Prentice said “cap-and-trade is not some-

thing that I support or that I think is in the

best interests of Alberta,” although he

pledged that Alberta will remain a “con-

structive ally” of the other provinces in

working on climate change measures.

The pressure on Alberta to take a more

aggressive role intensified in a report issued

earlier in April by Canada’s EcoFiscal

Commission, a group of economists, who

are campaigning for a federal carbon tax.

They estimate that even if the federal

government will not lead the way, the costs

of applying different carbon pricing regimes

in the provinces and territories would

amount to only 0.4 percent of gross domes-

tic product, or C$8 billion of a C$2 trillion

national economy.

Levy high enough?Alberta has taken pride in proclaiming

that it is showing the way to North

American petroleum-producing jurisdic-

tions by imposing a C$15 per metric ton

carbon levy on the largest greenhouse gas

emitters who exceed a minimum target.

But Chris Ragan, chairman of the

EcoFiscal Commission, said the Alberta

regulation is not changing behavior because

it is not high enough and doesn’t cast a wide

enough net.

He said a carbon tax would “increase the

price of carbon-intensive products, which is

what it is supposed to do.”

In 2012, Alberta accounted for 17.5 per-

cent of Canada’s GDP, 11.2 percent of the

country’s population and 37.5 percent of

national GHG emissions, which are project-

ed to increase by another 20 percent by

2020 as oil sands production grows.

In contrast, Ontario has 38.6 percent of

Canada’s population and accounts for 38.7

percent of GDP and 23.9 percent of GHG

emissions.

Oil sands energy intensiveThe energy intensive requirements of oil

sands development account for 27 percent

of Alberta’s GHGs, followed by 14 percent

from coal-fired power plants, while Ontario

derives its electricity from nuclear and

hydro plants.

According to the EFC report, the across-

the-board average cost of Alberta’s carbon

levy is a mere 77 cents per metric ton, not

the C$15 the government is fond of quoting.

In contrast, British Columbia collects

C$30 per metric ton through 7 cents per liter

of gasoline, while the Quebec and Ontario

cap-and-trade programs would charge an

expected C$11 per metric ton.

British Columbia captures C$1.2 billion

per year from its tax, Quebec expects to

bring in C$425 million and Alberta collects

C$55 million.

Ontario’s industrial sector is left to pon-

der the threats and opportunities of that

province’s cap-and-trade plan until Wynne

finalizes key details later this year.

The battered manufacturing sector —

like the petroleum sector in Western Canada

— wants to make sure the regulations don’t

result in new competitive pressures,

although clean-tech industries which spe-

cialize in energy-efficient technologies and

low-carbon fuel alternatives are hoping they

will benefit from market incentives to

develop new customers.

If Ontario follows the lead of its future

partners, Quebec and California, it will

issue free emission allowances to industries

such as refining and cement to protect

investment and jobs in U.S. states and

Canadian provinces that don’t have car-

bon pricing. l

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

Moving off the sidelinesOntario, Quebec, Canada’s industrial provinces, ready to join cap-and-trade emissions market; Alberta won’t join; feds promise plan

PETROLEUM NEWS • WEEK OF APRIL 19, 2015 5

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FINANCE & ECONOMYSpillover hits wider area

The fallout from low oil prices is starting to hit a wider section of the Canadian

economy, affecting jobs and investment, according to 100 companies surveyed by

the Bank of Canada, the equivalent of the U.S. Federal Reserve.

Over the next year, fewer companies expect to invest in machinery and equip-

ment, to expand sales or to hire, the bank said in its quarterly outlook survey.

“Lower oil prices continue to dampen the overall sales outlook of firms,

weighing on investment and hiring intentions,” the survey said.

The bank estimated that hiring intentions are at their weakest level since the

recession in 2009, with the condition showing up beyond the oil patch and affect-

ing “most sectors and regions,” notably in Canada’s Prairie region and the indus-

trial heartland of Ontario and Quebec.

However, the bank said, some businesses indicate that “lower oil prices and a

weaker currency support their business outlook and the majority anticipate a pos-

itive impact from strong U.S. economic growth.”

But those businesses outside the oil sector also said they “expect the benefits

to unfold only gradually in the future.”

The survey, which reflected the makeup of the Canadian economy, found that

labor shortages affecting the ability of companies to meet demand are “less

intense than they were a year ago, particularly in the Prairies.”

The conclusions back up the recent warning by Bank of Canada Gov. Stephen

Poloz that the negative effects of the oil price shock will be felt hard and early,

while the benefits will take longer to materialize.

Poloz said the Canadian economy in the first quarter will be “atrocious” and

fall short of the 1.5 percent annual growth rate forecast by the bank.

—GARY PARK

By KRISTEN NELSONPetroleum News

With Gov. Bill Walker and leaders of the Alaska

Legislator at loggerheads over plans for an Alaska

liquefied natural gas project, Larry Persily told the

Anchorage Chamber of Commerce April 13 that he feels

for the Alaska Gasline Development Corp., which, like a

kid in a contested divorce, is in the middle of the battle.

That battle is playing out in House Bill 132, which sits

on the governor’s desk awaiting a

promised veto.

The governor wants AGDC to

expand the Alaska Stand Alone

Pipeline to make it economically

viable — what Walker describes as

an alternative to the Alaska LNG

project in which the state is an equity

partner with the North Slope produc-

ers and TransCanada — but what

legislative leaders see as competition.

HB 132 says AGDC cannot spend

money appropriated for ASAP on expanding that project

until the earliest of the AKLNG partners signing agree-

ments to move the project into front-end engineering

design, one of the resource owners dropping out of AKLNG

or July 1, 2017.

Persily, formerly federal gas line coordinator and now a

special assistant for oil and gas to Kenai Peninsula Borough

Mayor Mike Navarre, said the disagreement between the

governor and the Legislature doesn’t get the state closer to

having a project and makes us look screwy to the market.

Calling it a mess, and a costly mess, Persily said that given

the state’s fiscal situation, the $180 million at stake is a lot

of money to spend.

Persily said going it alone on a gas project is only an

option if you can write a check or get financing — and

2020, when money would be needed, is about the time the

state will be broke.

Issues that need settlingAmong the issues that need to be settled are property

taxes, which start the year the equipment hits the dock and

are a big issue for the project because those taxes have to be

paid when there is no cash flow, Persily said.

Another issue is setting valuation: The state and the

companies have been fighting over the value of the oil

pipeline since it was built. The solution for AKLNG is

negotiating payment in lieu of taxes, which requires cre-

ation of a formula so both communities and companies

know what property tax will be. The governor has intro-

duced a preliminary bill to start dealing what that issue, he

said, noting that it isn’t an issue that will be settled this year.

The other side of that issue — what the split will be

between the state and communities — is one the companies

want no part of, Persily said.

Another contentious issue will be the impact aide fund

to cover costs during construction. He said indirect effects

will be an issue there.

Then there is fiscal stability.

Persily said when Alaskans hear that term they think it

means they have been cheated.

The issue for a project like this one, he said, with 20-year

contracts signed for LNG, is that the companies can’t take

the chance that taxes will quadruple over that period. No

one builds an LNG project without knowing the tax rates,

he said.

The fiscal issue needs to be viewed over the 20-year

period of an LNG contract, not in any given year when the

state’s revenues from the project may spike up or down,

Persily said.

Leverage issueThe issue for the companies is that they know they will

always be deep pockets for the state, and are concerned that

they are the only deep pockets.

While the governor wants leverage, Persily said, the

companies know the state is desperate — we have no

money. He said better leverage would be if we had a fiscal

plan and could tell the companies “we can wait” for a better

deal. You’ve got to be able to walk away from the table,

Persily said.

There is global competition, but other projects also have

their problems, and Alaska has a number of advantages: a

short tanker route; gas with high Btu value; proven

reserves; dependable production; LNG production more

efficient at cold temperatures; and the state as an equity

partner.

Prudhoe Bay reservoir management has been focused on

oil production, with natural gas used to maximize that pro-

duction. But by the mid-2020s, Persily said, it will be time

to take off some gas and get cash for it.

LNG projects are done for long-term income, he said,

for good cash flow — it’s not something you do to strike it

rich.

What are the odds for AKLNG? Persily said he couldn’t

provide odds, but said as producers and markets look for

diversification, both in location and in pricing index, and

the producers also look to diversify their portfolios, if

China’s economy keeps moving and as other countries also

grow LNG imports, AKLNG is viable with the right market

at the right cost. l

l N A T U R A L G A S

Persily says fiscal plan best alternativeFormer federal gas line coordinator tells Anchorage Chamber ability to walk away best negotiating tool; state needs money for that

6 PETROLEUM NEWS • WEEK OF APRIL 19, 2015

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EXPLORATION & PRODUCTIONAOGCC issues two exploration permits

The Alaska Oil and Gas Conservation Commission issued two permits in early

April. The agency gave Great Bear Petroleum Operating LLC a permit to drill the

Talitha No. 2 well in the central North Slope, south of Prudhoe Bay, along the Dalton

Highway.

The agency also gave Repsol E&P USA Inc. a permit to drill the Qugruk No. 9 well

in the Colville River Delta. The agency previously issued a permit for the Qugruk No.

9 well in mid-January this year. The new permit has a slightly different bottomhole

location.

Toward the end of 2014, Great Bear announced a three-well exploration program

on its leases west of the haul road. The company began exploring the region in 2012.

After several years of conducting seismic and other fieldwork, the company has

resumed drilling operations this year, looking for both conventional and unconven-

tional targets.

Drilling activities took longer to begin than anticipated this year. In February, the

company said it would likely only drill two wells this winter: Alkaid and Talitha.

LARRY PERSILY

see PERMITS ISSUED page 7

JUD

Y P

ATR

ICK

By ALAN BAILEYPetroleum News

T he Department of the Interior has

published proposed new regulations

for well control, for the drilling of off-

shore oil wells on the U.S. outer conti-

nental shelf. The proposed regulations,

developed in the aftermath of the

Deepwater Horizon disaster in the Gulf of

Mexico, place stringent requirements on

well design and on the use of equipment

such as blowout preventers.

“Both industry and government have

taken important strides to better protect

human lives and the environment from oil

spills, and these proposed measures are

designed to further build on critical les-

sons learned from the Deepwater Horizon

tragedy and to ensure that offshore opera-

tions are safe,” said Interior Secretary

Sally Jewell, when announcing the publi-

cation of the proposed regulations on

April 13. “This rule builds on enhanced

industry standards for blowout preventers

to comprehensively address well design,

well control and overall drilling safety.”

Brian Salerno, director of the Bureau

of Safety and Environmental

Enforcement, said the proposed regula-

tions would require improved control of

the repair and maintenance of well con-

trol equipment such as blowout preven-

ters.

“It would provide verification of the

performance of equipment designs

through third party verification, enhanced

oversight of operations through real-time

monitoring viewed onshore, and require

operators to, during operations, utilize

recognized engineering best standards

that reduce risk,” Salerno said.

Publication of the proposed regula-

tions in the Federal Register on April 15

is followed by a 60-day public comment

period.

Industry knowledgeJanice Schneider, assistant secretary

for land and minerals management, com-

mented on the effort that had been made

in collecting the best ideas for the preven-

tion of well control incidents and

blowouts, using industry knowledge.

“This rule proposes both prescriptive

and performance-based standards that are

based on this extensive engagement and

analysis,” Schneider said.

In an April 13 press conference, Jewell

picked up on the performance based

aspects of the regulations, commenting

that the rule can allow for evolving new

technologies by providing a mechanism

for companies to propose techniques that

can meet the performance standards.

“There is room in this regulation … to

continue to keep up with industry best

practices, as long as it can be demonstrat-

ed that they will do as good or a better job

than was proposed in the regulations,”

Jewell said.

Salerno said that Interior had estimat-

ed the total cost to industry of implement-

ing the requirements specified in the reg-

ulations to be $883 million over 10 years.

However, Jewell pointed out that, with

many drilling operators having already

put many of the requirements into place,

that cost is not incremental to the new

rule being implemented. And the cost is

small in relation to the cost of a major

blowout incident such as the Deepwater

Horizon, Schneider commented.

Double shear ramsThe new regulations require the use of

blowout preventers with double shear

rams, the devices used to cut through and

seal the drill pipe of an out-of control

well. Having two rams at an appropriate

spacing, rather than one ram, dramatical-

ly reduces the possibility of some non-

severable joint or other feature of the pip-

ing impeding the shearing operation,

Salerno told the April 13 press confer-

ence. According to information provided

by BSEE the double shear ram require-

ment follows a specification that is

already a baseline industry standard.

In addition, the regulations require the

use of technology that centers the drill

pipe during a shearing operation — pip-

ing that had shifted off center in the

blowout preventer is believed to be a rea-

son for the failure of the blowout preven-

ter in the Deepwater Horizon disaster.

Other blowout preventer requirements

include the incorporation of up-to-date

industry standards and requirements for

the design, manufacture, repair and main-

tenance of the devices. And the regula-

tions require an annual review by a

BSEE-approved third party of blowout

preventer repair and maintenance

records. Under the proposed rule, third-

party certification of a blowout preven-

ter’s shearing capability would also

become more rigorous.

An operator would need to report any

blowout preventer failure data, and infor-

mation about control system leaks, to

BSEE.

And the proposed regulations set per-

formance objective and standards for

remote operated vehicles used to assist in

closing blowout preventer stacks.

BOP testing frequencyBSEE would require blowout preven-

ters used during well workover opera-

tions to be tested at the same frequency as

the testing done for blowout preventers

used for regular drilling. However, the

agency is also requesting comments on

whether the mandated frequency of test-

ing should be reduced from every 14 days

to every 21 days, or possibly increased to

every seven days.

BSEE is also considering the mandat-

ed use of equipment that could shear

through any drill string component, rather

than just straightforward drill pipe. Given

that this type of shearing capability does

not currently exist, the agency is request-

ing comments on the concept, rather than

l G O V E R N M E N T

DOI releases well control regulationsProposed rule addresses offshore well blowout risks through new requirements for blowout preventers, well design and drilling reporting

PETROLEUM NEWS • WEEK OF APRIL 19, 2015 7

Anchorage: (907) 248-0066Prudhoe Bay: (907) 440-0084

Fax: (907) 248-44295631 Silverado Way, Suite G

Anchorage, AK 99518www.pesiak.com

is proud to represent Weatherford Casing Accessories

Providing project management professionals for major projects throughout Alaska and the world for over 30 years.Great Bear discovered Talitha through a

2013 seismic survey but needed to acquire

an additional lease to properly target the

prospect. The company was able to acquire

the lease during a recent sale and to con-

vince the Alaska Department of Natural

Resources to “fast track the issuance of the

lease,” which allowed the company to drill

this winter.

Repsol is conducting a three-well pro-

gram this winter, which is its fourth season

of exploration in the region between the

Kuparuk River unit and Colville River unit.

The Qugruk No. 9 well is nestled

between the Qugruk No. 1 and Qugruk No.

6 wells, which Repsol drilled in early 2013

and the Qugruk No. 5 and Qugruk No. 7

wells, which the company drilled in early

2014. The company is using three rigs for

the program.

Repsol recently asked the state to form

the Pikka unit over some 63,304 acres of

the region, including many of the wells

from this and prior years. The three wells

Repsol is drilling this year would fulfill an

initial work commitment for the proposed

unit.

—ERIC LIDJI

continued from page 6

PERMITS ISSUED

The new regulations require theuse of blowout preventers withdouble shear rams, the devices

used to cut through and seal thedrill pipe of an out-of control well.

see WELL CONTROL page 15

By ERIC LIDJIFor Petroleum News

ConocoPhillips expects its oil produc-

tion in Alaska to be flat over the near

term, as increased development drilling

and a slate of projects currently in devel-

opment will offset “unmitigated” field

declines to keep production levels

“roughly flat” through 2017.

If so, the next few years would be a

rarity in a basin where oil production has

been consistently declining for nearly

three decades — save a brief uptick when

ConocoPhillips brought the Alpine field

into production nearly 15 years ago.

Perhaps more interesting,

ConocoPhillips appears to be considering

a range of North Slope development proj-

ects that, presumably, could offset

declines in the mid-term.

That said, Alaska remains a maturing

basin. Analysts wanted to know how

Alaska compared to unconventional

opportunities in the Lower 48, such as the

Eagle Ford shale of south Texas and the

Bakken formation of North Dakota,

where ConocoPhillips and its subsidiaries

are leading players. The growth of those

basins has greatly increased

ConocoPhillips’ oil production in the

Lower 48, after years of focusing on nat-

ural gas.

“Some people have asked us, with all

the great opportunities that you have in

the Lower 48 unconventional, why are

you growing your capital in Alaska,”

ConocoPhillips’ Executive Vice President

Al Hirshberg said during an annual meet-

ing for investors and analysts on April 8.

“We are the biggest producer in Alaska,

and with the improved fiscal terms that

we’ve gotten there now, it does support

increased investment for us on our proj-

ects there and in our development drilling

around our current infrastructure.”

Alaska offers “legacy cash flows from

all the investments we’ve made in the

past few years,” Hirschberg said, and is

“in a bit of a resurgence” with a slew of

new projects.

Later this year, ConocoPhillips

expects to bring two major projects into

production. The DS-2S project would be

the first new drill site at the Kuparuk

River unit in more than a decade. The

CD-5 project would be the newest satel-

lite of the Alpine field. The company is

also working to bring the 1H NEWS proj-

ect at Kuparuk into production by early

2017.

Near-term workAdditionally, the GMT-1 development

at the Greater Mooses Tooth unit in the

National Petroleum Reserve-Alaska is

“progressing toward sanctioning,” even

though the company delayed a sanction-

ing decision earlier this year, siting per-

mitting uncertainties.

The company is also conducting very

early engineering and design work for the

Alaska LNG Project to bring North Slope

natural gas to markets outside the state.

That is a much more complex project and

much less certain to move forward than

other Alaska efforts.

The project remains “on the edge,”

according to Chairman and CEO Ryan

Lance.

“Now the advantage of the Alaska

North Slope is it’s a resource that is

known. We are injecting 8 bcf a day

around the horn for pressure maintenance

at Prudhoe Bay and there’s a lot of gas

resources,” he said. “The risk in that proj-

ect is the execution on the technical side.

It is building a pipeline, building a plant

and building the infrastructure.”

Mid-termThose projects have all been discussed

regularly in recent years.

In a chart shown to analysts,

ConocoPhillips outlined other “conven-

tional” opportunities across its global

portfolio, including 10 projects across its

North Slope holdings.

The CD-5, DS-2S and 1H NEWS proj-

ects are all grouped in the “execution”

phase, along with current development

projects in China and the North Sea. The

GMT-1 project is in the “optimize” phase,

along with another phase of the China

project — Bohai Bay.

ConocoPhillips appears to be consid-

ering many other Alaska projects, though.

A long-discussed development in the

west end of the Prudhoe Bay unit, in

which ConocoPhillips is an important

working interest owner, is in the “concept

select” phase.

The nine global projects listed as being

in the “appraise” stage include four

Alaska projects: GMT-2 at the Greater

Mooses Tooth unit, the nearby Bear Tooth

unit, the Fiord West satellite of Alpine

and 1N and 1P NEWS developments at

the Kuparuk River unit. l

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

ConocoPhillips expects flat productionSlate of Alaska North Slope development projects could stem declining production by 2017; a range of projects potentially on deck

8 PETROLEUM NEWS • WEEK OF APRIL 19, 2015

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page10

Former Kiska CEO to leadTarsis-Estralla exploration

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of April 19, 2015

NEWS NUGGETSCompiled by Shane Lasley

l E X P L O R A T I O N

High-grade plan for Kensington gold mineCoeur Mining Inc. April 14 released a new high-grade mine

plan for its Kensington gold mine in Southeast Alaska that fore-

casts higher gold production at lower costs. From 2015 through

2020, the Kensington Mine is anticipated to average 128,000

ounces of gold at average costs applicable to sales of US$820

per ounce. Production in 2014 was 117,823 ounces of gold at

costs of US$951 per ounce. This new plan reflects the recent

discovery of the Jualin zone and indicates higher overall pro-

duction and cash flows due to the contribution of higher-grade

material from three nearby zones. The Jualin zone, located

approximately 8,250 feet from current mining activities, aver-

ages 0.619 ounces of gold per ton, which is more than three

times the average reserve grade at Kensington. Coeur says

ongoing drilling continues to expand this deposit. "Our recent

success identifying high-grade mineralization near existing

Kensington infrastructure has added higher-margin production

to our mine plan and significantly improved the expected eco-

nomics of the mine," said Coeur President and CEO Mitchell

Krebs. Expected capital expenditures include roughly US$3.5

million per year through 2018 for capitalized drilling, primarily

to upgrade the inferred mineral resources at Kensington and

Jualin. Spending for underground mine development is expect-

ed to average US$16 million per year through 2018 when pro-

duction from the inferred material is expected to be fully

ramped up. Development of a decline to Jualin is planned to

begin in July with initial production expected in mid-2017.

Greens Creek delivers 2M oz. silver in Q1Hecla Mining Co. April 12 reported that its silver production

for the first quarter of 2015 was 2.9 million ounces, a 16 per-

cent increase over the same period last year. Some 2.0 million

ounces of this silver was recovered from the Greens Creek

Mine in Southeast Alaska, a 14 percent increase from the first

three months of 2014. “Greens Creek, with higher grades and

recoveries, led another strong operating quarter for Hecla – sil-

ver production is among the highest in our history,” said Hecla

President and CEO Phillips S. Baker Jr. The Idaho-based silver

miner attributes this

increased production pri-

marily to mine sequencing,

higher silver grades and

higher silver and gold

recoveries. The company

said changes made to the

flotation circuit in the

fourth quarter is resulting

in higher silver recovery,

the value of which is being outweighed a slight loss in zinc

recovery. The 15,239 ounces of gold produced at Greens Creek

during the first quarter exceeded the same period last year by 2

percent. The Greens Creek mill operated at an average of 2,172

tons per day in the first quarter. Hecla’s Lucky Friday Mine in

Idaho produced 836,719 ounces of silver during the first quarter

of this year, up 20 percent from the same period of 2014. The

mill operated at an average of 825 tpd in the first quarter. The

company’s Casa Berardi Mine in Quebec recovered 25,412

ounces of gold during the first quarter, down 19 percent from

the same period last year. Hecla said the mine experienced

lower grades as a result of mine sequencing and recoveries

were lower due to new metallurgical characteristics of the ore

from the 118 Zone requiring adjustments to the plant which are

expected to improve recoveries in the second quarter. The mill

operated at an average of 2,090 tpd in the first quarter. “In

March we celebrated 50 years on the NYSE, and I see our cur-

rent mix of three operating mines to be the strongest in our his-

see NEWS NUGGETS page 10

Whistler sale pendingProspective buyer could advance Southcentral Alaska porphyry project

By SHANE LASLEYMining News

I t has been nearly four years since any significant

exploration has been carried out at the Whistler

property, but a preliminary deal for Kiska Metals

Corp. to sell it could mean a renewed focus on this

copper-gold project in Southcentral Alaska.

Under a non-binding agreement reached April 9,

Alternative Earth Resources Inc. would acquire full

ownership of Whistler in exchange for issuing Kiska

24.5 million of its shares, which would represent half

of the company’s shares upon completion of the

exchange.

This Whistler deal is part of Kiska’s ongoing strat-

egy to realize value from its extensive portfolio of

exploration properties in Alaska, British Columbia,

Ontario, Nevada and Australia.

“This transaction further strengthens Kiska’s com-

mitment to the prospect generator business model and

greatly increases the company’s flexibility,” explained

Kiska President Grant Ewing. “Kiska will no longer

incur any holding or exploration costs, and it retains

excellent carried participation in the future upside of

the Whistler Project through its large shareholding in

AER.”

Thermal to mineralAlternative Earth Resources, which until recently

was focused on finding and developing geothermal

resources, has been seeking the right project to jump

into mineral exploration sector.

“I believe the timing is right relative to possible

improvement in gold and metal prices; however,

Alternative Earth’s available cash is sufficient to sus-

tain the company and the Whistler assets through sev-

eral years, if necessary,” Alternative Earth CEO Brian

Fairbank said, upon announcing the proposed acquisi-

tion.

At the end of 2014, Vancouver, B.C.-based

Alternative Earth had US$2.18 million in cash and

was expecting to recover US$150,000 from bonds

being held to secure reclamation work on geothermal

wells in Nevada and California.

Much of the money the company has in the bank is

from the sale of its geothermal assets in 2014, funds it

plans to put toward “opportunities in the mining sector

with projects having indicated resources in safe juris-

dictions,” according to Alternative Earth’s financial

filings for the end of 2014.

The company believes the Whistler project fits the

bill.

“Alternative Earth is pleased with the potential

acquisition of the significant Whistler deposit, the

encompassing porphyry gold-copper district and the

physical project assets following an extensive search

and due diligence process,” said Fairbank.

Whistler depositLocated in the Alaska Range about 95 miles north-

west of Anchorage, the Whistler property is situated in

the Kahiltna Terrane, an assemblage highly prospec-

tive for world-class porphyry copper-gold and intru-

sive gold deposits. The massive Pebble copper-gold-

molybdenum project – situated about 165 miles south-

west of Whistler – is the largest such deposit found

there.

“The super-giant Pebble deposit and the Whistler

deposit are the only porphyry copper-gold resources

currently defined in the Kahiltna assemblage, which

speaks to the immature exploration setting of this

belt,” Kiska said in a 2014 report on Whistler.

The 65-square-mile Whistler property, itself, is

known to host at least two porphyry centers and one

area prospective for an intrusive-related gold deposit.

The Whistler property is anchored by its namesake

deposit, which was discovered by Cominco Alaska in

the late 1980s and was further delineated by

Kennecott Exploration, Geoinformatics Exploration

Inc. and Kiska Metals.

A total of 48 holes drilled into the Whistler deposit

through 2011 has outlined an indicated resource of

79.2 million metric tons grading 0.51 grams per met-

ric ton gold, 1.97 g/t silver and 0.17 percent copper

(2.25 million gold-equivalent ounces), and an inferred

resource of 145.8 million metric tons averaging 0.40

g/t gold, 1.75 g/t silver and 0.15 percent copper (3.35

million gold-equivalent ounces).

In addition to upgrading the substantial open-pit

delineated inferred resource at Whistler, infill drilling

is expected to expand upon some higher-grade zones

see WHISTLER SALE page 11

The Idaho-based silver minerattributes this increased

production primarily to minesequencing, higher silver

grades and higher silver andgold recoveries.

SHA

NE

LASL

EYSH

AN

E LA

SLEY

The 65-square-mile Whistler property is known to host at least two porphyry centers, the Whistler depositwhich lies under the ridge to the right; and the Island Mountain prospect located in the mountains about 14miles to the south.

Drilling at Island Mountain has encountered two dis-tinct zones of mineralization: an upper gold-copperbreccia and a deeper pyrrhotite-gold zone.

By J. P. TANGENSpecial to Mining News

Environmentalists are often perceived

as watermelons (Green on the out-

side and Red on the inside) by the busi-

ness community because of their total

disregard of the social costs associated

with their advocacy. Certainly, it seems

fundamental that they freely embrace fis-

cal impact in their guerilla attacks; how-

ever, implying that they are committed

Communists overstates the motivation of

all but the most extreme individuals.

For me, the definition of a

Communist is someone dedicated to

blind social equity characterized by the

redistribution of assets by a strong cen-

tral authority. While that definition may

fit some environmentalists, certainly it is

not a shoe that can be worn on every

foot.

We can all agree, I think, that as the

result of their heavy-handed tactics,

Draconian rules have emanated from the

federal government to preclude the most

persnickety of eventualities. The effect,

in general has been to achieve positive

objectives – a swimmable Lake Erie, for

example – through internalizing the bur-

den of toxic discharges to the cost of

goods sold.

The regulatory standards, however,

divide the productive sector into two

camps, those who physically (and finan-

cially) can comply and those who are

driven out of business. Axiomatically, it

is the smaller and more fragile entities

that suffer from this paradigm, leaving

the field to well-funded, broad-based

enterprises that have the commitment to

survive.

In Alaska’s mining industry, we can

easily identify the winners and losers in

this context. Two mineral deposits stand

out. The first is the huge molybdenum

deposit at Quartz Hill within the Misty

Fiords National Monument. Notably,

although the Misty Fiords area was

early-on identified as one of Alaska’s

“crown jewels” in the jargon of national

interest lands enthusiasts, the area where

the molybdenum deposit is situated was

not included or deemed worthy of pro-

tection. Once the deposit was identified

(and patented to the claimants), the

boundaries of the reservation, which

became the Monument, were expanded.

The deposit still could have been

developed (witness Greens Creek, which

was similarly situated but in a different

“crown jewel”); however, the owners of

Quartz Hill elected to not make the end-

less financial commitment needed to

fight the battle to a conclusion. The

argument against development was that

the mine would adversely impact the

salmon population (shades of the Pebble

Project!) even though it was demonstrat-

ed that the only impact that molybdenum

would have on fish was that if they were

force-fed enough of it, there would be no

room in their stomachs for nutritious

food so they would starve to death.

Hundreds of top quality mining jobs at

Quartz Hill were lost because of this

officious governmental intervention.

Contrast Quartz Hill with the

Kensington Project. There the debate

was over a perched mountain lake iden-

tified as ideal for tailings disposal. The

existing lake was very deep, and the

depth of the lake inhibited expansion of

the fish population, which favored the

limited shallows for breeding and rear-

ing.

Confronted with heavy-handed objec-

tions by environmentalists and abetted

by their fellow travelers inside the

Environmental Protection Agency, the

owners of the project were compelled

and committed to carry their battle to the

Supreme Court of the United States for

vindication. Now the Kensington Mine

burbles along as a compliant producer of

gold, a good employer and a contributor

to the Juneau tax base. Notably, no

salmon were harmed in the making of

this project.

There is a virtually endless liturgy of

projects in Alaska that fall into this tem-

plate, and not just mining projects.

From one end of the state to another,

environmentalists crawl out of the wood-

work to whine about how disturbing the

countryside will destroy the natural

beauty of Alaska or put some critter,

whether marine, aquatic, avian or terres-

trial at some sort of risk.

The facts, in their book, are just laid

out by the proponents of development to

confuse the issue. It does not matter that

the agencies and regulators the environ-

mentalists themselves created to carry

their water at public expense are over-

seeing the permitting and operation of

the projects. In their view, if a project is

permitted, no matter how stringent the

stipulations, the permitting entity has

failed its duty. In brief, no project is a

good project.

Environmentalists are not all

Communists, but they unequivocally

have a blatant disregard for the damage

they cause. To call them Reds would be

to overstate their level of sophistication,

but it cannot be denied that their every

campaign incorporates an economic tac-

tic that redounds to the detriment of the

community, the state and the nation. As

the summer approaches and we all enjoy

the watermelons of the season, before

you spit a seed or two on the ground,

think of the environmental impact. l

l O P I N I O N

Environmentalists aren’t all watermelonsOpponents to mineral development invariably employ fiscal tactics; however, that does not mean environmentalists are Communists

10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF APRIL 19, 2015

Shane Lasley PUBLISHER & NEWS EDITOR

Rose Ragsdale EDITOR-IN-CHIEF (contractor)

Mary Mack CEO & GENERAL MANAGER

Susan Crane ADVERTISING DIRECTOR

Heather Yates BOOKKEEPER

Bonnie Yonker AK / INTERNATIONAL ADVERTISING

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Curt Freeman COLUMNIST

J.P. Tangen COLUMNIST

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Renee Garbutt CIRCULATION MANAGER

Mapmakers Alaska CARTOGRAPHY

ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647

NEWS • 907.229.6289publisher@miningnewsnorth.com

CIRCULATION • 907.522.9469 circulation@petroleumnews.com

ADVERTISING Susan Crane • 907.770.5592scrane@petroleumnews.comBonnie Yonker • 425.483.9705byonker@petroleumnews.com

FAX FOR ALL DEPARTMENTS907.522.9583

NORTH OF 60 MINING NEWS is a weekly supplement of Petroleum News,a weekly newspaper. To subscribe to North of 60 Mining News,

call (907) 522-9469 or sign-up online at www.miningnewsnorth.com.

Several of the individualslisted above are

independent contractors

North of 60 Mining News is a weekly supplement of the weeklynewspaper, Petroleum News.

NORTHERN NEIGHBORSCompiled by Shane Lasley

Minto production exceeds expectationsCapstone Mining Corp. April 13 reported that its copper production for the

three months ending March 31 totaled 23,700 metric tons, with by-products of

zinc, molybdenum, lead, silver and gold. The Minto Mine in Yukon Territory pro-

duced 4,095 metric tons of copper in concentrates, 37,919 ounces of silver and

3,792 oz. gold. This production was significantly higher than planned due to ore

from Area 118 underground that was above model grades, combined with the min-

ing of an area required for water storage, which was not in the mine plan. The cur-

rent plan has the mill continuing to process underground and stockpiled ore, with

surface mining on hold until a pending water use license amendment is issued.

The Yukon Water Board held a hearing on the amendment during the first week of

March, and Capstone anticipates its issuance in the second quarter. Capstone’s

Pinto Valley Mine in Arizona produced 15,809 metric tons of copper in concen-

trate and cathode, and the company’s Cozamin Mine in Mexico produced 3,373

metric tons of copper in concentrate during the first three months of 2015.

Explorers Weber, Blythe form AlianzaEstrella Gold Corp. April 8 reported that its shareholders have approved a plan

for Tarsis Resources Ltd. to acquire all of the outstanding shares of Estrella. Under

this arrangement, Estrella shareholders will receive one common share of Tarsis

for each Estrella share held. Upon completion of the merger, a 10-1 share consoli-

dation will take place and the combined company will change its name to Alianza

Minerals Ltd. Estrella CEO Jason Weber will serve as the president and CEO of

Alianza; and Tarsis CEO Marc Blythe will be COO of the merged company.

Alianza will be a prospect generator focused on the Americas, particularly the

cordilleran regions that characterize western North and South America. The com-

pany will have four projects in Peru, 10 in Nevada, three in Mexico, and five in

Yukon Territory and the flexibility to acquire new projects in the Americas as

opportunities arise. The business combination is expected to close by April 30,

along with a financing of up to C$2 million.

Mining & thelaw

The author,J.P. Tangen hasbeen practicingmining law in J.P. TANGENAlaska since 1975. He can be reached atjpt@jptangen.com or visit his Web site atwww.jptangen.com. His opinions do notnecessarily reflect those of the publishersof Mining News and Petroleum News.

Contact North of 60 Mining News:Publisher: Shane Lasley • e-mail: publisher@MiningNewsNorth.com

Phone: 907.229.6289 • Fax: 907.522.9583

tory,” said Baker. “We believe that our

portfolio of mines, particularly Greens

Creek, which is recognized as a world-

class silver mine, provides operating stabil-

ity to weather current market conditions.”

Hecla reported US$194 million of cash

and cash equivalents on hand at the end of

March.

DGGS releases data for emerging Tok area

The Alaska Division of Geological &

Geophysical Surveys April 8 issued a

report from the 2014 Tok electromagnet-

ic and magnetic geophysical survey,

which covers roughly 2,500 square kilo-

meters (965 square miles) centered

roughly 56 kilometers (35 miles) west–

southwest of Tok. The west and north-

east portions of the survey area contain

numerous known copper, gold, and gold-

silver-copper-lead-zinc prospects, some

with drill-identified precious and base-

metal resources documented in the

Alaska Resource Data Files. Notable

prospects at or near the survey area

include: the Tetlin copper-gold project;

continued from page 9

NEWS NUGGETS

see NEWS NUGGETS page 11

within the deposit. These include an area of

shallow higher grade mineralization seen as

ideal place to start mining, an area in the

northern part of the deposit, and a higher

grade core zone hypothesized to exist at

depth.

Orbiting WhistlerWhile Whistler is the most advanced

deposit, roughly 20 other prospects and

deposits have been identified on the proper-

ty.

Many of these prospects are found in the

Whistler orbit, a roughly 20-square-mile

region that includes the Whistler deposit as

well as the Raintree and Rainmaker discov-

eries.

“All of these bona fide porphyry

prospects are open for expansion with fur-

ther diamond drilling and represent imme-

diate growth potential to the resource base,”

Kiska said of the discoveries in the Whistler

orbit.

While the Whistler deposit outcrops on a

ridge, making it easy to find, the other

prospects in the Whistler orbit are largely

covered with a 10- to 15-meter layer of gla-

cial till in the valley below, making the

underlying geology tough to discern from

the surface.

Located some 1,800 meters east of the

Whistler deposit, Raintree West has the

most drilling of the Whistler orbit prospects.

Like all of the blind prospects at

Whistler, Raintree West was first identified

with airborne geophysics. Drilling in 2008

and 2009 identified two zones of mineral-

ization. Both of these zones were intersect-

ed in hole WH09-002, which cut 128.7

meters of 0.56 g/t gold and 0.16 percent

copper from a depth of 59 meters; and 40

meters of 0.98 g/t gold and 0.21 percent

copper from 429 meters.

Drilling at Raintree North, Raintree

South and Rainmaker has identified por-

phyry copper-gold mineralization similar to

Raintree West.

Dagwood and Snow Ridge, two other

prospects in the larger Whistler corridor

area, show geophysical and geochemical

characteristics that suggest peripheral-style

porphyry mineralization may exist, but have

yet to be drilled.

Gold-rich targetsIsland Mountain and Muddy Creek, situ-

ated in the southern half of the Whistler

property, provide additional gold-rich

exploration targets.

Island Mountain, located about 14 miles

south of the Whistler deposit, was discov-

ered by Kiska in 2009.

IM-09-001, the discovery hole at Island

Mountain, cut two distinct mineralized

zones. The upper 150 meters — which aver-

aged 0.72 g/t gold, 2.37 g/t silver and 0.16

percent copper — is similar to the mineral-

ization found at the Whistler deposit. The

mineralization in the lower 106.9 meters of

the hole — which averaged 1.22 g/t gold,

0.69 g/t silver and 0.05 percent copper —

more closely resembles the gold-dominant

mineralization being investigated at

Millrock Resources Inc.’s Estelle property a

couple of miles to the west.

Muddy Creek, a gold target about six

miles northwest of Island Mountain, is a

promising intrusion-related gold target.

Muddy Creek’s potential is underscored

by the 4.72 g/t gold average grade of 150

rock samples collected over a four-square-

mile area. This geochemical work in con-

junction with a geophysical survey has out-

lined seven prospects.

Only three holes have been drilled at

Muddy Creek, two of which intersected

gold mineralization. MC11-001 cut 38.8

meters averaging 0.52 g/t gold-equivalent

and MC11-002 cut 44.2 meters averaging

0.51 g/t gold-equivalent.

If it finalizes a deal for the Whistler proj-

ect, Alternative Earth said, “New explo-

ration will incorporate an in-depth review,

fresh analyses and integration of the consid-

erable trust of geophysical, geological,

drilling and assay data, along with new

prospecting and geophysical surveys.”

The company indicates that further geo-

physics “to map structure, better determine

the geometry of established targets, identify

new targets, and to prioritize future explo-

ration and development drilling” is among

its top priorities for the property.

In addition to a large land package with

an established porphyry deposit and a num-

ber of promising copper and gold prospects,

the Whistler project comes with a number

of physical assets and upgrades that will

make future exploration easier and less

expensive.

In 2011, Kiska completed the construc-

tion of a 50-person camp and a gravel

airstrip capable of landing a Boeing DC-3

aircraft near the Whistler orbit area of the

property.

A four-mile gravel road connects the

camp and airstrip to the Whistler deposit.

In addition to living quarters, the camp

comes with a generator; wireless satellite

phone and internet system; wireless cell

phone service; water well; septic system;

two core logging facilities; core cutting

facility; core storage area; and a large main-

tenance garage for servicing all rolling stock

and camp equipment.

The on-site rolling stock includes a Cat

D6 bulldozer; two skid-steers; a 30-ton

articulating haul truck; 10 snowmachines;

and eight all-terrain vehicles.

A definitive and binding agreement for

the Whistler project is expected in April and

Alternative Earth Resources’ shareholder

meeting to approve the transaction is sched-

uled for June 23. l

11NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF APRIL 19, 2015

kinross.com

Daniel and Aileen Valdez know firsthand what “family friendly” means. Eleven years ago, Daniel

started as a Mill Operator; now he’s the mine’s Ore Processing Reliability Engineer. When he’s not

parenting, hunting, snowboarding or restoring his ’51 Chevy pickup, he’s hard at work. What’s great about Fort Knox is the “opportunity for

on-the-job training and a chance to advance in the company,” says Daniel. 

For Aileen, a Fort Knox Accountant Tech, it’s all about numbers. But outside of work? It’s all about volunteering with the American Heart Association, taking courses at UAF and caring for their young daughter.  “We work close to

home,” Aileen says. “Fairbanks is awesome, Fort Knox is family friendly, and you can’t beat the

competitive wages and benefits.”   The Valdez family is a prime example of how a

flourishing community and a supportive workplace go hand-in-hand.

Our People Our Community

Tushtena gold project; and Delta poly-

metallic project. DGGS says the

absence of known mineral prospects

in the remainder of the survey area is

likely related to the lack of public

data. By increasing the geologic

understanding of the area survey, the

state agency aims to catalyze new pri-

vate-sector exploration with the ulti-

mate goal of discovering deposits wor-

thy of development and production.

The Tok survey report, Geophysical

Report 2015-2, is available for free

download at

http://dx.doi.org/10.14509/29347, and

includes final processed data in point,

line, image, map, and grid formats.

Supporting documentation also is pro-

vided in multiple formats. Future

releases from the survey will include

data interpretations, reports, and flight

videos.

NovaCopper still plansbig Arctic program

NovaCopper Inc. April 9 provided

an update on its projects and finances

for the three months ended Feb. 28.

For the quarter, NovaCopper reported

a net loss of US$1.5 million, com-

pared with a net loss of US$2.6 mil-

lion for the corresponding period in

2014. The company said lower expen-

ditures this year are primarily due to a

decrease in professional fees, salaries

and mineral property expenses offset

by an increase in stock-based compen-

sation expense. NovaCopper is cur-

rently focused primarily on advancing

the Arctic deposit in Northwest Alaska

to feasibility over the next two to

three years. Subject to the availability

of capital, the company plans to spend

US$8 to US$10 million during the

2015 field season, primarily to

upgrade the Arctic in-pit inferred

resources to the measured and indicat-

ed categories; and to collect in-pit

geotechnical and metallurgical data.

Environmental and engineering stud-

ies to gather information for the feasi-

bility study are also planned. Work at

the Bornite deposit, located a few

miles south of Arctic, will focus on

evaluating potential synergies between

the projects as well as opportunities to

extend the potential mine life of the

Upper Kobuk Mineral Projects in the

Ambler mining district. During the

first quarter of 2015, NovaCopper

continued to focus efforts on support-

ing the Alaska Industrial Development

Export Authority toward drafting an

Environmental Impact Statement to

permit the Ambler Mining District

Industrial Access Road, which would

provide access to Arctic, Bornite and

other projects in the district. Despite

cuts to state of Alaska budget,

NovaCopper anticipates the permitting

process will continue and expects to

be able to provide an update in the

second quarter of 2015. At Feb. 28,

NovaCopper had cash and cash equiv-

alents of about US$4 million and

working capital of US$3.7 million. l

continued from page 9

WHISTLER SALE continued from page 10

NEWS NUGGETSNovaCopper is currently

focused primarily on advancingthe Arctic deposit in NorthwestAlaska to feasibility over the

next two to three years.

12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF APRIL 19, 2015

Anchorage (907) 563-3822 (800) 478-3822Fairbanks (907) 455-9600Juneau (907) 780-4030 (888) 399-4030Ketchikan (907) 247-2228

Link-Belt TCC1100 Hydraulic CraneNorth Dakota

IN THE WORLDLink-Belt, the best in construction

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IN ALASKACMI, the best sales and product support lineup.

IN YOUR CORNER

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PETROLEUM NEWS • WEEK OF APRIL 19, 2015 13

5304 Eielson Street • Anchorage, AK 99518 907.563.9060 • www.gdiving.com

COMMERCIAL DIVINGOFFSHORE SUPPORTMARINE CONSTRUCTIONENVIRONMENTAL SERVICESPROJECT MANAGEMENTLOGISTICAL SUPPORT

MORE THAN JUST A DIVING COMPANY

EXPLORATION & PRODUCTIONSAExploration seeking storage site

SAExploration Inc. wants to use the Franklin Bluffs pad for summer storage.

The seismic company wants to use 8 acres of the pad to store sleigh camps and

seismic equipment, Permit and Regulatory Manager Suzan Simonds told the

Alaska Department of Natural Resources in a land use permit application from

late February.

The permit would start this year and last through 2019.

Through a joint venture subsidiary Kuukpik SAE, SAExploration conducted a

seismic survey on behalf of Repsol USA E&P Inc. along the Colville River, south

of Nuiqsut.

The company was scheduled to perform a separate survey in the Oliktok Point

region on behalf of ConocoPhillips Alaska Inc., although ConocoPhillips delayed

the program, saying that the region was too crowded with other activities this year

to support a survey.

ConocoPhillips has said it will consider the program again in a future budget

cycle.

—ERIC LIDJI

LAND & LEASING

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

Spring forecast dropsoil prices furtherANS production forecast also down for 2015-16, but up slightly for2017-18, 2019-24; non-North Slope numbers up slightly this year

By KRISTEN NELSONPetroleum News

T he Alaska Department of Revenue’s

spring forecast, released April 3,

reflects lower oil prices than the depart-

ment forecast in its fall forecast, released

in December.

“The spring revenue forecast highlights

the revenue uncertainties that are being

created by the fall in oil prices and its

impact on revenue over the next several

years,” Revenue Commissioner Randall

Hoffbeck said in a statement.

General fund unrestricted revenue for

fiscal year 2015 is now estimated at $2.2

billion, some $400 million less than the

$2.6 million from the fall forecast; fiscal

year 2016 general fund unrestricted rev-

enue is also projected at $2.2 billion, the

department said.

Hoffbeck said the spring “forecast is

driven by an expectation of an average

price of oil in the mid-$60s for the next 15

months. The assumption is that oil produc-

tion is expected to be at least 500 thousand

barrels per day the next two fiscal years.

“Compared to the fall 2014 forecast, the

revenue forecast for spring 2015 projects

lower revenue from FY 2017 through the

end of the ten-year period to reflect a lower

price path,” he said.

Price differencesIn the fall forecast the department pro-

jected ANS West Coast prices of $76.31

per barrel for FY 2015, $66.03 in FY 2016,

$93.18 in FY 2017 and prices breaking the

$100-mark through the end of the forecast

period, peaking at $134.39 in FY 24.

The spring forecast, by contract, fore-

casts $67.49 per barrel for FY 2016, the

same $66.03 in FY 2016, but then lower

prices through the end of the forecast peri-

od, peaking at only $124.34 in FY 24, and

not breaking the $100-per-barrel mark

until FY 2020, two years later than the fall

forecast.

Compared to the fall forecast, ANS

West Coast is down $8.82 in FY 15, the

same in FY 16, and down by amounts from

$6.52 to $14.49 per barrel through FY

2024.

Hoffbeck said oil prices in the spring

forecast have been reduced “for the next

nine years, relative to the last forecast peri-

od, although we believe the price will be

back over $80 by FY 2017.”

Production differencesThe spring Alaska North Slope produc-

tion forecast varies from the fall forecast in

both directions, with percent changes

ranging from down 0.7 percent to up 1.8

percent and volume changes in the range

of 1,400 barrels per day to 6,200 bpd.

In the fall forecast, FY 2015 production

was projected at 526,100 bpd, 509,500 of

that from the North Slope. In the spring

forecast Alaska production is estimated at

524,900 bpd, 508,000 of that from the

North Slope.

Non-North Slope production for FY

2015 was estimated at 16,600 bpd in the

fall forecast, and was increased to 16,900

bpd in the spring forecast. Non-North

Slope production otherwise remains the

same between the forecasts, dropping

gradually through the forecast period to

7,000 bpd in 2024.

The North Slope production estimate

between the two forecasts is down for FY

2015 and FY 2016 by 1,500 bpd 4,600 bpd

respectively. The spring forecast ups the

North Slope forecast by 1,400 bpd in FY

2017 and by 3,100 bpd in FY 2018, drops

it by 3,300 bpd in FY 2018, and then

shows increases each fiscal year, ranging

from 6,200 bpd in FY 2021 to 4,300 bpd in

FY 2020.

The North Slope production forecast

drops below 500,000 bpd in FY 2019, and

hits 320,300 bpd in FY 2024.

Over the next two fiscal years,

Hoffbeck said, petroleum revenues —

considering “price, production, and the

minimum tax rate” — will be more than

$1.6 billion per year, with about another

half billion coming to the state’s general

fund unrestricted revenue from non-petro-

leum taxes and fees. l

State finalizes AVCG deals on North SlopeThe state recently finalized several lease transactions between Alaska Venture

Capital Group LLC, its partners and a subsidiary and the companies of a three-

party joint venture.

The Alaska Department of Natural Resources approved the assignment of var-

ious working interests and royalty interests in a package of North Slope leases

from AVCG, Ramshorn Investments LLC and Brooks Range Development Corp.

to TP North Slope Development LLC, MEP Alaska LLC and Caracol Petroleum

LLC.

AVCG and Ramshorn recently sold their Alaska holdings to those three com-

panies for $450 million. The leases in question are outside the Southern

Miluveach unit, which the companies are working to bring into production. The

leases in question include acreage in the Beechey Point unit and the Badami units,

as well as much un-unitized acreage.

The state denied a series of requests to assign small overriding royalty interests

in many of those same North Slope leases to those same three companies.

Also in March, BP Exploration (Alaska) Inc. assigned 1.25 percent royalty

interest in two segments of lease ADL 355021 at the Milne Point unit to Hilcorp

Alaska LLC. BP recently sold a 50 percent working interest in the unit to Hilcorp,

which became operator.

Terminations, royalty interestsThe state terminated a North Slope lease held by Sun-West Oil & Gas Inc. for

non-payment of rent. The lease — ADL 390822 — was on the coast of the Arctic

National Wildlife Refuge, at the mouth of Pokok Bay. The company owns another

lease nearby.

The state also terminated two offshore Cook Inlet leases held by the James C.

Casper & Laurel L. Casper Living Trust, also for non-payment of rent. The leases

— ADL 391593 and ADL 391594 — were in the vicinity of Kalgin Island, which

is a critical habit area.

Several small royalty owners assigned small overriding royalty interests — all

in increments of less than 1 percent — in four leases at the Cook Inlet Energy-

operated Redoubt unit. The Eldon and Frances Ford Trust assigned small overrid-

ing royalty interests in ADL 17658 at the ConocoPhillips-operated Beluga River

unit to David E. Ford, Robert A. Ford and Douglas D. Ford. The Locke Jacobs

Estate assigned a 3 percent royalty interest in lease ADL 733 at the North Fork

unit to Evangeline N. Jacobs.

—A copyrighted oil and gas lease map from Mapmakers Alaska was a researchtool used in preparing this story.

—ERIC LIDJI

By DAN JOLINGAssociated Press

Alaska’s rugged Dalton Highway

reopened April 12 to limited traffic

with 30 northbound trucks making the

first crossing in a week to resupply

Alaska North Slope oil fields.

A 6-mile stretch near the northern end

of the road just south of Deadhorse had

been impassible for a week because of

unprecedented overflow from the

Sagavanirktok River, commonly referred

to as the Sag River, which runs parallel to

the highway and the trans-Alaska

pipeline.

The department reopened the road at

8:30 a.m. with 30 trucks carrying loads

most critical to oil field operations.

“My understanding was that it was pri-

marily food,” said Meadow Bailey,

spokeswoman for the Alaska Department

of Transportation and Public Facilities.

Hundreds of loads waitingAfter an inspection, 30 southbound

trucks were allowed to make the trip. The

trickle of trucks was a start but hundreds

more loads were waiting in Fairbanks

about 483 miles to the south to resupply

oil field workers.

“They need food, they need fuel, they

need general supplies,” she said.

The 414-mile Dalton Highway is a

mostly gravel road that starts 84 miles

north of Fairbanks. Despite crossing hun-

dreds of miles of Arctic and sub-Arctic

tundra and the Brooks Range, the road

rarely closes. Bailey said it had closed

twice for 24 hours because of storms in

her seven years with the Transportation

Department.

Sag River overflow turned the high-

way 8 miles south of Deadhorse into an

ice sheet. The road shut down for three

days two weeks ago and for another seven

days beginning April 5.

The river is shallow with braided

channels that shift as they fill with

deposits of sand or gravel. Department

officials said a combination of cold, snow

and wind likely caused ice to form on the

bottom of the river, pushing water out of

channels.

“As it’s freezing on the bottom, it’s

pushing running water on the top,” Bailey

said.

Some 5-foot delineators coveredThe highway on both sides is marked

with 5-foot delineators — posts with

reflectors on the top — so that truckers

can tell where the road edge is as they

drive in snowy conditions. There’s so

much ice on the road, some delineators

are sticking up only 1 foot and some are

almost covered by ice and moving water,

Bailey said.

“As far as you can see, it’s an ice

sheet,” Bailey said. “You can’t tell where

the channels of the river are anymore.”

Bailey by mid-afternoon did not know

how many trucks had passed. Department

officials said they would continue to

alternate north- and southbound groups

between inspections as long as road con-

ditions remain stable.

Gov. Bill Walker declared a disaster

the week of April 6, allowing contractors

to work on overflow alongside state

employees. The department reported

April 12 there were 28 people and 26

pieces of equipment working to keep the

road open.

Excavators worked off the road

attempting to break ice and dig a diver-

sion ditch to channel water away from the

road. Side dump trucks were carrying in

snow to build compacted berms to keep

water off the road. Plows and graders

attempted to widen the road.

The oil fields were not completely

stranded. Flights continued to Deadhorse.

Some companies used off-road trucks that

can cross tundra to move fuel past the

blocked road, Bailey said.

The temperature at Deadhorse just

before 2 p.m. April 12 was 9 degrees with

winds at 12 mph, according to the

National Weather Service.

The road grade is scheduled to be

raised 7 feet in a construction project this

summer.

“Nothing like Mother Nature stressing

the need for this project,” Bailey said. l

14 PETROLEUM NEWS • WEEK OF APRIL 19, 2015

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EXPLORATION & PRODUCTIONJudge issues Greenpeace restraining order

On April 11 Judge Sharon Gleason from the federal District Court in Alaska

issued a temporary restraining order against Greenpeace, banning protesters from

the environmental organization from boarding or otherwise interfering with the

operation of drilling vessels under charter to Shell for the company’s planned

exploration drilling in the Chukchi Sea.

One of the vessels, the semi-submersible Polar Pioneer, is being carried across

the Pacific Ocean by heavy lift vessel, the Blue Marlin, en-route to the U.S. West

Coast, prior to transiting north to Alaska. The Greenpeace ship the Esperanza has

been tracking the Polar Pioneer across the Pacific in protest against Shell’s

Chukchi drilling plans.

On April 6 a team of six Greenpeace activists climbed aboard the Polar Pioneer

from a small inflatable boat using climbing ropes, before setting up camp on the

drilling vessel. The following day Shell filed a complaint in District Court, seek-

ing an injunction against the boarding and against future Greenpeace interference

with vessels operated by Shell in its Alaska drilling program. According to an

Associate Press report the Greenpeace protesters disembarked from the Polar

Pioneer on April 11, with Greenpeace saying that safety concerns arising from

rough seas had triggered the evacuation.

Shell, in its complaint to the District Court, claimed that Greenpeace, by board-

ing the Polar Pioneer, had violated international maritime regulations and tres-

passed on private property. Shell also claimed that, in interfering with Shell’s

operations, Greenpeace is liable for private nuisance as a consequence of conduct-

ing a civil conspiracy. In her April 11 order Judge Gleason found that the uninvit-

ed protestors on board the Polar Pioneer would likely cause irreparable harm to

Shell, thus justifying the issuing of a temporary restraining order. However, hav-

ing heard oral arguments in the case that Shell had raised, the judge said that Shell

needs to provide further arguments justifying an injunction covering all of the

vessels engaged in its Chukchi exploration project — the judge set a date of April

28 for a hearing in the case.

—ALAN BAILEY

l F A C I L I T I E S

Selected trucks beginmoving on DaltonSagavanirktok River overflow has made road to North Slopeimpassible; with emergency declared, private contractors join effort

A convoy of trucks heads north near Mile400 of the Dalton Highway.

ALA

SKA

DO

T

By GARY PARKFor Petroleum News

B ickering and indecision among

Canadian governments must be set

aside so that Canada’s oil and gas producers

can access offshore markets before those

buyers turn their attention to other supply

sources, said Brian Porter, chief executive

officer of the Bank of Nova Scotia, one of

Canada’s five largest banks.

He told his bank’s annual meeting that it

is now time for Canada’s political leaders to

“come together” to engage in a vigorous

pursuit of global markets.

“Our inability to deliver energy to world

markets is detrimental to Canada’s econo-

my,” he said. “It is also detrimental to our

country’s brand and future economic

prospects for all Canadians.”

Porter’s decision to lead the banking sec-

tor into the public debate on pipelines

comes as four proposals to ship crude bitu-

men from the Alberta oil sands to the

United States, Asia and Europe become

increasingly bogged down in contentious

regulatory hearings and face growing

objections from municipal governments,

environmental groups and First Nations.

He said it is long past time for Canada to

move beyond squabbling that is acting as a

significant constraint to exports of “mean-

ingful quantities of energy” that would

allow Canada to become one of the world’s

largest producers of oil and gas.

“Without the ports and pipelines needed

to deliver Canada’s energy products global-

ly, importing nations will source their ener-

gy supply elsewhere,” Porter said. “Gaps in

our infrastructure will have long-term con-

sequences for our economy.

“We must make global access for

Canadian energy a national priority and

then make it a reality.”

He said the decline in tax and royalty

revenues from low oil and gas prices and

shrinking exports to the United States “will

constrain our federal and provincial govern-

ments’ ability to invest in important areas

such as education and health care.”

Porter noted that TransCanada’s pro-

posed Energy East pipeline to deliver 1.1

million barrels per day of Western Canadian

crude to domestic refineries as well as open

new markets in Europe and Asia is falling

behind its timetable and its prospect of

injecting C$35 billion into the national

economy and creating tens of thousands of

jobs.

Other pipelines trapped in a gridlock

include TransCanada’s 830,000 bpd

Keystone XL line to the U.S. Gulf Coast

and two delivery systems from the oil sands

to the British Columbia coast — Kinder

Morgan’s application to triple capacity on

its Trans Mountain system to 890,000 bpd

and Enbridge’s 525,000 bpd Northern

Gateway pipeline.

The four projects represent about 3 mil-

lion bpd of incremental production, mostly

from the oil sands.

In addition, several plans to export LNG

are becoming increasingly challenged by

opponents of fossil fuel development.

That battle has intensified with the leak-

age on April 11 of an estimated 2,700 liters

of bunker oil from the cargo ship MV

Marathassa, which was moored off one of

Vancouver’s most popular beaches waiting

for a berth.

Vancouver Mayor Gregor Robertson

and British Columbia Premier Christy

Clark both heaped blame on the Coast

Guard for taking four hours to answer

reports of the spill and another six hours to

place booms around the vessel.

That fueled the objections of critics who

say Canada and British Columbia are far

from having the “world-class” spill

response program which governments and

industry have promised will be in place

before crude and LNG tankers start deliver-

ies from Canada’s coasts. l

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

Stalling threatens Canadian economyBanking official cites governmental bickering in pipeline, LNG project delays; says nation’s economy, export prospects at risk

PETROLEUM NEWS • WEEK OF APRIL 19, 2015 15

Alaska Resource Education presents

the

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requiring its use at this time.

The proposed regulations require shore-

based, real-time monitoring of offshore

drilling operations that involve deep water

and high temperatures or high pressures.

This arrangement, which would also apply

to certain high-risk wells in shallow water,

would enable technical experts onshore to

provide a “second set of eyes,” observing

what is happening. BSEE staff would have

access to this capability.

In terms of improved drilling safety, the

proposed regulations set required criteria

for safe drilling margins between down-

hole drilling fluid weights and rock pore

pressures. And there are specified perform-

ance criteria for drilling and completion

equipment. New guidelines would set obli-

gations for the appropriate use of well cas-

ing centralizers to ensure the effective

cementing of a well.

Drilling safetyThere are also new requirements for the

safe decommissioning of wells.

In an April 13 statement Steven

Colville, president and CEO of the

International Association of Drilling

Contractors, said that the drilling industry

has already been applying lessons learned

from the Deepwater Horizon disaster.

“IADC welcomes regulation that is

both sensible and transparent and we are

very interested in the opportunity to work

with BSEE on regulation that enables oper-

ations while protecting our people and the

environment,” Colville said. “IADC’s

members will be participating in joint

industry workgroups to carefully consider

and prepare a response to the finer points

of this comprehensive and detailed propos-

al.”

The Wilderness Society issued a state-

ment urging finalization of regulations as

soon as possible, in the interests of prevent-

ing another offshore drilling disaster. l

continued from page 7

WELL CONTROL

16 PETROLEUM NEWS • WEEK OF APRIL 19, 2015

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

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

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

Oil Patch Bits

AAECOM Environment

aeSolutions

Air Liquide

Aircaft Rubber Mfg. (ARM-USA)

Alaska Clean Seas (ACS)

Alaska Communications

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Brooks Range Supply

Calista Corp.

Canrig Drilling Technology

Carlile Transportation Services

Chevrolet of South Anchorage

CHI Aviation

ClearSpan Fabric Structures

CN Rail

Colville Inc.

Computing Alternatives

CONAM Construction

ConocoPhillips Alaska

Construction Machinery Industrial

Cook Inlet Energy

Crowley Solutions

Cruz Construction

Delta Leasing

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exp Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

F. Robert Bell and Associates

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Learn to Return

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Lounsbury & Associates

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Lynden Inc.

Lynden International

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Mapmakers of Alaska

MAPPA Testlab

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Miller Energy

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NASCO Industries Inc.

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Pacific Alaska Lumber . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

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Resource Development Council

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Fairweather recognized at safety & health conferenceFairweather LLC was a presenter at the

recent 2015 Alaska Governor’s Safety &Health Conference, addressing relevanthealth, safety and environment topics andearning two significant HSE achievementawards.

The conference, hosted by the AlaskaSafety Advisory Council, was held at theDena’ina Convention Center in Anchorage,March 24-26. The goal of the event was toencourage the coordination and sponsorshipof policies, activities and actions designed toreduce the loss of human and materialresources in the state of Alaska.

Fairweather was recognized with the 2015 Governor’s Award for Safety Excellence atthe conference. This award is presented to Alaskan companies that demonstrate exemplarysafety and health procedures and good corporate citizenship.

In addition, Fairweather Safety Manager Gordon Randall was the recipient of the 2015Everett Award. This award was established in 2012 in honor of Denali Safety Council

Director “Safety Herb” Everett. The Everett Award recognizes individuals, still active in theprofession, that have dedicated their lives to the advancement of safety inside and outsidethe workplace.

Along with his duties as a safety manager for Fairweather, Gordon serves with AKDMAT 1, an Anchorage-based volunteer disaster management preparedness group thatstages large disaster drills for the municipality. Gordon also sits as a facilitator on theNorth Slope Road Safety Coalition, tasked with identifying and mitigating driving hazardsencountered on the North Slope. For more information visit www.fairweather.com.

Crowley announces membership in the Trident AllianceCrowley Maritime Corp. has announced its membership in the Trident Alliance, a coali-

tion of shipping owners and operators that share a common interest in robust enforce-ment of existing maritime sulphur regulations. In joining, Crowley has signed a statementof commitment, certifying that the company agrees to comply with sulfur regulations andsupport the robust and transparent enforcement of these regulations.

Because sulphur-restricting regulations have resulted in increased fuel costs for ship-ping companies, many unscrupulous operators have violated regulations by burning cheap-er, non-compliant, higher sulfur fuels. Doing so not only results in increases in harmfulemissions, but also places companies that are committed to complying with fuel sulfur

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PETROLEUM NEWS • WEEK OF APRIL 19, 2015 17

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Russia and Canada, worldwide to advocate

against animal rights groups. I’ve done a

lot, but this is new.

Case in point, back in the late ’80s and

early ’90s, they start working toward stop-

ping things like the seal pupping in

Newfoundland and Nova Scotia. It was a

way of life. They sold the pelts to the

European market and London. The animal

rights groups stopped that.

Guess what — they created havoc with

fisheries near those provinces in Canada. A

bunch of us from Alaska, Greenland and

Canada went to England at the time. We

did a show with all of the artifacts we have

from the Arctic at the museum of natural

history.

We found a guy from Canada who was

full-blooded Indian who directed an

orchestra. We asked the London

Philharmonic Orchestra if we could have

this Indian, if we could have them direct a

show and they said yes. We had the show.

It was a tremendous success.

After that the guy from Canada and I

were invited to go on BBC for a show that

broadcasts at noon all over the world. We

had 15 minutes to talk about our way of

life and how impactful it is for people out-

side our area to try and stop what we do

for a living.

Petroleum News: So in the context ofspending your life educating othersabout your way of life, what else haveyou learned about this job?

Nageak: I know a lot of the internation-

al stuff and thought I knew a lot when I

was on a local commission and vice chair

of our board of game. But there is a whole

lot more to the committee process. I didn’t

know much of that. Now I know a lot

more than I did about how we do things

through the committees.

Petroleum News: Soon the U.S. willtake over as chair for the Arctic Council.What kind of voice would you like tohave?

Nageak: I’d like them to advocate more

for offshore activity. It’s not going to go

away. What’s ironic is the environmental-

ists and the Interior Department, especially,

are trying to stop offshore drilling when

about 75 miles away from where Shell is

going to be there are Russians working off-

shore and they don’t have restrictions such

as ours. They want to stop oil activity

along the coast. The companies have

trained our people for oil spills, and if they

(Russians) have a spill it’s going to drift

over to our part of the world from the

Bering Straits and all the way up north.

That’s what upsets me. Here we are

again. We are being restricted but all of

this stuff that’s going to happen, if it hap-

pens, is going to come from the Russians.

There is no panic form the world. We don’t

hear it from the rest of the world unless we

want to do it. Now look at what

Greenpeace is doing.

No one hears these things, how we

depend on our resources. If they are so

concerned about oil and gas activity off-

shore, then help us out and let us develop

our oil and gas resources onshore in

ANWR. That’s what we want, but we

don’t have that ability. Now the federal

government is talking about closing off

activity offshore. Here we go again. Big

brother is watching.

They need to listen to us. We know. We

who live here studied our oceans, our

lands.

We’ve studied it. We understand. We

know more than the federal government

ever will. If we see something wrong, we

report it right away. We should do more

anywhere. We can train our people and we

can be right there if anything happens.

Petroleum News: Would you like tosee a stronger indigenous voice on theArctic issues?

Nageak: Oh yeah. There is none now.

Canada had an Inuit (Leona Aglukkaq)

serving as chair. Finally, we are going to

get the chair post, and we get someone

from the East Coast who hasn’t spent

much time up here and so there we go

again. We are left out of one of the most

important organizations ever created to

watch our part of the world that combines

several countries and here we are: left out

again. We aren’t trusted. With all the

knowledge we have about our part of the

world, we are not even trusted to be their

chair. We have a lot of people in Alaska

who have chaired state, national and inter-

national organizations. We’ve done every-

thing and we aren’t invited to sit on the

dang council as a leader of the U.S. Arctic

just as Canada did when they had the posi-

tion. We are always frustrated when our

own federal government doesn’t give a

dang about us.

Petroleum News: You were certainlyoutspoken about that in January. Thepositions you took were a hit on socialmedia. Did you ever think of yourself asusing social media to get the word out?

Nageak: I didn’t start it. People just

took my words and spread them. That’s

how it happened. I’m glad it happened and

I’m glad it happened that way. Now I think

I’ve got to do more. I got to do more in

reaching out to both houses of Congress. I

was going to do some this spring during

the interim, but my health got in the way. I

almost died twice, according to what my

wife said.

Everything that could happen to me

happened. But I’m feeling better now.

Everything happened all at once, first

news from Washington. Then my health.

I’m on so much medication. They are try-

ing to tweak it. Sometimes it has an

impact on me. I finally think I’ve got the

dosage right.

But I really want to get back out there

and tell people about where we live and

why it’s important that the rest of the

country knows about it.

I try to get a respite from the serious-

ness of what’s going on. You have to not

be serious all of the time. You have to be

humorous. I still want people to laugh.

Petroleum News: So back here inJuneau are you looking forward to hav-ing a special session on the natural gasline and LNG export project? That willbe some heavy lifting for your commit-tee.

Nageak: Everybody in the whole world

is pin pointing that activity because it’s a

special session. We couldn’t get our work

done during the regular session.

Everybody is going to be watching

because whatever happens during the spe-

cial session is going to have an effect to

the state, the nation and the world because

of the size of the project. Japan is

involved. China may be involved. During

the committee hearings we heard about

what different countries wanting natural

gas. They are watching.

When we get to a special session, it’s

going to be more intense and I hope it is.

People need to understand that we are a

resource state — renewable and non

renewable — and are getting pushback

from every entity national and internation-

ally. We need people to understand we are

fighting for our lives in this case. We need

more activity.

It’s not going to last long. We are see-

ing the Middle East and they are fighting

amongst each other. National events and

statewide events take a backseat when

international events happen. But when

international events happen, things seem

to pick up in Alaska.

Look around. We are having problems

in Indonesia. We’ve got problems in

Russia. We are having problems in China.

They are having second thoughts that

Russia is trying to build through China.

There is a lot of movement internationally

that will have a tremendous impact on the

state. We need to be vigilant and see

what’s going on, understand what’s going

on so we can react to things that may hap-

pen that might benefit us.

Petroleum News: So when would youlike to have a special session on the gasline? Any particular time or just whenthey are ready?

Nageak: It’s going to happen when

both sides decide it’s going to happen. The

governor might do it. We may do it too.

We’ll see what happens. He’s alluding to

that happening in so many words. Our

leadership in the House and Senate is

alluding to it.

Petroleum News: Setting aside thedifferences driven by HB 132. Do yousee any progress and do you like theprogress being discussed?

Nageak: You call it progress. I call it

turmoil right now. I call it who is going to

blink first. That’s how I look at it. Who is

going to blink first? Both sides are so

hardheaded. Neither wants to give up what

each side is entitled to through the state

process.

Petroleum News: Repsol just made anannouncement to advance a project.What are your thoughts on that?

Nageak: I know the people involved.

My former chief of staff is working for

them now. I’ve known them since the

1970s. I know the players. I’m pretty

excited. Look at the small oil companies

here and there are more coming. Other

people want to come in and looking at

places where the big companies aren’t

interested in. They are coming in and find-

ing more oil. Of course we knew there is

more oil there. They just had to go out and

find it. Then they find out there is more

than they thought. The east side of

Colville, they are finding more oil and the

smaller companies are moving toward

those resources.

The smaller companies need to go to

1002 in Kaktovik and start working there.

Once they start doing it, the big guys will

follow. We should encourage those smaller

companies to go to areas where the big

companies don’t want to go. ASRC has

land. The state has land.

Petroleum News: OK, so getting backto that. Is it realistic to think that the1002 area will ever get developed?

Nageak: I still have that hope that

something is going to happen. Some cata-

strophic event is going to happen that we

are going to need those resources. There is

so much turmoil in the world; there are

countries fighting against each other.

Anything that happens in Russia is going

to have an impact in how we deal with

them. Same with other countries like in

South America. But that guy over there

(Vladimir Putin) in Russia is just a little

bit too unpredictable. One day is doing

something and the next day he’s doing

something else. Tomorrow will be some-

thing else. Just watch. l

continued from page 4

NAGEAK Q&A

izes as its long-term opportunity set, a set of

programs designed to establish a future

resource base and which includes heavy oil

development, and exploration and develop-

ment in regions such as Iraq and

Kazakhstan.

“We are going to take steps to refocus

the company, particularly in the longer term

opportunity set,” Ben van Beurden, Shell

CEO, commented during an analyst call

following the announcement of the BG

Group deal. “We plan to reduce our explo-

ration activity and exploration spend,

reflecting of course BG’s development

pipeline and the uptick in Shell’s explo-

ration performance recently, particularly in

the Gulf of Mexico.”

No specificsSimon Henry, Shell chief financial offi-

cer, said that BG’s undeveloped resource

positions, especially in Brazil, coupled with

opportunities arising from Shell’s explo-

ration success in the Gulf of Mexico, will

enable Shell to “dial back” on its explo-

ration for several years. However, neither of

the Shell executives was willing to be spe-

cific on which projects might be dropped as

part of Shell’s new strategy. Beurden said

that details of the revised strategy would not

emerge until after the BG deal closes. Shell

has indicated that closure will likely happen

early in 2016.

The Independent, a British newspaper,

has reported Henry as having said that

Alaska is a key frontier basin that Shell will

“vigorously pursue” if the company finds

large volumes of oil, but that the company

could equally well leave the state if explo-

ration fails to yield satisfactory results.

“If we are able to drill this year, see what

is in those reservoirs, it will change our

thinking one way or another,” the

Independent reported Henry to say. “It’s a

bit of a binary outcome — but, if the value

is there it’s not something you walk away

from … it’s only a small number of wells

that will tell us what the potential of the play

is.”

Curiously, Shell’s acquisition of BG will

give Shell working interests in some Arctic

onshore leases. BG Alaska E&P Inc. owns

interests in 94,508 acres of state leases in

the southern part of the North Slope, as well

as interests in 566,234 acres of federal leas-

es in the National Petroleum Reserve-

Alaska. The company acquired the leases in

the mid-2000s during a period of height-

ened interest in potential natural gas devel-

opment in the Brooks Range foothills

region. The leases have lain dormant for a

number of years.

—ALAN BAILEY

Meanwhile, Senate Resources, also

acting April 15, stripped the companion

bill, Senate Bill 50, of all of the AIDEA

bonding changes, leaving just an amend-

ed version of the bill removing the

requirement that North Slope natural gas

be used for the Interior energy project.

Just four wordsAs Rep. Steve Thompson, R-

Fairbanks, co-chair of House Finances,

said in carrying the bill on the House floor,

it all started with the goal of removing

four words, “from the North Slope,” from

the Interior gas project authorized in SB

23 in 2013.

That project, which AIDEA dropped at

the end of 2014 when it didn’t pencil out,

called for building a liquefaction plant on

the North Slope and trucking LNG to

Fairbanks. The bill also provided for dis-

tribution line construction in the Fairbanks

area. It is viewed as providing a short-term

source of natural gas for Interior con-

sumers in advance of a major North Slope

gas pipeline.

AIDEA is now looking at sourcing nat-

ural gas in Cook Inlet, which is the source

of existing LNG provided to some 1,000

customers in the Fairbanks area by truck

from a small LNG plant near Point

MacKenzie.

HB 105 underwent a considerable

metamorphosis in House Resources,

which moved a version April 8 with a

number of amendments to which adminis-

tration officials objected. Some items,

such as a requirement that the project be

regulated by the Regulatory Commission

of Alaska, were removed from the House

Finance version.

Both House versions included a

requirement that AIDEA submit quarterly

reports on the Interior energy project to

the Legislature, including a description of

progress on all project components; an

update on local distribution infrastructure

build out; to-date and anticipated conver-

sions to natural gas; and an accounting of

funds used and expected to be used,

including loans, grants and bonds.

Another element retained in the

Finance version reflects concern that

AIDEA could compete with private enti-

ties in obtaining natural gas. It prohibits

AIDEA from entering into gas supply con-

tracts without obtaining legislative

approval — unless for the benefit of an

LNG facility or distribution utility owned

by AIDEA or a subsidiary, and is to pro-

vide the utility with a natural gas supply to

serve customers in Interior Alaska.

The Senate versionSB 50 as passed out of Senate

Resources includes the same quarterly

report requirement.

It also defines the project as providing

“natural gas to Interior Alaska as a pri-

mary market” and adds intent language

specifying that the increased geographic

flexibility provided in the act is solely to

“advance the Interior energy project”

authorized in 2013. “This Act does not

expand the scope of the project nor

authorize any other activity beyond

accomplishing those stated goals”; the

intent language also specifies that AIDEA

will “use an open and competitive solici-

tation process to select private entities to

participate in developing the liquefied nat-

ural gas production plant capacity and

affiliated infrastructure described in this

Act.”

Senate Resources Chair Cathy Giessel,

R-Anchorage, said in the April 15 meeting

that due diligence requires putting the

AIDEA bonding adjustments in another

bill, and said SB 50 had been scaled to

focus on Interior energy.

Sen. John Coghill, R-North Pole, said

the intent language was to ensure that the

focus remains solely on advancing an

Interior gas project. Coghill also said he is

concerned with Cook Inlet as a source of

natural gas for the Interior because he

believes while Interior would have had the

first offtake contract on the North Slope

and would be the last to lose that contract,

in Cook Inlet it would likely be the last to

get a contract and the first to lose it. l

18 PETROLEUM NEWS • WEEK OF APRIL 19, 2015

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restrictions, like Crowley, at a competitive disadvantage. The Trident Alliance is committedto improve enforcement of these regulations in an effort to hold every operator account-able and eliminate the competitive disadvantages that result from deliberate non-compli-ance.

“The threat of weak enforcement of sulphur regulations is escalating fast. Responsibleindustry is taking the initiative to mitigate this threat, serving the best interests of theenvironment and human health as well as creating a level playing field for business. Byspeaking with one, united voice we have the greatest chance to bring about change,”said Roger Strevens, Trident Alliance chairman, on the organization’s website.

In addition to enforcement of existing sulphur regulations, the Trident Alliance is alsoworking to raise awareness of the issue, foster transparency around the operators’ sulfurcompliance activities and develop initiatives to foster innovation in practicable enforce-ment technologies.

ASRC reaches historic revenue sharing milestoneFor the first time since incorporation, Arctic Slope Regional Corp. has distributed in

excess of 1 billion dollars to the other Alaska Native regional corporations as part of its7(i) obligation. 7(i) distributions are made annually; a recent payout from ASRC wasapproximately $125 million.

“Every region in the state benefits from ASRC’s 7(i) distribution, and the more than abillion dollars in total is a testament to the hard work and dedication of ASRC employees,as well as the importance of responsible natural resource development,” said Rex A. RockSr., ASRC president and CEO. “However, in light of this milestone, it’s an importantreminder that oil production continues to decline on the North Slope. That decline in pro-duction as well as low oil prices will likely affect future 7(i) payouts.”

A provision inside the Alaska Native Claims Settlement Act of 1971 requires the origi-nal 12 land-based Alaska Native regional corporations to share 70 percent of their rev-enue from resource development on their ANCSA conveyed lands. ASRC’s 7(i) applicablerevenue comes mostly from resource development in the Colville River Delta, mainlyAlpine and other satellite oil fields.

Editor’s note: All of these news items — some in expanded form — will appear inthe next Arctic Oil & Gas Directory, a full color magazine that serves as a marketingtool for Petroleum News’ contracted advertisers. The next edition will be released inSeptember.

continued from page 16

OIL PATCH BITS

continued from page 1

INTERIOR GAS BILL

continued from page 1

SHELL REFOCUSBG Alaska E&P Inc. owns interestsin 94,508 acres of state leases in thesouthern part of the North Slope, aswell as interests in 566,234 acres of

federal leases in the NationalPetroleum Reserve-Alaska.

a larger project which he believes is needed as a backup,

should the AKLNG project not move forward, and also

as leverage in negotiating with the state’s equity partners

in AKLNG — BP, ConocoPhillips and ExxonMobil.

Legislators have asked the governor to put his propos-

al in a bill so hearings can be held on the plan.

He hasn’t done that, but did lay out his plan going for-

ward in an April 10 letter to legislators.

As he has said previously, the governor plans a “45-

day due diligence review” by a state gas line team of all

material related to AKLNG. Walker said he would be the

first governor “who does not start over” on a new gas

line plan for the state, but also said he needs to “fully

understand the AKLNG project details,” and noted that

most of the AKLNG project material negotiated last year

was confidential.

He said it is possible that the terms of the joint venture

agreement negotiated last year “are such that with some

modifications, there may not be a need for a backup

plan.”

“The requested terms I would like made have already

been conveyed in meetings I have had with the AKLNG

partners, so they will come as no surprise. However, my

team’s ability to successfully negotiate any modifica-

tions to the JVA depends on Alaska having an economi-

cally viable backup plan.”

The governor did not specify in his letter to legislators

what modifications he is seeking.

House Bill 132Legislative leaders objected when the governor said he

wanted money appropriated for the 500-million-cubic-feet

ASAP plan to be used to study expanding that project.

House Majority Leader Mike Chenault, R-Nikiski, intro-

duced House Bill 132, which prohibits use of funds appro-

priated for the original ASAP to study expanding the proj-

ect. That bill has passed both bodies.

Legislators have argued that expanding ASAP would put

the state — an equity partner in AKLNG — in competition

with itself.

In his April 10 letter the governor thanked both Chenault

and Senate President Kevin Meyer, R-Anchorage, “and

their respective staff for the many hours working with me

and my staff on a way forward on HB 132.”

He said they share the same goal of getting North Slope

natural gas to Alaskans and to world markets, but “we were

unable to resolve significant points of disagreement on HB

132, which I am therefore vetoing.”

Expanded ASAPThe governor told lawmakers it would take an estimated

$85 million to get to a FEED decision for an upsized ASAP

line, with funds used to re-engineer the pipeline for

increased throughput; re-work the plans for gas condition-

ing facilities on the North Slope and begin work for design-

ing compressor stations; continue permitting under the

National Environmental Policy Act; and cover project-relat-

ed costs.

Walker said those efforts would take 12-14 months,

through the second quarter of 2016.

AKLNG is projected to reach a point where the partners

could decide to move to FEED in the second quarter of

2016, so presumably the two projects would be on a similar

timeline.

The governor said the pipeline route for an expanded

ASAP would terminate in Cook Inlet.

The state would be in control of the financing strategy

for ASAP, “and will be in a position to attract funding from

buyers interested in investing in our project,” he said,

adding that ASAP would not be competing with the produc-

ers for financing sources, nor would the state be dependent

on alignment among the producers.

Walker concluded his letter by asking that legislators

vote no when asked to override his HB 132 veto.

HB 132 was transmitted to the governor April 1 and is

due back April 18; this session of the Legislature is sched-

uled to end April 19.

—KRISTEN NELSON

PETROLEUM NEWS • WEEK OF APRIL 19, 2015 19

LNG Exports until at least 2017 after

gaining regulatory approval to export

from 14 million to 21.6 million metric

tons a year, citing the need for more time

to examine the economics while it

searched for gas supplies and LNG buy-

ers.

That plan may already have been on

the skids according to Noel Tomnay, the

head of Wood Mackenzie’s LNG

research, who said that over the last six

months all of the senior employees at the

Canadian operation have left, including

the head, Madeline Whitaker, who took a

position elsewhere in the company in

March and has not been replaced.

BG declined to comment on any devel-

opments in its LNG plans six months

after announcing its final investment

decision would be delayed beyond its

original 2016 target.

Although doubt accumulates around

its British Columbia scheme, BG is a big

LNG player as an original investor in

Trinidad’s Atlantic LNG project founded

with Amoco; as owner of the Lake

Charles LNG terminal in the U.S. Gulf;

and as a stakeholder on the United

Kingdom’s Dragon LNG terminal.

Shell at more advanced stageShell’s LNG Canada project (with

partners from China, Japan and South

Korea holding a combined 50 percent

stake) is at a more advanced stage, target-

ing shipments of 12 million to 24 million

metric tons a year, but it, too, has backed

away from earlier plans to come on

stream in 2020.

However, Tomnay said that closure of

the Shell/BG deal this year would likely

mean the C$40 billion venture will be

built.

He said the project has “got buyers in

the partnership, it’s developing a pipeline,

it’s well ahead with engineering ... so the

Shell project is well advanced.”

TransCanada has the lead role in build-

ing a pipeline from northeastern British

Columbia to the liquefaction and tanker

terminal.

Karl Johannson, president of

TransCanada’s natural gas pipelines busi-

ness, told the Financial Post that his com-

pany has seen no signs of Shell “putting

down the tools on the project. As a matter

of fact, Shell has come out publicly and

said North American LNG projects are

some of its priorities globally. We are still

pretty confident that we are attached to a

winner.”

Looming LNG glutOthers are less positive.

Overshadowing the global outlook is a

looming glut of LNG, with Moody’s

Investors Service warning on April 7 that

the “vast majority” of North American

projects face cancellation because of the

collapse of oil prices that LNG propo-

nents had once eagerly tried to use in

negotiating LNG deliveries to Asia.

Whatever emerges, the combined port-

folios of Shell and BG would represent

about 16 percent of the “global LNG mar-

ket, further propelling Shell’s position as

a leader in this sector,” said RBC Capital

Markets analyst Biraj Borkhataria in a

research note.

Shell now delivers 34 million metric

tons per year of LNG to customers, led by

its Nigerian LNG operation, which was

first designed to squeeze more cash out of

gas flared from its oil field in the Niger

Delta and has since turned into a highly

profitable enterprise.

Randy Ollenberger, a BMO oil and gas

equity analyst, said his company has long

anticipated consolidation among

Canada’s LNG players even without the

Shell-BG transaction.

Otherwise he said the deal would have

only “minimal impact” on other Canadian

operations, which include Shell’s focus

on the oil sands and unconventional

gas/liquids, none of which overlap with

BG’s assets.

“Shell may dispose of some non-core

unconventional assets, but again they

would likely have pursued that anyway,”

he told the Globe and Mail. l

continued from page 1

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WALKER PLANThe governor told lawmakers it would take an

estimated $85 million to get to a FEED decisionfor an upsized ASAP line, with funds used to re-engineer the pipeline for increased throughput;re-work the plans for gas conditioning facilities

on the North Slope and begin work fordesigning compressor stations; continue

permitting under the National EnvironmentalPolicy Act; and cover project-related costs.

invite the public and all interested stake-

holders to review the document and provide

us with comments.”

BOEM must conduct an environmental

assessment and a technical analysis, before

deciding on whether to approve the plan.

Comments for the environmental assess-

ment must be submitted by April 20, while

comments on the plan itself are due by May

1.

“The execution of our plan remains con-

tingent on achieving the necessary permits,

legal certainty and our own determination

that we are prepared to explore safely and

responsibly,” said Shell spokeswoman

Megan Baldino in an email response to

BOEM’s April 10 announcement. “We con-

tinue to work on securing the final permits

needed to continue exploration.”

Permits that Shell still requires include

authorizations from the National Marine

Fisheries Service and the U.S. Fish and

Wildlife Service for the accidental distur-

bance of marine mammals.

Environmental organizations remain

opposed to oil drilling in the Arctic offshore.

“There is no compelling reason for the

rush to give Shell another chance this sum-

mer,” said Susan Murray, Oceana’s deputy

vice president, Pacific, referencing prob-

lems associated with Shell’s 2012 Arctic

drilling program. “There is still no proven

way to respond to a spill in icy Arctic

waters, and new safety and prevention rules

are not in place.”

Up to six wellsShell’s Chukchi Sea program envisages

drilling up to six wells, presumably over

several annual drilling seasons, in the

Burger prospect, located about 70 miles

northwest of the village of Wainwright.

Burger has a large geologic structure known

to hold a major natural gas pool and Shell

hopes to find that there is also oil in the

structure. The company plans to concurrent-

ly use two drilling vessels, the drill ship

Noble Discoverer and the semi-submersible

drilling unit Transocean Polar Pioneer.

Each drilling rig will act as a backup

relief well rig for the other, should one rig

become incapacitated during a well loss-of-

control incident. A relief well would plug

the problem well bore with cement. And,

with previous versions of Shell’s Chukchi

Sea plan having just one drilling rig operat-

ing in the Chukchi, the new plan involves

an increase in the number of Chukchi Sea

drilling support vessels relative to those ear-

lier plans.

In 2012 the Noble Discoverer drilled the

top section of the Burger A well, the first of

Shell’s wells in the Burger prospect. But, in

the absence of a containment dome system,

one of the Shell’s Arctic oil spill contin-

gency assets, the company was unable to

complete the well in that year. Shell will

presumably re-enter and finish the well, if

this year’s drilling season progresses as

planned.

July 1According to the exploration plan the

drilling units will move north through the

Bering Strait, into the Chukchi Sea, around

July 1, to transition to the location of the

Burger prospect as soon as the ice and

weather conditions permit. In addition to

drilling the actual wells, the drilling vessels

may also prepare for further wells by

drilling seafloor “cellars,” the excavations

in the seafloor used to house wellheads and

blowout preventers below the maximum

depth of any sea-ice gouges, Shell’s plan

says.

However, Shell may use a new remote

operated vehicle for digging out well cel-

lars, the plan says. The vehicle would sit on

the seafloor and use an excavator bucket, a

rotating cutter, a drill and other implements

for excavation. Apparently the device,

which has been used elsewhere for trench-

ing pipelines, would present a number of

practical advantages over conventional cel-

lar drilling, including a considerable reduc-

tion in the amount of fluids that would need

to be pumped into the sea.

The plan says that the number of wells

drilled within a single drilling season will

depend on sea-ice conditions and on the

overall length of the season. However, each

drilling unit should be able to complete a

single well during a season and possibly

complete a well cellar or start a second well,

the plan says.

If a well is initiated but not completed

within the drilling season, the well will be

suspended and secured for possible re-entry

in a subsequent season.

Oil spill defenseDuring drilling, a remote operated vehi-

cle will be connected to the well blowout

preventer by umbilical cord, thus enabling

the blowout preventer to be activated

remotely, subsea. In accordance with cur-

rent regulations, the blowout preventer will

be tested every 14 days, the plan says. Shell

will also store a device known as a capping

stack on one of the ice management vessels

that is part of the drilling fleet. In the event

that the blowout preventer fails to stem the

flow of oil resulting from a well blowout,

the capping stack could be lowered on the

blowout preventer to seal the wellhead and

optionally flow oil to surface vessels.

As a further line of defense against a

potential oil spill, Shell will have its Arctic

containment dome, housed in a purpose-

modified barge, the Arctic Challenger. The

containment dome can be lowered over a

seafloor oil leak, to gather spilling oil and

deliver the oil to surface vessels for storage.

The Arctic Challenger will be staged in

Kotzebue Sound, as will tugs and barges for

oil containment.

An oil spill response vessel accompanied

by support vessels will stand by, on loca-

tion, during drilling operations that may

encounter hydrocarbon bearing zones.

Two tankersShell plans to position two oil tankers in

the Chukchi while drilling is in progress.

One tanker will hold fuel for the drilling

fleet while also having storage capacity for

gathered, oil, should a well control incident

arise. The second tanker will provide addi-

tional storage capacity for gathered oil.

Vessels, operating from the port of Dutch

Harbor in the Aleutian Islands, will main-

tain supplies for the drilling fleet. However,

additional resupply operations may take

place via Kotzebue Sound in northwest

Alaska. About 30 supply trips will be

required in a single drilling season.

The town of Barrow will be the primary

base for aviation operations. Shell plans to

maintain a 75-person camp in Barrow for its

personnel and may lease additional accom-

modation in the town. The company plans

to moor two vessels in Goodhope Bay,

Kotzebue Sound, for crew changes, and

may also use rooms in the village of

Kotzebue, Shells plan says. l

20 PETROLEUM NEWS • WEEK OF APRIL 19, 2015

continued from page 1

SHELL PLAN