the power generation pie crossing
TRANSCRIPT
page15
Furie permitting KLU platform, twin pipelines, onshore facility
� P I P E L I N E S & D O W N S T R E A M
� P I P E L I N E S & D O W N S T R E A M
� E X P L O R A T I O N & P R O D U C T I O N
Vol. 17, No. 50 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of December 9, 2012 • $2
The power generation pie
Oil 16%
Gas 58%
Coal 6%
Hydro 20%
Wind 0.3%
This chart shows the breakout of resources used for power gen-eration in Alaska. See story on page 8.
Crossing Cook InletAnchorage-based oil producer seeks ROW for $50 million subsea pipeline
By WESLEY LOYFor Petroleum News
A small independent is seeking a state right ofway for a new subsea oil pipeline across
Alaska’s Cook Inlet.Such a pipeline could reduce or eliminate the
current risky practice of shipping crude oil by tankvessel from the west side of the turbulent, icy inletto the Tesoro refinery at Nikiski on the KenaiPeninsula.
Cook Inlet Energy LLC on Nov. 26 applied tothe Alaska Department of Natural Resources for aright-of-way lease for the proposed Trans-ForelandPipeline.
The 29-mile line will start at Cook Inlet
Energy’s Kustatan oil production facility, nearWest Foreland point, and cross beneath the inlet tothe tank farm at the Tesoro refinery, which is nearEast Foreland point.
The pipeline will loop south to avoid deeptrenches and strong tidal currents prevalent in thestrait between the Forelands.
Cook Inlet Energy says it believes it willneed to attract shipping commitments ofabout 4,000 barrels per day to make the
tariff competitive with the Cook Inlet PipeLine system.
see SUBSEA PIPELINE page 18
Two wells at CosmoBuccaneer planning to drill off Cape Starichkof, shoot 3-D seismic at West Eagle
By ERIC LIDJIFor Petroleum News
Buccaneer Alaska is closing out the year withbig plans at three prospects.
The local subsidiary of an Australian independ-ent is permitting a two-well exploration program atthe offshore Cosmopolitan unit, proposing a 3-Dseismic shoot at the onshore West Eagle prospectand increasing production at the onshore KenaiLoop prospect.
At Cosmopolitan, just off the coast of CapeStarichkof, Buccaneer plans to explore for oil andnatural gas, but said it may limit its target to natu-ral gas at one of the two wells.
see COSMO WELLS page 20 The Endeavour jack-up rig
Pt. Thomson pipe wins OKStage now appears set for major new development on Alaska’s eastern North Slope
By WESLEY LOYFor Petroleum News
The Regulatory Commission of Alaska has grant-ed an ExxonMobil subsidiary a certificate and
construction permit for a new pipeline on the easternNorth Slope.
The RCA approval is the latest in a series of keyauthorizations ExxonMobil has secured in recentweeks for its planned natural gas condensate devel-opment in the Point Thomson field.
The pipeline will carry the liquid condensate 22miles along the Beaufort Sea coastline, tying in withBP’s existing Badami pipeline. From there, the con-densate will enter the Endicott pipeline and ultimate-ly the trans-Alaska oil pipeline.
In a 10-page order dated Nov. 30, the RCA grant-
ed PTE Pipeline LLC a certificate of public conven-ience and necessity, along with a construction permit.
PTE Pipeline is an ExxonMobil subsidiaryformed to build and operate what will be known asthe Point Thomson Export Pipeline. The commissionfound that the company is “able and willing” to prop-erly construct and operate the line.
Major authorizations in handThe certificate and construction permit were
major items on ExxonMobil’s permitting checklistfor the Point Thomson project.
On Oct. 26, the Army Corps of Engineers issued apermit for field construction, including three wellpads, roads, pipelines and other infrastructure. The
see PIPELINE PERMIT page 19
EIA includes Alaska LNG projectin annual reference case forecast
The U.S. Energy Information Administration is includinga North Slope liquefied natural gas export project in the ref-erence case of its annual forecast of domestic energy markets
After keeping an Alaska natural gas pipeline out of the ref-erence case for the past two years, the statistical arm of theU.S. Department of Energy included a revised version of theproject in the reference case of its Annual Energy Outlook2013, released Dec. 5.
Despite looking five years further into the future than the2011 and 2012 outlooks, the newest reference case stillexcludes an Alaska natural gas pipeline into the Lower 48“because assumed high capital costs and low natural gasprices in the lower 48 states make it uneconomical to proceedwith the pipeline project over the projection period.”
But the 2013 reference case includes an Alaska LNGexport project coming online around 2023 and contributing toa near quadrupling of domestic LNG exports by 2040.
While the 2012 outlook offered projections on the domes-
Mixed messages: Drilling denied,along with environmental concerns
The Canadian government shows signs of working at crosspurposes with itself when it comes to balancing environmen-tal protection with resource development.
Environment Minister Peter Kent was quick to proclaimhis decision on Nov. 30 to block plans by Cenovus Energy todrill 1,275 new shallow gas wells on a military base in south-eastern Alberta as proof positive that his government will not“give an automatic green light for all development projects.”
The ruling took seven years to reach and was based on therecommendations of a Joint Review Panel, identification ofcritical habitat and study of significant environmentalimpacts.
“The potential environmental effects of the project wouldbe significantly negative and cannot be mitigated in any way.They aren’t justified under the circumstances,” Kent said.“The project would impact 90 percent of the habitat in theNational Wildlife Area.”
But the strong message from Kent was softened by unre-lated briefing material obtained through access to informa-tion legislation, which disclosed some of the buildup to thegovernment’s overhaul this year of environmental laws to
see EIA FORECAST page 19
see MIXED MESSAGES page 13
2 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
Petroleum News North America’s source for oil and gas news
FINANCE & ECONOMY
EXPLORATION & PRODUCTION
ENVIRONMENT & SAFETY
5 November ANS output up from October
North Slope crude averages 581,940 bpd, up 1.87%from previous month’s 571,269 bpd; increasesfrom both Prudhoe Bay, Lisburne
6 Is there a niche for Alaska LNG in Asia?
Changes in markets in China, Japan, will play big role, as will changes in Asian LNG pricing, when other big projects come online
4 Softening a hard line
Canadian cabinet minister acknowledges governmentfaces ‘huge challenge’ to get public support by showing environmental concern
12 API intervenes in dispersant lawsuit
Industry trade association says suit against EnvironmentalProtection Agency could limit use of productsto break up oil spills
10 Senate coalition sets goals for session
Giessel says that oil production tax reform, in-state gas line development and balancing the state budget will be primary targets
14 Rates to increase on seven NS lines
In annual rate adjustments, four BP-affiliated pipelines,three ConocoPhillips-affiliated pipelines set to increase
NATURAL GAS
contents
12 Tundra travel still closed on Slope
12 US drilling rig count down by 6 to 1,811
15 Odum bullish on gas, upbeat on Alaska OCS
15 Furie permitting KLU platform
13 Commission pursues NPR-A legacy wells
15 BSEE & Coast Guard sign MOU
11 Oil stays below $88 on ample US stocks
ASSOCIATIONS
GOVERNMENT
FACILITIES
8 Fossil fuels dominate Alaska power
New ISER report show hydropower also significant, while wind power has increased but is still a tiny component of overall total
UTILITIES
3 Elements of production forecast risked
14 RCA approves service area expansion
7 Regulators facing LNG overlap
7 Alliance’s ‘Meet Alaska’ set for Jan. 11
7 Patience wins the day
4 Conoco applies for Bear Tooth permit
PIPELINES & DOWNSTREAM
EIA includes Alaska LNG projectin annual reference case forecast
Mixed messages: Drilling denied,along with environmental concerns
Crossing Cook Inlet
Anchorage-based oil producer seeks ROW for $50 million subsea pipeline
Two wells at Cosmo
Buccaneer planning to drill off Cape Starichkof, shoot 3-D seismic at West Eagle
Pt. Thomson pipe wins OK
Stage now appears set for major new development on Alaska’s eastern North Slope
ON THE COVER
Alaska’sOil and GasConsultants
GeoscienceEngineeringProject ManagementSeismic and Well Data
3601 C Street, Suite 1424Anchorage, AK 99503
(907) 272-1234(907) 272-1344
By KRISTEN NELSONPetroleum News
T he Alaska Department of Revenuerolled out its fall 2012 forecast Dec.
5, projecting lower unrestricted generalfund revenues compared to the springforecast. The department cited a lower oilprice ($108.67 per barrel for fiscal year2013 compared to$110.44 in thespring forecast) andlower productionlevels, 553,000 bar-rels per day com-pared to 563,000bpd forecast in thespring.
The departmentalso describedchanges in how itdoes its long-term production forecasts,which as Revenue Commissioner BryanButcher said, have been consistently toohigh compared to actual data.
The drop from the spring forecast inunrestricted general fund revenues forFY13, the current fiscal year, is 11 per-cent, from $8.44 billion forecast in thespring to $7.51 billion in the current fore-cast, a drop of $928.4 million.
Butcher said that in addition to thelower oil price and reduced production,companies spent more than expected inthe spring forecast, revenue from the statecorporate income tax came in weakerthan expected and non-oil revenue wasless than expected because of lower inter-est rates.
Total expected FY13 revenues,restricted, unrestricted and federal, are$14.610 billion in the fall forecast, downfrom $15.324 billion in the spring fore-cast; the total for FY12, the previous fis-cal year, was $13.564 billion.
Company spendingCompany spending is an issue because
of production tax credits. The credits,Butcher said, are “a combination of taxcredits that go out to new entrants thatdon’t have a tax liability with the state as
well as currently producing companiesthat subtract the tax credits off their taxliability.”
The figures for FY10 were $250 mil-lion refunded to companies with no taxliability and $412 million claimed bycompanies and used against tax liability, atotal of $662 million. In FY11, $450 mil-lion went to companies with no offsettingtax liability and $386 million to compa-nies with tax liabilities, a total of $836million; the estimate for FY12 is $353million to companies with no tax liabilityand $360 million to companies with a taxliability, an estimated total of $713 mil-lion.
Butcher said Revenue is estimating$800 million in FY13 and as much as $1billion in FY14.
He said a lot of time was spent on thecredit issue over the last legislative ses-sion and more time would be spent on itbecause of the increase from half a billionto as much as a billion.
The amount is substantial, he said, andwhen governors and legislators put thosecredits in law “they had a certain idea ofwhat they were going to get for them.”
Over the last year the department hasbeen digging back into historic numbersand requesting and getting more informa-tion from companies to get “a moredetailed breakdown than they’ve evergiven us before on what they’re spendingon” so the state can “flesh out exactlywhat we are getting for those credits.”
Butcher said what concerns him is thatif the price of oil drops the state could belooking at “potentially a multibillion-dol-lar deficit” and would still have up to abillion dollars going out to the compa-nies, and that wouldn’t be a part of thestate’s budget that could be reduced.
Five-year look backBruce Tangeman, Revenue’s deputy
commissioner for tax, said the depart-ment did a five-year look back last yearand divided what the credits went for intocategories. For calendar year 2012 thedepartment will do the same breakdowninto five or six categories.
The departmentis working with thecompanies to getmore detailed cate-gories starting incalendar year 2013,but that, he said,requires the compa-nies to adjust theirsystems.
The ultimateissue is how much additional productionthe state gets for those tax credits.
Butcher said that for credits for com-panies without tax liabilities — thosedoing exploration — “it’s impossible toeven try to quantify” the results. “We’renot going to know for years if the taxcredits the state has made available endsup in increased production.”
And it “would be extremely difficult”even with companies already doing busi-ness to “define what extra amount of pro-duction” is a result of the tax credits.
A new tax billButcher said Revenue was working
with the Department of Law on whatwould go into a tax change proposal, butsaid the credit issue is definitely “a pieceof the entire pie that we’re looking atwhen you look at what the state gives andwhat the state receives. And what we’regetting for it is all part of one big equa-tion,” he said.
This year, unlike prior to the 2011 ses-
sion, Butcher said, “we’ve had the time,we’ve had the consultants, increased workwith DNR, to be able to dig through theseand really try to come up with as well-rounded an approach as we possibly can.”
He said the plan is to submit a tax billto the Legislature in January and whileButcher said he didn’t know specificallywhat would be in it, tax credits are “oneof the pieces we’re evaluating.”
Production forecastingOn the issue of production forecasting,
Revenue has been working to “come upwith a more reasonable, more prudentway of doing a long-term revenue fore-cast that gets us closer to what we see,”Butcher said.
It’s something thedepartment has beendiscussing for manyyears, he said.
Long-term, thedepartment “hasnever forecastedover 2.5 percent ayear decline,”Butcher said, while“we see historically6 percent (decline) a year, so DOR hasn’tjust been missing it long term, they’vebeen missing it substantially.”
In its 2012 forecast, the departmentbroke out currently producing, under
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 3
TELECOMMUNICATIONS AT
WORK IN ALASKA
Telecom Engineering
Project Management
Two-way Radio Systems
Microwave & Satellite Systems
Fiber Optics & Network Cabling
FCC Licensing
Tower Construction & Inspection
(907) 751-8200 www.nstiak.com
� F I N A N C E & E C O N O M Y
Elements of production forecast riskedFall forecast: oil revenues down from spring; Revenue, Division of Oil & Gas, rework methodology for longer-term crude oil forecast
see FORECAST page 17
BRYAN BUTCHER
BRUCE TANGEMAN
BILL BARRON
By GARY PARKFor Petroleum News
Canada’s Natural Resources MinisterJoe Oliver has dropped hints that his
government is paying greater heed to pub-lic concerns about crude pipelines acrossBritish Columbia to open up markets inAsia.
Speaking to thesame energy summitin Calgary, DavidJacobsen, the UnitedStates ambassador toCanada, has offereda comforting mes-sage to Canadianproducers that theircrude will continueto be needed even ifthe U.S. achieves net energy self-suffi-ciency.
For Oliver, it was a shift to a kinder,gentler stance from his more jarringremarks earlier this year when hedescribed environmental critics of proj-ects such as Enbridge’s Northern Gatewaypipeline as “foreign radicals” — a labelhe now says was “mischaracterized”because he was referring only to “somegroups.”
Following meetings with two key abo-riginal leaders and his reference to FirstNations as “partners” in resource devel-opment, he said: “We want them to derivebenefit. We want them to be part of theprocess.”
At a time of growing public oppositionto Northern Gateway, Oliver said “factsand information are crucial but they arenot enough.”
He said the public must be convincedthat the government is working “to pro-tect Canadians and to protect the environ-ment and that we care about those issues.We’re with them when they express theirlove for the natural beauty of this fantas-tic country.”
Social license needed“If we don’t get people on side, if we
don’t get the social license (to approveprojects) ... there is a big problem,” Oliversaid, acknowledging the governmentfaces a “huge challenge” in dealing withthe issues and “looking at all the alterna-tives at the same time.”
As part of weighing alternatives, heendorsed the proposals by Enbridge andTransCanada to open up crude deliveriesto Eastern Canada, giving refineries thechance to replace high-cost imported for-eign crude with domestic volumes, creat-ing an opportunity for jobs and possiblyreducing gasoline prices.
“In addition, there is the potentialadvantage that people will see a directeconomic advantage and build a broadnational consensus about development,”Oliver said.
He said the east-bound pipelines willbenefit from shorter regulatory reviewsbecause much of the pipe is already in theground, although a mirror image of theopposition to pipelines in BritishColumbia is rapidly taking shape inEastern Canada.
Oliver said there is a “once in a life-time opportunity” for investors to partici-pate in the buildup of Canada’s resourceprojects over the next 10 years, with 650projects worth more than C$650 billioneither under way or planned.
He pointed to a fresh approach by thegovernment to help Canadians understandthe importance of resource developmentto their lives and prosperity.
Jacobsen added to that thrust by assur-ing Canadians he sees a continuation oftwo-way energy trade between Canadaand the U.S. that now carries a value ofmore than C$100 billion a year.
“Establishing energy independence inNorth America opens doors for theUnited States and Canada. What wehaven’t done and what we don’t intend to
� P I P E L I N E S & D O W N S T R E A M
Softening a hard lineCanadian cabinet minister acknowledges government faces ‘hugechallenge’ to get public support by showing environmental concern
4 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
Kay Cashman PUBLISHER & EXECUTIVE EDITOR
Mary Mack CHIEF FINANCIAL OFFICER
Kristen Nelson EDITOR-IN-CHIEF
Clint Lasley GM & CIRCULATION DIRECTOR
Susan Crane ADVERTISING DIRECTOR
Bonnie Yonker AK / NATL ADVERTISING SPECIALIST
Heather Yates BOOKKEEPER
Shane Lasley IT CHIEF
Marti Reeve SPECIAL PUBLICATIONS DIRECTOR
Steven Merritt PRODUCTION DIRECTOR
Alan Bailey SENIOR STAFF WRITER
Eric Lidji CONTRIBUTING WRITER
Wesley Loy CONTRIBUTING WRITER
Gary Park CONTRIBUTING WRITER (CANADA)
Rose Ragsdale CONTRIBUTING WRITER
Ray Tyson CONTRIBUTING WRITER
John Lasley DRILLING CONSULTANT
Allen Baker CONTRIBUTING WRITER
Judy Patrick Photography CONTRACT PHOTOGRAPHER
Mapmakers Alaska CARTOGRAPHY
Forrest Crane CONTRACT PHOTOGRAPHER
Tom Kearney ADVERTISING DESIGN MANAGER
Amy Spittler MARKETING CONSULTANT
Renee Garbutt ADVERTISING ASSISTANT
Julie Bembry CIRCULATION SALES EXECUTIVE
Dee Cashman CIRCULATION REPRESENTATIVE
Joshua Borough ASSISTANT TO THE PUBLISHER
Petroleum News and its supple-ment, Petroleum Directory, are
owned by Petroleum Newspapersof Alaska LLC. The newspaper ispublished weekly. Several of theindividuals listed above work forindependent companies that con-
tract services to PetroleumNewspapers of Alaska LLC or are
freelance writers.
ADDRESSP.O. Box 231647Anchorage, AK 99523-1647
NEWS [email protected]
CIRCULATION 907.522.9469 [email protected]
ADVERTISING Susan Crane • [email protected]
Bonnie Yonker • [email protected]
FAX FOR ALL DEPARTMENTS907.522.9583
OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 17, No. 50 • Week of December 9, 2012
Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518(Please mail ALL correspondence to:
P.O. Box 231647 Anchorage, AK 99523-1647)Subscription prices in U.S. — $98.00 1 year, $176.00 2 years, $249.00 3 years
Canada — $185.95 1 year, $334.95 2 years, $473.95 3 years Overseas (sent air mail) — $220.00 1 year, $396.00 2 years, $561.00 3 years
“Periodicals postage paid at Anchorage, AK 99502-9986.”POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647.
www.PetroleumNews.com
OHMY!
CORRECTIONHilcorp operates the Trading Bay field
The article “Pushing for growth” in the Dec. 2 issue of Petroleum News indi-cates that Marathon Oil Co. operates the Trading Bay field in Alaska’s Cook Inlet.In fact, Hilcorp Alaska operates the field.
see PUBLIC CONCERNS page 5
EXPLORATION & PRODUCTIONConoco applies for Bear Tooth permit
ConocoPhillips has applied for a drilling permit in the Bear Tooth unit.The company is asking for permission to drill the Cassin No. 1 well in the
National Petroleum Reserve-Alaska unit, according to U.S. Bureau of LandManagement filings.
Cassin No. 1 would be on leaseAA081754, in the middle of the unit. Thelease is included in Unit Area A, a subset ofthe unit designated for initial work commit-ments.
Earlier this year, ConocoPhillips stakednine potential well locations in the NPR-A,two in its Mooses Tooth unit and seven in theBear Tooth unit (five wells and two side-tracks).
The 2009 Bear Tooth unit agreement required ConocoPhillips to drill a well inUnit Area A and to test a previous well it drilled in the unit — Scout No. 1 — byJune 1, 2012.
In June 2011, the BLM gave ConocoPhillips a one-year extension to those dead-lines because the company showed “diligence” in evaluating the area, includingdrilling Scout No. 1, reprocessing seismic in 2009 and refining hydrocarbonprospects in 2010.
ConocoPhillips “has established that producible hydrocarbons have beenencountered in the Scout No. 1 well sufficient to demonstrate that a prudent oper-ator would maintain the lease for future development,” the BLM wrote in its deci-sion to extend the unit terms.
—ERIC LIDJI
JOE OLIVER
Cassin No. 1 would be onlease AA081754, in the
middle of the unit. The leaseis included in Unit Area A, asubset of the unit designatedfor initial work commitments.
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 5
Univar is the world leader in distribution of chemistry and related services, providing unparalleled connectivity
between customers and suppliers.
Chemistry Delivered
For Statewide Service855-888-8648 | www.univarusa.com590 E. 100th Avenue, Anchorage, AK 99515
Your Alaskan Chemical Resource since 1924.do is close those doors,” he said.
Imported crude will be neededIn its annual forecast in mid-
November, the International EnergyAgency, IEA, said the U.S. could comeclose to energy self-sufficiency by 2035partly because of the boom in develop-ment of unconventional light oilresources such as the North DakotaBakken.
It also estimated that Canadian oilsands output could nearly triple over thesame period to 4.3 million barrels per day,raising questions about whether thosevolumes would still be needed in the U.S.
However, IEA chief economist Fatih
Birol said in a Nov. 26 speech in Ottawathat the U.S. would still require importedcrude in 2035 even as it built a surplus inother forms of energy.
Jacobsen was unable to provide assur-ances that TransCanada’s planedKeystone XL pipeline from the Albertaoil sands to Texas Gulf Coast refinerieswill receive approval from Nebraska reg-ulators and the U.S. State Department andultimately be granted a presidential per-mit.
“We have been working in parallelwith the efforts of Nebraska — we’re notsitting around waiting — and hopefully,relatively soon after Nebraska acts(before the end of 2012), there will be adecision on a presidential permit,” hesaid. �
continued from page 4
PUBLIC CONCERNS
By KRISTEN NELSONPetroleum News
A laska North Slope crude oil pro-duction averaged 581,940 barrels
per day in November, an increase of 1.87percent from an October average of571,269 bpd.
The majority of the increase camefrom the BP Exploration (Alaska)-oper-ated Prudhoe Bay field, which averaged338,738 bpd in November, up 3.1 per-cent (10,108 bpd) from an October aver-age of 328,630 bpd. Prudhoe Bay pro-duction includes the satellite fields ofAurora, Borealis, Midnight Sun, Onion,Polaris, Schrader Bluff and Sag River, aswell as the separate Northstar and MilnePoint fields, also BP operated.
Except where noted, volumes arefrom the Alaska Department ofRevenue’s Tax Division, which reportsoil production only by major productioncenters and provides daily productionand monthly averages for the mostrecent month.
The other field with a month-over-month increase was the BP-operatedLisburne field, also part of greaterPrudhoe Bay. Lisburne includes produc-tion from Point McIntyre and Niakuk,and averaged 29,593 bpd in November,up 19.33 percent (4,793 bpd) from anOctober average of 24,800 bpd.
Other ANS production downOther North Slope fields saw a
month-over-month decline in produc-tion.
The ConocoPhillips Alaska-operatedKuparuk River field averaged 131,444bpd in November, down 1.57 percent(2,097 bpd) from an October average of133,541 bpd. Kuparuk includes produc-tion from satellites at Tarn, Meltwaterand West Sak, as well as production fromthe Eni-operated Nikaitchuq field andthe Pioneer Natural Resources Alaska-operated Oooguruk field.
Field and pool data, available from theAlaska Oil and Gas ConservationCommission on a month delay basis,shows that in October Nikaitchuq aver-aged 9,251 bpd, up 1.67 percent (152bpd) from a September average of 9,099bpd, while at Oooguruk the average pro-duction for October, 6,979 bpd, wasdown 2.45 percent (176 bpd) from aSeptember average of 7,155 bpd.
Production from the Endicott fieldaveraged 10,616 bpd in November, down
6.45 percent (732 bpd) from an Octoberaverage of 11,348 bpd. Endicott, operat-ed by BP, includes production from theSavant Alaska-operated Badami field,the most easterly producing field on theNorth Slope. AOGCC data for Octobershows that Badami averaged 1,420 bpd,up 5.23 percent (71 bpd) from aSeptember average of 1,349 bpd.
The ConocoPhillips-operated Alpinefield averaged 71,549 bpd in November,down 1.92 percent (1,402 bpd) from anOctober average of 72,950 bpd. Alpineproduction includes satellites at Fiord,Nanuq and Qannik.
Cook Inlet production downAOGCC October data for crude oil
production from Cook Inlet fields showsan average of 11,280 bpd, down 3.84 per-cent (451 bpd) from a September averageof 11,731 bpd.
Production comes from seven fields:Beaver Creek, Granite Point, McArthurRiver, Middle Ground Shoal, RedoubtShoal, Trading Bay and West McArthurRiver, of which only three — the HilcorpAlaska-operated Granite Point andMcArthur River fields and the XTO-operated Middle Ground Shoal field —average more than 1,000 bpd.
All three had small month-over-month production declines: GranitePoint averaged 2,226 bpd in October,down 1.52 percent (34 bpd) from a
September average of 2,261 bpd;McArthur River averaged 4,282 bpd inOctober, down 3.34 percent (148 bpd)from a September average of 4,430 bpd;and Middle Ground Shoal averaged2,254 bpd in October, down 0.13 percent(3 bpd) from a September average of2,257 bpd.
The Cook Inlet Energy-managedRedoubt Shoal and West McArthur Riverfields also saw month-over-monthdeclines: Redoubt Shoal averaged 222bpd in October, down 11.1 percent (28bpd) from 250 bpd in September; WestMcArthur River averaged 542 bpd inOctober, down 37.33 percent from 864bpd in September.
Remaining fields saw increases: theMarathon-operated Beaver Creek fieldaveraged 137 bpd in October, up 25.57percent (28 bpd) from a September aver-age of 109 bpd; the Hilcorp-operatedSwanson River field averaged 969 bpd inOctober, up 3.27 percent (31 bpd) from aSeptember average of 938 bpd; and theHilcorp-operated Trading Bay field aver-aged 648 bpd, up 4.23 percent (26 bpd)from a September average of 622 bpd.
ANS crude oil production peaked in1988 at 2.1 million bpd; Cook Inletcrude oil production peaked in 1970 atmore than 227,000 bpd. �
� E X P L O R A T I O N & P R O D U C T I O N
November ANS production up from OctoberNorth Slope crude averages 581,940 bpd, up 1.87% from previous month’s 571,269 bpd; increases from both Prudhoe Bay, Lisburne
AOGCC October data for crudeoil production from Cook Inlet
fields shows an average of 11,280bpd, down 3.84 percent (451 bpd)
from a September average of11,731 bpd.
By KRISTEN NELSONPetroleum News
T here is a “huge opportunity” forAlaska North Slope natural gas in
the liquefied natural gas market, MikkalHerberg told the Alaska World AffairsCouncil Nov. 28.
But, said Herberg, an economist,research director of Asian energy securi-ty at the National Bureau of AsianResearch and a 20-year veteran of strate-gic planning with ARCO, it would take “avery strong partnership” between thestate and the companies “and some realcreativity on costs” to make the projecthappen.
Herberg said his years with ARCOmade him familiar with “the angst andagony that’s gone into trying to find someway to market that 35 tcf of gas up on theNorth Slope” and he said they spent a lotof time trying to figure out some way tomonetize that gas. Until recently, he said,all those plans were built around pipelineprojects to the Lower 48.
The development of shale gas in theLower 48 has changed that, he said, and ifAlaska wants to move its gas to Asia as
LNG there are a number of supply, priceand market uncertainties that the statewill need to work through.
LNG critical for AsiaLNG is critical for Asia, where gas use
has tripled in the last 20 years and isexpected to triple again in the next 20years, Herberg said.
Gas is still underutilized in Asia, about12 percent of resources compared to 24percent worldwide.
Why? Because Asia has “a wholebunch of separate markets, separated byhuge maritime distances,” which meansyou can’t move gas by pipeline — it hasto be as LNG, “which is a relatively highcost way of moving gas around,” he said.
The advantage of gas for Asia is thatit’s a clean fuel, helps balance out thecoal consumption and provides energydiversification, allowing the area to moveaway from both coal and oil.
Herberg said he thinks there are hugeprospects for natural gas in Asia, and a lotof that will be in the form of LNG.
“In that sense Alaska has a greatopportunity to find a home in that mar-ketplace,” he said.
Dominating the marketAsia dominates the global LNG market,
accounting for roughly two-thirds of themarket, with Japan and Korea both import-ing all of the natural gas they use.
Asia is an attractive market for new sup-plies of LNG because the price of LNG inAsia is based on oil, and development ofLNG is being driven by “these very highprices that buyers are willing to pay forLNG,” Herberg said.
But the LNG market is changing, withboth India and China playing a bigger rolein LNG demand in Asia.
The global LNG market is about 240million tons a year. China’s current 15 mil-lion tons of LNG per year is expected togrow to 30 million — or 75 million tons —over the next 15 years, depending onChina’s policies, regasification terminalprices and the availability of supplies.
But China potentially has large shale gasresources and if those are developed a lot ofpotential LNG demand could be backedout, Herberg said.
India and Southeast Asia are also largeimporters of LNG.
Japan, at 70 million tons, is the largestimporter of LNG. The nuclear crisis inJapan meant a huge increase in LNGimports, up to some 85 million tons, creat-ing what Herberg called “a big demandshock in the marketplace over the last twoyears.”
The question with Japan is whether itwill restart its nuclear plants or go to zeronuclear by 2040, shutting down plants asthey reach their 30-year lifespan.
Korea is also a large consumer, withconsumption expected to grow.
Overall, Herberg said, Asia could growfrom 150 million tons to 250 million oreven 300 million tons over the next 20years. It is, he said, “a big market opportu-nity.”
Growth in supplyQatar, at 80 million tons a year, domi-
nates the supply market, but has establisheda moratorium on LNG expansion, so sup-plies from Qatar are expected to be flat.
Indonesia and Malaysia are traditionalsuppliers, but Indonesia’s exports are
declining as domestic gas use grows;Malaysia production is basically flat.
Russia entered the LNG market withSakhalin II. There are also prospects for alarge gas pipeline from Far East Russia toNortheast Asia, but while mega projectshave been announced, Herberg said almostnothing has happened to move Russian gasto Asia by pipeline.
Australia is simultaneously working onseven to eight large LNG projects, but thecost structure of projects there is rising andthese is a question whether all those projectswill go forward.
Then there is the development of shalegas in the U.S., with the possibility ofexports ranging from 15 million to 50 mil-lion tons to Asia. That depends on decisionsbeing made in Washington, D.C., Herbergsaid.
It’s an uncertain message for Alaskabecause the range is so wide and it affectsthe niche in which Alaska LNG would fit.
There are also huge discoveries off EastAfrica which would potentially enter themarket after 2020 — at about the same timeAlaska would be looking to fit its LNG intothe market.
Key questionsHerberg said he sees a number of uncer-
tainties, things for Alaska to watch. Most of the near supply, particularly 40-
45 million tons of incremental suppliesfrom Australia, is going to become veryhigh priced, he said, because there is just toomuch demand in Australia for equipment,workers and supplies.
Some of the Australian projects, particu-larly coalbed methane in Queensland, maynot be built, Herberg said.
Then there is oil-linked pricing, devel-oped when LNG development requiredlong-term financing, 25-year contracts,take-or-pay provisions and destinationclauses, and is a rigid high-cost pricingstructure.
“The Japanese and others are trying tofind ways to introduce a more competitivepricing system,” he said, which is whyHenry Hub and U.S. supply are critical.
He said there is going to be a lot of pres-sure on the contract structure and oil-linkedprices “and that means probably prices aregoing to be coming down.”
Herberg said that if a lot of the plannedprojects come online there is probablyample supply for the next 20 years.
But there is, he said, “a whole lot ofuncertainty in all those planned projects.”
There is ample supply, “but uncertaintyabout whether that supply will come on,”Herberg said.
Key piecesThere is uncertainty around some key
pieces, he said: China’s consumption ofLNG is important to watch, and Japan’snuclear policy, which will drive an incre-mental 15 million to 20 million tons.
In the U.S., exporting LNG will be com-plicated, with lobbying against exporting infavor of domestic gas use. Herberg said hissense is that the U.S. will export LNG, but“a lot less LNG than it would be capable ofexporting.”
And a lot of U.S. LNG planning is builton $3 gas, which allows Asian delivery atabout $13 per thousand cubic feet. But ifU.S. gas prices go to $6-$7, “it’s not goingto be necessarily all that competitive.” �
� N A T U R A L G A S
Is there a niche for Alaska LNG in Asia?Changes in markets in China, Japan, will play big role, as will changes in Asian LNG pricing, when other big projects come online
6 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
Nobody Knowsthe Arctic
Like We Do!
Interior Alaska’s Fleet Headquarters — 35 Years!$1.2 Million Parts inventory
2 Warranty Stations in Prudhoe BayComplete Line of Ford Commercial Vehicles
SEEKINS.COM 1625 Seekins Ford Dr., Fairbanks, AK1000 Lake Colleen Rd., Prudhoe Bay, AK
By ERIC LIDJIFor Petroleum News
With two liquefied natural gas sys-tems proposed for the same parcel
of North Slope land, one of the projectsponsors is asking state regulators tocoordinate oversight efforts.
In October, Spectrum Alaska LLCapplied for a right of way and a certificateof public convenience and necessity tobuild a small pipeline to a proposed LNGplant in the Prudhoe Bay unit. In earlyNovember, two Flint Hills ResourcesAlaska LLC subsidiaries proposed a sim-ilar system located in the same place: justsouth of Flow Station No. 2.
The State Pipeline Coordinator’sOffice handles right-of-way applications,which request permission to build andmaintain a pipeline on state-owned land.The Regulatory Commission of Alaskahandles certificates of public convenienceand necessity applications, which requestpermission for a company to operate anatural gas pipeline.
Under state guidelines, a competingproject is required to file a notice of intentwithin 30 days of the original application.Koch Alaska Pipeline Co. LLC — one ofthe two Flint Hills subsidiaries, alongsideCaribou North Slope LLC — claimsSpectrum LNG forgot to announce thisprovision in its original public notice, asrequired by state regulations.
Because of the omission, Koch riskedmissing the deadline for filing its compet-ing application. As a result, Koch askedthe RCA to extend the deadline for acompany to submit a competing projectuntil 30 days after the SPCO makes itright-of-way decision.
“While the Regulatory Commission ofAlaska is the right entity to determinewhich of the two applicants is best quali-fied to receive a CPCN, neither of theproposed pipelines can be built if theSPCO does not award a ROW for it,” aKoch attorney wrote to the RCA in a Nov.28 motion, requesting the delay. “BecauseDNR will decide whether and to whom itwill be awarding a ROW lease, andbecause the ROW lease is a prerequisiteto either pipeline being constructed, itdoes not make sense to ask theCommission to spend its time andresources evaluating and adjudicating twopotential CPCN applicants when it isprobable that only one of them will beawarded the necessary ROW lease.”
Could impact InteriorThe issue could have larger ramifica-
tions.Spectrum Alaska originally described
an LNG system designed to serve NorthSlope industrial customers, but said itwould also consider any economic marketin the state.
Speaking recently before the FairbanksChamber of Commerce, Spectrum AlaskaPresident Ray Latchem said the systemcould also be used to ship LNG toFairbanks by truck and to Anchorage byrail, according to a report in the FairbanksDaily News-Miner.
The Flint Hills effort was originallypart of a joint venture with the electric
cooperative Golden Valley ElectricAssociation to bring an “at-cost” supplyof natural gas to the Interior to serve therefining and power generation segments.But shortly after the permitting docu-ments went out for public review, FlintHills announced it had terminated thepartnership, citing its improved econom-ics and the increasing scope of the proj-ect.
While Flint Hills wanted natural gasfor internal use, Interior policymakerswant to make the fuel available to every-one in the region. The existing local dis-tribution company in Fairbanks,Fairbanks Natural Gas LLC, is also per-mitting a North Slope LNG system, pro-posed for a different Prudhoe Bay loca-tion than the Spectrum and Caribou proj-ects.
The Parnell administration hasexpressed a willingness to help fund anLNG trucking operation, but only withincertain perimeters. Specifically, theadministration wants any facility to beopen to third-party buyers and configuredto also supply rural markets.
While Fairbanks Natural Gas andGolden Valley Electric Association sup-port state funding for the North Slopeplant, Flint Hills and Spectrum Alaskaoppose public funding for the project.Instead of building the processing plant,Latchem believes the state should onlyhelp fund the expansion of local distribu-tion systems, the News-Miner reported. �
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 7
ASSOCIATIONSAlliance’s ‘Meet Alaska’ set for Jan. 11
The Alaska Support Industry Alliance’s annual conference, Meet Alaska, will beheld Jan. 11 at the Dena’ina Convention Center in Anchorage.
The 2013 conference, themed “It’s like déjà vu all over again,” begins with anintroduction of speakers from the first Meet Alaska, and includes presentations byConocoPhillips Alaska President Trond Erik-Johansen, BP Exploration (Alaska)CFO Tom Pennington and Jim Flood, vice president Arctic-Eastern for ExxonMobilDevelopment. For a complete list of speakers and registration information go to theAlliance website at www.alaskaalliance.com.
—PETROLEUM NEWS
EXPLORATION & PRODUCTIONPatience wins the day
Japan Canada Oil Sands, JACOS, is on the verge of taking the next step from a 13-year demonstration oil sands project in Alberta to a full-scale 30,000 barrels per daythermal-recovery operation. Backed by Alberta government approval of an in-situfacility at the Hangingstone lease, JACOS said work will start as soon as the neces-sary construction permits are received, along with sanctioning from three minorityJapanese partners who control a combined 12 percent of the venture.
JACOS has been running a 7,000 bpd demonstration plant since 1999 as it devel-oped the most appropriate technology to extract and process the raw bitumen.
The project was also put on hold for several years while JACOS sorted out the own-ership arrangement.
Brian Harschnitz, JACOS executive vice president, said it took the company twodecades to understand the oil sands industry.
“Now we will see the results of our patience over the coming few years,” he said.The company’s four leases cover about 110,000 acres and hold an estimated 2 bil-
lion barrels of bitumen.JACOS became the first foreign oil company to enter the oil sands in 1978 when
it signed a farm-in agreement with Petro-Canada, Nexen and Imperial Oil.—GARY PARK
� N A T U R A L G A S
Regulators facingLNG overlapSpectrum Alaska and Flint Hills Resources looking to buildsimilar LNG systems on the same parcel of North Slope land
The State Pipeline Coordinator’sOffice handles right-of-way
applications. ... The RegulatoryCommission of Alaska handles
certificates of public convenienceand necessity applications. ...
By ALAN BAILEYPetroleum News
Although hydropower makes a signif-icant contribution to meeting
Alaska’s electricity needs, fossil fuelscontinue to dominate the state’s powergeneration, according to the latest editionof the Alaska Electric Energy Statisticsreport, a preliminary version of which hasbeen released by the Institute of Socialand Economic Research, the Universityof Alaska Anchorage, in collaborationwith the Alaska Energy Authority.
The report, which primarily coversdata for 2011, says that in that year natu-ral gas accounted for 58 percent of powergeneration, an increase from 57 percent in2010. The use of oil products such asdiesel fuel also increased slightly, risingfrom 15 percent in 2010 to 16 percent in2011. Coal use has remained fairly steadyat around 6 percent.
The use of hydropower, a resource thatis sensitive to the vagaries of rainfall lev-els, has tended to fluctuate from one yearto the next: In 2011 hydropower genera-tion came in at 20 percent of total power,a drop from 22 percent in 2010, the reportsays.
Wind power, a power generation tech-nology that has been deployed at a num-ber of locations in rural Alaska as an off-set to expensive diesel fueled generation,has seen high rates of growth in recentyears but still only accounts for about 0.3percent of power generation statewide.Diesel fuel remains the dominant energysource for power generation in western
and Interior Alaska, the report says.
Natural gasIn 2011 natural gas usage dominated
power generation in the Alaska Railbeltand was also a major fuel for power gen-eration on the North Slope — both theseregions enjoy convenient gas suppliesfrom local oil and gas fields. However,the Railbelt also accounted for aroundhalf of the total Alaska oil consumptionfor power generation, mainly because ofthe use of naphtha and other oil productsfor power generation in Fairbanks.Railbelt utilities also use fuel oil forstand-by generation, the report says.
Thanks to plentiful rivers, lakes andrainfall, hydropower was by far thebiggest source of electricity in southeastAlaska, although residents of this regionalso used some oil-fired generation.Hydropower generation was also signifi-cant in the Railbelt, accounting for about8 percent of that region’s electricity.
Coal is only used in the Fairbanks areaof the Railbelt, thanks to the proximity ofsuitable coal supplies, presumably frommining operations at Healy.
Some communities, mostly in south-east Alaska, also used wood to fire powergeneration systems.
Being home to much of the state’s pop-ulation, the Alaska Railbelt consumedaround 77 percent of the power generatedin the state in 2011. Power stations inSoutheast Alaska generated about 12 per-cent of the total power.
But, while these total figures reflect inpart the population distribution across thestate, the power consumption per cus-tomer in different places is strongly influ-enced by the cost of the power: Annualconsumption per customer in 2011ranged from 1,500 kilowatt-hours inplaces where power is especially expen-sive to 14,900 kilowatt-hours in placeswhere power is cheapest, the reports says.
Cheapest in southeastWith abundant hydropower resources
and some public funding for hydropowerprojects, southeast Alaska enjoyed thecheapest power in the state in 2011, withsome rates as low as 10 cents per kilo-watt-hour, the report says. High electrici-ty usage in this region in part reflected theuse of cheap electricity for heating resi-dential buildings, the report says.
Residents of Southcentral Alaska,where electricity comes primarily fromgas-fired power plants, with somehydropower, paid around 13 cents perkilowatt-hour.
Alaskans living in small rural commu-nities that depend on diesel fuel for powergeneration suffered by far the highestelectricity costs. Electricity in diesel-dependent rural communities cost fromaround 50 cents to more than $1.50 perkilowatt-hour in 2011, the report says.The Power Cost Equalization program, astate program designed to bring ruralelectricity prices more into line withprices in more populated areas, alleviatesthe cost to rural residents somewhat, butrural electricity is still much more expen-sive than electricity in SouthcentralAlaska, for example.
Commercial usageIn 2011 a little less than half the elec-
tricity produced in Alaska went to com-
� U T I L I T I E S
Fossil fuels dominate Alaska powerNew ISER report show hydropower also significant, while wind power has increased but is still a tiny component of overall total
8 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
Alaska Utilities Net Generation by Fuel Type, 2011
Oil 16%
Gas 58%
Coal 6%
Hydro 20%
Wind 0.3%
Natural gas, used for powergeneration in the Railbeltand on the North Slope, wasthe prime source of energyfor electricity generation inAlaska in 2011. Hydropowerwas also important, particu-larly in Southeast Alaska andalso in Southcentral Alaska.Oil is the primary fuel forpower generation in ruralAlaska, and in Fairbanks.Wind power, although impor-tant in some rural communi-ties, represented a tiny por-tion of total Alaska powergeneration.
INST
ITU
TE O
F SO
CIA
L A
ND
EC
ON
OM
IC R
ESEA
RC
H,
UN
IVER
SITY
OF
ALA
SKA
AN
CH
OR
AG
E
see ISER REPORT page 10
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 9
© 2012 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other AT&T marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners. This document is not an offer, commitment, representation or warranty by AT&T and is subject to change.
When your organization needs cellular and Internet service and none is available, the AT&T Remote Mobility Zone can get you connected typically in less than 30 minutes. It’s a highly portable cellular communications site – like a cell tower in a suitcase – that links onto the AT&T cellular network.
att.com/armz1-800-955-9556
AT&T Remote Mobility Zone – critical communications for dark zones and disaster situations
mobile communications wherever you need it
By ALAN BAILEYPetroleum News
With this year’s election bringingsome significant change to the
political makeup of the Alaska Legislature,the lawmakers who will be heading toJuneau for the rapidly approaching legisla-tive session are lining up their strategiesfor what they hope to accomplish in thecoming months.
On Dec. 4 at Law SeminarsInternational’s Energy in Alaska confer-ence Sen. Cathy Giessel, R-District N, saidthat a new Republican-led coalition in theSenate is chomping at the bit, with a “let’sget our sleeves rolled up” attitude towardsaddressing a number of Alaska policyissues. Giessel is the new chair of theSenate Resources Committee.
Three goalsGiessel said that the coalition has
agreed on three main goals thatthe senators believe to be doable,with measurable outcomes.Those goals consist of:
•increasing Alaska oil pro-duction and the flow of oilthrough the trans-Alaskapipeline
•delivering affordable energyto Alaskans in combination withthe commercialization ofAlaska’s natural gas
•developing a sustainable state budgetfor future generations
Other issues that the coalition plans toaddress include problems with Alaskasalmon stocks and a need to improve theoutcomes of education in the state, Giesselsaid. In addition, the Alaska Arctic PolicyCommission, formed during the last leg-islative session, will look into security andresource development in the Arctic, shesaid.
Production taxThe goal of putting the brakes
on the decline in Alaska oil pro-duction, a policy area thatGiessel characterized as “ournumber one goal,” focuses onrevisiting the contentious issueof Alaska’s oil production taxstructure.
“We want to increase ourbusiness opportunity here in Alaska,”Giessel said. “We know that the produc-tion tax makes us fourth or fifth in theworld at high (oil) prices in governmenttake.”
Giessel anticipates a new productiontax bill in the upcoming session but saidthat she does not yet know whether thegovernor, the Senate or the House willintroduce the bill. PFC Energy, the firmthat worked for the Legislature last year,will again provide production tax consul-
tancy services, she said. New senators areparticipating in instructional sessions, togain an understanding of previous deliber-ations on the tax issue.
And the Legislature is forming a new“Throughput through TAPS” special com-mittee.
Alberta oil?Giessel also commented that, when it
comes to upping throughput in the trans-Alaska pipeline, it is worth keeping an eyeon Alberta’s challenge over the export ofoil from its oil sands. If the Keystonepipeline for exporting Alberta oil throughthe Lower 48 states does not come tofruition and if, as seems likely, BritishColumbia blocks the construction of apipeline from Alberta to the Canadiancoast, it might be possible to ship Albertaoil through Alaska if a railroad betweenCanada and Alaska is constructed. Alaskaand the various Canadian territoriesinvolved have already completed phase 1of a feasibility study for a Canada-Alaskarailroad connection, and in the last legisla-tive session the Alaska Legislature provid-ed the University of Alaska Fairbanks witha little over $1 million to conduct phase 2of the study, Giessel said.
In-state gas lineFor its goal of delivering affordable
energy to Alaskans, the Senate coalition isparticularly focusing on an in-state gaspipeline from the North Slope toSouthcentral Alaska, the Alaska StandAlone Gas Pipeline, or ASAP, being pro-gressed by the Alaska GaslineDevelopment Corp.
“That project got somewhat slowed byour last legislative session, when full fund-
� G O V E R N M E N T
Senate coalition sets goals for sessionGiessel says that oil production tax reform, in-state gas line development and balancing the state budget will be primary targets
10 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
© 2012 CH2M HILL GVOJW201210.44EC102312213140ANV
Did you know…
CH2M HILL is one of the world’s most recognized engineering firms serving oil, gas, and mining clients in Alaska for over 40 years.
Engineering and Consulting
Construction and Construction Management
Operations and Maintenance Services
Infrastructure Development
Environmental Services
Water and Wastewater
People, Performance, and Commitment – for Alaska
ch2mhill.com/alaska
mercial users rather than residential cus-tomers, with commercial usage beinghighest on the North Slope and in theRailbelt. Total revenues from electricitysales in 2011 were 11 percent higher thanin 2010. In 2011, residential customers inthe Railbelt and southeast Alaska spenton average a little under $1,300 on elec-tricity. The average North Slope residen-tial customer spent $850. By comparison,a residential customer in the northwestAlaska region spent on average $3,419.
Total generation and sales of electrici-ty across the state have been fairly stable,increasing by about 1 percent between2010 and 2011. The preliminary energystatistics report only has power stationinstalled capacity data for 2010. In thatyears the installed capacity, at 2,189megawatts, had almost returned to thelevel seen in 2001, after a fall in the inter-vening years, the report says.
The authors of the report say that,although the data in the report covers thebulk of power generation in Alaska, datafrom some small power generation instal-lations that are not power utilities areincomplete. And because the report ispreliminary in nature, there may be someadjustments to the data in the final report,to be published in the spring. �
continued from page 8
ISER REPORT
see COALITION GOALS page 11
CATHY GIESSEL
ing was not provided,” Giessel said “Wedon’t want to see that happen again. Weneed to continue that.”
A new “Energy Production withDelivery to Alaskans” special committeewill consider both the in-state gas line andrenewable energy sources, such as theplanned Susitna-Watana hydropower sys-tem.
An in-state gas line could lower energycosts in Fairbanks, Giessel said.
“All of us are aware that Fairbanks isdying from the high cost of energy,” shesaid.
However, an in-state pipeline needs toterminate at tidewater, so that gas exportscan support the size of pipeline throughputneeded to keep gas prices down to afford-able levels for Alaskans.
“We’ve got to have that volume export-ing to create an economic product,”Giessel said.
Gas to Nikiski?With her electoral district encompass-
ing Nikiski on the Kenai Peninsula,Giessel expressed a preference for routingthe North Slope gas to Nikiski, wherethere is an existing LNG export facility.Given enough gas, it would be possible tore-open the fertilizer plant at Nikiski, aplant that provided more than 300 jobs onthe Kenai Peninsula before being closedbecause of gas shortages, Giessel said.And a boost to the gas supply wouldenable the Tesoro refinery at Nikiski torevert to fully using gas as a fuel — thetight gas supply situation in the Cook Inletbasin has caused the refinery to have to useexpensive propane and oil to meet some ofits fuel needs, she said.
Asked about the looming crisis in CookInlet gas supplies, Giessel said that, withpreviously enacted exploration incentiveshaving a noticeable impact on activity inthe region, she did not anticipate new leg-islative action to address the situation.
“We have a pretty favorable environ-ment in Cook Inlet right now,” Giesselsaid. “We have a lot of explorers out there,new companies that can’t even find an ade-quate workforce on the Kenai (Peninsula).… So at this point I don’t see Cook Inletactually coming up as a big topic.”
However, Giessel sees a need for stateinvolvement in the in-state gas line project,although she also said that the lawmakers’
goal is to stay out of the way, enablingindustry to be as fully involved as possiblein the development.
“The state is going to have to providesome bonding or some kind of financialsupport, but I want to see the private sectordo this as much as possible,” she said.
Sustainable futureReferencing the importance of the
future for her three Alaska grandchildren,Giessel said that the coalition’s third goal,the development of sustainable capital andoperating budgets for current and futuregenerations, provides her prime incentivefor participating in state politics.
“Alaska needs to have a future and rightnow we’re dead-ending ourselves,” shesaid. “We’re not moving towards thatfuture.”
Cautioning about a continuing fall inthe quantity of federal dollars flowing intothe state, Giessel argued for finding waysof enabling the state to fund its own roadand airport infrastructure, for example,rather than depending on federal largesse.
“We’re going to have to stand up on ourown,” she said.
At the same time, cutting the budget tobalance the books is a challenging propo-sition, with cutting the capital budgetbeing easier than cutting the operatingbudget.
“You’re cutting money to your districtsand that’s tough,” she said, commentingthat it will be necessary to cut some spend-ing that, while seeming appealing, is reallynot necessary.
The governor has already said that thebudget he will submit will be significantlysmaller than in the past and Pete Kelly, oneof the new Finance Committee chairs, is afiscal conservative, Giessel said.
“I believe that our operating budget isgoing to get some pretty close scrutiny,”she said. �
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 11
www.miswaco.slb.com
Bringing proven ball-activated tool expertise to the drilling arena.Across the E&P lifecycle the pressure is on to perform downhole. Now a single drilling valve bypass system can help meet the demands of challenging drilling operations. The WELL COMMANDER* tool from M-I SWACO enables the widest range of critical drilling functions to be performed with confidence, from cuttings removal to lost circulation treatment and kill weight fluid spotting. Optimize rig time and resources by eliminating additional auxiliary tools and avoiding unnecessary trips. When performing critical drilling operations with the WELL COMMANDER tool, the ball is in your court.
*Mark of M-I L.L.C
Same ball.Whole new ball game.
The goal of putting the brakes onthe decline in Alaska oil
production, a policy area thatGiessel characterized as “ournumber one goal,” focuses on
revisiting the contentious issue ofAlaska’s oil production tax
structure.
continued from page 10
COALITION GOALS FINANCE & ECONOMYOil stays below $88 on ample US stocks
The price of oil hovered below $88 a barrel Dec. 6 as mounting evidence ofample seasonal U.S. crude stocks was partly offset by ongoing worries over theMiddle East.
By early afternoon in Europe, benchmark crude for January delivery was down27 cents to $87.61 a barrel in electronic trading on the New York MercantileExchange. The contract fell 62 cents to finish at $87.88 per barrel on the NymexDec. 5.
Brent crude, which is used to price international varieties of oil, was down 46cents to $108.35 a barrel on the ICE Futures exchange in London.
Oil prices have struggled for direction after figures Dec. 5 from the EnergyInformation Agency showed U.S. oil inventories well above average for this time ofyear, suggesting that demand from the world’s largest economy may be a little lessthan anticipated over the winter months.
However, offsetting that impact on prices is a growing concern that Syria mightbe readying chemical weapons to use against rebels trying to overthrow the regimeof President Bashar Assad. Worries over an escalation in the conflict have ratchetedup fears of a supply disruption of crude from the Middle East.
On Dec. 6, Germany’s Cabinet also approved the dispatch of German Patriot airdefense missiles to protect Turkey against possible attacks from Syria, a sign thattensions in the region were far from easing. It was also a major step toward a poten-tial Western military role in the Syrian conflict.
Syria isn’t the only Middle East concern. In Egypt, five people died and over 600were injured in clashes between supporters and opponents of President MohammedMorsi, the democratically elected leader who has assumed near-absolute powers.
“The oil price should not fall any further, as this is precluded above all by theongoing risks to supply due to the geopolitical tensions in the Middle East,” said areport from Commerzbank in Frankfurt. “Alongside Egypt, Syria, Gaza and Iran allremain latent trouble spots, thus justifying a risk premium on the oil price.”
In a commodities report, Goldman Sachs forecast the average price for bench-mark crude in 2013 at $105.50 per barrel and at $99 per barrel in 2014.
—THE ASSOCIATED PRESS
By WESLEY LOYFor Petroleum News
A federal judge has granted theAmerican Petroleum Institute’s
motion to intervene in a lawsuit that couldlimit the use of dispersants to combat oilspills.
API is a trade association with more than500 members involved in oil and gas pro-duction, refining, marketing and transporta-tion.
On Aug. 6, a coalition of conservation,wildlife, trade and public health groupssued the U.S. Environmental ProtectionAgency in federal court in Washington,D.C. The groups contend the EPA has failedto put sufficient dispersant rules into placein compliance with the Clean Water Act.
The plaintiffs are Alaska CommunityAction on Toxics, Cook Inletkeeper, FloridaWildlife Federation, Gulf RestorationNetwork, Louisiana Environmental ActionNetwork, Louisiana Shrimp Association,Sierra Club and Waterkeeper Alliance.
In an Oct. 17 motion to intervene, APIlawyers said the lawsuit, if successful, couldpare down the list of dispersant products theindustry may rely upon.
Further, the suit seeks to compel the EPA
to identify the waters in which dispersantsmay be used, and the quantities that can besafely applied.
The API said the lawsuit is an “attack onthe legitimacy” of the entire EPA-main-tained National Contingency Plan ProductSchedule.
As such, the suit could “impact the dis-persants and other products that would beavailable to API members for use in theevent of an oil discharge from a drillingunit, platform, pipeline or vessel.”
The EPA has filed a motion to dismissthe case.
The plaintiffs opposed API’s motion tointervene, while the government took noposition.
In a Nov. 29 order, U.S. District JudgeJohn D. Bates ruled API could intervene.
The order noted that the suit seeksremoval of the 59 dispersants and otheragents added to the NCP Product Schedulein the last six years. This would leave 52listed products.
“In addition, if this Court orders EPA topublish a new NCP Product Schedule iden-tifying the waters in which listed productsmay be used and the quantities of listedproducts that can be used safely in suchwaters, then such action by EPA will neces-sarily place limitations on the uses of listedproducts that do not now exist,” the ordersaid.
API members rely on the product sched-ule in preparing mandatory oil spillresponse plans, and so they have “a concreteand particularized interest in the outcome ofthis lawsuit,” the judge held.
Bates further noted that the injunctiverelief the plaintiffs are seeking isn’t limitedto the 59 products, but rather could impactthe permissible uses of all NCP products.
Use of dispersants to break up spilled oilis controversial. The BP Deepwater Horizonoil spill in 2010 focused huge attention onthe issue.
At the time they filed their lawsuit, theplaintiffs said some 1.84 million gallons ofdispersants were applied in the Gulf ofMexico following Deepwater Horizon“despite widespread recognition that littlewas known about the health and environ-mental effects of applying such massivequantities of dispersants, and applying thembeneath the ocean’s surface.”
Representatives of the Alaska groups saydispersants could harm fish, marine mam-mals and the coastal communities. �
12 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
At Flowline Alaska, we’ve spent decades helping to keep oil flowing on the North Slope.It’s a record we’re proud of, and we look forward to a future where we can provide the service and support necessary to grow and expand Alaska’s energy industry.Because we want to keep Alaska’s oil flowing, today and tomorrow.
flowlinealaska.com
907.456.4911
We know pipes.Inside and out.
EXPLORATION & PRODUCTIONTundra travel still closed on Slope
State land on the North Slope and in the Brooks Range foothills remains closedfor off-road travel, the Alaska Department of Natural Resources, or DNR, said ina Nov. 30 status report. There has been higher than average snow fall so far thiswinter but the relatively deep snow coveris insulating the tundra surface, keepingsoil temperatures above the levelsrequired to protect the ground from dam-age by vehicles not designed for off-roaduse.
Although soil temperatures at grounddepths of 10 centimeters are dropping,temperatures at depths of 30 centimetershave remained around 0 C, well above therequired temperature of minus 5 C.
Pre-packing and wateringDNR has approved several projects for the pre-packing and watering of ice-road
routes and has approved one ice-road construction project in the Western CoastalArea, the department said. One ice-road pre-packing project has been approved forthe Lower Foothills area.
Oil companies conduct drilling and other activities off the permanent road sys-tem on the North Slope during the winter, using ice roads to reach remote sites andtaking advantage of the frozen ground and snow cover to avoid damage to the tun-dra. However, vehicles not specifically designed and certified for off-road tundrause cannot participate in off-road activities until DNR has determined that there isan adequate snow depth and that the ground is sufficiently frozen. However, thedepartment does generally allow companies to gain some time by pre-packing ice-road route using tundra-certified vehicles.
The length of the so-called tundra travel season in the winter is a critical param-eter in the practicality and economics of North Slope exploration and development.
—ALAN BAILEY
There has been higher thanaverage snow fall so far thiswinter but the relatively deepsnow cover is insulating thetundra surface, keeping soil
temperatures above the levelsrequired to protect the groundfrom damage by vehicles not
designed for off-road use.� E N V I R O N M E N T & S A F E T Y
API intervenes indispersant lawsuitIndustry trade association says suit against EnvironmentalProtection Agency could limit use of products to break up oil spills
EXPLORATION & PRODUCTIONUS drilling rig count down by 6 to 1,811
The number of rigs actively drilling for oil and natural gas in the U.S. fell the weekending Nov. 30 by six, to 1,811.
Texas-based oilfield services company Baker Hughes Inc. reported that 1,386 rigswere drilling for oil and 424 for gas. One was listed as miscellaneous. A year ago,Baker Hughes counted 1,993 rigs.
Of the major oil- and gas-producing states, Texas gained two rigs. New Mexico, North Dakota and Wyoming each lost two rigs while Colorado,
Louisiana and West Virginia each lost one. Alaska, Arkansas, California, Oklahomaand Pennsylvania were unchanged.
The rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. —ASSOCIATED PRESS
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 13
reduce federal oversight and duplica-tion of federal and provincial assess-ments, eliminating nearly 3,000 envi-ronmental reviews of existing projects.
Duplication issueThe briefing papers showed that last
year Environment Canada officials toldKent the government had already“effectively” addressed the duplicationissue, eliminating any need to furthershrink its authority in evaluating proj-ects.
The officials said the petroleumindustry wanted to place limits in therange of powers of environmentalassessments — a move they warnedwould “weaken public trust and credi-bility ... especially when applied tomajor projects such as oil sands devel-opments,” while making it more diffi-cult to consult with aboriginal groups.
Greenpeace Canada climate andenergy campaigner Keith Stewart saidthis year’s changes to legislation are“rigged (in favor) of Big Oil.”
He said the ruling on the Cenovusgas wells only indicated that the gov-ernment was prepared to reject projectsthat the industry did not really want.“It’s a PR tactic,” he said.
However, Cliff Wallis, a spokesmanfor the Alberta Wilderness Association,described the verdict as a “big win ...we don’t get many these days and itclearly sets a high bar for how protect-ed areas are supposed to be managed.”
On military base for more than 40 years
Cenovus, although focused on oil andliquids development since the breakup ofEncana into separate oil and natural gasentities, has been using the gas it producesas a hedge for its oil sands and refiningoperations, although it has been cutting itsgas output by 10 to 12 percent a year.
It was confident it could have drilledabout 425 wells a winter in a manner thatwould have caused only minimal distur-bance to the environment in an area wherethousands of wells have been drilled.
Cenovus and its predecessor compa-nies have been operating on the militarybase for more than 40 years and helpedcreate the National Wildlife Area in 2003,partly on the understanding that oil andgas development could continue on a sitewhere 1,145 wells had been completed.
A spokeswoman for the company said“we feel this is a resource that we have theright to access.” But Cenovus has no plansto seek compensation from the Canadiangovernment.
Cenovus has 25,000 producing gaswells across southern Alberta and expectsthat its existing wells in the NationalWildlife Area will continue to produce for20 to 40 years.
Alberta Premier Alison Redfordexpressed her disappointment, but saidthe provincial government accepted theneed for development to occur “in a waythat’s environmentally sustainable.”
—GARY PARK
continued from page 1
MIXED MESSAGES
� G O V E R N M E N T
Commission pursuesNPR-A legacy wells
By KRISTEN NELSONPetroleum News
T he Alaska Oil and Gas ConservationCommission has been trying to get a
full understanding of National PetroleumReserve-Alaska legacy well issues sincelate 2005, commission Chair Cathy Foerstersaid at a Dec. 5 public meeting.
At a hearing this summer in Washington,D.C., Foerster said the federal Bureau ofLand Management, which manages NPR-A, promised to provide data on the wells,but lacking data from BLM, the commis-sion decided to start working through wellsa few at a time, she said.
In October the commission discussed 10shallow holes, soil integrity tests, not deep-er than 50 feet and without AmericanPetroleum Institute well numbers. Theseholes are pretty much healed, Foerster said,and are off the concerns list.
Guy Schwartz, a petroleum engineerwith the commission, reviewed data on agroup of Umiat and Simpson wells. Hedescribed data that the commission had onthe wells, and work which had been done toplug them, although the commission endedup with questions about most of the wells,including why the wellheads had not beenremoved.
Schwartz said that information fromBLM indicated the well heads presented ahistoric preservation issue.
Historic preservationState Historic Preservation Officer
Judith Bittner was present and described thehistoric preservation system for the com-mission.
Commissioner John Norman outlinedsafety concerns he had about wellheads leftstanding where they could pose a hazard tosnow machines and Bittner indicated theywould never say a safety hazard needed toremain in place.
Schwartz had said some of the old well-heads had been removed and the recordsindicated they had been stored for preserva-tion.
Asked about preservation plans for largeinfrastructure such as the trans-Alaska oilpipeline and Prudhoe Bay, Bittner saidprobably very little of that would be pre-served in place, but paper records, such asas-builts for the line and facilities, would bepreserved in the archives.
Bud Cribley, BLM Alaska state director,told the commission BLM is committed toresolution of the legacy well issues and istrying to understand the process and howthe commission will work with BLM toaddress the issue.
Cribley suggested that BLM staff workwith commission staff on reviewing thewells, and said BLM would put together aletter on how the agency would work withthe commission.
On the issue of preserving wellheadsfrom legacy wells, Cribley said that in con-sultations with North Slope Natives BLMhad been told that the old wellheads shouldbe left in place because they had been thereso long that they are used as way markers,aids in navigation on the North Slope.
Commission plugging and abandonmentregulations require removal of wellheads. �
14 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
� P I P E L I N E S & D O W N S T R E A M
Rates to increase on seven NS linesIn annual rate adjustments, four BP-affiliated pipelines and three ConocoPhillips-affiliated pipelines set to increase
By ERIC LIDJIFor Petroleum News
With the end of the year, the owners of pipelinesthat carry petroleum products from North Slope
fields to the trans-Alaska oil pipeline are adjusting theirshipping rates.
Through affiliates, BP proposes to increase the rateson four North Slope pipelines — Milne Point, Endicott,Badami and Northstar — while ConocoPhillips propos-es to increase the rate on three North Slope pipelines —Kuparuk, Oliktok and Alpine.
The increases would all go into effect at the start ofthe year.
BP-related pipelinesUnder the proposed rates, Milne Point Pipeline LLC
would charge $1.91 to ship a barrel of oil from the MilnePoint Central Facilities to the Kuparuk Pipeline on the10.7-mile Milne Point Oil Pipeline, up 43.6 percent fromthe current rate of $1.33 per barrel.
In 2012, Milne Point shipped oil for BP Oil SupplyAlaska, ConocoPhillips Alaska, Flint Hills ResourcesAlaska and Kerr McGee Corporation Alaska. In 2011,the pipeline carried 8,061,856 gross barrels, according tothe State Pipeline Coordinator’s Office.
The Endicott Pipeline Co. would charge $3.26 to shipa barrel of oil from the Endicott Main Production Islandto the Pump Station No. 1 on the 26.1-mile EndicottPipeline, up 23 percent from $2.65. It would also charge$2.07 per barrel to ship from the Badami connection ofthe pipeline to Pump Station No. 1, up 22.4 percent from$1.69 per barrel.
In 2012, Endicott shipped oil for BP Oil SupplyAlaska, Chevron Alaska, ConocoPhillips Alaska,ExxonMobil Alaska Production Inc. and Unocal Alaska.In 2011, the pipeline carried 3,602,713 gross barrels,according to the State Pipeline Coordinator’s Office.
Badami Oil Pipeline would charge $12.25 to ship abarrel of oil from the Badami Central Processing Unit toEndicott on the 25.1-mile Badami Sales Oil Pipeline, up46.3 percent from $8.37. In 2012, Badami shipped onlyfor BP Oil Supply Alaska. In 2011, the pipeline carried450,203 barrels, according to the State PipelineCoordinator’s Office.
The Northstar Oil Pipeline would charge $5.47 to shipa barrel of oil from the Northstar Production Facility onSeal Island to Pump Station No. 1 on the 17.4-mileNorthstar Oil Pipeline, up 19.4 percent from $4.58 perbarrel. In 2012, Northstar shipped for BP Oil SupplyAlaska and Murphy Crude Oil Marketing Inc. (Alaska).In 2011, the pipeline carried 5,248,646 gross barrels,
according to the State Pipeline Coordinator’s Office.
ConocoPhillips-related linesThe Kuparuk Transportation Co. would charge 29
cents to ship a barrel of oil from the Kuparuk River unitto Pump Station No. 1, up 13.2 percent from 25.6 centscurrently. The company would also charge 21.1 cents toship a barrel of oil from the Milne Point tie-in to PumpStation No. 1, up 12.8 percent from 18.7 cents per bar-rel. In 2011, the Kuparuk Pipeline carried 89,953,520barrels, according to the State Pipeline Coordinator’sOffice.
The Oliktok Pipeline Co. would charge $2.37 per bar-rel to ship natural gas liquids to the Kuparuk River unit,a 408 percent increase over the current rate of 58 centsper barrel. The large increase comes from smart piggingand vertical member support work planned for 2013, ontop of a continued trend of reduced throughput, accord-ing to the company.
The Alpine Transportation Co. would charge 86 centsper barrel to ship natural gas liquids from the ColvilleRiver unit to the Kuparuk River unit, up 10.2 percentfrom the current rate of 78 cents per barrel, “due prima-rily to reduced throughput,” the company said. �
� N A T U R A L G A S
RCA approves service area expansionWith Red Pad Pipeline area added to certificate for Semco Energy’s Alaska Pipeline Co. subsidiary, Red Pad gas can move to market
By KRISTEN NELSONPetroleum News
With a pipeline in place and approval by theRegulatory Commission of Alaska, a natural gas
discovery made by Union Oil Company of California in2004 is expected to be moving to market soon.
The accumulation, at Red Pad in the Nikolaevsk unitsome 14 miles southeast of Ninilchik on the southern KenaiPeninsula, has changed hands twice since its discovery.Chevron acquired Union Oil in 2005 and in July 2011Hilcorp acquired Chevron’s Cook Inlet assets.
In a Nov. 30 order, RCA approved an application byAlaska Pipeline Co. to expand the service area in its certifi-cate of public convenience and necessity to include the areaof the Red Pad pipeline.
Alaska Pipeline Co., a Semco Energy subsidiary, is reg-ulated on a consolidated basis with Enstar Natural Gas Co.,a division of Semco. Enstar is Alaska Pipeline Co.’s onlycustomer, RCA said, and is served under an intra-companyspecial contract.
The Red Pad Pipeline is a six-inch coated steel pipeline
running between Hilcorp’s Red Pad and Alaska PipelineCo.’s Anchor Point Pipe Line.
Enstar spokesman John Sims told Petroleum News in aDec. 4 email that the pipeline has been completed and test-ed.
Hilcorp spokesman Lori Nelson said in a Dec. 5 emailthat the Hilcorp team is working to expedite production andanticipates being operational on or before Dec. 15.
RCA said Hilcorp funded the Red Pad Pipeline througha contribution in aid of construction agreement.
The commission said its approval was based on therecord and on Alaska Pipeline Co.’s 50 years of experiencesuccessfully operating pipeline systems, and on the “signif-icant need to increase the production of natural gas inSouthcentral Alaska.”
The project cost is estimated at $8.4 million and RCA isrequiring filing of final costs within 60 days of completion.
Union Oil had agreed to study the possibilities of a linein early 2011, although that proposal was a line south toNorth Fork, to connect with the line Armstrong Cook Inletwas building to connect with the 21-mile extension AlaskaPipeline Co. had completed to its existing line on the Kenai
Peninsula. Production from North Fork through a new lineconnecting to the Alaska Pipeline Co. extension began inearly 2011.
In an agreement reached with the Alaska Department ofNatural Resources’ Division of Oil and Gas in 2011 forextension of the Nikolaevsk unit, Union Oil agreed to com-mit to construction of a pipeline by the end of 2011 as acondition of extending the unit, formed in 2004.
The company’s Cook Inlet assets were up for sale at thetime, and Union Oil specified in its fourth plan of develop-ment for the unit that should it sell its unit interests, the newoperator would be bound by commitments in the plan andwould be required to make the same pipeline constructiondecision by Jan. 1, 2012.
Hilcorp’s purchase of the Union Oil Cook Inlet assetswas announced in July 2011.
The 2004 Red 1 well tested 3.2 million to 5.8 millioncubic feet per day in a 26-hour test. The Red 2 well, alsodrilled in 2004, was tested but there were no measureablehydrocarbons. �
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 15
SUBSCRIBETODAYBuy yourself a New One Year print or full packagesubscription and give one as a gift to a friend, familyor colleague for ONLY $1!
Call a circulation representative today at 907-522-9469 or email “Gift Sub Offer” with your name and phone number to [email protected] and a representative will contact you.
Offer only available for new 1yr subscriptions.
By ERIC LIDJIFor Petroleum News
Furie Operating Alaska LLC is permit-ting an offshore platform at its Kitchen
Lights unit, according to a public notice pub-lished Dec. 4 by the U.S. Army Corps ofEngineers.
KLU Platform A would underpin long-term production of natural gas from the off-shore unit in the upper Cook Inlet, the com-pany said. In its filings, Furie described adevelopment plan including a platform, twosubsea gathering lines and a new onshoreproduction facility near Nikiski tying intothe regional natural gas distribution grid.
The Army Corps is taking commentsthrough Jan. 4.
Furie would erect the platform within1,000 feet of KLU No. 1, the explorationwell it began drilling last year and laterclaimed had discovered a major natural gasreservoir.
In filings, Furie described KLU PlatformA as having a 64.5-foot by 72-foot deck witha 30-foot by 72-foot living quarters and hel-icopter deck extending from one side. Theplatform would also have a 100-foot boomcrane. Beneath the deck would be an 18-footdiameter caisson reaching 62 feet above sealevel. At the base of the caisson would beeight 51-inch diameter skirt pile sleeves for42-inch diameter piles with grouted annuli.
Furie intends to ship the pre-fabricatedplatform, deck and components from an out-of-state construction yard to one of threeAlaska ports — Homer, Nikiski orAnchorage.
For development, Furie would use theSpartan 151 jack-up rig it has used forexploration drilling to date, but might alsouse a smaller temporary platform rig forsome completion and maintenance work.When used, the jack-up would be can-tilevered over the platform.
The platform would tie back to a pro-
posed onshore production facility throughtwo subsea 10-inch gathering pipelines rout-ed along the Cook Inlet Gas GatheringSystem corridor, and a 10-inch or 12-inchonshore pipeline connecting the productionfacilities to the existing CIGGS EastForeland Facility, located on a peninsulanorth of the Nikiski.
While the permitting documents containno timeline, Furie previously told lawmakersit would move ahead on installing the plat-form in 2013. In October 2011, a predeces-sor at Kitchen Lights, Escopeta Oil Co., esti-mated it could bring the unit into productionwithin 18 months of a commercial gas dis-covery, if it faced no interference. “I certain-ly hope that does happen,” House SpeakerMike Chenault said at the time about a fastdevelopment plan free of interference, “butwe’re kidding ourselves if we think it will.”
Escopeta drilled the KLU No. 1 well to8,805 feet in October 2011. Furie returned inMay, but in August stopped drilling at15,298 feet, before reaching the base of theTertiary, an interval of deep rocks somegeologist speculate may contain oilresources.
To meet drilling commitments, Furiebegan drilling the KLU No. 2 well, butaccording to information obtained byPetroleum News the well had not reached adepth below 9,000 feet as of November. ButFurie completed a sidetrack of the well fortesting purposes. �
� F A C I L I T I E S
Furie permitting KLU platformArmy Corps application launches a plan to develop KitchenLights unit; includes twin pipelines, an onshore production facility
For development, Furie would usethe Spartan 151 jack-up rig it has
used for exploration drilling todate, but might also use a smallertemporary platform rig for some
completion and maintenance work.
EXPLORATION & PRODUCTIONShell’s Odum bullish on gas, upbeat on Alaska outer continental shelf
Marvin Odum, president of Shell Oil Co., the U.S. arm of Royal Dutch Shell, toldthe Platts Global Energy Outlook Forum on Nov. 29 that in the United States Shell hasa four-pronged approach towards capitalizing on the shale gas phenomenon that is rev-olutionizing the world energy situation.
“The gas revolution is a creator of new jobs, a catalyst for arenaissance in American manufacturing, a bridge to futurerenewables and, with carbon capture and storage, a destinationfuel for an increasingly carbon-constrained economy,” Odumsaid.
The four components of Shell’s approach consist of channel-ing gas into the chemicals industry, converting gas into liquidsproducts like synthetic diesel, opening up opportunities for gasuse as a transportation fuel and marketing liquefied natural gasexports.
Working togetherOdum also said that Shell’s 2012 exploration drilling program in Alaska’s Chukchi
and Beaufort seas illustrated the way in which industry and government can worktogether to secure an opportunity while protecting the environment.
It is not possible to balance the rewards and risks of operating in as environmen-tally sensitive area as the Arctic outer continental shelf “unless government, society
GOVERNMENTBSEE & Coast Guard sign MOU
The Bureau of Safety and Environmental Enforcement, or BSEE, and the U.S.Coast Guard have signed a memorandum of understanding for coordinating theirresponsibilities on the U.S. outer continental shelf, the two agencies announcedNov. 29. The memorandum encourages the agencies to jointly promote regulatorycompliance; to use each other’s expertise and resources in research projects; col-laborate in the drafting of regulations and policies; adopt similar codes and stan-dards; and provide appropriate offshore activity oversight and regulatory enforce-ment.
“This MOU ensures a lasting and mutually beneficial partnership betweenBSEE and the Coast Guard, highlighting the benefits that can be created whenfederal agencies acknowledge a shared commitment and join forces to worktoward a common goal,” said BSEE Director Jim Watson when announcing theagreement. “As offshore operations continue to move into deeper and more com-plex environments, it’s important for us to further develop a collaborative rela-tionship with our partners at the Coast Guard to improve offshore safety and envi-ronmental protection.”
In April BSEE and the Coast Guard signed a memorandum of agreement thatspecifically dealt with the agencies’ roles in oil spill response. The new memo-randum of understanding is broader in scope and is the first document of its typeto be signed by the two agencies since the formation of BSEE in October 2011, inthe aftermath of the Deepwater Horizon disaster.
—ALAN BAILEY
see ODUM page 17
MARVIN ODUM
CommercialOil Field Experienced
Machining
Fabrication
Field Services
Structural
Welding
Piping
Crane / Truck Boom Repair
Cast Iron
Explosion Proof Boxes
Aluminum
Steel / Stainless
Axle Repair
Hand Rail
Boiler Piping - Main & Headers
FOR SALETURN KEY OPPORTUNITY
Only $1,375,000.00
Includes 43, 500 sq. ft. land,
4,516 sq. ft. building
Equipment valued over $500,000.00
Call Kevin Elfrink at Globe Real Estate LLC
907-727-2150 (24/7)
Set-up your private showing
16 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
Akers and Forbes join AECOM’s Anchorage teamAECOM said Nov. 28 that Kristen Akers and Arran Forbes have
joined its Anchorage office. Akers joins AECOM as a project environmental engineer. She
received her bachelor’s and master’s degrees in environmental engi-neering from Texas Tech University and has more than four yearsexperience working various remediation technologies and contractmanagement for Department of Defense contracts. She currentlyholds her engineer in training certificate and is on track for a profes-sional engineer license. Akers will supporting AECOM’s Alaska envi-ronmental services contracts with the U.S. Army Corps of Engineersand the U.S. Air Force.
Forbes joins AECOM as an environmental scientist. She receivedher bachelor’s degree in environmental science from Dartmouth College in 2010. Aftergraduating, she spent several months conducting field research in South Africa, one yeardoing environmental consulting for the village of Igiugig in Bristol Bay, and taught generalchemistry at the University of Idaho. She will be supporting AECOM’s Alaska environmentalservice contracts with the U.S. Army Corps of Engineers and various NEPA EIS projects, andintends to pursue her master’s degree in the coming years.
AECOM is a global provider of professional technical and management support servicesto a broad range of markets, including transportation, facilities, environmental, energy,water and government. More information on AECOM and its services can be found atwww.aecom.com.
US Fab awarded contract to build split hull dump bargeUS Fab, a Vigor Industrial company, said Nov. 1 that it has won the contract to build
American Construction Co. Inc.’s newest vessel, a 242-foot by 54-foot, 4,050 cubic yard,split hull dump barge. The barge was designed by The Glosten Associates of Seattle, Wash.,and features an advanced sealing mechanism to safeguard environmentally sensitive areasfrom potential leakage.
“There are a limited number of split hull dump barges on the West Coast and AmericanConstruction is a leader in both cutting edge equipment and quality services,” said BryanNichols, sales representative, Vigor Industrial. “We’re proud to add them as a customer andare looking forward to a long-term relationship.”
Construction of the barge will take place in Vigor’s Swan Island shipyard in Portland,Ore. The yard is outfitted with an expansive 800 foot buildway, 600 ton Gantry crane and150,000 feet of covered fabrication bays, ideally suited for new builds.
ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS
Companies involved in Alaska and northern Canada’s oil and gas industry
All of the companies listed above advertise on a regular basis with Petroleum News
AAcuren USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13AECOM Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Aggreko LLCAir Energi Air LiquideAircaft Rubber Mfg. (ARM-USA)AIRVAC Environmental GroupAlaska Air CargoAlaska Analytical Laboratory . . . . . . . . . . . . . . . . . . . . . . . .17Alaska DreamsAlaska Frontier Constructors . . . . . . . . . . . . . . . . . . . . . . . . .8Alaska Interstate Construction (AIC)Alaska Marine Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Alaska Rubber Alaska Ship & DrydockAlaska Steel Co.Alaska West Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20All Pro AlaskaAlpha Seismic CompressorsAmerican Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Arctic ControlsArctic Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Arctic Fox EnvironmentalArctic MatsArctic Slope Telephone Assoc. Co-op.Arctic Wire Rope & SupplyARCTOSArmstrongAspen HotelsASRC Energy ServicesAT&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Avalon Development
B-FBaker HughesBald Mountain Air ServiceBombay DeluxeCalista Corp.Canadian Mat Systems (Alaska)Canrig Drilling TechnologyCarlile Transportation ServicesCGGVeritas U.S. LandCH2M Hill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Charter CollegeChiulista ServicesClearSpan Fabric StructuresColville Inc.Computing AlternativesCONAM ConstructionConocoPhillips AlaskaConstruction Machinery IndustrialCook Inlet EnergyCraig Taylor EquipmentCrowley Alaska
Cruz ConstructionDenali IndustrialDonaldson CompanyDowland-Bach Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Doyon DrillingDoyon EmeraldDoyon LTDDoyon Universal ServicesEgli Air Haul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Emerald AlaskaEra Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19ERA HelicoptersEverts Air CargoExpro Americas LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18ExxonMobilFairweatherFlowline Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12FluorFugro
G-MGBR EquipmentGCI Industrial Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Geokinetics, formerly PGS OnshoreGlobal Diving & SalvageGMW Fire ProtectionGolder AssociatesGreer Tank & WeldingGuess & Rudd, PCHawk ConsultantsHaws IntegratedHDR AlaskaInspirationsIntertek MoodyJackovich Industrial & Construction SupplyJudy Patrick PhotographyKenworth AlaskaKiska MetalsKuukpik Arctic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Larson Electronics LLCLast Frontier Air Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . .8Linc EnergyLister IndustriesLittle Red Services, Inc. (LRS)Lounsbury & AssociatesLynden Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden Air Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Mapmakers of AlaskaMAPPA TestlabMaritime Helicopters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3M-I Swaco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
MRO Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19M.T. Housing
N-PNabors Alaska DrillingNalcoNANA WorleyParsonsNASCO Industries Inc.Nature Conservancy, TheNC MachineryNEI Fluid TechnologyNordic CalistaNorth Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Northern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Northwest Technical Services . . . . . . . . . . . . . . . . . . . . . . . .4Oil & Gas SupplyOpti Staffing Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6PacWest Drilling SupplyPENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Pebble PartnershipPetroleum Equipment & ServicesPND Engineers Inc.Polyguard ProductsPRA (Petrotechnical Resources of Alaska) . . . . . . . . . . . . . .2Price Gregory International
Q-ZSAExplorationSalt + Light CreativeSeekins Ford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Shell Exploration & ProductionSourdough Express Inc.STEELFAB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Stoel RivesTaiga VenturesTanks-A-LotTEAM Industrial ServicesThe Local PagesTire Distribution Systems (TDS)Total Safety U.S. Inc.TOTE-Totem Ocean Trailer ExpressTotem Equipment & SupplyTranscube USATTT EnvironmentalUdelhoven Oilfield Systems ServicesUMIAQUnique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Univar USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5URS AlaskaUsibelliWeston SolutionsXTO Energy
Oil Patch Bits
see OIL PATCH BITS page 17
KRISTEN AKERS
development and under evaluation vol-umes “to try to inform folks that there’sless certainty in each of the buckets, ineach of the tranches, but we didn’t do a lotwith the actual numbers — we kept theprocess the same.”
This year, Butcher said, “working withDNR closer than we have before, we’reactually implementing a different way ofmoving forward and what we think is a lotmore accurate way.”
Good technical informationTangeman said that in looking at how
the production forecast had been done, thedepartment realized the technical informa-tion was good, but budget issues were notincluded in the analysis. And while fore-casts out one and two years were relativelyaccurate, longer-term forecasts, out six to10 years, averaged an error rate of 40 to 60percent.
Department of Natural Resources’Division of Oil and Gas Director BillBarron described the way production isbroken out: current production, wherefields and wells are online; fields or proj-ects which are under development — havebeen funded and are in various stages ofdevelopment; and under evaluation —fields where reserves have been identifiedas technically recoverable, but where evalu-ation is ongoing development funding hasnot been approved.
Confidence is high for current produc-tion, Barron said, but less so for timing andproduction in under development projects,
and even less in projects which are underevaluation.
Tangeman said there are many examplesof fields that were supposed to come on ina given year at a certain volume and cameon later and at half the projected volumes.He said the department could see the exam-ples in the history, “but we weren’t account-ing for them going forward, and that’s real-ly the crux of what we were trying toaddress,” adding risk factors to projects.
Satisfied with current productionBarron said that when the division
looked at data for currently producingfields they were satisfied — the well-by-well review done by Revenue’s consultant,aggregated by field — was technicallygood.
But for projects under development orunder evaluation, the second and thirdtranches, there is increasingly less confi-dence, he said, and the division workedwith Revenue’s economists to establishconfidence levels.
The economists developed standarddeviations for two sets of production data,one reflecting a period of higher productionand the other representing a period of lower
production, resulting in two different slopeswhich could then be used to test future fore-casts.
The confidence levels were done byRevenue economists, with guidance fromthe division on timeframes.
More problematicBarron said fields and wells that are cur-
rently producing are not risked at all. For oil under development and under
evaluation, industry practice was assessedand two factors were considered — techni-cal and budgetary — with more confidenceplaced on near-term projects and less onthose farther out in time.
Technical issues include construction,rig problems and whether wells come on asexpected or whether there were reservoirmanagement issues. Then there are budget-ary issues: Not product price, Barron said,but the timing and priorities of budgeting
items within a company. The system was then applied to past pro-
duction projections, where the error ratehad been 40 to 60 percent, and for projec-tions six to 10 years out, the error ratedropped to between 25 and 30 percent com-pared to the actual.
Barron said numbers forecast under thisnew system won’t be right, they are onlyforecasts, but will be closer to what hap-pens because they incorporate risks goingforward.
As Tangeman summarized it, the previ-ous production forecast system used “a 100percent probability, best-case scenario” fornew oil. “And that’s not reasonable or pru-dent for lawmakers and the executivebranch in order to make these decisionslong term.” �
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 17
ORDER TODAY
Learn how the Trans-Alaska Pipeline System was built, andchanged not only Alaska but its Legislature as well.
To order please send $25 per copy ($30 in Canada) to A. Spielman, P.O. Box 106, Anchorage, AK 99515.
Construction is on a tight schedule, with delivery set for June 30, 2013. “US Fab has asolid reputation for on time, on budget deliveries,” said Steven Brannon, president,American Construction. “We’re confident they will hit our deadlines and deliver a qualityvessel to augment our fleet and ensure the safety of our operators.”
Nabors secures unsecured revolving credit facilityNabors Industries Ltd. said Nov. 29 that it was announcing the closing of an unse-
cured revolving credit facility with an aggregate principal amount of $1.5 billion, com-prised of a U.S. dollar-denominated loan facility of up $1.45 billion and a Canadian dollar-denominated loan facility of up to $50 million. The duration of the facility is five years.
The terms of the new facility are substantially the same as the $750 million creditfacility established in September 2010 and the $700 million credit facility established inApril 2011, both of which were terminated contemporaneously with the establishment ofthe new facility. The new facility includes an accordion feature that would allow theCompany to add lenders and increase the aggregate principal amount up to $1.95 billion.Interest margins and undrawn fees are based upon the company’s senior unsecured creditratings. When drawn, U.S. dollar-denominated borrowings under the facility will bearinterest, at the company’s option, at either (a) one, two, three or six months LIBOR, or (b)the higher of the prime commercial rate of Citibank N.A., the Federal Funds Rate plusone-half of 1 percent, or one month LIBOR plus 1.05 percent, in each case plus the appli-cable margin. The company fully and unconditionally guarantees the obligations of itssubsidiaries that are the borrowers under the credit facility.
For further information, please contact Dennis A. Smith, director of CorporateDevelopment & Investor Relations, at 281-775-8038. To request investor materials, con-tact Nabors’ corporate headquarters in Hamilton, Bermuda at 441-292-1510 or via emailat [email protected].
Editor’s note: All of these news items — some in expanded form — will appear inthe next Arctic Oil & Gas Directory, a full color magazine that serves as a marketingtool for Petroleum News’ contracted advertisers. The next edition will be released inMarch.
continued from page 16
OIL PATCH BITS
and business work with one another todefine expectations, agree on operationsstandards and collaborate on solutions,”Odum said, adding that both of the past twoadministrations had “looked hard” at Shell’sAlaska plans.
Following a delayed start to its summerArctic drilling season and problems withthe company’s oil spill containment barge,
Shell drilled the top sections of two wells,one in the Chukchi and one in the Beaufort,in 2012.
“There is a great deal of evidence to sug-gest that massive resources of energy lieunder the waters off the North Slope ofAlaska,” Odum said. “And those resourcescould be critical to the nation’s economy aswell as its long-term security.”
—ALAN BAILEY
continued from page 15
ODUM
continued from page 3
FORECASTLong-term, the department “hasnever forecasted over 2.5 percent
a year decline,” Butcher said,while “we see historically 6
percent (decline) a year, so DORhasn’t just been missing it longterm, they’ve been missing it
substantially.”
The $50 million pipeline is slated tocommence operations in August 2014,say documents submitted to DNR.
Risky oil shipmentsAnchorage-based Cook Inlet Energy is
a subsidiary of Tennessee-based, publiclytraded Miller Energy Resources Inc.
Cook Inlet Energy has an assortmentof oil and gas assets on the west side ofthe inlet, including the West McArthurRiver oil field and the offshore Redoubtunit and Osprey platform. Oil fromOsprey is piped ashore to the Kustatanproduction facility.
Cook Inlet Energy is aiming to rapidlyincrease its production, and a number ofother companies also are producing orexploring on the west side, including
Hilcorp and Apache.Presently, west side crude flows via
pipelines to the Hilcorp-operated DriftRiver terminal, where tankers or bargespick up the oil for delivery across the inletto the Tesoro refinery.
Water transport of crude oil is inher-ently hazardous, and the inlet’s big tidesand dangerous winter ice floes add anextra measure of risk.
Cook Inlet Energy says the subseapipeline could eliminate the need to moveoil by tanker or barge, and could reduceoil transportation costs.
The company also notes the closeproximity of Redoubt volcano to the DriftRiver terminal. Eruptions in 2009 closedthe terminal and idled west inlet oil pro-duction for months.
The company further says the Trans-Foreland Pipeline is needed to “bypassthe aging infrastructure on the west side
of Cook Inlet.”
Large-capacity lineThe new pipeline, 8 inches in diameter,
will have a capacity to move 90,000 bar-rels per day of sales-grade crude, CookInlet Energy’s right-of-way applicationsays.
That’s a very large number relative tocurrent oil production from the west side.
Cook Inlet Energy says it believes itwill need to attract shipping commitmentsof about 4,000 barrels per day to make thetariff competitive with the Cook InletPipe Line system. CIPL is the Hilcorpsubsidiary that operates the Drift Riverterminal.
“However, given the increased opera-tional reliability and environmental bene-fits offered by this (Trans-Foreland) line,the project may be viable at lowerthroughput levels,” the right-of-way
application says.A project description offers consider-
able detail on the pipeline route. Thepipeline will start at the Kustatan facilityand run 2.2 miles, buried in uplands, tothe bluff on the west side of the inlet.
At the top of the bluff, the pipe will beinstalled using horizontal directionaldrilling for 2,640 feet into Cook Inlet,where it will exit onto the seafloor.
The line then will run about 26 milesacross the bottom.
“The pipeline is laid in a horseshoeshape to facilitate construction in the hightidal currents occurring between the Eastand West Forelands,” a project descriptionsays. “The forelands represent the nar-rowest part of Cook Inlet and have thehighest currents and deepest trenches.The route was also selected to minimizetidal stresses and avoid water depthsgreater than 200 feet, the maximum depthfor safe operation by marine divers.”
On the east side, the buried pipelinewill run 1.6 miles along Hedberg Driveand the Kenai Spur Highway to its termi-nus at the Kenai Pipe Line Co. tank farmnear the Tesoro refinery. KPL is a sub-sidiary of San Antonio, Texas-basedTesoro.
Construction scheduleThe pipeline will be equipped with a
leak detection system and a cathodic pro-tection system to prevent corrosion. Andthe design will accommodate internalinspection devices known as pigs, theapplication says.
A lay barge, tugs and other supportvessels will be used to install the pipelineon the Cook Inlet seafloor.
Cook Inlet Energy says 130 construc-tion jobs will be filled for the project.About eight field workers and four officeworkers will be needed to operate andmaintain the pipeline.
Construction is scheduled for Aprilthrough August 2014. The work schedulewill be designed to avoid conflicts withcommercial salmon fishing.
Cook Inlet Energy says two contrac-
18 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
www.exprogroup.com
Join us in celebrating the debut of our new Mobile Well Test Units in Anchorage, Alaska
Expro would like to invite you, as a contributor to our success in the area, to join our team in celebrating the introduction of our Mobile Well Test Units to Alaska. The event will include a feature display of the Mobile Well Test Unit itself, along with displays of some of Expro’s other service capabilities.
Please join us to celebrate this exciting new phase of our involvement in the Alaskan onshore energy industry.
When:December 13, 2012, 11:00 am - 7:00 pm.
Where: Dena’ina Civic and Convention Center, 600 West 7th Avenue, Anchorage, AK 99501 USA.
continued from page 1
SUBSEA PIPELINE
see SUBSEA PIPELINE page 20
PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012 19
Corps permit allows activity that disturbswetlands and navigable waters.
On Oct. 31, Alaska’s natural resourcescommissioner, Dan Sullivan, signed aright-of-way lease for the export pipeline,which will cross state land.
Point Thomson is a remote oil and gasfield on state acreage about 60 miles eastof Prudhoe Bay. Discovered in the late1970s, the field is particularly rich in nat-ural gas with an estimated resource of 8trillion cubic feet. Only Prudhoe hasgreater proven gas reserves on the NorthSlope.
Lack of a multibillion-dollar gaspipeline has kept the Slope’s gas reservesstranded in the ground. But state officialsnevertheless have been keen to see somesort of production from Point Thomson,and in March signed a legal agreementwith ExxonMobil to begin phased devel-opment of the field.
The initial project will involve pro-ducing gas condensate, which takes a liq-uid form and can flow through oilpipelines.
At the request of the RCA, which onOct. 23 held a hearing on the proposedPoint Thomson pipeline, PTE Pipelinefiled a document defining gas conden-sate.
“Gas-condensate is present as gas inthe producing formation,” the filing said.“It becomes a hydrocarbon liquid when itcondenses from the produced natural gasas pressure and temperature fall beloworiginal reservoir conditions during pro-duction and surface handling in process-ing facilities. The condensate produced atPoint Thomson will be dehydrated andstabilized at the Central Pad processingfacility to meet oil pipeline specifica-tions. Thomson Sand condensate is com-posed of predominantly shorter chain orlighter fraction hydrocarbons than AlaskaNorth Slope crude oil. Condensates gen-erally have higher American PetroleumInstitute (API) gravities than crude oilsand lower pour points and viscosities.Point Thomson Central Pad condensatesampling analysis showed API gravitiesranging from 36 to 41 degrees ....”
Full field development at PointThomson will require billions of dollarsin investment.
The export pipeline alone is an expen-sive undertaking, including $18 millionfor materials, $190 million for engineer-ing and construction, and $45 million forcontingencies. PTE Pipeline told thecommission no financing will berequired as all funding will come from
ExxonMobil, the RCA’s Nov. 30 ordersaid.
Pipeline operations and maintenanceis expected to cost about $26 millionannually.
The RCA order said PTE Pipelinemust file a tariff no later than 90 daysbefore it begins service on the commoncarrier line. Transportation rates areexpected to be quite high until volumebuilds. In a previous filing with the RCA,the company said the initial tariff for thePoint Thomson line is estimated to rangefrom $15 to $20 per barrel.
The 12-inch, insulated, above-groundpipeline will feature a design capacity of70,000 barrels per day, well above the10,000 barrels per day of condensateExxonMobil expects to produce initially.The surplus capacity will accommodatefuller Point Thomson development, andperhaps production from other easternNorth Slope developments.
The RCA order indicated PTEPipeline was targeting early February forpipeline construction to begin. The com-pany had requested approval, effectiveDec. 1, for building ice roads to supportthe pipeline construction.
The commission directed PTEPipeline to file a complete set of con-struction plans and specifications by Jan.31.
Kim Jordan, an ExxonMobil spokes-woman in Houston, provided this state-ment to Petroleum News:
“We’ve secured the critical permitsrequired for this winter’s activities, anddepending on weather conditions, ourwinter construction season will likely rununtil late April or early May 2013. Ourwork this winter will focus on infrastruc-ture development. Planned on-site activi-ties include constructing gravel roads, anexpanded site pad, construction camps,and an airstrip. Pipeline support memberswill be also be installed along thepipeline right-of way. We will also con-struct an ice road from Badami to ourPoint Thomson site — approximately 22miles long. All construction activitieswill be conducted with mitigation meas-ures in place to minimize impact on tun-dra, wildlife, aquatic resources and sub-sistence activities.”
ExxonMobil already has drilled a cou-ple of production wells at Point Thomson.
The company has promised the state itwill begin production by the winter of2015-16.
Other major Point Thomson fieldstakeholders include BP andConocoPhillips. �
continued from page 1
PIPELINE PERMITtic energy landscape through 2035, the2013 addition extends the outlook to2040. In each outlook, the “referencecase” provides a baseline for consideringthe future. The full version of the outlook,scheduled for March, will also include“side cases” that consider the potentialimpact of changing regulations, commod-ity prices and other factors on domesticenergy markets.
Shale still disruptiveThe EIA made waves in Alaska two
years ago when it removed the NorthSlope gas pipeline from the referencecase of its Annual Energy Outlook 2011,citing low gas prices in the wake ofincreasing domestic unconventional gasproduction. The reference case in theAnnual Energy Outlook 2010 had pro-jected the pipeline would be finished in2023.
Those disruptive factors remain inplay.
The Annual Energy Outlook 2013 ref-erence case projects Henry Hub gasprices will remain below $4 per millionBtu through 2018, increasing to $5.40 permillion Btu by 2030 and $7.83 per mil-lion Btu by 2040 as production shifts tohigher cost plays.
Additionally, the reference caseexpects gas production to surpass demandby 2020 — two years earlier than theagency forecast last year — largely with-out Alaska’s help.
The increased production would makethe U.S. a net exporter of natural gas,improving the economics of an Alaskaproject. In the reference case, the EIA
expects the U.S. to export 0.6 billioncubic feet of LNG per day by 2016,increasing to 4.5 bcf per day by 2027, asexport volumes peak from facilities onthe Gulf Coast and in Alaska.
After two competing projects to builda gas pipeline from the North Slope intothe Lower 48 failed to yield sufficientshipper commitments last year, Gov. SeanParnell challenged the industry to focuson a project to export North Slope naturalgas to East Asia, as LNG.
In October, the project sponsors esti-mated that a large diameter pipeline capa-ble of moving between 3 bcf and 3.5 bcfper day — plus associated plants, tanksand terminals — would cost between $45billion and $65 billion in 2013 dollars.
Cautious on oilWhile the Annual Energy Outlook
2013 shows some optimism on AlaskaLNG, it is less optimistic about anotherParnell administration goal: increasingAlaska oil production.
Under the reference case, Alaska oilproduction falls steadily through the mid-2020s, increases slightly for a few yearsand levels off for the remainder of theforecast period.
But tight oil production booms, whileoffshore and conventional onshore pro-duction holds steady, making Alaska aneven smaller percentage of the domesticoil supply.
Early in his time in office, Parnell seta goal to increase throughput on the trans-Alaska oil pipeline to 1 million barrelsper day from its current level of less than600,000 bpd.
—ERIC LIDJI
continued from page 1
EIA FORECAST
Slips • Casing • Drill Collar • Rotary Slips • Tattle Tale Hinge Pins • Access LD Type 1000 Ton Rotary Slips • XP1000-20-Extreme Service Slip System
Spiders
Kelley Spinners
Stabbing Guides
Tongs • Drill Pipe and Casing Tongs • Tubing Tongs
Elevators • Bottleneck • Slip Type • Square Shoulder • XP1000 Extreme Performance
Safety Products • Access Backsaver • Access Pneumatic Casing Bakersaver • Safety Clamps • Phantom Mouse • Slip Flex Handles • Tong Die Driver • Tong Handles p 907-248-8808
f 907-248-8878mrosalesinc.com
Available in Alaska through
Using its Endeavour jack-up rig,Buccaneer would drill, test and completethe Cosmo No. 1 well between Decemberand early February and the Cosmo No. 2well through April.
The wells would both be on ADL384403, the location of all the recentdrilling at the prospect. A pair of previouswells drilled in the 1960s sits to the eastand northeast.
The Division of Oil and Gas is takingcomments on the project through Jan. 3.
Earlier this year, the state allowedBuccaneer to defer wells at its offshoreSouthern Cross and Northwest Cook Inletunits and focus on Cosmopolitan first.The company had originally planned touse its jack-up at all three prospects thisyear, but was forced to ask for an exten-sion to its work commitments because therig was delayed getting to Alaska.
1967 discoveryBuccaneer is the fourth company to
seek success at Cosmopolitan.Pennzoil discovered the prospect in
1967, but did not develop it.
ConocoPhillips formed the Cosmopolitanunit in 2001 and drilled the following year,but despite a 50-day flow test averaging550 barrels per day of oil the company ulti-mately sold the prospect to Pioneer NaturalResources Alaska in 2005. Pioneer triednewer techniques on the productive inter-val and even conducted a unique pilot proj-ect to truck some Cosmopolitan oil to mar-ket, but dropped the prospect in early 2011.Despite “encouraging” results from aworkover and fracture stimulation, it said,“subsequent flow test results and engineer-ing studies indicated that the resourcepotential was not as large as originally esti-mated.”
Buccaneer believes its jack-up rigimproves the economics of the project.
Using previous drilling, testing andseismic data, Buccaneer estimatesCosmopolitan contains some 31 millionbarrels of proved oil reserves. It also esti-
mates the prospect could hold as much as55.2 million barrels of oil equivalent ofproved and probable reserves (brokendown as 44 million barrels of oil and 90billion cubic feet of gas).
West Eagle seismicBuccaneer is also proposing a 3-D seis-
mic campaign at its West Eagle prospect.The 61 square mile survey would cover
an onshore area some 15 miles northeast ofHomer using a cable-free recording systeminstalled by helicopters in the road-freearea.
The company plans to drill shot holes inDecember and record in February, andcomplete the survey in mid-March. Theproject involves around 80 people, throughall phases.
The Division of Oil and Gas is takingcomments on the project through Jan. 3.
West Eagle was among the originalprospects Buccaneer acquired from StellarOil and Gas in March 2010, when itentered the Alaska market, but in the twoand a half years since the company hasfocused on other prospects in its portfolio,particularly the onshore Kenai Loop fieldand the offshore Southern Cross andNorthwest Cook Inlet units.
In 2011, Buccaneer acquired and
reprocessed a 233-mile 2-D seismic surveyover West Eagle. The seismic surveymapped a “large north-south trending gasprospective anomaly” in the northeast ofthe prospect, as well as potential oil andshallow gas leads.
All but one of the leases in the unit wereset in expire on Sept. 30. Shortly beforethat date, Buccaneer applied to form the46,395-acre West Eagle unit, telling thestate it was “poised to drill,” but needed anassurance it would be able to keep itsacreage.
In a proposed three-year plan of explo-ration, Buccaneer said it would drill anexploration well by Sept. 30, 2012 — adeadline that must be changed, if the unitwere approved. The well would target aTyonek interval identified in a well fromthe 1960s. By September 2014, Buccaneerwould either a second well or shoot a 3-Dseismic over some of the unit.
The state has yet to rule on the propos-al.
Kenai Loop productionFor the second time in as many months,
Buccaneer has increased gas productionfrom its onshore Kenai Loop field toaccommodate a short-term contract forsmall volumes.
The company is now producing 6.5million cubic feet per day on average fromthe Kenai Loop No. 1 well, an increase of500,000 cubic feet per day, or around 8percent.
Through a recently executed gas salesagreement, Buccaneer said it would sellthe additional 500,000 cubic feet per dayto an unnamed third party in Cook Inlet.The contract runs through the end of theyear, with a set price of $15 per thousandcubic feet, net of pipeline tariffs.Buccaneer suggested it might be able toextend the contract into 2013, or to expandthe sales volumes, depending on the futureneeds of the buyer.
In October, Buccaneer executed a con-tract to sell 1 million cubic feet per day toan unnamed Cook Inlet third party at$7.50 per thousand cubic feet. As of Nov.14, the buyer will pay $15 per thousandcubic feet, Buccaneer said. The contractends Dec. 15.
Prior to the two short-term contracts,Buccaneer had been selling 5 millioncubic feet per day to Enstar Natural GasCo. through a previously executed con-tract. Once the two short-term contractsexpire, Buccaneer plans to sell the addi-tional volumes to Enstar using the dailyauction pricing process established inrecent years to meet peak demand.
Buccaneer expects the peak pricing tolast through mid-February 2013.
Buccaneer is currently completingKenai Loop No. 4, another well at theonshore field, north of the city of Kenai,and said the well might yield additionalproduction increases. �
20 PETROLEUM NEWS • WEEK OF DECEMBER 9, 2012
continued from page 1
COSMO WELLS
tors are under consideration for thepipeline installation: Price Gregory andCONAM Construction, and NANAConstruction.
Most of the pipeline route, includingthe long stretch under Cook Inlet, is onstate land. Thus, Cook Inlet Energy isseeking a DNR lease for the right of way.
The application materials are postedonline at dnr.alaska.gov/commis/pco. �
continued from page 18
SUBSEA PIPELINE
At Cosmopolitan, just off the coastof Cape Starichkof, Buccaneer
plans to explore for oil andnatural gas, but said it may limitits target to natural gas at one of
the two wells.