page7

Enbridge sends mixed messages onAlaska natural gas pipeline

Vol. 12, No. 31 • www.PetroleumNews.com Published weekly by Petroleum Newspapers of Alaska Week of August 5, 2007 • $1.50

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

● N A T U R A L G A S

● G O V E R N M E N T

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

4 Canada units 'abysmal' for drillers: Utilization of coun-

try’s 857 rigs was 42% in first half of year compared to 66% in 2006

5 State of Alaska issues Cook Inlet leases: Wait is over(and take so long again) for bidders at May 2006 areawide sale

7 Closing set on Forest’s Alaska assets: Amendment tosale with Pacific Energy Resources extends closing to Aug. 24

Tesoro stations tug at Nikiski

Pictured above is Crowley Marine’s tractor tug Valor, the twin tothe Vigilant that Tesoro will be stationing year-round at Nikiski.See story on page 5.

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Tough times for Mackenzie line TransCanada is eager to build its interest in the Mackenzie

Gas Project, but for now is preoccupied with the spectrum ofcomplex issues that have to be overcome for the project to goahead, Chief Executive Officer Hal Kvisle said.

“In any pipeline project we’re involved in, we’d ratherhave a larger interest than a smaller one,” he told analystsJuly 27.

But the more pressing matter for now is the focus on“building a major basin-opening pipeline that will benefitCanada and the core producers and set the stage for a lot ofexploration and production activity long term,” Kvisle said.“That’s a very complex thing.”

He said it is challenging for the core producers (ImperialOil, Shell Canada, ConocoPhillips Canada and ExxonMobilCanada) to press ahead with the project when many otherstakeholders stand to benefit from the undertaking.

Oil sands grinddown doubter BP;Alaska explorationbuzz baseless, saysBP; Palin calls PPTspecial session

BP LIKES SPREADING THE MES-SAGE that its initials stand for BeyondPetroleum.

How about Behind our Peers?Well, that was the case until this year when the global

supermajor decided to clamber aboard the oil sands wagon.In its highly regarded yearly Statistical Review of World

Energy, BP credited the Canadian oil sands with holding

see MAC LINE page 17

Push to protect planet North American free trade partners sign alternative energy agreement

By GARY PARKFor Petroleum News

he United States, Canada andMexico — the big energy user inNorth America and its two leadingsuppliers — have moved another

step closer to lowering trade barriers tocleaner, alternative energy development.

In a five-year pact signed July 23 inVictoria, British Columbia, the three part-ners in the North American Free TradeAgreement pledged cooperation to pro-mote more energy-efficient technology,including joint research in areas such asnuclear energy and renewable fuels to

bolster the continent’s energy securitywhile protecting the environment.

U.S. Energy Secretary SamuelBodman said the agreement reaffirms thecommitment to build a strong, unifiedenergy market among the three countries.

“It represents another step ? webelieve a major step ? toward enhancingglobal energy security and environmentalprotection,” he said.

Canada’s Natural Resources MinisterGary Lunn said the three governmentsunderstand the “importance of develop-ing cleaner energy (along with) more effi-cient ways to produce it and use our con-

Bodman and LunnrejectedConocoPhillips CEOJim Mulva's sugges-tion to considerbaseline pricing,such as $60 per bar-rel for oil.

T

see PROTECT page 19

see INSIDER page 17

FERC can’t force expansionCourt upholds rules regulating Alaska gas line, while quieting owners’ fears

By ROSE RAGSDALEFor Petroleum News

federal appeals court rejected an effort July27 by three major gas owners in Alaska tooverturn two rules governing access to apotential multibillion-dollar pipeline that

would transport natural gas from the North Slopeto the Midwest.

But the import of the decision by the U.S. Courtof Appeals for the District of Columbia Circuitmay actually be good news for BP, ConocoPhillipsand ExxonMobil. The three companies, which pro-duce most of Alaska’s oil and lease a large chunkof the North Slope acreage with known gasreserves, have been insistent that they own major-ity interest in a gas pipeline from the North Slope.

Alaska has struggled for decades to develop itsabundant natural gas resources in the Arctic —estimated to exceed 100 trillion cubic feet ofrecoverable reserves and nearly 40 tcf in recover-able known reserves — by trying to strike a dealwith either gas owners or with independentpipeline companies for construction of the project.

In a 12-page opinion written by ChiefJudge Douglas H. Ginsburg on behalf of athree-judge panel in the consolidated case,

the appeals court found that the gasowners misinterpreted the two rules in

question.

A

see FERC page 15

Two steps closerShell, whalers sign agreement, Beaufort Sea ACMP determination final

By ALAN BAILEYPetroleum News

hell can check two more items offits to-do list for its planned 2007Beaufort Sea drilling program. OnJuly 24 the company finally signed

a conflict avoidance agreement with theAlaska Eskimo Whaling Commission forthe company’s 2007 open water explo-ration program. And on July 27 the com-missioner of the Alaska Department ofNatural Resources, Tom Irwin, upheldthe Office of Project Management &Permitting’s Alaska Coastal ManagementPlan consistency determination, subject to some

new conditions.Shell plans to drill three wells in its

Sivulliq prospect on the western side ofCamden Bay during the 2007 open waterseason and has commissioned twodrilling vessels, the Kulluk and theFrontier Discoverer, plus a fleet of sup-port vessels for the drilling program.

But Native communities on the NorthSlope are concerned about the potentialfor the industrial activities to disrupt theannual subsistence hunt for marine mam-mals, in particular bowhead whales. Thehunters think that industrial noise woulddeflect the whales from their normal

SOn July 27 AlaskaDNR CommissionerTom Irwin upheldthe ACMP consisten-cy determination,subject to somenew conditions.

see CLOSER page 19

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

2 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

GOVERNMENT

PIPELINES & DOWNSTREAM

LAND & LEASING

FINANCE & ECONOMY

NATURAL GAS

ALTERNATIVE ENERGY

9 Gravel use presents technical challenges

Oil industry, regulators join forces to meet challenges on Alaska’s North Slope, convert abandoned mines into fish, waterfowl habitat

8 Woodside OKs Pluto LNG, setting budget

Project will tap offshore field near northwest Australia to deliver energy to Japanese utilities, perhaps as early as 2010

6 Lunn prods Bodman on pipeline approvals

Canadian cabinet minister presses U.S. counterpart to speed up regulatory process; NEB warns pipeline rationing could hit this fall

4 Canada units ‘abysmal’ for drillers

Utilization country’s 857 rigs was 42% in the first half of the year compared to 66% in same period in 2006, lowest since 1999

13 Triple play in Canada’s oil sands

Royal Dutch Shell launches 400,000 bpd upgrader plans; Marathon bids to acquire Western Oil Sands and enter upstream

EXPLORATION & PRODUCTION

7 New Aug. 24 date set for closing Forest Alaska sale

7 Enbridge sends mixed messages on gas line

5 Tesoro stations year-round tug at Nikiski

6 Public comments on NPDES due Aug. 6

5 Alaska agency issues Cook Inlet leases

14 Gas shut-in to conserve bitumen

20 Begging to differ on oil sands

12 Industry responds to proposed NPR-A regs

14 State approves West Sak PA expansion

15 New data issued for North Slope, Beaufort Sea areawide lease sales

12 Denali funds Yukon River hydropower

Tough times for Mackenzie gas pipeline

ON THE COVERTwo steps closer

Shell, whalers sign agreement, Beaufort Sea ACMP determination final

FERC can’t force expansion

Court upholds rules regulating Alaska gas line, while quieting owners’ fears

Push to protect planet

North American free trade partners sign alternative energy agreement

1 Oil sands grind down doubter BP

17 Business as usual for BP in Alaska, explorationrumors just that — rumors

17 Palin calls special session of Alaska Legislatureto review new Petroleum Profits Tax

OIL PATCH INSIDER

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 3

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

Alaska Rig StatusNorth Slope - Onshore

Akita Drilling Ltd.Dreco 1250 UE 63 (SCR/TD) Racked in Deadhorse Anadarko

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Moving to workover Prudhoe Bay well BP

N-12Sky Top Brewster NE-12 15 (SCR/TD) Kuparuk 1J-162 ConocoPhillipsDreco 1000 UE 16 (SCR/TD) Workover Prudhoe 7-08A BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD4-322 ConocoPhillipsOIME 2000 141 (SCR/TD) West Sak 1J-122 ConocoPhillipsTSM 7000 Arctic Fox #1 Stacked in Yard Pioneer Natural Resources

Arctic Wolf #2 Racked at Cape Simpson FEX

Kuukpik 5 Stacked in Deadhorse Available till Available1/15/08

Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay AvailableDreco 1000 UE 2-ES Prudhoe Bay F-01A BPMid-Continental U36A 3-S Milne Point E-18 BPOilwell 700 E 4-ES (SCR) Prudhoe Bay DS 01-15A BPDreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay DS 12-05A BPDreco 1000 UE 9-ES (SCR/TD) Polaris S-125 BPOilwell 2000 Hercules 14-E (SCR) Stacked AvailableOilwell 2000 Hercules 16-E (SCR/TD) Stacked AvailableOilwell 2000 17-E (SCR/TD) Stacked, Point McIntyre AvailableEmsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse AvailableOIME 1000 19-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point AvailableEmsco Electro-hoist 28-E (SCR) Stacked, Deadhorse AvailableOIME 2000 245-E Oliktok Point OPi2 AnadarkoEmsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Stacked

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay well G-25B BPSuperior 700 UE 2 (SCR/CTD) Kuparuk well 05-28B BPIdeco 900 3 (SCR/TD) Kuparuk well 2N-327 ConocoPhillips

North Slope - OffshoreNabors Alaska DrillingOilwell 2000 33-E Stacked

Cook Inlet Basin – OnshoreAurora Well ServiceFranks 300 Srs. Explorer III AWS 1 Stacked at Nikiski Available

Marathon Oil Co. (Inlet Drilling Alaska labor contractor)Taylor Glacier 1 Grassim Oskolkoff No. 6 Marathon

Nabors Alaska DrillingNational 110 UE 160 (SCR) Stacked, Kenai AvailableContinental Emsco E3000 273 Stacked, Kenai AvailableFranks 26 Stacked AvailableIDECO 2100 E 429E (SCR) Stacked, removed from Osprey platform AvailableRigmaster 850 129 Swanson River SRU 41-05 Chevron

Rowan CompaniesAC Electric 68 (SCR/TD) Being moved from Texas Pioneer Natural Resources

for drilling at Cosmopolitan

Cook Inlet Basin – Offshore

Unocal (Nabors Alaska Drilling labor contractor)Not Available

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

Alaska Interior

Cudd Pressure ControlCudd 340k Jack Unit Workover Ahtna #1-19 Rutter and Wilbanks

Mackenzie Rig StatusCanadian Beaufort Sea

Seatankers (AKITA Equtak labor contract)SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Devon ARL Corp.

Mackenzie Delta-OnshoreAKITA EqutakDreco 1250 UE 62 (SCR/TD) Rig Racked in Inuvik, NT Schlumberger

Modified National 370 64 (TD) Racked in Inuvik, NT Available

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of August 2, 2007.

Active drilling companies only listed.

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

This rig report was prepared by Alan Bailey

Baker Hughes North America rotary rig counts*July 27 July 20 Year Ago

US 1,775 1,790 1,714Canada 371 377 547Gulf 78 77 91

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

*Issued by Baker Hughes since 1944

The Alaska - Mackenzie Rig Report is sponsored by:

JUD

Y P

ATR

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By GARY PARKFor Petroleum News

abors, Baker Hughes and PrecisionDrilling Trust are among thosepointing fingers at Canada.

The three oilfield service giantsspread more gloom over an already floun-dering upstream sector by posting dismalresults for the second quarter in WesternCanada and offering no hope of an earlyrecovery.

Baker Hughes reported the number of

its rigs at work in Canada fell 51 percentin the quarter from a year earlier, warningthat a “significant deterioration” of activ-ity and profitability would take a chunkout of its profits.

Nabors reported an US$8 millionoperating loss in its Canadian unit andChief Executive Officer Gene Isenbergducked efforts to have him predict when arebound might occur.

While forecasting 50 percent overseasgrowth for Nabors, he described theCanadian market as “abysmal.”

Precision Drilling, which runs aboutone-third of all rigs in Canada, choppednearly 25 percent off its 2007 drillingforecast.

It said poor weather and uncertaintyover the economics of gas drilling inWestern Canada have forced some of itscustomers — which include EnCana,Canadian Natural Resources andTalisman Energy — to restrict theirspending.

EnCana Chief Executive OfficerRandy Eresman told analysts July 25 thatthe recent slide in gas prices, after a short-term recovery, “suggests we may be in forsome bumpy prices near-term, but overallwe remain bullish on natural gas.”

Precision’s executive Chairman HankSwartout told analysts he is “bearish”about the remainder of 2007 and early2008, but is confident that the trust willhandle the turbulence.

“We’ve done it before, we’ll do itagain,” he said, but warned it will take sixstraight months of strong natural gasprices to trigger a recovery and he does-n’t see that happening until 2008.

“At some point it has to turn,”Swartout said. “But there will be a lot ofpain to get to that point.”

Petroleum Services Association does course correction

With gas producers sucking wind thesedays, the Petroleum Services Associationof Canada has done a sharp course correc-tion.

It now forecasts 17,650 well comple-tions across Canada this year, 20 percentbelow its original forecast for the year and a24 percent decrease from last year’s 23,306.

The biggest losers among the provinceswill be British Columbia down a stunning42 percent from last year at 795 wells,Manitoba off 17 percent at 440 wells andAlberta in a 17 percent plunge to 12,815wells, with Saskatchewan expected torecord a 7 percent decline to 3,520 wells.

Other forecasters are less pessimistic,

with the Canadian Association of OilwellDrilling Contractors targeting 18,961wells and FirstEnergy Capital shooting for19,300 wells.

PSAC based its revised forecast onaverage 2007 prices of US$65 per barrelWTI and C$6.75 (US$6.41) per thousandcubic feet of gas at the AECO hub.

PSAC President Roger Soucy saidmany areas of the Western CanadaSedimentary basin need gas prices of C$8-$10 to attract new drilling.

“The further we go into the year theless likely any turnaround will occur,” hesaid.

Utilization of Canada’s 857 rigs was 42percent in the first half, the lowest since1999 and dragging well behind last year’s66 percent. By some estimates, the rateslumped to 18 percent in the second quar-ter.

The level of unhappiness with WesternCanada was reflected in remarks to ana-lysts by Ron Brenneman, chief executiveofficer of Petro-Canada. Despite theimpact of low natural gas prices on assetvalues, his company did not regardWestern Canada as an expansion area.

Instead, Petro-Canada will shift itsfocus to the U.S. Rockies, where currentproduction of 80 million cubic feet per dayis expected to reach 100 million cubic feetper day by the end of 2007, althoughpipeline availability could hamper that,Brenneman said. ●

4 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

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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

Canada units ‘abysmal’ for drillersUtilization country’s 857 rigs was 42% in the first half of the year compared to 66% in same period in 2006, lowest since 1999

The level of unhappiness withWestern Canada was reflected in

remarks to analysts by Petro-Canada CEO Ron Brenneman, whosaid his company will shift its focusto the U.S. Rockies, where currentproduction of 80 million cubic feetper day is expected to reach 100million cubic feet per day by theend of 2007, although pipelineavailability could hamper that.

N

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 5

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

Tesoro stations year-round tug at NikiskiBy ALAN BAILEYPetroleum News

esoro Alaska announced July 30 that it will positionyear round a tractor tug at the Nikiski dock on thewest side of Alaska’s Cook Inlet. The dock servestankers bringing crude oil to Tesoro’s Nikiski oil

refinery, as well as tankers that ship out refinery prod-ucts.

“We are making this investment for Tesoro Alaskabecause positioning a tractor tug at Nikiski on a year-round basis is an additional enhancement to our safetyand environmental programs,” said Captain TimPlummer, president of Tesoro Maritime. “It is a majornew commitment to the community, our employees, thestate, Coast Guard and marine vessels and barges, of theemphasis we place on safety and the environment.”

In February 2006 the tanker Seabulk Pride, undercharter to Tesoro, ran aground on mud flats north ofNikiski after wind and tide-driven ice in the Cook Inlethad plucked the tanker from the dock at Nikiski, break-ing all 16 mooring lines in the process. Although the

tanker was refloated a day later without the significantspillage of any oil products or serious damage to the ves-sel, the rescue depended on the use of tugs from Seldoviaand Anchorage, both several hours sailing time from thesite of the grounding.

That incident heightened concerns over the need for atug to be positioned at the Nikiski dock.

Winter supportIn January 2007 Tesoro contracted the Protector, a

5,500-horsepower tractor tug, operated by CrowleyMarine, for emergency support at Nikiski during thewinter. In addition to being stationed at Nikiski where itcould provide immediate assistance for dock operations,this tug was much more powerful than tugs stationed at

other ports around the Cook Inlet.Tesoro has now decided to station a tug at Nikiski

year round and is working with Crowley Marine to mod-ify a new 6,700-horsepower, Z-drive tractor tug, theVigilante, for the purpose. Modifications include icestrengthening.

Operated by Crowley Marine, the Vigilante will gointo service at Nikiski in early November, with theProtector remaining on station until then. The new tugwill primarily support Tesoro’s operations but will beavailable for other uses as scheduling allows, Tesorosaid.

“We have effectively utilized the dedicated tractor tugand are pleased to continue this level of support to ourAlaska operations,” said Steve Hansen, Kenai refinerymanager.

Praise from RCACCook Inlet Regional Citizens Advisory Council, a

watchdog group for shipping and the oil industry in theCook Inlet, praised Tesoro’s action.

“Tesoro isn’t the only company that will benefit fromhaving a tug in the area and they should be commendedfor implementing this navigational safeguard that isabove and beyond regulatory compliance,” said CookInlet RCAC Executive Director Michael Munger.“Citizens have wanted this kind of protection for a longtime and we’ve been diligent bringing about this changefor them. Tugs play a role everywhere that oil tankersport in the U.S. and it’s time Cook Inlet saw similar safe-guards.” ●

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● L A N D & L E A S I N G

Alaska agency issues Cook Inlet leasesBy ALAN BAILEYPetroleum News

he long wait is over for people who made successfulbids at the State of Alaska’s May 2006 areawide leasesale. Alaska’s Division of Oil and Gas mailed the leas-es on July 30 for signature by the bidders, Kathy

Means, natural resource manager for DO&G lease salesand lease administration unit, told Petroleum News on July31.

Denise Stone, exploration adviser for Benchmark Oiland Gas, one of the lease sale bidders, told PetroleumNews July 25 that Benchmark’s Cook Inlet explorationwas in something of a holding pattern while the companywaited for the leases (see “Benchmark gathering data;waiting on leases” in the July 29 edition of PetroleumNews).

So how come it has taken well over a year to issue theleases?

Title work after the saleKevin Banks, acting director of DO&G, told Petroleum

News July 31 that because the division offers all land avail-

able for lease in an areawide sale, itdoesn’t verify the land title and com-plete the legal descriptions of theleased land until after bids have beenaccepted at the lease sale. In somecases, tracts that have been bid mayinclude some land parcels that havealready been leased, Banks said.

And that land title and surveywork takes a substantial amount oftime.

In a traditional lease sale, as dis-tinct from an areawide sale, the divi-sion performs all the tract surveyand title work prior to the sale, forthe tracts that the division has decid-ed to offer. It can then issue leases tosuccessful bidders within weeks ofthe sale. But the problem with thatapproach is that companies can only bid on those tracts thatthe division offers at the sale and the division has to per-form the survey and title work on all of the tracts offered,regardless of whether anyone ultimately leases the tracts.

Experienced staff shortagesShortages of experienced staff at the division have

slowed the processing of the title work for tracts bid on inthe areawide sales, Banks said. And the fact that the lastareawide sale attracted a high number of leases in areaswith complex land ownership issues compounded theproblems, Means said.

Banks said that, although it will always take some timeto process leases after an areawide sale, the recent delaysare unacceptable.

“It should not have to be 12 months,” he said.And, in addition to dealing with the issues of staff inex-

perience, Banks think that there is scope for streamliningthe lease issue procedures.

“We’re catching up. … I think we need to be more cre-ative about our procedures, to see just where are those bot-tlenecks that we can widen,” Banks said.

However, the division does have to face the fact thatmany of its most experienced staff are approaching retire-ment age — 30 percent of the staff is reaching an agewhere people can decide whether to leave, Banks said. Thedivision needs to plan for that issue, he said. ●

T… although it willalways take sometime to process leas-es after an areawidesale, the recentdelays are unaccept-able. “It should nothave to be 12months.” —KevinBanks, acting direc-tor, Division of Oiland Gas

Crowley Marine’s tractor tug Valor, the twin to the Vigilantthat Tesoro will be stationing at Nikiski

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Tesoro has now decided to station a tug atNikiski year round and is working withCrowley Marine to modify a new 6,700-

horsepower, Z-drive tractor tug, the Vigilante,for the purpose. Modifications include ice

strengthening.

By GARY PARKFor Petroleum News

anadian Natural Resources Minister Gary Lunndecided it was time to put some pressure on theUnited States.

At a summit of the top energy officials from theUnited States, Canada and Mexico on July 23, Lunn tookthe chance to buttonhole U.S. Energy Secretary SamuelBodman over what he perceived as Washington’s foot-dragging on approvals for new oil sands pipelines fromAlberta to U.S. markets.

His concern was reinforced July 27 when the NationalEnergy Board said it may have to start rationing space onexport pipelines this fall because of galloping oil sandsproduction.

“It is likely that export crude oil pipelines out ofWestern Canada may experience periods of apportion-ment by the fourth quarter 2007 and this may continuefor the next 18 months,” the federal regulator said.

Acting board Chairman Gaetan Caron was emphaticthat “capacity constraints on oil pipelines in Canada arecoming.”

David MacInnis, president of the Canadian EnergyPipeline Association, said that unless new pipelines arebuilt by 2009 some production may be shut-in.

Producers already facing apportionmentHe said producers are already facing apportionment at

times on some lines and those limits will become morecommonplace.

If producers are not able to move all of their volumeson an ongoing basis there could be an impact on prices,MacInnis said.

The board report was at odds with a study released inJune by the Canadian Association of PetroleumProducers, which said there is enough pipeline capacityin place or being built to handle projected output increas-

es until 2012.But it said now is the time to

start working on a new round ofexpansion, given the lead timeneeded for regulatory approvalsand construction.

The trilateral meeting inVictoria, British Columbia, was achance for Lunn to tweak Bodmanin advance of any cross-border reg-ulatory action relating to naturalgas pipelines from the North Slopeand Canada’s Mackenzie Delta.

He served notice of his unhappi-ness prior to the Victoria summit bytelling the Globe and Mail he would seek speedier regu-latory review of TransCanada and Enbridge pipelinesdesigned to add 1 million barrels per day of new exportvolumes by 2010.

“We need to look at the regulatory approval processto make sure it is done as quickly and efficiently as pos-sible,” Lunn said.

Without getting into the specifics, he said Canada, theleading external supplier of crude to the U.S. since 2004and poised to rapidly expand that share of the market,“wants to ensure there is greater access” to southern cus-tomers.

He said the U.S. industry is just as eager to free up thelogjam at the U.S. federal, state and local levels andstreamline approvals to get additional crude flowing at atime when the U.S. is anxious to lower its reliance on theMiddle East.

Earlier in July, Lunn said Canada was taking its ownsteps to build investor confidence by facilitatingapprovals for projects adding to the C$100 billion worthof energy products it currently ships to the U.S. eachyear.

“Our goal is to cut approval time in half,” he said.

“We’re open for business; we want to attract investmentfrom all corners of the world.”

Mulva cited regulatory roadblocksLunn found an ally in ConocoPhillips Chief Executive

Officer James Mulva who said in June that his compa-ny’s hopes of modifying its refineries to handle heaviercrudes from Canada have encountered regulatory road-blocks.

“We are having a tough time getting permits,” he said.The Canadian Association of Petroleum Producers

and the Canadian Energy Pipeline Association have donetheir own leaning on Washington over the last five yearsto make sure Washington has sufficient staff and fundingto handle its expanded regulatory role.

Speaking at a news conference, Bodman assuredLunn that the U.S. government takes his concerns seri-ously.

But Bodman also quietly pointed out that the primarytask of evaluating and permitting pipelines from Canadarests with the State Department, although his own depart-ment is working with State to ensure the regulatoryprocess functions “efficiently and effectively.”

“I’m of the view that things seem to be on track,”Bodman said. “As we stand here, I don’t think we have amajor issue,” he said, in a gentle rebuke directed at Lunn.

However, Lunn said he and Bodman are committed toworking together to create efficiencies within the regula-tory system and attracting the investment needed forpipeline infrastructure. ●

6 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

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

Lunn prods Bodman on pipeline approvalsCanadian cabinet minister presses U.S. counterpart to speed up regulatory process; NEB warns pipeline rationing could hit this fall

C“We are having atough time gettingpermits.” —ConocoPhillipsChief ExecutiveOfficer James Mulva

The trilateral meeting in Victoria, BritishColumbia, was a chance for Lunn to tweak

Bodman in advance of any cross-borderregulatory action relating to natural gas

pipelines from the North Slope and Canada’sMackenzie Delta.

GOVERNMENTPublic comments on NPDES due Aug. 6

The Resource Development Council of Alaska sent out notices in late July, remind-ing members that comments on development of Clean Water Act national pollutantdischarge elimination system permits are due Aug. 6. The U.S. EnvironmentalProtection Agency is seeking information from the general public as it considers howto develop NPDES permits incidental to the normal operation of vessels.

RDC said there are an estimated 143,000 commercial vessels and more than 13million privately registered recreational boats that could be affected. “The time andexpense incurred by these vessel operators would be significant, with little or no ben-efit to the environment,” RDC said.

These vessels have been exempt from the Clean Water Act, but due to a U.S.District Court ruling, EPA must now require a discharge permit for all U.S. watersbeginning Sept. 30, 2008. EPA is appealing the ruling.

Comments are due to EPAAug. 6. RDC said background information, informationon where to submit comments and links to additional information are available on itsWeb site: www.akrdc.org/alerts/2007/epavesseldischarge.html.

By GARY PARK & KAY CASHMANFor Petroleum News

nbridge has told Alaska Gov. SarahPalin and the state that it won’t be partof any process to build an Alaska gaspipeline that does not have backing of

the North Slope resource owners, ChiefExecutive Officer Pat Daniel said in a con-ference with analystsAug. 1. He said theprocess under theAlaska GaslineInducement Act,AGIA, “won’t workeffectively” unless ithas the support of BP,ConocoPhillips andExxonMobil.

Daniel’s message“is consistent” withEnbridge’s public message throughout theAGIA process, Alaska Commissioner of theDepartment of Revenue Pat Galvin toldPetroleum News Aug. 2.

But Galvin found the timing of Daniel’sstatements “curious … because we are withthe governor in Juneau today to participatein a meeting requested by Enbridge. Wehave been told by representatives ofEnbridge that they want to express theirexcitement for the project,” he said in an e-mail to Petroleum News.

But Galvin wasn’t surprised by Daniel’sremarks. “AGIAis a competitive process, sowe can expect, and in fact we are seeing, alot of misdirection and misinformation float-ed around,” he said. “We probably won’tknow until the application deadline what theparties true intentions may be.”

Daniel said Enbridge officials “continueto advise the governor and the state that

unless they can get aconsortium of pro-ducers together to fileunder the AGIA wewon’t be a participantin the process.”

He said his infor-mation is that to datethere is “not a lot ofactive interest for try-ing to mount a projectwithout producers’

support.”Prior to introduction of AGIA, Enbridge

had lobbied intensively to take a role in anAlaska pipeline, challenging the claims byrival TransCanada that it had exclusiverights to build any section of the line cross-ing Canadian territory.

Enbridge officials told the AlaskaLegislature during hearings earlier this yearthat the company would not participatewithout the producers (see “Enbridge saysgas a must” in March 25 issue of Petroleum

News). Enbridge is also seen as the leading con-

tender to build and operate a natural gas liq-uids pipeline as part of the Mackenzie GasProject. That line would extend from theMackenzie Delta to Norman Wells in theNorthwest Territories, where it would tie inwith an existing crude pipeline to northernAlberta. TransCanada is the front-runner to

build the main gas pipeline along theMackenzie Valley.

But Daniel said the Mackenzie GasProject, like the Alaska project, is not “mov-ing at the pace we would like to see,” giventhe need by consumers to see the gas comeon stream, because so little new gas has beendelivered to North American markets “insome time.” ●

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 7

● N A T U R A L G A S

Enbridge sends mixed messages on gas line

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PAT DANIEL PAT GALVIN

FINANCE & ECONOMYNew date set for closing Forest Alaska sale

Forest Oil Corp. said Aug. 1 that an amendment to its agreement to sell its Alaskaassets to Pacific Energy Resources Ltd. has extended the closing date to Aug. 24. Whenthe sale was announced at the end of May, it was expected to close at the end of June.

Asked about the delay in mid-July, Pacific Energy told Petroleum News that it wasstill negotiating “detailed terms” with Forest. The sale includes Forest’s wholly ownedsubsidiary, Forest Alaska Operating, including shares in nine Cook Inlet basin fields, a40 percent interest in Cook Inlet Pipeline Co., and almost 1 million exploration acresin the Cook Inlet and Susitna basins of Southcentral Alaska.

Under the terms of the amendment Forest will receive cash of $268 million to repaythe full balance of the Forest Alaska Operating term loans; cash of $132 million to bepaid to Forest; 10 million shares of Pacific common stock; and a $60.75 million zero-coupon senior subordinated note from Pacific due 2014.

In addition to extending the closing date to Aug. 24, Forest said the amendment alsoprovides for a deposit of 5 million shares of Pacific common stock in addition to the$5.2 million cash already received and “substantially reduces the circumstances underwhich the closing would not occur.”

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By ALLEN BAKERFor Petroleum News

oodside Petroleum Ltd. ofAustralia has approved a plan tospend US$10.5 billion to tap itsPluto offshore gas field and pro-

duce LNG for export, mostly to Japaneseutilities. The go-ahead was announcedJuly 27.

It’s a hefty chunk of money, and dou-ble the company’s low estimate suggestedjust a few months ago. But capital costshave been rising quickly in the resourceextraction sector, particularly for the kindof specialty steels and other equipmentneeded for the big LNG cooling units.

When Pluto was discovered in 2005,Woodside’s leader, Don Voelte, set anambitious timetable, and so far he’s stick-ing to it. The plan envisions first ship-ments in late 2010, just as supply-demandbalance for world LNG is expected to be

most strained, and probably most lucra-tive.

The supply situation just got eventighter, at least in the short term, with theclosure of the world’s largest nuclearpower plant, damaged by the July 16earthquake in northwest Japan. TokyoElectric Power Co. Inc. plans to shop foran additional 1 million tonnes of LNGfrom now through next March, and alsodouble its oil purchases in that period.

Work already under wayWoodside started site preparations for

the LNG plant at the beginning of thisyear, and is proceeding based on a pre-liminary approval earlier in July fromAustralia’s Environmental ProtectionAuthority. The project, near the bigWoodside-operated North West ShelfLNG plant, still needs final environmen-tal approval and other permits.

For Pluto, Woodside is getting equity

participation from two Japanese utilities,but still is retaining 90 percent of the totalproject, which already has cost more thanUS$700 million.

Pluto and a smaller satellite, Xena, areoff the northwest coast of Australia, about120 miles from Karratha. Pluto will bedeveloped initially with five big-boresubsea wells tied to a platform in about275 feet of water. A 36-inch pipeline willconnect that platform to the LNG plant onthe Burrup Peninsula.

5 tcf reserve basePluto and Xena are now expected to

yield 5 trillion cubic feet of gas, up froman earlier estimate of 4.5 tcf. That will pro-vide about 20 years of production to theplant, which is expected to send out 4.3million tonnes annually from the initialtrain. Woodside wants to add more LNGtrains at the site, and possibly a domesticgas hub, and Voelte says he’ll open itsdoors to other producers who want to mar-ket their gas through it.

The complex could take gas fromWoodside’s own Browse basin or fromother sources in the gas-prone region.Woodside just added to its explorationacreage in the area with a major permitobtained in late July in partnership withHess Corp. The permit calls for explo-ration spending of more than $170 million.

The big elephant in the neighborhood isthe Chevron-led Gorgon complex, whichholds about 40 tcf. Chevron hopes to buildits own LNG export plant on BarrowIsland, but it has run into environmentalconcerns there, as well as steadily risingestimates of the total cost. Some reportsnow put the project at nearly $20 billion inU.S. currency, a big commitment even forthe supermajors involved.

The Gorgon fields are only about 30miles from Pluto and its pipeline, but theGorgon partners want to use BarrowIsland, which has been producing oil since1964 and has potential for reinjecting thehuge quantities of carbon dioxide that arein the Gorgon gas stream. ExxonMobiland Shell are the other partners in Gorgon,discovered way back in 1981 but stillundeveloped.

Customers in JapanMost of the LNG from Pluto initially

will go to two Japanese utilities, each witha 5 percent equity stake in the project.Tokyo Gas and Kansai Electric will takeup to 3.75 tonnes annually for 15 years,about 85 percent of the first train’s produc-tion. Each company will operate one LNGtanker, while Woodside itself will leaseanother.

Contracts with the Japanese utilities areexpected to be signed within a month. Thetwo supply pacts won’t leave much excessLNG to send to the U.S. West Coast,where Woodside has proposed an LNGterminal off California that would use spe-cial ships with onboard regasifying equip-ment.

Woodside, which is one-third owned byShell, will pay for its 90 percent share ofthe project using free cash flow from oper-ations, debt issues, and a dividend rein-vestment plan. ●

8 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

● N A T U R A L G A S

Woodside OKs Pluto LNG, setting $10.5B budgetProject will tap offshore field near northwest Australia to deliver energy to Japanese utilities, perhaps as early as 2010

Most of the LNG from Plutoinitially will go to two Japaneseutilities, each with a 5 percent

equity stake in the project. TokyoGas and Kansai Electric will takeup to 3.75 tonnes annually for 15years, about 85 percent of the first

train’s production.

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By ROSE RAGSDALEFor Petroleum News

mong the most visible and enduringsigns of the oil industry’s presence onthe North Slope are the gravel roads,pads and airstrips scattered across the

tundra. While these piles of pulverized rockfrom ancient rivers appear to be as ordinaryat the gravel roads and structures crisscross-ing other populated areas of Alaska, theyactually have evolved and challenged the oilindustry for the past 30 years.

Gravel is abundant on the North Slope.Industry officials say the entire region isundermined by about 2,000 feet of frozengravel and sand once you get below 18inches of organic soils, lichens, sedges andvarious Arctic grasses.

No one knows how much gravel hasbeen mined on the North Slope, but educat-ed guesses put the amount in excess of 40million cubic yards, covering roughly10,000 acres.

That may sound like a lot, but it’s actual-ly a fraction of 1 percent of the entire 15-million-acre central North Slope and lessthan 3 percent of the operating oil fields,said Bill Streiver, environmental studiesleader for BP Exploration (Alaska) Inc.

Put in perspective, gravel infrastructureon the North Slope covers roughly twice theacreage occupied by Atlanta InternationalAirport. Moreover, these pads, roads andairstrips are scattered across an expanse thesize of West Virginia.

In the 1970s, gravel seemed to be the

answer for building and maintaining oilfield facilities in a frozen land of harshweather and harsher conditions.

But gravel, abundant and benign, stillpresented technical challenges to NorthSlope oil field operators.

ARCO Alaska Inc., for example, soonfaced a learning curve in road-grading tech-nology.

The gravel, initially mined from the bot-tom of riverbeds, was rounded rock that didnot compact well and over time, looselycompacted gravel would fall apart, creatingcracks and fissures in the roads, accordingJim Weeks, a top ARCO executive on theNorth Slope in the 1970s and 1980s.

One innovative ARCO employeethought the roads would compact and holdtheir shape better if the gravel was moreangular, Weeks said in a recent interview.

“So we bought a gravel crusher, crushedthe native gravel and no more problems,”Weeks recalled.

Riverbed gravel becomes problemMore questions about gravel use arose in

the 1980s.Regulators became concerned about the

impact of gravel mining in riverbeds onArctic fish populations though the actualexcavation occurred in winter.

“It soon became obvious that there was a

hydrological impact to rivers from this prac-tice,” said William Morris, a biologist withthe Division of Habitat Restoration of theAlaska Department of Natural Resources.“During breakup, isolated pools would beleft behind in gravel-scraped areas, creatinga problem with fish entrapment.”

Though the ultimate impact of theriverbed mining was debatable, Streiversaid the industry switched to land-based

gravel mining in the 1980s.“In the short term when we were out

there digging up the gravel in the rivers, itwasn’t good for any fish. But if you madethe river deeper, it might be better for certainspecies,” he said.

Morris said the industry’s extensive useof water taken from deep pools in the riversin winter to build ice roads and pads also

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 9

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Gravel use presents technical challengesOil industry, regulators join forces to meet challenges on Alaska’s North Slope, convert abandoned mines into fish, waterfowl habitat

A

see GRAVEL page 10

Alaska state biologists have monitored this rehabilitated gravel mine since it was converted to fish habitat in 1986. An experimental popu-lation of less than 100 Arctic grayling was established in the pond in 1989. In 2002, biologists estimated numbers of Arctic grayling inhab-iting the pond at more than 1,000 fish.

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June 20, 2007, marked the 30thanniversary of the first barrels ofNorth Slope crude flowing down the800-mile trans-Alaska oil pipeline fromPrudhoe Bay to Valdez. Looking back,it is clear that the role of technologyhas been paramount in the progressoperators and contractors have madein improving the efficiency and lessen-ing the impact of their operations onthe Arctic environment. In a series ofseven articles, Petroleum News willreport on some of the technologiesdeveloped by the dedicated and inno-vative men and women who work onthe North Slope. These articles will befollowed by “30 Strong,” a full colormagazine celebrating three decades ofNorth Slope oil production.

30 Strong

had a potentially harmful effect on fishover-wintering habitat, and could evenresult in fish kills.

Fish habitat is extremely limited in theArctic, especially in winter where tempera-tures typically drop to minus 60 Fahrenheitand up to six feet of water in most rivers,lakes and ponds freezes solid.

In summer and winter, the industry alsoencountered problems with actually suckingfish out of the water with water and gravel,Morris said.

To avoid these potential environmentalhazards, the oil companies stopped takingwater from the rivers in winter and startedusing intake screens when they pumped outwater in summer. These changes reducedhazards to fish significantly, Morris said.

Gravel mines become fish habitatLand-based gravel mining, meanwhile,

brought new challenges when all of thegravel was removed from a pit.

BP’s Streiver said DNR biologists, thena part of Alaska Fish and Game, hit upon the“clever idea” of converting the gravel pitsinto additional fish habitat.

Today, the oil industry partners with statebiologists to do just that.

“We had figured out the basics by 2000,”Morris said. “One of the things that turnedout to be fairly important is how close to theshore a gravel mine site is. If it’s too close,it backfills with seawater and becomes use-less as fish habitat.

“We also figured out that if you put thegravel mine near a river, chances are verygood that a lot of fish will find the pit onceit is rehabilitated. In those pits located agreat distance from a river or creek, the waitlikely will be longer,” he said.

Still, the wait can be worth it. One gravel pit in the Kuparuk River field

took more than 20 years for fish to find it.“Broad whitefish now use the pit as winterhabitat, and to a lesser extent, other speciesof whitefish use it also,” Morris said.

In all, eight gravel mines have been reha-bilitated and connected to stream channelson the North Slope. Of the larger older sites,Morris said a majority have been rehabili-tated for fish habitat.

He said some of the larger sites that arenot feasible for fish will be reclaimed even-tually for waterfowl habitat. State regulatorsplan to build islands within them for water-fowl nesting areas far enough from shore todeter predators such as Arctic foxes.

DNR biologists also figured out that get-ting the oil field contractors to contour thesides of a mine to create shallow shelves onthe sides of the pit after gravel mining endsat a site improves the quality of the resultingfish habitat.

Ideally, the pits-turned-fish-ponds rangefrom 25-30 feet up to 60 feet deep and intotal area from 15-20 acres to well over 100acres.

“The big thing for fish is deepwater habi-tat,” Morris said. “In the Arctic, freezinglimits over-wintering habitat. There is verylimited liquid water on the slope in winter.”

More sources of waterThe gravel mines-turned-ponds also pro-

10 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

continued from page 9

GRAVEL

A broad whitefish caught by state biologists in fish habitat created from a gravel mine onthe North Slope.

Biologist William Morris says the rehabilitated gravel mines on Alaska’s North Slope are awin-win for the environment. Here Morris drives a boat across Teshekpuk Lake in theNational Petroleum Reserve-Alaska and surgically implants a radio transmitter into a Laketrout at Teshekpuk Lake.

see GRAVEL page 11

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vide the industry with water in summer forremote camps and for keeping down duston the roads. In winter, they help greatlywith ice road and ice pad construction.

“It’s a win-win for the environment,”Morris said.

The ponds are able to provide amplewater for industry uses because of the lowdensity of fish populations on the slope.

“When spring breakup comes, pondsand lakes on the North Slope fill almostinstantaneously, so water removed duringthe winter for ice road and pad constructionis hardly missed,” Morris said.

Having the rehabilitated gravel minesallows even more fresh water to be storedover the summer, he added.

Today, rehabilitation happens concur-rently with the gravel mining. The approachwas successful when gravel was mined tobuild both the Northstar and Badami fields,officials say.

“The Northstar gravel pit near the LowerKuparuk River was designed to mesh withthe river so you wouldn’t know it was there,and that’s actually the case,” Morris said.

Less gravel mining neededMeanwhile, a trend nationwide toward

minimizing industry’s impact on the envi-ronment has brought other changes to grav-el use on the North Slope. In 30 years, theindustry has succeeded in reducing theamount of tundra its operations affect bymore than two-thirds.

“With drilling pads now about 20 per-cent of the size they were in the 1970s anddirectional drilling enabling industry to pro-duce more oil from fewer pads, less gravelis needed,” Streiver said.

BP spokesman Daren Beaudo said thenext evolution in oil field design willrequire even less grave. The new 120-mil-lion-barrel offshore Liberty field, for exam-ple, is being developed from an existingsatellite development pad at the Endicottfield “that is being augment with a littlemore gravel.”

“We’re eliminating need for a new sepa-rate production facility, albeit a small onelike at Northstar,” Beaudo said. “We’ll alsobe able to eliminate a sub-sea pipeline anddrill ostensibly from onshore at a distanceof eight miles.”

Streiver said BP also won’t need a grav-el road. “Prior to going to extended reachdrilling at Liberty, the project would haverequired a gravel road,” he said.

The operators are also picking up gravel. “We have a program where we go out to

old abandoned drill pads, pick up the grav-el and rehabilitate the sites by doing thingslike planting native Arctic grasses,” Streiversaid.

If the reclaimed gravel is contaminated,the operator follows regulatory guidelinesto dispose of it. But if the gravel is clean, thecompany uses it a new location.

So far, BP has reclaimed gravel from oldexploration sites and three airstrips west ofthe Kuparuk River.

“We’ve also picked up parts of produc-tion pads and a man camp,” Streiver said.“In a couple of cases, we’ve also picked upgravel berms around the old reserve pitsthat we had for mud and cuttings in the1970s.

“In a way, what we’re doing with thegravel mines is an extension of this idea thatyou minimize your footprint and where youcan’t minimize your footprint, you look forways to restore the area once you’re done,”he added. ●

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 11

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GRAVEL

Map of gravel mine sites that have been converted into fish and waterfowl habitat. (Source: Alaska departments of Fish and Game andNatural Resources.)

By ALAN BAILEYPetroleum News

laska Power Co. has announcedthat the Denali Commission hasawarded a $1.6 million grant tosupport the company’s planned

100-kilowatt “hydrokinetic” turbinepower plant in the Yukon River, to sup-ply electricity to the City of Eagle andthe nearby Eagle Village. Situated closeto where the Yukon crosses the borderbetween Alaska and Canada and with acombined population of 200, the twocommunities currently depend on expen-sive diesel-generated electricity.

APC is a subsidiary of Alaska Power& Telephone Co., a major provider ofenergy and communications services inrural Alaska.

“The funding of Alaska’s first riverturbine project signals willingness by theDenali Commission to solidify a role inpromoting the development of renew-able resource energy in Alaska,” saidBen Beste, Alaska Power & Telephone’slead project engineer.

The planned river-powered plant willdisplace the use of up to 57,000 gallonsof diesel fuel per year and should be in

operation by the fall of 2008, APC says.A three-year evaluation of the plant willthen enable an assessment of the use ofthe new in-stream turbine technology forelectricity generation in communitiesthroughout Alaska and elsewhere.

Renewable resource“Research, design and advancement

of sites conducive to low-impact renew-able resource energy is a primary focus,”said APC President Robert Grimm. “Totake a leadership role in the developmentof this technology is a natural extensionof our vision as an employee-ownedcompany and a practical opportunity tominimize our threshold of energy pro-duction related greenhouse gas emis-sions in the field.”

APC says that it has been working forseveral years with UEK Corp. ofAnnapolis, Md., to adapt UEK in-streamturbine technology for operation in theYukon River at Eagle. UEK turbineshave positive buoyancy and are tetheredto the water bottom, so that they canfloat like underwater kites.

The conceptual design for the instal-lation at Eagle envisages a two-turbinegenerator unit. The power cable from theunit to the shore will pass through adirectionally drilled hole under theriverbed, Grimm told Petroleum News.

APC says that it has secured permitsfrom the U.S. Corps of Engineers andthe Alaska Department of NaturalResources for the Eagle project and thatthe company has funded site feasibilitystudies and the permitting work. Thecompany already operates conventional,low-impact hydroelectric plants onPrince of Wales Island and in theSkagway-Haines area of SoutheastAlaska, APC says.

The Denali Commission is a federal-state partnership that channels federalfunding into improving Alaska’s ruralinfrastructure. ●

12 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

GOVERNMENTIndustry responds to proposed NPR-A regs

ConocoPhillips Alaska and FEX, two companies with significant acreage posi-tions in the National Petroleum Reserve-Alaska, have responded to the U.S.Bureau of Land Management’s proposed changes to the NPR-A leasing and uni-tization regulations. In May BLM published revised regulations that would bringNPR-A more into line with leasing and unitization procedures in other regions andjurisdictions.

The proposed changes apply to topics that include royalty reductions, leaseextensions and the specification of participating areas. And the new regulationswould specify what happens if title to leased federal land is transferred to ArcticSlope Regional Corp., the Native regional corporation for the North Slope.Changes to rules for unitization would include the requirement to discuss in theunit application the proposed methodology for production allocation, provide forunit renewal upon unit termination and allow time to collect data prior to submit-ting a unit development plan.

SupportBoth ConocoPhillips and FEX expressed support for the BLM proposals.“CPAI appreciates BLM’s efforts to revise the existing regulations … to miti-

gate the unique conditions and challenges prevailing in the NPR-A and improvethe process by which operations in the NPR-A are conducted,” Erec Isaacson,ConocoPhillips vice president exploration and land, said in a letter to BLM.

ConocoPhillips recommended some rewording of the definition of a petroleumdiscovery, and suggested that, when a unit is formed, BLM should request that anon-federal mineral owner with less than 10 percent ownership in the unit join theunit.

“The Bureau of Land Management’s proposed changes to the NPR-A oil andgas regulations are very good and quite necessary to support exploration anddevelopment,” said Tim England, FEX senior manager, exploration, in FEX’sresponse to the BLM proposals. “The remoteness of the region along with theshort exploration and construction seasons make both exploration and develop-ment very costly. While NPR-A has significant hydrocarbon potential, it probablylacks prospects large enough for a stand-alone development under the current fis-cal system. Therefore, exploration and development incentives, such as royaltyrelief, will be necessary to continue exploration activity, placement of infrastruc-ture and resource capture.”

FEX’s response suggested simplifications to some of the language in the pro-posed regulations

—ALAN BAILEY

Denali funds YukonRiver hydropower

APC says that it has been workingfor several years with UEK Corp.of Annapolis, Md., to adapt UEKin-stream turbine technology foroperation in the Yukon River at

Eagle. UEK turbines have positivebuoyancy and are tethered to thewater bottom, so that they can

float like underwater kites.

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The conceptual layout of the hydrokinetic power plant at Eagle on the Yukon River: The teth-ered twin-turbine unit will be able to float above the riverbed, depending on the water level.

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By GARY PARKFor Petroleum News

he giant Athabasca Oil Sands Projectis moving from Canadian to interna-tional control, with three deals carry-ing a combined value of up to C$38

billion getting unveiled July 30 and 31. Royal Dutch Shell, having brought its

Canadian unit under Shell’s global umbrel-la, said it is embarking on one of the largestundertakings in Canadian construction his-tory — a 400,000 barrel-per-day oil sandsupgrader that could cost C$22 billion toC$27 billion over the next 15 to 20 years.

In short order, that was followed byword that Marathon Oil has a deal worthC$6.5 billion, including C$736 million ofdebt, to purchase Western Oil Sands, a 20percent partner in Athabasca.

For good measure, Suncor Energy saidit has applied for regulatory approval toexpand its oil sands mining operation at acost of C$4.4 billion, adding 120,000 bpdof bitumen production in the 2011-2013period. That is part of its strategy to achieveoutput of 500,000-550,000 bpd in the 2010-2012 timeframe.

Although corporate sanctioning won’ttake place until 2009, Shell filed a regulato-ry application July 30 to expand itsScotford refinery complex near Edmontonin four stages of 100,000 bpd each.

The company said the project is drivenby its “desire to have the flexibility andoption to upgrade bitumen from oil sandsdevelopments into higher value crude oilproducts” which can be used as feedstockby petroleum refineries in North Americaand “elsewhere.”

Greg Stringham, vice president of theCanadian Association of PetroleumProducers, told the Calgary Herald that theso-called Scotford Upgrader 2 Project willboost Alberta’s upgrading capacity to about3.1 million bpd by 2015, meaning about75-80 percent of all bitumen upgrading willbe done in Alberta ? an estimate that willplease Alberta Premier Ed Stelmach whohas given priority to keeping as muchvalue-added upgrading and processing aspossible within the province.

The conclusion among analysts was thatShell, despite the staggering costs, is bull-ish on the oil sands.

Marathon would grow Canadian feedstock

While they probed that decision, theywere kept on their toes with disclosure ofthe Marathon-Western deal that will givethe fourth-largest integrated oil company inthe United States 31,000 bpd of feedstock,growing to 130,000 bpd by 2020, for itsrefinery network.

Marathon is already inviting bids from

Canadian producers to support a US$1 bil-lion upgrade of its 100,000 bpd Detroitrefinery to run exclusively on Canadianfeedstock and has been studying expansionof two U.S. Midwest refineries so that theycan handle 420,000 bpd of Canadian out-put.

If the transaction is completed,Marathon will have a 20 percent stake inAthabasca, which is operated by Shell as a60 percent partner and has Chevron Canadaholding the remaining 20 percent.

In addition, it will pick up 20 percent ofChevron Canada’s Ells River project,which is targeting 100,000 bpd of produc-tion by 2015.

Chevron has 60 percent of Ells River,with Shell and Western sharing the balance.

Cazalot: Athabasca ‘world-class asset’

Marathon Chief Executive Officer

Clarence Cazalot described Athabasca as“truly a world-class asset with multi-billionbarrel, long-life resource potential,” thatMarathon, because of its Midwest down-stream operations, is strategically placed tointegrate into its operations.

Marathon estimates Athabasca’s basemine and five planned expansions give it anet resource of 1.5 billion barrels of bitu-men, plus 500 million barrels that should berecovered from other mining expansions.

Ells River’s leases contained an estimat-ed 600 million barrels of net resource.

It estimated that the total 2.6 billion bar-rels of net mineable bitumen and in-situresource will be acquired for aboutUS$2.38 per barrel.

The deal came eight months afterWestern hired TD Securities and GoldmanSachs as special advisors to seek ways tomaximize value through partnerships or

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 13

The ultimate cure for that student loan: a job.

BP is hosting an Oil and Gas Industry College Career Fair. It’s a great opportunity to meet the major industry players and the contractors who support the oil and gas sector. Alaskans can learn more about internships, training and job opportunities available. Come find out how to make a career in Alaska’s oil and gas industry part of your future.

Saturday, August 11th, 2007; 10 a.m. - 4 p.m.BP Headquarters Building900 E. Benson Blvd.

For more information call (907) 522-8209,(907)564-5224 or e-mail JoAnne.Efta@bp.com.

alaska.bp.com

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

Triple play in Canada’s oil sandsRoyal Dutch Shell launches 400,000 bpd upgrader plans; Marathon bids to acquire Western Oil Sands and enter upstream

If the transaction is completed,Marathon will have a 20 percent

stake in Athabasca, which isoperated by Shell as a 60 percentpartner and has Chevron Canadaholding the remaining 20 percent.

T

see OIL SANDS page 14

14 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

possible outright sale.David Dyck, Western’s chief financial

officer, told analysts July 31 that theprocess attracted interest from “numerousparties,” resulting in Western deciding thatits best bet was to sell its oil sands opera-tions.

He said that Shell and Chevron —Western’s Athabasca partners who wereboth touted as potential buyers — were“well aware of the process,” but details ofthe Marathon arrangement were not dis-closed to them prior to the announcement.

The Marathon cash-and stock bidinvolves an offer of C$35.50 cash toWestern shareholders or 0.5932 commonshares of Marathon for each Western shareto a limit of C$3.8 billion cash and 34.3million Marathon shares. That breaks downto 65 percent cash and 35 percent shares.

The C$34.50 per share offer was a mod-est 4 percent above Western’s previousclose on the Toronto Stock Exchange, butresulted in a sharp uptick July 31, indicat-

ing investors think a better offer could yetsurface.

Reminded that Western had estimatedits share value at C$42, Dyck said the duediligence process over recent months hastaken all of the company’s risks intoaccount.

The transaction also gives Westernshareholders a chance to participate in thecompany’s highly controversial entry toIraq through its wholly owned subsidiaryWestern Zagros.

They will receive one share and one-tenth of a share purchase warrant in thespinoff, which hopes to explore for anddevelop oil in Iraq’s Kurdistan region.

Western Zagros will receive C$82.5 mil-lion from Western, while Western insidershave agreed to contribute another C$10million at a price of C$2.50 per share,which Western executives believe isenough to fund an exploration program.

Dyck said results from a drilling pro-gram in 2008 will provide a more accu-rate guide to the resource potential, whichWestern has previously said could run to1 billion barrels if a field were discov-ered. ●

continued from page 13

OIL SANDS

● L A N D & L E A S I N G

State approves West Sak PA expansionBy KRISTEN NELSON

Petroleum News

he Alaska Division of Oil and Gashas approved the second expansionof the West Sak participating areawithin the Kuparuk River unit. West

Sak is the shallower horizon at Kuparukand produces heavier oil than the deeperKuparuk reservoir for which the field isnamed.

ConocoPhillips Alaska, KuparukRiver operator, requested the expansionApril 9. The division also required con-traction of the Kuparuk River unit basedon the findings and decision in the eighth

expansion of the Kuparuk River unit in2002.

The division said the 2002 expansionrequired ConocoPhillips to drill withinexpansion area 4 by June 1, 2004, andprovided that expansion area 4 lands notincluded in the West Sak participatingarea (the area under production) by June1, 2007, would contract from the unit onthat date.

The drilling commitment was deferredto 2006 and the expansion area 4 leases,tracts 160 through 163, were each segre-gated into two tracts, A and B. Thedrilling commitment was deferred againin 2006; by April of this year

ConocoPhillips had drilled six wells inthe proposed expansion area.

In the April application for expansionof the participating area ConocoPhillipsrequested the inclusion of four leases(including three of the eight segregatedtracts) in the participating area. The otherfive segregated tracts would be contract-ed from the unit. The contracted leases —on the Kuparuk River unit’s southeastcorner — are beyond their primary termsand are not held by any participating areawithin the unit, the division said.

When ConocoPhillips filed its applica-tion for participating area expansion inApril the division said there was insuffi-cient data. ConocoPhillips provided moredata, but the division said it “againrequested the full data set,” and informedthe company that without the necessarydata it couldn’t continue to process theapplication.

On June 1, ConocoPhillips requested a90-day extension of the automatic con-traction; the division granted an extensionuntil June 15. The division said it metwith ConocoPhillips June 12 “to discussthe issues and concerns of both parties”and on June 15 the company submitted

additional data. The division’s decision is dated July

27.

Participating areas are producing areasState regulations require that a partic-

ipating area be expanded to includeacreage which data reasonably shows tobe capable of producing hydrocarbons inpaying quantities.

The division said the West Sak sandsbeing produced within the KuparukRiver unit West Sak participating area“are part of the much larger shallowUpper Cretaceous reservoirs now under-going development for production ofNorth Slope ‘heavy oil’ in the KRU andthe adjacent Milne Point, Prudhoe Bayand Nikaitchuq units.” The West Sakreservoir depth ranges from 2,700 feettrue vertical depth in the southwesternKuparuk River field area to approximate-ly 3,800 feet tvd in the northeast. WestSak is “part of a large deltaic complexthat also includes the Schrader Bluffsands,” the division said.

Ownership of the tracts is held 52.22percent by ConocoPhillips Alaska, 37.02percent by BP Exploration (Alaska), 4.95percent by Union Oil Company ofCalifornia (now owned by Chevron) and5.8 percent by ExxonMobil AlaskaProduction.

Leases ADL 385175, 380062,390706, 390707 and 390708 contractedfrom the Kuparuk River unit, effectiveJune 1; leases ADL 390705, 380058,385172 and 25663 are included in theWest Sak participating area effectiveJune 1. ●

West Sak is the shallower horizonat Kuparuk and produces heavier

oil than the deeper Kuparukreservoir for which the field is

named. … West Sak is “part of alarge deltaic complex that also

includes the Schrader Bluffsands,” the division said.

T

EXPLORATION & PRODUCTIONGas shut-in to conserve bitumen

Alberta’s energy regulator has expanded its shut-in of natural gas wells in favorof protecting the value of oil sands bitumen.

The Energy and Utilities Board stopped production from 121 wells represent-ing 42 billion cubic feet of natural gas. EnCana owns 120 of the wells andCanadian Natural Resources the remaining single well.

The board determined that gas production has lowered pressure in the geolog-ical zones of bitumen below the gas layers.

It said the situation could endanger eventual recovery of the bitumen deposit,which is estimated to be 50 times larger than the shut-in gas.

Four years ago, the board halted gas output from 900 wells, holding reservesof 280 billion cubic feet, to protect 25.5 billion barrels of bitumen with a value500 times greater than the affected gas.

It is now looking at whether gas production should be curtailed in otherregions, although details of a potential review are still being developed.

EnCana, which is also an oil sands producer, said it needs to review the rulingbefore making a comment.

—GARY PARK

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 15

LAND & LEASINGNew data issued for North Slope,Beaufort Sea areawide lease sales

The Alaska Department of Natural Resources has issued decisions of “substantialnew information” for the North Slope and Beaufort Sea areawide oil and gas leasesales scheduled for Oct. 24.

DNR Commissioner Tom Irwin said in aJuly 25 decision that the state received com-ments on the sales from the U.S. Fish andWildlife Service outlining eight studies Fishand Wildlife and the U.S. GeologicalSurvey are undertaking in 2007 as part of astatus assessment of the current status ofpolar bears worldwide. The assessment isbeing done in response to a petition request-ing that Fish and Wildlife list polar bears asthreatened under the Endangered SpeciesAct due to loss of sea ice habitat.

Fish and Wildlife found there was suffi-cient evidence to warrant listing and prepared a proposed rule in January with a finallisting determination to be made in January 2008 and DNR said the information pro-vided by Fish and Wildlife “is substantial new information.”

No new mitigation measuresThe department said that since the decision on listing the polar bear is not final, “it

is premature to develop new mitigation measures or lessee advisories to supplement”the areawide best interest findings for the two sales but said that in the interim it isadvising oil and gas operators that if polar bears are listed under the EndangeredSpecies Act, consultation with Fish and Wildlife “may be required prior to initiationof activities in the proposed lease sale areas.” The state said it also encourages lesseesto participate in the U.S. Fish and Wildlife Service incidental take program fornearshore and coastal exploration, development and protection.

Bid opening for the sales will begin at 9 a.m. at the Wilda Marston Theater inAnchorage’s Loussac Public Library.

Tracts 27 through 39, east of Kaktovik, and tracts 555 and 557 through 573,between Tangent Point and Point Barrow, are deferred from the Beaufort Sea sale.

The minimum bid is $10 per acre on all tracts in both sales. Royalty rates vary from12.5 percent to 16.6667 percent and the length of the leases from five to 10 years.

Details are available on the division’s Web site at www.dog.dnr.state.ak.us. —PETROLEUM NEWS

Fish and Wildlife found therewas sufficient evidence to

warrant listing and prepared aproposed rule in January with afinal listing determination to bemade in January 2008 and DNRsaid the information provided byFish and Wildlife “is substantial

new information.”

An agreement inked with formerAlaska Gov. Frank Murkowski for BP,ConocoPhillips and ExxonMobil to buildthe 3,600-mile gas line unraveled lastyear in the face of political and publiccomplaints that the three owners of theproposed pipeline were given billions inunwarranted concessions.

In 2005, the Federal EnergyRegulatory Commission, under a man-date from Congress to expedite develop-ment of Alaska natural gas, adopted rulesfor regulating an Alaska gas pipeline sys-tem.

BP, Conoco, Exxon challengeFERC regulations

BP, ConocoPhillips and ExxonMobil,worried that FERC overstepped its author-ity with two of the new rules, challengedthe regulations in the appeals court lastsummer.

Regulations 157.36 and 157.37 aredesigned to protect the ability of Alaskaenergy suppliers that do not own the gaspipeline to deliver their fuel to market,according to the commission. Part of a setof 10 regulations, the rules are guidelinesfor allocating capacity in open seasons heldfor the proposed 52-inch-diameter pipeline.

Open seasons allow shippers to bid forspace on pipelines to transport their oil, gasor other products to market. Pipeline own-ers then build or expand a line to meet thedemand it attracts during that period.

E&P companies with prospective natu-ral gas acreage in northern Alaska, includ-ing Anadarko Petroleum, are concerned thecompanies that ultimately build thepipeline would limit access to it, especiallyif the pipeline owners are BP,ConocoPhillips and ExxonMobil, theircompetitors in gas production.

Court: owners misinterpreted rulesIn a 12-page opinion written by Chief

Judge Douglas H. Ginsburg on behalf of athree-judge panel in the consolidated case,the appeals court found that BP,ConocoPhillips and ExxonMobil misinter-preted the two rules in question.

The three companies argued thatFERC’s rules would force the pipeline’ssponsor to build a larger pipeline than nec-essary to carry natural gas that might neverbe discovered, according to the court deci-sion. The companies also argued that thelarge costs of paying to build the pipelinefor companies that hadn’t committed to useit might make the project too risky to con-tinue.

The court disagreed.“The petitioners’ facial challenge to

(sections) 157.36 and 157.37 is based upon

a misreading of these regulations,” wroteGinsburg. “They misread (section) 157.37as asserting the commission has authorityto condition the issuance of an initial cer-tificate upon the project sponsor’s agree-ment to build a pipeline capable of carryingmore gas than the project sponsor propos-es. … As commission counsel acknowl-edged at oral argument, (section) 157.36purports only to allow the commission, inorder to introduce new competitors into themarket, to allocate such capacity as thesponsor itself proposes to add. So under-stood, the regulation ensures that a newshipper willing to sign a long-term contractmay gain access to a portion of any pro-posed expansion capacity.

“Indeed, it would not make sense for thecommission to rely upon (section) 157.36to order an increase in expansion capacityabove that proposed by the sponsor,”Ginsburg observed.

Court: federal law prohibits compellingenlargement

Though FERC’s attorney argued thatthe last clause of 157.37 could be interpret-ed to authorize the commission to requirean unwilling expansion of capacity beforeissuing a certificate only in the interest ofpromoting competition, the court said thecommission itself has not taken that posi-tion and may never do so, particularly inview of a prohibition in federal law againstcompelling the enlargement of transporta-tion facilities.

Reacting to the appeals court ruling July31, ExxonMobil spokeswoman MargaretRoss said, “We respect the court’s findingthat under applicable law the commissiondoes not have the authority to compel theenlargement of transportation facilities inthe initial project design.”

A FERC spokeswoman Aug. 2 said thecommission declined to comment on theruling.

ConocoPhillips and Anadarko declinedto comment, and BP could not be reachedfor comment by press time.

In July, Alaska Gov. Sarah Palin said thestate is again prepared to receive applica-tions to build the proposed gas pipelinesystem. ●

—The Associated Press contributed tothis report.

continued from page 1

FERCE&P companies with prospectivenatural gas acreage in northern

Alaska, including AnadarkoPetroleum, are concerned the

companies that ultimately buildthe pipeline would limit access to

it, especially if the pipeline ownersare their competitors in gas

production, BP, ConocoPhillips andExxonMobil.

16 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

Companies involved in Alaska and northernCanada’s oil and gas industry

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARSBusiness Spotlight

AAce TransportAcuren USA (formerly Canspec Group). . . . . . . . . . . . . . . . . . 4AeromedACE Air CargoACSAgriumAir LiquideAir Logistics of Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Alaska Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Alaska AnvilAlaska CoverallAlaska DreamsAlaska Frontier Constructors . . . . . . . . . . . . . . . . . . . . . . . . . 12Alaska Marine LinesAlaska Railroad Corp.Alaska Regional Council of Carpenters (ARCC)Alaska Rubber & SupplyAlaska Steel Co.Alaska TelecomAlaska Tent & TarpAlaska Textiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Alaska West ExpressAlliance, TheAmerican Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Arctic ControlsArctic FoundationsArctic Slope Telephone Assoc. Co-op. . . . . . . . . . . . . . . . . . . . 4Arctic Wire Rope & SupplyASRC Energy Services

Engineering & TechnologyOperations & MaintenancePipeline Power & Communications

Avalon Development

B-FBadger ProductionsBaker HughesBombay Deluxe RestaurantBP Exploration (Alaska). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Broadway SignsBrooks Range SupplyCanadian Mat Systems (Alaska)Capital Office SystemsCarlile Transportation ServicesCGG VeritasChiulista Camp ServicesComputing AlternativesCN AquatrainColdwell BankersColvilleCONAM ConstructionConocoPhillips Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Construction Machinery IndustrialContract Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8CoremongersCrowley AlaskaCruz ConstructionDowland-Bach Corp.Doyon DrillingDoyon LTDDoyon Universal ServicesEgli Air HaulEngineered Fire and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 5ENSR AlaskaEpoch Well ServicesESS Support Services WorldwideEvergreen Helicopters of AlaskaEquipment Source Inc.F. Robert Bell and AssociatesFairweather Companies, TheFlowline AlaskaFoundexFriends of PetsFrontier Flying Service

G-MGBR EquipmentGreat Northern Engineering. . . . . . . . . . . . . . . . . . . . . . . . . . 17GPS EnvironmentalGX TechnologyHawk ConsultantsH.C. PriceHoladay-Parks

Horizon Well Logging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Hotel Captain CookHunter 3-DIndustrial Project ServicesInspirationsJackovich Industrial & Construction SupplyJudy Patrick Photography. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Kenai AviationKenworth AlaskaKing Street StorageKuukpik - LCMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15LaBodegaLast Frontier Air VenturesLounsbury & AssociatesLynden Air CargoLynden Air FreightLynden Inc.Lynden InternationalLynden LogisticsLynden TransportMapmakers of AlaskaMarathon OilMarketing SolutionsMayflower CateringMI SwacoMRO Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6MWH

N-PNabors Alaska Drilling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20NANA/Colt EngineeringNatco Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Nature Conservancy, TheNEI Fluid TechnologyNMS Employee LeasingNordic CalistaNorth Slope TelecomNorthern Air CargoNorthern Transportation Co. . . . . . . . . . . . . . . . . . . . . . . . . . 10Northland Wood ProductsNorthwest Technical ServicesOffshore Divers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Oilfield ImprovementsOilfield TransportOpti Staffing GroupP.A. LawrencePanalpina. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14PDC Harris GroupPeak Oilfield Service Co.Penco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Petroleum Equipment & ServicesPetrotechnical Resources of AlaskaPGS OnshorePrudhoe Bay Shop & StoragePTI Group

Q-ZQUADCORain for Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Salt + Light CreativeSchlumbergerSeekins FordShaw AlaskaSpenard Builders SupplySTEELFAB3M Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Tire Distribution Systems (TDS) . . . . . . . . . . . . . . . . . . . . . . . 15Total Safety U.S. Inc.TOTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Totem Equipment & SupplyTTT EnvironmentalTubular Solutions AlaskaUdelhoven Oilfield Systems ServicesUnique MachineUnivar USAUsibelliU.S. Bearings and DrivesVECOWelding ServicesWesternGecoXTO Energy

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

Alicia Orange, GIS Analyst

PetrotechnicalResources ofAlaska (PRA)

Petrotechnical Resources ofAlaska, better known as PRA, pro-vides high-quality, professional geo-logical, geophysical and engineeringconsultants to the Alaska oil and gascommunity. PRA employees haveextensive experience on the NorthSlope, the Interior basins and CookInlet, and offer a diverse array oftechnical capabilities in geoscienceand engineering.

Formerly an exploration geophysi-cist at Mobil, Alicia Orange joinedPRA in November 2006. Her favoritearea within GIS is interface cus-tomization, creating a setting to opti-mize the use of various spatial datafor exploration purposes. Aliciaenjoys exploring the geology, plantsand animals of places she and hus-band Vernon, a geophysicist atPioneer Natural Resources inAnchorage, visit, along with their twoteenagers, Lindsey and Nick.

FOR

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163.5 billion barrels of undevelopedreserves, representing oil that could beproduced using current technologies intoday’s economy.

It also lists separately 10.3 billionbarrels of reserves that are now underactive development.

That represents a sizeable chunk ofBP’s estimate of 1.37 trillion barrels ofworldwide reserves.

It also brings BP into line with otherswho have recognized the oil, includingthe U.S. Department of Energy,Cambridge Energy Research Associatesand the International Monetary Fund.

But BP remained the most significantholdout, despite more than C$125 billionof planned investment and predictions ofoutput tripling to 3 million barrels perday over the next decade.

The company weakened in the face ofmounting evidence from the AlbertaEnergy and Utilities Board, which liststhe recoverable resources from the oilsands at 178.7 billion barrels.

A company spokesman said the BPstandard is not how much oil is buried inthe sands, but whether it can be econom-ically produced.

Having sold the bulk of its oil assetsto Canadian Natural Resources in the1990s, BP is left with only some deeplyburied deposits in the Athabasca oilsands region of Alberta.

However, the company has plans toinvest heavily in modifications to itsWhiting, Ind., refinery to process heavyoil from Alberta.

That raises the possibility of BP fol-lowing the lead of EnCana andConocoPhillips by forming a joint ven-ture with an oil sands producer to take astake in both the upstream and down-stream sectors.

—GARY PARK

Business as usual for BPin Alaska, explorationrumors just that — rumors

AN INTERNAL SEMINAR about theoil and gas potential of the Arctic, host-ed recently in Girdwood by BP’s Alaskaexploration staff of one (Sandy Phillips)has sparked speculation that BP is con-sidering resuming an exploration pro-gram in the state; speculation, the com-pany says, that has no foundation inreality.

Admitting therehas been no officialword from BP, areliable PetroleumNews source withinBP said in mid-July,Tony “Hayward,who’s taken JohnBrowne’s place asCEO of BP, comesfrom the explo-ration side of the company. And the manwho took Hayward’s place as head ofBP E&P, Andy Inglis, was deputy chiefof E&P and part of the company’s exec-utive team. There’s been no officialword that things will change in Alaska,but it only stands to reason London willreview the possibility. The companyneeds reserves. … And then SandyPhillips pulls in top geologists fromaround the world for this Arctic seminar,well, it makes one wonder.”

Up until Inglis stepped intoHayward’s shoes in February, he wasresponsible for BP’s growth areas,including Azerbaijan, Angola, Algeria,

the deepwater Gulf of Mexico, Egypt,Trinidad and the Asia-Pacific region. Heonly worked in Alaska once, from 1994to 1996, as manager of the company’sinterest in the Kuparuk River field.

BP spokesman in Alaska, DarenBeaudo, says BP’s focus and strategyfor its business in Alaska hasn’tchanged.

“We are focused on four things: man-age the light oil decline, acceleraterenewal of the North Slope infrastruc-ture, unlock heavy oil, and bridge togas,” he told Petroleum News July 30.

As for Sandy Phillips and her meet-ing in Girdwood, Beaudo said, “Sandyis a staff of one, responsible for any-thing to do with BP exploration inAlaska — since I’ve been here,December 2002, at least. We still have afew exploration-tagged interests and shehas responsibility for those. … But atthis time we do not have any plans tobecome any more involved in Alaskaexploration.”

In regard to the Girdwood seminar,he said, “We have many technical disci-plines in BP that have global networksattached to them. The purpose of thesenetworks is to share information andidentify and take advantage of synergies.As such, Alaska still remains connectedwith the broader parts of the BP Groupand will from time to time hostevents/clinics and seminars on subjectmatters ranging from peripheral tocore.”

BP disbanded its 30-35 person explo-ration unit in Alaska in late 2001 afterdrilling its Trailblazer prospect in theNational Petroleum Reserve-Alaska,which it then sold along with most of itsAlaska exploration acreage.

The main BP exploration acreage thatPhillips oversees in Alaska is in the1002 area of the Arctic NationalWildlife Refuge, which is closed to oiland gas exploration and development.The company also has a lease withConocoPhillips and ExxonMobil northof Duck Island and one lease betweenthe Milne Point and Prudhoe Bay units.According to Beaudo, BP also has acouple of small leases the company“picked up in last two years immediate-ly adjacent to Liberty (Beaufort Seaprospect moving toward development)as a way to buffer our position there.”

—KAY CASHMAN

Palin calls special sessionof Alaska Legislature toreview new PetroleumProfits Tax

ALASKA GOV.SARAH PALIN saidAug. 2 that she willannounce details ofa special session ofthe AlaskaLegislature relatingto the PetroleumProfits Tax at apress conferenceAug. 3.

The Legislaturepassed the new tax last August. Thestate’s petroleum production tax was for-merly a tax on the gross; the PPT is a tax

on the net. The PPT was proposed by theadministration of former Gov. FrankMurkowski as a companion to the gaspipeline contract which Murkowskinegotiated with the North Slope gasowners, BP, ConocoPhillips andExxonMobil.

The gas pipeline contract failed toreceive legislative approval, but the taxpassed, although at a higher rate thanthat proposed by Murkowski.

There have been concerns about thestate’s ability to audit costs which oiland gas producers deduct under PPT aswell as concerns about ethics issues sur-rounding the battle over the bill. Threelegislators who voted on PPT have beenarrested and accused of ethics violationsinvolving an oil industry service compa-ny.

The big issues are the most expensivecapital costs “we’ve seen for a longtime,” uncertainty about gas prices over a30-year time frame and settling on a fis-cal regime with the Canadian govern-ment.

“On top of that we have got thisincredibly difficult regulatory environ-ment,” Kvisle said.

Fourth year of trying to get approvals

He noted that the MGP is into itsfourth year of trying to get approvalsfrom regulators, having preceded thatwith the work needed to prepare for theregulatory process.

He suggested that part of what hasslowed the regulatory process has beenthe fact that matters before the regulatorypanels are “in many cases social and notdirectly related to the construction of apipeline.”

For the project to go ahead, the propo-nents must get the capital costs, now

C$16.2 billion, under control and developa comfort around them; see “this endlessregulatory process” concluded; reachagreement between the parties and thegovernment; and “see a gas price outlookthat makes (the project) fundamentallyattractive,” Kvisle said.

“There is much to be done. I hope wecan get to the next stage soon,” he said.

TransCanada entered the project byagreeing to finance the regulatory costsfaced by the Aboriginal Pipeline Group,which is entitled to a 33.3 percent equitystake in the Mackenzie Valley pipeline.

In return, if a decision is made tobuild, TransCanada has an option toacquire 5 percent of the anchor capacityand up to 50 percent of all or part of anyinterests sold by the anchor producers.

—GARY PARK

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 17

continued from page 1

MAC LINE

continued from page 1

INSIDER

DAREN BEAUDO

The main BP exploration acreagethat Phillips oversees in Alaska is

in the 1002 area of the ArcticNational Wildlife Refuge. … Thecompany also has the BeaufortSea Liberty prospect, which ismoving toward development; alease between Liberty and the

Badami unit; a lease withConocoPhillips and ExxonMobilnorth of Duck Island; and one

lease between the Milne Point andPrudhoe Bay units. Alaska Gov.

Sarah Palin

Kvisle suggested that part of whathas slowed the regulatory process

has been the fact that mattersbefore the regulatory panels are“in many cases social and not

directly related to the constructionof a pipeline.”

JUD

Y P

ATR

ICK

18 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 19

ventional energy resources.”Mexico’s Energy Secretary Georgina

Kessel said the treaty opens the door to awide range of initiatives “such as hydro-gen and fuel cells, clean coal and carbondioxide capture and storage, ethanol andbiofuel production, small scalehydropower and energy efficiency tech-nologies.”

Lunn said Canada’s push to exploitwind, solar, biomass and tidal power ispart of its drive to achieve low or zerofossil-fuel emissions.

Canada to tackle standby powerHe said the federal government will

introduce measures in 2008 and eventougher rules in 2010 to tackle so-calledstandby power — the energy that is wast-ed by appliances such as microwaves,TV sets and computers that are left on 24hours a day.

He said the average Canadian homehas 25 appliances that consume standbypower. If all were turned off it wouldsave between 5 and 10 percent of house-hold electricity consumption, enough topower 400,000 homes.

Bodman said the U.S. is also makinggreat strides in saving energy by promot-ing energy saving products.

But he left no doubt that fossil fuelswill continue to meet the bulk of U.S.needs and made particular mention of ris-ing output from the Alberta oil sands.

“We are very grateful for the contribu-tion of Canada’s natural resources,” hesaid, mentioning his visit to the oil sandslast year.

If oil sands production meets its fore-

cast targets it will be a “big deal for oureconomy and markets,” Bodman said.

He said that although Canada and theUnited States are on the same page intackling climate change, the challenge isto find ways of balancing economicgrowth and global warming.

Achieving the right balance is a “veryformidable task. … Whatever happensyou will damage economic growthbecause it’s going to cost something toremove carbon dioxide.”

“If you go too far you will destroyeconomic growth and, if you don’t go farenough, you won’t deal with the underly-ing issue of global warming,” Bodmansaid.

For that reason, he said the U.S. is notready to set firm standards and goals.

“The idea of making what I perceiveto be a rather arbitrary, difficult-to-meas-ure, so-called firm commitment is notsomething we’re prepared to do at thistime,” he said.

Canada, U.S. oppose subsidiesWhere Canada and the U.S. are in

lock-step is rejecting any suggestion ofindirect subsidies to advance the use ofalternative, renewable fuel supplies.

Bodman and Lunn flatly rejected asuggestion by ConocoPhillips ChiefExecutive Officer James Mulva whourged the U.S. government to considerbaseline pricing, such as $60 per barrelfor oil, to create the fiscal certainty need-ed for the industry to pursue alternativefuels.

Lunn said his government will nevertake an active role in price setting,regardless of the objectives or its desirefor price stability.

“I agree with him,” Bodman said inresponse to Lunn’s remarks. ●

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PROTECTmigration paths through the BeaufortSea.

Months of negotiationIn a final conflict avoidance agree-

ment hammered out during the course ofseveral months of negotiation, Shell hasagreed to terms that will, among otherthings, ensure that the Cross Island whalehunt close to the planned drilling area canproceed unhindered. Under the agree-ment, Shell will only move one of itsdrillships, the Frontier Discoverer, intothe Sivulliq area prior to the Cross Islandwhale hunt. The Frontier Discover willcease drilling operations on Aug. 25,move out of the Sivulliq area within twodays and return with the Kulluk drillshipafter the end of the hunt.

“We are very glad that Shell has decid-ed to recognize the risks to our bowheadwhale resource, our bowhead whale sub-sistence hunt and the lives of ourhunters,” said Harry Brower Jr., chairmanof AEWC. “… We are facing manychanges, especially from oil and gas, sowe have to work together to protect oursubsistence resources and our way oflife.”

“Shell appreciates the considerableeffort the Alaska Eskimo WhalingCommission has made in joining us tocreate a comprehensive plan of commu-nications, mitigation and cooperation inthe 2007 Conflict AvoidanceAgreement,” Shell spokesman CurtisSmith told Petroleum News July 27.“Shell believes this agreement assures weare taking all reasonable precautions toavoid conflicts with subsistence activitiesvital to the people of the North Slope. Wewill work together to enable efficient oil

and gas activity to take place while prior-itizing the preservation of the BeaufortSea marine mammal and hunting areasfor the subsistence communities.”

NSB oppositionThe North Slope Borough has consis-

tently opposed offshore oil and gasexploration and development, because ofconcerns about potential impacts on sub-sistence hunting and possible environ-mental impacts. The borough has ques-tioned the practicality of cleaning up anoil spill in ice-infested waters.

And, when Alaska’s Office of ProjectManagement & Permitting proposed onJune 19 a determination of consistencywith the Alaska Coastal ManagementPlan for Shell’s drilling program, the bor-ough requested elevation of that determi-nation to the commissioner of the AlaskaDepartment of Natural Resources. Theborough expressed numerous concernsabout the Shell program, including ques-tions relating to waste disposal, thepotential for an oil or fuel spill andOPMP’s ability to fairly evaluate thecomplete timeframe up to 2009 of theShell operations.

On July 19 the DNR commissionerconvened a meeting of interested parties,as part of the ACMP determination eleva-tion process. That meeting resulted inthree alternative measures that Shell mustincorporate into its Beaufort Sea projectdescription. And, subject to Shell incor-porating those measures, the commis-sioner confirmed a final OPMP determi-nation of ACMP consistency.

Concerns addressedIn his response to the North Slope

Borough’s elevation request,Commissioner Irwin said that he believed

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that the alternative measures developed as a result of theJuly 19 meeting addressed the borough’s concerns andthus justified a final determination of ACMP consisten-cy.

“I take this elevation very seriously and I regard theissues raised by the North Slope Borough as veryimportant issues,” Irwin said. “I am grateful for theNSB’s willingness to share with us, as resource man-agers, its traditional knowledge regarding subsistenceactivities and bowhead whales. I also appreciate theNSB’s recognition of the importance of Shell’s pro-posed activities to the State of Alaska and the residentsof the NSB, and NSB’s willingness to find a way tomove forward.”

And Ed Fogels, acting director of OPMP, toldPetroleum News Aug. 2 that the conflict avoidanceagreement signed on July 24 had factored into the com-missioner’s decision.

“That gave us a lot more comfort in the determina-tion,” Fogels said.

Fogels commented that Shell had made a major con-cession in agreeing to suspend its operations during theCross Island whale hunt.

“I find that Shell’s negotiated conflict avoidanceagreement will avoid and minimize impacts to NSB’ssubsistence uses,” Irwin said in his elevation response.

Alternative measuresThe alternative measures that DNR now requires Shell

to incorporate into its Beaufort Sea project consist of:1. The adoption of a series of alternative measures

stipulated by the Alaska Department of EnvironmentalConservation on July 25 relating to Shell’s oil dischargeprevention and contingency plan. Shell must modify thatplan in the light of any pertinent new information thatemerges about Shell’s drilling plans in 2008 and 2009.DEC also wants to know about any changes in Shell’scontractual arrangements for oil spill response. Shellmust include in its contingency plan a description of themethods to be used to remove residue from in-situ burn-ing of spilled oil. And the North Slope Borough must bethe designated local on-scene coordinator for oil spills.

2. The adoption of an adaptive management plan orconflict agreement with subsistence hunters for the 2007drilling program, and a commitment to adopt similarplans for the 2008 and 2009 seasons.

3. An agreement to review the consistency determina-tion for Shell’s 2008 and 2009 drilling programs, in thelight of any changes to those programs, recognizing thatexperience gained in 2007 will likely impact the drillingprogram.

Necessary stepsThe ACMP consistency determination is an essential

requirement for final U.S. Minerals ManagementService approval of Shell’s Beaufort Sea explorationplan; the company’s oil discharge prevention and con-

tingency plan; and any necessary drilling permits.The conflict avoidance agreement with the Alaska

Eskimo Whaling Commission that has now been com-pleted may enable the issue of marine mammal inciden-tal take authorizations from the U.S. Fish and WildlifeService and the National Marine Fisheries Service.Shell spokesman Curtis Smith told Petroleum NewsAug. 2 that FWS had issued an authorization for Shell’sChukchi Sea seismic program, but that neither FWS norNMFS had yet issued authorizations for the BeaufortSea drilling.

And there’s no word yet on the outcome of an appealby the North Slope Borough and several environmentalorganizations to the Environmental Appeals Boardagainst Shell’s air quality permits, issued by the U.S.Environmental Protection Agency for the Beaufort Seadrilling.

But, in any case, Shell cannot start its drilling activi-ties until at least Aug. 14, when the U.S. Court ofAppeals for the 9th Circuit will hear oral argumentsrelating to a motion to suspend the Shell drilling pro-gram, pending a decision in an appeal by the NorthSlope Borough and the Alaska Eskimo WhalingCommission against MMS approval of Shell’s BeaufortSea exploration plan.

Two other appeals, both by groups of environmentalorganizations, against MMS approval of the Shell planare going through the 9th Circuit Court. The court hasissued a consolidated briefing schedule for all of thecases, with opening briefs due on Aug. 17 and answer-ing briefs due on Sept. 26. ●

20 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007

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E&PBegging to differon oil sands

An Alberta government multistake-holder committee assigned to chart acourse for oil sands developmentachieved consensus on 96 of its 120 rec-ommendations. But where there wasdisagreement it was deep, with the 19members of the committee unable toreach unanimity on the most pressingenvironmental issues, such as water useand targets for greenhouse gas emis-sions and the push by some members toimpose a moratorium until those matterswere resolved.

The committee was drawn fromprovincial and municipal governments,aboriginal communities, environmentalgroups and industry. The findings weresubmitted to Energy Minister MelKnight, Environment Minister RobRenner and the Minister of SustainableResource Development Ted Morton. Aspokesman for Alberta Energy said thatalthough the recommendations are nowbeing reviewed by several governmentdepartments, action is already beingtaken on some issues.

Dan Woynillowicz, a policy analystwith the Pembina Institute, was heavilycritical of the committee’s work, sayingsome members were only interested inprotecting the status quo when many ofthose who appeared before the commit-tee were troubled by the runaway paceof development.

He said it now rests with Premier EdStelmach to tackle that concern head-on.

Industry officials said there was noneed for a moratorium, now that gallop-ing costs of labor and materials has gen-erated its own slowdown.They also saidthe Alberta government has started deal-ing with the major infrastructure issuesby earmarking C$400 million for addi-tional health care, housing and watersystems in the oil sands region.

Committee Chairman VanceMacNichol said there was a lot of com-mon ground among the committeemembers, even though the gaps couldnot be closed on key environmental-related issues. He urged the governmentto pay close attention to the “non-con-sensus issues” as quickly as possible.

—GARY PARK