EXPLORATION & PRODUCTION Drilling CI Jurassic? - Petroleum … · 2007. 10. 1. · PETROLEUM NEWS • WEEK OF NOVEMBER 19, 2006 3 Rig Owner/Rig Type Rig No. Rig Location/Activity

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Gov. Palin: “Broaden your adviserbase,” says Ken Thompson

Vol. 11, No. 47 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of November 19, 2006 • $1.50

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

● N A T U R A L G A S

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

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

4Duke spinoff eyes possible Alaska role: Spectra fund

debuts in January, might seek stake in proposed North Slope gas line

5 What now for ANGDA? Board OKs business plan, authority’srole may be in taking lead on Southcentral Alaska gas supply

11 Sifting through the wreckage: Weaker trusts urged toclean house; financing restructured, delayed; explorers sideswiped

Eni, Shell partner in Beaufort

See story below about Eni and Shell’s joint venture to explore all ofEni’s Alaska Beaufort Sea OCS leases and some of Shell's OCS leasesoffshore the central North Slope.

Drilling CI Jurassic?Chevron considering testing pre-Tertiary under known Cook Inlet oil pools

By KAY CASHMANPetroleum News

n John Zager’s speech at the ResourceDevelopment Council’s 27th annualconference in Anchorage on Nov. 15,he said Chevron is

planning a multi-yearinvestment program tostabilize and increase pro-duction from its CookInlet basin oil fields. Zager, Chevron’s generalmanager for Alaska, said he expects the programwill greatly extend the life of the company’s inletfields.

The company’s plans include in-fills, water-

flood optimization, step-outs, extendedreach horizontal drilling and Jurassicinterval tests.

Chevron, which took over Unocal’sAlaska oil and gas assets in 2005 aspart of a parent company merger, alsoplans a significant gas program, includ-ing exploration at Granite Point andsouth Kenai and development atBeluga River, McArthur River, WestSide, Ninilchik and Happy Valley.

Regarding gas storage, Zager said Chevronplans to expand on the west side and at SwansonRiver.

Some of what Zager said had been mentioned

Anadarko, Tesoro score pointsTAPS owners appeal order to open confidential pre-filed tariff testimony

By ROSE RAGSDALEFor Petroleum News

federal administrative law judge has sided withplaintiffs in the first skirmish between protest-ers and owners of the Trans-Alaska PipelineSystem since hearings began Oct. 31 in a two-

year-old interstate tariffs case.Two oil shippers, Anadarko Petroleum and Tesoro

Corp., along with the State of Alaska, are protesting aproposed 28 percent hike in tariffs that TAPS ownerscharge shippers on the 800-mile pipeline from AlaskaNorth Slope to Valdez.

In a ruling issued Nov. 13, Presiding JudgeCarmen A. Cintron of the Federal Energy RegulatoryCommission ruled in favor of a motion filed byAnadarko and Tesoro asking that all pre-filed testi-mony and exhibits marked confidential in the case be

opened to the public.Cintron also denied a request from the five TAPS

owners to maintain the confidentiality of 2006 datacontained in the filings, and she denied an interlocu-

Mac bogged down — againCourt rules Alberta Native concerns must be heard; Alaska seizes attention

By GARY PARKFor Petroleum News

nother delay has been heaped on theMackenzie Gas Project, but the impact on theventure is not yet clear.

Federal Court Judge Michael Phelan ruledthat the Joint Review Panel assessing the project’ssocial and environmental impacts cannot file its finalreported to the National Energy Board until it con-sults with the Dene Tha aboriginal community innorthwestern Alberta.

He concluded that several federal cabinet minis-ters “breached their duty to consult the Dene Tha” increating the regulatory and environmental reviewprocess.

The proposed Mackenzie Valley pipeline covering

more than 700 miles down the Northwest Territorieswould extend 50 feet into Alberta before connectingwith the existing gas pipeline network in theprovince.

But the Dene Tha, representing 2,500 residents,have argued that their traditional lands reach into theNorthwest Territories and that any connectingMackenzie facilities are integral to the pipeline andmust be part of the federal review.

JOHN ZAGER

“The U.S. has proven in the past thatwhen interests are aligned there, they canturn on a dime and make things happen.”

—David MacInnis, president of the Canadian EnergyPipeline AssociationA

Eni, Shell partner in Beaufort;newcomer Eni says greatestobstacle to exploration innorthern Alaska is lack of 3-Dseismic, access rights

Eni Petroleum said Nov. 8 that it has reached an agreementwith Shell to “exchange working interest” in 64 Eni and Shellleases offshore northern Alaska and “begin joint explorationactivities” on the leases with Shell as the operator.

The leases are in the federal waters of the Beaufort Sea northof the Oooguruk, Kuparuk, Nikaitchuq, Northstar and Kuparukunits extending east to mid-way above the Prudhoe Bay unit.

Exploration activity includes 3-D seismic acquisition anddrilling of a well by 2010, Eni said.

If exploration is successful Eni will have the option of takingover operatorship of the joint acreage, an Eni executive toldPetroleum News Nov. 15.

The 64 blocks will be 60 percent owned by Eni Petroleum,the U.S. E&P affiliate of Italy’s Eni SpA, and 40 percent ownedby Shell, which has several 100 percent-Shell-owned offshoreprospects farther east, north of the Point Thomson unit and the1002 area of the Arctic National Wildlife Refuge.

400,000 net acres in AlaskaEni has rights to approximately 400,000 net acres in the

Beaufort Sea and on the North Slope. The company’s acreage is evenly split between the outer con-

tinental shelf (federal waters) and State of Alaska leases, con-sisting of 64 OCS leases and 76 state onshore and offshore leas-

see PARTNERSHIP page 19

see MAC LINE page 19

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The trans-Alaska oil pipeline

http://www.PetroleumNews.com

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

2 PETROLEUM NEWS • WEEK OF NOVEMBER 19, 2006

PIPELINES & DOWNSTREAM

LAND & LEASING

NATURAL GAS

GOVERNMENT

INTERNATIONAL

FINANCE & ECONOMY

EXPLORATION & PRODUCTION

8 State should move ahead with gas line

Other suggestions: bear costs in mind, ensure access toland; to Palin: broaden base of advisors, fix this contract

5 ANGDA board approves business plan

Authority’s most essential role may be in taking lead on meeting Southcentral Alaska’s future energy needs as gas runs out

9 Chevron scores Australian wildcat

Second major deepwater discovery off Western Australia puts company in excellent shape — if Gorgon facility surmounts obstacles

14 Oil sands barrel overflows

Mined output soars, Devon and Total caught in price grip, natural gas consumption a worry, nuclear power gets a political lift

13 Piecing together the Palin puzzle

Statements made during her campaign shed light on Alaska governor-elect’s strategies and plans regarding major oil and gas issues

11 Sifting through the trust wreckage

Weaker trusts urged to clean house; financing plans being restructured or delayed; junior explorers sideswiped; cap-ex pullback

10 Anadarko to sell deepwater Genghis Khan

GOM discovery bought by Shenzi partners for $1.35 billion — Hess Corp., BHP Billiton, Repsol; proceeds for debt reduction

15 Conoco cleaning pipelines more often

Kuparuk lines formerly cleaned every six months; those piggable now being cleaned every month; line that leaked out of service

Mac bogged down — again

Court rules Alberta Native concerns must be heard; Alaska seizes attention

Anadarko, Tesoro score points

TAPS owners appeal order to open confidential pre-filed tariff testimony

ON THE COVERDrilling CI Jurassic?

Chevron considering testing pre-Tertiaryunder known Cook Inlet oil pools

4 Baker Hughes adjusts rig count methodology

6 Harris retains House Speaker post; Samuels new Majority Leader

7 USCG invokes Cook Inlet ice rules

7 GX completes seismic surveys

6 Anadarko plans gas exploration well

7 Murkowski must have legislature‚s approval

4 Duke spinoff eyes possible Alaska role

12 China wants heavy oil — sort of

12 Equipment mislabeling glitch for Alyeska Pipeline Service

17 Norway mixes oil, money and ethicsEni, Shell partner in Beaufort; newcomer Eni saysgreatest obstacle to exploration in northernAlaska is lack of 3-D seismic, access rights

http://www.nana-colt.com

PETROLEUM NEWS • WEEK OF NOVEMBER 19, 2006 3

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

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) GNI-02 BPSky Top Brewster NE-12 15 (SCR/TD) Kuparuk 1J-182 ConocoPhillipsDreco 1000 UE 16 (SCR/TD) DS12 12-18 BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD4-214 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 1J-115 ConocoPhillipsTSM 7000 Arctic Fox #1 Stacked in Yard Pioneer Natural Resources

Arctic Wolf #2 Mobilizing to Alaska from Alberta FEX

Kuukpik 5 In OTI yard Anchorage, being modified for Slope work ConocoPhillips

Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay AvailableDreco 1000 UE 2-ES DS 06-13A BPMid-Continental U36A 3-S MPJ-06 BPOilwell 700 E 4-ES (SCR) NGI-06 BPDreco 1000 UE 7-ES (SCR/TD) S-25 BPDreco 1000 UE 9-ES (SCR/TD) V-04i BPOilwell 2000 Hercules 14-E (SCR) Stacked at Cape Simpson FEXOilwell 2000 Hercules 16-E (SCR/TD) Under contract for drilling

at Gwydyr Bay Brooks Range PetroleumOilwell 2000 17-E (SCR/TD) Stacked, Point McIntyre AvailableEmsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse AvailableOIME 1000 19-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point AvailableEmsco Electro-hoist 28-E (SCR) Stacked, Deadhorse AvailableOIME 2000 245-E Stacked, Kuparuk AvailableEmsco Electro-hoist Canrig 1050E 27-E (SCR-TD) WGI-09i BP

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) In Lynden yard for upgrades BPSuperior 700 UE 2 (SCR/CTD) Kuparuk 1C-14a BPIdeco 900 3 (SCR/TD) Kuparuk 3Q-09 ConocoPhillips

North Slope - OffshoreNabors Alaska DrillingOilwell 2000 33-E Northstar NS-34 BP

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

Marathon Oil Co. (Inlet Drilling Alaska labor contractor)Taylor Glacier 1 Rig maintenance Marathon

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

Cook Inlet Basin – Offshore

Unocal (Nabors Alaska Drilling labor contractor)Not Available

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

Alaska Interior

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

Mackenzie Rig StatusCanadian Beaufort Sea

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

Mackenzie Delta-OnshoreAKITA EqutakDreco 1250 UE 62 (SCR/TD) Stacked in Tuktoyaktuk, NT EnCana

Yukon Territories Rig StatusNorthwest Territories

Ensign Resources Svc. Grp.Jackknife Double 55 Racked in Ft. Nelson

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of November 16, 2006.

Active drilling companies only listed.

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

This rig report was prepared by Alan Bailey

Baker Hughes North America rotary rig counts*Nov. 10 Nov. 3 Year Ago

US 1,693 1,739 1,479Canada 446 376 569Gulf 82 87 77

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

*Issued by Baker Hughes since 1944

The Alaska - Mackenzie Rig Report is sponsored by:

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Duke spinoff eyespossible Alaska roleSpectra Energy Income Fund to debut in January, could lookfor stake in proposed Alaska North Slope natural gas pipeline


uke Energy might be about to stirfrom a long slumber in January whena natural gas spinoff starts trading as aseparate company and goes after

some of the biggest prizes in North America,with an eye on the proposed Alaska gaspipeline.

When Spectra Energy Income Fundmakes its debut it may look for a stake inany major pipeline opportunities thatbecome available, including a potential rolein the Alaska project, Douglas Haughey,president of Calgary-based Duke EnergyGas Transmission, West, said Nov. 8.

Duke announced Oct. 30 that its existinggas businesses will be renamed SpectraEnergy when the operations become astandalone, publicly traded company, whichis set for Jan. 1, 2007.

The newly formed fund will includeDuke Energy Gas Transmission assets aswell as Duke Energy’s 50 percent stake inDCP Midstream.

To coincide with the spinoff the name ofthe fund will change and ownership of thefund’s sponsor and manager will be trans-ferred from Duke to Spectra.

Haughey said the ambitions for Spectrainclude a growth of the gas processing andgathering system in Western Canada, bothinternally and through acquisitions.

He said the new, largely pure-play unit,which could have an asset value of US$15billion to US$21 billion, will have readieraccess to capital for expansion.

He said Spectra will be able to pursueopportunities in a faster manner at a time ofemerging opportunities in Western Canadiangas production and in liquefied natural gas.

Duke seemed poised to become a leadingCanadian player five years ago when it tookover Vancouver-based Westcoast Energy forUS$8.5 billion, but has since faded off theradar screen, leaving its rivals TransCanada,Enbridge and Kinder Morgan (since itacquired Terasen) to dominate the oil andgas pipeline sector.

However, Duke remains a front-lineplayer in such leading exploration anddevelopment regions as northeastern BritishColumbia, western Alberta and southernNorthwest Territories — all growth regions.

The Duke Energy Income Fund has justapproved construction of two projects — theValhalla pipeline and West Doe processingplant — in the Peace River Arch area at acombined cost of C$28.3 million.

West Doe, in northeastern B.C., will con-sist of a plant with 23.5 million cubic feetper day of sour gas processing capacity andassociated gas gathering and sales gaspipelines. The C$22.5 million plant is sched-uled for completion in September 2007.

The 15-mile Valhalla pipeline in north-western Alberta will cost C$5.8 million, issupported by firm take-or-pay contracts andhas a scheduled in-service date of April 1,2007.

In late September the fund completed theacquisition of interests in four northeasternBritish Columbia facilities owned byWestcoast Gas Services for C$145 million.

The one blotch on the horizon is theCanadian government’s proposed change tothe income tax treatment of trusts.

Duke cautioned that if the changes areimplemented as outlined they could have anadverse affect on the fund, its ability to makecash payouts and the market value of itsunits, but did not indicate whether that mightforce a review of its plans. ●

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EXPLORATION & PRODUCTIONBaker Hughes adjusts rig count methodology

Baker Hughes said Nov. 16 that the U.S. land rig count reported for the weekending Nov. 10 — 1,586 — represents a decrease of 41 rigs from the week end-ing Nov. 3, when the count stood at 1,627.

Baker Hughes said the decrease reflects weather delays in North Texas andOklahoma, “as well as refinements in the methodology used to compile the rigcount to ensure consistence in the compilation of the rig count.”

The company said the refinements “effectively reduced this week’s land rigcount by approximately 15-20 rigs.” It also said that it has not changed the defi-nition of an active rig and that historical data will not be revised.

Major state variances reported by Baker Hughes for the two-week period are:Oklahoma down 14 rigs; Louisiana and Texas each down 12 rigs; New Mexicodown seven rigs; Wyoming down four rigs; and Colorado down three rigs.

The Alaska rig count is unchanged and California is up by four rigs. The U.S. total (land, inland waters and offshore) is 1,693, down 46 from the

week-ago total of 1,739. Eighty-two rigs were active in the Gulf of Mexico, downfive from 87 for the week ending Nov. 3.

Canada had 446 rigs active, an increase of 70 from the Nov. 3 total of 376. —PETROLEUM NEWS

http://www.astac.net

By KRISTEN NELSONPetroleum News

he Alaska Natural Gas DevelopmentAuthority board wrapped up workunder the administration of Gov.Frank Murkowski by adopting a

business plan — a plan that ChiefExecutive Officer Harold Heinze saidwill function as a transition document forthe agency with the incoming administra-tion of Gov.-elect Sarah Palin.

Heinze said the plan is not long-term,but designed for the next couple of years.“After that period of time we’d probablyre-visit a number ofissues,” he said at aNov. 13 authorityboard meeting inAnchorage.

ANGDA willalso have to pursueits budget with thenew administration.

Steve Porter,deputy commission-er of the Departmentof Revenue, and theMurkowski admin-istration’s liaison tothe board, said onlymaintenance budg-ets were approvedand each entity, eachdepartment, willhave to approach thenew administration.He said salaries forANGDA wereincluded in thebudget, but a pro-posed regulatoryposition didn’t makeit through. Theauthority’s proposed$4.6 million capitalbudget was notapproved.

The new administration will also havesome board decisions to make: the termsof three board members, David Cuddy,Bob Favretto and Andy Warwick, theboard chairman, all expired June 6, 2006.Board members serve until replaced.

Economic thresholdANGDA has focused on maximizing

in-state use of Alaska North Slope naturalgas and its business plan, developed byNorthern Economics, said the authority’smajor strength is that it is benefit drivenrather than profit driven while its majorweakness is that it cannot compel coop-eration of its stakeholders, power utilitiesand local gas companies.

The authority has the ability to acquireand condition ANS natural gas, and tobuild facilities to bring that gas to market,said Cal Kerr of Northern Economics,and intends to aggregate demand for in-state gas users and represent Alaska ener-gy providers at the RegulatoryCommission of Alaska and at the FederalEnergy Regulatory Commission.

Northern Economics CEO Pat Burdensaid that the 30,000-foot level marketanalysis includes depleting Cook Inletgas reserves — reserves which are notbeing replaced; extremely high ruralenergy prices; and growing residentialand commercial energy demands.

Southcentral needs North Slope gas,but to bring a spur line to Southcentral atan economic tariff will require volumes

of 200 million to 250 million British ther-mal units per day. To make this happenthe delivered cost of the gas must bewithin the reach of industrial users,which are more price sensitive than resi-dential users, because the volume fromjust power utilities and local gas distribu-tion companies isn’t enough.

Without the necessary volumes,Burden said, the tariff will be very highand other energy sources will be moreattractive. The gross need is largeenough, Burden said, but the commit-ments may not be there. Enstar, forinstance, could continue to use someCook Inlet gas.

Heinze said that they ran a range ofnumbers: at 200-250 million Btu thenumbers work, but they’re troubling at100 million.

Call for united action by utilitiesBurton said that while ANGDA has no

authority to compel participation, it cansponsor a coordinated effort, whichANGDA proposes to do in its businessplan.

Tony Izzo, former head of Enstar, theSouthcentral gas distribution company,said it will require a coordinated effortacross all the utilities to make a spur lineeconomic: One could convert to coal andkill the project, he said.

Izzo said it will take leadership and aplan to bridge the gap between now and10 years from now — the estimatedarrival of North Slope gas.

He told the board that the swing in theneed for gas between a cold day in thewinter and a warm day in July is 10 to 11times: from some 300 million cubic feetdown to 16 million. He said ANGDAneeds to take the leadership and start adocket with the Regulatory Commissionof Alaska. “If we’re disjointed we’re justthrowing the dice and hoping,” he said.

Heinze said it is hard to be optimisticabout exploration in Cook Inlet, and henoted that the export license for the liq-uefied natural gas plant at Nikiski will beup for renewal soon, and if LNG plantowners ConocoPhillips and Marathonapply for renewal of the license, approval

will require an excess of gas for uselocally.

The Agrium fertilizer plant, the otherindustrial user of natural gas in CookInlet, has already shut down for the win-ter because of insufficient natural gas forits operations.

ANGDA consultant Joe Griffith, for-merly head of Chugach ElectricAssociation, said there is a lack of lead-ership in finding new energy forSouthcentral Alaska. Utilities haven’t hadto step up to the plate in 25 years, he said,



ANGDA board approves business planAuthority’s most essential role may be in taking lead on meeting Southcentral Alaska’s future energy needs as gas runs out

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and in the mid-1980s, after the Susitnadam plan was scrapped, all the utilitiesopposed the Bradley Lake project, whichtoday provides the lowest cost of power.

Griffith said the situation cries forleadership.

In 1983-84 the old power authorityprovided that leadership — today, hesaid, we have nobody.

Port authority looking for MOUBill Walker, general counsel for the

Alaska Gasline Port Authority, asked theANGDA board to consider a memoran-dum of understanding between the organ-izations, and possibly a joint board meet-

ing in the coming months. The MOU, Walker said, would allow

“more open discussion” between the portauthority and ANGDA.

Heinze recommended using the sameformat as the MOU ANGDA has withMitsubishi, and told the board that MOUhas been through a thorough legal review.

“Basically all it provides in the MOUis that we can tell each other whatever wewant to tell each other and if I’m toldsomething and asked to treat it as confi-dential I can,” Heinze said.

There is no obligation created, he said,and such an MOU wouldn’t preclude anMOU with another project proponent.

The board agreed that Heinze shouldwork with Walker on the MOU. ●

continued from page 5

ANGDA

NATURAL GASAnadarko plans gas exploration well

Anadarko Petroleum is taking the first steps this winter toward drilling what couldbe the first North Slope exploration well that targets commercial quantities of naturalgas, not oil.

A gas field near Barrow supplies that small community with fuel, but to date therehave been no wells drilled on the North Slope that targeted gas for possible shipmentto outside markets via a pipeline that has not yet been built.

On Nov. 15, Doug Wilson, Anadarko Petroleum’s Alaska exploration manager, toldattendees at the annual Resource Development Council conference in Anchorage thatthe Houston-based independent was gearing up for a 3-D seismic survey in the BrooksRange Foothills this winter, with the intention of drilling an exploration well the fol-lowing year. Alaska’s Division of Oil and Gas refers to this gas-prone region as theNorth Slope Foothills because it lies along the southern boundary of the North Slope,which technically ends at the Brooks Range.

London-based BG Group, a 1986 spin-off from the privatization of the British gov-ernment-owned gas monopoly British Gas, officially entered Alaska on Jan. 26, 2006,when its Brooks Range Foothills “participation agreement” with Anadarko Petroleumand Petro-Canada went into effect.

The agreement gave BG Group’s new Alaska subsidiary BG Alaska E&P Inc. a“33.33 percent equity share in 2.1 million acres of land in the Foothills area of theAlaskan North Slope,” the company said in a February 2006 press release.

Under the terms of the agreement, each partner owns a one-third working interest inthe acreage with Anadarko continuing to serve as operator.

Anadarko has said that when it had its partnership agreements in place and was rea-sonably certain a gas line would be built, it would begin gas exploration.

—KAY CASHMAN

● G O V E R N M E N T

Harris retains HouseSpeaker post; Samuelsnew Majority Leader

PETROLEUM NEWSep. John Harris, R-Valdez, the cur-rent speaker of the Alaska House,retains that position for the 25thAlaska Legislature, which gavels in

in January. Rep. Ralph Samuels, R-Anchorage,

was selected majority leader,replacing John Coghill, R-North Pole, who becomeschairman of House RulesCommittee.

The House Republicanmajority also said in an organi-zational announcement Nov. 10that Finance Committee leader-ship will remain the same, withMike Chenault, R-Nikiski, andKevin Meyer, R-Anchorage, asco-chairs and Bill Stoltze, R-Chugiak/Mat-Su, as vice chair-man. Ramras, R-Fairbanks, willchair the Judiciary Committee,replacing Lesil McGuire whowas elected to the Senate.

Peggy Wilson, R-Wrangell,continues to chair the Health,Education and Social ServicesCommittee.

Replacing Hawker and Ramras as co-chairs of House Resources are Carl Gatto,R-Palmer, and Craig Johnson, R-Anchorage.

Bob Lynn, R-Anchorage, replacesPaul Season, R-Homer, as chair of HouseState Affairs; House Labor andCommerce will be chaired by Kurt Olson,R-Soldotna; and Kyle Johansen, R-Ketchikan, will chair HouseTransportation.

Gabrielle LeDoux, R-Kodiak, and

Anna Fairclough, R-Eagle River, will co-chair the Community and RegionalAffairs Committee.

Special committee chairsVic Kohring, R-Wasilla/Mat-Su, will

continue to chair the House SpecialCommittee on Oil and Gas. Paul

Seaton, R-Homer, will chairthe House Special Committeeon Fisheries.

Mark Neuman, R-Big Lake,will chair the House SpecialCommittee on EconomicDevelopment, Trade andTourism.

Bob Roses, R-Anchorage,will chair the House SpecialCommittee on Military and

Veterans Affairs.Hawker will chair the House

Ways and Means Committee,with Fairclough as vice-chair.

Joint House-Senate committee assignments

Joint committee assignmentsinclude: Seaton, vice chair,Committee on Regulation

Review, and Samuels, chair, LegislativeBudget and Audit Committee.

Nancy Dahlstrom, R-Anchorage/EagleRiver, will co-chair the Armed ServicesCommittee and was also named vicechair of the Legislative Council.

Gatto and Roses were named to theEthics Committee.

Democrats elected Beth Kerttula, D-Juneau, as the new House minorityleader; David Guttenberg, D-Fairbanks,continues as Democratic whip. ●

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Rep. John Harris

Rep. Ralph Samuels

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THE ASSOCIATED PRESSjudge ruled Nov. 10 that Gov. FrankMurkowski must have legislativeapproval before signing any naturalgas pipeline contract.

Judge Niesje Steinkruger’s orderblocked Murkowski from executing thecontract negotiated with BP,ConocoPhillips, and ExxonMobil to devel-op North Slope natural gas reserves.

Lawmakers have refused to authorizethe contract that would set fiscal terms forthe $25 billion North Slope pipeline. Mostlegislators believe the contract gives awaytoo much to the oil companies.

The governor has refused to say that hewon’t sign the contract without legislativeapproval, which prompted the lawsuit.

“That’s all we wanted,” Sen. RalphSeekins, R-Fairbanks, told the FairbanksDaily News-miner after the ruling. “Wewere right.”

Eight members of the LegislativeCouncil sued the governor on behalf of thestate Legislature. The 14-member council isa joint panel of the House and Senate thatconducts the Legislature’s businessbetween sessions.

Seekins, who is not on the LegislativeCouncil, joined the lawsuit on his ownbehalf after the governor suggested to himthat he might sign the contract without theLegislature.

Murkowski could still appeal the ruling,said Bill Large, a lawyer representing thelegislators, but time is short: “If he’s goingto do anything, it’s going to be fast.”

Murkowski is on out of the country on atrade mission through Nov. 12. Hisspokesman, John Manley, said the decisionwas under review and they were “decidingif we want to appeal to the Supreme Courtlevel.”

Murkowski lost his bid for re-election inthe GOP primary election in August andleaves office when Republican Sarah Palinis sworn in Dec. 4.

Steinkruger did not rule directly on thequestion of whether the governor has theauthority to sign the contract by himself. Inissuing a preliminary injunction, she foundthat it was likely he did not have that author-

ity and that preventing him from signing thecontract would cause him little or no harm.

Murkowski’s lawyer, Department ofLaw attorney Larry Ostrovsky, did notargue in court the question of whetherMurkowski has the authority to sign thecontract. Instead, he maintained that thecourt should not play a role in a politicalissue involving the relationship betweenstate lawmakers and the governor.

Steinkruger dismissed that argument,noting in her decision that the AlaskaStranded Gas Development Act, the lawMurkowski used to negotiate the contract,requires legislative approval and that thegovernor has not challenged the constitu-tionality of the law.

Does the governor actually plan tosign the contract without legislativeapproval?

“We don’t know at this point,” Manlysaid. ●


GOVERNMENTUSCG invokes Cook Inlet ice rules

The U.S. Coast Guard announced Nov. 15 that Capt. Mark DeVries, captain of theport for western Alaska, has put into effect phase one of the ice rules for the Cook Inletin Southcentral Alaska. Phase one applies to the upper Cook Inlet, above latitude 60degrees 45 minutes north, while phase two, which the USCG has not yet mandatedfor this winter, applies to the whole of the Cook Inlet.

The ice rules, designed to ensure safe winter vessel operation in frigid waters andsea ice, stipulate requirements such as the winterization of on-board systems, themaintenance of sufficient draft to keep propellers clear of surface ice and keepingpropulsion systems on immediate standby when a vessel is moored.

“The ice rules put into effect today are a result of a recent cold spell and high windsdeveloping ice early in Cook Inlet,” the Coast Guard said in announcing its Nov. 15mandate.The grounding of the tanker Seabulk Pride at Nikiski on the Kenai Peninsulain February 2006 has emphasized the importance of the ice rules. The tanker was tornfrom its moorings at a Nikiski dock by the pressure of wind and tide-driven sea ice.The vessel crew was unable to start the ship’s engines in time to avoid runningaground on a beach north of the dock. Fortunately, tugs later refloated the vessel with-out an oil spill occurring.

The Coast Guard says that this year it will step up the number of spot checks ofvessels, to ensure that operators are complying with the rules. The checks will includeensuring that vessels are moored correctly; that anchor windlasses and deck mooringwinches are tested; that steering gear is tested; and that all secured engines have heatexchangers turned on.

The National Oceanic and Atmospheric Administration is predicting anothersevere ice season this winter, although perhaps not as severe as in the winter of2005/2006, the Coast Guard says.

—ALAN BAILEY


Murkowski must havelegislature’s approval

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E&PGX completesseismic surveys

Houston-based GX Technologieshas announced the completion of itsseismic data acquisition in the U.S.Chukchi Sea and the Canadian BeaufortSea. The data acquisition involved verylong offsets and a specially designedseismic source to illuminate geologicstructures on a basin-wide scale. TheChukchi data, for example, will providea regional 2D seismic framework for theentire Chukchi outer continental shelfarea, the company said.

The surveys form part of GXT’sArcticSpan program, comprised ofapproximately 6,500 kilometers of 2Ddata along the northern coasts of Alaskaand Canada. GTX says that it will“commence delivery of the ArcticSpandataset in time for customers to analyzethe data in advance of the MineralsManagement Service Chukchi leasesale scheduled for November 2007.”

http://www.alaskacargo.com

By KRISTEN NELSONPetroleum News

hat oil and gas issues are of mostinterest to Alaska’s resource com-munity?

Mostly how to get more explo-ration — and a gas pipeline — accordingto questions the audience asked as theResource Development Council kickedoff its 27th annual conference inAnchorage Nov. 15.

John Shively, RDC president, and vicepresident, government and communityaffairs for Holland America Line — a for-mer commissioner of the AlaskaDepartment of Natural Resources —poised questions from the audience to JimBowles, president of Alaska’s largest pro-ducer, ConocoPhillips Alaska; KenThompson, a former president ofConocoPhillips Alaska predecessorARCO Alaska and currently managingdirector of independent AVCG/BrooksRange Petroleum; and Cam Toohey,Alaska government and external affairsmanager for Shell E&P Inc., which hasjust returned to the state and has taken alarge exploration position in the BeaufortSea.

Is Alaska attractive for business?Do you see Alaska as an attractive

place to do business today? If not, whatneeds to be improved? Shively asked.

Thompson said looking at “the num-ber of new companies that have come toAlaska in the last few years” it is attrac-tive — and the resource base is huge. But,he said, “it is very important that the Stateof Alaska keep a competitive system interms of their taxation.” He said he thinksthe production profits tax the Legislaturepassed this summer “was a bit much.”

He also said he wishes “Alaska woulddo something on the fiscal certainty andbalance their budget and get things in linethere. That would provide a little moremeasure of … assurance and comfort.”

“You find oil where you found oil,”Bowles said. “And Alaska has certainlyproved itself to be an oil and gasprovince, so it is an attractive place verymuch for that reason.”

With the resources the state has, you’dexpect to see more activity, he said. Onereason there isn’t more activity is “it’s ahigh-cost place to operate” and is a longway from market. It is important for thestate “to find the right balance” and torecognize the cost structure, he said.

Toohey praised the effort that bothstate and federal agencies have made overthe last five years “to provide for accessto good acreage and resources.” It’s along-lead item, he said, which sometimesisn’t recognized, “but it is extremelyimportant for us to have opportunities togain access to good prospective proper-ties.”

He said regulatory certainty is alsoimportant, “being able to feel fairly con-fident that through the process of apply-ing for and receiving permits that we willhave a license to operate” once logisticsand exploration challenges have beenovercome.

“I think access and regulatory certain-ty are two very important pieces that areboth federal and state as well.”

Impact of Democraticmajority in Congress?

Thompson’s was only one response tothe question: “How will the change inCongressional majority impact your proj-ects?”

He said he had seen bi-partisan sup-port in Washington, D.C., for “a gaspipeline from Alaska into the Lower 48”because natural gas is a cleaner energysource than coal.

Some Democrats did support drillingin the National Petroleum Reserve-Alaska, but not north of Teshekpuk Lake.

Thompson also noted that drilling insome offshore areas was “tough, yearsago, when there was a Democratic major-ity.”

To Bowles: what next on gas negotiations?

Shively asked Bowles, “what do youanticipate will happen in the North Slopegas pipeline negotiations … and howlong do you anticipate it will take?”

Bowles noted that Gov.-elect SarahPalin has said she will “sit down with allpotential players with gas pipeline pro-posals Dec. fifth. Of course that will justbe a kickoff” and only an introduction.

It’s a “very, very complicated project,and as we’ve said several times, the pastadministration has really worked this fora number of years to get to the pointwhere they were.”

“So I think the challenge that we haveas a group is to work with the new admin-istration and communicate all of theissues, the complexities around it.”

Bowles said ConocoPhillips is com-mitted to move a gas pipeline project for-ward as fast as possible, but said “I thinkthe reality is it is going to take longer thanwe would like it to take.”

What one request of new administration?

“If you could make one request of thenew administration in Juneau to enhanceyour exploration activities, what would thisrequest be?” Shively asked.

Thompson said it would be to have asmooth administrative and auditing processfor the PPT investment credits. The benefitis “very favorable” and should help explo-ration, he said. But the formula to calculatethe tax is “the most complicated formula Ihave ever seen anywhere in my 30 years inthe industry,” he said, asking for a “clearand transparent” process. “Otherwise, it isgoing to be quite a headache for all the pro-ducers.”

What would help ConocoPhillips withexploration? A longer drilling season,Bowles said. “The state’s done a lot of workto try and extend that winter drilling season,but I think there’s more that we could do toextend that season so that we could drillmore wells and have more access.”

Toohey said Shell has “made plans andassumptions over the past 12 months forour permitting and our exploration activitiesand it’s real important to keep the processand programs in place without changingthem, because change is one of those thingsthat’s more difficult for us to address in theshort-term.” And, with the increased levelof activities, agencies need to be adequate-ly funded.

Top priority for first 100 days of new administration?

The last question Shively asked was:“From your company’s standpoint, whatshould be the top priority of the Palin-Parnell administration in their first 100 daysin office?”

For Bowles the answer was simple: “getthat gas pipeline advanced. … I think it isby far and away the most important issuewe are facing here,” he said.

Thompson had a lot more to say, startingwith encouraging the new governor to meetwith majors and independents, “ get toknow the players and increase her baseknowledge in regard to the oil and gasexploration and production business.”

Although his company is not involved inthe gas pipeline, it is important to independ-ents to be able to sell gas, he said.

“I think the biggest mistake the governorcould make is to start over from scratch.”Rather than “entertaining other offers andwhat have you, I think it would be far bet-ter, in the first 100 days, if the administra-tion took what’s on the table, looked at whatcaused all the heartburn” among legislators,“see if somehow it can be tweaked orchanged” and create “a win-win for the pro-ducers, a win-win for the state.”

“And I think the governor, to do that,must broaden where she’s getting her input.She has a narrow set of advisors … in thecampaign. That was okay for the campaign.That is not okay for a big business such as anatural gas line.”

Thompson said he thinks Palin “needs tobroaden who she listens to, including theexperts in the majors and others with expe-rience in industry” and try to make the dealon the table work, “else we will lose years,I think, in a natural gas pipeline.”

For Toohey the issues are federal — andthe input the state can have on federalissues.

The five-year outer continental shelfleasing program for 2007 to 2012 is up forapproval. “It is very important that the gov-ernor, in her first 100 days, come outstrongly supporting” the areas proposed forthat five-year leasing schedule, becausethat determines “the access that will beavailable to companies like ours and oth-ers for the next 10 years.” ●



State should move ahead with gas lineOther suggestions to state: bear costs in mind, ensure access to land; to Palin — broaden base of advisors, fix this contract

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From left, Jim Bowles, Ken Thompson and Cam Toohey

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Bowles said ConocoPhillips iscommitted to move a gas pipeline

project forward as fast as possible,but said “I think the reality is it is

going to take longer than wewould like it to take.”

http://www.pesiak.com

http://www.pdstech.com


● I N T E R N A T I O N A L

Chevron scores Australian wildcatSecond major deepwater discovery off Western Australia puts company in excellent shape — if Gorgon facility surmounts obstacles

By ALLEN BAKERFor Petroleum News

hevron Corp. has added another tan-talizing deepwater discovery to itsinventory off Australia. The compa-ny announced Nov. 9 that the Clio-1

exploration well found an impressive 623feet of net gas pay in the MungarooFormation. The well went to a total verticaldrilling depth of 15,500 feet.

It’s the second successful offshore wild-cat by Chevron in the area in the last sixmonths, and it ties in well with theChevron-led Gorgon project, assuming thatthe mammoth undertaking can get pastenvironmental and financial hurdles.

Popular neighborhood Clio-1 was drilled in 3,000 feet of water

about 90 miles off the coast of WesternAustralia. It’s in a popular neighborhood,not far from the North West Shelf Venture,as well as Gorgon and the Pluto field thatWoodside Petroleum hopes to exploit.

The Clio success follows on anotherChevron discovery, the Chandon-1 well,which sits on the other side ofExxonMobil’s giant Jansz field, said tohold around 20 trillion cubic feet of gas anda big part of the Gorgon project.

Both Clio-1 and Chandon-1 were com-pleted using Transocean’s semi-sub-mersible Jack Bates rig.

Chandon-1 was spud on June 21 and itssuccess was announced July 12. The wellwas drilled about 160 miles off Australia in3,900 feet of water, with a total drillingdepth of 10,200 feet. The company didn’tprovide further details on that well.

Chevron holds a 100 percent interest inChandon and a 67 percent piece of Clio,with Shell holding the rest.

“Our two significant gas discoveries inChandon and Clio this year demonstratethe benefits of Chevron focusing ourexploration program in key basins such asnorthwestern Australia,” noted JohnWatson, president of Chevron InternationalExploration and Production, in announcingthe Clio discovery.

Quick Follow-Up“Chevron will be undertaking further

work, including a 3D seismic survey pro-gram starting in mid-December, to betterdetermine the potential of the gas findand subsequent development options” atClio, said Jay Johnson, managing direc-tor of Chevron Australia.

“The Clio discovery highlights thequality of our exploration capability inthe region and the significance of north-western Australia to Chevron’s energyportfolio.” Chevron put a healthy $192million into its exploration kitty forAustralia this year.

The Clio gas is said to be low in car-bon dioxide, which could make it attrac-tive for early development. Much ofGorgon’s 40 trillion cubic feet of gascomes with high levels of associated car-bon dioxide, which would be injectedback into the ground under BarrowIsland, where the Gorgon gas processingand liquefaction units would be installed.

Gorgon stalledBut the Gorgon project has met with

delays due to environmental issues aswell as the soaring costs associated withbig LNG developments around theworld.

Australian environmental officials arestill reviewing the proposal for BarrowIsland facilities after an adverse rulinglast summer that said the project couldthreaten the survival of an endangeredflat-backed turtle.

Chevron filed an appeal, and a reporton the issue was finished in earlyNovember and handed to WesternAustralia Environment Minister MarkMcGowan, who has final authority onthe proposal. He’s not expected to ruleuntil early next year. So the projectremains on hold.

Meanwhile, Chevron and its partnersare looking at rising costs for Gorgon ashuge projects around the world competefor specialty steel and other materials.

Gorgon was originally expected tocost around $8.5 billion and produce 10million tonnes of LNG each year fromhalf a trillion cubic feet of natural gas.But there are rumblings that costs mayhave risen by 50 percent or more.

The same thing happened to Shell’sSakhalin 2 project in Russia, where thecost estimate nearly doubled to $20 bil-lion, triggering major political as well aseconomic waves. Closer to home inAustralia, Woodside is expected to revisesharply upward its $5 billion develop-ment estimate for Pluto, which is said tohold 4.1 tcf. LNG from Pluto has beensold to two big Japanese utilities, thoughWoodside also wants to send some LNGto an offshore terminal to serve

California.

Slipping scheduleLNG shipments from Gorgon were

originally scheduled to begin in late2010, but that has slipped officially to2011 and shipments now aren’t likelyuntil 2012.

Chevron has sold essentially all of its50 percent share of the LNG fromGorgon to Asian utilities in long-termcontracts. Partner Shell is tentativelyplanning to ship much of its 25 percentshare to Sempra’s Mexican port in BajaCalifornia, while ExxonMobil has notmade any announcements about whereits 25 percent might end up. India is saidto be interested.

Clio and Chandon could add signifi-cant production to keep the huge GorgonLNG plant in operation. There has beenspeculation that the two new discoveriescould add 10 tcf to the 40 trillion cubicfeet already counted at Gorgon. Chevronsaid the 623 feet of net pay make Clioone of the top Australian wells by thatmeasurement, though that’s only abouthalf of the stupendous gas column atnearby Jansz. ●

Chevron said the 623 feet of netpay make Clio one of the top

Australian wells by thatmeasurement, though that’s onlyabout half of the stupendous gas

column at nearby Jansz.

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http://www.kenworthalaska.com

http://www.3M.com

http://www.friendsofpets.org


● L A N D & L E A S I N G

Anadarko to sell deepwater Genghis KhanGOM discovery bought by Shenzi partners for $1.35 billion — Hess Corp., BHP Billiton, Repsol; proceeds for debt reduction

By RAY TYSONFor Petroleum News

nadarko Petroleum, which alreadyhas sold prize deepwater Gulf ofMexico properties to help paydown a hefty acquisition debt, has

agreed to sell its Genghis Khan discoveryfor $1.35 billion to Hess Corp.,Australia’s BHP Billiton and Spain’sRepsol YPF, owners of the adjacentShenzi field.

Just recently Anadarko announcedthat it was selling its interests in deepwa-ter Gulf discoveriesKnotty Head andBig Foot and the BigFoot North prospectto Norway’s Statoilfor $901 million.Anadarko also hassold or swapped itsCanadian E&Passets.

Proceeds fromthe sales are earmarked for debt reduc-tion stemming from Anadarko’s recentacquisitions of Kerr-McGee and WesternGas Resources. The Kerr-McGee dealalone made Anadarko the leading inde-pendent producer in the deepwater Gulfof Mexico. Anadarko now has nine hub-and-spoke development projects on-line,several discoveries proceeding towardsanction, several exploration wells cur-

rently drilling and a strong prospectinventory.

“Due to the size and quality of theportfolio we have established in thedeepwater Gulf of Mexico, we have theopportunity to realize value from target-ed divestitures,” Jim Hackett,Anadarko’s president and chief executiveofficer, said Nov. 12.

Genghis Khan discovered in 2005Anadarko’s latest sale comprises

Genghis Khan and Anadarko’s 100 per-cent working interests in Green CanyonBlock 652 and undisclosed “deep rights”in Green Canyon Block 608. The sale isexpected to close by year-end. Randall &Dewey marketed the asset and served asAnadarko’s financial advisor.

Genghis Khan, located in waterdepths of about 4,300 feet, was discov-ered in 2005 on Green Canyon Block 652and includes estimated gross hydrocar-bon reserves in the range from 65-to 170million barrels of oil equivalent. It is partof the same geologic structure as theShenzi discovery, thought to contain350-to 400 million barrels of oil equiva-lent reserves.

Ownership in Genghis Khan will bethe same as the Shenzi development,with BHP Billiton holding a 44 percentinterest as operator and Repsol and Hesseach holding a 28 percent interest. Hessand Repsol will each invest $378 millionto cover their share of the transaction.BHP’s share will be $594 million.

Because Genghis Khan is within threemiles of the Marco Polo production plat-form, development of the reserves willproceed through a connection of sub-seawells to the platform where the pipeline

infrastructure is already in place, BHPsaid.

First oil expected in mid-2007Genghis Khan development may

include up to seven wells to fully pro-duce recoverable reserves, BHP said. Thefield currently has two wells. First oil isexpected in mid-2007 with continueddrilling to follow, the company added.

“The acquisition of Genghis Khanprovides BHP with a significant undevel-oped asset in the deepwater Gulf ofMexico with near-term production thatwe will operate,” said J. Michael Yeager,BHP’s group president of energy.

Additionally, Genghis Khan beingadjacent to the Shenzi oil and gas field“will allow us to benefit from develop-mental synergies, and will give usknowledge that will enhance the Shenzidevelopment,” he added.

Shenzi was sanctioned for develop-ment earlier this year, and the field isexpected to come on-stream in mid-2009. Development is expected to costaround $4.4 billion. A standalone, ten-sion leg platform was selected for theproduction facility. It’s being designed tohandle up to 100,000 barrels of oil and50 million cubic feet of natural gas perday.

In addition to Genghis Khan, KnottyHead and Knotty Head North, Anadarkois selling its Anadarko Canada subsidiaryto Canadian Natural Resources for $4.24billion.

Separately, Anadarko is swapping itsArctic Canadian assets for an increasedshare of the Chevron-operated Tonga dis-covery in deepwater Gulf of Mexico, aswell as undisclosed “enhanced terms”related to a recently announcedAnadarko-Chevron joint venture in WestTexas.

In late August, Anadarko also com-pleted the divestiture of its Gulf ofMexico shelf subsidiary to W&TOffshore for pre-tax $1 billion. ●

“Due to the size and quality of theportfolio we have established in

the deepwater Gulf of Mexico, wehave the opportunity to realize

value from targeted divestitures.”—Jim Hackett, Anadarko Petroleum

president and CEO

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http://www.colvilleinc.com


● F I N A N C E & E C O N O M Y

Sifting through the trust wreckageWeaker trusts urged to clean house; financing plans being restructured or delayed; junior explorers sideswiped; cap-ex pullback


here is more noise than clarity when it comes to thefuture of Canada’s oil and gas royalty trusts — near-term or long-term — and the impact of federal gov-ernment plans to end the sector’s preferential tax sta-

tus. While some pursue a rearguard action in hopes of per-

suading the government to exempt energy trusts from fac-ing standard corporate taxation in 2011, others take FinanceMinister Jim Flaherty at his word — “we are firm and cer-tain in our resolve … we are not changing” — and are start-ing to re-evaluate where they are headed.

The first consoling thought for many investors is thattrusts will continue to disperse tax-free income until 2011and some in the energy sector are being encouraged toaccelerate that process.

There is also a widespread acceptance that many trustswere in trouble anyway.

A recent analysis by Scotia Capital said the estimated2007 payout ratios of 21 oil and gas trusts were on average28 percentage points higher than what was sustainable overthe long term.

Earlier this year, Standard & Poor’s, a respected voice inthe investing world, found that when capital spending wasincluded only 62 percent of energy trusts were generatingenough cash to cover distributions — another jolt for a sec-tor accused of not always being straightforward in itsaccounting.

Blunt messages for weakest trustsCecilia Mo, manager of Boston-based Fidelity Income

Trust Fund, and George Gosbee, chairman of investmentbank Tristone Capital, both had blunt messages for theweakest trusts.

Mo said the majority should simply focus on squeezing

the last drops from their oil and gas assets and pass the prof-its on to their unit holders during the four-year grace periodoffered by the government.

The one-quarter of the trusts backed by strong technicalteams, land bases and internal drilling programs would bebest advised to revert back to conventional exploration andproduction roles after 2011, she said.

Gosbee estimates only five of 30 E&P trusts will still bearound by 2010.

For the rest, he said they will not be able to raise the cap-ital needed to grow their businesses.

They should use the window until 2011 to “stop spend-ing, blow down your expenses, blow down your assets andgive the highest rate of return under that tax-favorable envi-ronment to your unit holders,” he told the Financial Post.

For many, the party may already be over.Since the government’s bombshell announcement on

Oct. 31, setting off a steep decline in many trust unit prices,on top of the bruising many had already taken in a toughnatural gas environment, trusts are being forced to restruc-ture or delay plans for equity and debt issues.

The investment industry estimates that C$1.3 billion intrust-related financing plans are in limbo, of which C$565million is believed to be on hold.

More than 10% of planned spending at riskClayton Paradis, an analyst with Ross Smith Energy

Group, told reporters that an expected C$5.4 billion in cap-ital spending in 2007 — more than 10 percent of planned

industry-wide spending — could be drastically revised overthe next few weeks as the impact of the government’s taxreform plays out.

John Dielwart, chief executive officer of ARC EnergyTrust, one of the harshest critics of the government’s action,said the sector’s essential access to “significant capital” hasalready diminished.

“It has become more costly, so we have to reassess theeconomics of some projects,” he said.

ARC itself is looking more closely at the economics ofsqueezing more oil and gas from mature fields, which couldsee revisions to its capital budgets in 2008 and 2009 andpossibly by late 2007, Dielwart said.

Caught in the downdraft is Canada’s junior E&P worldof companies that have carved out an existence by exploit-ing marginal properties, growing production to about10,000 barrels of oil equivalent per day at which point theysold at a handsome profit to asset-hungry trusts.

Gosbee said that if the relationship between the minorsand trusts evaporates over the next two or three years therecould be a return to Canada’s more traditional petroleumindustry of junior, intermediate, senior and integrated oiland gas companies.

What is still being debated is whether there will be anybuyers for trust assets that have no appeal to larger produc-ers — domestic or foreign — who unloaded them in thefirst place.

If those properties are left fallow and oil and gas com-modity prices start sliding closer to break-even points(watch the mood in the oil sands change if oil again flirtswith the US$45 per barrel range) there is deep concernabout the impact on Canadian production.

Even now, the looming combination of capital spendingby trusts and conventional producers (led by EnCana,Talisman Energy and Canadian Natural Resources) isforecast to reduce gas output in 2007 by 1.6 billion cubicfeet per day or 10 percent of current volumes. ●

Caught in the downdraft is Canada’s juniorE&P world of companies that have carved outan existence by exploiting marginal properties,growing production to about 10,000 barrels ofoil equivalent per day at which point they sold

at a handsome profit to asset-hungry trusts

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http://www.fhr.com


hina’s stable of state-run oil compa-nies will give priority to buildingtheir access to heavy oil over thenext decade, official sources said

during a two-day conference in Beijinginitiated by the Alberta government.

That’s good news for Enbridge, whichis having trouble pinning down an anchorshipper for its proposed Gateway pipeline— the first direct link between the Albertaoil sands and China.

The inaugural World Heavy OilConference, from Nov. 12-15, was domi-nated by a flurry of indications that Chinais ready to move from the conventionaloil realm to heavy and alternative oils tosatisfy its demand.

China Daily, the official governmentnewspaper, said that as prices for conven-tional oil products climb over the longrun, China will have to look elsewhere,making heavy oil an unavoidable “part ofour energy segment in the near future.”

Heavy oil production to growZhang Fengjiu, deputy chief engineer

at offshore producer China NationalOffshore Oil Corp. told the conferencethat by 2010 CNOOC’s daily productionof heavy oil will grow to 500,000 barrelsper day from the current 200,000 bpd,accounting for 60 percent of its volumes.

China Daily also reported that inte-grated oil giant, PetroChina, is eager to

tap into heavy oil resources, but is not yetready to announce a strategy for heavycrude development.

Bob Lockwood, president ofCambridge Energy Research Associates,said PetroChina’s parent company ChinaNational Petroleum Corp., is also scour-ing the globe for heavy oil prospects.

He said his own firm has reached amemorandum of understanding withCNPC to explore ways of bringing heavyoil from Canada to China.

Prior to the conference, Wenran Jiang,acting director of the Edmonton-basedChina Institute, said China viewed theconference as one of many opportunitiesto engage the outside world to enhance itsown energy security.

The China Institute was establishedlast year through a C$37.5 millionAlberta government endowment to pro-mote Canadian trade relations withChina.

New administrationless eager for China ties

But some of those hopes have taken asetback since the election in January ofthe Conservative government of PrimeMinister Stephen Harper.

The new administration has been lesseager than its Liberal predecessor tostrengthen ties with China and has report-edly upset Beijing by criticizing China’shuman rights record and trade practices,granting honorary Canadian citizenshipto the Dalai Lama, Tibet’s exiled spiritualleader, and delaying talks over an agree-ment in principle to form a strategicCanada-China partnership.

The chilly nature of relations wasunderscored when China cancelled plansfor a summit between Harper andChinese President Hu Jianto prior to theopening of the annual Asia-PacificEconomic Cooperation conference inHanoi Nov. 15.

However, federal Natural ResourcesMinister Gary Lunn joined AlbertaEnergy Minister Greg Melchin at theheavy oil conference.

Along with Enbridge Executive VicePresident Richard Bird, the two ministersheld meetings with Chinese governmentofficials and China’s major oil companiesin a bid to speed up negotiations on theGateway project.

Foot-dragging by the Chinese couldcontribute to a delay in completion of theC$4 billion Gateway pipeline from 2010-2011 to 2012-2014, but establishing atimetable is not possible until a lead ship-per emerges from the current negotia-tions. ●



China wants heavyoil — sort of

The inaugural World Heavy OilConference, from Nov. 12-15, was

dominated by a flurry ofindications that China is ready to

move from the conventional oilrealm to heavy and alternative

oils to satisfy its demand.

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The new administration has beenless eager than its Liberal

predecessor to strengthen ties withChina and has reportedly upset

Beijing by criticizing China’s humanrights record and trade practices.

PIPELINES & DOWNSTREAMEquipment mislabeling glitch forAlyeska Pipeline Service

Alyeska Pipeline Service Co. was ordered by the Bureau of LandManagement to remove from service immediately a transformer at PumpStation 9 “and all other electrical items which do not show proper evidence oftesting and approval to U.S. standards.”

The Joint Pipeline Office said Nov. 8 that Alyeska has also been ordered toinspect all electrical equipment installed, or to be installed, as part of the com-pany’s strategic reconfiguration and other projects “for evidence of properapproval to U.S. standards.”

Alyeska has also been ordered to con-duct an investigation to determine how“improperly approved equipment” waspurchased, approved and installed at PumpStation 9.

A report is due to JPO by Dec. 1. The agency said “BLM is concerned

that this unapproved equipment wasinstalled and placed in service despitenumerous quality and inspection programsin use” by Alyeska and its contractors.

JPO said Alyeska “has informed theJPO that they are aware of the issue and areactively working to inspect and remove any improperly labeled equipment.”Alyeska “also informed the JPO that the proper transformer was apparentlyordered but the unit was not labeled correctly by the manufacturer.”

Alyeska Pipeline spokesman Mike Heatwole told Petroleum News Nov. 15that Alyeska is “very much aware” of the issue. It is, he said, “a question of ULlabeling.” Heatwole said the transformers “were tested and approved for U.S.service.” He said Alyeska hopes to have them re-labeled by Nov. 17 and saidthat so far the start-up schedule for Pump Station 9 has not been affected. Hesaid Alyeska is doing an investigation to determine “why we had incorrectlylabeled equipment put in service.”

JPO spokeswoman Rhea DoBosh said the responsibility is with Alyeska “tohave the items displaying the proper approvals per state and federal laws.” Shealso said the UL labeling and Alaska code compliance is an area JPO has“repeatedly” reminded Alyeska about and there should not have been any ques-tions.

She said JPO wants to know how it happened and how Alyeska “will pre-vent similar misunderstandings from happening again.”

—KRISTEN NELSON

The Joint Pipeline Officesaid Nov. 8 that Alyeska hasalso been ordered to inspect

all electrical equipmentinstalled, or to be installed,

as part of the company’sstrategic reconfiguration andother projects “for evidenceof proper approval to U.S.

standards.”

http://www.PetroleumNews.com/advertisinginfo



Piecing together the Palin puzzleStatements made during her campaign shed light on Alaska governor-elect’s strategies and plans regarding major oil and gas issues

By ALAN BAILEYPetroleum News

arah Palin’s gubernatorial campaign slogan “NewEnergy for Alaska” promised a fresh look at Alaska’sfuture and hinted that the energy industry would fea-ture high on her administration’s agenda. But now that

the campaign dust has started to settle, it’s worth a look atwhat the governor-elect said and what it might mean forAlaska’s oil and gas industry.

The hoped-for North Slope natu-ral gas pipeline clearly sits at the topof the new administration’s priorities.

“When we are sworn in, we canofficially begin negotiations to get agas line,” Palin said about her firstactions in office, according to a Nov.8 report in the Anchorage DailyNews. Palin said that she hopes tomeet with the North Slope’s threelargest producers — BP,ConocoPhillips and ExxonMobil —as soon as possible after the election.

Incumbent Alaska Gov. FrankMurkowski negotiated a fiscal con-tract under the terms of the AlaskaStranded Gas Development Act withthe three North Slope producers forthe construction of a gas line by theproducers. That gas line would fol-low the Alaska Highway into Canadaand through Canada to the Lower 48. But the AlaskaLegislature has not ratified the gas line contract.

Critics say the contract with the producers cedes toomuch to the companies in incentives but does not have firmcommitments from those companies to build a pipeline,leaving the timing up to the producers’ corporate agenda.

Port Authority proposalBut Palin’s association with an alternative gas line pro-

posal from the Alaska Gasline Port Authority during hercampaign has raised questions regarding her impartiality indealing with the North Slope producers.

The port authority’s all-Alaska gas line route woulddeliver natural gas to the port of Valdez, from where the gaswould be exported as LNG to the Lower 48. The NorthSlope producers have remained adamantly opposed to theport authority’s proposal, saying that the Valdez LNGoption is not economically viable.

“I’ve always touted the positives of that (Valdez) routeand that project, and I will continue to say there are posi-tives in that route. ... I’m not vacillating,” Palin said in aspeech at Anchorage’s Captain Cook Hotel on Sept. 7. Shealso said that Murkowski’s negotiations had “shooed away”all options other than the producers’ Alaska Highwaypipeline concept and that the port authority’s Valdez routemight turn out to be a viable primary or secondary option.

And at a gubernatorial debate at the Captain Cook on

Oct. 26 Palin confirmed that she is open to all ideas for thepipeline.

“I also have the support of Alaskans,” Palin said. “ManyAlaskans are absolutely against the LNG project. There’s amyth there in terms of my support. I did and do see some ofthe positives there in that LNG project as an option, but I’venever viewed it as the exclusive option. We live in a com-petitive environment here. We ought to be considering alloptions for this pipeline. It’s that important for the folks totrust that the state administration will choose the best proj-ect, based on all options that are viable being fairly andobjectively considered.”

Competing proposalsWith help and advice from Tom Irwin, Palin has pre-

pared a plan to solicit competing gas pipeline proposals.Irwin was the commissioner of the Alaska Department ofNatural Resources who was fired after expressing concernsabout the way the Murkowski administration was handlinggas line negotiations.

“Obviously we need a competitiveprocess in order to judge the propos-als that are out there, to make surethat we’re going to pick the best proj-ect to finally market our North Slopegas,” Palin said at a CommonwealthNorth gubernatorial candidate debateon Sept. 29. “Entities wanting tocompete for the right to tap ourresources should be invited in. …We’ll be able to objectively and fair-ly compare proposals that hopefullyare on the table. … A lot of thesefolks are ready.”

In addition to the port authority,the entities Palin was referring toinclude pipeline companyTransCanada and MidAmericanEnergy Holdings Co., a pipelinecompany and gas and electrical serv-ice provider controlled by WarrenBuffet’s Berkshire Hathaway Inc.Both companies previously submitted North Slope pipelineproposals.

But what if the North Slope producers don’t agree tosupply gas to a pipeline operated by one of these other enti-ties?

In that case, the state can force the producers to supplygas, because of some of the obligations in the producers’oiland gas leases, Palin and former Division of Oil and GasDirector Mark Myers have said. The state has leveragebecause it owns the gas, she said.

According to a Fairbanks Daily News Miner report,Palin also said that she would open the pipeline negotiatingprocess to the public. However, she has not set a deadlinefor a gas pipeline contract to be signed, because guarantee-ing a deadline was not realistic and “would be unfair anddisrespectful to Alaskans.”

New Alaska gas line lawPalin thinks that a North Slope gas line is now a com-

mercially viable proposition and that, consequently, theAlaska Stranded Gas Development Act no longer applies toa gas line development.

The stranded gas act offers the possibility of concessionsin taxes and royalties in a situation where concessions areneeded to make a gas line project economic — in a periodof low gas prices. (Irwin has said the Murkowski adminis-tration subsidized the gas pipeline to the tune of $13.25 bil-lion in the contract it negotiated with the three North Slopeproducers.)

Instead of using the stranded gas act, Palin would intro-duce a law of general application at the start of the 2007 leg-islative session. The new law would set the terms and con-ditions for the construction and operation of a North Slopegas line.

“We have to get up from underneath the constraints ofthe stranded gas act and through a law of general applica-tion we can lay out the conditions that we, as resource own-ers, want to see met,” Palin said at the CommonwealthNorth debate. “… It is time to get our North Slope gas tomarket.”

Palin said that the requirements spelled out in the newlaw must include “a guarantee for in-state gas, a guaranteefor jobs for Alaskans, a petrochemical spin-off industry thatAlaskans should be capitalizing on and access to the line byother independents.” Requirements must also include guar-anteed pre-construction benchmarks, to ensure pipelineconstruction. And Palin has also said that a gas line planmust include provisions for supplying gas to Alaska com-munities and for reasonable fees for gas line usage.

Neither a gas line bill nor a gas line contract wouldinclude oil tax stipulations, Palin has said.

Incentives for an entity willing to meet the state’s termscould include tax deferrals during construction, rapid per-mitting and state assistance with road and bridge improve-ments for pipeline construction.

And, in her speech at the Captain Cook Hotel, Palin saidthat in addition to the governor signing a gas line contract,the state Legislature would have to approve the contract.

Point ThomsonPalin has expressed frustration at the lack of progress in

developing the huge Point Thomson gas and condensatefield on the North Slope. The field, which Palin describedat a Soldotna Chamber of Commerce gubernatorial candi-date debate as “essentially our next Prudhoe Bay,” has beenthe subject of a 30-year dispute between the State of Alaskaand the unit owners — Point Thomson negotiations haveinvolved multiple plans of development and periodicexpansions and contractions of the unit’s acreage.

“We’re trying to convince the rest of the nation to openANWR, but we can’t even get Point Thomson open,” Palinsaid.

And at the Commonwealth North debate she directed

see PALIN page 14

S

Instead of using thestranded gas act,Alaska Gov.-electSarah Palin wouldintroduce a law ofgeneral applicationat the start of the2007 legislative ses-sion. The new lawwould set the termsand conditions forthe construction andoperation of a NorthSlope gas line.

With help andadvice from TomIrwin, Palin has pre-pared a plan tosolicit competinggas pipeline propos-als. … Irwin has saidthe Murkowskiadministration sub-sidized the gaspipeline to the tuneof $13.25 billion inthe contract it nego-tiated with thethree North Slopeproducers.


her comments at Exxon, the unit operator.“We need to hold Exxon’s feet to the

fire,” Palin said. “… It’s time to market thatgas at Point Thompson, but make sure thatExxon is adhering to the provisions in theirleases.”

On the subject of pipeline corrosionPalin also thinks that the recent pipeline

corrosion problems at Prudhoe Bay couldcloud the national debate about opening theAlaska National Wildlife Refuge. The statehas a duty to ensure a robust state infra-structure and the state’s responsibilitiesinclude oversight of privately ownedpipelines, she thinks.

“It’s no secret that those (corrosion)problems were growing and now of coursethey’ve finally erupted,” Palin said at anAlaska Conservation Voters gubernatorialcandidates forum on Oct. 4. “… It’s time

we did something about it … We’re goingto have to prove to the rest of the nation thatwe can provide this oversight that’s so nec-essary.”

In favor of Bristol Bay OCS leasingPalin has also expressed views on the

possibility of opening the Bristol Bay outercontinental shelf offshore southwest Alaskafor oil and gas leasing. Bristol Bay has sig-nificant natural gas potential and some oilpotential. But concerns about possibleimpacts on the region’s salmon fisheryhave resulted for many years in a federalmoratorium on offshore leasing.

In October 2005 the state held an AlaskaPeninsula areawide lease sale along thesouthern side of Bristol Bay. And Palin seesher administration continuing to focus ononshore rather than offshore developmentin the region — although there has beenoffshore oil development success in theCook Inlet she thinks that the Bristol Baycommunities need to support offshore leas-ing.

“With the local input and the local con-cerns being heard, it is so important for thelocal communities to have a buy in but alsoto have a lot of confidence that decisionsare being made that will protect the envi-ronment and, in that area especially, protectthose fisheries,” Palin said in the CaptainCook gubernatorial candidate debate. “…We’re going to focus on onshore and hope-fully we’re going to be leading that area togreat success with development there.”

Alternative energies key to futurePalin sees alternative, renewable energy

sources as a key component of Alaska’slong-term future.

“We need to start going into alternativeenergy sources and to see if Alaska can bethe leader in a U.S. energy policy, which isa plan that is sorely lacking in our country,”Palin said during the CommonwealthNorth debate. “… We have the hydro, tides,geothermal, the wind and the biomass.These are clean, local, inexhaustible sup-plies for power generation. That’s the ener-

gy for Alaska … These resources can fuelthe United States of America.”

And, when commenting on these poten-tial sources of energy, Palin mentioned therecommendations of a 2003 AlaskaLegislature energy policy task force.

“We don’t need to reinvent a whole lotof wheels here,” Palin said. “We need takethose good recommendations, plug them inand seriously consider them and start work-ing on this issue.”

Palin also thinks that the University ofAlaska could play a major role in develop-ing alternative energy resources.

“I remind Alaska students as often as Ican to get ready for a new world. Part ofthat new world for that next generation isgoing to have to include alternative ener-gy,” Palin said. “… Our university systemcan be huge here as a leader.”

And Palin sees a critical need for allstakeholders to work together in a non-par-tisan manner for energy development.

“It’s going to take working together asan Alaskan family,” she said. ●


PALIN

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

Oil sands barrel overflowsMined output soars, Devon and Total caught in price grip, natural gas consumption a worry, nuclear power gets a political lift


ifting through the latest grains from the oil sandsseldom fails to yield a mix of the good, the bad, theugly and the fascinating.

The last couple of weeks have produced the fol-lowing:

The good:• Mined oil sands output soared 26 percent in the third

quarter to 764,800 barrels per day of bitumen.The Syncrude Canada consortium hit 334,000 bpd, a

gain of 55,000 bpd from a year earlier; Suncor Energywas up 104,000 bpd to 266,300 bpd, reflecting its recov-ery last year from a major plant fire; and Athabascadropped marginally to 164,500 bpd.

For the first nine months of 2006, industry-wide pro-duction was 697,300 bpd, up from 561,533 bpd in thesame period of 2005.

Suncor’s average total for the January-Septemberperiod was 289,300 bpd, Syncrude posted 284,000 bpdand Athabasca fell to 124,000 bpd.

Operating per barrel costs for the third quarter were:Syncrude C$19.68 (down C$3.93), Suncor C$23.70(down C$3.95) and Athabasca C$18.93 (down C$5.32).

• UTS Energy, a 30 percent stakeholder in the FortHills project (with Petro-Canada as 55 percent operatorand Teck Cominco a 15 percent partner) is extending itsasset base as its major investment moves ahead.

Bidding jointly with Teck, UTS picked up new oilsands leases in the Athabasca region, with auctionrecords showing it invested C$82 million in September.

Five of the leases are alongside a lease held jointlywith Teck where preliminary drilling results encouragethe follow-up bidding.

Of the six wells drilled so far, all encountered oilsands and four indicated mineable quality oil sands withan ore thickness of 80 to 115 feet.

UTS now plans to drill 90 infill wells this winter todelineate the extent of one lease, which it owns outright.

In addition to its successful accumulation of futureprospects, UTS is pleased with progress at Fort Hills.

President Will Roach said an extensive review of theimpact of higher oil prices on the economic bitumenresources has determined that the producible resource is4 billion to 5 billion barrels, a “substantial increase”from the current best estimate of 3.5 billion barrels. Thatestimate does not include any of the new lands acquiredrecently by the consortium.

• Suncor Energy plans to pour C$4.4 billion into oilsands-related businesses next year, representing 80 per-cent of its capital spending plans.

The breakdown shows C$900 million is earmarkedfor sustaining existing operations, including the plannedrelocation of mining and extraction facilities to supportextended mining areas.

About C$1 billion is allotted to Suncor’s goals of hik-ing production to 350,000 barrels per day in 2008,including debottlenecking and productivity improve-ments, and C$2.5 billion is targeted to support the com-pany’s goal of exceeding 500,000 bpd in the 2010-2012period.

Chief Executive Officer Rick George said the plansreflect his company’s “significant growth opportunitiesover the next several years.”

In a gesture to those who see the oil sands as Canada’s

worst source of greenhouse gas emissions, Suncor isinvesting C$120 million on renewable energy develop-ment, including construction of its fourth wind powerproject in Ontario and investment in biofuels.

The bad:• Devon Energy is the latest to bemoan the capital

costs of building production from northern Alberta, esti-mating that doubling output to 70,000 bpd from itsJackfish project by 2011 could cost in the range ofC$650 million-$700 million, compared with the firstphase price tag of C$550 million, or within 5 percent ofits original budget.

The Oklahoma City-based independent said it is feel-ing the pinch from inflationary pressures, as labor costsrise in response to plans for a possible C$225 billion ofcapital spending over the next 10 years.

The concerns come only three months after DevonPresident John Richels said his company was not experi-encing the same costs pressures as its peers and waspressing ahead with expansion plans.

He said Devon had cushioned the impact by contrac-tually fixing the cost of many surface facilities.

• What started out good, with the Joslyn project, oper-ated by France’s Total, initiating commercial production,quickly turned sour.

The start-up phase is using steam assisted gravitydrainage techniques and is expected to reach its plateauof 10,000 bpd in 2008.

But Total’s 16 percent partner, Enerplus ResourcesFund, followed that announcement by warning thatJoslyn’s major surface mining operation has been

S

see OIL SANDS page 15

http://www.holadayparks.com


delayed to 2013 from 2010 because of thecompetition for construction labor andmaterials.

A decision on whether the mine willcome on stream at 100,000 bpd or 50,000bpd has also been postponed from thisyear to 2007, Enerplus said.

The ugly:• Calgary-based consulting firm Ziff

Energy Group is predicting one oil sandstrend the sector would sooner not hearabout.

Bill Gwozd, Ziff’s vice president ofgas services, told a Canadian Heavy OilAssociation conference that gas con-sumption to extract and process the oilsands could soar over the next eight yearsto 1.9 billion cubic feet per day from 600million cubic feet per day at the sametime Western Canadian production couldshrink by 3 bcf from its current 16 bcf.

He said the numbers could cause alarmfor users of Alberta gas — across Canadaand the United States — that the “gasmight not be there.”

Ziff estimates that based on the aver-age consumption of 500 cubic feet perbarrel for mining operations, the cost ofgas could grow to C$3-$3.40 per barrel ofproduction between 2006 and 2015, whilethe in-situ average need of 1 thousandcubic feet could translate into gas costs ofC$6-$6.80 per barrel.

But Gwozd said that facing total con-sumption costs of C$5 billion a year willgive added incentive to the oil sands sec-tor to improve efficiency, lower gas con-sumption and develop alternative fuels.

In a new study the Canadian EnergyResearch Institute forecasts that by 2020oil sands production will reach 2 millionbpd from mines and 1.8 million bpd fromin-situ projects.

The study assumes the capital costs formining and extraction projects will reachC$20,000 per barrel, C$32,000 per barrelfor upgraders and C$55,000 for miningand extraction and upgrading projects.

The fascinating:• Jim Dinning, the hot favorite to

replace Ralph Klein as Alberta premier inDecember, grasped one of the province’smost prickly nettles by insisting nuclear

power remains an option to power the oilsands sector.

He said natural gas is being “wasted”to remove and upgrade bitumen, butapparently startled his audience in declar-ing that “nuclear power has got to go onthe list of energy sources to be consideredto support the development of the oilsands.”

Two of Dinning’s rivals, Ed Stelmachand Lyle Oberg, agreed nuclear powershould not be ruled out, despite wide-spread concerns among Albertans aboutthe security risks.

Meanwhile, Klein, a vocal opponent ofnuclear power, seems to be having secondthoughts.

He is weighing an offer to become anuclear lobbyist once he is out of politicaloffice, while candidly admitting “I don’tknow anything about it.”

Alberta ethics regulations require asix-month cooling off period before Kleinor any of his cabinet ministers can accepta job with firms that do business with thegovernment.

Klein said he intends to take some timedeciding which positions to accept, cer-tain the end result is that he will “make afortune … a hell of a lot more than I’m

earning right now.”Whatever jobs he takes “will be the

ones that require the least amount ofwork,” Klein declared.

• Marathon is pushing ahead withplans to reconfigure all or some of twoU.S. refineries to handle as much as280,000 bpd of Canadian oil sands crude.

It has awarded a front-end engineeringand design contract to convert its 100,000bpd Detroit refinery to run entirely onCanadian heavy crude and is advancing afeasibility study to install similar upgrad-ing facilities at its Catlettsburg, Ky., refin-ery, converting heavy crude capacity to180,000 bpd of a total 220,000 bpd at theplant.

Rather than following the example ofEnCana and ConocoPhillips in establish-ing a joint production and upgrading ven-ture, Marathon is inviting bids for part-nership rights, apparently swayed by thenumber of proposals it attracted.

As well, Marathon has indicated itmay retain the upgrading rights for its192,000 bpd refinery at Robinson, Ill.,although the company insists the facilityis not “off the table” to proposals. ●


OIL SANDS

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

Conoco cleaning pipelines more oftenKuparuk lines formerly cleaned every six months; those piggable now being cleaned every month; line that leaked out of service

THE ASSOCIATED PRESSonocoPhillips has stepped up its efforts to preventcorrosion-related leaks in its pipelines in theKuparuk oil field on Alaska’s North Slope.

The move comes after leaks in pipelines earlierthis year damaged the reputation of BP, operator of thePrudhoe Bay oil field, the nation’s largest.

Kuparuk is the nation’s third-largest oil field. Until recently, Conoco ran cleaning pigs through a

key network of large Kuparuk pipelines every sixmonths. Beginning in June, the company switched to amonthly pigging schedule and went to a “more aggres-sive” type of pig to better scrape sediment or other solidmaterial out of the pipes, according to the AnchorageDaily News.

Sediment buildup suspectedFederal regulators suspect sediment buildup was a

factor behind severe corrosion inside two transitpipelines in the Prudhoe Bay oil field, which lies justeast of Kuparuk. The corrosion led to two leaks, one inMarch that was the worst oil spill ever on the NorthSlope tundra and the other that forced a partial shutdownof the field.

BP’s Prudhoe problems have drawn scrutiny fromfederal criminal investigators, members of Congress andthe U.S. Pipeline and Hazardous Materials Safety

Administration. Critics say BP was lax in maintaining itspipelines.

The federal pipeline administration hasn’t limited itsinquiry to BP. The agency requested information fromConocoPhillips on how it was safeguarding its ownpipelines against corrosion, said company spokeswomanDawn Patience.

In two reports provided to federal pipeline regulators,Conoco indicated that it had stepped up pigging in themain pipeline network within the Kuparuk field.Inspection of other pipelines also increased.

The reports say no serious corrosion has been foundin Conoco-run pipelines. But they also say that for tech-nical or design reasons, some pipes can’t be cleaned withpigs or tested for corrosion with so-called smart pigs.Those are devices that assess the condition of the pipe,looking for areas where the pipeline wall is thin.

Using other technology, Conoco said it found 12 badspots in Kuparuk’s oil system pipeline network. Theworst involved a 43 percent wall thickness loss, which isnot considered dangerous by industry standards.

One line out of service after leakHowever, at least one Kuparuk pipeline this year

developed holes, according to the Alaska Department ofEnvironmental Conservation. Workers on March 9noticed an icicle hanging from a 24-inch diameterpipeline at a Kuparuk drill site. The icicle had formed atone of the holes.

Spill responders found that up to 500 gallons of oilywater had leaked onto the tundra. They collected anoth-er 200 gallons in a catch basin.

An investigation determined that the holes werecaused by internal corrosion eating away at the steelwall. Patience said the pipeline is no longer in service.

Conoco did not honor repeated requests for an inter-view with its corrosion managers.

Patience provided this statement Nov. 13: “Conoco Phillips reviews and updates our North

Slope corrosion, monitoring and mitigation program ona continuous basis. In 2005 we spent approximately $30million on corrosion monitoring and mitigation inAlaska, and this year we will spend approximately $36million.”

The DEC report says the amount of corrosion-block-ing chemicals being pumped into the pipeline was sig-nificantly lower than it should have been for six monthslast year “due to pump problems” and a lag in fixing theequipment. ●

CIn two reports provided to federal pipelineregulators, Conoco indicated that it hadstepped up pigging in the main pipeline

network within the Kuparuk field. Inspection ofother pipelines also increased.

http://www.petroak.com


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“Connecting the right people tothe right jobs, at the right time” haslong been Northwest TechnicalServices’ strategy and motto. NWTShas provided quality contract andstaff employees — professional,technical, administrative and craft —to Alaska companies for nearly 25years. The company plans to keepdoing just that, getting better all thetime.

Before Linda Murray joined NWTSin 1994 as a computer software train-er, she spent six years in the ITdepartment of a North Seattle schooldistrict. Then, in 2003 she welcomedthe opportunity to assume personnelspecialist responsibilities. Solvingproblems is her forte, and she lovesit. Off-duty, Linda enjoys her four-generation Anchorage family’s activi-ties, live music and genealogy. Sheand hubby Craig have a daughter,Cara Davis.

tory appeal of her ruling on the ground thatno extraordinary circumstances exist tomerit granting such a request.

BP, ExxonMobil appeal to commissionHowever, FERC Commissioner Joseph

T. Kelliher disagreed with Cintron on someaspects of the appeal. In response to anappeal by BP Pipelines (Alaska) Inc. andExxonMobil Pipeline Co. to the full com-mission, Kelliher, acting as motions com-missioner, said Nov. 15 that he believed thetwo TAPS carriers have demonstratedextraordinary circumstances regarding cer-tain filings that warranted the full commis-sion considering the issue.

The disclosure dispute arose as hearingsbefore Cintron began Oct. 31. The overallcase began when Anadarko filed a protest inDecember 2004, challenging tariff increas-es proposed for 2005 by the TAPS carriers— BP, ConocoPhillips TransportationAlaska Inc., ExxonMobil, Koch AlaskaPipeline Co. LLC and Unocal Pipeline Co.

Anadarko also filed a complaint withFERC protesting the existing tariffs, callingthem “unjust and unreasonable.”

Tesoro joined the independent in askingFERC to suspend the 2005 tariffs, declarethe rates subject to refund, establish just andreasonable TAPS rates and take otherappropriate steps to provide relief.

The State of Alaska also joined the case,protesting the proposed tariff increases asbeing “excessive.”

Ground-breaking review by FERCThe case represents the first time FERC

has been asked to rule on the fairness of thetariff TAPS owners charge for Alaska NorthSlope crude shipped on the trans-Alaskapipeline to markets outside Alaska.Currently, about 17 percent of the nation’soil is supplied by the North Slope via thepipeline.

In 2002, the Regulatory Commission ofAlaska ruled on a similar complaint fromshippers, including Anadarko, and drastical-ly lowered the tariff for TAPS oil being usedinside Alaska. RCA also ordered thepipeline’s owners to cough up substantialrefunds.

The tariff for oil being purchased for in-state use was about $1.96 a barrel in 2004,compared with $3.01 a barrel or more foroil headed outside the state.

BP, which owns 50.01 percent interest inTAPS, sought the biggest increase, 87 cents.That’s a 28 percent hike from its 2004 rate.ConocoPhillips, with a 28.3 percent stake inTAPS, sought $3.52 a barrel, up nearly 9percent from $3.23 a barrel in 2004.ExxonMobil, a 20.3 percent TAPS owner,wanted $3.60 a barrel, up 17.6 percent from$3.06 a barrel; while minority owner KochAlaska Pipeline Co. LLC asked for $3.97 abarrel, or 7 percent more than the $3.71 abarrel sought in 2004 for its stake in TAPS.Unocal, another minority owner in TAPS,sought $3.98 a barrel for 2005, comparedwith $3.55 a barrel in 2005.

Shippers: Documents should be publicIn their motion to remove confidentiality

from certain filings in the case, Anadarkoand Tesoro argued that designating thematerials as public would further thejudge’s goal of conducting an efficient pub-lic trial and rendering a public decision andeliminate a concern she expressed earlierabout the sheer quantity of confidentialinformation.

“This will greatly simplify and expeditethe hearing by eliminating the number oftimes the presiding judge will have to closethe hearing to the general public,” the com-panies argued.

Anadarko and Tesoro also offered towaive “confidential” and “highly confiden-tial” classifications of some of their owndocuments, if the TAPS owners wouldagree to do the same.

After hearing additional oral argumentsand weighing the parties’ positions, Cintronagreed. She said she found no competitiveharm to the TAPS carriers from public dis-closure of the documents and if there wereany competitive harm, such harm is out-weighed by the public’s interest in havingaccess to the documents.

Scrutiny would hurt competitionBP and ExxonMobil asked the commis-

sion to allow them to keep “highly confi-dential” the prices at which the two TAPSowners purchase fuel gas for the TAPSpump stations from the gas producers. Thecarriers claimed this information has limit-

ed relevance to the tariff proceedings andmaking the prices public will causeirreparable harm to the North Slope gas pro-ducers, BP Exploration (Alaska) Inc.,ExxonMobil Production Co. andConocoPhillips Alaska.

BP spokesman Daren Beaudo said theTAPS owners had numerous reasons forappealing Cintron’s ruling to the full com-mission. These include antitrust and com-petitive concerns.

“Sharing that information would affectus,” Beaudo added.

The commission has 15 days to rule onthe appeal from BP and ExxonMobil.

Hearings in the tariff case are ongoing.Initial briefs are due Feb. 2. ●



RULING


Norway mixes oil, money and ethics Wal-Mart, Boeing, Honeywell, Lockheed Martin all blacklisted by Norwegian oil investment fund, now at US$263 billion

By DOUG MELLGRENAssociated Press Writer

hat do Wal-Mart Stores Inc., Boeing Co., HoneywellInternational Inc. and Lockheed Martin Corp. sharealong with being U.S.-based?

They’re all corporations that have been put on ablacklist by a Norwegian state investment fund that aims tomake the nation’s huge oil wealth grow for the benefit of itscitizens while making the world a better place.

The 1.7 trillion kroner (US$263 billion) global fund isunder strict government-imposed ethical guidelines toensure that money doesn’t go to companies linked to suchthings as weapons production, human rights abuses, envi-ronmental damage or corruption.

“The main reason is not to contribute to unethical invest-ments so the Norwegian people can sleep better at night,”said Gro Nystuen, leader of a national Council of Ethics thatoversees the fund’s investments in up to 4,000 companiesworldwide.

Offshore fields have made NATO-member Norway theworld’s third largest oil exporter after Saudi Arabia andRussia. As home to the Nobel Peace Prize, it also seeks to bea global do-gooder — mediating some of the world’s worstconflicts and donating more foreign aid per capita than anyother nation.

The Nordic nation of 4.6 million people has been plow-ing its oil windfall into the fund, formally called NorwegianPension Fund-Global, which will provide for the retirementof millions of Norwegians once the country’s oil resourcesdry up. There is no set year for when to start using the fund,or the amount to shell out to each pensioner — the economywill decide.

The Central Bank-operated fund is currently worth near-ly 2.5 times the entire central government budget for 2007of this welfare state. The government transferred 220 billionkroner (US$34 billion) to it in 2005.

First deposits in 1996The fund was set up by Parliament in 1990, but the first

deposits weren’t made until 1996. Other countries have eth-ical guidelines for government funds, but Nystuen said heknew of no other that operated under such strict rules.

The government imposed the guidelines in 2004; sincethen, 18 companies — 12 of them U.S.-based — have beenexcluded. One of them, oil and gas producer Kerr-McGeeCorp., was reinstated this year.

Blacklistings can draw angry responses. After Wal-Mart— the world’s largest retailer — was barred this year, theU.S. Ambassador to Norway, Benson K. Whitney,denounced the ethics system, calling it unfair, inconsistentand hypocritical.

“Norway found Wal-Mart unethical for allegedly dis-couraging unions, but the government’s Pension Fundstands silent about firms in its portfolio from countries inwhich no unions, or only state unions, are allowed,” he saidin a September speech.

“Strangely enough, by this approach, the Pension Fundcurrently encourages unethical companies and discouragesethical ones.”

Despite such criticism, the idea may be spreading. “A fund — a major player but I won’t say which — told

me they just copied the (Norwegian) rules verbatim,” saidKnut Kjaer, director of the bank’s investment branch. “Ihave heard a lot of praise for Norway around the world.”

The National Council of Ethics periodically reviewsinvestments, then makes recommendations to the FinanceMinistry. If it agrees, the ministry orders the bank to sell its

The Nordic nation of 4.6 million people hasbeen plowing its oil windfall into the fund,formally called Norwegian Pension Fund-

Global, which will provide for the retirement ofmillions of Norwegians once the country’s oil

resources dry up.

W

see NORWAY page 18

http://www.amarinecorp.com

http://www.pdcharrisgroup.com

or hinted at before, and will be covered inpart two of this article.

What hasn’t been said before is thatChevron is considering drilling deep totest the pre-Tertiary Jurassic in CookInlet.

As recently as May 2006, Chevrontold the state it had no absolutely no plansto test the Jurassic because of the highcosts involved in doing so.

But Zager’s presentation materialsindicated that might have decisionchanged.

Drilling another 5,000 feet Current Cook Inlet production is from

Tertiary formations: dry gas fromSterling, Beluga and upper Tyonek; oilfrom the lower Tyonek and Hemlock.There is no production from the olderCretaceous and Jurassic strata in theupper Cook Inlet basin.

The middle Jurassic Tuxedni has beenidentified by the U.S. Geological Surveyas the main source rock for almost all ofthe oil present in the Hemlock andTyonek. It lies below a major break in therock sequence at the base of the Tertiarystrata.

What’s in the pre-Tertiary strata islargely unknown, although a number ofgeologists have speculated the olderCretaceous and Jurassic rocks might holdsome of the Cook Inlet’s missing giants.

In fact, USGS believes only 4 percent(1.3 billion barrels of oil through March2006) of the oil that theoretically generat-ed from Cook Inlet source rock has beenidentified — a theory that has increasedinterest in, among other things, the deeperrocks where few drill bits have ventured.

The deepest vertical depth of a CookInlet basin oil well is approximately12,000 feet, a Division of Oil and Gasgeologist told Petroleum News.According to Dan Seamount, a commis-sioner with the Alaska Oil and GasConservation Commission, companieswill have to drill another 5,000 feet belowknown reservoirs to test the deeper sands.

Untested prospectsIn early 2005, Seamount talked to a

joint legislative committee about whatcan be done to continue to extend the lifeof Cook Inlet’s aging offshore oil plat-forms, some of which have been shut-in.

He described some possible ways tocontinue use of the platforms to maximizethe amount of oil and gas extracted fromthe Cook Inlet basin, notorious for thecomplexity of its reservoirs, which oftenconsist of multiple, thin sandstone layersthat are difficult to find and trace.

Nonetheless, Seamount pointed outthat there has been relatively little explo-ration drilling in the Cook Inlet comparedwith oil regions elsewhere in the UnitedStates. So the potential for large quantitiesof undiscovered oil under the inlet shouldcause people to hesitate before tearingdown costly platforms that could play auseful role in future oil development.

“There’s still a good chance that a lotof that 96 percent is still under the drillbit,” Seamount said.

“We’d like to see the platforms used asexploration structures,” he said.

Seamount said that there are manyknown, untested Tertiary prospects acces-sible from the platforms. He particularlyemphasized the existence of fault blocks,some of which lie right under the plat-forms — these blocks form fault traps thatcould contain what is known as “attic oil.”

“There are other fault blocks out there

that can be accessed from the platforms,”Seamount said. “We could explore untest-ed fault blocks and now, with new tech-nologies and extended reach drilling,there are a lot of other identified prospectswithin reach.”

Oil in the JurassicSeamount also thinks that there is oil in

the Jurassic strata under the platforms,below the Tertiary rocks that form thereservoirs for all of the Cook Inlet oil andgas fields. Geologists have establishedthat rocks of the middle Jurassic Tuxednigroup sourced all the oil in the Cook Inletfields. That oil must have migratedthrough or alongside potential reservoirsandstones that are late Jurassic in age andthat are known to exist under the CookInlet.

“There are very thick sands in theJurassic,” Seamount said. “The oil wouldhave had to have touched the sandstonewithin the Jurassic before it got up intothe Tertiary reservoirs that have beenexploited so far.”

So, there is a high-risk but potentiallyhigh-reward play for oil in the Jurassicsandstones, Seamount said. But few wellsin the Cook Inlet have penetrated theMesozoic strata below the Tertiary oil andgas fields. Of these wells, which weredrilled by Unocal, only a handful drilledinto the Mesozoic for more than a fewhundred feet.

“I would recommend we use a non-uti-lized well bore under every single plat-form and drill another 5,000 feet belowthe known reservoir to see what’s downthere,” Seamount said, noting that higheroil prices would help alleviate the eco-nomic risk.

XTO considered it XTO, which purchased platforms A and

C at the Middle Ground Shoal field fromShell Oil in 1998, has also looked at testingthe Jurassic, but the idea has not resurfacedsince 2002 when the oil price picture wassignificantly less optimistic than it is today.

In late 2002, XTO Senior Vice PresidentDoug Schultze talked to Petroleum Newsabout the Jurassic’s potentials and econom-ic limitations — when oil prices were sig-nificantly lower than they are today.

“There actually is a formation below theHemlock called the Jurassic that has beendrilled in the inlet once or twice before,”but not commercially produced, he said.

A well was drilled into the Jurassic inthe McArthur River field, but while it cameon with very high production it dropped offvery quickly, Schultze said.

“And we believe that with some differ-ent techniques, different completion meth-ods, that maybe you can get something thatwill produce long term,” he said.

“But we’re having a little trouble justi-fying that project — going into Jurassic —but we’re still hopeful we can do it at somepoint,” Schultze said.

Chevron not committed So, how serious is Chevron?In a Nov. 16 email to Petroleum News,

Chevron spokeswoman Roxanne Sinz clar-ified the company’s intentions, noting thatthere had been a small amount of Jurassicproduction at the offshore Trading Bay unitin the past.

Testing the Jurassic from one or more ofthe unit’s platforms is an “option is beingconsidered along with a wide spectrum ofoil development opportunities in CookInlet, including Jurassic. However, sig-nificant additional technical work must becompleted before we can rank, prioritizeand schedule any specific drilling activityto further evaluate these types of targets,”Sinz said.

Other companies talkingUnocal may not be the only company

taking a look at the pre-Tertiary.According to Bill Popp, oil, gas and

mining liaison for Kenai PeninsulaBorough, “several companies haveexpressed their interest in going deeperdown into the Jurassic layers in Cook Inletbasin — pushing the 20,000-foot depthbarrier in an aggressive way.”

“If those companies go forward withwhat they have told us about, this could beanywhere from $300 million to $500 mil-lion worth of capital investment in theCook Inlet basin over the next four years,”Popp told a World Trade Center Alaskaaudience on Aug. 16. ●

—Alan Bailey contributed to this story



CHEVRON

stake in the banned company within a fewweeks.

The sale is done very secretly, so thecompany’s share price does not collapse.

“When we get the letter, saying theywant to exclude a company, we can’t gopublic and say ‘Company C will be exclud-ed from the oil fund,’” said Kjaer.

Kjaer said ethics have a price: It costsbrokers’ fees to sell shares, an order cancome when a company’s shares are low, andthe range of companies to invest in is thenreduced. Since the limits are so new, hecould not estimate the cost to Norway ofethical investment.

After the shares are sold, Norwayannounces the ban and its reasons in detail.

“It would probably be fine if we just soldthe shares and didn’t say anything,” she said.“But we are the only ones to not onlyannounce the names of the companies, but

also publish the reasons.” Last year, banned companies included

Boeing, Honeywell, Northrop GrummanCorp. and United Technologies Corp. forcontributing to the production of nuclearweapons; Alliant Techsystems Inc., GeneralDynamics Corp., L3 CommunicationsHoldings Inc., Lockheed Martin andRaytheon Co. because they contribute to themanufacturing of cluster bombs; and Wal-Mart for alleged human rights and laborabuses.

“I believe that the current ethical invest-ment process is inconsistent with what Ihave come to know as the fair, just, andtransparent values of the Norwegian peo-ple,” said Whitney, the U.S. ambassador.“The stain of an official accusation of badethics harms reputations and can have seri-ous economic implications.”

On the other hand, Nystuen said, the fearof just such a Norwegian stain might makesome companies “want to tread carefully toavoid bad publicity.” ●


NORWAY

http://www.acuren.com

http://www.ensr.aecom.com


Phelan said the court will hold a reme-dies hearing after listening to the affectedparties about what should be discussed.

His ruling said the issues will includewhether the Canadian government shouldbe required to appoint a “chief consultingofficer” to work with the Dene Tha.

But Phelan did concede that consultationposes a challenge given that the reviewpanel has been holding hearings for 10months.

He wrote that “to some extent ‘the shiphas left the dock.’”

“How does one consult with respect to aprocess which is already operating?

“The prospect of starting afresh is daunt-ing and could be ordered if necessary. Thenecessity of doing so in order to fashion ajust remedy is not immediately obvious,”Phelan said.

“However, it is not immediately obvioushow consultation could lead to a meaning-ful result,” he said.

Phelan said the Dene Tha have a consti-tutional right to be “at the very leastinformed of the decisions being made andprovided with an opportunity to have itsopinions heard and seriously considered bythose with decision-making authority. TheDene Tha were never given this opportuni-ty.”

Dene Tha ‘thrilled’ with decisionDene Tha lawyer Bob Freeman, with the

Victoria firm of Cook Roberts, said hisclients are “thrilled with this decision andvery much hope that it will press the feder-al government to sit down and work withus, which is what we’ve been pushing forall along” He described a “remedies hear-ing” as unusual, but expects it will occurfairly soon.

Freeman interpreted the ruling as allow-ing the review panel to continue its workwith communities along the pipeline rightof way in the Northwest Territories, but“anything that could relate to the Dene Thamust stop.”

Dene Tha Chief James Ahnassay said hehopes the government will “now give usmeaningful participation.”

A spokesman for the CanadianEnvironment Assessment Agency, whichoversees the review panel, said the govern-ment could appeal Phelan’s decision, butgave no indication whether that is likely.

The review panel had already extendedthe deadline for completion of its work fromlate this year until April 2007, althoughthere is no fixed date for the panel to deliv-er its findings to the National Energy Board,which delivers the ultimate regulatory ver-dict on the project.

Northwest Territories Industry MinisterBrendan Bell said the potential for addeddelay adds to the risk of the window closingon Canada’s Arctic gas, although he was notsure whether there will be an “actual delay.”

Imperial Oil, the Mackenzie’s lead part-ner, said it needs more time to understandthe court ruling.

Company spokesman Pius Rolheisertold reporters that an updated cost estimatefor the project, currently carrying a price tagof C$7.5 billion, will not be completed thisyear as originally hoped and has beendelayed until early 2007.

Concern that Alaska may fast track project

Causing unease among the Mackenzieproponents is word from Alaska Gov.-elect

Sarah Palin that she wants to get shut-inNorth Slope gas to market and will revisitthe Alaska project the day after she is sworninto office on Dec. 5.

Speculation persists that Imperial and itsMackenzie partners — Shell Canada,ConocoPhillips Canada and ExxonMobilCanada — will seek up to C$2 billion in fed-eral incentives to proceed with a Mackenziepipeline.

If the Alaska government decided to fast-track a pipeline from Alaska, that will com-pound the pressure on the Canadian govern-ment to decide what, if any financial assis-tance it is willing to give a Mackenzie lineand how it will resolve the issue of whetherTransCanada or Enbridge will control theCanadian segment.

David MacInnis, president of the

Canadian Energy Pipeline Association, toldthe Globe and Mail that if Alaska picks upspeed the “government of Canada will needto redouble its efforts on Mackenzie.”

“The U.S. has proven in the past thatwhen interests are aligned there, they canturn on a dime and make things happen,” hesaid. The one consistent view in Canadaamong industry and government officials isthat the Mackenzie project must be complet-ed first or it will be again shelved indefinite-ly.

But that ultimately comes down toImperial deciding it is ready to carry the loadof the Mackenzie project at the same time itis immersed in a megaproject in the oil sands,while its 69.6 percent owner, ExxonMobil, isfully committed around the world, includinga key role in developing Alaska gas. ●


MAC LINE

es for a total of 140 leases, Eni toldPetroleum News in written correspon-dence.

Eni’s presence in Alaska dates back toAugust 2005 when it acquired the Alaskaexploration assets of Armstrong Oil andGas, which included 104 leases along theBarrow Arch.

In January 2006, Eni said it approveddevelopment of the Oooguruk oil field instate waters offshore Alaska’s North Slope.Eni has a 30 percent stake in the field and

operator Pioneer Natural Resources Alaskahas a 70 percent interest.

Oooguruk is expected to begin produc-tion in 2008.

Eni said the development would cost$490 million, $147 million of which wasEni’s share.

In addition to its deal with Shell, in thelast 14 months Eni picked up 11 onshoreleases south of its Rock Flour unit in a statelease sale.

North Slope exploration plansEni plans to drill three to four explo-

ration wells on its North Slope state leases

this winter. It will be the first time the com-pany has operated in Alaska.

Two or three wells will be drilled in theRock Flour prospect area, which is adjacentto the southeast corner of the KuparukRiver unit and just a few miles west ofPrudhoe Bay. One well will be drilled inEni’s Maggiore prospect area, which isabout 15 miles south of Rock Flour.

What does Eni see as major obstacles toexploring for, and developing, oil and gasin northern Alaska?

The “lack of 3-D seismic and/or accessrights,” the company said in a Novemberemail to Petroleum News.

—KAY CASHMAN


PARTNERSHIP

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