AVCG, Ramshorn do JVSince the 1977 startup of the trans-Alaska oil pipeline, “the gas has been hard at work in Alaska,” he said. The Alaska Oil and Gas Conservation Commission

page10

Snowy owl rescued at Sitka thiswinter freed at Prudhoe Bay

Vol. 11, No. 30 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of July 23, 2006 • $1.50

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


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

● N A T U R A L G A S

3Alaska gas reserves tax: Opponents claim ballot initiative's

application is statewide and a deal-killer for gas line contract

4 Greenland's latest round: Largest North American,European companies said to be participating; EnCana expected to drill

7 Arctic marine monitoring: AOOS putting Alaska sea and icecondition info. online; proposes helicopter-based measurements

Peggy Hudson hooks biggest fish

BP Vice President Peggy Hudson caught the largest fish, a 67-pound king, at 11th annual Kenai River Classic earlier this month.The event, which pulled in about $800,000, is a fundraiser for con-servation of habitat along the Kenai River. Alaska U.S. Sen. LisaMurkowski hooked a 63-pound king salmon at the event, whichwas hosted by her father, Alaska Gov. Frank Murkowski and U.S.Sen. Ted Stevens. Others U.S. senators who attended were KitBond of Missouri, Thad Cochran of Mississippi, Larry Craig ofIdaho, Michael Enzi of Wyoming, Mitch McConnell of Kentucky,Pat Roberts of Kansas and John Sununu of New Hampshire. All areRepublicans. No House members attended.

AVCG, Ramshorn do JVHouston-based private equity firm connected with Nabors Industries

By ALAN BAILEYPetroleum News

laska Venture Capital Group andits operating company BrooksRange Petroleum have formed ajoint venture with Ramshorn

Exploration, a Houston-based privateequity company associated with drillingcontractor Nabors Industries Inc.

“Ramshorn Exploration has acquireda 25 percent working interest in all ofAVCG’s North Slope acreage andexploration prospects,” Ken Thompson,managing director of AVCG, toldPetroleum News on July 19. “They’llalso own that 25 percent in all future

prospects.”Thompson said that Ramshorn

Exploration has investments in explo-ration prospects in several differentcountries.

Substantial lease positionSince 1999 AVCG has established a

substantial lease position on Alaska’sNorth Slope, with oil prospects atGwydyr Bay, Whiskey Gulch, OceanPoint and Titania in the central NorthSlope. The company also owns a 10percent interest in the Pioneer NaturalResources-operated Cronus unit, south-

AKen Thompson saidRamshornExploration acquireda 25 percent workinginterest in all ofAVCG’s North Slopeacreage and 25 per-cent of all futureprospects. Plans fornext winter includeshooting seismic anddrilling two wells.

Canada LNG deals on rollGovernment leaders endorse Gazprom, Petro-Canada’s deal in pushing LNG

By GARY PARK For Petroleum News

iquefied natural gas projects in western andeastern Canada are making bold advances,with Kitimat LNG forming a new joint ven-ture and opening the door to possible sales in

the Alberta oil sands region as well as the NorthAmerican Pacific coast, while Russia and Canadaseem headed towards a supply agreement that willclinch a regasification terminal in Quebec.

The two developments give a shot of optimismto LNG development in Canada, offsetting the dis-appointment of Anadarko’s decision to sell itsNova Scotia terminal to a private U.S. VentureEnergy, an equity firm, for US$125 million.

Two years of negotiations between Russian gas

giant Gazprom and Petro-Canada are headed foragreement later this year on a 25-year gas supplycontract, establishing ties between Russia’s vastgas resources and North American markets.

Russian President Vladimir Putin and Canada’sPrime Minister Stephen Harper issued a joint state-

Two years of negotiations betweenRussian gas giant Gazprom and Petro-Canada are headed for agreement later

this year on a 25-year gas supplycontract, establishing ties between

Russia’s vast gas resources and NorthAmerican markets.

see DEALS page 15

see JV page 16

L

Discovery overlies AlpineQannik accumulation would be developed from CD2 pad with horizontal wells

By KRISTEN NELSONPetroleum News

ore barrels are likely to be added to thosealready being produced from Alpine, the suc-cessful west North Slope field discovered inthe early 1990s.

Field owners ConocoPhillips and AnadarkoPetroleum Corp. said July 14 that a discovery overly-ing the Alpine oil field has been production tested.

The Qannik accumulation was tested for 19 daysin June in the CD2-404 well. Average production was1,200 barrels per day of 30-degree API gravity oilfrom a 25-foot thick sandstone at 4,000 feet subsea.The Alpine accumulation, at 40 degrees API gravity,is a lighter oil.

Qannik would be the third satellite field to bedeveloped near Alpine — all within the Colville

River unit. Fiord and Nanuq, respectively to the northand south of Alpine, are currently being drilled withfirst production scheduled this year.

Erec Isaacson, who took over from Rick Mott asConocoPhillips Alaska’s vice president of explo-ration and land earlier in July, told Petroleum Newsthat the company had basically been drilling through

Erec Isaacson, who took over from RickMott as ConocoPhillips Alaska’s vice

president of exploration and land earlier inJuly, told Petroleum News that the companyhad basically been drilling through Qannikto reach the Alpine accumulation, which is

at about 7,000 feet subsea.

M

see QANNIK page 16

JUD

Y P

ATR

ICK

Canada’s leader spreads theenergy gospel in Europe

CANADA, A SUPERPOWER?Prime Minister Stephen Harper thinks

so and that’s the message he spread onhis first official visit to Europe, includinga stop at the G8 summit in Russia.

To be more accurate, he is sellingCanada as an “emerging energy super-power” as he lays out his government’splan to build the country into a “globalenergy powerhouse” by developing itsvast oil sands and uranium resources.

“We believe in the free exchange ofenergy products based on competitive market principles, notself-serving monopolistic political strategies,” he told theCanada-United Kingdom Chamber of Commerce in London.

see INSIDER page 14

http://www.PetroleumNews.com

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

2 PETROLEUM NEWS • WEEK OF JULY 23, 2006

NATURAL GAS

GOVERNMENT

ENVIRONMENT

INTERNATIONAL

LAND & LEASING

ON THE COVERAVCG, Ramshorn do JV

Houston-based private equity firmconnected with Nabors Industries

Canada LNG deals on roll

Government leaders endorse Gazprom, Petro-Canada’s deal in pushing LNG

Discovery overlies Alpine

Qannik accumulation would be developed from CD2 pad with horizontal wells

FINANCE & ECONOMY

EXPLORATION & PRODUCTION7 Monitoring Arctic marine conditions

AOOS making information about Alaska sea and ice conditions accessible online; proposes helicopter-based sea ice measurements

8 Sands showdown

Mikisew Cree First Nation asks for halt to oil sandsexpansion; local governments concerned; Suncor says it must seize window

6 Feuding over Alberta royalties

Candidates for Alberta premier’s job favor a review; industry, energy minister warn changes could be destructive to oil sands

4 Greenland opens new round of concessions

Largest North American and European companies said to be participating; seismic acquired; EnCana expected to drill in ’08

3 Gas reserves tax not ring-fenced

Administration: Not only would ballot initiative be a deal-killer for gas contract, its application is statewide

5 Will the pipeline open or close basin?

Administration, producers tell legislators gas line will openNorth Slope; consultants concerned about control

13 BP shuts down 12 slope wells for tests

Voluntary action comes after whistle-blowers allege problems at 50 sites; BP identified 57 wells with possible problems

11 PPT, contract on deck again in Juneau

Gov. Murkowski tells legislators time is now for Alaska gas project, before Lower 48 locks in agreements for foreign LNG

14 Time to remove barriers: Bodman

DOE secretary to spend final time in office tackling issues of pipelines, refining, that limit import of Canadian heavy crudes

4 Treadwell heads Arctic research group

9 Oil sands land grab keeps on rolling

4 Canadian producers prime takeover targets

8 South Korea ready to buy oil sands lease

10 Ivory set free at Prudhoe Bay

10 Conditional ROW for spur line approved

13 Mackenzie gas line could be delayed

13 Alaska lease sale schedule

Peggy Hudson hooks biggest fish

http://www.bristowgroup.com

PETROLEUM NEWS • WEEK OF JULY 23, 2006 3


Gas reserves tax not ring-fencedAdministration: Not only would ballot initiative be a deal-killer for gas contract, its application is statewide


orth Slope gas owners aren’t the only ones who couldwake up Nov. 8 with a huge new tax liability.

While sponsors of the gas reserves tax which will beon the ballot Nov. 7 have targeted Prudhoe Bay and Point

Thomson gas, the Murkowski administration says the tax wouldnot be limited to the North Slope or to gas already discovered:a big new gas discovery in Cook Inletwould also be taxed.

In a worst case scenario, Department ofRevenue economist Roger Marks told thepress July 19, the administration believesany large gas find prior to the first gasflowing through a pipeline from the NorthSlope could be subject to the tax, putting adamper on exploration until a gas pipelinestarts up.

Jim Clark, Gov. Frank Murkowski’schief of staff, said the administration believes the reserves taxwill kill the gas project. That, he said, is why there is “a pro-tection for the project in the contract” and why the special ses-sion is being held now so that the contract can be moved for-ward “to get that protection in place.”

Under the fiscal contract the state would reimburse the pro-ducers for a gas reserves’ tax.

Warehousing an issueMarks said the producers have been accused over the years

of “warehousing” Alaska North Slope gas because, “eventhough this gas was economic, they had better opportunitieselsewhere.”

An attempt to send North Slope gas to Asia as liquefied nat-ural gas failed because Alaska gas couldn’t compete with clos-er supplies at tidewater. The other problem was the demandgrowth in Asia: between 1977 and the present it averaged only0.4 billion cubic feet a day, too little to fill a pipeline whichneeded to carry 4 bcf a day to be economic.

In North America, until recently, the price was the problem:until 2000 it was between $1 and $2 per million Btu.

“And if the cost to get it to North America is $2.50, we actu-ally would have lost money had we built a pipeline to NorthAmerica prior to 2000.”

Since the 1977 startup of the trans-Alaska oil pipeline, “thegas has been hard at work in Alaska,” he said.

The Alaska Oil and Gas Conservation Commission estimatesthat between 3 billion and 5 billion barrels of oil produced fromPrudhoe Bay “are directly attributable to using gas to facilitatethe oil development,” he said.

How reserves tax worksStarting Jan. 1, the reserves tax would collect 3 cents per

thousand cubic feet for gas on state leases in units with morethan 1 trillion cubic feet of gas — Point Thomson and PrudhoeBay — until gas starts going into a pipeline. With 35 tcf ofreserves that would be about $1 billion per year, Marks said.

The initiative sponsors have said no gas from new leases ornew units would be subject to the gas, “but we’ve studied thelanguage quite thoroughly … and we believe that the languageof the act quite explicitly says that new leases would be subjectto the tax.”

The bill specifies that gas is not taxableif it was not in a state-approved unit onJan. 1, 2002, and Jan. 1 of the tax year. “Soif you had a unit that was not in existenceon Jan. 1, 2002, but was in existence onJan. 1 of the tax year, be that in 2008 or2019, whatever, you are not exempt,” hesaid. Several lawyers have looked at thelanguage, and “it’s crystal clear to us thatgas — after a lease is 10 years old — andyou qualify by the trillion cubic feet quali-

fication, then indeed you are subject to the tax.” The implications — no one knows when first gas will flow

— are that “any gas discovered prior to when the pipeline startsup could be subject to the tax. Accordingly, we believe that noone will explore for gas until the pipeline starts up.”

And because when you drill you don’t know whether youwill find oil or gas — someone looking for oil could find gas —“and be subject to the tax. So we believe in addition all explo-ration for oil as well as gas could very well cease with thismeasure.”

The ballot initiative also does not ring fence the North Slope:“This applies to all gas in the state,” he said. If someone founda tcf in Cook Inlet, “ironically Cook Inlet gas would have to paya reserves tax until a North Slope gas pipeline starts up.”

Devastating impact on investment climate“The most important thing to recognize about this reserves’

tax, the way it’s set up, is it’s unavoidable, regardless of yourbehavior,” Marks said. Even if the producers guarantee apipeline and a start date, you have to pay the tax. You pay moreif you don’t do the project, “but you pay if you do do the proj-ect.”

The $1 billion in annual reserves’ tax is about what the com-panies are now investing on the North Slope, Marks said.

“These fields on the North Slope are not on autopilot.They’ve been investing a billion dollars a year and production’sdeclining 6 percent. We estimate they really need to spendabout twice as much to keep production constant. But if theyhave to spend a billion dollars in reserves’ tax, there’s no moneyfor capital spending. Then production on the North Slope goesinto a freefall which hastens the oilfield shutdown and you endup with no gas line.”

Marks called it “unavoidable and irrevocable reduction inthe value of the field.” ●

N

ROGER MARKS JIM CLARK

http://www.anvilcorp.com

http://www.hiltonanchorage.com

By JAN M. OLSENAssociated Press Writer

everal of the world’s largest oil com-panies hope to tap into possible off-shore oil and gas reserves asGreenland opened a new round of

concessions July 18 for explorationlicenses in the fragile Arctic region.

Eyes of an oil-thirsty world haveturned to the shores of the semiau-tonomous Danish territory amid risingfuel prices, Mideast instability and con-cerns over future supplies.

The Greenland government hopes tomake big gains from any reserves found

in its icy waters, but environmentalistssay oil exploration there could damage asensitive region already under threat byglobal warming.

“We know for sure there is oil but wedon’t know how much exactly andwhether it can be profitable,” said JoernSkov Nielsen, manager of Greenland’sBureau of Minerals and Petroleum, aheadof the three-day meeting in Ilulissat, onthe giant island’s west coast.

Speaking by telephone, Skov Nielsendeclined to say which companies wereattending the meeting and what condi-tions the Greenland government wouldput forth for exploration in the Disko Bay

— the area being opened for the currentround of concessions.

“All I can say is that the top 15 biggestin North America and Europe are here,”he told The Associated Press.

Seismic has been acquiredThe fact that those attending the meet-

ing have bought seismic data collected inthe Disko-Nuussuaq region, was “anunmistakable sign of interest,” SkovNielsen said. The deadline for bids is Dec.15.

Exploration in one of the most remotecorners of the globe is no easy task.Bidders should be able to tackle roughweather and ice while avoiding damage toDisko Bay’s fragile ecosystems.

Skov Nielsen said an environmentalimpact assessment will performed in thearea to identify possible consequences of

oil exploration, but environmental activistssaid that was not enough.

Tarjei Haaland of Greenpeace Denmarksaid it was “insane” to even think about oilexploration in the sensitive environment.

“We all know that it’s an extremely dif-ficult region to work in and if there is anoil disaster in the area, it can be harmful,”Haaland said. He suggested money devot-ed to oil exploration would be better spenton developing alternative fuels.

Oil exploration off west Greenlandstarted in the 1970s but stopped after fivefailed drillings. Activities resumed in 2001off Nuuk, the Greenland capital. Canadiancompany EnCana last year became thefirst company to win a license for offshoreoil and gas exploration off Nuuk.

In 2008, Calgary, Alberta-basedEnCana is expected to start drilling inbelieves has reserves ranging from 400million to 1.2 billion barrels of oil. ●


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Greenland opens new round of concessionsLargest North American and European companies said to be participating; seismic acquired; EnCana expected to drill in ‘08

S

Treadwell heads Arctic research groupU.S. Sen. Lisa Murkowski, R-Alaska, congratulated Alaskans Mead Treadwell and

Vera Metcalfe July 19 on their presidential appointments to the U.S. Arctic ResearchCommission. Treadwell, who has been a commissioner since 2001, has been namedchairman. Metcalfe has been appointed to serve as the indigenous representativethrough 2009.

President Bush announced the nominations July 17. Murkowski said she has known Treadwell for most of his professional career. “His

knowledge of the Arctic will help the United States continue its work with other Arcticnations to establish policies and goals that will advance the entire circumpolar region,”she said.

Murkowski said Metcalfe brings “local knowledge and perspective to the organi-zation. Her background as executive director of the Alaska Eskimo WalrusCommission will serve her well in this role.”

The U.S. Arctic Research Commission was established by the Arctic Research andPolicy Act of 1984.

It’s principal duties are to establish the national policy, priorities and goals neces-sary to construct a federal program plan for basic and applied scientific research withrespect to the Arctic; to promote Arctic research, to recommend Arctic research poli-cy; to work with the National Science Foundation as the lead agency responsible forimplementing the Arctic research policy; to give guidance to the Interagency ArcticResearch Policy Committee to develop national Arctic research projects; and to inter-act with Arctic residents, international Arctic research programs and organizations andlocal institutions including regional governments in order to obtain the broadest possi-ble view of Arctic research needs.

FINANCE & ECONOMYCanadian producers prime takeover targets

UBS Securities analysts see large-cap Canadian E&P companies such asEnCana, Nexen, Canadian Natural Resources and Petro-Canada as ripe for thepicking if their forecast round of consolidation takes place.

In a note, Andrew Potter and Memet Kont, said there is “substantial opportu-nity for large-scale industry consolidation.”

In a global context, the four Canadian companies listed by UBS are “attractivetakeover candidates due to their oil sands exposure” which is valued at less than$1 a barrel.

The two analysts are now forecasting that oil prices will remain above US$60per barrel for the next three years and will stabilize at $43 on a long-term basis.

They said Canadian oil and gas shares have returned 289 percent over the past12 months and have the potential for further gains..

—GARY PARK

GOVERNMENT

http://www.hawkpros.com


hether a producer-owned gaspipeline will open or close theNorth Slope has been one of thehotly debated issues around the

proposed gas pipeline fiscal contract. Will owning the majority of a gas

pipeline to the Lower 48 allow the produc-ers to control access, restricting othersfrom sending gas down the pipeline?Would the Federal Energy RegulatoryCommission ensureequal access?

Or will having agas pipeline open upthe North Slope toexploration fromexisting and newplayers, creating awhole new industry— gas explorationand production — inthe state?

The SenateSpecial Committeeon Natural GasDevelopment heardold, and some new,arguments aroundthose issues when itmet July 13-14.

Bob Loeffler, apartner in the law firm of Morrison &Foerster, Washington, D.C., has represent-ed the state in FERC matters since the1970s, and is working with the administra-tion of Gov. Frank Murkowski on the fis-cal contract.

Loeffler told the committee that thispipeline would be the most scrutinizedpipeline in history over its lifetime — inthe United States and also probably inCanada. This will start, he said, prior to theopen season with a requirement that themethodology of bid evaluation berevealed. Typically, he said, this will be anet present value based on the amount ofgas and the duration in a bid. The pipelinewill have to propose a tariff rate when itapplies to hold the open season, he said. Ifit tells potential shippers one proposed tar-iff and the tariff is a lot more after the lineis built, then shippers can usually get outof a firm commitment contract to ship gas.

Loeffler also said that under its newchairman the FERC has been extraordinar-ily strict in enforcing some of its rules.

FERC toolboxHe said FERC has a toolbox of author-

ities to prevent basin control — the poten-tial ability of the pipeline owner to excludeindependents from the line. And for thispipeline only, because it is expected to bethe only gas pipeline from the NorthSlope, Congress has given FERC the abil-ity to order expansion.

Loeffler said he thinks discussions ofbasin mastery — a somewhat differentissue — are largely about internationaldevelopment and reflect conditions world-wide. “This is not a Third-World country,”he said. Alaska has a transparent legal sys-tem, FERC regulation of gas pipelines andopen bidding for leases. International con-cerns are often about over-building ofinfrastructure for control; with the Alaskagas pipeline, the concern is the opposite —under building. FERC wouldn’t allowoverbuilding because shippers would thenhave too high a tariff, he said. Loeffler saidbasin mastery issues apply to a different

world than the situation in Alaska. On the issue of access to acreage, Ken

Griffin, deputy commissioner of theDepartment of Natural Resources, notedthat the state’s competitive leasing pro-gram will remain as it is today.

In response to a question about whereFERC control starts, Loeffler said that inthe post-Enron world, under the EnergyPolicy Act, FERC can reach people whoare beyond its traditional jurisdiction ifmarket manipulation is an issue.

Concerns about contract, FERCThe committee heard continued access

concerns from consultants for theLegislature.

Don Shepler of the law firm ofGreenberg Traurig said he was concernedabout expansion after the initial open sea-son and about the fact that the FERC wasa long ways away and was both expensiveand time consuming.

Rick Harper, formerly in charge of allof Atlantic Richfield’s North Americannatural gas activities, and now a memberof the Econ One team, said the contractwas not particularly expansion friendly.

He urged legislators to remember thatnatural gas pipelines are contract carriers,not common carriers like crude oil linesand not public utilities. They generallypursue enlightened self interest, he said.This is a different business model, but hesaid it still raises issues and concerns.

Jim Clark, the governor’s chief of staff,said the administration is taking concernsabout the contract seriously. It is talkingwith Anadarko Petroleum about concernsthat company has about section 8.7, hesaid, and at the request of TesoroPetroleum has committed to providingassistance for companies that need help inunderstanding how to bid in the in-stateopen season.

BP’s responseBrad Keithley, a partner in the law firm

of Jones Day, and BP’s FERC attorney,told legislators the FERC is already posi-tioned to deal with post-open seasonexpansion concerns of companies not affil-iated with the pipeline owners. It has rules

to deal with non-affiliate issues in theLower 48, where 16 pipelines have 37 per-cent of their gas capacity held by affiliatesand six gas pipelines have more than 60percent held by affiliates.

FERC Order 2004 specifically dealswith expansion after the initial open sea-

son, requiring pipelines to treat all shipperson a non-discriminatory basis, he said.Keithley said FERC Order 670 has rulesregarding market manipulation, such asrefusing access to force sales of leases



Will the pipeline open or close basin?Administration, producers tell legislators gas line will open North Slope; legislative consultants concerned about control

Wsee BASIN page 6

Bob Loeffler, a part-ner in the law firmof Morrison &Foerster,Washington, D.C.,has represented thestate in FERC mat-ters since the 1970s,and is working withthe administrationof Gov. FrankMurkowski on thefiscal contract.

http://www.carlile.biz

from non-affiliates. He said the FERC can deal with issues

on a real-time basis and has a hot linestaffed by its enforcement division.Hundreds of disputes have been resolvedinformally, he said, specifically issuesregarding affiliates, because FERC staffers

on the hotline turn around and call thepipeline immediately.

FERC also has “very active” on-siteaudit teams, Keithley said.

The state will also have enforcementpower as a pipeline owner, he said. It willbe well positioned to help resolve issuesand will have immediate access to infor-mation. The state will also be well posi-tioned to refer issues to FERC, and withthe state as an owner it will be able to

obtain information quickly without havingto wait for FERC discovery.

In response to a suggestion that the tar-iff for the line be developed now, Keithleysaid you need costs, design and operatingparameters in order to build a tariff, infor-mation which isn’t yet available. A pro-posed tariff is part of a pipeline’s open sea-son filing.

The basin-opening argumentWendy King, ConocoPhillips Alaska’s

director of external strategies for AlaskaNorth Slope gas development, said shesees the gas line as basin opening. Therewill be significant new opportunities foroil and gas exploration, she said.

She said she believes there will be a lotof FERC scrutiny of an Alaska gas pipelinebecause if will be moving so much gas.

King also said that a 4.5 billion cubic-feet-a-day line would be expanded to 5.6bcf with incremental compression — com-pression stations added between existingcompressors.

Expansion is not one size fits all, Kingsaid, telling the committee that she’s been

asked about expanding the line from theNorth Slope to Fairbanks, from Fairbankssouth (in the event of a large discovery inInterior Alaska) and from the Yukon south,should discoveries be made there.

Bill McMahon, ExxonMobil’s Alaskagas commercial manager, said that in addi-tion to voluntary expansion — the normalbusiness deal — and FERC-mandated andstate-initiated expansions, there are threeways capacity could be available outsideof an open season. Excess capacity couldbe released; a reverse auction could occurto make that capacity available; and therecould be business deals, such as gas sold tosomeone with capacity.

King noted that fields decline; whenyou commit to ship from a field you won’talways have the same volume and reverseauctions occur as fields decline.

A pipeline’s capacity is described by thecapacity at a bottleneck point, Griffin said.Those bottlenecks are a function of tem-perature and terrain so 4.5 bcf a day wouldbe the capacity at the bottleneck, probablyin the Brooks Range because of the terrain,he said. ●


continued from page 5

BASIN

● G O V E R N M E N T

Feuding over Alberta royaltiesCandidates for Alberta premier’s job favor a review; industry, energy minister warn changes could be destructive to oil sands

By GARY PARKFor Petroleum News

he industry is emphatic — don’t meddle with whatworks — but there’s squabbling within the Albertagovernment as pressure builds to review the oil andgas royalties, with special emphasis on the oil sands.

Leading candidates vying to replace Ralph Klein aspremier of the province later this year agree with a grow-ing public sentiment that it is time to take another look ata system that yields a mere 1 percent of gross revenueuntil project costs have been covered, then rises to 25 per-cent.

It’s a regime that critics say amounts to a free ride forcompanies raking in billions of dollars from the resource.

Jim Dinning, seen as the front runner in the leadershiprace and a former Alberta finance minister, said a reviewof Alberta’s entire royalty system is overdue, while rivalsDave Hancock and Lyle Oberg favor a fully transparent,public examination of the regime.

As for the departing Klein, he “couldn’t give a tinker’sdamn” if a review is ordered.

Melchin: taxpayers getting fair shareBut Energy Minister Greg Melchin says an internal

review has concluded taxpayers are getting a fair sharefrom the oil sands and conventional oil and natural gas,with royalties and returns from land sales totaling C$15billion in 2005.

That means there will be no changes to avoid sendinga destructive message to the industry, he said.

Public hearings could be held in the future, but havebeen avoided until now because royalties are “financialstructures” and as such are very technical, he said.

“We make promises and obligations to industry to‘come and invest your money,’” said Melchin. “Now thatthey have put it in, you don’t just change the rules.”

He was not ready to make allowance for the fact thatoil prices are now hovering around US$75 a barrel and arepredicted by FirstEnergy Capital to average $68 in 2007,

$64 in 2008 and $57 by 2010, yielding billions of addi-tional dollars of returns for the industry.

But Melchin said the government can’t arbitrarilychange the rules for the oil sands just because energyprices have soared.

For now, Melchin insists most of the internal informa-tion and external reports produced for the “basic” reviewof royalties will be made public once it has been providedto the government caucus.

“Everybody mentions the 1 percent and clearly 1 per-cent is a low royalty rate on the initial side, but these arethe highest-risk projects,” Melchin said.

Some have suggested the initial royalty could be raisedto 5 percent without deterring investment, but others notethat would extend project payouts and delay the day whenthe 25 percent rate took effect.

Industry: don’t mess with royaltiesThe industry view is unambiguous.Neil Carmata, a Petro-Canada vice president and the

former head of Shell Canada’s oil sands division, saidinvestors and companies have “got to keep telling thepoliticians they have got to be careful not to mess” withroyalties.

“You’ve got to keep explaining that, with oil sandsprojects facing costs per barrel of daily production ofC$75,000 to C$80,000, you still need that royalty rate toget over the finish line.”

Carmata warned a lot of pressure is building for royal-ty and capital cost clawbacks.

“If it happens, it’s going to hurt,” he said. “Every timeI corner a politician I say ‘keep your hands off (revenues)’

because we need them even with oil at $70 a barrel.” Soheil Asgarpour, an oil sands scientist with the

Alberta Department of Energy, told a TD Securities con-ference that a number of options are being examined forroyalties, but there are no plans yet to make recommenda-tions.

He said one idea is to exclude upgraders from the roy-alties paid for extracting raw bitumen or producing syn-thetic crude.

Should project developers take that route, the capitaland operating costs of upgraders could not be claimedunder the royalty regime, leaving the province to collectroyalties based on the value of the bitumen.

If the developer elected to include the upgrader, theroyalty would be assessed based on synthetic crude, mak-ing the costs of the upgrader part of the royalty calcula-tion.

Royalty tax credit ends Jan. 1The only immediate change will be an end on Jan. 1,

2007, to the Alberta Royalty Tax Credit that providedC$113 million to oil companies in fiscal 2005-06 to stimu-late exploration and development and has pumped billionsinto the industry’s pockets since it was introduced in 1974.

Eligible companies can qualify for a credit on theirincome tax for a percentage of the first C$2 million of roy-alties paid, with the amount varying as the program isadjusted to stay in line with market changes and trends. Ithas ranged from 75 percent to 25 percent and is currentlyat the lower end.

The debate is unlikely to fade at a time when the gov-ernment’s own numbers show it collected 19 percent of oiland gas revenues in 2004, falling below its own thresholdof 20-25 percent.

A spokeswoman for the Pembina Institute forAppropriate Development said the entire royalty structureneeds more than a tweak.

She said retaining a decade-old regime for the oil sandswhen the sector is overheated is “irresponsible.” ●

“You’ve got to keep explaining that, with oilsands projects facing costs per barrel of dailyproduction of C$75,000 to C$80,000, you still

need that royalty rate to get over the finishline.” —Neil Carmata, Petro-Canada vice presidentT

http://www.nstiak.com

http://www.alaskasteel.com



Monitoring Arctic marine conditionsAOOS making information about Alaska sea and ice conditions accessible online; proposes helicopter-based sea ice measurements


actors such as sea ice conditions, ocean currents andweather are obviously of critical importance to any-one working in the challenging environment of off-shore northern Alaska. People such as subsistence

hunters or oil and gas explorers need to know as much aspossible about offshore conditions and how those condi-tions may change.

The Alaska Ocean Observing System, or AOOS, aconsortium of government, university and private enti-ties, has embarked on a mission to monitor and predictArctic sea conditions. The organization is developinginformation products that meet the needs of a broadrange of people. And at a workshop in Anchorage,Alaska, oceanographer Mark Johnson from theUniversity of Alaska Fairbanks described some of theAOOS Arctic initiatives.

Improving the modelsAOOS has made significant progress in making ocean

information available but is still in the early stages ofdeveloping a complete range of products. For example,the computer models for forecasting sea conditions tendto have too coarse a resolution to provide useful results,Johnson said.

He said that developing high-precision models willtake a great deal of effort, involving finer-scale meas-urements and finer numerical modeling than at present.People want more precise forecasts of nearshore oceancurrents, for example.

“This is a real challenge — the numerical (ocean cur-rent) models that are run in the Arctic are usually rela-tively coarse resolution and there’s a real interest in fine-scale resolved currents,” Johnson said.

Models for Arctic ice coverage are also problematic.

There are nine different ice coverage models but, whencompared with actual observed data, each model worksreasonably well in some areas but not in others.Discrepancies in observed ice data from differentsources compound these problems.

“We are challenged by having observational data setsthat are supposed to give us the same information but arefundamentally different,” Johnson said.

Johnson particularly stressed the importance of vali-dating computer models by obtaining comprehensivedata about actual observed conditions. This data collec-tion is such an important issue that current AOOSresearch is focusing on gathering and making availableas much data as possible.

Online dataAnd the AOOS goal is to make this data available

online through the Internet.

“Our goal has been to get disparate data sourcesonline, get them available by clicking, by downloading,”Johnson said. “Once that’s done we can move forward inother directions.”

Those data sources are being posted on the AOOSweb site at http://ak.aoos.org/.

For example, AOOS has now published online all ofthe hydrographic data that it can find from sensorsaround Alaska. Some of this data, including temperatureand salinity data, comes from many types of buoys thatdrift in the ocean or freeze into the ice and beam data toground stations via satellite.

One practical outcome of collecting this data is anability to provide the U.S. Coast Guard with informationabout where people or vessels may drift.

“We’re working with the Coast Guard search and res-cue,” Johnson said.

Sea ice data from a radar observatory in Barrowshould be online before long, Johnson said. The webcamtechnology for the radar data is working but the propri-etary nature of the data may necessitate password-con-trolled access, he said.

And once the Barrow radar data becomes availablethere may be possibilities of operating similar radar sta-tions at other Beaufort Sea coastal sites. There is alreadya Minerals Management Service-funded HF radar site atPrudhoe Bay for measuring surface currents in theBeaufort Sea.

And Johnson thinks that the online publication ofbathymetry datasets will be critical in helping with thecomputer modeling of ocean systems.

Helicopter sea ice measurementsAOOS also proposes to stage a helicopter in Prudhoe

Bay for the measurement of offshore ice thicknesses.Using an electromagnetic sensor called an IcePic,

F

A Canadian CG Eurocopter105 helicopter fitted with anIcePic electromagnetic sensor. The sensor has little effect onthe aerodynamics of the helicopter and can measure icethicknesses to within 2.4 inches while the helicopter fliesclose to its cruising speed.

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see ARCTIC page 9

http://www.composite-tech.com


hat might once have been a rela-tively benign regulatory hearingis taking on the appearance of ashowdown, as Suncor Energy

battles aboriginal and local governmentopposition to a C$7 billion expansion ofits oil sands operation in northeasternAlberta.

The Regional Municipality of WoodBuffalo, which covers the sprawlingjurisdiction, wants the project delayedpending an inquiry into socio-economicissues and the Mikisew Cree FirstNation is pleading for a halt to industri-alization of its land.

The Voyageur application, nowbefore the Alberta Energy and UtilitiesBoard, is part of Suncor’s multi-phaseexpansion, which is designed to pushproduction to 500,000-550,000 barrelsper day by 2010-2012 from the latest263,000 bpd.

But the opening days of the hearinghave shaped up as the toughest in oilsands memory.

Officials of the Mikisew even saidtheir attempts to protect their environ-ment and lifestyle from oil sandsencroachment have resulted in threatsthat they could lose contracts with theindustry and some loss of business.

Suncor insisted it has not beeninvolved in issuing threats, assuring theMikisew that their stance at the regulato-ry hearing will not affect the existingrelationship.

“We’re not going to get intimidatedby anybody who comes and threatensus,” Mikisew official Steve Courtoreillesaid outside the hearing.

“Our way of life and our environmentis not a bargaining tool. We will notnegotiate our way of life.”

Mikisew have received limited benefits

Mikisew industrial relations managerMelody Lepine said her community hasobtained only “very minimal benefits”

from its oil sands-related business — anairline serving the industry, an equip-ment manufacturing plant and a fieldservices firm.

“We had no choice but to seek workbecause our way of life has beendestroyed,” Courtoreille told the board,explaining why his community hadbecome involved in the oil sands and hadnot opposed the C$10.8 billion Horizonproject by Canadian Natural Resources.

Lepine said the Mikisew have “graveconcerns” about the frenzied pace of oilsands development, saying “it shouldstop” because there is no assurance thatthe land will ever be reclaimed.

Wood Buffalo Mayor Melissa Blakesaid the Alberta government and theindustry must gain a broader understand-ing of the impact they are having on thecommunity.

She said the population of oil sandscapital Fort McMurray has doubled to75,000 in the past nine years and isadding that the prospect of anotherC$100 billion of projects over the nextdecade means Fort McMurray will needC$1.2 billion in infrastructure to handlegrowth.

No land yet fully restoredPembina Institute Director Chris

Severson-Baker told the hearing that thepace of oil sands expansion is gettingahead of Alberta’s ability to compensatefor the resulting environmental impact.

He said that no land has been fullyrestored in 30 years of oil sands opera-tions.

The Northern Light Health Region hascalled for a comprehensive socio-eco-nomic inquiry.

Faced with these demands, SuncorVice President Terry Bachynski told theregulatory panel his company could losehundreds of millions of dollars ifVoyageur is delayed for even one year.He said there is already a line up to hirelabor and buy materials such as steel.“You have a window. ... If you miss that,the opportunity is gone,” he said.

Suncor has also cautioned that stallingprojects will result in fewer taxes and roy-alties to pay for new infrastructure.

Asked what advice he would have forcandidates to succeed Alberta PremierRalph Klein in December, Bachynskisaid they should “listen to the stakehold-er. ... It’s a good industry that’s providingsignificant economic value to theprovince.” ●



Sands showdownMikisew Cree First Nation asks for halt to oil sands expansion;local governments concerned; Suncor says it must seize window

The Voyageur application, nowbefore the Alberta Energy and

Utilities Board, is part of Suncor’smulti-phase expansion, which isdesigned to push production to

500,000-550,000 barrels per dayby 2010-2012 from the latest

263,000 bpd.

W

FINANCE & ECONOMYSouth Korea ready to buy oil sands lease

While China openly grumbles about not being able to get a fair shake in itsattempts to form an alliance with a major oil sands producer, South Korea has quiet-ly negotiated the purchase of an oil sands lease holding 250 million barrels.

The South Korean commerce ministry said it will make the purchase of the assetsin the Cold Lake area, south of the primary Athabasca deposit, later in July as part ofits effort to shore up domestic oil supplies.

The state-owned Korea National Oil Corp. is expected to start construction of aproduction facility that will come on stream in 2008 and reach full-scale operations in

CORRECTIONOn page 1 of the July 23 issue of

Petroleum News a photo of RogerMarks was incorrectly identified asBob Loeffler; both Marks andLoeffler were quoted in the accompa-nying story.

see SOUTH KOREA page 14

http://www.peakalaska.com

http://www.nac.aero

mounted on the front of the aircraft, thehelicopter would fly transects betweenPrudhoe Bay and a U.S. Navy offshoreice camp. The IcePic sensor can measureice thicknesses to an accuracy of about2.4 inches, while the helicopter flies at itsnormal cruise speed.

Ice thickness measurements can helpwith marine safety and navigation, as wellas with planning for open water activities,Johnson said.

“We think this will be useful for thecoastal residents in Barrow and perhaps theoil and gas (industry) in Prudhoe, becauseif you know how thick the ice is you knowhow early your season will end or howsoon the water might open up,” Johnsonsaid.

Scientific research would probablyentail flying the helicopter three or fourtimes a year to obtain seasonal information— researchers could, for example, relatethe ice thickness information to ice strainand stress measurements made offshorePrudhoe Bay.

“(For oil and gas interest) I would thinkyou would want to fly this in March orApril, right before breakup when thingsstart moving around,” Johnson said.

AOOS has approached both theNational Aeronautics and SpaceAdministration and the National ScienceFoundation for funding of the helicopterprogram. Johnson said that he is also talk-ing to private companies about sponsoringsome of the costs of the program — spon-sors would have a strong influence overwhere the measurements are made andwould have rapid access to the data, hesaid.

Traditional knowledge Regardless of all the scientific data that

AOOS is assembling, Johnson sees the tra-ditional knowledge of the North Slope resi-dents as critical to the understanding andforecasting of offshore conditions — tradi-tional knowledge needs to be blended withthe scientific data.

For example, the Native people tend torecount extreme conditions such as espe-cially low or high temperatures. And thatoral history can validate statistical outliersin the data that science would otherwisediscount.

“It’s precisely those outliers that arerecorded in their oral tradition,” Johnsonsaid.

And the researchers are anxious toensure that the AOOS information productsmeet the needs of the Arctic coastal resi-dents. Johnson said that a team from AOOSmet in February with the Alaska WhalingCommission and local residents in Barrow.That meeting identified the value, forexample, of tracking large ice floes offshoreBarrow, using a combination of directobservation and tracking from satellites.

“In the summertime it’s nice to knowwhere these large floes are, if they’rebeyond the visual horizon,” Johnson said.“They serve as a place for rescue … theyalso serve as a place to pull the whales outduring the hunting season.”

The North Slope residents are also inter-ested in the monitoring of backgroundnoise in the ocean, especially with theamount of oil and gas activity going on inthe region. A ship watch program to moni-tor shipping movements is another possibil-ity.

And one outcome of the Barrow meet-ing was an initiative to provide syntheticaperture radar imagery (known as SARimagery) for a coastal strip from the BeringStrait all the way around northern Alaskaand northwestern Canada to the MackenzieRiver. SAR provides high-resolution

imagery of surface features; the technologycan operate through cloud cover and afterdark.

“I have submitted a proposal to NASAto do this.” Johnson said. “The word is thatthey like the idea, and if NASA approvesthe proposal, they will help us work withthe Canadian Space Agency … to see if wecan display this commercial product forsubsistence users … This may become realin the fall, or certainly by spring ‘07 ifapproved.”

Seeking other ideasThe Barrow meeting was part of a

process in which AOOS is seeking theinformation needs of all people and busi-nesses with an interest in the Alaska Arcticoffshore environment. AOOS welcomesrequests and ideas for information products.

“Please talk to us, talk to me and let meknow and we’ll see if we can get it onlineand make it available,” Johnson said.

And Johnson likens the current status ofthe AOOS programs to the status of theNational Weather Service a decade or twoago.

“It will be … interesting to see where weare in five and 10 years,” he said. “Bettermarine forecasts help in so many ways andI am excited to be part of this work.” ●



ARCTIC LAND & LEASINGOil sands land grab keeps on rolling

The Alberta government collected another C$100.6 million from the sale of oilsands leases at its July 12 land auction.

The deals involved 391,000 acres and pushed the sale of oil sands rights so farthis year to C$1.21 billion for 1.79 million acres,easily beating the 12-month record of C$433 mil-lion set in 2005.

Combined oil sands and conventional sales thisyear are now C$2.31 billion for 5.96 million acres,compared with C$853 million for 3.95 millionacres at the same period of 2005.

C$30 million for 7,600 acresWestern Land Services, a broker operating on

behalf of an unidentified client, led the oil sandsbuying at C$30 million for 7,600 acres southwestof the 100,000 barrel-per-day Northern Lights project being developed bySynenco Energy in partnership with China’s Sinopec, and east of the Fort Hillsproject that involves Petro-Canada, UTS Energy and Teck Cominco and is due onstream in 2009 at 50,000 bpd.

Cody Kwong, an analyst with FirstEnergy Capital, said the rush to corner oilsands prospects at a time when clouds are gathering over the sector stems fromthe fact that the best prospects in the region have been claimed.

Greg Scott, president of Scott Land & Leasing, said the oil sands have becomethe “single most important oil play in the world.”

—GARY PARK

Combined oil sands andconventional sales thisyear are now C$2.31

billion for 5.96 millionacres, compared with

C$853 million for 3.95million acres at the

same period of 2005.

http://www.nabors.com


ENVIRONMENTIvory set free at Prudhoe Bay

After a six month stay in Sitka, Alaska and 1,500 miles of jet travel in a dogkennel, “Ivory,” a two-year old Snowy owl, was released at Prudhoe Bay in lateJune by the Alaska Raptor Center.

Approximately 75 well-wishers were present to cheer her release, includingColville Inc. President Mark Helmericks who opened the cage door.

Ivory, a wild owl that was rescued in December, was released on a pingo over-looking the Saganavirktok (Sag) River.

Ivory’s care and release festivities, which included music, cake and ice cream,were underwritten byConocoPhillips, AlaskaAirlines, Ice Services, BrooksRange Supply, Colville andPrudhoe Bay General Store.

“The clear Arctic eveningwas a perfect setting for thisbird to return to its summerhabitat,” said Rollo Pool,ARC’s executive director whotraveled to Prudhoe Bay withARC veterinarian Dr. VickyVosburg.

“With the benefit of 24-hour daylight, the big white owl could be seen well intothe night perching on high ground overlooking a freshwater lagoon, preening andstarting to hunt,” Pool said.

Snowy owls are normally found in tundra regions of Alaska in the summer.When Ivory was spotted near the Sitka airport in December, she was weak andapparently unable to continue its winter migration, ARC said.

After determining that the owl was starving but uninjured, ARC kept her in itsSitka rehabilitation facility for the rest of the winter where she was fed a steadysupply of frozen rats and exercised in a large aerobic training tube.

Vosburg said they decided to release her in the Arctic near summer solsticewhen prey, like lemmings, would be abundant.

Prior to the jet trip to the North Slope, the bird was given a clinic check-up andits talons and beak sharpened, she said.

Vosburg saw Ivory chasing a songbird within an hour of her release at Prudhoe. Ivory is the first Snowy owl captured and released by the raptor center whose

main focus is treating injured Bald eagles and other birds of prey. It was also thefirst time an owl was released in the Deadhorse service area of Prudhoe Bay.Hunting and firearms are banned across the oilfield, creating a virtual safe havenfor wildlife.

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Conditional ROW for spur line approvedANGDA gets right of way for Glennallen to Palmer line; 24-inchSouthcentral line would be built before North Slope mainline


n July 19 the Joint Pipeline Officeannounced that Michael Menge,commissioner of the AlaskaDepartment of Natural Resources,

had signed a final decision granting theAlaska Natural Gas DevelopmentAuthority a conditional right-of-way leasefor a gas spur line between Glennallen andPalmer. And on July 18 Harold Heinze,chief executive officer for ANGDA, signedthe conditional lease. Petroleum News hasheard from DNR that the lease is now inMenge’s office awaiting the commission-er’s signature.

The ANGDA board met on July 17 andauthorized Heinze to sign. At that boardmeeting Heinze said that Menge hadsigned the commissioner’s decision on thelease on July 13.

ANGDA originally applied for the con-ditional right-of-way lease in April 2005.And in May 2006 DNR found the spur lineproject to be consistent with the AlaskaCoastal Management Program.

Heinze told the board that applying forthe conditional right-of-way lease hadinvolved substantial work, including thedetermination of a pipeline alignment andpreparing a description of the project.

“With the acquisition of this (condition-al lease) we will have an asset,” Heinzesaid. “Whatever happens on whoever,whenever, however this pipeline gets built,this is a document of some significance.”

24-inch lineANGDA plans to build the Glennallen

to Palmer 24-inch gas line before construc-tion of a North Slope gas line. The spur linewould transport North Slope natural gasinto Southcentral Alaska.

If the North Slope line follows theAlaska Highway route through Canada,ANGDA is prepared to construct a con-necting pipeline to Glennallen from theNorth Slope line at Delta Junction. If theNorth Slope line carries gas to Valdez, asproposed by the Alaska Gasline PortAuthority, that gas line route would con-nect with the ANGDA spur line atGlennallen.

In the 1980s Yukon Pacific obtainedstate and federal rights of way for a North

Slope gas line to Valdez and the AlaskaGasline Port Authority has since optionedYukon Pacific’s permits for the Valdez line.

“As far as moving gas around the state(is concerned), we very clearly identifiedthis linkage between Glennallen andPalmer as the missing link,” Heinze said atthe July 17 board meeting. “It was the onepiece of the puzzle that nobody had everworked or advanced. … We are asadvanced as a number of other rights ofway in the state at this point.”

Heinze said that the conditional right ofway for the Glennallen line consists essen-tially of a list of to-do items, includingspecifying the detailed pipeline alignment,providing proof of financial ability, devel-oping an adequate project plan and devel-oping a conceptual pipeline design.

“There is nothing in here that is over,above and beyond what a good projectwould already have to develop,” Heinzesaid.

Obtaining the actual right-of-way leasewill depend on developing and deliveringall of the items specified in the conditionallease. And any preconstruction activities onstate land will require the appropriate per-mits.

State landsThe state right of way only applies to

state lands that the pipeline will cross. Butthose state lands account for the majority ofthe pipeline route, Heinze said.

Heinze said that in processing the right-of-way application there had been ques-tions regarding how ANGDA, as one armof the state, should satisfy the needs ofDNR, another arm of the state. ButANGDA requested that the right-of-waylease be written in terms that would workwith a non-state entity.

“It has been our position that we wouldprefer the conditional right-of-way lease tobe written as if we were a third party. …That way if we ever bring in partners … thelease is written in such a way that it wouldapply to a non-state entity,” Heinze said.

Heinze also emphasized that substantialcontactor effort will be required to meet therequirements of the conditional lease.ANGDA has previously stated that it plansto start work on the right of way withinweeks of approval of the conditional right-of-way lease. ●

O

http://www.westerngeco.com

http://www.3M.com



PPT, contract on deck again in JuneauGov. Murkowski tells legislators time is now for Alaska gas project, before Lower 48 locks in agreements for foreign LNG


he Alaska Legislature gaveled in for its second spe-cial session of the summer July 12, heard from thegovernor, did a couple of days of committee work inthe Senate and then took a week off so members

could attend out-of-state events scheduled before the sum-mer became a marathon of trying to reach agreement onthe production profits tax and the gas line fiscal contract.

The administration introduced a new PPT and someamendments to the Alaska Stranded Gas DevelopmentAct.

The bills were heard and held in the Senate SpecialCommittee on Natural GasDevelopment July 13-14; HouseFinance is scheduled to take up thePPT bill July 25.

The PPT retains the 20 percent taxrate and 20 percent credit rate intro-duced in the regular session andincorporates some changes made bythe Legislature to earlier versions,but not progressivity, which kicks upthe tax rate as the price of oil goesup.

There is a ceiling for Cook Inletoil and gas based on the current severance tax with theeconomic limit factor.

Robynn Wilson, director of the Department ofRevenue’s Tax Division, told the committee that theadministration doesn’t believe a tax floor is appropriate.The bill includes the 2 for 1 provision for transitional cred-its — those for investments in the five years prior to thenew tax — developed by the Legislature.

Net vs. grossAsked by Sen. Kim Elton, D-Juneau, why the adminis-

tration objects to a tax on the gross, Wilson said theadministration believes that a tax on the net encouragesmore investment.

The present production severance tax is based on thegross oil price at the wellhead, with transportation costsdeducted.

Dan Dickinson, a former director of the Tax Divisionand now a consultant to the administration, said a tax onthe net makes investment in the state more attractive. Onmore expensive projects, such as heavy oil development,deductions on the net take those higher costs into account,while a tax on the gross doesn’t reflect the costs andinvestments necessary to bring on production.

Sen. Fred Dyson, R-Eagle River, asked about royaltyreductions as a way to adjust for higher-cost projects andDickinson said that to provide an effective reflection ofhigher costs on projects like heavy oil there would need tobe changes in both royalties and in a gross production tax.Dyson said the Legislature has provided royalty relief inCook Inlet, and Dickinson said he believes the Legislatureset a fairly high standard for royalty reduction, and that it

is burdensome on industry to meet the standard.

Van Meurs: formula to encourage investmentPedro van Meurs, the consulting petroleum economist

who helped the administration develop the PPT, partici-pated by phone, telling the committee the PPT is a “for-mula to encourage reinvestment” in the state. If Alaskadoesn’t encourage reinvestment, van Meurs said, compa-nies will take profits made in Alaska and invest them inareas which encourage investment.

Van Meurs told Dyson that investment credits havecreated an incentive to invest elsewhere and said thestate’s goal should be to double investment.

Elton asked about fixing the ELF and van Meurs saidthere were “so many friction points” in the existing Alaskagross severance tax. Alaska would need a sophisticatedgross formula-based system, and it would be complicated,van Meurs said.

Deductions a concernCommittee Chairman Ralph Seekins, R-Fairbanks,

said his constituents are concerned about a tax on the netand said legislators need to be able to explain what netcosts would be.

Wilson said it was comparable to building a home: netcosts are the direct costs like nails, a nail gun and the car-penter’s wages; indirect costs — which would not bedeductible for purposes of taxation — would be thingssuch as marketing costs for the home and donations thebuilder might make to charities.

Deductible costs would be lease expenses, she said. Dickinson said at a field like Prudhoe Bay, which BP

operates, partners ConocoPhillips and ExxonMobil verifyexpenses at the unit before paying their share; the statewould start with those numbers, he said, and then apply itsown tests, one of which would be to look at federalincome tax returns.

Committee will work on SGDA amendmentsJim Clark, the governor’s chief of staff, said the admin-

istration will work with the committee on the bill amend-ing the Stranded Gas Development Act, which was intro-duced in a much shorter format than in the previous spe-cial session. Clark agreed with the committee that legisla-tors needed to see the limited liability corporation agree-ment. There are some issues among the producers on theLLC, he said, but they’ve run out of time and need to getthem resolved.

Sen. Gary Wilken, R-Fairbanks, told Clark the LLC isa showstopper and said he was not sure the contract couldproceed without at least a broad template of what thatagreement contains.

Governor urges actionAlaska needs to get on with a gas pipeline project

before imported liquefied natural gas eats up contracts inthe Lower 48, effectively locking the state’s gas out of themarket, Gov. Frank Murkowski said July 13 in an address

to a joint meeting of the Alaska House and Senate. Hesaid he intends to work with all members of theLegislature to get the job done, no matter how long ittakes.

The governor told the press afterwards that nobodywas getting out of Juneau without taking a stand on thegas contract. He said he was working with the legislativeleadership to identify what they need to have changed inthe contract, which requires legislative approval once thegovernor and the producers finish negotiating amend-ments to the draft contract which was presented in May.

In urging legislators to move ahead on both the PPTand the gas contract Murkowski said 20 years agoAlaska’s gas would have faced competition only withother North American gas, but now the competition isfrom worldwide LNG — LNG from countries where lift-ing costs are 5 cents compared to much higher costs inAlaska.

LNG and reserves’ tax double threatThe governor said there is a double threat to the

Alaska gas pipeline project: imported LNG and thereserves’ tax which will be on the ballot in November. Hecalled the tax punitive and said it would add $8 billion to$10 billion to project costs. The contract will protect theproject from the reserves tax, he said, but only if it is inplace by November. That’s the reason for holding the spe-cial session now, he said, so the administration can get thenecessary approvals and negotiate changes to the contractwith the producers in order to obtain ratification beforeNovember.

“Those who advise you to gavel out and go homewithout acting or to wait until November are either igno-rant of the LNG and the reserves tax threats to this proj-ect or don’t care,” the governor said.

To those who might wonder why he reintroduced a20/20 PPT when legislators had twice rejected it, the gov-ernor said a 20/20 PPT will get the state a gas pipelineagreement and more investment on the North Slope.“This means two more Prudhoe Bays,” he said: “13 bil-lion barrels of heavy oil … and 12 billion barrels of oil-equivalent gas.”

The governor urged legislators to stop focusing onwhat the producers get and focus instead on what Alaskagets.

The 20/20 PPT was reached in a negotiation: the pro-ducers wanted to pay 12 percent. He noted some havesaid that if the producers would pay a 20 percent tax theywould pay more.

“If there is an attitude that anything the producersagree to is unacceptable, the project is doomed to fail-ure,” he said.

The administration is working on changes to the con-tract, he said, among them no fiscal certainty on oil untilproject sanction, which would be four to five years fromnow, and fiscal certainty for 14 to 16 years for construc-tion of the project and capital recovery. ●

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AutryRaynes Engineeringand Environmental Consultants

Avalon Development

B-FBadger ProductionsBaker HughesBombay Deluxe Restaurant . . . . . . . . . . . . . . . . . . . . . . . . . . 13Bond, Stephens & Johnson. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Brooks Range SupplyBW TechnologiesCapital Office SystemsCarlile Transportation Services. . . . . . . . . . . . . . . . . . . . . . . . . 5Chiulista Camp ServicesComputing AlternativesCN AquatrainCONAM ConstructionColdwell BankersColvilleConocoPhillips AlaskaConstruction Machinery IndustrialCoremongersCrowley AlaskaCruz ConstructionDowland-Bach Corp.Doyon DrillingDoyon LTDDoyon Universal ServicesDynamic Capital ManagementEgli Air HaulEngineered Fire and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . 11ENSR AlaskaEnterprise SteelEpoch Well ServicesESS Support Services WorldwideEvergreen Helicopters of AlaskaFairweather Companies, TheFlowline AlaskaFriends of Pets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Frontier Flying Service

G-MGrainger Industrial SupplyGreat Northern EngineeringGreat NorthwestHawk Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4H.C. PriceHilton Anchorage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Holaday-ParksHorizon Well LoggingHotel Captain CookHunter 3-D

Industrial Project ServicesInspirationsJackovich Industrial & Construction SupplyJudy Patrick PhotographyKenai AviationKenworth AlaskaKuukpik Arctic CateringKuukpik/VeritasKuukpik - LCMFLasser Inc.Lounsbury & AssociatesLynden Air CargoLynden Air FreightLynden Inc.Lynden InternationalLynden LogisticsLynden TransportMapmakers of AlaskaMarathon OilMarketing SolutionsMayflower CateringMI SwacoMWHMRO Sales

N-PNabors Alaska Drilling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9NANA/Colt EngineeringNatco CanadaNature Conservancy, TheNEI Fluid TechnologyNMS Employee LeasingNordic CalistaNorth Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Northern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Northern Transportation Co.Northland Wood ProductsNorthwest Technical ServicesOffshore Divers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Oilfield ImprovementsOilfield TransportPacific Power ProductsPDC Harris GroupPeak Oilfield Service Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Penco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Perkins CoiePetroleum Equipment & ServicesPetrotechnical Resources of AlaskaPGS Onshore. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Pipe Wranglers CanadaProComm AlaskaPrudhoe Bay Shop & StoragePTI Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Q-ZQUADCORain for RentResidential MortgageSalt + Light CreativeSchlumbergerSeekins FordSpenard Builders SupplySTEELFABSuperior Machine and Welding3M Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Tire Distribution SystemsTOTETotem Equipment & SupplyTrinity Inspection ServicesTubular Solutions AlaskaUAA Department of EngineeringUdelhoven Oilfield Systems ServicesUnique MachineUnitechUnivar USAUsibelliU.S. Bearings and DrivesVECOWelding ServicesWesternGeco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10WSI-Total SafetyXtel InternationalXTO Energy

Sunil Sethi, President

ComputingAlternatives Inc.

Computing Alternatives Inc. is an ITconsulting company that designs anddevelops database-rich web and win-dows applications such as a division-wide data model for the State ofAlaska Oil and Gas Division. CAI is alsorewriting the ELF based production taxsystem to a newer Microsoft.NETbased technology. The company’s goalis to provide the oil and gas industryautomated tools to submit tax and roy-alty reports on-line.

Sunil Sethi founded the company in1998 with two Wyoming partners. Hehas a master’s degree in informationsystems and has been a computer con-sultant for 20 years. Sunil and his lifeand business partner, ChasityEngstrom, love Indian food so muchthat they recently purchased Alaska’sonly Indian restaurant, Bombay Deluxe.They have four children, ages 10 to 21.

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

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Bernie Leas, Operations Manager

Horizon WellLogging Inc.

Horizon Well Logging, located inAnchorage, provides formation evalua-tion, drilling parameter, pressure detec-tion and rig monitoring services on oil,gas and geothermal wells. The compa-ny also provides geological consultantsand wellsite geology services to itsclients. Horizon conducts business inthe Western United States, Alaska, andCentral and South America.

Bernie Leas joined Horizon in 2004,bringing many years’ experience withsuch firms as Epoch Well Services,Sperry Sun and Exlog (now BakerHughes Inteq). Another field of interestis gold and silver mining, which he’sdone in Canada and California. He andwife Barbara are fortunate to havetheir three grown children, Deborah,Bernie and Bettina, six grandchildrenand a great grandchild all living inAlaska.

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ALASKAPotential Alaska state and federal oil and

gas lease salesAgency Sale and Area Proposed Date

BLM NE NPR-A Sept. 27, 2006

BLM NW NPR-A Sept. 27, 2006

DNR Beaufort Sea Areawide Oct. 25, 2006

DNR North Slope Areawide Oct. 25, 2006

DNR Alaska Peninsula Areawide Feb. 28, 2007

DNR North Slope Foothills Areawide Feb. 28, 2007

MMS Sale 202 Beaufort Sea March 2007

DNR Cook Inlet Areawide May 2007

DNR Beaufort Sea Areawide October 2007

DNR North Slope Areawide October 2007

MMS Chukchi Sea 2007

BLM NE NPR-A 2007

BLM NW NPR-A 2007

DNR Alaska Peninsula Areawide February 2008

DNR North Slope Foothills Areawide February 2008









MMS Sale 209 Beaufort Sea 2009

MMS Sale 211 Cook Inlet 2009






MMS Sale 212 Chukchi Sea 2010

MMS Sale 217 Beaufort Sea 2011

MMS Sale 219 Cook Inlet 2011

MMS Sale 221 Chukchi Sea 2012

Agency key: BLM, U.S. Department of the Interior’s Bureau of Land Management, man-ages leasing in the National Petroleum Reserve-Alaska; DNR, Alaska Department of

Natural Resources, Division of Oil and Gas, manages state oil and gas lease sales onshoreand in state waters; MHT, Alaska Mental Health Trust Land Office, manages sales on trust

lands; MMS, U.S. Department of the Interior’s Minerals Management Service, Alaskaregion outer continental shelf office, manages sales in federal waters offshore Alaska.

This week’s lease sale chartsponsored by:

PGS Onshore, Inc.


BP shuts down 12slope wells for tests

By RICHARD RICHTMYERAnchorage Daily News

P is shutting down a dozen NorthSlope oil wells after whistle-blowersalleged that 50 were leaking.

The wells together produce rough-ly 8,000 barrels of the Slope’s more than800,000 barrels of oil a day, said DarenBeaudo, a BP spokesman in Anchorage.

The wells are being shut down “in anabundance of caution,” and are likely to beproducing again within a matter of days, hesaid.

“Even though we have no reason tobelieve that continued operation causes adanger to workers or the environment,we’re going to reconfirm their integrity,”Beaudo said.

At issue is a series of wells that couldleak an insulating material — either crudeoil or diesel — that is contained in an outerring of the pipe that sucks the oil out of theground.

Sometimes that material can leak outinto the well cellars, boxes carved about 20feet deep into the permafrost beneath therig.

Chuck Hamel, a former shipping brokerfrom Virginia who frequently publicizesinformation from whistle-blowing employ-ees in Alaska’s oil industry, in letters to stateregulators this summer alleged that 50 wells

were leaking and that some of the materialhad spilled onto the tundra.

“I’m just passing on the word of theemployees,” Hamel said.

Surface casing leaks identifiedBeaudo insisted that none of the insulat-

ing material had gotten onto the tundra. Hesaid BP did identify 57 wells — out of morethan 2,200 on the slope — that might havesurface casing leaks that could cause someof the insulating material to drip into thewell cellar.

All but 12 had already been shut down,and BP plans to run integrity tests on thoseunder the eye of state environmental and oilconservation regulators, Beaudo said.

They’ll go back into service if they passmuster. “We’re talking days, but I don’tknow how many days,” he said.

Ten of the wells being shut down are inPrudhoe Bay, the slope’s biggest oil field,while the other two are at Northstar andMilne Point fields, Beaudo said.

John Manly, a spokesman for Gov.Frank Murkowski, said BP is shutting downand testing the wells on its own accord.State officials are satisfied that the wells inquestion are in compliance with state regu-lations.

“We don’t see a problem with them,”Manly said. ●

B

Subscribe to Petroleum NewsCall today: 907.522.9469

NATURAL GASMackenzie gas line could be delayed

A panel reviewing the proposed Mackenzie Valley natural gas pipeline says itneeds an additional five months of public hearings, which could push the startupdate for the pipeline into 2012.

The Joint Review Panel has an additional 24 datesin its schedule and does not now expect to complete itshearings until mid-April. The panel has four months after the end of the hearings tosubmit its final report to the federal government.

Panel manager Paula Pacholek said the extension accommodates the needs ofpresenters, CBC reported.

The joint review panel, which is looking at environmental and social issues, wassupposed to finish in November.

But the new schedule will likely push the startup date for the pipeline into 2012,from Imperial Oil’s target goal of 2011, according to the Globe and Mail. Imperialis the lead partner in the project and has not yet said it is abandoning the 2011 tar-get.

“Certainly, it’s fair to say that the time frame is challenged, no question,” saidHart Searle, an Imperial spokesman.

—ALAN BAILEY

NEWS FLASH

http://www.amsghq.com

http://www.bombaydeluxe.com

http://www.pgs.com



Time to removebarriers: BodmanDOE secretary to spend final time in office tackling issues ofpipelines, refining, that limit import of Canadian heavy crudes


ith the Middle East on the brink ofwar, geopolitical turmoil disrupt-ing crude supplies and oil edgingtowards US$80 per barrel,

Canadian government and industry lead-ers were spared the need to sell U.S.Energy Secretary Samuel Bodman on theimportance of Alberta oil sands produc-tion when he visitedthe region July 13and 14.

During a quickstop at the oil sandsand at roundtablemeetings with hishosts, Bodman saidthe emphasis hadbeen on findingways to remove bar-riers to increasingU.S. imports of production from northernAlberta.

“Whether it’s 3 million or 4 millionbarrels per day (current output is just over1 million bpd), that would have a pro-found effect, if it were to be accom-plished, on the picture for oil usage in theUnited States,” he told a news conferencein Calgary.

“I believe it is incumbent on us to doeverything we can to understand what thebarriers are, understand what the opportu-nities are, to understand how we can behelpful,” he said.

That, coming from the first U.S. ener-gy secretary to visit the oil sands ofCanada’s oil capital in Calgary, was musicto the ears of Canadian and Alberta gov-ernment officials and industry executives.

Compounding Bodman’s concerns washis view that oil suppliers have “reallylost control of the market,” having cededthat power to traders in New York,London, Tokyo, Singapore and otherglobal hubs.

Tight supplies a concernSuppliers are no longer able to “turn

the spigot and increase supplies and there-fore are unable to control prices,” he said.

Bodman could only express the hopethat once geopolitical tensions ease “wecan return to something more normal.”

In such a climate, he left no doubt thatthe oil sands can play an “essential” rolein U. S. energy security and pledged thatduring the remaining 30 months of theBush administration he will work on jointefforts with Canada to improve the flowof heavy crudes to U.S. markets.

On the list of issues raised duringclosed-doors meetings, the two sides

talked about the need for greater U.S.refining capacity to handle heavier crudeblends, a more efficient regulatoryprocess for projects such as cross-borderpipelines and ways to solve the shortageof construction labor in North America.

“The United States is increasinglylooking to our province to help meet itsenergy needs and that spells good newsfor the U.S. and for Alberta,” AlbertaPremier Ralph Klein told reporters.

“While our two jurisdictions alreadyenjoy a vibrant, integrated energy market,I believe there is room for that relation-ship to grow,” he said.

Canada’s Natural Resources MinisterGary Lunn said there is a need for a“greater common framework to ensureenergy cooperation.”

Klein: time for alternative energy research

Klein, indirectly acknowledging theconcerns over the oil sands consumptionof natural gas and water and their impacton the environment, , said it was time forAlberta to move beyond a mere exchangeof data with the U.S. and take an activerole in the research of alternative energysources and coal gasification.

On the same topic, Bodman empha-sized the importance of developing the oilsands in an “economically efficient andenvironmentally sound” manner by usingrenewable energy to extract and processthe raw bitumen.

Bodman’s two days included a heli-copter flight over part of the Athabasca oilsands deposit which covers 36,000 squaremiles and holds 174 billion barrels ofrecoverable bitumen as well as visitingSyncrude Canada, the world’s largestsource of synthetic crude.

He also met privately with 25 oil, gasand pipeline executives.

Following those sessions, PierreAlvarez, president of the CanadianAssociation of Petroleum Producers, toldthe Financial Post there was agreementthat North America wants to focus asmuch as possible on developing its ownresources.

“But the resource base is changing ...and there are constraints both countriescan work together on,” he said. ●

W

DOE SecretarySamuel Bodman

That was interpreted as an unvar-nished criticism of Russia, whose repu-tation as a reliable supplier was stainedearlier this year when it cut off naturalgas deliveries to the Ukraine.

Apparently unconcerned about tread-ing on the toes of G8 host PresidentVladimir Putin, Harper then told thesummit that Canada favors allowingmarket forces, not government monopo-lies, to call the shots in selling energy,pointing to its long experience inexporting energy to the United States.

Harper made a case for Canada as asafe, reliable source of energy earlier inJuly when he met President George W.Bush at the White House.

His theme may already be resonatingoutside Canada.

A poll of 19,579 people in 19 coun-tries commissioned by the BBC WorldService rated Canada as the world’smost trusted supplier of energy.

“The only country that passes thetest with flying colors is Canada,” thepoll concluded.

“On average 60 percent say theytrust Canada, while just 25 percent donot.”

Iran is bottom of the heap, with 60percent of respondents saying they areconcerned the major oil exporters maywithhold oil from world markets.Venezuela was viewed as untrustworthyby 40 percent of the respondents, whilefeelings on Russia were split.

—GARY PARK


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2010. The deposits allow for output of20,000-30,000 barrels per day over 20years. The purchase price and capital out-lay are being kept under wraps for now.

The world’s fourth-largest crude oil

importer, South Korea aims to raise itsself-sufficiency level from 4 percent to18 percent by 2013.

A spokesman for the country’s energyresources division said that if SouthKorea can acquire more oil sands proper-ties it will consider establishing anupgrading facility in Canada.

—GARY PARK


SOUTH KOREA

On the same topic, Bodmanemphasized the importance ofdeveloping the oil sands in an

“economically efficient andenvironmentally sound” manner byusing renewable energy to extract

and process the raw bitumen.

http://www.friendsofpets.org

http://www.friendsofpets.org

ment at the G8 summit July 16 promotingthe stabilizing role LNG can play in glob-al energy markets.

“We shall take measures both national-ly and internationally to facilitate invest-ments into a sustainable global energyvalue chain to … develop global LNGmarkets,” they said.

“Rapidly growing LNG trade is gradu-ally supplementing the existing regionalsystems of pipeline gas supplies,” thestatement said. “To reduce huge invest-ments risks and facilitate smoothing func-tioning of the emerging global LNG mar-ket, we will seek to create appropriateinvestment conditions.”

Putin endorsed the efforts to strike anagreement between Gazprom and Petro-Canada, pledging to respect market prin-ciples and transparency — a key attemptto deflect criticism after Russia’s decisionearlier this year to cut gas supplies to theUkraine during a pricing dispute.

Mention of “appropriate investment”was seized on as clear evidence of back-ing at the highest political levels for theGazprom-Petro-Canada pact, althoughRussia’s Energy Minister ViktorKristenko said the Gros Cacouna project,a joint venture by Petro-Canada andTransCanada, will be only one of severalNorth American outlets for Russia’s bur-geoning gas development from theShtokman fields in the Barents Sea andthe Sakhalin-2 field on the Pacific coast,which could produce 10 million metrictons of LNG a year after 2008.

Graham Lyon, Petro-CanadaInternational’s vice president of businessdevelopment, said his company is confi-dent of a 25-year supply pact withGazprom in a matter of weeks and cer-tainly no later than the end of 2006.

For Petro-Canada that could include a50 percent stake in a possible US$2 bil-lion gas liquefaction plant near St.Petersburg, Russia, and buying into aGazprom field being developed inSiberia, while Gazprom has pressed to bepart of the regasification, distribution andmarketing chain.

Kitimat LNG inks JVOn Canada’s British Columbia coast

there was a significant breakthroughwhen Kitimat LNG, a unit of privatelyheld Galveston LNG, Pacific NorthernGas, a small B.C. gas distributor, linkedup to add a transmissions pipeline fromthe regasification terminal planned for thedeepwater port at Kitimat.

Kitimat LNG Chief Executive OfficerRosemary Boulton described the PacificTrail Pipeline joint venture as a “keymilestone” in Kitimat LNG’s search forLNG supplies from Pacific sources suchas Australia, Indonesia and Malaysia andthe effort to line up end users.

Giving further impetus was word fromthe backers that Alberta oil sands produc-ers are potential buyers of the depressur-ized gas, adding another layer to thehopes of making sales to utilities andother customers in the Greater Vancouverregion, the U.S. Pacific Northwest andCalifornia.

Pending receipt of a Canadian govern-ment environmental approval and negoti-ations of long-term supply contracts,Kitimat LNG hopes to start constructionnext year on the C$500 million receivingterminal in 2007 and bring the wholeproject online in 2009, chief executiveofficer Rosemary Boulton told PetroleumNews.

She said the latest progress meansKitimat LNG is open for business withanyone interested in supplying LNG orbuying the end product.

The terminal is being designed to han-dle an initial 1 billion cubic feet per day.

Pipeline a link to Westcoast EnergyThe Pacific Trail pipeline includes a link

of 290 miles to Summit Lake in northeast-ern British Columbia where gas could feedinto Duke Energy’s Westcoast Energy net-work, flowing east to Alberta and south toGreater Vancouver, Washington State andCalifornia.

The pipeline price tag ranges fromC$900 million to C$1.2 billion, depending

on whether the partners opt for a diameterof 30 inches or 36 inches.

Adding oil sands producers to the poten-tial mix injects a fresh element at a timewhen the oil sands are facing criticism forthe clean fuel they use to effectively pro-duce a dirty energy source, especially withWestern Canada’s own supplies of conven-tional gas struggling to even hold the line.

As Boulton noted, the demand for gas tofuel oil sands extraction and processing is“changing the dynamics” of the wholeNorth American gas market.

Without identifying the players, she saidcommercial discussions are occurring.

For now, Kitimat LNG has opened a gapon a second British Columbia LNG devel-opment.

WestPac Terminals is on the verge ofsubmitting plans to regulators for an LNGstorage and processing terminal at PrinceRupert, near Kitimat.

Its C$350 million plant is targeting a2011 start-up to handle LNG shipmentsfrom the Asia/Pacific region to send out300 million cubic feet per day. ●



DEALS

http://www.alaskagasnow.com


Qannik to reach the Alpine accumulation,which is at about 7,000 feet subsea. Theyhad seen the accumulation on logs, hesaid, and used exploration dollars to go inand put in a well to test it.

Qannik, the name given to the accu-mulation, means snowflake, Isaacsonsaid.

Nine to 12 well development possible

The companies said plans to furtherdelineate and develop Qannik are underway.

Isaacson said test results will be inte-grated with seismic data in further evalu-ating development. The companies saidthe current plan is to develop Qannikfrom the Alpine CD2 drill site andIsaacson said it would be a small padextension, but the size isn’t known yet. Anine to 12 horizontal well development ispossible, he said.

Isaacson said a development decisionwould probably happen by 2007. Thecompanies said project planning wouldproceed through the remainder of thisyear.

The project still needs final approval.If that occurs the CD2 gravel pad will beextended during the 2006-07 winter, withfirst production expected by late 2008.

ConocoPhillips is operator of andholds a 78 percent interest in the Alpinefield and its satellites, while Anadarkoholds a 22 percent interest.

The Colville River unit CD2-404exploratory well was permitted April 17from a surface location in section 2, town-ship 11 north, range 4 east, UmiatMeridian, to a proposed bottom-hole

location in 26-12N-4E, UM;

Alpine, the field that grewAlpine was discovered in 1994 by

ConocoPhillips Alaska predecessorARCO Alaska and production began in2000. The field was initially expected toproduce 80,000 bpd but productionexceeded expectations and facilities wereupgraded, starting with operationaltweaking and de-bottlenecking in 2001-02. That work, including upgraded trans-fer pumps at Kuparuk, where Alpine buysits seawater for injection, increased facili-ties handling capability to 105,000 bpd.

Facilities expansions done in 2004 and2005 upped the production capability to140,000 bpd by increasing producedwater handling capacity to 100,000 bpd,increasing seawater injection to morethan 130,000 bpd and adding a smallincrease in gas handling capacity.

The Alpine facilities will also handleproduction from satellites Fiord to thenorth and Nanuq to the south. Facilitieswork on those satellites began in the win-ter of 2004-05 and continued this pastwinter; both are expected to come onlinein late 2006. Production from Nanuq isexpected to peak at 4,000 to 11,000 bpd;that satellite, connected by road to theAlpine main facilities pad, will be devel-oped with 16 horizontal wells, nine pro-ducers and seven injectors.

Fiord, a roadless development withdrilling only in the winter, will be pro-duced from 17 horizontal wells, six pro-ducers and six injectors in the Nechelikzone and three producers and two injec-tors in the Kuparuk zone. Production ratesare expected to be between 10,000 and25,000 bpd from the Nechelik, andbetween 4,400 and 15,700 bpd from theKuparuk. ●

west of the Kuparuk River unit — in MayPioneer announced that its Cronus No. 1well had struck oil in Jurassic-agedKuparuk C sands.

In March AVCG confirmed its contin-uing strategy of investing in oil-proneareas close to existing infrastructurewhen, in the state’s North Slope areawidelease sale, the company bid on tracts nearits Titania, Cronus and Gwydyr Bayprospects.

The company said in January that itwas looking for partners to share in theexploration and development costs for itsleases. And in March AVCG/BrooksRange Petroleum formed a joint venturewith Calgary-based TG World EnergyCo. TG World acquired an interest inmost of AVCG’s oil and gas leases andagreed to participate in the explorationand development of the leases.

Similar JV to TG WorldThompson said that the joint venture

with Ramshorn is similar to that with TGWorld. Ramshorn has paid cash to AVCGto compensate for a portion of the cost ofthe land and the cost of exploration worksuch as seismic acquisition and geologi-cal studies.

Once drilling starts, Ramshorn willpay an undisclosed percentage greaterthan 25 percent of drilling costs, to earnthe 25 percent interest in the prospects,Thompson said.

“Ramshorn (also) signed a drillingoperating agreement over the central partof the North Slope with us,” Thompsonsaid. “AVCG has named our operationssubsidiary, Brooks Range Petroleum, asoperator of that joint operating area.” Thepartnership with TG World also desig-

nates Brooks Range Petroleum as opera-tor, he said.

Following the two joint venture agree-ments, AVCG still retains a 50 percentinterest in its acreage. And the companyis in discussion with other potential part-ners, to further spread the exploration riskin the leases.

“That’s two very good partners forAVCG and we’re actually in discussionscurrently with two more quality compa-nies to see if one, if not both, would joinin partnership as well,” Thompson said.

Two wellsMeantime, Brooks Range Petroleum is

formulating its exploration plans for nextwinter. These plans include seismicacquisition and the drilling of two wells.

“We have already contracted withNabors to drill at least two explorationprospects this winter,” Thompson said.However, Thompson emphasized thatRamshorn’s association with Nabors doesnot mean that Brooks Range Petroleumhas to contract with Nabors for drilling —Brooks Range Petroleum will continue toobtain the best drilling deals that it can,he said.

Thompson said that the two explo-ration wells will likely be in the GwydyrBay area, north of the Prudhoe Bay unit,although the AVCG owners have yet tomake a decision on that.

In the past AVCG has describedGwydyr Bay as a single Kuparuk sandsprospect. But the company has now iden-tified two prospects in the area, with dif-ferent surface and bottom hole locations,Thompson said.

“Initially we were just going to drill inone prospect,” Thompson said. “We thenacquired seismic and reviewed wellrecords and identified a secondprospect.”●


JVcontinued from page 1

QANNIK

http://www.ptigroup.com

AVCG, Ramshorn do JVSince the 1977 startup of the trans-Alaska oil pipeline, “the gas has been hard at work in Alaska,” he said. The Alaska Oil and Gas Conservation Commission

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