parnell’s challenge · 6 epa bolsters bristol bay study ... scotiabank economist shares mixed...
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� E X P L O R A T I O N & P R O D U C T I O N
� G O V E R N M E N T
� E X P L O R A T I O N & P R O D U C T I O N
Vol. 18, No. 21 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 26, 2013 • $2.50
Stedman says SB 21 moves toomuch cash; time to dump AGIA
The May issue of North of 60 Mining News is enclosed.
May Mining News inside
PHOTO COURTESY MILLROCK RESOURCES INC.
Millrock Resources Inc. taps 102.1 meters averaging 1.04 grams of gold permetric ton in the discovery hole drilled at the RPM Showing of its Estellegold-copper project in western Alaska. Since adopting a project generatormodel in 2009, Millrock has emerged as one of the more prolific explorationcompanies working in Alaska. The junior is among the many explorers scal-ing back their efforts in 2013.
A special supplement to Petroleum NewsWEEK OF
May 26, 2013
6 EPA bolsters Bristol Bay study Pebble foes urge EPA to veto project, legislators say agency lacks right
12 Edgy markets drag metals prices Scotiabank economist shares mixed outlook at Nunavut Mining Symposium
15 Arctic miner overcomes challenges After two difficult start-up years, Agnico-Eagle succeeds at Meadowbank
Parnell’s challengeAlaska governor rolls out exploration proposal for ANWR coastal plain
By WESLEY LOYFor Petroleum News
A laska Gov. Sean Parnell is proposingthe state and federal governments
partner on an oil and gas exploration cam-paign on the coastal plain of the ArcticNational Wildlife Refuge.
To help pay for it, Parnell says he’ll askstate legislators to chip in $50 million.
The goal, says the governor, is to betterdefine the oil and gas potential of the coastal plain,long believed to be one of North America’s bestchances for an elephant discovery.
Parnell pitched the exploration proposal to SallyJewell, the Obama administration’s new interior sec-retary, in a May 18 letter.
The proposal could be a political mas-terstroke — or just another tilt at the wind-mill.
Alaska’s elected officials have tried allsorts of strategies over the years to openANWR to drilling. A big oil find couldshower the state with billions of dollars innew revenue.
But only Congress can authorize oilexploration, and for decades the votes haveeither fallen short or run into a presidential
veto. Meantime, ANWR protection has become oneof the top causes for national environmental groups.
In fact, drilling proponents at the moment arefearful protectionists might win wilderness designa-tion for the coastal plain, which would have the
GOV. SEAN PARNELL
An evolving situationShell official tells hearing about the events leading to the Kulluk grounding
By ALAN BAILEYPetroleum News
The nightmare began around mid-day on Dec.27 when the towline parted between Shell’s
anchor handling vessel, the Aiviq, and the Kulluk,the company’s floating drilling platform, leavingthe Kulluk adrift in the Gulf of Alaska with a crewof 18 on board. The Aiviq had been towing theKulluk from Dutch Harbor to a shipyard on theU.S. West Coast for winter maintenance, followingthe rig’s use by Shell for drilling in Alaska’sBeaufort Sea during the 2012 Arctic open waterseason.
The ensuing chain of events that led to the
Peace overtures renewedAlberta once again reaches out to British Columbia on unresolved pipeline issues
By GARY PARKFor Petroleum News
Alberta Premier AlisonRedford made the first
overture. “I know we can domore together,” she said.
Her Energy Minister KenHughes declared: “This is nota time for hard positions ordifficult conversations. Thisis a time for all of us to reflect upon what we havein common ... and being open to how thingsevolve.”
Noble words that have Alberta’s oil sands pro-ducers and Canada’s energy pipeline companies
holding their breath andcrossing their fingers.
So far, the object of allthese hopes, BritishColumbia’s newly electedPremier Christy Clark, is bid-ing her time and she canafford to.
On the question ofwhether Enbridge and KinderMorgan will be able to build
pipelines from the oil sands to the BritishColumbia coast, Clark holds the sway.
Having overcome the pollsters and pundits and
The Kulluk, Shell’s Arctic floating drilling platform,ran aground on the shore of Sitkalidak Island on theevening of Dec. 31.
U.S
. C
OA
ST G
UA
RD
ALISON REDFORD CHRISTY CLARK
see PEACE OVERTURES page 15
Expansion of Oooguruk NuiqsutPA approved, adding 39M barrels
The State of Alaska has approved a 2,400-acre expansionof the Nuiqsut participating area at Pioneer Natural ResourcesAlaska’s North Slope Oooguruk field.
The expansion is projected to add 39 million barrels ofrecoverable crude oil to the original participating area esti-mate of 45-102 million barrels from primary production andsecondary recovery with waterflood and water-alternating-gas mechanisms.
The approval came in a May 14 decision by the AlaskaDepartment of Natural Resources’ Division of Oil and Gas.
The Nuiqsut participating area was approved in 2009 andPioneer applied for the expansion in May 2012.
USCG issues a strategy for futureArctic operations by the agency
Having ramped up its operations in recent Arctic open waterseasons, as vessel traffic and industrial activity in the regionincreases and sea ice diminishes, the U.S. Coast Guard has pub-lished a strategy for the agency’s future Arctic presence.
“This document is a theater strategy for the U.S. CoastGuard’s operations in the Arctic region,” the introduction to thestrategy says. “It is not an implementation plan. This strategywill guide efforts to accomplish organizational objectives in theregion by leveraging the Coast Guard’s unique capabilities,authorities and partnerships.”
The strategy sets out three primary goals: improving theCoast Guard’s awareness of what is happening in Arctic waters,modernizing the governance of Arctic maritime activities and
see PIONEER EXPANSION page 17
see ARCTIC STRATEGY page 17
page3
see KULLK HEARING page 18
see PARNELL’S CHALLENGE page 20
2 PETROLEUM NEWS • WEEK OF MAY 26, 2013
Petroleum News North America’s source for oil and gas news
NATURAL GAS
LAND & LEASING
FINANCE & ECONOMY
EXPLORATION & PRODUCTION
ENVIRONMENT & SAFETY
3 Stedman: SB 21 moves too much cash
Sitka Republican argues legacy Slope fields economic without tax change; says HB 4 a good step, argues it is time to dump AGIA
4 Arctic gets economic push
Eight-nation council signs binding pact on oil spillresponse measures, sets stage for business forum, bars Greenpeace as observer
6 DOE approves second LNG export license
Conditional approval given for export to non-FTAcountries from Freeport LNG Terminal; term20 years; rate up to 1.4 bcf per day
9 IEA: US oil causing ‘ripple effect’
US production combined with non-OECD demand could drastically change the global supply chain by 2018, according to the agency
8 New oil skimmers heading for Cook Inlet
Citizen’s Advisory Council says modern high capacity disk skimmers will replace older style skimmers for oil spill contingencies
contents
FACILITIES
GOVERNMENT
5 European Commission investigating oil benchmark prices
4 Polar to buy Point Thomson area leases
5 India’s H-Energy unveils Canadian LNG
7 FNG challenges Spectrum case7 All state areas closed for tundra travel
7 Buccaneer sets casing at Cosmo
7 Kuukpik permitting Nuiqsut spur road
13 Parnell signs oil tax, in-state gas bills
13 Short-term gas contracts for Enstar
14 Moniz becomes new energy secretary
14 BLM legacy well plan praised, rapped
Alaska drilling regulator Cathy Foerster says draftstrategy for dealing with old federal wells is positive effort, but deficient
13 Cook Inlet Energy draws up Sword plans
Anchorage company enters into contract for Pattersonrig 191; planned well is adjacent to producingWest McArthur River oil field
10 Fair treatment of gas pipeline customers
FERC rules require separation of pipeline operations from those marketing gas; lines that market natural gas must follow the rules
Expansion of Oooguruk NuiqsutPA approved, adding 39M barrels
USCG issues a strategy for futureArctic operations by the agency
Parnell’s challenge
Alaska governor rolls out exploration proposal for ANWR coastal plain
An evolving situation
Shell official tells hearing about theevents leading to the Kulluk grounding
Peace overtures renewed
Alberta once again reaches out to British Columbia on unresolved pipeline issues
ON THE COVER
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(907) 272-1234(907) 272-1344
SIDEBAR, Page 19: Trans Mountain expansion gets initial OK
By STEVE QUINNFor Petroleum News
Sen. Bert Stedman advocated for taxreform, just not Senate Bill 21,
which Gov. Sean Parnell made officialon May 21.
Stedman is a holdover from the oldguard — meaning members of theSenate’s majority caucus from the 2011-12 Legislature — who wanted a change,but he believes the formula approvedthis session is the wrong one.
Stedman, a Sitka Republican, willhave a busy interim serving as chairmanfor Energy Council.
After lawmakers adjourned, Stedmanspoke with Petroleum News, offeringthoughts on resource development legis-lation and how Energy Council’s workthis year connects to the state’s efforts tobring oil and gas to market.
Petroleum News: Why didn’t you sup-port SB 21 on final passage or on theconcurrence vote?
Stedman: The reason I don’t supportthe bill is that it moves too much moneyin the legacy fields in already economicareas. I think we are within a reasonablerange in the uneconomic regions, theoutlaying areas. We are on the low endof the acceptable range, but we are with-in the range. My concern is Prudhoe andKuparuk where the oil is and the cashmargins are, and the hurdle rates arealready met. We’re moving too muchcash — at $100, $110 and $120s. Youcan see it in 2012 numbers. If you ranthis tax bill through 2012 in Prudhoe andKuparuk, it would be $1.7 billion. It’snot going to be exact, but if you get thedirection and the magnitude, both ofthem tell me we are moving too muchnet cash that doesn’t need to be moved. Iunderstand the interest of all three par-ties involved: the federal government,the industry and the state, the sovereign— all like net cash. I understand that.
Petroleum News: What would youhave recommended as far as a formulato make Alaska competitive?
Stedman: Alaska is competitive.There are areas where we’re at a disad-vantage. To say Alaska is not competi-tive has more to do with politics than itdoes with finance. I’m talking about thelegacy fields, not areas where they can’tmeet their hurdle rates in their analysis.We all recognize those areas withinACES (Alaska’s Clear and EquitableShare) are dysfunctional. They don’tmeet their rates. Part of the problem isthe excessive slope of progressivity orthe marginal increase in governmentshare at high oil prices. There was a lotof leverage off of that issue to move alot of cash that didn’t have to be moved.If the initiative or referendum processthat’s under way to roll it back — timewill tell, I don’t know — but clearlythere is some interest in having the pub-lic vote on it. It will be interesting to seehow that’s rolled out.
You have to take the tax issue andparse it out. You’ve got your legacyfields. You’ve got your new areas. Andyou need to fix what’s broken. My con-cern is they moved too much cash inareas that were not broken.
And there is a lack of analysis as faras how many barrels will be needed andover what timeframe to compensate for
that. I will be verysurprised if they canget more out of thebasin off the normalhistoric declinecurve with tax poli-cy.
In other words,when we are pump-ing 600,000 barrelsa day off statelands, then this is a success: or 580,000;or 575,000 — the high five hundreds.
Petroleum News: Is there anythingyou would have done that would haveaddressed boosting production? Whatare some of your alternatives?
Stedman: The overall structure of thebill is good. The GRE or gross revenueexclusion — you can name it anythingyou want — but that mechanism works.I like the idea of having some allowancetied to production versus capital expen-ditures. I think that is good. I’m notexcited about the 10 percent GRE thatcan be secured if you have royaltiesabove 12.5. I think that’s a little exces-sive. Don’t mix up the issue of the billversus the cash cow. Fix the broken partsof the structure, but you better keep youreye on your cash cow or your cash cowis going to be sitting in somebody else’spiggy bank. The citizens of the state ownthat oil, and it’s a finite resource in aninternationally driven economy and weshould be compensated on an interna-tional scale. That’s my fundamental con-cern for the bill itself. And if I was onthe other side of the table, I would wantas much out of Prudhoe and Kuparuk asI could get. That’s just business.
But when you have a 30-year-oldfield and depreciated assets, one of thelargest conventional oil fields inAmerica, one of the top elephant fieldsin the world, that’s a very valuableresource. I think it’s underestimated, inmy opinion, the value that we’re sittingon and its opportunity.
Petroleum News: Switching to HouseBill 4. You did vote for that. Was it anendorsement of HB 4 or an indictment
on AGIA (Alaska Gasline InducementAct)?
Stedman: I would say it’s an endorse-ment of HB 4. I don’t think AGIAworked. I didn’t support the proposal,the licensing. This is in some respects,AGIA light, but in other respects it’s theremoval of the AGIAamendments. I don’t thinkit’s going to go forwardand get built; I don’t thinkit’s going to get us a proj-ect. I personally believe theBig Three are going to deliver an in-stategas project. I think it’s in the money.You look at the timeframe our basin hasbeen open, you look at the economics inthe Pacific for energy with Korea andJapan needing an energy supply of natu-ral gas, and the potential in Hawaii withthe ability of no choke points in thedelivery of this across the Pacific wherethe Navy can protect our shipping lanes.I think the time has arrived where thisproject is going to move forward.
Switching back to HB 4, the workdone in HB 4 for a little in-state line,which is not really a little project — it’sa huge mega project and it’s a big line
by itself — a lot of that won’t be wastedmoney. It will be used and this willhopefully push the construction date of amain gas line forward a year. And if bychance, the big export line does notwork, then we have a framework and wecan have a discussion to see if we want
to take this forward andbring that Arctic gas toSouthcentral and feedConoco’s plants in Nikiski.If I was a betting man, andif we would have an in-
state gas line coming, it’s going to bepart of the big line.
Petroleum News: Is anything withAGIA working?
Stedman: Working as far as a vacuumout of the treasury for more than $200million. I’m a not a fan of AGIA as youcan tell. I haven’t really looked at AGIAthis winter or spring. We should fold thatproject up, move away from it and moveon. It was a bad economic policy to tryto dictate to the industry to move a proj-ect forward. It was ill-conceived, ill-exe-
� G O V E R N M E N T
Stedman: SB 21 moves too much cashSitka Republican argues legacy Slope fields economic without tax change; says HB 4 a good step, argues it is time to dump AGIA
PETROLEUM NEWS • WEEK OF MAY 26, 2013 3
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see STEDMAN Q&A page 15
SEN. BERT STEDMAN
By GARY PARKFor Petroleum News
The eight-nation Arctic Councilsigned a legally binding pact in
Sweden earlier in May on oil spill pre-vention measures while also placing thespotlight on “creating economic develop-ment” in the region.
Leona Aglukkaq, a Canadian govern-ment cabinet minister who has started atwo-year term as council chairman, madeno secret of her ambition to see resourcedevelopment for the benefit of northern-ers, including indigenous peoples ofCanada, the United States, Russia and theNordic countries.
“A lot of work went into the (oil spillresponse deal),” she said. “It’s the firstbinding agreement of this nature in theArctic region and we’ll be building on theprevention side in the next two years.”
Aglukkaq said the Canadian govern-ment is fully behind Arctic economic
development, pro-vided it is conductedin an environmental-ly responsible man-ner.
But she alsoinsisted “It’s time tomake sure science isrelevant ... toimprove the well-being and the pros-perity of people who live in the Arctic.”
Aglukkaq, who was raised in the tinyNunavut community of Gjoa Haven, saida pan-Arctic business forum will belaunched by Canada later this year as amajor initiative to spur trade and devel-opment by sharing entrepreneurial suc-cess among nations ringing the Arctic.
Six granted observer statusSix nations — China, India, Italy,
Japan, South Korea and Singapore —were granted observer status on the coun-
cil, with Aglukkaq welcoming their inter-est in development, shipping and trade,although she insisted their presence willnot “diminish or dilute” the power of theeight full members.
In another indirect message to oppo-nents of resource development, Canada(using its right of veto) effectivelyblocked admission of the EuropeanUnion because of the EU’s ban on sealmeat and fur, while the council deniedrequested observer status for non-govern-mental organizations such as Greenpeace.
Aglukkaq said groups such asGreenpeace protest all the time, despitethe fact that Arctic development is beingreviewed by appropriate governmentbodies prior to approval.
She also noted that the council issueda joint statement on the “urgent” globalneed to prevent human activity fromcausing average warming of more than 2degrees Celsius above pre-industrial lev-els and expressing concerns about the“rapid changes in the climate and physi-cal environment of the Arctic with wide-spread effects for societies and ecosys-tems and repercussions around theworld.”
The Canadian branch of Greenpeacehas called for a moratorium on drillingfor fossil fuels in the Arctic, declaring itwill “not stand by and let the government(of Prime Minister Stephen Harper) usethe next two years to advance its destruc-tive industrial agenda at the ArcticCouncil.”
“If Harper plans to do to the Arcticwhat he’s done to Canada, anyone who
cares about the future of this fragile regionshould be scared,” said Christy Ferguson,Arctic campaign coordinator ofGreenpeace Canada.
This little-recognized council hasvaulted on to the international stage asmelting Arctic ice has opened up vastreserves of minerals, oil and gas for poten-tial exploitation. By some estimates, 90billion barrels of oil and one-fifth of theplanet’s untapped natural gas lie beneaththe Arctic Ocean.
Joint industry programSeparately, the London-based
International Association of Oil & GasProducers, whose member companiesaccount for more than half the world’s oiloutput, is promoting the significantadvance of industry efforts to improve thehandling of oil spills in Arctic environ-ments.
A joint industry program has madeprogress in the past year to focus on keyareas of research by the association,which is funded and supported by compa-nies such as BP, Chevron, ConocoPhillips,ExxonMobil, Shell, Statoil and Total.
The initiative is probing what happensto oil when it disperses under ice, theenvironmental impacts of spills and thetrajectory of spills in icy environments,while studying the effectiveness ofremote-sensing to detect spills, themechanical recovery of oil in ice and thecontrolled burning of oil. �
� G O V E R N M E N T
Arctic gets economic pushEight-nation council signs binding pact on oil spill response measures, sets stage for business forum, bars Greenpeace as observer
4 PETROLEUM NEWS • WEEK OF MAY 26, 2013
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LAND & LEASINGPolar to buy Point Thomson area leases
Polar Petroleum (Alaska) Corp. is looking to buy a plot of leases north of PointThomson.
The small independent recently signed a letter of intent to purchase 100 per-cent working interest in 12 leases north of the ExxonMobil-operated unit on theeastern North Slope.
Polar Petroleum currently operates the Hemi Springs prospect south ofPrudhoe Bay and a lease farther to the south that it calls the Franklin Bluffsprospect. The company must drill a well on its leases within two years of closing(presumably in early to mid-2015).
Donkel Oil & Gas originally acquired the tracts in a 2011 lease sale. PolarPetroleum also acquired its initial Alaska North Slope acreage from Donkel Oil &Gas, earlier this year.
The company is calling the new prospect North Point Thomson.—ERIC LIDJI
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� F I N A N C E & E C O N O M Y
European Commissioninvestigating oil benchmark pricesOfficials want to see if companies are manipulating oil tradesor data, to influence benchmark oil prices such as Brent crude
By ALAN BAILEYPetroleum News
The European Commission, the exec-utive branch of the European Union,
announced on May 14 that its officialshad conducted unannounced inspectionsat the premises of several companiesinvolved in the oil industry in Europe.The commission said that it had “con-cerns that the companies may have col-luded in reporting distorted prices to aprice reporting agency to manipulate thepublished prices for a number of oil andbiofuel products.” The commission alsoexpressed concern about the possibilitythat some companies might have prevent-ed other companies from participating inthe price assessment process.
According to several media reports oilcompanies being investigated consist ofBP, Shell and Statoil. And, apparently, the“price reporting agency” under investiga-tion is Platts, the division of McGraw HillFinancial that provides daily benchmarkprices such as Brent crude and WestTexas Intermediate. On May 20 theFinancial Times reported that the com-mission had also requested informationfrom several major commodity tradingfirms.
Widely usedOil benchmark prices are widely used
in setting prices for a variety of oil relat-ed products, including various types ofcrude oil, refined oil products and biofu-els — even small distortions in bench-mark prices could have a large impact onthe prices of these products, the commis-sion said.
However, the commission commentedthat the fact that it is carrying out inspec-tions does not indicated that any companyis guilty of malpractice. There is no spe-cific deadline for completion of the inves-tigation and companies have the right todefend themselves in the event of anyantitrust action, the commission said.
The investigation follows the 2012
Libor scandal, in which several promi-nent banks were found to have manipulat-ed reported interbank lending rates forfinancial gain. That scandal has presum-ably left regulators particularly sensitiveto the possibility of malfeasance in otherhigh-impact financial reporting systems.
However, the reporting of a crude oilbenchmark such as Brent involves a dif-ferent process than did the reporting ofLibor interest rates. In the case of Libor,bank executives were reporting theirassessments of interest rates, based on anhonor system involving trust in theintegrity of the people involved. Oil pricebenchmarking, by comparison, involvesthe daily assembly of price data relatingto actual oil trades.
UnregulatedBut, with the benchmarking process
unregulated and billions of dollars atstake, the European Commission is clear-ly worried about the possibility of pricemanipulation through, for example, theexecution of carefully timed bogus tradesor the misreporting of trading data.
According to information published byPlatts about its price assessment methods,the daily assessment of the Brent crudeprice, perhaps the most widely used of theoil price benchmarks, involves the gather-ing of data about trades in four North Seacrude oils: Brent, Forties, Oseberg andEkofisk crudes. Brent crude, which origi-nally was the only oil used for the bench-mark, remains the primary crude in Platt’sBrent pricing formula. But, with Brentproduction having declined over theyears, the reporting agency uses the otherthree crudes, all with similar oil composi-tions to Brent, as checks against the priceof Brent oil itself become disconnectedfrom the prices of similar crudes.
Market on closeIn pricing the oil Platts uses what is
referred to as a “market on close” proce-
see PRICE PROBE page 6
NATURAL GASIndia’s H-Energy unveils Canadian LNG
One of India’s largest privately held corporations has disclosed more details of itsplan to export LNG from the Canadian province of Nova Scotia.
Just days after reaching an agreement with the Nova Scotia government, H-Energyrolled out the details of a C$3 billion LNG liquefaction plant and export terminal onthe Atlantic Coast including three trains, each with a nameplate capacity of 4.5 mil-lion metric tons a year.
The initial facility would require 1.5billion cubic feet per day of feedstockgas, with the Marcellus play in thenortheastern United States seen as aprime source, although sources inAtlantic Canada are also under consid-eration.
H-Energy is part of Mumbai-basedHiranandani Group, which is buildingan 8 million metric tons per year regasi-fication port in India to help meet thecountry’s existing demand which is rising to about 12 million metric tons a year.
Currently gas in India is valued at US$15-US$20 per million British thermal units,compared with US$3-US$4 in North America.
H-Energy said LNG from Canada could be shipped to Latin America and Europeas well as India.
Darshan Niranandani, managing director of H-Energy, said construction could startin 2016, with operations to start in 2020.
He said the Nova Scotia facility would be similar in size to the C$5 billion LNGplant and expert terminal that Calgary-based Pieridae Energy is planning to build atGoldboro, Nova Scotia.
Stephen Lund, chief executive officer of Nova Scotia Business Inc., a governmentagency that tries to attract companies to the province, said there is a global demandfor North American gas.
“Facilities will be built in North America. I don’t think anyone would dispute that.The question is where they are going to be? Why not Nova Scotia?” he said.
H-Energy said it considered locations in Quebec, New Brunswick and BritishColumbia before opting for Nova Scotia because of the province’s deepwater portsand a pipeline that delivers 440 million cubic feet per day of gas from the offshoreSable field.
—GARY PARK
H-Energy said it consideredlocations in Quebec, New
Brunswick and British Columbiabefore opting for Nova Scotia
because of the province’s deepwaterports and a pipeline that delivers440 million cubic feet per day ofgas from the offshore Sable field.
By KRISTEN NELSONPetroleum News
The U.S. Department of EnergyOffice of Fossil Energy has condi-
tionally approved liquefied natural gasexport from the Freeport LNG Terminalon Quintana Island, Texas, to countriesthat do not have a Free Trade Agreementwith the United States.
DOE had approved LNG export fromthe facility to FTA countries in February2011.
The approval, for an export rate of upto 1.4 billion cubic feet per day for 20years, is conditional subject to environ-mental review and final regulatoryapproval.
The department has numerous applica-tions in queue and said it would evaluateapplications case by case based on thepublic interest.
The applicant, Freeport LNGExpansion L.P. and FLNG LiquefactionLLC, referred to in the department’s orderas FLEX, requested a 25-year term, com-mencing when export operations begin.
DOE said because the NERAEconomic Consulting study — one of two
commissioned by DOE on LNG export —“contains projections over a 20-year peri-od beginning from the date of first export,we believe that caution recommends lim-iting this conditional authorization to nolonger than a 20-year term beginning fromthe date of first export.”
DOE is also requiring as a condition ofthe authorization that FLEX begin LNGexports using its Liquefaction Projectfacilities within seven years of the May 17date of issuance of the order. The depart-ment said that condition “is to ensure thatother entities that may seek similarauthorizations are not frustrated in theirefforts to obtain those authorizations byauthorization holders that are not engagedin actual export operations.”
In May 2011 DOE issued its first long-term authorization to export domesticallyproduced LNG to non-FTA countries toSabine Pass Liquefaction LLC. Thatauthorization was for 2.2 bcf per day. Theinitial order was conditional; DOE grant-
ed final authority for Sabine in August2011.
Numerous applicationsDOE said when it began considering
the FLEX application in 2011 it wasexpecting more applications and in thatsame timeframe received an applicationfrom Lake Charles Exports LLC. Thecombined Sabine, FLEX and LakeCharles applications totaled up to 5.6 bcfper day.
The department now has 20 applica-tions for long-term export of LNG to non-FTA countries pending, totaling some 26bcf per day, and will continue to processapplications on a case-by-case basis.
Because of the potential cumulativeimpact of pending and anticipated LNGexport applications, DOE in 2011engaged the U.S. Energy InformationAdministration and NERA EconomicConsulting to conduct a two-part study ofthe economic impacts of LNG exports.
The EIA study was published inJanuary 2012; the NERA study inDecember 2012.
DOE said that based on a review of thecomplete record it has concluded thatopponents of the FLEX export application“have not demonstrated that the requestedauthorization would be inconsistent withthe public interest.”
DOE said it finds that exports proposedby FLEX “are likely to yield net econom-ic benefits to the United States” and thatgranting the export authorization “isunlikely to affect adversely the availabili-ty of natural gas supplies to domestic con-sumers or result in natural gas priceincreases or increased price volatility suchas would negate the net economic benefitsto the United States.”
Sufficient natural gasDOE said FLEX “introduced substan-
tial evidence projecting a future supply ofdomestic natural gas sufficient to supportboth the proposed export authorizationand domestic natural gas” and no com-menters or intervenors “submitted con-trary studies.”
While the FLEX evidence “indicated a
modest increase in the domestic marketprice for natural gas through 2035,” theapplication “also demonstrated significantlocal and regional economic benefits interms of employment and income.”
APGA, the American Public GasAssociation, protested FLEX’s applica-tion, contending “that export of substan-tial quantities of natural gas, such as thatproposed by FLEX, may have significantadverse implications for domestic naturalgas consumers, domestic energy supply,and natural security.”
DOE said the APGA protest — theonly one it received in response to itsnotice of application — “was not support-ed by any significant analysis and, to theextent the arguments raised in APGA’sprotest constituted substantial evidence,that material did not identify meaningfulerrors or omissions in the studies submit-ted by FLEX.”
Benefits from exportDOE said the LNG export study it
commissioned “provides substantial addi-tional support for conditionally granting”the FLEX application, with the study con-cluding the U.S. “will experience net eco-nomic benefits from issuance of authori-zations to export domestically producedLNG.”
DOE also said its decision was notbased on an uncritical acceptance of theLNG export study, but said that in generalit “continues to subscribe to the principleset forth in our 1984 Policy Guidelinesthat, under most circumstances, the mar-ket is the most efficient means of allocat-ing natural gas supplies.”
The department concluded that “thebest available evidence supports the con-clusion that FLEX’s proposed exports willbenefit the U.S. economy overall and areconsistent with the public interest.”
DOE said it “will assess the cumulativeimpacts of each succeeding request forexport authorization on the public interestwith due regard to the effect on domesticnatural gas supply and demand fundamen-tals.”
Proceeding cautiouslyIn saying that it would proceed cau-
tiously, DOE noted that the LNG export
6 PETROLEUM NEWS • WEEK OF MAY 26, 2013
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dure, involving the gathering of dataabout oil trades that take place during aspecified time window at the close of theappropriate oil market each day — in thecase of the Brent price that pricing win-dow in the London market lasts from4:10 p.m. and 4:25 p.m. London time. Inthe absence of suitable trades Platts usesother indicators such a price differentialswith other crude prices such as those ofWest Texas Intermediate, Platts says.
And to guard against attempts at bench-mark price manipulation by a trader mak-ing a single trade at a high or low price,Platts tests whether a trader has maderepeated trades at unexpectedly high orlow prices, rather than executing just a sin-gle oddly priced transaction, Platts says inits published methodology. �
continued from page 5
PRICE PROBE
� N A T U R A L G A S
DOE approves second LNG export licenseConditional approval given for export to non-FTA countries from Freeport LNG Terminal; term 20 years; rate up to 1.4 bcf per day
“The market of the future verylikely will not resemble the market
of today.” —Department of Energy
see EXPORT LICENSE page 8
PETROLEUM NEWS • WEEK OF MAY 26, 2013 7
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EXPLORATION & PRODUCTIONAll state areas closed for tundra travel
All state lands on Alaska’s North Slope were closed for tundra travel as of May20.
Closures began May 13 when the Alaska Department of Natural Resourcesclosed the Lower Foothills opening area to all off-road travel activities, with a 72-hour window forcompletion of all off-road travel currently in progressin the area.
The upper Foothills and western coastal tundraopening areas were closed May 17.
DNR’s Division of Mining, Land and Water saidtemperatures in the upper Foothills and western coastal tundra opening areas hadperiodically been above freezing during the day with the thermal gain from pro-longed sun exposure causing variable levels of snow deterioration in the areas.
Closures were complete May 20 when the division closed the eastern coastalarea. As with the previous closures, the division said above-freezing temperaturesduring the day and resulting thermal gain had caused snow deterioration in thearea.
Summer off-road tundra travel is scheduled to begin July 15 but “applies onlyto those holders of valid permits who obtain specific project approval and is fur-ther limited to those vehicles approved by the Division of Mining, Land andWater for summer off-road travel,” the division said.
—PETROLEUM NEWS
FNG challenges Spectrum caseAs it seeks to expand its service area in the Interior, Fairbanks Natural Gas
LLC is saying that another player in the liquefied natural gas game should notbecome a party to the case.
In recent filings with the Regulatory Commission of Alaska, Spectrum AlaskaLLC asked to join the case, saying its proposed LNG facilities on the North Slopecould someday serve customers the area into which Fairbanks Natural Gas hopesto expand. The area includes North Pole, Eielson Air Force Base and less-popu-lated areas in the vicinity.
“Spectrum wishes to raise issues that have nothing to do with this docket. IfSpectrum wishes to raise these issues, it should do so in a separate proceeding,”Fairbanks Natural Gas wrote to the RCA May 13. Among those issues, accordingto Fairbanks Natural Gas, is the question of open access. Spectrum said the RCAshould take special care to ensure Fairbanks Natural Gas operates as an “openaccess” utility. Fairbanks Natural Gas said the point is irrelevant because thirdparties can already pay to use the system and because open access covers theentire service area rather than the expansion area in question.
Additionally, according to Fairbanks Natural Gas, the service area expansionwould not prevent Spectrum from accessing potential customers in the region. “IfSpectrum wishes to serve customers in FNG’s service area with an LNG truck, itcan do so now, and it will be able to do so after the grant of FNG’s application,”Fairbanks Natural Gas wrote.
—ERIC LIDJI
NATURAL GAS
The upper Foothillsand western coastal
tundra opening areaswere closed May 17.
� F A C I L I T I E S
Kuukpik permittingNuiqsut spur road
By KRISTEN NELSONPetroleum News
A project related to ConocoPhillipsAlaska’s development of CD-5 in
the National Petroleum Reserve-Alaska isin the permitting process with the U.S.Army Corps of Engineers.
Kuukpik Corp., the village corporationfor Nuiqsut, is permitting the 5.8 mileNuiqsut Spur Road which would connectthe village of Nuiqsut with the proposedCD-5 road.
The Corps said the road would provideincreased subsistence user access to sub-sistence resources, provide mitigation forpotential impacts from CD-5 develop-ment and future satellite oil developmentand allow villagers the opportunity forincreased employment and businessopportunities at the nearbyConocoPhillips Alaska-operated Alpinedevelopment.
The project includes a storage pad tomeet the existing needs of a KuukpikCorp. subsidiary, Nanuq Inc., “for locat-ing a concrete batch plant, aggregatestockpile, and storage of equipment andan exploration camp,” the Corps said.
The projects require a Corps permit forplacement of 455,000 cubic yards ofclean gravel fill material onto 51 acres ofwetlands.
The spur road would connect the exist-ing Nuiqsut Dump Road withConocoPhillips Alaska’s proposed CD-5access road. The 0.8-mile Nuiqsut DumpRoad would be improved to match thenew spur road width and surface. The 10-acre storage pad would be at the junction
of the spur road and the CD-5 accessroad.
2008 MOAIn a 2008 memorandum of agreement
with the Native Village of Nuiqsut,ConocoPhillips Alaska “agreed to providesubstantial financial, design, and permit-ting assistance to construct the SpurRoad,” the Corps said. The road wouldmitigate loss of hunting areas resultingfrom Alpine satellite development.
Material for the road would come fromthe ASRC/Kuukpik Colville River gravelmine.
Several proposed mitigation measuresare part of the road-pad permit applica-tion: use of recent habitat mapping to siteroad away from higher value areas withmost road construction, except for culvertinstallation, taking place in winter fromice roads; minimization of road widthfrom 30-32 feet wide to 24-feet wide withculverts installed to minimize drainageinterruption or changes to normal surfaceflows; and compensatory mitigationwhich involves Kuukpik Corp. puttinginto preservation status a 76.5-acre parcelin the Fish Creek drainage some 14 milesnorth-northwest of Nuiqsut. The Corpssaid the parcel is within NPR-A, maycontain mineral resources, but is used forinsect relief by caribou and is a high-den-sity nesting area for shore birds andwaterfowl. Traditional Inupiat subsis-tence uses would be allowed on the par-cel, the Corps said. �
EXPLORATION & PRODUCTIONBuccaneer sets casing at Cosmo
Buccaneer Energy Ltd. has run and cemented surface casing at its Cosmo No.1 well.
The Australian independent said the offshore well has reached 800 feet as ofMay 20, the depth planned for surface casing. Buccaneer plans to drill to a targetdepth of 8,000 feet.
The company plans to set intermediate casing at the top of the Tyonek forma-tion at 2,000 feet as well as at 6,000 feet before drilling through the oil-bearingStarichkof sands.
The Cosmopolitan prospect is off the coast of Anchor Point.—ERIC LIDJI
By ALAN BAILEYPetroleum News
A new state-of-the-art design of oilskimmer is going to replace some
older style skimmers, as part of the arsenalof equipment maintained for responding toany offshore oil spill in Alaska’s CookInlet, according to the Cook Inlet RegionalCitizens’ Advisory Council. An article inthe council’s May newsletter says that thenew skimmers, known as disk skimmers,with especially high oil recovery factors,will replace substantially less efficientskimmers known as Transrecs.
By law, all businesses that operate oiltankers or oil facilities in Cook Inlet must
have contingency plans for dealing with anoffshore spill. And those plans require theavailability of oil cleanup equipment withrated capacities to handle the volumes ofoil that might end up in the waters of the
inlet in the event of a worst-case oil spillscenario.
Skimmers, devices that mechanicallyskim oil from the water surface, form anessential component of a cleanup kit. Andthe oil recovery capacity of the skimmershas to be sufficient to meet the require-ments of oil spill contingency plans.
Weir skimmersTransrec skimmers, for long a mainstay
of the spill response industry, rely on afloating oil capture device with a perime-ter weir, floated at a level where surround-ing oil lying on the water surface will flowover the weir to be pumped into a tank in asupport vessel. But tests of Transrec “weirskimmers” have revealed that the fluidrecovered into the tank in fact consists ofan emulsion, typically containing 80 per-cent water and just 20 percent oil, thenewsletter article said.
Cook Inlet Spill Prevention andResponse Inc., or CISPRI, the spillresponse cooperative that provides spillresponse services for companies operatingin the Cook Inlet, has been looking forsome alternative to the relatively ineffi-cient Transrec weir skimmers, the newslet-ter article says.
A project begun in 2007, involving sev-eral Cook Inlet tanker operators and head-ed by Eric Haugstad, Tesoro Alaska’sdirector of contingency planning andemergency response, set out to find a newefficient skimmer design that would meetspill response standards for Cook Inlet, thearticle says. Tesoro owns an oil refinery atNikiski on the Kenai Peninsula and oper-ates some of the tankers that ply the watersof the inlet.
New disc designFollowing tests at an oil spill test tank
in New Jersey operated by the Departmentof the Interior, the Cook Inlet team identi-fied a new type of coated disc skimmerdeveloped by Crucial Inc. as especiallyeffective. This skimmer design canachieve oil recovery rates of more than 70percent, a recovery level much higher thanthe 20 percent level of a Transrec, with the
oil being recovered as oil rather than as anoil/water emulsion the article says.
The Crucial skimmer is of a typeknown as an oleophilic disc skimmer, inwhich a series of disks coated with materi-al that attracts oil spins in the oil-fouledwater. Oil sticks to the oleophilic coatingand, as the disks spin, is scraped off forrecovery.
Especially efficientHaugstad told Petroleum News in a
May 21 email that, although disk skimmerdesigns have been around for many years,the Crucial design is especially efficient.The design involves a coating that increas-es the effective surface area of the discs,thus enabling the discs to retain high vol-umes of oil — the Crucial skimmers alsohave discs with large diameters, thus fur-ther increasing the area of disc availablefor oil collection, he said.
According to the newsletter article,CISPRI has built its own test tank and hassuccessfully tested the new disk skimmersin this tank. And tests in Kachemak Bay, inthe southern Kenai Peninsula, to evaluatethe operation of the skimmers with differ-ent types of oil containment boom system,showed that the skimmers will work espe-cially well with a containment systemknown as a “Harbor Buster,” the newslet-ter article says.
ApprovedThe Alaska Department of
Environmental Conservation has approvedthe new skimmers for use in Alaska andCISPRI has purchased two large 56-discskimmers for use with its larger responsevessels, as well as two 13-disc skimmersfor use with two smaller vessels — the co-op anticipates decommissioning theTransrec skimmers once appropriatechanges have been made to various oilspill response plans, the newsletter articlesays. Some other small weir skimmers willbe retained for use in specific circum-stances, Haugstad said. �
8 PETROLEUM NEWS • WEEK OF MAY 26, 2013
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study, “like any study based on assump-tions and economic projections, is inher-ently limited in its predictive accuracy.”
It also said applications to export sig-nificant quantities of domestically pro-duced LNG “are a new phenomena withuncertain impacts” and noted that “themarket for natural gas has experiencedrapid reversals in the past and is againchanging rapidly due to economic, tech-nological, and regulatory developments.The market of the future very likely willnot resemble the market of today.”
Because of those factors, DOE said itintends “to monitor developments thatcould tend to undermine the public interestin grants of successive applications forexports of domestically produced LNGand, as previously stated, to attach termsand conditions to the authorization in thisproceeding and to succeeding LNG exportauthorizations as are necessary for protec-tion of the public interest.” �
continued from page 6
EXPORT LICENSE
� E N V I R O N M E N T & S A F E T Y
New oil skimmers heading for Cook InletCitizen’s Advisory Council says modern high capacity disk skimmers will replace older style skimmers for oil spill contingencies
The Alaska Department ofEnvironmental Conservation hasapproved the new skimmers foruse in Alaska and CISPRI haspurchased two large 56-disc
skimmers for use with its largerresponse vessels, as well as two
13-disc skimmers for use with twosmaller vessels ...
By ERIC LIDJIFor Petroleum News
The rise of North American oil sup-plies is an even bigger deal than you
thought.The growth in domestic oil supplies
from unconventional sources may be wellknown, but several technical and politicalfactors are compounding its influence,according to a five-year outlook on theglobal oil market from the InternationalEnergy Agency.
“While continued uncertainties remainabout the economics and ultimate impactof unconventional production technolo-gies, recent developments in NorthAmerican supply stand out as an overar-ching driver, coloring the way in whichvirtually all other factors impact the mar-ket, and causing ripple effects through allaspects of the oil industry, from supply todemand and all the links in between,” theinternational statistical and analysisgroup wrote in its Medium-Term OilMarket Report-2013, released on May 14.
Because this supply growth is comingfrom the industrialized world, it is backingout traditional supplies from the MiddleEast and Africa. Because the IEA expectsexisting U.S. export restrictions to remainin place through the forecast period, itsreport expects the direct influence of NorthAmerican supplies to be constrainedbetween now and 2018.
But over the same period, the IEAexpects the developing world to becomethe most important customer of the oilindustry. The rising demand from countriesoutside the OECD will come not only fromconsumers in those growing economies,but also from storage and “mega-refiner-ies,” which are already influencing theglobal supply chain.
Because this growth comes as Europeaneconomies are sluggish and NorthAmerican economies are transitioning tonatural gas, the IEA expects the developingworld to overtake developed economies inoil demand as soon as this quarter, andkeep growing.
OPEC still essentialThe report still expects OPEC to play an
“essential part in the global supply mix,”but the political unrest in the Middle Eastand North Africa favors North Americansupplies.
Still, seeing as how the growth indomestic oil production is largely a techni-cal feat, the IEA also expects unconven-tional oil production to start expanding inthe next five years, as companies look toapply the combination of hydraulic fractur-ing and horizontal drilling in oil provincesfrom Latin America, to Saudi Arabia, toChina and Russia. “Although uncertaintiesremain, it is impossible to ignore the possi-bility that current non-conventional tech-nologies, as they spread and get both per-fected and mainstreamed, could lead to awholesale reassessment of globalreserves,” the IEA wrote in its report.
The Medium-Term Oil Market Reportexamines how all aspects of the global oil
market might progress over the next fiveyears. The International Energy Agencyproduces similar reports on natural gas,coal and renewable energy, as well as ener-gy efficiency.
The IEA released the report just sevenmonths after its most recent oil forecast, anattempt to align the release of the oil, gasand renewable energy reports to make iteasier to compare gross domestic product
and other assumptions between one and theother.
The next report is due May 2014. �
PETROLEUM NEWS • WEEK OF MAY 26, 2013 9
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Because this supply growth iscoming from the industrialized
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Africa.
� F I N A N C E & E C O N O M Y
IEA: US oil causing ‘ripple effect’US production combined with non-OECD demand could drastically change the global supply chain by 2018, according to the agency
Crude trade contracts, flows shift�������� �� ����� ���� �� � ���������� �� ����� ���� �� � ��
Crude Exports in 2018 and Growth in 2012-18 for Key Trade Routes*(million barrels per day)
* E l d I t R i l T d* Excludes Intra-Regional Trade
OECD Europe
0.3 (+0.1)
2.9 (-1.4)
3.1(-0.6) 3.9
(-0.9)0.3(-0.8)
China
Europe
1.3(-0.3)
1.4 (+0.7)OECD Pacific
0.7(+0.3)
( )
NorthAmerica
( )2.9
1.6 (0.3)1.2 (+0.4)-0.3
1.51.7 (+0.8)
6.2(+0.8)
Other Asia
(-1)
0.5(+0.4)
0.5Red number in brackets denotes growth in period 2011-18 (+0)
By BILL WHITEResearcher/writer for the Office
of the Federal Coordinator
To make sure they play fair, gaspipeline companies must wall off
their staffers who run the line from thosewho market gas to buyers.
It might be a virtual wall. It might be aphysical one. Whatever its form, the wallmust be impenetra-ble, so there’s noimproper water-cooler talk betweenemployees on oneside of the wall andthose on the other.
The federal rulesthat mandate thiswall for interstategas pipelines areladen with lofty lan-guage about treating customers alike,about avoiding undue preferences, aboutnot putting competitors at a disadvantageor pricing services unfairly.
Not all pipeline companies market gasthese days, but the ones that do must fol-low the rules.
The agency charged with policing thisbehavior is the Federal Energy RegulatoryCommission, which permits and regulatesinterstate gas pipelines. State regulatorsoversee intrastate pipelines.
Think of FERC as the chaperone at thedance who makes sure the boys and girlsaren’t touching inappropriately ... with theadded responsibility of making sure thegawky kids along the wall get an equitableshot at the dance floor.
Isolating different arms of the samebusiness is nothing unique to gaspipelines. Wall Street has insider tradingrules intended to separate financiers whoknow about upcoming business dealsfrom stock-picking co-workers who wantto know which stocks to buy or sell.Journalism has ethical barriers that mini-mize contact between the news and adver-tising departments.
The concept for gas pipelines dates to75 years ago, and the conflict-of-interestrules that govern them are much stricterthan those for oil pipelines. Back then, theU.S. government was asserting strongeroversight of business in general and it par-ticularly targeted the up-and-coming natu-ral gas industry, a toddler taking its firststeps toward becoming the national pres-
ence it is today.The policy of walling off pipeline
operations staff has evolved in spasmssince. Some of the heaviest revisions haveoccurred only in the past 25 years or so asthe government modernized its regulationof the U.S. gas industry — looseningsome strings and tightening others.
A key action occurred in 1992, whenFERC issued Order 636. “TheCommission must regulate the pipelinetransportation system and pipeline salesfor resale in a manner that ensures thatpipeline control of the transportation sys-tem — a natural monopoly — does notgive a competitive advantage to pipelinesover other sellers in the sale of naturalgas,” the order says as kind of a manifestofor the “standards of conduct” FERC hadimposed on the pipeline industry.
“All natural gas suppliers, includingthe pipeline as merchant, will compete forgas purchasers on an equal footing,” theorder says.
Separate but equalIn 2009, ExxonMobil and
TransCanada set up an office inAnchorage for their proposed gas pipelineproject from Alaska’s North Slope toAlberta.
ExxonMobil holds the largest provennatural gas reserves in the state and is asignificant oil producer in Alaska.Conspicuously, this new gas-pipelineoffice was in a separate building fromExxon’s Alaska production office.
A rival gas pipeline project by NorthSlope producers BP and ConocoPhillipsalso set up shop outside the high-riseheadquarters of their parent companies.
ExxonMobil executives attached to thepipeline project were excruciatingly care-ful to keep arms-length from their produc-tion colleagues, to the point where onejoked of being loath to look in the direc-
tion of the production office lest hisbehavior be misconstrued.
(The projects’ offices closed in 2011and 2012 as all of the companies moth-balled plans for an Alberta line in favor ofconsidering a project to pipe gas to a liq-uefaction plant in coastal SouthcentralAlaska for LNG exports to Asia.)
These separate quarters were no acci-dent. These were FERC rules in action.Such rules would be active again if thecompanies proceed with designing andpermitting a pipeline for LNG exports.
Good behavior The FERC regulations, known legally
as 18 C.F.R. §358, reflect four basic prin-ciples:
*Pipeline operations employees mustbe separated from, and can’t communicatewith, fellow workers who market space inthe pipeline to gas shippers. FERC callsthis the “independent functioning rule.”Marketing employees may not conduct oreven have access to the pipeline opera-tions center. Operations employees can’tmarket the pipeline.
*No third party may convey informa-tion between the company’s pipelineoperations and pipeline marketing staff.This is called the “no conduit rule.”
*Pipeline information must be dis-closed to all customers and potential cus-tomers — including the owner company’smarketing staff — at the same time.FERC calls this the “transparency rule.”
*Pipelines must make their servicesavailable to all potential customers —called “open access” — and can’t dis-criminate among customers in their ratesor in the scheduling of deliveries. Whenrules allow rate flexibility — such as giv-ing a break to large anchor shippers, orcharging different rates to customers guar-anteed space in the pipeline, called “firmtransportation service,” vs. those who shiponly when space is available, called“interruptible service” — similar cus-tomers must be treated the same. Theseare called the “non-discriminationrequirements.”
Beyond this, pipeline companies musttrain their workers in these “standards ofconduct” annually. New employees mustget training within their first 30 days. Thesame rules apply to FERC regulated elec-trical transmission companies.
According to FERC staff reports ontheir investigations since fiscal 2009,when the commission last significantlyrevised its standards of conduct, thenation’s gas pipeline operators and powertransmitters have behaved themselves.
In fiscal 2010, a gas company self-reported that several employees got theirannual training after the yearly deadline.“To prevent future violations, the compa-ny required its Human Resources depart-ment to make weekly reviews of trainingfiles.” Despite the lapse, the under-trainedworkers didn’t breach FERC’s standardsof conduct. As a result, and because of“the lack of harm and economic benefit,”FERC closed the investigation withoutimposing sanctions.
In fiscal 2011, a company self-reportedthat 14 of 30 new hires or contractors gottheir training after their first 30 days onthe job, and 14 of 61 contractors whosejobs ended during the year never got train-ing. The company “immediately revisedits internal training procedures,” andFERC took no further action. It’s unclear
10 PETROLEUM NEWS • WEEK OF MAY 26, 2013
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� N A T U R A L G A S
Fair treatment of gas pipeline customersFERC rules require separation of pipeline operations from those marketing gas; lines that market natural gas must follow the rules
The government’s “trusteverybody, but cut the cards”approach to regulating gas
pipelines began with the NaturalGas Act of 1938.
BILL WHITE
see FERC RULES page 11
if this was a pipeline or a power company.In fiscal 2012, the only infraction
involved a gas pipeline company that“improperly made available to marketingfunction employees” information aboutcapacity during a particular month.Because the company self-reported therules violation and took steps to keep thisfrom happening again, FERC “staff closedthe self-report with no action.”
The ‘positive evil’The government’s “trust everybody,
but cut the cards” approach to regulatinggas pipelines began with the Natural GasAct of 1938.
This law, for the first time, imposeddirect federal regulation of the natural gasindustry.
At the time, the petroleum industry wasbeginning to find ways to make moneyfrom the nuisance methane that some-times rose up their wells with crude oil.The small volume of gas sales was largelylimited to towns and industrial plants nearthe gas fields. But new understanding ofhow to build reliable long-distancepipelines was making faraway marketspossible.
The 1938 law stemmed in part from a1935 Federal Trade Commission reportthat called unregulated control ofpipelines and wholesale distribution of gasa “positive evil.”
“Whoever controls the channels bywhich a product is marketed controls themarket so far as the supply is concerned.Concentrated control of those channelsconfers a strategic advantage that may beused by those possessing it to extend theirdomination into both the producing anddistributing branches of the industry,” the
trade commission said.Congress considered the natural gas
industry an environment where “monopo-listic forces were distorting the marketprice of natural gas,” as a court ruling laterput it.
The gas pipeline industry back then,and until the 1980s, worked like this:
Gas pipeline owners would acquire gasfrom producers near the wellhead, trans-port the gas to market, then sell their gasto a local gas utility or industrial plant.The Federal Power Commission and itssuccessor as of 1977, the Federal EnergyRegulatory Commission, regulated theprices along this path to make sure they allwere “just and reasonable.”
A bumpy roadBy the 1970s, Congress had an
epiphany. A new paradigm took root:Lighten the government’s regulation ofthe gas industry.
The premise was that heavy-handedregulation — particularly of wellheadprices — had caused natural gas short-ages. Low, regulated prices stifled invest-ment in new production — wellheadprices averaged less than 50 cents perthousand cubic feet 1960 through 1976.Amid these shortages, the first plans aroseto build an Alaska gas pipeline that wouldship North Slope methane to the rescue.
In 1978, Congress passed the NaturalGas Policy Act to kick off deregulation.The process took about 15 years, and it didresult in discovery of more gas reserves tofill the market. The new gas age thatdawned helped kill the 1970s-era hopesfor an Alaska gas line.
The first steps in this deregulationinvolved loosening, eventually removing,price controls.
By the mid-1980s, FERC was ready toreconstruct the gas-pipeline industry
itself. When FERC was essentially done,after a series of steps culminating withOrder 636 in 1992, the pipelines no longerbought gas from producers, shipped it,then sold the gas to utilities and industrialplants. The pipeline companies often did-n’t own the gas they shipped; they merelytransported other people’s gas. They werebecoming a service business.
The whole trip traveled a bumpy road.A court that sanctioned a 1985 FERCderegulation step noted the order gavepipeline companies a dismal choice abouttheir future — “between the noose and thefiring squad,” as the court put it.
Each step FERC took warped the mar-ketplace in a new way, which gotaddressed in later steps. Order 497 in1988, Order 636 in 1992, Order 2004 in2003, and Order 717 in 2008 all refinedthe commission’s policies on what consti-tutes acceptable conduct between a gas
pipeline and its customers, and betweengas pipelines and their affiliates. (The2008 order came about after a judge void-ed the 2003 order, saying FERC over-stepped when it walled off a pipeline com-pany’s non-marketing affiliates — gasproducers, processors, gatherers and localgas utilities — from the pipeline opera-tions staff.)
Not surprisingly, the pipeline playersresisted many of the changes. They arguedthere were no problems that needed fix-ing, that they should operate on the honorsystem and police themselves, that therules unnecessarily burden them withinsane levels of paperwork, or that FERCcould deal with rare transgressions case bycase. They argued over specific wordingof rules. They filed suit.
FERC plowed forward, sometimes
PETROLEUM NEWS • WEEK OF MAY 26, 2013 11
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continued from page 10
FERC RULES
see FERC RULES page 14
PETROLEUM NEWS • WEEK OF MAY 26, 2013 13
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GOVERNMENTParnell signs oil tax, in-state gas bills
Alaska Gov. Sean Parnell signed his oil tax change into law at a meeting of theAnchorage Chamber of Commerce May 21. In addition to Senate Bill 21, the oil taxchange, the governor also signed House Bill 4, authorizing the in-state gas pipelineproject to move forward, and two bills making changes in permitting.
SB 21, which removes progressivity from the state’s production tax system, replac-ing it with a flat tax and credits for increased production, was hotly contested in theLegislature and signatures are being gathered for a referendum to repeal it.
HB 4 establishes the Alaska Gasline Development Corp. as an independent stateagency and empowers it to move forward with plans for an in-state gas pipeline anda 2014 open season.
The governor also signed the capital and operating budgets. The capital budgetincludes funding for the in-state gas pipeline project, the Susitna-Watana hydroelec-tric project and a liquefied natural gas system to deliver LNG to Fairbanks via truck.
—PETROLEUM NEWS
Short-term gas contracts for EnstarAmid continuing concerns about winter utility gas supplies in Southcentral Alaska,
Enstar Natural Gas Co., the region’s main gas utility, has obtained two new short-termgas supply contracts, to bolster its firm gas supplies during the third quarter of 2013,according to a tariff advice that Enstar submitted to the Regulatory Commission ofAlaska on May 15. The contracts guarantee 408 million cubic feet of gas at an aver-age cost of $6.70 per thousand cubic feet, with some of that gas earmarked to go intostorage for winter use, the tariff advice says.
The tariff advice indicates that Enstar now has enough gas under firm contract tomeet its needs during the third quarter, but that the utility will likely have to withdraw1.6 billion cubic feet from gas storage during the fourth quarter to meet high winterdemand. The tariff advice also says that Enstar may seek additional short-term gassupply contracts. The utility also operates a daily bidding system to obtain short-termgas supplies, although prices under this system tend to be relatively high.
Enstar says that it does not require individual Regulatory Commission of Alaskaapproval for gas supply contracts with durations of less than one year.
John Sims, Enstar’s director of business development, told Petroleum News in aMay 17 email that the two new short-term contracts are with gas producers BuccaneerEnergy and Hilcorp Alaska.
“By addressing our 2013 needs immediately with these two contracts, Enstar cannow focus on negotiating for mid- to long-term contracts,” Sims wrote.
—ALAN BAILEY
NATURAL GAS
� E X P L O R A T I O N & P R O D U C T I O N
Cook Inlet Energydraws up Sword plansAnchorage company enters into contract for Patterson rig 191;planned well is adjacent to producing West McArthur River oil field
By WESLEY LOYFor Petroleum News
Cook Inlet Energy LLC says it hascontracted a rig to drill its Sword
well adjacent to the company’s produc-ing West McArthur River field.
Patterson-UTI Drilling Co.’s rig 191will do the job. Patterson has more than300 land-based rigs operating in theLower 48, Alaska and western andnorthern Canada.
Cook Inlet Energy plans to mobilizethe rig to the drilling location at the endof May.
“We are excited to have secured thisrig and for the potential that the SwordNo. 1 well holds for the company,” CookInlet Energy’s chief executive, DavidHall, said in a May 20 press release.
Oil is the primary target, Hall said ina talk with Petroleum News.
The extended-reach well will bedirectionally drilled to 19,000 feet.
It will target probable reserves in anadjacent fault block to the WestMcArthur River field.
“Company-owned 3-D seismic overthe prospect area shows a faulted four-way closure with a 240-acre structurethat contains an estimated recoverable800,000 barrels of oil,” the press releasesaid.
In the mid-1960s, Pan Americandrilled a well into the same fault block,and mud logs had oil shows throughoutthe 500-foot-thick Hemlock formation,the primary target for the Sword No. 1,the release added.
Patterson’s rig 191 recently did somedrilling for Apache Alaska Inc. in theCook Inlet basin, Petroleum Newsreported in its Nov. 18 issue.
Promising backdrop for wellCook Inlet Energy is a young compa-
ny based in Anchorage. It’s a subsidiary
of Miller Energy Resources Inc., a pub-licly traded company headquartered inKnoxville, Tenn.
Cook Inlet Energy has producingwells on the Osprey offshore platform,and at the West McArthur River field.
The Sword well holds great promisefor the company, Hall said. The averageinitial production for every well drilledin the West McArthur River field, whichstarted up in 1991, was 2,000 barrels perday, he said.
That’s more than the total daily pro-duction Cook Inlet Energy currently hasfrom its Alaska properties.
Susitna basin gas prospectsCook Inlet Energy also has plans to
drill in the Susitna basin, where the com-pany holds three exploration licensescovering more than 580,000 acres ofstate land. The basin is north ofAnchorage and west of the Willow com-munity.
The company on April 24 filed anamended plan of operations for itsSusitna exploration license No. 2.
The plan said the company in Marchand April completed a winter access trailand pad for up to two exploratory wellson the Kroto Creek natural gas prospect.Drilling could occur during the winter of2013-14.
Cook Inlet Energy said it has otherexploration prospects in the area, includ-ing Moose Creek and Big Bend. �
Cook Inlet Energy also has plansto drill in the Susitna basin,
where the company holds threeexploration licenses covering
more than 580,000 acres of state land.
14 PETROLEUM NEWS • WEEK OF MAY 26, 2013
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GOVERNMENTMoniz becomes new energy secretary
Ernest Moniz, Ph.D., has been sworn in as the new secretary of energy, afterthe U.S. Senate confirmed his appointment on May 16, the Department of Energysaid May 21.
“I look forward to the progress we will make together in the coming years —advancing the president’s all-of-the-above energy strategy, maintaining thenuclear deterrent and reducing the nuclear danger, promoting American leader-ship in science and clean energy technology innovation, and cleaning up the lega-cy of the Cold War,” Moniz wrote in an email to Department of Energy staff.
Moniz, a nuclear physicist, was a professor at the Massachusetts Institute ofTechnology prior to his appointment to the Obama administration. RecentlyMoniz served as the founding director of the MIT Energy Initiative and of theMIT Laboratory for Energy and the Environment. He was also a leader of multi-disciplinary technology and policy studies on the future of nuclear power, coal,nuclear fuel cycles, natural gas, and solar energy in a low-carbon world, theDepartment of Energy said. Moniz served as under-secretary of energy in theClinton administration.
—ALAN BAILEY
� E N V I R O N M E N T & S A F E T Y
BLM legacy wellplan praised, rappedAlaska drilling regulator Cathy Foerster says draft strategy fordealing with old federal wells is positive effort, but deficient
By WESLEY LOYFor Petroleum News
A top Alaska drilling regulator has cri-tiqued the U.S. Bureau of Land
Management’s recently released draftstrategic plan for dealing with derelictfederal legacy wells on Alaska’s NorthSlope.
Her assessment: Good start, guys. Butyou will need to do more, and do it faster.
“The strategy,which addresses anumber of AOGCC’sconcerns, representsa healthy step in theright direction,”begins the critiquefrom Cathy Foerster,an engineer andchair of the AlaskaOil and GasConservation Commission. “However,many concerns are inadequatelyaddressed or not addressed at all.”
Dueling numbersBLM has been under public pressure
to address dozens of test wells federaldepartments drilled between 1944 and1982 in or near the National PetroleumReserve-Alaska. BLM manages thereserve and is responsible for the wells.
On May 8, the agency released itsstrategic plan for plugging some wellsand cleaning up junk at drill sites.
The plan ranks each of the 136 legacywells according to surface and downholerisk.
The plan says 50 wells require remedi-ation, with 68 needing no further action.The final 18 wells remain in use by theU.S. Geological Survey for Arctic climatechange monitoring, BLM says.
The agency has identified 16 prioritywells for cleanup, all in the area ofBarrow and the Simpson Peninsula to thesoutheast.
Foerster, in her critique, said AOGCCbelieves 80 legacy wells require BLMremediation, not 50.
And she urged faster action on wells
that she says pose clear hazards, such asabove-ground pipe, pilings, drums andother metal debris that could hurt snow-machine or ATV travelers.
Risk rankings questionedAs an example, Foerster questioned
BLM’s risk assessment for a well calledSimpson Core Test No. 27.
“The downhole risk for this well is not‘none,’” Foerster wrote. “The well wasinadequately plugged in 2005 and thecement was not tagged nor was the wellpressure tested. BLM must ensure thewell is secure. The surface risk for the siteis not ‘none.’ The wellhead must beremoved.”
Another example was the Wolf CreekNo. 1 well.
“The subsurface risk for this well ishigh since it experienced a blowout whiledrilling, has a history of gas production,and has a primitive wellhead with pres-sure on it and a history of leaking andbeing tampered with,” Foerster wrote.“BLM should expedite plugging andcleanup for this well and site.”
Foerster noted that several sites havewell cellars that fill with water, posing adrowning or entrapment hazard to chil-dren and small animals.
She also questioned BLM’s treatmentof the USGS wells.
“Until such time as these 18 USGSwells are properly plugged and aban-doned, USGS or BLM has an ongoingresponsibility to demonstrate that thewells all are truly being used and havemechanical integrity,” Foerster wrote.
A number of legacy wells are sched-uled for review at AOGCC public meet-ings in June, July or August, she said. �
CATHY FOERSTER
Foerster, in her critique, said AOGCC believes 80 legacy wells require BLM
remediation, not 50.
modifying the proposed rules when itthought the industry made winningpoints.
Throughout, dating back to theNatural Gas Act of 1938, the regulatordrummed on a constant theme:Fairness.
“Pipelines continue to have econom-ic incentives to show undue preferencestoward their marketing affiliates,” thecommission said in 1988.
“The natural gas industry has notcompleted its evolution to the pointwhere all gas is shipped on even termswithout regard to the identity of thesupplier,” the commission said in 1992.
“As natural monopolies, pipelines ifunregulated would possess the abilityto engage in monopolistic pricing fortransportation services and discriminateagainst unaffiliated entities that seek totransport gas,” a federal appeals courtsaid in 2006.
In that lawsuit, which the industrybrought, the court knocked down
FERC’s attempts to update the stan-dards to encompass a modern-day natu-ral gas company that might produce gasas well as pipe it and trade it on themarkets. The court said that withoutevidence of actual abuse — as opposedto the potential for abuse — by thoseaffiliates, FERC could not impose thestandards on non-marketing affiliates ofgas pipeline companies.
FERC’s focus, the court said, shouldremain on the narrow, documentedproblem: Pipelines favoring transportof its own gas to the disadvantage ofcompetitors. Regulation is needed toensure pipelines provide “equal treat-ment to sellers in areas such as schedul-ing, transportation, and speed of serv-ice.” �
—Office of Federal Coordinatorlegal counsel Joseph M. Oglander con-tributed to this article.
Editor’s note: This is a reprint fromthe Office of the Federal Coordinator,Alaska Natural Gas TransportationProjects, online atwww.arcticgas.gov/ferc-rules-ensure-gas-pipelines-treat-customers-fairly
continued from page 11
FERC RULES
JUD
Y P
ATR
ICK
cuted and a waste of money. I don’tknow how else to put it. HB 4 is a hellof an improvement over AGIA. I didn’tparticipate a lot in HB 4. I’ve got confi-dence in (co-sponsor House Rep. Mike)Hawker and his support staff. When thatproject finally evolved to the pointwhere it was coming to the floor of theSenate — even as it was in my opinion avirtual Railbelt project — there is vari-ous language in there for them to look atcoastal Alaska and rural Alaska. Themain focus is get that gas from the NorthSlope to Nikiski and hook up as manypeople as we can along the way as wellas we can. That’s the idea. But I want thebigger line. I think there is economics ofscale and three big players who knowhow to do big projects. I think the stateneeds to be cautious and not to sticktheir fingers into the pie and muck it up.
Petroleum News: If a big line getsadvanced during the interim, shouldthere be a special session on fiscalterms?
Stedman: They already got the cashfrom SB 21. I don’t think we need tonegotiate anymore, do we? The negotia-tions are done. The monetary value of thegas to the treasury will be interesting. I’dbe surprised even on the big line. Therewill be some things to look at, like corpo-rate income tax, property tax, tariffs. Thevalue of the gas depends on the cost ofthe project and the market economics. It’snot going to be the cash cow like the oilline was — or is. But it all adds up. Theindustry always says a healthy oil busi-ness makes for a healthy gas business.
Petroleum News: What will you bedoing during the interim as it relates toyour position with Energy Council?
Stedman: I want to have a dialogue inNorth Dakota at Bismarck, bringing the
Russians, Canadians and Americanstogether on shipping and emergencyresponse. We’ll also talk about theBakken and the impacts to the state ofNorth Dakota — good or bad. As far thestate goes, you’ve got the water, sewersand schools. You’ve got the basin eco-nomics and getting it out on rail and thechokepoints. In the fall, we’re going toRegina and take a look at someSaskatchewan issues dealing with carbonsequestration, enhanced oil recovery anda few things going on up there with acoal fired plant. We’ll continue our con-versations with getting oil out of Albertaif Keystone XL is going forward by thattime and the eastern delivery of oil out ofAlberta by rail or by pipe. We’ll have agood idea of the western direction of thepipeline to the coast for both oil and gas.The initial conversation — hopefully tobe legitimate consideration for the future— is rail extension out of Alberta to theDelta Junction to rail oil out of Alberta.
Petroleum News: Now how does ithelp Alaska to drill down these detailsout of North Dakota, Saskatchewan andAlberta? Why does it help theLegislature?
Stedman: You can take a look at it as astate — the sovereign right down to thedistrict.
Let’s start with the state. We’ve gotthis elephant field called Prudhoe Baysitting up there in the Arctic. We are inthis global race for energy, productionand distribution, so we have to knowwhat’s going on. There is also these hugetransitions from the conventional oilextraction to nonconventional, thenyou’ve got the natural gas economics andthe dynamics of that industry pushingcoal and oil and a whole litany of thingsfrom an environmental concern. So itdoes play in and it plays into our fiscalpolicy of our oil basin and a litany ofthings like that.
Then if you take this down to the dis-trict, well I represent a coastal district far
away from the oil basin. We’re way out,then again we’re not. We have good jettraffic and airports; we’re close to thesupply chain; we’re building a ship portin Ketchikan; we are in the infancy ofoffshore oil development in the Arctic,which 50 years from now will look likethe Gulf of Mexico as far as economicactivity.
That’s a huge support infrastructurethat has to be put in place. They willneed ship construction and maintenance,and you have to have facilities to do that.There is a potential in Ketchikan to facil-itate Shell, and ConocoPhillips andStatoil and other firms that want toexpand and go into the Arctic with shipconstruction and maintenance, and otherrelated items that need building. So it hasa statewide impact all the way down tothe district.
For example, Energy Council has beendown to Louisiana a few times, NewOrleans, and down in Arkansas, lookingat their energy issues. For example goingto the shipyards in Louisiana, seeing thesize and magnitude of what it takes tomaintain these drill rigs. It makes it a lot
easier when the industry folks sit at thetable and they want to talk about a partic-ular issue. They have some concept ofthe magnitude of what they are talkingabout. We get used to talking about bil-lions of dollars in the treasury and proj-ects like HB 4. That’s a huge project.What? Eight billion? We talk about it likeit’s a little project.
We went to a pipe rolling facility withEnergy Council where they rolledKeystone XL pipe. They had 500 milesof pipe stacked in the yard, 300 milesdelivered. To sit there and look at 500miles of pipe stacked in the yard givesyou the idea of how much pipe it’s goingto take going from Nikiski to NorthSlope and the magnitude of these proj-ects.
I’ve been asked several times aboutthis and we don’t at Energy Council getinto a lot of fiscal policy discussions. Eachstate or each sovereign has their own poli-cies so that’s not what we do. But thereare a lot of other things we examine, so Ithink it’s been very useful. �
PETROLEUM NEWS • WEEK OF MAY 26, 2013 15
continued from page 1
STEDMAN Q&A
gained a strong mandate in British Columbia’s May 14election, she has turned overnight from a political light-weight in her province to a heavyweight in Canada,especially when it comes to the energy export aspirationsof the Canadian and Alberta governments.
In a self-assured post-election meeting with reportersClark was transformed from glib into an assertive leader,focused on forging ahead with her economy-first cam-paign promise to create jobs and generate revenues.
LNG top of listTop of that list is her grand dream of turning British
Columbia into a global LNG force.That means taking a measured approach to advancing
plans for up to nine LNG export projects, including fourby Shell, Chevron, BG Group and Petronas to ship asmuch as 47 million metric tons a year of LNG to Asia,and carefully negotiating her own plans to introduce anew LNG tax and royalty regime.
In an intensely competitive global environment, therisk facing Clark is that she could alienate investors.
Equally important to the investment image she por-trays is how she handles Enbridge’s Northern Gatewayproject and Kinder Morgan’s Trans Mountain expansionwhich could ship a combined 1.4 million barrels per dayof crude bitumen to tanker ports on the Pacific coast.
That’s where a thaw in a year of cool relationships
between British Columbia and Alberta is needed.
Alberta moves for meetingsRedford, who had cause to be offended by Clark’s
campaign statement that her province “does not need”Alberta to help develop British Columbia’s resources,took the first step in congratulating Clark on her electionvictory and setting the stage for an early meeting of thetwo leaders, possibly at a mid-June meeting of WesternCanadian and territorial premiers.
Hughes called his British Columbia counterpart, RichColeman, and the pair also agreed to get in touch in thenear future.
“As Canada moves to seize new opportunities and
continued from page 1
PEACE OVERTURES
see PEACE OVERTURES page 19
16 PETROLEUM NEWS • WEEK OF MAY 26, 2013
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UMIAQ announces Wolski as new engineering manager UMIAQ LLC said May 13 that Michael Wolski, P.E., has been
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Wiley Wilhelm, P.E., will continue to serve as UMIAQ’s design division manager.UMIAQ is a full-service consulting and design firm specializing in architecture, engineer-
ing, surveying, regulatory planning, stakeholder relations, geospatial analysis, environmen-tal consulting services, logistics and full-service camps, and response planning and opera-tions. UMIAQ’s team understands the politics, culture, land use issues, regulations, and
design conditions as they pertain to industrial and community development in arctic andsubarctic Alaska. UMIAQ is a member of the Ukpea vik Iñupiat Corp. family of companies.
Golder Assoc. Anchorage office welcomes TwitchellGolder Assoc. said May 14 that it would like to welcome Olin Twitchell, a junior level
fisheries biologist, to its Anchorage office. Prior to joining Golder, Twitchell worked as a bio-logical science technician for the Yukon Delta National Wildlife Refuge of the U.S. Fish andWildlife Service, the Salmonid Rivers Observatory Network and the Alaska Department ofFish and Game. He has three years of fisheries field work experience. While working onremote Western Alaska rivers, Twitchell’s focus was on quantifying salmonid populationstructure, biodiversity and productivity as it related to shifting biophysical processes.Twitchell is a graduate of the University of Alaska Fairbanks with a Bachelor’s of Science infisheries and a minor in Arctic skills.
Crowley’s CPD ‘Alaska Safe Truck Fleet of the Year’ Crowley said April 30 that its Alaska petroleum distribution subsidiary, CPD Alaska LLC,
was recently honored with the “Alaska Safe Truck Fleet of the Year” and the “Most
see OIL PATCH BITS page 17
MICHAEL WOLSKI
broadening the partnerships needed to meetArctic challenges.
Arctic awarenessTo achieve its goal of improved Arctic
awareness the Coast Guard says that it willadvocate for the establishment of an “ArcticFusion Center,” an interagency entity forcoordinating government agency activities,to enable sustainable development andenvironmental protection. The Coast Guardwill also optimize Arctic communicationsand maritime tracking technologies byexpanding and strengthening partnershipswith various entities, including local, stateand national governments; academia;industry; and other non-governmentalorganizations.
The enhanced collection and assemblyof Arctic maritime information will entailinitiatives such as improved data collectionand the deployment of portable surveillancesensor packages “at critical geographicchoke points,” on board offshore drillinginfrastructure and on Coast Guard assets,the strategy says.
Improved Arctic awareness will alsorequire an effective Coast Guard presence,including “an adaptable mix of cutters,boats, aircraft (including unmanned aerialsystems) and shore infrastructure to enableeffective seasonal operations,” the strategysays.
Modernizing governanceModernizing Arctic governance will
involve cooperation and coordination withgovernments and government agencies,within the United States and internationally,to ensure an effective governance regimethat can protect the environment and pre-serve marine resources while also protect-ing U.S. sovereignty, the strategy says. TheCoast Guard sees the U.N. Convention onthe Law of the Sea as a critical legal frame-work for marine governance: The agencywants to see U.S. ratification of this interna-tional treaty. The agency is also assessingthe formation of an international CoastGuard group and an international forum, asa means of achieving international coordi-nation.
The protection of U.S. sovereignty willinclude the protection of infrastructureassociated with energy development in theArctic offshore, with the sharing of infor-mation in private-public partnerships beingneeded for the Coast Guard to maintain aknowledge of infrastructure-related risks,
the strategy says.
Broadening partnershipsBy broadening its partnerships with
other Arctic stakeholders, including AlaskaNatives, industry and academia, the CoastGuard wants to be better positioned toadvance its role in the Arctic, on theassumption that a network of partnershipswill be essential in dealing with the securi-ty and environmental challenges that theArctic faces. The agency hopes to establishan “Arctic Center of Expertise” in the U.S.Coast Guard Academy, for the advance-ment of safe and responsible activity in theArctic region. And the strategy says that theCoast Guard supports a whole-of-govern-ment national approach, including anengagement with federally recognizedtribes, for finding collaborative and coordi-nated solutions to Arctic issues.
Coast Guard success in the Arctic willdepend on recognition of the Arctic regionas a national U.S. priority, with a unifiedapproach within the Department ofHomeland Security for the oversight of theArctic region, the strategy says. Increasedhuman activity in the Arctic will placeincreasing demands on the Coast Guard,and the strategy outlines several CoastGuard needs to enable the agency to fulfillits future Arctic role. Those needs includeadditional icebreakers and long-rangepatrol vessels; and international agree-ments, such as the recently signed agree-ment for cooperation over oil spill preven-tion and response.
Meantime, the Coast Guard anticipates acontinuation of its current policy of forwarddeploying assets into the Arctic during peri-ods of peak activity, using both mobileassets and existing shore-based infrastruc-ture, the strategy says.
—ALAN BAILEY
The division said confidential datasubmitted by Pioneer indicated the expan-sion area “is reasonably estimated to becapable of producing or contributing toproduction of hydrocarbons in payingquantities.”
To the northwestThe expansion area is to the northwest
of the original PA. The division said the expansion is
based upon drilling results which demon-strated that there are productive Nuiqsutreservoir sands to the northwest beyondthe original PA boundaries.
Pioneer has optimized its well designsand drilling trajectories to extend thedrilling reach from its offshore drill siteinto the expansion area and has submitteddata demonstrating that wells drilled intothe expansion area are capable of produc-ing or contributing to production in pay-ing quantities, the division said.
When the Nuiqsut PA was approved in
2009 (effective June 1, 2008) the divisionsaid the depositional model for theNuiqsut sands “suggested that reservoirquality would deteriorate to the northwestbut the drilling results confirm that excel-lent reservoir quality Nuiqsut sand ispresent.”
Another factor in establishing the orig-inal PA boundary was “the practicalextended drilling distances” possiblefrom the offshore drilling site, but modifi-cations Pioneer has made in its drillingdesign allowed significant increases indrilling distances, the division said.
Pioneer has drilled 17 OoogurukNuiqsut PA wells to date and is currentlydrilling two wells in the proposed expan-sion area, the division said.
Production from the PA is some 4,670barrels per day.
Oooguruk Nuiqsut PA oil ranges from19-24 degrees API gravity, heavier thanthe 39 degree API gravity oil produced atAlpine and nearer in oil gravity to oilfrom the Kuparuk River field, the divisionsaid. Nuiqsut oil also contains 2-4 percentwax by weight.
Nuiqsut majority of productionAs of the end of March Oooguruk field
production totaled 12.8 million barrels.The majority of Oooguruk productioncomes from the Nuiqsut PA; the field alsoproduces from the Kuparuk and TorokPAs.
Pioneer operates Oooguruk on behalf ofitself and Eni Petroleum.
Production began from the Nuiqsutpool at Oooguruk, followed by theKuparuk pool and the most recently Torokpool.
The division said 15 exploration wellswere drilled in the Colville Delta-Oooguruk area between 1970 and 1998.
“A number of the wells tested oil bear-ing sands in the Nuiqsut intervals, but atthat time, the companies concluded thatdevelopment was uneconomical,” the divi-sion said.
Pioneer began drilling in the area in
2003, with three exploration wells — Ivik1, Oooguruk 1 and Natchiq 1. Pioneer frac-ture stimulated and tested the Ivik well,with initial production at 1,300 barrels perday; a four-day test of the Nuiqsut sand-stone averaged 964 bpd.
The division said it approved the plan ofdevelopment for the Oooguruk unit in May2012, effective June 11, 2012, throughJune 10, 2013. During the sixth plan peri-od Pioneer drilled three horizontal NuiqsutPA wells, one of which was drilled into theproposed expansion area. Pioneer’s sev-enth plan of development, pending divi-sion approval, proposes four wells into theexpansion area, two of which are beingdrilled. Those are production wells. Thedivision said Pioneer also plans two injec-tors for the 2014 drilling season.
—KRISTEN NELSON
PETROLEUM NEWS • WEEK OF MAY 26, 2013 17
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Improved Fleet” awards duringcustomer ConocoPhillips’ and theAlaska Trucking Association annualSafety Awards Banquet, held inAnchorage in late April. Crowley’sBob Cox, vice president, and MikeMoeller, director of trucking,attended the banquet and accepted the awards on behalf of the company.
To be considered for the “Safe Truck Fleet of the Year” award, the Crowley team wasevaluated and ranked on several 2012 statistics, including the total number of miles driv-en, as well as the company’s Federal Motor Carrier Safety Administration CSA fleetscores, accident frequency and overall Occupational Safety and Health Administrationrate. Last year, the 125 vehicles in the Crowley fleet drove more than 1.8 million accidentfree miles, delivering in excess of 100 million gallons of petroleum products to 280 com-munities across the state of Alaska.
The Safety Awards Banquet, dually hosted each year by the ATA and ConocoPhillips, isa premier event developed to recognize carriers with the best safety performance. Thecompetition becomes more challenging with each passing years, as companies continual-ly improve their focus on safety through regular meetings, driver workshops, trainingsand a variety of other employee development programs.
Editor’s note: All of these news items — some in expanded form — will appear in thenext Arctic Oil & Gas Directory, a full color magazine that serves as a marketing tool forPetroleum News’ contracted advertisers. The next edition will be released in September.
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ARCTIC STRATEGY
eventual grounding of the Kulluk on theshore of Sitkalidak Island, to the south-east of Kodiak Island, became the subjectof a formal U.S. Coast Guard marinecasualty investigation. As part of thatinvestigation the Coast Guard is now con-ducting a hearing in Anchorage to gathertestimony about the circumstances sur-rounding the grounding. Officials fromthe Bureau of Ocean EnergyManagement, the National TransportationSafety Board and the Marshall Islands arealso participating in the hearing — theKulluk is registered in the MarshallIslands.
Safety of crewOn May 20 Norman Custard, Shell’s
team lead for emergency response for thecompany’s Alaska program, told the hear-ing that his immediate concern on Dec. 27had been the safety of the Kulluk’s crew.Custard, a retired Coast Guard officerwith Coast Guard experience of marineemergency response, initially took com-mand of the incident response for Shell.He told the hearing that he called a meet-ing of Shell’s incident management teamand started appraising the situation.
Custard described how by 2 p.m. onDec. 27, with a 20-foot swell at the inci-dent location and with two Coast Guardhelicopters available, the incident team
started considering an evacuation plan forthe Kulluk crew. But the Aiviq was able tostabilize the situation by successfullyattaching an emergency towline to theKulluk.
According to statements made duringthe hearing the original towline had part-ed at a shackle and the shackle was miss-ing when the towline was later retrieved.
Vessels deployedCustard said that, although the Kulluk
was back under tow by the evening ofDec. 27, he ordered the continuingdeployment of vessels to provide assis-tance, given a forecast for approachingbad weather, plans for the evacuation ofpersonnel and the possible need for someform of oil spill response. And by thistime the Guardsman, a support vessel outof the port of Seward, and the Nanuq,Shell’s Arctic oil spill response vessel,were en route to the scene.
Initial optimism that the situation wasunder control proved short lived. Custardsaid that he was woken at 3:30 a.m. onDec. 28 by a phone call informing him
that the Aiviq was experiencing engineproblems. A second call 30 minutes latertold him that all of the Aiviq’s engineswere out of action, although the vesselstill had electrical power for operating itsbow thrusters.
The Coast Guard cutter Alex Haley,which had been dispatched to the scene,succeeded in bringing the Aiviq and theKulluk under tandem tow, although thetowline subsequently broke and becametangled in one of the cutter’s propellers.
By 12:30 p.m. on Dec. 28 the incidentmanagement team had moved to an emer-gency operations center in the MarriottHotel in downtown Anchorage, with aunified command involving the CoastGuard, Shell and Edison ChouestOffshore managing the incident — EdisonChouest owns the Aiviq. A representativeof Noble Corp., the company operatingthe Kulluk, also attended unified com-mand meetings, Custard said.
Evacuation requestThe Guardsman arrived on scene in the
Gulf of Alaska and succeeded in hookinga line to the Aiviq and the Kulluk, in a tan-dem configuration. But, with the situationon the Kulluk very uncomfortable andpeople on the vessel becoming very tired,by 6 p.m. the unified command hadrequested the Coast Guard to evacuate thevessel. However, with the prospect of anighttime evacuation and with the Kulluk“dancing around” in rough water, thereremained some questions over the evacu-ation plan — despite the difficult condi-tions, an aerial evacuation using helicop-ters appeared safer than an evacuation bysea, Custard said. He explained that therisk associated with lowering lifeboatsinto the water from the heaving Kullukwas greater than the risks entailed inhoisting crew members to a helicopter.
And, although it might have been pos-sible to keep people on the Kulluk, theresponse team wanted to evacuate thecrew well before there was any possibili-ty of a grounding, at which point largewaves could have been breaking over thestranded vessel, Custard said.
However, the night evacuation did notprove practical — it was considered unac-ceptably dangerous. Moreover, by themorning of Dec. 29 the tow from theGuardsman had failed. The Kullukdropped its survival anchor. And, with thewind slackening, the response team start-ed looking for a safe harbor into which tomove the Kulluk.
Tow re-establishedMeantime, Shell had been working
with Edison Chouest to obtain replace-ment fuel injectors for the Aiviq’s engines(reports at the time of the incident sug-gested that the Aiviq may have sufferedfuel contamination). The Coast Guarddelivered the injectors to the vessel on themorning of Dec. 29 and by noon of thatday three of the vessel’s four engines wererunning again. The Nanuq had arrived onscene earlier in the morning, so that by theafternoon both the Aiviq and the Nanuqwere hooked up to the Kulluk. The plan atthat point was to tow the Kulluk to a placeof refuge near Kodiak, at the northeastend of Kodiak Island, Custard said.
Evacuation completedWith the Kulluk under tow again, the
vessel was fairly stable, enabling theevacuation of the vessel’s crew to finallyproceed. The evacuation, a very safe oper-ation using two Coast Guard helicopters,took about two hours and was completeby about 3:30 p.m., Custard said.
At this point the situation seemed to belooking up, with the Kulluk’s crew safeand the vessel in a stable tow. The planwas to move the vessel east for a time, tokeep well clear of land, before turningnorth towards Kodiak, a transit that mighttake about two days to accomplish,Custard explained. And Shell continued towork with shipping contractors to bringmore vessels to assist, including the tugAlert from Valdez.
But the optimism was short lived: Inthe afternoon of Dec. 30 the towlines fromthe Aiviq and the Nanuq both parted.Custard told the hearing that he did notknow why the lines had broken. But withthe weather deteriorating and the windalready blowing at 35 to 45 knots, re-establishing a tow became urgent. By 1a.m. on Dec. 31, with the weather stillworsening, the Alert and the Aiviq suc-ceeded in attaching lines to the drillingrig. The response team decided to try tomove the rig to shelter in Kiliuda Bay onthe southeast side of Kodiak Island,Custard said.
GroundingBut by 5:30 p.m. the Aiviq had lost its
tow again. Although the Alert was stillattached to the Kulluk, the vessels werebeing blown west at three to four knots inwinds of 55 to 64 knots and 35- to 40-footwaves, with the Aiviq unable to re-attachits line. At this point it appeared inevitablethat the Kulluk would run aground,Custard said. When the vessels reached adistance of three miles from shore, theunified command, worried about puttingthe Alert at risk, ordered the tug to releasethe Kulluk. Within half an hour thedrilling vessel had grounded, Custardsaid.
The Coast Guard has said that it antic-ipates the Anchorage hearing continuingthrough the end of May. It may then beseveral months before the agency reportsthe results of its investigation. Dr. BarryStrauch, the National TransportationSafety Board representative in the hear-ing, said that the NTSB will make its ownfindings on the Kulluk incident. �
18 PETROLEUM NEWS • WEEK OF MAY 26, 2013
continued from page 1
KULLUK HEARINGThe Coast Guard has said that it
anticipates the Anchorage hearingcontinuing through the end ofMay. It may then be several
months before the agency reportsthe results of its investigation.
When the vessels reached adistance of three miles from shore,
the unified command, worriedabout putting the Alert at risk,ordered the tug to release the
Kulluk. Within half an hour thedrilling vessel had grounded,
Custard said.
PETROLEUM NEWS • WEEK OF MAY 26, 2013 19
open new global markets, I look forwardto renewing discussions with BritishColumbia about issues that affect ourprovinces,” Redford said.
“We need to work together on initia-tives that will improve the quality of lifefor people living within our borders andensure we’re doing everything we can tostrengthen Canada for future genera-tions.”
Clark adamant on pipelinesBut Clark has yet to shift from her
stance on pipelines. If anything she’s been just as adamant
as previously that none will be able tocross British Columbia from Albertaunless they meet the conditions she laidout for approval, which basically require:Successful completion of current environ-mental reviews; world leading marine andland oil spill response, prevention andrecovery systems; opportunities for Firstnations to participate in and benefit fromheavy oil projects; and a “fair share” ofthe fiscal and economic benefits of theprojects.
Clark said the conditions are “notgoing to change,” noting that KinderMorgan and Enbridge are both “workinghard” to comply with standards.
She also again endorsed plan by news-paper publisher David Black to build arefinery at Kitimat to convert crude bitu-men into products for shipment to Asia.
Clark said that would ease concernsover the prospect of tanker spills in thePacific.
CAPP: conditions ‘not unreasonable’ The most encouraging response to
Clark’s demands has come from theCanadian Association of PetroleumProducers, whose leaders — despitebeing neutral on specific pipeline projects— have said Clark’s conditions are “pret-ty clear, not unreasonable, and (have) setthe stage for discussions on how the proj-ects can go forward.”
CAPP President David Collyer saidsharing oil sands royalties is a “non-starter” unless it can be framed in the con-text of what benefits would accrue toBritish Columbia from pipeline develop-ment.
“We know what we are working withas far as the policy environment goes —it’s a government that has been largelysupportive of oil and gas issues, like WestCoast access for oil,” he said.
Even opponents of the NorthernGateway and Trans Mountain pipelines— notably Kennedy Stewart, a NewDemocratic Party member of theCanadian parliament from the Burnaby
district in Metro Vancouver — said thedefeat of provincial NDP leader AdrianDix is a “big game changer ... andincreases the odds of both pipelines goingthrough.”
University of British Columbia politi-cal scientist George Hoberg, a specialistin resource management and a strong oilindustry critic, called Clark’s victory a“major setback” for British Columbia’senvironmental movement.
He issued an ominous warning that “anincreasing number of environmentalistswill choose to resort to civil disobediencewhen appropriate opportunities arise,”mirroring comments on social media thatpipeline opponents may now have to taketheir fight “into the woods.”
First Nations issueJanet Holder, Enbridge’s executive
vice president assigned to NorthernGateway, acknowledged that her compa-ny must “work with aboriginals and thecommunities along the right of way andthe citizens of British Columbia to helpthem understand the value of this projectand to help us understand how we canaddress their concerns.”
A hint of what might lie aheadoccurred May 16 when members of theGitga’at Nation evicted a NorthernGateway crew from their territory on thenorth coast as it tried to conduct oil spillresponse surveys, claiming Enbridge has“screwed up” relations with First Nations.
Art Sterritt of Coastal First Nationssaid Enbridge would be “sadly mistaken”to feel any confidence in the electionresult.
“As far as we’re concerned (NorthernGateway) is still dead,” he said.
Sterritt described Clark’s pipeline con-ditions as “fairly onerous,” especially asthey relate to fiscal and economic bene-fits, and doubts Enbridge will ever be ableto meet them.
He said Coastal First Nations will tellClark it can support environmentallysound LNG development, but is unable toendorse the volume of tanker trafficNorthern Gateway would generate.
But Ivan Giesbrecht, Enbridge com-munications manager in Vancouver, saidthe voters of British Columbia have “spo-ken quite clearly that economic develop-ment and economic prosperity is a priori-ty, but not at the expense of the environ-ment. That has been our message allalong.”
If and when Redford and Clark getdown to serious negotiations, the BritishColumbia leader will arrive with toughfiscal demands and burdened by FirstNations and environmental issues thatcould still outweigh the pure economicargument. �
continued from page 15
PEACE OVERTURES Trans Mountain expansion gets initial OK Kinder Morgan Canada has cleared its first regulatory hurdle in pursuit of
approval to expand its Trans Mountain pipeline system to 890,000 barrels per dayof capacity from 300,000 bpd.
Canada’s National Energy Board ratified commercial aspects of the proposal,rejecting claims by Suncor Energy and Total E&P Canada that the company wastrying to squeeze monopoly profits from the industry by raising the price of ship-ping crude to the Pacific coast.
Ian Anderson, president of Kinder Morgan’s Canadian operations, said in aprepared statement that his company now has the necessary economic certainty togo prepare a formal regulatory application for the C$5.4 billion project.
“We look forward to working with the new British Columbia government andwill remain committed to listening to questions and concerns as we develop ourapplication to file with the NEB later this year,” he said.
Suncor argued during hearings in February that Kinder Morgan’s U.S. parentwas leveraging its position as owner of the only Pacific outlet for Canadian crudeto earn an “excessive” return on equity.
Kinder Morgan said it needed a higher return in exchange for bearing risks ofpotential cost increases during construction and operation.
Rail, alternative pipelinesThe federal regulator said existing pipeline constraints and deteriorating
returns for oil sand producers gave Kinder Morgan an edge in negotiating con-tracts with potential shippers, but it stopped short of endorsing Suncor’s position.
“The fact that shippers are using rail and alternative pipelines suggests that,based on actual market behavior, these are alternatives to the Trans Mountainpipeline,” the NEB said, observing that Kinder Morgan “did not use market powerto abuse a potential dominant position to negotiate tolls.”
The verdict allows the pipeline operator to submit a detailed facilities applica-tion to regulators, which would see Port Metro Vancouver be transformed into amajor tanker terminal for Canadian crude — a prospect that is heatedly opposedby British Columbia’s New Democratic opposition party, municipal councils inthe Greater Vancouver area, First Nations and environmentalists.
The International Energy Agency said in a new study that North America isdestined to displace OPEC as the driver of global oil supply growth later thisdecade.
Pipelines projected after 2018But it said pipelines to carry oil sands crude to the Pacific coast would not be
built before 2018, beyond the targeted in-service dates set by Kinder Morgan andEnbridge.
Antoine Halff, head of the IEA’s oil industry and markets division, said that“given the capital requirements, the lead times in construction, the permittingprocess, large-scale pipeline development to the West Coast may be more likelybeyond five years.”
Following a third open season in late 2012, Trans Mountain has received firm15- and 20-year commitments from 13 shippers for 707,500 bpd, of which588,000 bpd is directed to the Westridge dock in Port Metro Vancouver and119,500 bpd to land destinations.
The remaining 20 percent or 180,000 bpd of would be reserved for uncommit-ted volumes.
Based on initial estimates, the indicated firm service toll for a 20-year contractfor transporting less than 75,000 bpd from Edmonton to Westridge would beC$4.80 per barrel for heavy oil and C$4.73 for light oil.
—GARY PARK
effect of shutting out oil explorers perma-nently.
Parnell’s exploration proposal, laid outin a highly detailed 187-page document,drew rapid and mixed reaction.
“This is a great move by the governor,”said state Rep. Eric Feige, R-Chickaloon,who co-chairs the House ResourcesCommittee. “We must have a definitiveidea of what resources are available inANWR.”
“Having modern, 3-D seismic informa-tion in hand can help inform the debate,”said U.S. Sen. Mark Begich, D-Alaska.
The Wilderness Society’s Alaskaregional director, Nicole Whittington-Evans, said the proposal “defies the will ofthe American people.”
A snubbed alternativeA forthcoming new management blue-
print for ANWR, known as the “compre-hensive conservation plan,” motivatedParnell and his natural resources commis-sioner, Dan Sullivan.
The U.S. Fish and Wildlife Service,landlord for the refuge, released a draft ofthe plan in August 2011. It featured sixalternatives, ranging from no changes torecommending huge new chunks ofANWR, including the coastal plain, forwilderness designation.
Alaska political leaders questioned whythe agency was even considering newwilderness designations. And Parnell andothers were perturbed that no oil and gasalternative was included in the draft.
The Fish and Wildlife Service is expect-ed to release its final management plan anytime now. That step had been on hold as theInterior Department transitioned to newleadership under Jewell.
Parnell’s exploration proposal essential-ly stands as a seventh alternative for ANWRmanagement.
Sullivan touted the exploration proposalat a press event May 20 at the U.S. Chamberof Commerce in Washington, D.C.
He had support at the event fromCharlotte Brower, mayor of the NorthSlope Borough, and Rex Rock, chief exec-utive of Arctic Slope Regional Corp.
The exploration proposal is a seven-yearprogram to acquire high-quality, 3-D seis-mic data from across the coastal plain, fol-lowed by drilling on the best identifiedprospects.
The environmental impact would benegligible, Sullivan said, because all thework would be done exclusively in winterwhen the fragile tundra is safely frozen,when ice roads and pads could be built tosupport equipment, and when the area isrelatively devoid of wildlife such as cari-bou.
Sullivan called it “a modest proposal” tolearn what everyone should want to know:the true oil and gas potential of the coastalplain, and its potential for helping thenation and Alaska.
Updating old dataThe 15-million-acre coastal plain, also
known as the 1002 area, has been criss-crossed before to gather seismic data. Butthis was in the mid-1980s, using outmoded2-D technology.
Only one exploratory well, the ChevronKIC No. 1, has been drilled within the 1002area. Results of that well remain secret.
The government’s most recent petrole-um assessment for the 1002 area was pre-pared in 1998 by the U.S. GeologicalSurvey. The study estimated between 4.3billion and 11.8 billion barrels of technical-ly recoverable oil could be within the 1002area.
That’s a great deal of oil. But the Parnelladministration evidently believes that aseismic survey using advanced 3-D tech-nology, followed by the drilling of severalwells, could very well prove up a muchmore tantalizing resource base.
If only access to the area can be won.“The debate over the opening of the
1002 Area has been ongoing for decades,and we are using data just as old,” the open-ANWR lobby group Arctic Power said in astatement endorsing the Parnell proposal.“If we want to have a fully formed discus-
sion over the merits of oil and gas explo-ration in potentially one of the largestreserves of conventional North Americanoil and gas, then we need to use the mostmodern of technology to provide us all withthe best possible data.”
Alaska Congressman Don Young, whoin 2008 turned back Parnell’s challenge inthe Republican primary, and dubbed him“Capt. Zero,” thanked the governor for his“continued leadership” on the ANWRissue.
Young said Parnell’s proposal offers“yet another chance for the ObamaAdministration to commit to develop oiland gas on federal land.”
Seismic and drilling detailsThe exploration proposal lays out “one
plausible scenario” for conducting seismicand drilling operations on the coastal plainto “definitively establish the area’s oil andgas resource endowment.”
The proposal has three phases: seismicsurveys, planning and permitting, andexploratory drilling.
The seismic survey phase would coverthree years, acquiring up to 3,305 squaremiles of 3-D data. It would focus first onthe western coastal plain, particularly theUndeformed area.
“This area should have the highest prior-ity for investigation because of assumptionsof reservoir quality, likely oil charge char-acteristics, and proximity to existing infra-structure to the west,” the proposal says.
Seismic work would progress to areasfarther south and west, including the MarshCreek area, the Hulahula area, the Jagoarea, and the Sabbath area.
The Hulahula area, in the central coastalplain, contains a subsurface structuraldepression called the Hulahula Low.
“This area preserves some of theyoungest and best potential reservoir sand-stones on the coastal plain, and is interpret-ed to be a key ‘kitchen,’ or area where oiland gas has been generated from sourcerocks,” the proposal says.
To help fund the seismic program,Parnell said in his letter to Interior SecretaryJewell that he’d request up to $50 millionfrom state legislators during their 2014 ses-sion. Parnell recommended the USGS con-duct the 3-D seismic program in conjunc-tion with the Alaska Division of Geologicaland Geophysical Surveys.
“We would of course need a positiveindication that the federal governmentwould want to partner with the State ofAlaska on such a seismic program beforesubmitting a budget request to ourLegislature at the end of the year,” Parnellwrote.
Sullivan said the survey data would beavailable publicly.
Following the seismic survey phase,Parnell’s exploration proposal would moveinto the planning and permitting phase, andthen into the exploratory drilling phase.
The proposal calls for drilling up to 16wells on 14 key prospects with four rigsworking over four winter seasons.
A map shows hypothetical drilling loca-tions.
“The State’s proposal is a way forward,”the document concludes. “At the end of theexploration program, Congress, the State,industry, and the public will all know whatoil and gas resources are available under the1002 Area. This will allow Congress tomake an informed decision regarding anarea that has been under debate since the1980s.”
Petroleum News asked the Fish andWildlife Service for comment.
“We really have no position on Gov.Parnell’s proposal,” agency spokeswomanCathy Rezabeck said. �
20 PETROLEUM NEWS • WEEK OF MAY 26, 2013
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