l exploration & production redesigning pikka ...pikka partners, on aug. 25 from sydney,...

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

l N A T U R A L G A S

l U T I L I T I E S

Vol. 25, No. 35 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of August 30, 2020 • $2.50

see FEDERAL SUPPORT page 9

see OIL PRICES page 8

July Cook Inlet gas production up marginally, averaging 198,905 mcf

GOM facilities shut-in as Laura looms; temporary price spike likely

As Petroleum News went to press Aug. 26, category 4

Hurricane Laura was bearing down on the north coast of the

Gulf of Mexico.

The National Hurricane Center warned that an “unsurviv-

able storm surge with large and destructive waves will cause

catastrophic damage from Sea Rim State Park, Texas, to

Intracoastal City, Louisiana, including Calcasieu and Sabine

Lakes.”

“This surge could penetrate up to 40 miles inland from the

immediate coastline, and flood waters will not fully recede for

several days after the storm,” the NHC said.

The storm will make landfall in an area that accounts for

Aid on its way in Canada, again; key new Trudeau cabinet minister

As Canada started its descent into the

depths of COVID-19, Finance Minister

Bill Morneau made a statement that will

hang over the governing Liberal Party for

years.

He promised on March 25 that federal

help for the hard-hit energy sector would

be on the way in “hours, potentially

days.”

Despite an investment of C$1.7 billion

to clean up abandoned wells, C$750 mil-

lion to lower methane emissions and the offer of direct financial

support, nothing emerged from the government of Prime

Stories inside the latest annual edition of The Explorers magazine include the following: 88 NPR-A exploration plans a game-chang-er; Tax uncertainty, ConocoPhillips Alaska’s investment at risk; Eni trying again at Nikaitchuq North; Exploration not Hilcorp’s forte, but then there’s Whiskey Gulch, Lower Cook Inlet; Great Bear Pantheon gears up to drill Talitha; Jade advancing 2021-22 Sourdough well; Borealis drilling Castle North first; Oil Search leads in hunt for Nanushuk.

2020 Explorers inside

ExplorersThe

Oil & gas companies investing in Alaska’s future

Explorers

The Explorers, an annual publication from Petroleum News

Redesigning Pikka Oil Search finds way to advance project in volatile oil price environment

By KAY CASHMAN Petroleum News

In addition to asking AIDEA to finance

surface infrastructure for the Pikka

project, operator Oil Search Alaska and

its partner Repsol have switched to a

phased approach for the North Slope unit

that will reduce upfront development

costs and allow cash flow from Phase 1

oil production to fund the subsequent

two phases.

Although all details were not yet available as

planning and discussions continue between the

Pikka partners, on Aug. 25 from Sydney, Australia,

Keiran Wulff, top executive of Oil

Search Ltd., told Petroleum News that

Phase 1 will involve one drilling pad ver-

sus three drilling pads, a smaller modular

processing facility that can be expanded

for subsequent phases and a flowline

connecting to existing North Slope infra-

structure.

Neither Wulff nor the half year results

released Aug. 25 in Sydney (Aug. 24 in

Alaska) said whether the phased

approach will alter the peak oil production of the

development, which Oil Search previously said

Nov. 1 Seaview target Hilcorp applies to AOGCC for permission to produce; other applications to DNR

By KRISTEN NELSON Petroleum News

Hilcorp Alaska is targeting Nov. 1 for the start

of natural gas production from the Seaview

No. 8 exploratory well at its Seaview field south of

Anchor Point on the Kenai Peninsula.

The company has applied to the Alaska Oil and

Gas Conservation Commission to amend a 2018

conservation order which allowed it to drill, com-

plete and test the Seaview No. 8 well, but didn’t

allow it to produce the well without written per-

mission from AOGCC.

The commission set a potential hearing date on

the application for Sept. 22 and said if it does not

receive a timely request for a hearing and if infor-

mation from Hilcorp is sufficient it may issue an

order without a hearing.

In the Aug. 11 application to AOGCC Hilcorp

said it applied to the Alaska Department of Natural

Resources for the Seaview unit on July 31, and on

Aug. 6, applied to DNR to form the Clark partici-

pating area within the Seaview unit. The company

said the Clark PA includes one DNR lease and var-

ious private leases as well as unleased private

lands, a total of 640 acres.

Hilcorp said DNR is reviewing the unit and par-

ticipating area applications.

Hilcorp told the commission that, subject to

Deal nearing completion Chugach Electric now expects its purchase of ML&P to close on Oct. 30

By ALAN BAILEY For Petroleum News

On Aug.24 the Municipality of Anchorage and

Chugach Electric Association announced that

they anticipate closing the purchase of electric utility

Municipal Light & Power by Chugach Electric on

Oct. 30. The purchase will consolidate the two

Anchorage based utilities into a single entity, with the

objective of achieving improved operational efficien-

cies and economies of scale. ML&P is currently

owned by the municipality. Both utilities are based in

Anchorage.

Following closure of the purchase, existing

ML&P customers will begin receiving electric serv-

ices from Chugach Electric.

Lengthy process The process of negotiating the purchase deal and

obtaining regulatory approval for the utility consoli-

dation has proven lengthy and complex — the

municipality originally proposed the sale of ML&P

see PIKKA PROJECT page 11

see SEAVIEW TARGET page 10

see ML&P PURCHASE page 10

KEIRAN WULFF

The process of negotiating the purchase deal and obtaining regulatory approval for the utility consolidation has proven

lengthy and complex — the municipality originally proposed the sale of ML&P to

Chugach Electric in December 2017.

CHRYSTIA FREELAND

http://www.petroleumnews.com

2 PETROLEUM NEWS • WEEK OF AUGUST 30, 2020

GOVERNMENT

EXPLORATION & PRODUCTION

NATURAL GAS

ENVIRONMENT & SAFETY

LAND & LEASING

5 Emissions double trouble for Canada

5 Slight turnaround in rig count, up by 10

6 July inlet gas production up marginally

7 Judge allows ND to pursue reimbursements

2 Incentives for electric vehicle use

Chugach Electric is offering rebates for residential and commercial customers who install electric vehicle charging systems

4 AGDC board OKs AFE, hears warning on funds

DOE has given final approval for Alaska LNG to export to non-free trade countries; earlier approval was conditional on FERC order

7 Two lawsuits filed against ANWR leasing

Total of 17 organizations seek to halt federal agencies from holding sale in Arctic National Wildlife Refuge Coastal Plain area

ALTERNATIVE ENERGY

Redesigning Pikka Oil Search advances project in volatile oil price environment

Nov. 1 Seaview target Hilcorp applies to AOGCC for permission to produce

Deal nearing completion Chugach Electric expects its purchase of ML&P to close on Oct. 30

ON THE COVER

2020 Explorers insideGOM facilities shut-in as Laura looms; temporary price spike likelyAid on its way in Canada, again; key new Trudeau cabinet minister

Petroleum News Alaska’s source for oil and gas newscontents

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l A L T E R N A T I V E E N E R G Y

Incentives for electric vehicle use Chugach Electric is offering rebates for residential and commercial customers who install electric vehicle charging systems

By ALAN BAILEY For Petroleum News

Anchorage-based utility Chugach Electric

Association is offering incentives to promote the

use of electric vehicles in Alaska. Essentially, the incen-

tives consist of rebates paid to customers who install

electric vehicle charging equipment. The utility says

that, in addition to encouraging electric vehicle use, the

incentive program will help build an understanding of

the use of the vehicles in the state and of the impacts of

vehicle charging on the electricity grid. Information

gained from the program may also help in the design of

electricity rate options for electric vehicle charging, the

utility says.

Under the incentive scheme residential customers can

obtain a $200 credit for each 240-volt electric vehicle

charger installed. Chugach Electric will grant up to 50

credits. The utility has also budgeted for up to 10 credits

for higher voltage “level 2” chargers, installed by com-

mercial customers. Up to three hotels in 2020 can be

reimbursed for up to $2,500 in costs for the installation

of charging equipment available to guests. There is a

similar incentive program for car rental companies, with

future possibilities for the expansion of this program.

Electricity is generally cheaper than liquid hydrocar-

bon fuels for powering road vehicles. In addition, elec-

tric vehicles, with having relatively few moving parts,

are generally relatively cheap to maintain. And, depend-

ing on how the electricity is generated, the use of electric

vehicles creates low levels of emissions.

Growing Alaska use In Alaska the use of electric vehicles has been grow-

ing, albeit from a low level — Chugach Electric says that

at the end of June nearly 1,200 electric vehicles were

registered in the state, more than half of them registered

in the Railbelt.

However, concerns about the mileage range of the

vehicles and the availability of charging stations have

In Alaska the use of electric vehicles has been growing, albeit from a low level — Chugach Electric says that at the end of June nearly

1,200 electric vehicles were registered in the state, more than half of them registered

in the Railbelt.

see ELECTRIC VEHICLES page 4

http://www.onealaska.com


PETROLEUM NEWS • WEEK OF AUGUST 30, 2020 3

Alaska has been a state the last 60+ years. Since Alaska became a state some 60 years ago, not one sole resident Alaskan has been able to explore or produce a single drop of oil or gas from his or her property. As a result, the immense wealth generated by Alaska’s oil and gas has gone outside the state rather than staying in the hands of individual Alaskans. Something is terribly wrong with this “result.” So, let’s try to get to the heart of how we got here and what we can do to change it. After buying Alaska from Russia coaxing more citizens to come to the new territory of Alaska to homestead became a strategic necessity for the defense of the lower 48 states of America. Following world war II, the US government desperately needed to have more new settlers to come, reside and settle in the new territory of Alaska to attempt to provide needed local civilian contract personnel in Alaska and produce fresh food and milk to service the thousands of sol-diers and sailors who were being stationed in the territory of Alaska that were providing the 1st line of defense to protect the lower 48 states from any threats of any foreign nation. Since Alaska’s gold rush, the US had been trying to entice new citizens to come to the territory of Alaska. The US government promise to any new settler was that they could come pick a new homestead in the ter-ritory of Alaska. The US Interior Department rules were clearly under-standable by any new Alaskan homesteader. If he or she lived on that homestead for two years and made certain improvements on the land, then they could keep the land and all the oil or gas that might be pro-duced beneath it. That was how the Katalla Oil Field, Alaska’s first oil field, was developed and was the enabling fact that allowed the Kennecott Copper mine to profitably produce and sell Alaska’s copper for the next 30 years. To this day, this shallow oil field of wells less than 1000 feet deep is still owned by private citizens. Many lower 48 citizens came up to the frigid new territory of Alaska to attempt to prove-up a new Alaskan homestead. These new folks soon found out living in the Alaskan brush was an arduous task that required some cash, but a whole lot of extreme physical work, extreme privation, and a lot of ingenuity just to prove up his new homestead and survive for the two year requirement. To be awarded a homestead they had to live in an area having few if any roads, few neighbors, a lot of big bears, and no electricity or running water. But they knew if they toughed it out, they would end up owning the land and everything below it to call their own. This all changed when Swanson River Oil Field was discovered on the Kenai Peninsula in 1957. Suddenly there was a major push to stop any homesteader anywhere in Alaska from being able to own their oil and gas beneath their property. It took an act of congress to ensure that the pre-1957 homesteaders got to keep their oil and gas, but everyone else was out of luck. Those that homesteaded their property after 1957 did not even get to keep the gravel, much less the oil and gas beneath their land. The state government could clear the trees off their proper-ty and take the gravel if they needed it to build a road. But the pre-1957 homesteaders were different; they owned the oil or gas beneath their lands ONLY IF they could get it to the surface and could cash in on it. The bottom line is this, if you cannot get the oil or gas beneath your property to the surface, you don’t frickin own it.

In the 1970’s the federal government only required a $10,000 bond to drill on federal lands. On homesteader’s land, the state of Alaska in its infinite wisdom set a bonding requirement that was ten times higher. Before any homesteader could even think about drilling even a shallow oil or gas well on their own land they would have to come up with $100,000 cash bond. How many homesteaders do you know had an extra $100,000 laying around in 1970? It is important to note that there are thousands of oil and gas wells in the lower 48 that produce from less than a couple hundred feet below the surface. But wait, it gets even better. The state of Alaska has now raised the homesteader’s bonding requirement from $100,000 to $400,000! Even though the homesteader or their heirs technically own their oil and gas if they can get it to the surface, the high bonding requirements deprives them of their ability to get it to the surface where it can actual-ly be sold and put into their bank account. Another thing, the high $400,000 drilling bond cost is just another form of state-imposed taxation. Unfair taxation was the premise that caused the 1770-settlers of Boston to dump all its English tea into the Boston Harbor. This is a double whammy! The land is already required by law to be pledged as collateral to pay all well plugging costs beneath his own homestead regardless, even if someone else had drilled the well. Even though there are only a couple of hundred of pre-1957 homesteaders, the state of Alaska bureaucrats who are pushing for higher bonding amounts are effectively throwing the homesteader who helped create this great state of Alaska under the bus. The end result of these unreasonable excessive drilling bonds is that not one Alaskan resident has ever been able to produce or sell a single drop of Alaska’s oil or gas since Alaska became a state some 60 years ago. You might be thinking, “But what about the environment? If we let people drill on their own land, won’t they trash it?” This land is their life. The homesteaders love their land more than anyone. They and their heirs know the tremendous sacrifice and effort they had to put in to get this land. It is preposterous to say they don’t care about what happens to their land. This writer believes that the current elected governmental officials are trying to do their best to restore equity back to the individual citizens of Alaska. We just need to make sure they do the right thing by lowering the bonding requirements so that individual Alaskans can be capable to rightfully explore for oil or gas on their own property. Please again carefully remember, it is only when the oil or gas has come to the surface of the homestead can any homesteader be able to con-vert this produced oil and gas to cash-in-hand, and be deposited in the homesteader’s own bank account. The state should be compelled to disclose all its findings for these dras-tic measures penalizing and depriving pre-statehood homesteaders of the option to convert any or all of their oil and gas beneath their pre-statehood homestead to the homesteader’s ownership.

-Jim White

THE TRUE BACKBONES OF ALASKA ARE THE ALASKA NATIVES, PRE-STATEHOOD RESIDENTS AND

HOMESTEADERS THAT VOTED AND CREATED THIS GREAT STATE OF ALASKA. THEY ARE THE

FORGOTTEN REAL HEROES OF ALASKA.

“RESULTS ALWAYS DEFINE INTENT”

P A I D M E S S A G E T O G O V . D U N L E A V Y , L E G I S L A T O R S & A O G C C C O M M I S S I O N E R S

F R O M O I L M A N J I M W H I T E


The Alaska Gasline Development

Corp. continues to work toward a

year-end goal of designating a new proj-

ect sponsor and transitioning to new proj-

ect leadership by June 30, and as its board

approved an authorization for expendi-

ture through June 30, it heard a warning

voiced by ex-officio board member Sen.

Cathy Giessel, R-Anchorage, that in the

state’s present dire economic circum-

stances, the funds which AGDC has from

the state may not be secure.

The Legislature and administration

may reduce the funds available to AGDC,

she told an Aug. 25 board meeting, sug-

gesting it would be appropriate to have

contingencies in place to deal with that

eventuality.

AGDC did note this issue in its Aug.

24 authorization for expenditure for capi-

tal projects for fiscal year 2021, July 1,

2020, through June 30, 2021.

The last on a list of project risks is:

“Alaska Legislature can appropriate

AGDC’s funds to apply to other State pri-

orities or can re-define AGDC’s abilities

through new legislation.”

DOE approval On Aug. 20 the U.S. Department of

Energy issued a final order authorizing

Alaska LNG to export liquefied natural

gas to non-free trade nations. AGDC had

received a 30-year authorization from

DOE previously, AGDC President Frank

Richards told the board, but it was con-

ditioned on receipt of Federal Energy

Regulatory Commission authority to

build the project, which was received in

May.

AGDC received export authorization

to free trade nations in November 2014;

the conditional non-free trade agreement

was issued in May 2015.

Major permits from the National

Marine Fisheries Service, the U.S. Fish

and Wildlife Service, the U.S. Coast

Guard, the Alaska Department of

Environmental Conservation and the

Alaska Department of Natural

Resources are in progress, with some

proposed or final rules published and

estimated dates for receipt ranging from

September to the fourth quarter.

New project sponsor(s) The goal of the current board,

appointed by Gov. Mike Dunleavy, is to

move the Alaska LNG project from state

leadership to private leadership. The

strategic plan which the AGDC board

approved earlier in the year calls for des-

ignating a new project sponsor or spon-

sors by the end of the year and a transi-

tion by June 30, 2021.

AGDC has been working with

unnamed strategic parties to obtain

increasing commitment and is responsi-

ble for drafting and approval of coopera-

tion and funding agreements between

the parties to cover the fiscal year 21

period.

AGDC said it will be seeking addi-

tional project sponsors as necessary

through a request for proposals process

in the second half of FY21.

AGDC established 8-Star, a limited

liability company, in 2018, providing a

vehicle for the corporation to transfer

project ownership to the private sector.

AGDC said it will establish an initial 8-

Star operating agreement to guide transi-

tion activities through FY21 and will

complete an equity option agreement to

be offered to strategic parties by the end

of the year. AGDC will also develop an

optimal longer-term 8-Star equity struc-

ture and finalize ownership and structure

and designation of a project sponsor or

sponsors by the end of the year.

Activities The Committee on Foreign Investment

in the United States, CFIUS, reviews cer-

tain transactions involving foreign invest-

ment and certain real estate transactions

by foreigners to determine impact on U.S.

national security. “Since the Alaska LNG

Project may lead to ownership by foreign

entities, AGDC will work with strategic

parties to complete the CFIUS process,”

AGDC said.

Work isn’t completely done, with a

spring 2021 field program for “further

investigation of cultural resource sites,”

focused on gaps in current data for

planned areas of disturbance along the

mainline pipeline.

AGDC said it will be completing state

and federal right-of-way negotiations

and update detailed Alaska LNG project

land plans for handover to FEED, front

end engineering and design.

Because of schedule uncertainty,

“AGDC plans to defer acquiring remain-

ing private land (real property) for the

LNG Plant,” including roughly 200-220

acres of proposed acquisition and 30-50

acres of established ROW and utility

easements within the planned plant

boundary, along the proposed re-route of

the Kenai Spur Highway and remaining

portions of the mainline ROW.

FERC challenges AGDC is anticipated that interveners

may initiate legal challenges to FERC’s

final order, following FERC’s July 22

denial of rehearing requests from the

Matanuska-Susitna Borough and the

Center for Biologic Diversity and

Earthjustice and said it would work with

legal counsel “to identify potential inter-

vener legal strategies and take preemp-

tive actions to mitigate intervener delay

or adverse effect to the Project.” l


AGDC board OKs AFE, hears warning on funds DOE has given final approval for Alaska LNG to export to non-free trade countries; earlier approval was conditional on FERC order


ADDRESS P.O. Box 231647 Anchorage, AK 99523-1647 NEWS 907.522.9469 [email protected] CIRCULATION 907.522.9469 [email protected] ADVERTISING Susan Crane • 907.770.5592 [email protected]

OWNER: Petroleum Newspapers of Alaska LLC (PNA) Petroleum News (ISSN 1544-3612) • Vol. 25, No. 35 • Week of August 30, 2020

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. — $118.00 1 year, $216.00 2 years

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POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647.

www.PetroleumNews.com

Petroleum News and its supplement, Petroleum Directory, are owned by Petroleum Newspapers of Alaska LLC. The newspaper is published weekly. Several of the individuals

listed above work for independent companies that contract services to Petroleum Newspapers of Alaska

LLC or are freelance writers.

Kay Cashman PUBLISHER & FOUNDER

Mary Mack CEO & GENERAL MANAGER

Kristen Nelson EDITOR-IN-CHIEF

Susan Crane ADVERTISING DIRECTOR

Heather Yates BOOKKEEPER

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Alan Bailey CONTRIBUTING WRITER

Eric Lidji CONTRIBUTING WRITER

Gary Park CONTRIBUTING WRITER (CANADA)

Steve Sutherlin CONTRIBUTING WRITER

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Forrest Crane CONTRACT PHOTOGRAPHER

Renee Garbutt CIRCULATION MANAGER

CORRECTIONCumulative GMPA production 805 million

A story in the Aug. 23 issue of Petroleum News, “Greater Point McIntyre area

POD approved,” said cumulative production at GMPA through March of this year

was 316 million barrels.

The correct volume for cumulative production at GMPA is 805 million barrels.

Thanks to an observant reader for pointing out that 316 million didn’t sound

right!

been obstacles to more widespread use.

Chugach Electric says that the increased

use of the vehicles would expand the

electricity load, thus spreading the fixed

costs of the electrical system across more

electricity sales and hence lowering the

unit cost of electricity.

Under an electric vehicle research pro-

gram initiated in 2019 Chugach Electric

is helping commercial customers install

publicly available charging stations in

exchange for information about charging

station usage. To date charging stations

have been installed at Alyeska Resort in

Girdwood and at a south Anchorage mall.

There is a plan to install two other charg-

ing stations in Anchorage later this year.

The Alaska Energy Authority is also

interested in the potential for increased

electric vehicle use. The agency formed a

working group for monitoring the charg-

ing infrastructure in the state and for

channeling funds for charging station

installation at state facilities. The agency

is also planning to use money from the

settlement with Volkswagen over false

emissions testing from the company’s

diesel vehicles to help fund a commercial

grade charging station infrastructure in

the state. l

continued from page 2

ELECTRIC VEHICLES

“Since the Alaska LNG Project may lead to ownership by foreign

entities, AGDC will work with strategic parties to complete the

CFIUS process,” AGDC said.

To advertise in Petroleum News, contact Susan Crane

at 907.770.5592petroleumnews.com




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EXPLORATION & PRODUCTIONSlight turnaround in rig count, up by 10

The Baker Hughes U.S. rotary rig count made a slight correction the week end-

ing Aug. 21, up 10 rigs from the previous week for a count of 254, but down 662

from 916 a year ago.

Beginning May 8, when the count dropped

to 374 rigs, it dropped for 12 consecutive

weeks, hitting 251 on July 24 and maintaining

that count for a week before dropping again the

first two weeks of August.

The Houston oilfield services company has

issued a weekly rig count since 1944.

Prior to this year, the low was 404 rigs in

May 2016.

The increase was in rigs targeting oil, up 11

to 183 from the previous week, although still

down 571 from a count of 754 a year ago. There

were 69 rigs targeting natural gas, down one

from the previous week, and down 93 from 162 a year ago. Two rigs were listed

as miscellaneous, unchanged from last week and up two from a year ago.

Twenty of the holes were directional, 221 were horizontal and 13 were vertical.

Alaska count unchanged The rig count in Texas, which has the most active rigs, was 108, up eight from

100 last week (but down 338 from 446 a year ago).

West Virginia (8) was up by three rigs from the previous week, New Mexico

(47) was up by two rigs and Louisiana (32) was up by one.

Rig counts were unchanged for Alaska (3), California (4), Colorado (5),

Oklahoma (11) and Wyoming (1).

North Dakota (10) and Ohio (5) were each down by one rig from the previous

week; Pennsylvania (18) was down by two.

Baker Hughes shows Alaska with three active rigs Aug. 21, unchanged from

the previous week and down by five from a year ago.

The rig count in the nation’s most active basin, the Permian (127), was up by

10 rigs from the previous week and down by 307 from a count of 434 a year ago.

Baker Hughes has issued weekly rig counts for the U.S. and Canada since 1944

and began issuing international rig counts in 1975.

The U.S. rig count peaked at 4,530 in 1981. The low count, 244, was set the

week ending Aug. 14; prior to declines which began in May of this year, the pre-

vious low was 404 rigs in May 2016.

—KRISTEN NELSON

Beginning May 8, when the count dropped to 374

rigs, it dropped for 12 consecutive weeks, hitting

251 on July 24 and maintaining that count for

a week before dropping again the first two weeks

of August.

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

Emissions double trouble for Canada Sudden surge in methane emissions ahead of output haven’t forced Canada, Alberta to rethink hopes of being carbon-neutral by 2050

By GARY PARK For Petroleum News

Just three months after the Canadian and

Alberta governments resolved years of

bickering over developing national

methane regulations they have been rocked

by updated statistics showing greenhouse

gas emissions from the petroleum industry

have more than doubled in the past year.

But none of the key players has yet

issued warnings that Canada may be forced

to revise its goals for lowering methane

output, rated as one of the most toxic

human-triggered gases.

Vented emissions, mainly methane,

soared to 175 million cubic meters in the

first half of 2020 compared with 75 million

cubic meters in the same period of 2019,

according to Petrinex, an industry-govern-

ment data-gathering partnership.

If that trend continues it could test the

target set by the federal administration of

Prime Minister Justin Trudeau to make

Canada carbon-neutral by 2050.

Canada-wide program The national government launched a

Canada-wide program on Jan. 1 to better

measure and reduce methane emissions —

which are estimated at 25 times greater

than carbon dioxide output.

Some provinces, including Alberta,

implemented their own methane regula-

tions to match the federal goal, but it wasn’t

until mid-May that Alberta agreed to bring

its controls into line with the Trudeau gov-

ernment’s minimum standards after what it

described as a period of “aggressive nego-

tiations.”

The federal plan aims to cut national

methane emissions from the oil and gas

sector by 40 to 45% from 2012 levels by

2025, but that target was meaningless with-

out the participation of Alberta whose oil

and gas industry accounts for 70% of

provincial methane emissions, of which

25% come from upstream activity.

Stricter than US program Canada’s petroleum industry says the

program, if fully implemented, will be the

strictest approach to global methane emis-

sions, contrasting with the United States,

where the Trump administration is rolling

back methane curbs.

During pandemic-induced oil produc-

tion cuts, energy producers have been

forced to reduce capital spending to sur-

vive.

But the sudden surge in estimated GHG

output during a period of downturn is

expected to compound the challenges fac-

ing governments.

“The fact that we are spending less on

technology and adoption means the (gov-

ernment) goals and targets are meaning-

less,” Audrey Macarenhas, chief executive

officer of Questor Technology, which

develops technologies to help companies

meet emissions targets, told Reuters. “We

don’t have a clear idea of how step by step

we’re going to get there.”

However, Terry Abel, executive vice

president of the Canadian Association of

Petroleum Producers, said it is too early to

say that the new emissions statistics will

cause Canada to miss its 2025 target.

“We always expected that if the regula-

tions didn’t achieve the desired outcome,

the regulations would perhaps become

even more stringent,” he said.

Canada’s Environment Minister

Jonathan Wilkinson said his government

hopes that federal loans to help the industry

achieve GHG reductions will be in place

“within weeks.”

Spokesmen for Canadian Natural

Resources and Cenovus Energy, two of

Canada’s leading oil and gas producers, say

the bigger operators are ahead of schedule,

while the Alberta Energy Regulator is set-

ting up a surveillance program to ensure

compliance with the methane targets. l

Vented emissions, mainly methane, soared to 175 million cubic meters in the first half of 2020 compared with 75 million

cubic meters in the same period of 2019, according to Petrinex, an

industry-government data-gathering partnership.

http://www.nstiak.com

http://www.ninilchik.com


Cook Inlet natural gas production

averaged 198,905 thousand cubic

feet per day in July, up 0.2%, 5,697 mcf,

from a June average of 193,942 mcf, but

down 7.5% from a July 2019 average of

214,965 mcf per day.

This data is from the Alaska Oil and

Gas Conservation Commission, which

reports production on a month-delay

basis. For natural gas AOGCC reports

measurements in thousands of cubic feet,

mcf.

Seven major fields accounted for 79%

of Cook Inlet natural gas production in

July, 157,585 mcf per day.

Six of the fields are operated by

Hilcorp Alaska, which owns five and has

a one-third interest in the sixth, Beluga

River. HEX LLC owns and operates

Kitchen Lights.

Largest gas fields Hilcorp’s Kenai field averaged 32,414

mcf per day in July, down 2.4%, 811 mcf,

from a June average of 33,225 mcf but up

10.2% from a July 2019 average of

29,408 mcf per day.

Hilcorp’s Ninilchik field averaged

31,833 mcf per day in July, up 4.8%,

1,469 mcf, from a June average of 30,364

mcf, but down 18.1% from a July 2019

average of 38,857 mcf per day.

Hilcorp’s Swanson River averaged

24,797 mcf per day in July, up 11.2%,


mcf, but down 20.8% from a July 2019


Hilcorp’s McArthur River field, the

inlet’s largest oil producer, averaged

24,353 mcf per day in July, up 4.2%, 973

mcf, from a June average of 23,380 mcf

and up 8.3% from a July 2019 average of

22,497 mcf per day.

The Beluga River field, which Hilcorp

operates and in which it has a one-third

interest, averaged 16,262 mcf per day in

July, down 4.6%, 790 mcf, from a June

average of 17,053 mcf and down 35.9%

from a July 2019 average of 25,385 mcf

per day.

Hilcorp’s North Cook Inlet field aver-

aged 15,249 mcf per day in July, up 8.4%,


mcf and up 44% from a July 2019 aver-

age of 10,589 mcf per day.

HEX LLC’s Kitchen Lights averaged

12,678 mcf per day in July, down 4.8%,

638 mcf, from a June average of 13,316

mcf and down 32% from a July 2019


Smaller fields There are 15 smaller fields producing

gas in Cook Inlet, two of which, Redoubt

Shoal and West McArthur River, both

operated by Cook Inlet Energy, a Glacier

Oil and Gas Corp. company, went offline

in June, with the company requesting

suspensions of operations from the

Alaska Department of Natural

Resources’ Division of Oil and Gas

based on global low oil prices and lack of

demand.

Hilcorp’s Beaver Creek averaged



mcf, but up 42.7% from a July 2019


Hilcorp’s Cannery Loop averaged



mcf but up 65.2% from a July 2019 aver-


AIX’s Kenai Loop field averaged

4,895 mcf per day, up 1.7%, 83 mcf,

from a June average of 4,813 mcf, but


5,376 mcf per day.

Hilcorp’s Deep Creek averaged 3,906

mcf per day in July, down 2%, 79 mcf,

from a June average of 3,986 mcf, and


4,694 mcf per day.

Hilcorp’s Granite Point averaged

3,741 mcf per day in July, up 1.7%, 63

mcf, from a June average of 3,678 mcf,

and up 34.1% from a July 2019 average

of 2,790 mcf per day.

North Fork, operated by Glacier’s

Cook Inlet Energy, averaged 3,403 mcf

per day in July, down 1%, 34 mcf, from

a June average of 3,437 mcf and down

17.5% from a July 2019 average of 4,127

mcf per day.

BlueCrest’s Hansen field, the

Cosmopolitan project, averaged 3,366

mcf per day in July, down 3.6%, 125

mcf, from a June average of 3,491 mcf,

and down 51.4% from a July 2019 aver-


Hilcorp’s Trading Bay averaged 2,995

mcf per day in July, up 11.1%, 300 mcf,

from a June average of 2,695 mcf, and up

16.8% from a July 2019 average of 2,565

mcf per day.

Hilcorp’s Ivan River averaged 2,449

mcf per day in July, up 808.8%, 2,179

mcf, from a June average of 269 mcf, and

up 451.8% from a July 2019 average of

444 mcf per day.

Hilcorp’s Lewis River averaged 1,067

mcf per day in July, up 0.5%, 5 mcf, from

a June average of 1,062 mcf, and up

322.1% from a July 2019 average of 253

mcf per day.

Hilcorp’s Nikolaevsk averaged 387

mcf per day in July, down 16.6%, 77

mcf, from a June average of 464 mcf, and


526 mcf per day.

Amaroq’s Nicolai Creek averaged 365

mcf per day in July, up 8.5%, 28 mcf,

from a June average of 336 mcf, but


367 mcf per day.

Hilcorp’s Middle Ground Shoal aver-

aged 300 mcf per day in July, up 26.5%,

63 mcf, from a June average of 238 mcf,

and up 0.9% from a July 2019 average of

298 mcf per day.

Cook Inlet natural gas production

peaked in the mid-1990s at more than

850,000 mcf per day. l


July inlet gas production up marginally Cook Inlet natural gas averaged 198,905 mcf per day, up 0.2% from June, but down 7.5% from a July 2019 average of 214,954 mcf


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


Vol. 23, No. 37 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of September 16, 2018 • $2.50

page2

Newfield looking at Alaska;Begich, Dunleavy weigh in;L48 shale boom tapering off TEXAS-BASED INDEPENDENT

NEWFIELD EXPLORATION has people visit-ing Alaska to look at the North Slope’s geo-logic potential.

Headquartered in The Woodlands, Texas,the visiting scientists are not handing out busi-ness cards to everyone they meet, so the visitis very hush-hush.

Per the big independent’s website,Newfield is an oil company focused on profitably growing liq-uids-rich unconventional resource plays in the Anadarko andArkoma basins of Oklahoma, the Williston basin (Bakken) of

State looks for RIK gas interest;includes Prudhoe, Point ThomsonThe Alaska Department of Natural Resources, Division of Oiland Gas, is soliciting interest in potential royalty in-kind naturalgas from the Prudhoe Bay and Point Thomson units. The solicitation, dated Aug. 31, asks for expressions of interestby letter within 30 days.

DNR said it is considering whether to take the state’s royaltyon future natural gas production from Prudhoe Bay and PointThomson in value or in kind. “If DNR takes the royalty in kind, it is currently considering anoncompetitive contract,” solicitation says. The department saidthat to consider a noncompetitive contract it “first considerswhether there is a lack of competition and whether a noncompet-

GAO questions lack of preliminarydesign review for polar icebreakersThe U.S. Government Accountability Office has issued areport raising questions over the reliability of the estimatedcost and schedule for developing new heavy polar icebreakersfor the U.S. Coast Guard. The Department of HomelandSecurity, the agency that includes the Coast Guard, hasaccepted the GAO’s findings.

Currently the Coast Guard only operates two polar capableicebreakers: the Healy, a medium duty icebreaker, much usedas a base for polar research, and the Polar Star, which is aheavy-duty icebreaker but is 41 years old. A third icebreaker,the Polar Sea, sister ship to the Polar Star, is laid up in port andhas become a source of spare parts for the Polar Star.

Colville barges diesel to SlopeTransportation company Colville has transported 2 milliongallons of diesel fuel by barge to Prudhoe Bay on the NorthSlope, the company has announced. This was the first bulkdelivery of fuel to the Slope by barge since the 1990s, andpossibly the largest shipment of its type ever, the companysaid. The supply barge, owned and operated by CrowleyMarine, arrived at Deadhorse on Sept. 6. Because of the shal-low water depths, the barge had to be moored 3 miles off-shore, with the fuel being carried to shore in smaller vessels.Onshore, the fuel was pumped into tanker trucks for transferto Colville’s tank farm in Deadhorse.

The U.S. Coast Guard and BP oversaw the operation, saidDave Pfeifer, Colville president and chief executive officer.More typically, fuel for use on the North Slope is deliveredto Deadhorse from a refinery in Valdez, using tanker trucks

see INSIDER page 10

see GAS INTEREST page 8

see POLAR ICEBREAKERS page 8

see DIESEL DELIVERY page 7

EIA: Brent averaged $73/barrel inAugust; US crude 10.9 million bpd

Pt Thomson extensionState stays 2019 date in 2012 settlement on Alaska LNG project progress

By KRISTEN NELSONPetroleum News

The state has stayed a deadline in its 2012 set-tlement with Point Thomson operatorExxonMobil Production Co. The settlement required a plan for expansion ofPoint Thomson production by the end of 2019 if amajor gas sale hadn’t been sanctioned by June2016. Late last year the state and ExxonMobilreached agreement on the company’s expansionplan. The settlement required either increasingproduction to 30,000 barrels per day of condensate(the current facilities support 10,000 bpd, althoughthat rate has rarely been achieved) or moving nat-ural gas to Prudhoe Bay for injection there (requir-ing an agreement with the Prudhoe Bay working

interest owners and construction of a gas pipelinebetween the fields). Moving natural gas to Prudhoe wasExxonMobil’s choice. That work has now been deferred.

An optimistic outlookConocoPhillips ups GMT-2 forecast; moves ahead on Willow, further explorationBy ALAN BAILEY

Petroleum News

In a highly upbeat presentation to ajoint meeting of the Alaska House and

Senate Resources committees on Sept.10, Scott Jepsen, ConocoPhillips Alaskavice president of external affairs andtransportation, overviewed his compa-ny’s current exploration and develop-ment plans in Alaska, and the resultingmajor uptick in the company’s expectations for itsfuture Alaska oil production.

Increased production estimateJepsen said that his company has upped the esti-

mated peak production for its GreaterMooses Tooth 2 development in thenortheastern National PetroleumReserve-Alaska from 30,000 barrels ofoil per day to 38,000 bpd. The federalBureau of Land Management has pub-lished a final environmental impact state-ment for the project, with a record ofdecision anticipated in October. Thatcould lead to a final investment decisionfor the project later this year, Jepsen said.Meanwhile the Greater Mooses Tooth 1 devel-opment is moving ahead, with first oil anticipatedby the end of the year. Peak production is expectedto run at about 30,000 bpd.

Trudeau treads carefullyAdministration examining options to salvage Trans Mountain, including an appeal

By GARY PARKFor Petroleum News

T he future of large-scale resourceprojects in Canada depends heavily

on how his government responds to afederal court ruling that has stalledprogress on the Trans Mountain pipelineexpansion, said Prime Minister JustinTrudeau.

“What we need is not just thispipeline. We need to be able to build resource proj-ects of all different types with appropriate sociallicense,” he told reporters.

He said the objective is to ensure that TransMountain and other projects do not get “bogged”down in endless court battles.

Trudeau, firing back at his critics,noted that TransCanada’s Keystone XLproject was long ago approved inCanada, but has become entangled in theUnited States over a failure to engage indetailed consultations with communitiesalong the pipeline right of way.

“This is the way that the world isgoing and if we can demonstrate clarityand certainty for businesses through theprocess to the investors we will be ableto get more built,” he said.

Decision impacts communitiesTrudeau called the court decision on TransMountain “frustrating and devastating” for com-

see POINT THOMSON page 12

see CONOCO OUTLOOK page 11

see TRANS MOUNTAIN page 9

Also Sept. 10, the Alaska GaslineDevelopment Corp. announced thatExxonMobil and AGDC had agreed towhat the corporation called “certain keyterms including price and a volume basisfor a Gas Sales Agreement,” captured ina “Gas Sales Precedent Agreement”

signed Sept. 10.

SCOTT JEPSEN

JUSTIN TRUDEAU

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l L A N D & L E A S I N G

Two lawsuits filed against ANWR leasing

Total of 17 organizations seek to halt federal agencies from holding sale in Arctic National Wildlife Refuge Coastal Plain area

By STEVE SUTHERLIN Petroleum News

A pair of lawsuits attempting to halt oil

and gas leasing activity in the 1002

area of the Arctic National Wildlife Refuge

were filed in the U.S. District Court for

Alaska Aug. 24, just one week after

Interior Secretary David Bernhardt signed

a record of decision Aug. 17 which cleared

the way to schedule the first lease sale in

the project area.

The legal actions were not unexpected;

the secretary took 11 months from the date

the environmental impact statement was

finalized to issue the ROD, citing the need

to ensure that the leasing plan was legally

ironclad.

The first case — National Audubon

Society et al. v. Bernhardt et al., Case No.

1:20-cv — pits the society and co-plain-

tiffs Natural Resources Defense Council,

Center for Biological Diversity and

Friends of the Earth, against Bernhardt in

his official capacity as secretary of the

Interior, the Bureau Of Land Management

and the U.S. Fish and Wildlife Service.

The suit claims Bernhardt and BLM

based the ROD in part on an assertion that

Congress mandated that the 1.56 million

acre Coastal Plain be managed for an oil

and gas program, calling it misinterpreta-

tion of the Tax Act “as overriding their

other legal obligations,” including those

under the Refuge Act, the Alaska National

Interest Lands Conservation Act and the

Wilderness Act.

The society seeks for the court to set

aside the ROD, EIS and the biological

opinion for the oil and gas leasing program

for the Coastal Plain and find any actions

taken by defendants in reliance on the doc-

uments as void.

It further seeks an injunction “as need-

ed to prevent irreparable harm from imple-

mentation of the oil and gas leasing pro-

gram for the Coastal Plain of the Arctic

National Wildlife Refuge” until the defen-

dants comply with the National

Environmental Policy Act, the National

Wildlife Refuge Administration Act, the

Administrative Procedure Act and the

environmental site assessment.

The second — Gwich’in Steering

Committee v. Bernhardt, Case No. 3:20-cv

— pits the committee and co-plaintiffs

Alaska Wilderness League, Alaska

Wildlife Alliance, Canadian Parks &

Wilderness Society-Yukon, Defenders of

Wildlife, Environment America Inc.,

Friends of Alaska National Wildlife

Refuges, National Wildlife Federation,

National Wildlife Refuge Association,

Northern Alaska Environmental Center,

Sierra Club, The Wilderness Society and

Wilderness Watch against Bernhardt in his

official capacity as secretary of the

Interior, the U.S. Department of the

Interior, BLM and USFWS.

The committee asks the court to “vacate

and set aside as unlawful any and all

agency approvals and underlying analysis

documents, including the final EIS, ROD,

ANILCA Section 810 Final Evaluation,

and BiOp, as well as any decisions and

documents based on the unlawful actions,

including decisions to lease and leases.”

It also seeks an injunction prohibiting

BLM from authorizing any activities under

the Coastal Plain leasing program which

rely on those documents.

Both actions ask the court to award

plaintiff's costs and attorney fees. l

GOVERNMENTJudge allows ND to pursue reimbursements

North Dakota may move forward with efforts to recoup the money it spent

policing protests against the Dakota Access oil pipeline, a federal judge ruled Aug.

19.

U.S. District Court Judge Daniel Traynor denied the federal government’s

motion to dismiss North Dakota’s lawsuit seeking to recover more than $38 million

in damages the state claimed from the monthslong pipeline protests almost four

years ago.

The state filed a lawsuit against the U.S. Army Corps of Engineers in 2019, and

a hearing on the government’s request to dismiss it was held in July in U.S. District

Court in Bismarck.

The $3.8 billion pipeline has been moving oil from the Dakotas through Iowa

to Illinois for more than three years. Thousands of opponents gathered in southern

North Dakota in 2016 and early 2017, camping on federal land and often clashing

with police. Hundreds were arrested over six months.

The Standing Rock Sioux Tribe opposed the pipeline built by Texas-based

Energy Transfer Partners over fears it would harm cultural sites and the tribe’s

Missouri River water supply — claims rejected by the company and the state.

North Dakota Attorney General Wayne Stenehjem said Aug. 19 that the Corps

“allowed and sometimes encouraged” protesters to illegally camp without a federal

permit. The Corps has said protesters weren’t evicted due to free speech reasons.

The U.S. Justice Department did not immediately return a message seeking

comment.

Traynor, who is based in Bismarck, wrote the Corps failed to comply with its

own mandatory permitting process.

“As a result, there was no limitation on the gathering and no bond available to

clean up the spoiled environment that was left,” his ruling said.

“Here, the maxim applies: ‘You break it, you bought it,’” he wrote.

Stenehjem called the ruling significant and the state has an “excellent chance”

of recouping its costs.

“All we’re asking is that they pay us back for the expenses they forced us to

take,” Stenehjem said.

President Donald Trump in 2018 denied a state-requested disaster declaration to

cover the state’s costs. The Justice Department later gave the state a $10 million

grant for policing-related bills. The pipeline developer gave the state $15 million

to help with the costs that were funded from loans from the state-owned Bank of

North Dakota.

Stenehjem has said the $25 million the state has received to offset the costs

doesn’t get the Corps off the hook for the state’s $38 million total cost.

—ASSOCIATED PRESS

Contact Steve Sutherlin at [email protected]

http://www.bellalaska.com


http://www.lynden.com

more than 45% of all U.S. petroleum refin-

ing capacity and 17% of oil production,

according to the Energy Information

Administration.

Flash floods and winds could inflict as

much as $25 billion in damage, according

to Enki Research.

As evening approached, more than 84%

of Gulf oil production and an estimated

61% of natural gas production had been

shut down, the federal Bureau of Safety

and Environmental Enforcement said.

The storm also threatens much of the

nation’s exports of shale gas.

“After the storms have passed, facilities

will be inspected,” the BSEE said. “Once

all standard checks have been completed,

production from undamaged facilities will

be brought back online immediately.”

Normally, a destructive storm in the

Gulf is bullish for oil prices.

Brent was down but still above $45,

while West Texas Intermediate crude was

trading up by a nickel to $43.44 a barrel as

the storm approached. On Aug. 25, WTI,

Brent and Alaska North Crude closed with

gains, attributed to a surprise crude oil

inventory draw of 4.7 million barrels for

the week to Aug. 21. ANS rose 27 cents to

$44.23.

With Hurricane Laura, price increases at

the pump may be moderated by bloated

stocks of gasoline, despite refinery closures.

Petrochemical prices may also hold

steady, as an oversupply has suppressed

prices after several new facilities came

online in recent years, so companies would

benefit from a drop in inventories, said

Carlo Barrasa, an IHS Markit analyst.

Ultimately the hurricane effect will be

temporary, and the prices will once again

be subject to the strength of recovery in oil

demand as the market recovers from

COVID-19 induced lows.

Zooming to a ceiling Demand is recovering.

World oil demand has grown at a record

pace — by 13 million barrels per day in the

last four months — since the collapse in

April, IHS Markit said in an analysis

released Aug. 25. However, the pace of

growth is expected to taper off with global

crude demand plateauing just below pre-

pandemic levels.

Global crude demand surged from May

to July, currently at 89% of prior year levels

— compared to being at 78% in April.

But IHS Markit expects demand growth

to wane and plateau at 92-95 million barrels

per day (roughly 92% to 95% of prior year

levels) through the first quarter of 2021.

The reason demand will hit the wall is

that travel, especially air travel and com-

muting to work, will remain subdued until

COVID-19 is contained and vaccines are

widely available.

The number of air flights globally is

about 30% below February levels (com-

pared to 78% below in April), IHS Markit

said. Actual jet fuel consumption is still

50% off prior year levels since long-dis-

tance flights have not recovered to the

extent of shorter ones.

U.S. retail gasoline sales improved rap-

idly from May to early July after falling to

50% of prior year levels in April, IHS

Markit said. “But sales have hovered at 17-

18% below earlier year levels since.”

However, the expected plateau of global

crude demand doesn’t mean a return to the

supply overhang that cratered prices back in

April.

“OPEC+ members have rediscovered

production restraint since then and U.S. out-

put is expected to be lower as well,” Jim

Burkhard, vice president and head of oil

markets, IHS Markit said. “That means that

markets can continue to rebalance, even if a

full return to pre-COVID demand levels is

put off for the time being.”

—STEVE SUTHERLIN


715 L Street, Suite 100

Anchorage, Alaska 99501

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OIL PRICES

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The reason demand will hit the wall is that travel, especially air travel and commuting to work,

will remain subdued until COVID-19 is contained and vaccines are

widely available.

Contact Steve Sutherlin at [email protected]

http://www.nature.org/alaska



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

Companies involved in Alaska’s oil and gas industryAdvertiser Index

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

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Minister Justin Trudeau that will protect Alberta from the

economic fallout of COVID-19 or set Canada’s energy

stronghold on a path to sustainable prosperity.

Only one taker In the five months since Morneau’s infamous commit-

ment, only one company has taken advantage of the fed-

eral support — InPlay Oil, with daily output of less than

5,000 barrels of oil equivalent — through an agreement

with the government-owned Business Development

Bank of Canada, BDC, for a four-year term facility of

C$25 million.

Ben Brennen, vice president of the Canadian

Association of Petroleum Producers, told the Calgary

Herald that although the InPlay deal was “positive ... we

remain concerned that companies needing liquidity still

might not get it, and, even if they do, will it be enough to

support them?”

In addition, InPlay Chief Executive Officer Doug

Bartole said his company pursued assistance for months,

resolving to dog the BDC and Export Development

Canada, EDC, “to the end, and we did.” Three other

companies have been approved for EDC funding, but not

a penny has been distributed.

The results have been even bleaker for companies try-

ing to tap the government’s Large Employer Emergency

Financing Facility, with one of them — Painted Pony

Energy — forced to avoid bankruptcy by accepting a

C$461 million takeover offer from Canadian Natural

Resources.

Cabinet upheaval The biggest hope of a workable rescue plan occurred

Aug. 18, stemming from one of the greatest upheavals

within a federal government in recent memory.

With his pockets bulging from a fortune accumulated

in a family-run human resources firm, Morneau was

never expected to remain indefinitely in his job as

Canada’s finance minister.

But no one expected his departure to be so sudden and

his explanation to be so implausible.

In fact, no one bought his howler of a claim that his

“resignation” from Trudeau’s cabinet and as a Member

of Parliament was “voluntary.”

Without Trudeau even observing the normal courtesy

of standing alongside Morneau, the finance minister cut

himself adrift when he told a news conference that he

had never intended to remain in politics beyond two

terms.

In the middle of the worst economic crisis in

Canadian history, he said the time was appropriate for

him to step aside and apply for his “dream job” as secre-

tary-general of the Organization of Economic

Cooperation and Development.

That came only 10 months into his second term and

more than three years short of the latest possible deadline

for Trudeau to call an election.

Morneau said he told Trudeau a new finance minister

should be chosen to “fight against the pandemic and pave

the road toward economic recovery,” a journey that “will

take many years.”

Without even making an attempt to camouflage the

obvious, politicians from all federal parties agreed the

bombshell was clear proof of a bitter relationship

between Trudeau and Morneau over the strategy needed

to rescue the Canadian economy.

Freeland named Other than a token expression of gratitude for

Morneau’s role in his government, Trudeau wasted no

time in elevating Chrystia Freeland into the finance min-

ister’s portfolio, while retaining her as his deputy prime

minister.

Freeland, who steered Canada to a revised North

American free trade agreement, despite insults hurled at

her by President Donald Trump, has built a growing rep-

utation as a fence-mender with Canada’s provincial pre-

miers.

And she was quick out of the blocks with the bare

bones of an economic recovery plan, due to be released

later in August.

Freeland said the Trudeau administration’s plan will

restart the national economy with a “green” emphasis

and address the impact of a pandemic “that is hitting

women particularly hard.”

Born in northern Alberta 52 years ago, she is well

acquainted with the vital role played by that province’s

oil and gas industry. Under a federal equalization pro-

gram Alberta’s federal taxes have contributed C$630 bil-

lion (C$240 billion in the last 11 years alone) to the fed-

eral treasury since 1961 for redistribution across the rest

of Canada.

Alberta Premier Jason Kenney, who has had three

meetings with Freeland since the October 2015 election,

has yet to say whether his hopes in the Trudeau govern-

ment have been restored by the cabinet shuffle.

However, he may have drawn a shred of optimism

when newly appointed Intergovernmental Affairs

Minister Dominic LeBlanc visited Newfoundland

Premier Andrew Furey on Aug. 20 and pledged that the

thousands of Atlantic Canadians who depend directly or

indirectly on the oil and gas sector will soon be presented

with a “series of policy instruments ... to ensure there’s a

sustainable, long-term future in this industry.”

Only this time LeBlanc sidestepped Morneau’s blun-

der of promising an announcement in “hours, potentially

days.” Instead the best he would offer was “soon.”

At the least, the western oil and gas producing

provinces — Alberta, Saskatchewan, British Columbia

and Manitoba — are counting on nothing less than what-

ever the Trudeau administration serves up to

Newfoundland, while mindful of what happened in

March.

—GARY PARK


FEDERAL SUPPORTFreeland, who steered Canada to a revised

North American free trade agreement, despite insults hurled at her by President Donald

Trump, has built a growing reputation as a fence-mender with Canada’s provincial

premiers.


approval from the commission and DNR, it plans to

bring Seaview 8 online Nov. 1, allowing delivery of gas

for winter use and for storage in the summer.

In its DNR participating area application the company

said it has been actively exploring the Seaview area for six

years, with seismic, stratigraphic well tests and “other

confidential surveying of the area.”

The discovery well, Seaview No. 8, was drilled in

2018, resulting in the discovery of commercial gas vol-

umes.

Hilcorp told DNR’s Division of Oil and Gas that it

anticipates drilling a second delineation well in the fourth

quarter of this year or the first quarter of 2021.

In its current AOGCC application the company said

productive depths are between 350 feet and 5,500 feet

total vertical depth shown in the Seaview No. 8 well,

including gas reservoirs in the Lower Sterling, Beluga and

Tyonek.

2018 AOGCC decision AOGCC received no comments, protests or requests

for a hearing in response to Hilcorp’s 2018 request, and

said while it was approving the company’s request to drill,

“Seaview 8 may not be placed on regular oil or gas pro-

duction absent prior written approval from AOGCC.”

The commission said its order is premised on Hilcorp

having “valid leases for all properties through which the

wellbore passes,” and said the company was to notify

AOGCC “within 30 days whenever the status of any

uncommitted property changes.”

There is a state oil and gas lease at Seaview, but the

prospect includes private owners with subsurface rights,

more than 100 properties within 3,000 feet of Seaview

No. 8’s anticipated productive interval.

Hilcorp told the commission in 2018 that it “has made,

and is continuing to make attempts to lease all uncommit-

ted tracts within Seaview Prospect area. However, a num-

ber of landowners have yet to be located, or are unwilling

to participate in our exploration efforts.”

The company’s PA application to DNR includes a list

of mineral owners and the tract percentage attached to

each property in the Clark participating area. Hilcorp’s

tract percentage at the PA is the largest at 31.25%; the

company has leases covering just over 95% of the tract

acreage, with just under 5% of mineral owners uncommit-

ted. Hilcorp is the 100% working interest owner at

Seaview.

Correlative rights AOGCC’s duties, as described on its website, include

overseeing “oil and gas drilling, development and produc-

tion, reservoir depletion and metering operations on all

lands subject to the state’s police powers.”

The commission also “acts to prevent waste, protect

correlative rights, improve ultimate recovery and protect

underground freshwater.”

While most of the state’s major North Slope fields are

developed on land where the state is the only or the major

subsurface owner, Seaview is being developed on acreage

where there are multiple subsurface owners. This is where

correlative rights come in.

The commission is charged with ensuring that when

production occurs, it is allocated between owners of the

subsurface from which it is produced.

“Hilcorp understands there are complex ownerships

involved in the Seaview Field,” the company told the

commission in its 2020 application, “and AOGCC is

tasked with protecting all parties’ correlative rights. With

this in mind, Hilcorp commits to allocating production in

accordance with the proposed Clark participating area

schedule, or in accordance with DNR’s decision on the

Clark PA, if different.”

“All leased interests will be allocated production and

royalties based on their tract allocation percentage, miner-

al ownership, and lease royalty,” Hilcorp said.

Production and royalties will be temporarily held for

unleased mineral owners and uncommitted tracts “until

there is written order by AOGCC that determines how to

handle unleased interest and uncommitted tracts,” the

company said.

Temporary allocations Hilcorp said it would “submit an application to AOGCC

that incudes a detailed outline and methodology for how

unleased interests and uncommitted tracts should be allocat-

ed production,” allowing it to bring the Seaview No. 8 well

online “and ensure the seasonal deliverability of gas in the

winter and storage of gas in the summer, while compensat-

ing the landowners who have leased their lands, and

accounting for interests of the landowners who have not yet

chosen to participate.”

The company said it does not believe this temporary allo-

cation “is a fair and equitable long-term option,” but said it

would allow production to begin while details of production

allocation to the unleased tracts are being worked out.

Hilcorp said it or its affiliates have provided leased and

unleased landowners an opportunity to participate by leasing

and joining the unit and said all available resources have

been exhausted to find contact information for affected par-

ties.

“Hilcorp is committed to locating and contacting all

landowners within the Seaview Unit as new information

come available.”

The company said it has sent a cover letter and a copy of

the current application to all landowners within 3,000 feet of

“Seaview No. 8’s anticipated productive interval within the

Undefined Gas Pool,” in accordance with AOGCC regula-

tions.

Hilcorp noted that in its 2018 application it committed to

submitting applications for a participating area and for pool

rules prior to production of the Seaview No. 8.

The PA application, noted above, is to DNR.

The pool rules application is to AOGCC and the compa-

ny said that it is going to forego “applying for pool rules at

this time, due to the anticipated delays.”

The company said it will apply for Seaview field pool

rules following the application to amend the 2018 conserva-

tion order to allow production from the field. The current

application would allow production in the undefined gas

pool at Seaview. l


SEAVIEW TARGET

to Chugach Electric in December 2017.

“This is a time to reflect on the journey

we’ve been on and to express appreciation

and gratitude to those who made it possible.

I want to thank the ML&P employees

who’ve gone above and beyond to provide

service with competitive, safe and reliable

energy,” said Anchorage Mayor Ethan

Berkowitz in an Aug. 24 release announc-

ing the anticipated closure date. “Thank you

to the teams that worked incredibly hard for

such a long period of time to sew up the

details of this complex deal.”

“After more than two years of working

on this important transaction, we are very

pleased to see the end is in sight,” said

Chugach Electric CEO Lee Thibert. “At a

time when many are facing financial chal-

lenges brought by the COVID-19 pandem-

ic, having one Anchorage electric utility

will help bring lower long-term energy

costs for our community.”

The deal, with a total cost to Chugach

Electric of around $972 million, contains

four major components: an upfront pay-

ment to close the purchase; payments in lieu

of tax to the Municipality of Anchorage

over a period of 50 years, as compensation

to the municipality for the loss of tax rev-

enue from ML&P as a municipality-owned

entity; a commitment to purchase electricity

from the Eklutna hydroelectric power facil-

ity for 35 years; and an agreement to reserve

for ratepayers in ML&P’s service area ben-

efits associated with ML&P’s part owner-

ship of the Beluga River gas field in Cook

Inlet.

Conditional approval in May In May of this year the Regulatory

Commission of Alaska approved the pur-

chase, provided that certain conditions

would be met. As one of these conditions,

the commission required the removal from

the deal of a commitment to make no

immediate change to customers’ electricity

rates as a consequence of the purchase. And

the commission mandated three new condi-

tions: the use of a single cost adjustment for

all ratepayers for power generated from gas

from the Beluga gas field; the implementa-

tion of a single rate structure for all ratepay-

ers in the consolidated utility; and a require-

ment that, prior to closure of the deal,

Chugach Electric and Matanuska Electric

Association must form an agreement for the

implementation of security constrained

merit order economic dispatch across their

service areas.

The mandate for economic dispatch then

triggered several RCA filings. On July 16

Chugach Electric filed a tariff advice speci-

fying an economic dispatch agreement with

MEA. However, on July 31 the commission

rejected the terms of the agreement, saying

that three components of the agreement

were inconsistent with the requirements that

the commission had specified in its May

order. The three components related to the

timeframe for the agreement, the need for a

balancing authority for oversight of the load

balancing area, and commission concerns

about the utilities’ potential ability to termi-

nate the agreement without necessarily

obtaining commission approval.

Finalizing the purchase On Aug. 7 Chugach Electric filed an

amended pooling agreement that it said met

the commission’s requirements. And, in an

Aug. 20 order, the commission accepted the

revised agreement. The commission

requires MEA to file a matching tariff

advice by Aug. 28, as a consequence of

which the purchase of ML&P can presum-

ably proceed.

In an Aug. 24 letter to the commission

Thibert confirmed that the purchase trans-

action is moving forward, with a target clos-

ing date of Oct. 30. To accomplish this,

Chugach Electric anticipates making sever-

al RCA filings relating to the Beluga River

gas field and the pricing of gas from the

field, Thibert wrote. l


ML&P PURCHASE

http://www.judypatrickphotography.com

would be 135,000 barrels per day, with expectations that

value engineering work might increase it.

AIDEA, or the Alaska Industrial Development and

Export Authority, is a public corporation of the State of

Alaska that can offer relatively low interest rates and longer

payback periods. AIDEA, created in 1967 by the Alaska

Legislature, has “a public purpose” to “increase job oppor-

tunities” and “encourage the economic growth of the state,

including the development of its natural resources, through

the establishment and expansion of … energy” and other

projects.

On Aug. 5, AIDEA’s board of directors approved a

memorandum of understanding with Oil Search to investi-

gate the potential of the authority financing access roads,

gravel pads and bridges for the multi-billion dollar Pikka

project (also known as the Nanushuk Development), which

will ultimately include 26 miles of gravel roads, approxi-

mately 70 acres of gravel pads and 120 miles-plus of

pipelines, excluding those involved in the seawater treat-

ment plant.

Oil Search sees a financing deal being similar to

AIDEA’s agreement for the DeLong Mountain

Transportation System with the Red Dog mine in

Northwest Alaska.

AIDEA would issue debt to purchase the surface infra-

structure (some existing and others yet to be built) from

Pikka’s owners, entering into a long-term use agreement

with an associated fee.

Oil Search would agree to maintain and operate the

roads and bridges, which would be operated as non-public,

industrial use with access available to other commercial

users and area residents for a fee, or toll.

According to Wulff, the following was completed by the

end of the first half of 2020:

• Nanushuk access road to first drilling pad (ND-B road).

• Nanushuk operations pad.

• Nanushuk process facility pad.

• Bridge installation across the Miluveach River.

AIDEA and Oil Search also agreed to try to complete a

financing plan for approval by first quarter 2021.

Standalone processing in Phase 1? When asked whether Oil Search would definitely be

processing its own oil for Phase 1, Wulff said the company

was proceeding as though it would be using its own stand-

alone facility with startup in 2025 as planned, but that com-

mercial discussions with neighboring producers for initial

production processing might shorten the timeframe to first

oil — if the outcome of those discussions proves agreeable

to both parties.

Oil Search continues to work to get development costs

down, which Wulff said is critical in today's volatile oil

market. Having already reduced costs to match an oil price

in the low $40s, the company is looking to get them below

$40 per barrel before re-launching its partial divestment

(15%) in a formal sell-down, likely in early 2021.

Wulff said the cost reductions in the Pikka project have

“added significantly to the attractiveness of our Alaskan

portfolio” and that Oil Search is “incorporating the results

from this season’s very successful Mitquq and Stirrup dis-

coveries” prior to beginning the sell-down.

Wulff and Oil Search's half year 2020 results said a final

investment decision for Pikka was still expected by the end

of 2021.

Progressing optimization of Pikka In the information and slides released by Oil Search for

the six months ending in June, the company said Phase 1

was within the already permitted scope of the project.

It also noted its successful 2019-20 drilling season with

three oil discoveries and two tests: one east of Pikka,

Mitquq 1 ST1, flowed at 1,730 bpd and the other near

Horseshoe, Stirrup 1, which flowed at 3,520 bpd.

Those well results “provide options for further develop-

ment,” Oil Search said, pointing to Stirrup as having “one

of the highest single-stage flow rates from a vertical

Nanushuk well on the slope.”

Studies are “well advanced to lower up-front capital

expenditure and materially reduce project breakeven costs,”

the company said.

The results of optimization activities and value engineer-

ing studies to identify opportunities will be announced in

the last quarter of this year.

Importance of Mitquq, Stirrup A slide titled “Importance of Mitquq and Stirrup discov-

eries” in Oil Search’s half year results said the finds have

the potential to “create substantial additional long term

value for shareholders,” noting the following:

• Mitquq discoveries are in same reservoir east of the

Pikka unit project (5.6 miles east).

• This increases chances for a series of large reservoirs

between Pikka project and Mitquq.

• A material prospective resource upgrade is likely.

• Mitquq discoveries have potential to underpin a tie-

back development to Pikka.

• Stirrup discovery has potential to underpin a new major

standalone development (Horseshoe),

The 2019-20 winter exploration program discovered oil

in the “primary Nanushuk reservoir in both the northern

(Mitquq) and southern (Stirrup) exploration areas,” Oil

Search said in its half year summary.

The company also said in the summary that its “new

organizational structure strengthens capabilities to deliver

major growth projects. Further to the announcement on July

1 regarding a major organizational restructure, Oil Search

has successfully integrated the new framework into the

business,” noting a team dubbed Pathfinder has been estab-

lished to “embed performance and set targets across the

business, specifically focused on opportunities that increase

free cash flow and further reduce unit operating costs.”

Wulff’s comments on results “The world is a very different place today than it was

six months ago,” Wulff told Petroleum News.

“The unprecedented challenges due to COVID-19, the

consequent disruption to the global economy and the pre-

cipitous decline in oil prices in the first half of 2020 have

been catalysts for reassessing all areas of Oil Search’s

business,” he said in comments included in the half year

results.

“Without compromising safety or operational perform-

ance, we have systematically introduced initiatives to pri-

oritize our activities, sustainably reduce operating costs,

reduce current and forward non-core spend and lower

breakeven costs for our in-field development and new

growth projects. These programs will enhance the compa-

ny’s ability to generate strong cash flow and to deliver our

world class oil and gas growth assets at lower oil prices,”

he said.

Referencing the company’s transformational reorgani-

zation, which was “benchmarked against local and inter-

national peers” resulted a “leaner and more streamlined

business. The cost-out program, restructure and efficiency

improvements within our operated assets are already reap-

ing rewards from a production and profitability perspec-

tive, with unit operating costs 20% lower than in the first

half of 2019,” Wulff said.

“Steps were taken in the first half to strengthen the

company’s balance sheet. These included a 40% reduction

in 2020 capital expenditure to conserve cash and a

US$700 million equity raise to increase available liquidi-

ty,” he said.

“We are comfortable that the balance sheet can support

the company’s liquidity needs in the event of a prolonged

period of lower oil prices. Our highest priority is always to

safeguard the health and wellbeing of our staff, contrac-

tors and people within our local communities.”

Early in the year, “well ahead of the imposition of gov-

ernment travel restrictions” and the full impact of the pan-

demic, Oil Search implemented a “comprehensive

COVID-19 management plan” to protect employees and

to ensure safe and reliable operational continuity.

“Over the second half of the year, in addition to contin-

uing the initiatives commenced in the first half, our focus

will be on completing the Strategic Review. The review is

now well advanced and will incorporate analysis of global

and local trends and company specific risks and opportu-

nities, as well as valuable input from shareholders,” Wulff

said.

Despite loss, shares rose Oil Search’s core profit after tax for the six months to

June dropped to $24.7 million from $165.2 million a year

earlier as its average realized oil prices from operations

outside Alaska fell 45% and LNG prices fell 15%.

Including write-downs on its PNG exploration assets,

the firm slumped to a net loss of $266 million, Reuters

reported.

Despite suspension of the dividend investors “shrugged

off the result, sending Oil Search’s shares up 0.7%, rough-

ly in line with oil price gains,” the news service said. l



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