DEC makes changes to program for spill response drill oversight

page5

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

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

l N A T U R A L G A S

Vol. 23, No. 20 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 20, 2018 • $2.50

PRA Cook Inlet gas forecast indicatesmore development needed

In response to a commission by Enstar Natural Gas Co.,

Petrotechnical Resources of Alaska has updated its 2012

assessment of Cook Inlet gas demand and supply. The revised

assessment indicates that at current rates of gas well drilling,

gas supplies will start to fall short of demand in 2021. In the

absence of the drilling of new wells, the shortfall would begin

in 2019.

Originally, in 2010, PRA prepared a Cook Inlet study, ana-

lyzing the ability of the local gas industry to continue to meet

utility customers’ needs. Utilities Enstar, Chugach Electric

Association and Municipal Light & Power commissioned that

initial study in response to growing concerns at that time

about the possibility of imminent shortfalls in utility gas sup-

plies, as gas production from the Cook Inlet basin declined.

PRA revised that original assessment in 2012.

The new revision to the PRA report appears to indicate a

need for continued vigilance regarding the future adequacy of

Cook Inlet gas supplies.

PRA prepares its assessments by analyzing the production

State extends Great Bear leases inexchange for drilling commitments

Having applied for and been granted three-year extensions

to a number of North Slope leases that had been due to expire

on April 30, Great Bear Petroleum has decided to focus its

future efforts on two blocks of leases: one straddling the

Dalton Highway south of Prudhoe Bay and one south of the

Colville River unit, Pat Galvin, the company’s chief commer-

cial officer and general counsel, told Petroleum News in a

May 14 email. The company anticipates re-entering and test-

ing its Alkaid No. 1 well, to the west of the Dalton Highway,

drilling two new exploration wells by June 2019 and an addi-

tional exploration well by June 2020, Galvin said.

Applied for extensionsIn October 2017 Great Bear applied to Alaska’s Division of

Oil and Gas for three-year extensions to four blocks of leases,

all of which had been issued in 2011 with seven-year terms —

these leases had been due to expire on April 30 of this year. In

March and early April the division agreed to extend all of the

leases, which do not now expire until April 30, 2021. The

Governor’s bonding play passesLegislature; suit has been filed

The Alaska Legislature wrapped its 2018 session in the early

hours of May 13, including passage of the required operating and

capital budgets and a bill authorizing use of earnings of the

Permanent Fund for state government as well as for dividend

payments.

The Legislature earlier passed House Bill 331, a bill requested

by Gov. Bill Walker which allows bonding to pay cashable oil

and gas tax credits. The bill, which passed the Senate May 11,

had passed the House May 3. The House voted 22-16 in favor —

23-15 in favor on a reconsideration vote. The Senate voted 14-5.

Both bodies passed the immediate effective date, the House 34-

4, the Senate 18-1.

The governor had not signed the bill when this issue of

Petroleum News went to press.

A constitutionality issue which was the subject of much dis-

cussion in both bodies will be decided in court: The Associated

Press reports that a suit was filed in state court May 14, challeng-

ing the constitutionality of HB 331.

The constitutionality issue was raised by Sen. Bill

CINGSA plans upgradesRequests RCA approval of facility changes to assure gas storage reliability

By ALAN BAILEYPetroleum News

Cook Inlet Natural Gas Storage Alaska LLC, or

CINGSA, is concerned that its gas storage

facility on the Kenai Peninsula is vulnerable to the

failure of single item of equipment or of a storage

well, a failure that would jeopardize the ability of

the facility to support utility gas deliverability

needs during cold winter weather.

As a consequence, the company has asked the

Regulatory Commission of Alaska for approval of

some upgrades to the storage facility, to add some

redundant features that would guard against single

points of failure at times when the facility plays a

vital role in underpinning gas supplies for heating

buildings and generating power in Southcentral

Alaska.

In part, the upgrade requirements result from

patterns of gas storage usage that differ from what

had originally been envisaged when the storage

facility was designed, and from the operating char-

acteristics of the storage wells, CINGSA has told

the commission.

The proposed upgrades involve the drilling of

Mustang early startState approves temporary facility installation for production this year

By ALAN BAILEYPetroleum News

Alaska’s Division of Oil and Gas has approved

a plan filed by Brooks Range Petroleum

Corp. to install a temporary production facility in

the Mustang field, to allow some early oil produc-

tion to start, potentially in late October of this year,

before permanent production facilities go into

operation. The idea would be to truck the produced

oil to a designated point of sale or processing facil-

ity, until the permanent pipeline from Mustang to

the nearby Alpine pipeline has been completed.

Brooks Range has been planning on first oil

from Mustang in the first quarter of 2019, follow-

ing installation of permanent facilities and the

hookup of the pipeline by the end of this year.

However, the company’s application for early pro-

duction facility approval indicates that the tie in of

the field to the Alpine line has not yet been sched-

uled.

Rented moduleAccording to the application, the idea is to rent

Pipeline factions dig inCanadian government likely to boost powers to advance Trans Mountain project

By GARY PARKFor Petroleum News

Warring factions are fast becoming more

entrenched as the battle over the Trans

Mountain pipeline project approaches a May 31

drop-deadline date set by Kinder Morgan.

Other than Kinder Morgan, which says the

protests present an “unquantifiable risk” to the

project, the most key player is the Canadian gov-

ernment, whose Natural Resources Minister Jim

Carr has promised early federal legislation that is

designed to crush the British Columbia govern-

ment’s court case to control the flow of crude oil

through the province.

“We think that federal jurisdiction is clear;

we’re looking at legislation to see how we can

enhance that,” Carr said.

He would not comment on the exact nature of

the legislation, but Bruce Ryder, a law professor at

Toronto’s York University, said the government

can use legislation to signal that it will not allow

provinces or municipalities to frustrate the pipeline

construction.

Although Kinder Morgan has yet to disclose

exactly what will happen if the government fails to

see GAS FORECAST page 8

see GREAT BEAR LEASES page 8

see BONDING PLAY page 9

see CINGSA UPGRADES page 12

see MUSTANG START page 10

see PIPELINE FACTIONS page 11

However, the manner in which customersuse the storage facility has turned out to

be different from what CINGSA hadanticipated when the facility was

designed.

Following the completion of functionalcheckout and the commissioning of theproduction arrangements, productionstartup could begin around Oct. 20.

The most significant development is theemergence of professional protesters, who

are setting up a permanent camp onpublic land near the Burnaby tanker

terminal in the port of Greater Vancouver.

2 PETROLEUM NEWS • WEEK OF MAY 20, 2018

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Syrian Kurds build a ramshackle industryBy HUSSEIN MALLA

Associated Press

Driving along the roads of northeastern Syria, one

would imagine there is a massive economic boom in

the war-ravaged area.

Convoys of oil trucks, as many as 50 trucks in each,

line the highways. They haul oil extracted from fields held

by the U.S-backed Kurds, transporting it across the terri-

tory they control since driving out the Islamic State group.

But the oil industry is in shambles. After seven years of

war, infrastructure is broken down and antiquated, there is

no investment in the fields and the fight over control of oil

resources is far from over.

Along the roads, old-style pumpjacks bob up and down

on wells. Miles away on the landscape, dark pillars of

smoke rise from primitive, ramshackle refineries that look

like giant piles of scrap metal. At one, workers covered in

sludge operated burners to separate oil components. Large

puddles of leaked crude dot the area.

The workers are locals, many of them farmers who can

no longer earn a living from their fields. Kurdish authori-

ties sell crude to private refiners, who then sell fuel and

diesel back to them.

For maintenance, workers use spare parts that often

date back to the 1960s, piled up in nearby warehouses. No

new exploration is possible, so old wells are drying up,

they say.

Control seized in 2012The Kurdish self-rule administration seized control of

these oil fields in northeastern Hassakeh province after the

government pulled out of most of the Kurdish-majority

regions in 2012 to fight rebels elsewhere.

Abdul-Karim Malak, the Kurdish oil minister, said oil

and gas are the self-rule administration’s main revenue

source, though he wouldn’t divulge figures.

The Syrian government has vowed to eventually retake

all the oil fields, but for the time being there is a quiet

arrangement between it and the Kurds. Damascus buys

much of the surplus oil that the Kurdish-run areas don’t

use. Also, many employees of the government oil compa-

ny have returned to work, still receiving their salaries

from Damascus.

Race for more territoryBut the two sides have been in fierce competition far-

ther down the Euphrates River in eastern Syria. Over the

past months, the Kurds and government forces raced to

capture IS territory, both aiming for the country’s biggest

oil fields, in Deir el-Zour province.

The Kurds got there first, seizing the fields from IS.

But they haven’t been able to operate them, because they

are still battling IS remnants and have come under attack

from government forces just across the Euphrates.

The Kurds eventually may try to keep oil fields or use

them as a bargaining chip in negotiations. In the mean-

time, they are exploiting them as best they can.

Malak pointed to the lack of investment. Without mod-

ern refineries, “we are polluting the air here, we are pol-

luting the environment,” he said. “But we are forced to do

this.” If developed, he said, oil fields they control can pro-

duce more than half of Syria’s needs.

He said discussions with the Americans about future

investment are ongoing, adding, “Our contracts will go to

those who support us politically.” l

CINGSA plans upgradesRequests RCA OK of facility changes to assure gas storage reliability

Mustang early startState approves temporary facility installation for production in 2018

Trans Mountain pipeline factions dig inCanadian government likely to boost powers to advance project

ON THE COVER

PRA Cook Inlet gas forecast indicatesmore development neededState extends Great Bear leases inexchange for drilling commitments

Governor’s bonding play passesLegislature; suit has been filed

ENVIRONMENT & SAFETY5 DEC makes improvements to spill drill program

6 Conoco Kuparuk recertified for VPP

6 Draft climate policy out; feedback sought

EXPLORATION & PRODUCTION3 State approves, partially approves, 4 PODs

Hilcorp Granite Point, North Cook Inlet, Trading Bay plans OK’d; Middle Ground Shoal OK’d for A, C platforms; not for Baker, Dillon

4 BLM closes tundra travel season in NPR-A

5 Conoco files BLM application for Willow

2 Syrian Kurds build a ramshackle industry

4 Scoping period, meetings for coastal plain

6 UAF to test drone surveillance of TAPS

6 RCA expectations for transmission meetings

4 Curacao court OKs Conoco seizing assets

5 ISER estimates Liberty’s economic impact

INTERNATIONAL

LAND & LEASING

PIPELINES & DOWNSTREAM

UTILITIES

By KRISTEN NELSONPetroleum News

The Alaska Department of Natural

Resources, Division of Oil and Gas,

has approved three Cook Inlet plans of

development submitted by Hilcorp

Alaska and partially approved a fourth.

In May 14 decisions, the division

approved the company’s 2018 plans of

development for the Granite Point unit,

the North Cook Inlet unit and the Trading

Bay unit.

It partially approved the POD for the

Middle Ground Shoal unit.

Middle Ground Shoal The Middle Ground Shoal unit, for-

merly known as the South Middle

Ground Shoal unit, is a combination of

the South Middle Ground Shoal unit, the

North Middle Ground Shoal field and the

Middle Ground Shoal field. There are

four platforms in the unit: A, C, Baker

and Dillon. During the 2017 calendar

year, production from the A platform

averaged 165,000 standard cubic feet per

day of natural gas and 562 barrels per day

of oil, while C platform production aver-

aged 63,000 cubic feet per day of natural

gas and 284 bpd of oil, the division said.

The Baker and Dillon platforms did

not produce in 2017.

The division said Hilcorp proposed to

sidetrack three existing wells from the C

platform in its 2017 POD, but no drilling

was done due to a gas pipeline leak that

shut down production from C platform.

“Because of the leak, pipeline inspec-

tions were completed and repairs were

made,” the division said, with production

resuming in late 2017.

In its 2018 POD Hilcorp proposed

continuing production from the A and C

platforms, with maintenance inspection

work planned for the A, C and Baker plat-

forms.

The division said continued produc-

tion from the A and C platforms will

bring economic benefit to the state but

said “Hilcorp’s lack of work for the Baker

and Dillon platforms and lack of produc-

tion” from those platforms does not sup-

port the best interests of the state.

Approval has been granted only for the

A and C platforms and two tracts within

the unit. There is an appeal period of 20

calendar days.

Granite PointThe Granite Point unit was formed in

2015 when the South Granite Point unit

was expanded to include the Granite

Point field and renamed the Granite

Point unit.

There are six offshore state oil and gas

leases in the unit, and two participating

areas — the Hemlock Sands and Granite

Point Sands — with operations from the

Granite Point, Anna and Bruce plat-

forms. Processing is at the Granite Point

production facility.

Granite Point production began in

1967 and cumulative production through

the end of 2017 was 137.13 billion cubic

feet of natural gas and 153.26 million

barrels of oil. The 2017 rate from the

three platforms is an average of 2,408

bpd.

In its 2017 POD Hilcorp planned to

maintain oil and gas production and side-

track as many as three wells from the

Granite Point platform; the division said

production was maintained and two side-

tracks were drilled, in addition to various

facility improvements and repairs to the

platform.

Hilcorp plans to maintain production

during its 2018 POD and to evaluate

long-term options for drilling additional

sidetracks.

In approving this POD the division

said the maintenance of production will

benefit the state.

North Cook InletHilcorp took over operation of North

Cook Inlet from ConocoPhillips in late

2016. North Cook Inlet has been in pro-

duction since 1969 and has produced

1,909 billion cubic feet of natural gas

through the end of 2017, with 2017 pro-

duction increasing from 16 million to 19

million cubic feet per day.

During the 2016 POD period Hilcorp

continued to manage the field by optimiz-

ing life cycle depletion of the mature gas

field and exploit under depleted gas

sands.

During the 2017 POD Hilcorp planned

to maintain production, which it accom-

plished with the addition of perforations

in three wells, the division said, with

structural engineering assessments also

begun for future facilities work.

In its 2018 POD Hilcorp plans to con-

tinue evaluating future rig workover and

drilling opportunities, the division said,

and while the company plans to evaluate

potential undeveloped accumulations it

has no specific exploration plans.

“Work to update the platform for new

crew quarters will be completed, as will

pipeline work as part of the Cook Inlet

Pipeline Cross Inlet Extension Project,”

the division said.

In approving the plan the division said

while Hilcorp does not propose to expand

development or undertake new explo-

ration, it continues production from exist-

ing facilities, protecting the state’s eco-

nomic interests in the facilities.

Trading BayThe Trading Bay unit was formed and

began sustained production in 1967. It

produces from four participating areas in

the McArthur River field — the

Hemlock oil pool, West Foreland oil

pool, the Middle Kenai G oil pool and

the Grayling Gas Sands.

The unit was expanded in 2013 to

include the Trading Bay field.

Average daily oil production in calen-

dar year 2017 was some 4,621 bpd; aver-

age natural gas production was 21 mil-

lion cubic feet per day.

During the 2017 POD Hilcorp antici-

pated drilling up to four sidetracks from

existing wells and three new wells, the

division said. The company drilled three

of the four sidetracks but no new wells.

Electric submersible pumps were

replaced as needed and many workovers

completed. An additional planned side-

track from the Monopod platform was

planned but not drilled.

The division said that during the 2018

POD, Hilcorp plans to drill two wells

from the Steelhead platform and side-

track a well from the Monopod platform,

as well as replace electric submersible

pumps as needed.

In approving the plan the division

said Hilcorp is continuing drilling and

workovers from the previous plan. “The

projects and operations are helping to

increase production in fields that have

been producing for over 50 years,” and

the 2018 POD will continue existing

production “while conducting new

drilling, well workovers, and evalua-

tions of shut-in wells to further increase

production.” l

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

State approves, partially approves, 4 PODsHilcorp Granite Point, North Cook Inlet, Trading Bay plans OK’d; Middle Ground Shoal OK’d for A, C platforms; not for Baker, Dillon

PETROLEUM NEWS • WEEK OF MAY 20, 2018 3

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The division said that during the2018 POD, Hilcorp plans to drill

two wells from the Steelheadplatform and sidetrack a well fromthe Monopod platform, as well as

replace electric submersible pumpsas needed.

4 PETROLEUM NEWS • WEEK OF MAY 20, 2018

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CORRECTIONNuka Research and Planning Group

The article titled “CIRCAC project assessing pipeline risk” in the May 13 issue

of Petroleum News incorrectly identified the company that has contracted with

the Cook Inlet Regional Citizens Advisory Council to conduct a Cook Inlet

pipeline risk assessment as Nuna Research and Planning Group. The correct name

of the company is Nuka Research and Planning Group.

Petroleum News apologizes for any confusion.

LAND & LEASINGScoping period, meetings for coastal plain

The federal Bureau of Land Management has set a scoping period of April 20

to June 19 for a coastal plain oil and gas leasing environmental impact statement

to implement leasing on the coastal plain of the Arctic National Wildlife Refuge.

The 2017 Tax Act requires at least two lease sales. BLM said the leasing EIS

“may also inform post-lease activities, including seismic and drilling explo-

ration, development, and transportation of oil and gas in and from the Coastal

Plain.”

The leasing EIS “will consider and analyze the potential environmental

impacts of various leasing alternatives, including the areas to offer for sale, and

the terms and conditions (i.e., lease stipulations and best management practices)

to be applied to leases and associated oil and gas activities to properly balance

oil and gas development with existing uses and conservation of surface

resources, and to limit the footprint of production and support facilities on

Federal lands to no more than 2,000 surface acres,” BLM said.

The public scoping meetings will be held May 22 in the Community Hall in

Kaktovik beginning at 6:30 p.m.; in the Community Hall at Arctic Village May

24 beginning at 10 a.m.; at the Carlson Center in Fairbanks May 29 at 4:30 p.m.;

in the Dena’ina Center in Anchorage May 30 at 4:30 p.m.; in the Inupiat Heritage

Center in Utqiagvik at 5 p.m. May 31; in the Village of Venetie Tribal Hall in

Venetie June 12 at 10 a.m.; and in the National Housing Center in Washington,

D.C., June 15, at 4:30 p.m.

BLM said the Fairbanks and Anchorage meetings will be livestreamed at:

www.blm.gov/live.

The area comprising the Coastal Plain includes approximately 1.6 million

acres within the approximately 19.3 million-acre Arctic National Wildlife Refuge.

—PETROLEUM NEWS

EXPLORATION & PRODUCTIONBLM closes tundra travel season in NPR-A

On May 11 the federal Bureau of Land Management announced the closure of

winter off-road tundra travel in the National Petroleum Reserve-Alaska. As pre-

viously reported in Petroleum News, the Alaska Department of Natural Resources

has already closed all Arctic state lands for off-road tundra travel — the Lower

Foothills area closed on May 6, while the Eastern and Western Coastal areas

closed on May 8.

Unlike the state, which sets opening and closing dates for tundra travel based

on parameters for ground temperatures and snow cover, BLM issues federal off-

road permits for NPR-A on a case-by-case basis, using performance-based stan-

dards for protecting the tundra. But, while BLM’s approach does not require the

agency to set any specific start date for winter tundra travel, the agency’s regula-

tions do require the agency to set an end-date, by which time off-road operations

must finish for the season.

—ALAN BAILEY

INTERNATIONALCuracao court OKs Conoco seizing assets

A court on the Dutch island of Curacao has authorized the local subsidiary of U.S.

oil giant ConocoPhillips to seize $636 million worth of assets held on the island by

Venezuela’s state oil company, PDVSA.

The move comes as Houston-based Conoco seeks to recover $2 billion in a decade-

old dispute over the expropriation of its Venezuelan oil projects by the OPEC nation’s

socialist government, which is struggling with an economic crunch that has caused

widespread shortages of food and medicine.

Curacao Economy Minister Steve Martina said at a news conference May 13 that

Conoco already had taken control of some oil products at the Isla Curazao refinery,

though he did not specify how much.

The Curacao court’s ruling of May 4 is a blow to Venezuela, which uses refineries

on Curacao and elsewhere in the Netherlands Antilles to store a significant portion of

the oil it exports to its three main foreign markets — China, the U.S. and India.

According to the ruling reviewed May 13 by The Associated Press, the company

can seize all oil products stored at the Isla Curazao and the Di Korsou refineries on

Curacao. The court also said Conoco can take over any crude oil shipments en route

from Venezuela to the island that are within 19 kilometers (12 miles) of the Curacao

coast.

Venezuela holds the world’s largest underground oil reserves but production has

declined under nearly two decades of socialist leadership, casting the once-wealthy

nation deep into political and economic crisis.

An arbitration panel under the International Chamber of Commerce in late April

found that Venezuela under the leadership of then-President Hugo Chavez in 2007

illegally expropriated joint venture operations with ConocoPhillips.

The firm turned to a local court to collect the award, but the petition spelling out

its demands has not been made public. The $2 billion award represents the equivalent

of more than 20 percent of the cash-strapped Venezuela’s foreign currency reserves.

—ASSOCIATED PRESS

PETROLEUM NEWS • WEEK OF MAY 20, 2018 5

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ENVIRONMENT & SAFETYDEC makes improvements to spill drill program

The Alaska Department of Environmental Conservation has

announced improvements to its program for the oversight of oil

spill response drills and has published a new manual for plan-

ning, conducting and evaluating oil spill response exercises.

DEC requires entities that handle oil to maintain approved oil

spill prevention and contingency plans, and to conduct regular

exercises to test the

plans. The exercises are intended to ensure the

effectiveness of the plans and to demonstrate

the response capabilities of oil facility opera-

tors and other organizations involved in spill

response procedures.

“Our spill numbers from regulated facilities

have been on a decline and that is a testament

to the dedication of the oil industry to reduce

spills. Exercises are the best way to ensure the

oil industry maintains that capacity,” said

Kristin Ryan, DEC spill prevention and response director, when announcing the pro-

gram changes. “Over the last few years, we have worked to improve our program to

better ensure the response community is able to prevent, prepare for, and respond to

spills.”

Improvements to the exercise program included clarification of the state’s oil spill

exercise requirements and of DEC’s role in exercises, both as a partner in the spill

response activities and as an evaluator of what is being done. The new procedures bet-

ter align the requirements of the state and federal agencies, thus removing some

redundancies and improving efficiency. Guidance on the design of drills and exercises

is now more reflective of realistic incidents while also preparing response teams to

deal with the unexpected, DEC says.

And the revised program provides consistency between Alaska and other areas of

the United States by incorporating the Federal Emergency Management

Administration’s response exercise methodology, based on national and international

best practices, DEC says.

“We worked closely with the response community and reviewed guidance from the

Department of Homeland Security before making changes to the Oil Spill Response

Exercise Program,” Ryan said. “With the recent updates, we believe that the program

provides a number of benefits over the previous version, including increasing the

value of response exercises, making them more cost effective, and improving the

community’s level of response readiness.”

—ALAN BAILEY

KRISTIN RYAN

The exercises are intended toensure the effectiveness of

the plans and to demonstratethe response capabilities ofoil facility operators and

other organizations involvedin spill response procedures.

EXPLORATION & PRODUCTIONConoco files BLM application for Willow

ConocoPhillips has begun the application process with the federal Bureau of

Land Management for development of its Willow discovery in the National

Petroleum Reserve-Alaska. The company has requested that BLM begin the

process to develop an environmental impact statement for a development at its

Willow discovery in the Bear Tooth unit in NPR-A and said it understands a

notice of intent to initiate an EIS could be published in the Federal Register this

July.

ConocoPhillips announced the Willow discovery in early 2017, based on

results from its 2016 Tinmiaq Nos. 2 and 6 wells. The company said at that time

that the discovery could hold 300 million barrels of recoverable oil.

Options for development at Willow include building new production facilities

for Willow or tying the development back to production facilities at Alpine.

In its first quarter 2018 earnings call on April 26, Al Hirshberg, the company’s

executive vice president of production, drilling and projects, said positive results

from Willow appraisal drilling suggest a standalone production facility can likely

to justified.

—PETROLEUM NEWS

ISER estimates Liberty’s economic impactThe University of Alaska Anchorage’s

Institute of Social and Economic Research

has done an analysis of the economic

impact of Hilcorp Alaska’s proposed

Liberty project, which would develop an

estimated 120 million barrels of recover-

able oil from a self-contained gravel island.

The draft environmental impact state-

ment for the project, released last July, indi-

cates that as many as 16 wells would pro-

duce up to 65,000 barrels per day of oil and 120 million cubic feet of natural gas.

The authors, Mouhcine Guettabi and Robert Loeffler, estimated in a study released

late last year that employment would peak in 2020 at some 300 annualized jobs with

direct wages at the peak at $40 million. Total employment from 2017 to 2023 would

be 1,019 jobs, with total direct wages of about $141 million over that period.

The authors said estimates were based on inputs from Hilcorp.

Total employment, including direct, indirect and induced, is expected to be close

to 2,700 for the 2017-23 period, with total wages in 2017 dollars from the construction

phase totaling $247 million.

—PETROLEUM NEWS

The draft environmental impactstatement for the project,

released last July, indicates thatas many as 16 wells would

produce up to 65,000 barrels perday of oil and 120 million cubic

feet of natural gas.

6 PETROLEUM NEWS • WEEK OF MAY 20, 2018

To advertise in Petroleum News, contact Susan Crane

at 907.770.5592petroleumnews.com

ENVIRONMENT & SAFETYConoco Kuparuk recertified for VPP

ConocoPhillips Kuparuk has been renewed for the Alaska Occupational Safety and

Health Voluntary Protection Program at the “Star” level, the Alaska Department of

Labor and Workforce Development said May 15.

The VPP recognizes “exemplary safety and health programs,” the department said.

“Employers who participate in the Voluntary Protection Program show a remark-

ably strong commitment to protecting the health and safety of their employees,” said

Alaska Labor and Workforce Development Commissioner Heidi Drygas. “The

department is pleased to recognize ConocoPhillips Kuparuk for

their outstanding efforts in managing workplace safety and

health.”

“We are proud to be recertified in the AKOSH VPP program

as it provides independent assurance that we have an efficient

safety and health management program that meets rigorous per-

formance-based criteria,” Ty Maxey, Greater Kuparuk Area

operations manager, said in a statement. “More importantly,

achieving this level of safety and health excellence benefits all

our workers who return home safer and healthier to their fami-

lies and friends after completing their rotational assignments.”

Enforcement regulations remain in effect, but as a VPP Star recipient,

ConocoPhillips is not subject to random enforcement inspections for five years.

VPP is a cooperative program between a company’s management, employees and

AKOSH. Fewer than 2,300 U.S. worksites out of some 8 million covered by the

Occupational Safety and Health Administration have achieved VPP status, the depart-

ment said.

There are nine sites in Alaska with the AKOSH VPP designation: Alaska Clean

Seas; Arctic Slope Regional Corp. Energy Services grind and inject plant and oily

water injection facility; BP Exploration (Alaska) — central power station; BP

Exploration Alaska gas plants — central compression plant and gas facility;

ConocoPhillips Alaska — Alpine field — Alp 15 — Alpine operations;

ConocoPhillips Alaska Kuparuk Area; Fairbanks Memorial Hospital; Insulfoam Inc.

(Premier Industries); and Utilities Inc.

—PETROLEUM NEWS

Draft climate policy out; feedback soughtA draft climate policy has been released by Alaska Gov. Bill Walker and Lt. Gov.

Byron Mallott. The work was done by the Climate Action for Alaska Leadership Team

which began work in December.

A joint statement from the governor and lieutenant governor released May 9 said:

“The Alaskans who serve on the climate team have worked hard to create a draft policy

that reflects our priorities for health, culture, safety, and the economic future of our

state. While this group represents a diversity of regions and perspectives across Alaska,

it’s necessary to hear from members of the public to ensure this policy and our future

climate action plan reflect the needs and interests of all Alaskans.”

The draft document and a link for online comments are available at: http://climate-

change.gov.alaska.gov/policy/. Comments are requested by June 4.

The administration said the climate action team “is composed of experts and com-

munity leaders with backgrounds in science, industry, entrepreneurship, community

planning, natural resource development, environmental protection, and policymaking.”

The team, chaired by Mallott, “is focusing on climate change mitigation and adap-

tation through economic opportunity, renewable energy and energy efficiency, coastal

resilience, science communication, and technological innovation.”

An initial climate action plan will be presented to Walker in September.

—PETROLEUM NEWS

HEIDI DRYGAS

UTILITIESRCA expectations for transmission meetings

The Regulatory Commission of Alaska has issued an order inviting presenta-

tions at a series of commission public meetings designed to review the status of

voluntary efforts towards a more unified approach to the management and opera-

tion of the Alaska Railbelt electricity transmission system. As previously reported

in Petroleum News, the commission plans to hold meetings on May 23, June 13

and June 27. In its order the commission said that it is inviting electric public util-

ities and people affected or potentially affected by changes to the system to pres-

ent reports or comments at the meetings.

In June 2015 the commission made a series of recommendations for the reform

of the electrical system and, since then, has been monitoring voluntary efforts by

the six Railbelt electric utilities to meet the commission’s requirements. The util-

ities have been reporting to the commission on the progress that they have been

making.

However, the commission, Alaska legislators and other interested parties are

concerned whether adequate progress is being made toward the timely meeting of

the commission’s expectations, the commission said in its new order. The upcom-

ing meetings are designed to enable up-to-date reporting on the specifics of

progress made and work remaining to be carried out.

The May 23 meeting will review the status of the formation of an independent

transmission company to operate the electricity transmission grid. The commis-

sion will require specific dates and benchmarks for determining adequate timely

progress.

The June 13 meeting will require a status report on the development and imple-

mentation of mandatory economic dispatch between Chugach Electric

Association, Matanuska Electric Association and Municipal Light & Power, and

a report on how that arrangement is expected to be extended to encompass the

other Railbelt utilities. The commission will be seeking specific dates and bench-

marks. Economic dispatch entails the continuous use of the cheapest available

electrical generation.

The June 27 meeting will require a status report on the adoption of mandatory

electric utility standards that include standards for financial obligations and cyber

security, and the specification of enforcement mechanisms. The report must also

address the question adopting the reliability standards as regulations.

—ALAN BAILEY

UAF to test drone surveillance of TAPSResearchers from the University of Alaska Fairbanks are partnering with Alyeska

Pipeline Service Co. to test the use of unmanned aerial vehicles, commonly known

as drones, for the surveillance of the trans-Alaska oil pipeline. The project will

involve flying drones beyond the pilot’s line of sight.

The Federal Aviation Administration has selected UAF as one of 10 organizations

nationwide to participate in the agency’s Unmanned Aircraft Systems Integrated

Pilot Program, a program aimed at establishing a regulatory framework for the safe

integration of drones into the national airspace.

UAF’s Alaska Center for Unmanned Aircraft Systems Integration has been con-

ducting drone research for a number of years and operates one of seven FAA

unmanned aircraft test centers. Alyeska has been partnering with the UAF center

since 2014. The company currently uses drones for the mapping of gravel pits and

the inspection of difficult-to-access equipment such as 100-foot high tank vapor flare

tips. This current use involves keeping the drones within the pilot’s visual line of

sight — the new project will presumably enable the inspection of elements of the

pipeline system at a greater distance from the pilot.

Alyeska says that drone use supports the safety of pipeline workers, reducing the

need to deploy people by helicopter or other means in inclement weather.

“Using unmanned aircraft on TAPS provides tremendous safety and pipeline

integrity benefits,” said Jacques Cloutier, civil survey support engineer and liaison to

the UAF pilot project. “If we can fly UAS out of line-of-sight, we will improve our

surveillance and more rapidly gather data on the health of the pipeline system.”

“We look forward to working with UAF Alaska Center for Unmanned Aerial

System Integration to expand the use of this important technology in our industry and

others,” said Alyeska President Tom Barrett. “I applaud Jacques for bringing his

expertise to this partnership. He is an excellent example of the commitment to inno-

vation displayed across the pipeline system.”

—ALAN BAILEY

PIPELINES & DOWNSTREAM

PETROLEUM NEWS • WEEK OF MAY 20, 2018 7

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trends and forecasts for gas producing

units in the basin, and the production rates

and decline curves of individual gas

wells.

Crisis avertedAt the time of the original PRA study

there was talk of having to import liquefied

natural gas to bolster local gas supplies.

However, significant gas development in

the Cook Inlet basin, supported by a state

tax credit program, subsequently alleviated

the gas supply situation. In particular

Hilcorp Alaska has been pursuing an active

development program. Furie Operating

Alaska has brought on line its offshore

Kitchen Lights gas field. And the develop-

ment of the Cook Inlet Natural Gas Storage

Alaska facility on the Kenai Peninsula has

enabled the use of stored gas to support

high gas deliverability needs during the

winter.

The original 2010 study had found that,

in the absence of new gas development, gas

supplies would fall short of demand as

early as 2013. That shortfall could be

delayed until after 2018 by the sustained

drilling of an average of 13.6 wells per

year, the study found. And a total of 185

new wells would be needed to meet

demand through 2020. The study also

pointed to the need for gas storage, to

ensure that gas deliverability could be sus-

tained at high enough rates to meet peak

winter demand.

The 2012 update to the original study

suggested a gas supply shortfall by 2015

but indicated that the shortfall could be

avoided through the addition of 31 million

cubic feet per day of production from new

wells completed in the years 2013 to 2019.

The study estimated that 157 new gas well

completions would be needed to satisfy gas

demand through 2020.

Slight demand decreaseIn its new revision to the 2012 study,

PRA has reported a slight decrease in gas

demand, thanks to more efficient electricity

generation in Southcentral Alaska. This

presumably reflects the startup of several

new, modern gas-fired power stations in the

region. Overall annual demand appears

steady at a little over 77 billion cubic feet

per year. There is a potential uptick in

demand to more than 88 billion cubic feet

per year in 2024-25, if the Cook Inlet basin

starts to supply gas to a planned gold mine

at Donlin Creek — that forecast has been

delayed by several years relative to what

was projected in the previous version of

PRA’s study.

PRA’s new analysis of gas supplies from

existing gas wells indicates total production

of 92.1 billion cubic feet in 2017, dropping

to a projected 86.8 billion cubic feet this

year and falling to 73.5 billion cubic feet in

2019. Production would fall to as little as

23.8 billion cubic feet in 2026. That projec-

tion represents a delay in the decline that

had been projected in 2012, as production

levels flattened in recent years. However,

the forecast production in 2019 would be

some 4 billion cubic feet below projected

demand, in the absence of further drilling.

No major developmentsThe revised PRA report says that a

review of recent plans of development filed

with Alaska’s Division of Oil and Gas indi-

cates that Cook Inlet gas producers do not

have any major new gas developments in

the offing. However, Hilcorp does plan to

continue delineation and development in its

Ninilchik unit through drilling from its

Pearl pad. And the company has demon-

strated an ability to develop infill opportu-

nities through its drilling program in its

other fields, the PRA report says.

Furie Operating Alaska also plans to

complete a third production well and

potentially drill a fourth well in its Kitchen

Lights field, the report says.

These new developments indicate that

drilling is being conducted to ensure that

gas producers can fulfill contractual obliga-

tions, thus moving any gas shortfall beyond

2019.

To assess the potential impacts of new

development, the PRA assessment consid-

ered the potential addition of 21.9 million

cubic feet per day, as had happened in the

period 2015 to 2016, and 36.3 million cubic

feet per day, as had happened in 2014 to

2016. The 21.9 million cubic feet per day

increment defers the gas supply shortfall to

2021, at which point the annual production

would be 1.1 billion cubic feet below

demand. The 36.3 million cubic feet per

day increment would defer the shortfall to

2025, with annual production 0.7 billion

cubic feet below demand.

Additional gas supply increments,

beyond 36.3 billion cubic feet would be

required to sustain adequate supplies

through to 2030, the revised report says.

—ALAN BAILEY

continued from page 1

GAS FORECAST

lease extension approvals were based on drilling com-

mitments by Great Bear. The company has also been

operating quite a few other leases: Most of those leases

were issued in 2011 and 2012 with 10-year terms, with

expiry dates in 2021 and 2022.

However, while the division was reviewing the lease

extension applications, Great Bear continued to evaluate

the potential of the leases, using seismic data that the

company had collected from annual surveys conducted

from 2012 to 2016, Galvin said. As a consequence, the

company has decided to drop the leases in two of the

blocks that were granted extensions, now focusing its

efforts on the two blocks that it has elected to keep. The

company is also dropping some of its more remote

acreage, he said.

Major lease fairwayGreat Bear bought a major fairway of leases, strad-

dling the Dalton Highway and mostly to the south of the

Prudhoe Bay and Kuparuk River units in 2010 and 2011,

with plans to investigate the potential for shale oil devel-

opment in the North Slope’s prolific oil source rocks.

The company’s program has since morphed into a search

for both conventional and unconventional oil opportuni-

ties.

As part of its shale oil investigations, in 2012 the

company drilled the Alcor No. 1 and Merak No. 1 wells

to the east of the highway and proceeded with a program

of rock and geologic evaluations. The company also con-

ducted a multi-year program of 3-D seismic surveying in

its acreage.

In 2015 the company completed the drilling of the

Alkaid No. 1 well, targeting a conventional oil prospect

on the west side of the Dalton Highway. Unfortunately,

because of flooding on the highway towards the end of

the 2015 exploration drilling season, Great Bear was

unable to conduct any testing in the Alkaid well. In 2016

the company commented that it was waiting on tens of

millions of dollars from the state in the form of outstand-

ing tax credits.

Block near the highwayThe first block of leases that have been extended and

that Great Bear is going to keep consists of a group of 10

contiguous leases to the west of the Dalton Highway and

another group of five leases straddling the highway. The

group straddling the highway includes the Alcor, Merak

and Alkaid wells. In its work commitment for this block,

Great Bear plans to re-enter the Alkaid well to conduct

testing. The company has also committed to drill two

new exploration wells testing prospects in the block.

Great Bear told the division that it had already expended

more than $100 million in exploring this block, includ-

ing the costs of drilling the three wells and conducting

seismic surveys.

Under the terms of existing plans of operations, the

re-entry of the Alkaid well and drilling of the first of the

new exploration wells are to be carried out by May 30,

2019. The drilling of the second exploration well will

require a new plan of operations and must be done by

May 30, 2020. Flow testing of wells must be conducted

in situations where well logging suggests the possibility

of significant oil production. The approval document

says that Great Bear has provided geological and engi-

neering data in support of its drilling plans.

Nanushuk play?The second block that Great Bear will continue to

operate consists of four contiguous leases to the south of

the Colville River unit and the village of Nuiqsut, some

distance west of Great Bear’s other leases. The four leas-

es line up with the trend of recent oil discoveries to the

north in the Nanushuk formation. The lease extension

approval document says that the leases are underlain by

Nanushuk sandstones, slightly younger than oil-bearing

sands penetrated by the nearby Horseshoe No. 1 and

Horseshoe No. 1A wells — seismic interpretation sup-

ports the possibility of both structural and stratigraphic

traps in the acreage.

Great Bear has told the division that it had previously

spent around $175,000 on an evaluation of seismic and

other data relating to the leases. The lease extension

approval document says that Great Bear anticipates

spending at least $17 million on drilling a single explo-

ration well in the lease block by May 30, 2019. The lease

extensions require Great Bear to post a $6 million bond,

which would be forfeited if the work commitment is not

met.

Blocks being droppedOne of the blocks of leases that Great Bear has decid-

ed to drop consists of nine contiguous leases to the west

continued from page 1

GREAT BEAR LEASES

see GREAT BEAR LEASES page 10

Under the terms of existing plans ofoperations, the re-entry of the Alkaid well and

drilling of the first of the new explorationwells are to be carried out by May 30, 2019.

PETROLEUM NEWS • WEEK OF MAY 20, 2018 9

Oil Patch Bits

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

Companies involved in Alaska’s oil and gas industry

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

AAfognak Leasing LLCAir Liquide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Alaska Energy Services, LLCAlaska DreamsAlaska Frac Consulting LLCAlaska Frontier Constructors (AFC)Alaska Marine Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Alaska MaterialsAlaska RailroadAlaska Rubber & Rigging Supply Inc.Alaska Steel Co.Alaska TextilesAlaska West Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Alpha Seismic CompressorsAmerican Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Arctic Catering & Support ServicesArctic ControlsArctic Fox EnvironmentalArctic Wire Rope & SupplyARCTOS Alaska, Division of NORTECHArmstrongASRC Energy ServicesAT&TAvalon DevelopmentAviator Hotel

B-FBombay DeluxeBPBrooks Range SupplyCalista Corp.Chosen Construction

Colville Inc.Computing AlternativesCONAM Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Cruz ConstructionDowland-Bach Corp.Doyon AnvilDoyon AssociatedDoyon DrillingDoyon, Limitedexp Energy ServicesF. R. Bell & Associates, Inc.FairweatherFlowline AlaskaFluorFoss MaritimeFugro

G-MGeotempsGMW Fire ProtectionGreer Tank & WeldingGuess & Rudd, PCInspirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Judy Patrick Photography . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Kuukpik Arctic ServicesLast Frontier Air VenturesLittle Red Services, Inc. (LRS)Lounsbury & AssociatesLynden Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Lynden Air Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Lynden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Lynden International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Lynden Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Lynden Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Mapmakers of AlaskaMAPPA TestlabMaritime HelicoptersMotion & Flow Control Products

N-PNabors Alaska DrillingNalco ChampionNANA WorleyParsonsNature Conservancy, The . . . . . . . . . . . . . . . . . . . . . . . . . . . .7NEI Fluid TechnologyNordic CalistaNorth Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Northern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11NRC AlaskaOpti StaffingPENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Petro Star LubricantsPRA (Petrotechnical Resources of Alaska)Price Gregory International

Q-ZResource Development CouncilSAExplorationSecurity AviationSourdough Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Tanks-A-LotThe Local Pages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Unique MachineVolant ProductsWaste Management

Saltchuk Supports Junior Achievement of AlaskaThe Saltchuk family of companies recently announced that it has contributed $20,000

and staff time to Junior Achievement of Alaska.On May 15 at Kasuun Elementary in Anchorage, more than 20 business professionals

teamed up with Saltchuk staff to teach K-6th graders business basics. The JuniorAchievement in a Day program allows businesses to partner with educators to present anintensive and innovative program that inspires and empowers students to believe in them-selves, showing them that they can make a difference.

Junior Achievement is the world’s largest organization dedicated to educating students

about workforce readiness, entrepreneurship and financial literacy through experiential,hands-on programs.

“Junior Achievement programs help kids get a head start in the business world,” saidFlora Teo, president of Junior Achievement of Alaska. “By learning some basic skills early,our young people can become entrepreneurs and business leaders in Alaska and acrossthe country.”

“Junior Achievement’s programs educate and inspire students to succeed in a globaleconomy with hands-on learning that takes place in the classroom,” she added. “Wewould like to thank Saltchuk for bringing this opportunity to Alaska’s students through theJA in a Day program at Kasuun Elementary School.”

Wielechowski, D-Anchorage, when the Senate Resources

Committee heard Senate Bill 176, the companion to HB

331. The issue was extensively discussed in House Finance,

with the Legislature’s Legal Services telling the committee

it had doubts about the constitutionality of the bonding pro-

posal.

The administration — both the Department of Law and

the Department of Revenue — told the committee the pro-

posal was constitutional and said Alaska has been doing this

type of bonding since it was a territory. The state’s bond

counsel told both House Finance and Senate Finance that it

expected to issue an opinion confirming that the bonds were

constitutional.

DiscountingThe bill allows payment, at a discounted rate, of cash-

able credits which have been earned by small oil and gas

companies — the state’s major oil producers were never eli-

gible for these credits.

“I’m pleased the Legislature is fulfilling Alaska’s past

promises to pay tax credits to small independent explorers

in exchange for investing in our state,” Walker said after the

Senate passage. “This will close out old debts to oil and gas

entities, help companies invest in their operations, and put

Alaskans to work.”

The program offering cashable tax credits was ended in

2017, but some $800 million currently remains to be paid

and state officials have said they believe another $200 mil-

lion will eventually be approved for payment.

The bill authorizes issuance of bonds up to $1 billion.

The cost of the bonding will be borne by the companies,

which will receive payment at a discount of about 10 per-

cent to cover the state’s costs and interest on the bonding.

There are provisions which would allow a discount closer

to 5 percent, provided the companies qualified for one of

the following: agreeing to provide the state an overriding

royalty interest; committing to reinvest the money in Alaska

within 24 months; agreeing to an early waiver of confiden-

tial seismic data; or have refinery or gas storage credits.

To qualify, a company must commit all of its cashable

credits to the program.

House changesCommissioner of Revenue Sheldon Fisher reviewed

changes made in the House Finance Committee and on the

House Floor for Senate Finance May 8.

The House added a 45-day time limit for constitutional

challenges to the bond program; reduced the calculation of

future appropriations to the tax credit fund — the source of

current payments — for companies not participating in the

bond program, with the effect of extending out the period

over which those payments would be made; added condi-

tions and information related to the reinvestment provision

including maximizing Alaska hire and use of Alaska con-

tractors, moving a project toward production and clawback

of incremental payment if investment targets not met.

The vanishing billSB 125, extending the Alaska Industrial Development

and Export Authority’s ability to bond for the Interior

Energy Project, passed the Senate 19-0 in February and

vanished into the House Labor and Commerce Committee,

with only a single hearing there in early April.

Without extension, AIDEA’s bonding authority for the

project would have expired at the end of June.

“This bill got tied up in some weird politics in the

House,” Senate President Pete Kelly, R-Fairbanks, sponsor

of SB 125, said in a press release May 12. He said senators

were able to work with “rural House legislators from

Northwest and Southeast Alaska to get the Fairbanks proj-

ect over the finish line.”

The contents of SB 125 were added to HB 119, which

concerns both AIDEA and the Alaska Railroad Corp., pass-

ing the Senate 16-3 and the House 37-3.

AGDC authorityOne item which didn’t make it through the Legislature

was authority for the Alaska Gasline Development Corp. to

accept third-party money for the Alaska liquefied natural

gas project. The governor had included a provision in the

operating budget which would have given AGDC unlimited

authority to accept third-party money, called designated

program receipts. The House limited the amount to $1 bil-

lion in the fiscal year ending June 30, 2018, and $1 billion

in the fiscal year ending June 30, 2019.

The Senate dropped AGDC’s authority to accept desig-

nated program receipts from the operating budget com-

pletely.

In remarks provided by Jesse Carlstrom, AGDC’s com-

continued from page 1

BONDING PLAY

see BONDING PLAY page 10

One item which didn’t make it through theLegislature was authority for the Alaska

Gasline Development Corp. to accept third-party money for the Alaska liquefied natural

gas project.

10 PETROLEUM NEWS • WEEK OF MAY 20, 2018

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a modular facility that can be transported

to the Mustang pad and begin operating

within 30 weeks. The early production

facility would be removed once the field’s

permanent facilities are in operation.

According to Brooks Range’s plan, the

company is beginning the procurement

process for the temporary facility this

month. Following the completion of

detailed engineering in June, installation

of the facility would begin in mid-July.

Functional check out would start around

Sept. 10, with installation being complet-

ed towards the end of that month.

Following the completion of functional

checkout and the commissioning of the

production arrangements, production

startup could begin around Oct. 20.

The early production facility contrac-

tor would provide most of the equipment

and personnel required for the temporary

arrangements. The anticipated production

capacity would be 6,000 barrels per day

of oil, with a gas-to-oil ratio of 1,000 and

a maximum production of 1,500 barrels

per day of water. Produced water will be

pumped down a designated injection well

or trucked out for disposal. Gas will be

compressed and dehydrated for use as

fuel gas or for injection in a designated

gas injection well, or would be flared,

Brooks Range’s plan says.

Although some of the temporary

equipment would already be in the form

of modules that could be trucked to the

site, the contractor would have to deter-

mine what fabrication would be needed of

electrical, instrumentation and separator

modules. It is possible that fabrication

could take place in Alaska, Brooks

Range’s plan says.

Construction activities for the early

production facilities will require the

installation on the Mustang pad of infra-

structure such as a camp, communica-

tions tower and support facilities — these

items are part of Brooks Range’s existing

plan of operations and will be needed in

support of long term production arrange-

ments.

Completion delayThe Mustang field is in the Southern

Miluveach unit, immediately west of the

Kuparuk River unit. The gravel pad and

road, and some of the pipeline vertical

support members for the project were

completed some time ago, as were many

of the modules for the field’s facilities.

However, following technical issues with

a development well and funding issues

associated with low oil prices, completion

of the project was delayed.

The field has been reported as likely to

hold 20.8 million barrels of proven oil

reserves. Development would involve

drilling horizontal production wells and

vertical injectors in the 11 fault blocks of

the field reservoir. The concept is to build

facilities that can act as a fulcrum for oil

developments in the immediate neighbor-

hood.

Brooks Range Petroleum operates the

Mustang project on behalf of CaraCol

Petroleum LLC, TP North Slope

Development LLC, MEP Alaska LLC,

Nabors Drilling Technologies USA Inc.,

AVCG LLC, Mustang Road LLC and

MOC1 LLC. Mustang Road and MOC1

are subsidiaries of the Alaska Industrial

Development and Export Authority,

which helped finance the road, pad and

processing facilities projects. l

continued from page 1

MUSTANG START

Subscribe to Petroleum News: Call 907.522.9469

of the Dalton Highway and another group

of six leases to the east of the highway.

According to the division’s lease exten-

sion approval document Great Bear had

demonstrated that it had previously spent

more than $16.3 million on field work

and data processing for these leases.

Geological, geophysical and engineering

data describe several oil prospects in the

leases, the approval document says.

The second block of leases that Great

Bear is dropping consists of 18 contigu-

ous leases, to the west of the Dalton

Highway, north and northwest of the

leases that include the Alkaid well. Great

Bear told the division that it had expend-

ed more than $11.3 million on the explo-

ration of these leases, including expendi-

ture on 3-D seismic surveys collected in

2013, 2014 and 2015. Work conducted

added to an understanding of prospective

targets in the leases, the division’s

approval document said.

—ALAN BAILEY

munications manager, in a May 15

email, AGDC said it would continue

to work with “Goldman Sachs and

Bank of China to arrange third-party

funding” and continue to keep the

Legislature up to date on the project,

providing information which legisla-

tors need to make “appropriate deci-

sions for the responsible development

of Alaska’s vast amounts of proven,

stranded, North Slope natural gas.”

AGDC said it estimates that it will

have some $34 million remaining in

the AKLNG fund at the end of this

year and is continuing to work the reg-

ulatory process for AKLNG with the

goal of reaching a final investment

decision and an in-service date of

2024.

Legislators did agree to an AGDC

request to move remaining monies

from the in-state gas line project,

ASAP, which is also under the

AGDC umbrella, to the AKLNG

project.

—KRISTEN NELSON

continued from page 8

GREAT BEAR LEASES

continued from page 9

BONDING PLAY

take action allowing work on the pipeline

to proceed unhindered, the general con-

sensus is that the company will not let the

issue drag into the summer construction

season.

Professional protestersThe most significant development is

the emergence of professional protesters,

who are setting up a permanent camp on

public land near the Burnaby tanker termi-

nal in the port of Greater Vancouver.

Vancouver Mayor Gregor Robertson,

who will not seek re-election in October,

told Bloomberg News that he doubts

“resistance on the West Coast is going to

fade. I think it will only intensify.

Escalation looks likely.”

But the more resistance to the C$7.4

billion project builds, with television

crews facing threats of violence, the more

the public mood shifts to Kinder Morgan’s

side. The latest surveys show 54 percent

of British Columbians support the

pipeline, reflecting steady growth from 40

percent over the past seven months.

Gary Mason, a columnist in The Globe

and Mail, said the ranks of protesters are

no longer made up of retired professors,

nurses and “ordinary folk.”

Instead, he wrote, the main purpose of

the activists “is to cause trouble and bully

and intimidate people,” while refusing to

hear pro-pipeline arguments.

Prosecution issuesNow that the protests have taken a

nasty turn, Mason said B.C. Premier John

Horgan and Robertson need to start

demonstrating some leadership, given that

a B.C. Supreme Court judge has suggested

Kinder Morgan should not have to carry

the burden of prosecuting the more than

170 people who have been arrested for

violating a civil injunction obtained by the

company.

He said anyone thwarting the injunc-

tion, including politicians who have

knowingly violated the law, should be

tried for criminal, not the much softer civil

contempt charges.

Countering that viewpoint, Burnaby

city manager Lambert Chu told the

Vancouver Sun that protest camp facilities

are allowed to occupy land under a B.C.

Supreme Court order that supersedes a

city bylaw prohibiting the use of a public

right of way.

The Royal Canadian Mounted Police

are taking a low-key approach so far, act-

ing on a case-by-case basis that has

included arrests of four individuals for

incidents deemed to be unrelated to

pipeline protests.

Meantime, many First Nations have

declared projects such as the Trans

Mountain expansion on their traditional

territories must obtain their consent to get

built.

But the law in Canada does not insist

on projects gaining First Nations consent,

even as governments in Canada, including

British Columbia, adopt a United Nations

Declaration on the Rights of Indigenous

Peoples that calls for free and informed

consent before approval of any project

affecting aboriginal territories or

resources.

ShareholdersThat claim was bolstered in the first

week of May when institutional investors

obtained more than 50 percent of share-

holder votes for two resolutions at Kinder

Morgan’s annual general meeting pressur-

ing the company to publish an annual sus-

tainability report that better reflects issues

which pose a risk to business.

Proponents of the investor activism

declared the vote was a victory for

“democratization” inside a company.

One resolution, tabled by New York

state’s US$270 billion pension fund, was a

“resounding victory for shareholders and

others concerned about the company’s

lack of reporting on environmental, social

and corporate governance issues,” said

fund trustee Thomas DiNapoli, who urged

Kinder Morgan to be more “accountable

(about) risks in its operations” including

the Trans Mountain expansion.

A second motion from a Boston invest-

ment firm asked how the company was

preparing for a rise in global warming

resulting from fossil fuel development

while it advances projects that face strong

community and First Nations opposition.

A spokesperson for Kinder Morgan

confirmed the two resolutions obtained

the required majority vote but remain non-

binding.

Peter Chapman, of the Vancouver-

based Shareholder Association for

Research and Education, said such resolu-

tions rarely attract more than a fraction of

shareholder support in the range of 10 to

20 percent, serving as a “wake up call” to

management and demonstrating a grow-

ing democratization movement.

He said more than 1,000 shareholder

proposals are filed in the U.S. every year,

but only about 500 or 600 make it to the

ballot.

However, the level of support generally

for these proposals is growing across

North America, as indicated by two simi-

lar resolutions at Kinder Morgan’s annual

meeting last year which attracted 34.1 per-

cent of shareholder support.

Alberta annoyedWhat annoys pipeline supporters such

as the Alberta government is the continued

outside interference, led by people such as

former U.S. Vice President Al Gore, who

issued a tweet earlier in May declaring his

support for Horgan, Robertson and all

Canadians opposed to expanding Trans

Mountain to 890,000 barrels per day from

300,000 bpd.

“The Kinder Morgan pipeline carrying

dirty tar sands oil would be a step back-

ward in our efforts to solve the climate cri-

sis,” he wrote, along with the #stopKM

hashtag.

Alberta Premier Rachel Notley told a

public gathering that Gore’s comments

“clearly demonstrate a lack of understand-

ing about the overall issue and all the

facts. I just think it’s starting to fall on a

larger and larger number of deaf ears.”

“We’re also seeing ... previously less

vocal people come forward” to express the

importance of the pipeline to generating

jobs and revenue for health care, educa-

tion and public services.

Jason Kenney, leader of Alberta’s

opposition United Conservative Party

called Gore’s remarks “an inconvenient lie

from a jet-setting millionaire.”

He said that while the United States

and OPEC ship more oil “this hypocrite

who owns multiple mansions and flies pri-

vate jets wants to landlock Canadian oil.

Canadians have had enough of (his) cam-

paign of double standards and defama-

tion.” l

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PIPELINE FACTIONSBut the more resistance to the

C$7.4 billion project builds, withtelevision crews facing threats of

violence, the more the public moodshifts to Kinder Morgan’s side. Thelatest surveys show 54 percent ofBritish Columbians support the

pipeline, reflecting steady growthfrom 40 percent over the past

seven months.

Meantime, many First Nationshave declared projects such as the

Trans Mountain expansion ontheir traditional territories mustobtain their consent to get built

two new storage wells, the addition of a

string for water management in one exist-

ing well, the installation of an additional

dehydration train, and the installation of a

new turbine gas compressor. The estimat-

ed total cost is $41 million.

Seeking certaintyUnder state statutes, CINGSA does not

require RCA approval for the upgrades.

However, the company is seeking some

level of certainty that it will be able to

recover the cost of the upgrades from the

fees that it charges its customers. Rate

changes resulting from the upgrades will

require commission approval and it is

possible that the changes could be chal-

lenged on the grounds that the upgrades

were imprudent.

The commission has issued an order

granting CINGSA’s request for an RCA

review, with a deadline of Oct. 24 for a

decision. Commissioner Paul Lisankie

dissented from the commission’s order,

saying that there is no statutory authority

or clearly defined regulatory process for

determining the prudence of a project

prior to construction. Commissioner

Antony Scott commented that there is no

statutory deadline for completing the

review but that the commission will

endeavor to meet an October target for a

decision.

CINGSA told the commission that

there is a precedent for this type of

review, given that in 2010 the commis-

sion had granted a request by Chugach

Electric Association for cost recovery

assurance for the construction of the

Southcentral Power Project power gener-

ation facility in Anchorage.

In operation since 2012The CINGSA facility, to the south of

the city of Kenai, went into operation in

2012 in response to challenges associated

with declining production from the gas

fields in the Cook Inlet basin. The facility

injects gas for storage into the depleted

Sterling C reservoir sands of the Cannery

Loop gas field.

Since starting up, the facility has

played a vital role in ensuring adequate

year-round gas supplies for Southcentral

Alaska. Over the years, although on an

annual basis Cook Inlet gas production

has remained sufficient to support utility

gas demand, the maximum flow rate

from gas wells has fallen below the levels

needed during peak winter demand,

when cold weather drives up the use of

gas. However, by storing excess gas dur-

ing the summer and then releasing that

gas from storage during the winter it is

possible to maintain adequate winter sup-

plies.

Unpredicted usage patternHowever, the manner in which cus-

tomers use the storage facility has turned

out to be different from what CINGSA

had anticipated when the facility was

designed. John Sims, president of

CINGSA, told the commission that at the

time that CINGSA was implemented the

expectation was that customers would

operate on a predictable, seasonal basis,

simply injecting excess gas into the facil-

ity during the summer and then retrieving

the gas during the winter. Instead, injec-

tions and withdrawals of gas take place

on a daily basis throughout the year, with

the injection and withdrawal rates vary-

ing greatly.

John Lau, vice president of operations

for CINGSA and for Enstar Natural Gas

Co., told the commission that CINGSA’s

customers use the storage facilities for

many purposes, to fit their business

needs. Sometimes they switch from

injection and withdrawal and back again

on a daily basis, and even during the

course of a day, Lau said.

This usage pattern impacts the opera-

tion and efficiency of the storage facili-

ties, in particular the gas compression

equipment, and increases the wear and

tear on the equipment. At the same time

CINGSA’s customers have become

increasingly reliant on the storage facility

in meeting Cook Inlet gas demand, Sims

said.

Concerns about technical failureIn part because of the varying and

unpredictable nature of the use of the

CINGSA facilities, CINGSA has become

concerned about the potential impact of

some technical failure at the storage site.

As a consequence, the company commis-

sioned an update by Petrotechnical

Resources of Alaska Inc. to a previously

published study into Cook Inlet gas sup-

ply and demand, and also commissioned

a Cook Inlet gas supply risk assessment.

The outcome is the proposed redundancy

upgrades, Sims said.

Lau said that the risk assessment had

evaluated all aspects of the Cook Inlet

gas delivery system, including gas pro-

duction and storage wells; field and pro-

duction equipment; and the gas pipeline

system, including the various gas com-

pressors around the system. He said the

PRA supply and demand study had con-

cluded that, at current rates of gas well

drilling, supply would continue to sup-

port demand until at least 2021. In the

absence of new drilling activity, there

could be a shortfall in supplies as early as

2019.

A consequence of declining produc-

tion rates from Cook Inlet gas production

wells would be an increase in the short-

fall in deliverability of the wells during

periods of peak gas demand. This would

require higher flow rates from gas stor-

age wells. Under this scenario any equip-

ment failure would cause a gas deliver-

ability shortage.

Well performanceAnd, although CINGSA’s five storage

wells initially achieved target gas deliv-

erability rates of 150 million cubic feet

per day, the wells do not perform uni-

formly, with delivery rates from individ-

ual wells now ranging from 3.6 million to

66.3 million cubic feet per day. With the

rate from the well with the highest output

in that range representing about 44 per-

cent of CINGSA’s total deliverability,

damage to just that one well would cause

considerable disruption to the storage

facility’s gas delivery capability,

CINGSA told the commission.

The drilling of two additional wells

would provide the necessary level of pro-

tection against potential well failures,

CINGSA thinks.

The proposed string to be installed in

one of the existing wells would also

improve the performance of that well by

reducing well bore water accumulations.

CINGSA also wants to introduce a

level of redundancy into its gas dehydra-

tion system by installing an additional

dehydration train. Gas withdrawn from

the storage tends to contain water, which

must be removed before the gas can be

delivered into the region’s gas transmis-

sion system.

Injection flexibilityThe unanticipated need for CINGSA’s

customers to inject gas into storage quite

often during the winter months forms one

of the reasons for CINGSA’s proposal to

also install a new turbine-driven com-

pressor in the CINGSA facility. The

facility currently has two reciprocating

engine powered gas compressors, used in

particular for injecting gas into the stor-

age reservoir. Based on the original con-

cept for customer use of the facility,

CINGSA had planned to conduct engine

and compressor maintenance in

November and December, when little or

no gas injection was anticipated.

However, in practice customers have

requested injection services on 61 per-

cent of the days in those months.

The proposed new compressor will

ensure that there is a backup compressor

available when one compressor is out of

action for maintenance. Moreover, the

proposed type of compressor could by

itself meet CINGSA’s operational

requirements on 80 percent of the days

when gas is being injected. The use of the

new compressor would also reduce

vibration levels and be more energy effi-

cient, CINGSA told the commission. l

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continued from page 1

CINGSA UPGRADESThe unanticipated need for

CINGSA’s customers to inject gasinto storage quite often during the

winter months forms one of thereasons for CINGSA’s proposal toalso install a new turbine-driven

compressor in the CINGSAfacility. The facility currently hastwo reciprocating engine powered

gas compressors, used inparticular for injecting gas into

the storage reservoir.