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Vol. 7, No. 17 $1 • www.PetroleumNewsAlaska.com Alaska’s source
for oil and gas news Week of April 28, 2002
I N S I D EAlaska leaseholders' chart 16
ExxonMobil's profits plunge 5
New bill overhauls permitting 2
Heavy oil incentive passes U.S. Senate 11
Marathon has success with Ninilchik wells 13
“Why should the Alaska Eskimos be theonly indigenous people who
own land that areforbidden from drilling on it, forbidden fromusing
it to provide jobs for their people andjobs for American
industry?”
—SEN. TED STEVENS, APRIL 18
■ G O V E R N M E N T
■ G O V E R N M E N T
■ G O V E R N M E N T
Pho
to c
ourt
esy
of A
kita
Equ
tak
Pictured is Akita/Equtak Drilling Ltd.’s Rig 63, which drilled
the Tuk M-18delineation well in the Mackenzie Delta for Devon
Energy Canada Corp. andPetro-Canada. (See story below.) It was the
first major gas discovery in theMackenzie Delta in 30 years. The
well was drilled to 9,850 feet and test-ed at restricted rates of
up to 30 million cubic feet per day, with sustaineddeliverability
rate at 60 million to 80 million cubic feet per day.
Granted exemption vs. negotiationHouse Bill 519 would grant
property and sales tax during gasline construction,startup; bill
supported by VECO, BP, Phillips; administration wants
negotiations
By Kristen Nelson PNA Editor-in-Chief
The state needs to offer incentives to get anAlaska gas project
started, Rep. Pete Kott, toldthe House Special Committee on Oil and
GasApril 19.
Kott, chairman of the House Rules Committee,was introducing
House Bill 519, sponsored byHouse Rules.
The bill is supported by VECO Corp., BPExploration (Alaska) Inc.
and Phillips Alaska Inc.and opposed by the administration.
Kott said the state has a window of opportunityfor a gas
pipeline project, and needs to provide anincentive. HB 519 provides
a tax holiday fromsales and property tax during construction and
thefirst two years of operation and reauthorizes theAlaska Stranded
Gas Development Act, which lets
U.S. Senate passes amendment toprotect builders if gas price
drops
By Steve SutherlinPNA Managing Editor
Atax incentive amendment added by unanimousconsent to the Senate
energy bill April 23 isdesigned to protect the builders of a
NorthSlope gas pipeline from dips in gas prices that
might make the project uneconomic.The amendment, sponsored by
Sen. Frank
Murkowski and Sen. Ted Stevens, provides a federalincome tax
credit to builders of a southern route gaspipeline if the price of
natural gas drops below $3.25per thousand cubic feet. Gas producers
would berequired to repay the credits in full when the cost of
gas rises above $4.85 per mcf.
Cost to taxpayers zero
The amendment should have no net cost to tax-payers because
payback provisions require that dur-ing periods of high natural gas
prices, companies
Thompson urges morelimits on incentives
Ken Thompson testi-fied April 22 in HouseResources on House
Bill519, urging legislators tolimit the extension ofapplications
under theAlaska Stranded GasDevelopment Act — the2005 deadline
proposedgave companies too muchtime, he said, you shouldsend a
message that the state is impatient.
The version of the bill discussed in HouseFinance April 24 had
an April 1, 2004, deadline,
Ken Thompson
U.S. Senate finds friends, foes inCanada on ANWR, pipeline
loansEnvironment minister says Canada must remain ‘very vigilant’
to ensure ANWRdrilling remains a ‘mistake;’ Kakfwi opposes ‘heavily
subsidized’ Alaska gas
By Gary Park PNA Canadian Correspondent
Canada has been a reverse image ofAlaska in its response to
U.S.Senate decisions in mid-April onthe Arctic National Wildlife
Refuge
and loan guarantees for an AlaskaHighway gasline.
Environment Minister DavidAnderson, a relentless
campaigneragainst drilling in ANWR, was “happy” with theSenate
verdict, but added: “I don’t think we owethem (the senators)
anything for it ... I just hopeit’s the end of the game (for
drilling).”
Word that the Senate has endorsed$10 billion in loan guarantees
for thegasline provoked an equally strong reac-tion from Northwest
Territories PremierStephen Kakfwi, who “jokingly” sug-gested Cuban
President Fidel Castro“must have infiltrated the institutions
ofgovernment in the U.S.” to underminethe free market.
On ANWR, Anderson said theCanadian government will be “very
vigi-
lant to make sure this is the end. ANWR drillingwas a mistake
when it was first proposed, it’s amistake now and it will be a
mistake in the future.”
see THOMPSON page 4
Stephen Kakfwi
see SENATE page 17
Devon, Petro-Canada score first‘significant’ gas discovery
inMackenzie Delta in 30 years
Devon Energy Canada Corp. and Petro-Canada have madea quick
breakthrough on the Mackenzie Delta, reporting thefirst significant
gas discovery in the area in 30 years.
With recoverable reserve potential up to 300 billion cubicfeet,
the find gives an added lift to hopes of bringing the Deltainto
commercial production.
The Devon-operated partnership said the Tuk M-18
fielddelineation well, about 15 miles south of Tuktoyaktuk,
wasdrilled to 9,850 feet and tested at restricted rates up to 30
mil-lion cubic feet per day, with sustained deliverability rate at
60million to 80 million cubic feet per day, or 30 times the
aver-age well.
Devon Canada President John Richels said in a statementthat Tuk
M-18 “firmly establishes Devon and Petro-Canada aslegitimate
Mackenzie Delta producers with proven reserves.”
The last gas discoveries in Canada’s Arctic were by GulfCanada
Resources Ltd. (now Conoco Canada Inc.) whichmade the 1.8 trillion
cubic foot Parsons Lake find in 1972 andImperial Oil Ltd.’s
discovery of the 3 trillion cubic foot Taglufield in 1971.
M-18 trouble-free
Brian Kergan, Devon Canada’s engineering manager forfrontiers,
said drilling M-18 was trouble-free, coming in ahead
see DISCOVERY page 20
“This tax provision is the final critical pieceof the
comprehensive package needed tofinance and construct the gas
pipeline.”
— Sen. Ted Stevens
see PROTECT page 2
see HB 519 page 17
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■ G O V E R N M E N T
Therriault introduces billto overhaul state’s complexpermitting
systemSenator says he’s not expecting final action on Senate
Bill361 this year, wants input from agencies, regulatedindustries
and watchdog groups for work during interim
By Kristen NelsonPNA Editor-in-Chief
It’s time for a complete review andoverhaul of Alaska’s
permitting sys-tem, Sen. Gene Therriault, R-Fairbanks, said in
introducing Senate
Bill 361, which has a short title of permitcoordination and
coastal zone manage-ment.
He said the Legislature has increasing-ly heard that the state’s
permitting sys-tem, built up piecemeal over 43 yearssince
statehood, is cumbersome, lacksadequate coordina-tion between
agen-cies and has someduplication.
“We have beentrying to deal withsome of these prob-lems sort of
piece-meal and I thoughtthat it was perhapstime for theLegislature,
as thepolicy setting body for the state, to lookat the entire
system and see if perhaps itis time to start from scratch and just
sortof put together a new better coordinatedsystem,” Therriault
said at an April 23meeting of the Senate State AffairsCommittee,
which he chairs.
The bill, Therriault said in a sponsorstatement, is based on
proposals that haveemerged, over the years, “from the front-line
permitting staff, division directorsand commissioners at our
resource agen-cies…” He also noted that the governorhad introduced
a bill addressing theseproblems several years ago.
The senator said he does not expectaction on the bill —
introduced April 12— this session. What he is looking for, hesaid,
is input from agencies, regulatedindustries and watchdogs so that
he canwork on the bill with these groups
between sessions.
No consensus in 1997
Patrick Galvin, Director of the Divisionof Governmental
Coordination in the gover-nor’s office, told the committee that
theadministration sponsored a streamliningworkshop in 1997. There
was a consensusout of that workshop that there were validissues
which needed work — but no con-sensus approach on how to do
that.
After the governor’s 1997 bill didn’tmove in the Legislature,
Galvin said, theadministration has continued to look forways to
achieve streamlining without theLegislature. SB 361 includes a
coordinatingagency, the division of project assistance, inthe
Office of the Governor, and Galvin saidone concern of the
administration was thelack of specificity of authority of this
coor-dinating agency in relation to permittingagencies. He also
said timelines were notspecific enough in the bill.
Galvin noted that the administration is“encouraged to hear that
both of the leadingmajor party candidates for governor
havecommitted to making this issue one of thepriorities of their
possible administrationsand we are more than willing to commit
thetime necessary to continue these discussionsin the interim
between the sessions.”
Some projects may not needcoordination
Deputy Commissioner Kurt Fredrikssonof the Department of
EnvironmentalConservation told the committee that one ofDEC’s
concerns about SB 361 is with smallprojects. Coordinating
permitting is not apanacea for all permitting, he said, and
smallproject applicants can sometimes work witha couple of agencies
more efficiently thanthrough a coordinated review process.
Fredriksson also said DEC has beenworking on its appeal process,
incorporatingan informal conflict resolution process.DEC would like
to see the bill include flex-ibility for formal appeals when
needed, butalso allow parties to use mediation whenthat will work.
◆
ON DEADLINE2 Petroleum News • Alaska Week of April 28, 2002
Sen. Gene Therriault,R-Fairbanks
The administration is “encouraged tohear that both of the
leading majorparty candidates for governor have
committed to making this issue oneof the priorities of their
possible
administrations…” —Patrick Galvin, Division ofGovernmental
Coordination
must repay any tax relief granted,Murkowski said in a statement.
The cred-it would stay in place for 15 years aftergas line
completion, while the paybackprovision won’t expire until all of
thecredits are paid back.
Murkowski said the amendment pro-vides a financial safety net
that shouldallow for financing and construction ofthe pipeline.
“Alaskans are ready to do their part toprotect America’s energy
security,”Murkowski said. “Without these safe-guards, Alaska
natural gas could stay inthe ground for a very long time.”
“This tax provision is the final criticalpiece of the
comprehensive packageneeded to finance and construct the
gaspipeline,” Stevens said. “The adoption ofthis tax credit is good
news for Alaskaand America. It means more revenue forthe state’s
budget, more jobs for Alaskansand access to gas resources for
in-stateuse.” ◆
continued from page 1
PROTECT
-
ON DEADLINEPetroleum News • Alaska 3Week of April 28, 2002
ON DEADLINE . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .2FINANCE & ECONOMY . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .5WORLD OIL . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .7EXPLORATION & PRODUCTION . . . . . . . . . . . . . . . .
. . . . . . . . . . .9COOK INLET . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .12AAPG/SPE CONFERENCE
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14LAND
& LEASING . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .16
Index
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GOVERNMENTKleeschulte, Torgerson clarifyMurkowski’s position on
gasline bills
Recently, it has been said in and out of legislative committee
meetings that Alaska’sU.S. Sen. Frank Murkowski is strongly behind
the passage of House Bill 519, whichprovides a tax holiday from
sales and property tax during the construction of a NorthSlope
gasline and its first two years of operation. (See top story on HB
519 on page 1.)
Long-time Murkowski aide Chuck Kleeschulte told PNA April 23
that whileMurkowski has publicly supported state participation in
trying to make a gasline occur,he didn’t think the senator had
recommended either HB 519 or the other gasline incen-tive bill,
Senate Bill 360, specifically, nor did he think there was
necessarily an imme-diate need to get state legislation passed in
order to show members of Congress thatAlaska was willing to offer
incentives to get the gasline built.
“Sen. Murkowski doesn’t try to influence the state Legislature.
He recognizes that itis an independent entity,” Kleeschulte
said.
The confusion over Murkowski’s position might have started last
fall, state Sen. JohnTorgerson told PNA April 24, when the North
Slope gas owners — BP Exploration(Alaska) Inc., ExxonMobil
Production Alaska and Phillips Alaska Inc. — produced aone page
report showing the governments’ take if a gasline was built.
“If my memory serves me correctly, they said the state would
earn $22 billion andthe feds $24 billion,” Torgerson said.
“Sen. Murkowski, at that time, asked what the state was going to
put up” in terms offinancial incentives for the gasline, he said.
“We said we were willing to look at alloptions as soon as the
producers told us what they would need,” Torgerson said. “Butthey
have been busy with more critical, federal, legislation.”
Torgerson said he would vote against HB 519 “as it’s written
now. … I don’t likethe fact the state’s going to lose $750 million
in taxes without knowing if the producersneed a break. … We need
their financial information on the gasline first. … And weneed
access for the explorers and some other things,” which are provided
for in SB 360.
“The two bills are relatively close — actually I have about
three more incentives
see MURKOWSKI page 19
-
ON DEADLINE4 Petroleum News • Alaska Week of April 28, 2002
which bill sponsor Rep. Pete Kott, R-EagleRiver, credited to
Thompson.
The former senior ARCO executive anda member of the governor’s
gas policycouncil told House Finance that he waspleased that the
deadline for applicationsunder the stranded gas act had
beenchanged, but recommended applying thatsame April 1, 2004,
deadline to the taxexemptions.
“I urge you,” he said, “not to pass 519without a firm line in
the sand.”
If tax exemptions are given, the stateshould ask for one thing
in return, he said: aproject approved and under way by April
1,2004.
He also urged a clear definition of whatparts of a project were
tax exempt.
And he said the Legislature should limit
the outright incentive exemption to pipelineconstruction. An
additional two yearsshould be subject to negotiation, he said.
Opponents of the bill are arguing,Thompson said, that the state
shouldn’t giveaway hundreds of millions withoutinvestors showing
need, and shouldn’t begranting that incentive for any period
aftergas startup.
“I propose a compromise,” he said. “I dobelieve the state should
grant this incentive”because there are billions in state revenuesat
stake.
But grant the exemption during con-struction and the calendar
year of startup, hesaid. Then let investors at that point ask
forthe additional two years — based on eco-nomics.
Legislators have asked if we have toomuch on the table with this
incentive,Thompson said, and granting the taxexemption only during
construction helpsanswer that.
continued from page 1
THOMPSON■ G O V E R N M E N T
Heyworth would not accept HB 302as substitute for ballot
initiativeWhitaker’s Alaska Gas Corp. bill moved out of House
Finance,passes in House, will be heard next in Senate Resources
By Kristen Nelson PNA Editor-in-Chief
Scott Heyworth told the House FinanceCommittee April 18 that he
does notaccept House Bill 302, which wouldcreate the Alaska Gas
Corp., as sub-
stantially the same as the initiative he gotplaced on the
November ballot.
Heyworth’s initiative, which has beencertified by the lieutenant
governor for theNovember ballot, specifies an all-Alaskagasline
which would take gas to tidewaterin Prince WilliamSound and then
pro-duce liquefied natur-al gas for shipment.
HB 302 does notpreclude any optionsof routing or process,the
bill’s sponsor,Rep. Jim Whitaker,R-Fairbanks, told theHouse
FinanceCommittee.
Whitaker told the committee that JackChenoweth of Legislative
Legal Serviceshas said that HB 302 is substantially thesame as the
initiative, and that the lieu-tenant governor could determine that
pas-sage of HB 302 displaces the initiativefrom the ballot.
Asked by Rep. Eric Croft, D-Anchorage, if the producers have
taken aposition, Whitaker said they would have tospeak for
themselves, but that in confiden-tial conversations he believed
they felt HB302 was the lesser of two evils, comparedto the ballot
initiative.
Canada not in initiative
Heyworth, the lead sponsor of the initia-tive for the all-Alaska
gasline, said the ini-tiative and HB 302 are “significantly
un-similar.”
HB 302 is a project which will connectwith a Canadian line,
Heyworth said, whilethe initiative takes gas to Valdez.
“I’m not surprised industry would havecalled it the lesser of
two evils,” he said.
And HB 302 is a study with a zero fis-cal note, while the
initiative — a project —has a $250 million fiscal note from
theDepartment of Revenue, Heyworth said.
“If the House and Senate think this issimilar … you’re going to
force me into aposition that I’ll have to sue,” he said. “…It will
not hold up in a court of law.”
“There is nothing similar, ladies andgentlemen,” Heyworth
said.
To study or to build
Rep. Con Bunde, R-Anchorage, toldHeyworth the “Legislature can
pass legisla-tion — if you have a disagreement with the
lieutenant governor, I guess that’s whereyou’d take it.”
Heyworth said he had no problem withHB 302, the “problem would
be if the lieu-tenant governor decides it’s substantiallythe same
as the initiative.”
“If you want to do studies,” Heyworthsaid, “go ahead… the
citizens of Alaskawant to build an in-state line.”
Rep. Gary Davies, D-Fairbanks, askedHeyworth if he agreed with
Revenue’s$250 million fiscal note for the initiative.
“Of course I don’t: it’s a joke,”Heyworth responded. “… My
estimate is$1 million.”
Davies also asked what if the initiativepasses and the
Legislature does an analysisand determines it isn’t feasible?
Heyworth said that “until someone stepsforward and offers gas to
market… we’llnever know.”
Not in disagreement
Whitaker said he didn’t disagree withvery much of what Heyworth
said.
“My emotions are such that I think weshould take charge and move
this forward,”he said, but my “logical side says we needto study it
more…
“I think we’re trying to get to the sameplace… I think HB 302
gets us therefaster,” Whitaker said.
House Bill 302 was moved out of HouseResources April 18, passed
the HouseApril 22 and was referred to the SenateResources
Committee. ◆
Want to know more?If you’d like to read more about the
Heyworth’s initiative and HB 302, goto Petroleum News • Alaska’s
Website and search for these recently pub-lished articles.
Web site:http://www.PetroleumNewsAlask
a.com/
2002■ April 15 All-Alaska Gasline initia-
tive could be pulled from ballot ■ March 24 Heyworth, Condon
square off on gas authority costs■ Jan. 20 Group delivers
petitions
with 42,105 signatures endorsing anall-Alaska gasline
■ Jan. 13 Legislators pre-file oiland gas bills for 2002
session
2001■ Sept. 23 Lieutenant governor
certifies ballot initiative for stategasline authority
■ August Citizen group files initia-tive for all-Alaska gas
line
■ July Ballot measure ordersLegislature to create all Alaska
gasproject
■ June Poll finds super voters thinkAlaska benefits most if gas
goes toValdez
■ May Heyworth funds companypromoting all-Alaska gasline
Note: You must be a paid sub-scriber to PNA to access the
archives.
“If you want to do studies, go ahead… the citizens of Alaska
want tobuild an in-state line.” —Scott
Heyworth
Scott Heyworth
-
Week of April 28, 2002
FINANCE & ECONOMY
Petroleum News • Alaska 5
CALGARY, ALBERTAPetroCanada boostsproduction in quarter;
butprofits fall with prices
PetroCanada’s net earnings dropped nearly 70 percent for
thefirst quarter, but startup of the Terra Nova project on Canada’s
EastCoast brought an increase in production.
Earnings for the Calgary-based company came in at $88
million(Canadian) for the quarter, down from C$282 million a year
ago.In the fourth quarter, operating earnings were C$71 million,
butthat included a C$15 million charge against earnings due to
thebankruptcy filing of Enron Corp.
Lower prices drove upstream earnings down 74 percent to
C$67million in the first quarter of this year. Downstream, earnings
werecut in half to C$45 million, but the company did show a profit
inthat segment, unlike others in the industry. Refining volume
wasessentially flat.
Daily production was 229,700 barrels of oil equivalent, up
14percent as Terra Nova came on line. The field produced an
averageof 33,900 barrels daily after oil began to flow Jan. 20, and
that fig-ure is expected to grow to 42,000 barrels daily by the end
of theyear. Western Canada’s gas flow averaged 731 million cubic
feetdaily, down a bit from the 2001 quarter after some non-core
prop-erties were sold.
Revenues for the quarter were C$1.71 billion, down a third
fromC$2.56 billion a year ago.
The figure was down just slightly from the fourth
quarter’sC$1.77 billion.
—Allen Baker, PNA contributing writer
Marathon profit sinks withindustry; downstream loss,upstream
shrinkage
Marathon Oil Corp., in its first quarter as a standalone
company,reported shrinking profits in line with the rest of the
industry.
Net income dwindled to $67 million for the quarter, comparedwith
$509 million in the first quarter of 2001. That’s a drop of 87
per-cent.
Operating profit in the fourth quarter was $98 million,
excludingbig adjustments as Marathon spun off its steel
operations.
The refining, marketing and transportation segment showed a
lossof $51 million for the quarter, compared with profits of $276
milliona year earlier. That’s in line with results at other major
oil companies,including giant ExxonMobil.
Marathon Ashland Petroleum LLC, which is 62-percent ownedby
Marathon, moved an average of 891,000 barrels a day through its
HOUSTON
■ B A R T L E S V I L L E , O K L A .
Phillips posts loss on refining;production slides, prices
shrinkCompany reports overall $25 million loss in first quarter —
Phillips earned$162 million in fourth quarter, $516 million in
first quarter last year
By Allen Baker PNA Contributing Writer
Phillips Petroleum Co. slipped to a loss in thefirst quarter as
refining margins took a toll onprofits. Other companies also lost
money onrefining, but most were able to stay profitable
with upstream cash flows. Not Phillips, which report-
ed an overall loss of $25 mil-lion, compared with a profit
of$516 million a year earlierwhen prices were booming.The
Bartlesville, Okla., com-pany earned $162 million in the fourth
quarter.
Downstream operations lost $88 million in thequarter, as margins
dropped 45 percent just com-pared with the previous quarter. On the
year-over-year comparison, average crack spread was down62 percent.
Scheduled maintenance in the quartercut capacity utilization to 86
percent, compared
with 94 percent a year ago, and cut operatingresults by about
$45 million after taxes. The refin-ing, marketing and
transportation segment showeda profit of $46 million in the same
quarter a yearago, before the Tosco acquisition.
On the upstream side, production slipped 1 per-cent from a year
ago to 834,000 barrels of oilequivalent daily from 845,000.
Fourth-quarterflow was 836,000, but the company said
seasonaldeclines in Alaska will push the number to about800,000 for
the current quarter.
Exploration and production yielded a profit of$158 million for
the quarter, just a third of the
■ I R V I N G , T E X A S
ExxonMobil profits take plunge;downstream operations show
loss
By Allen BakerPNA Contributing Writer
Lower prices and weak refinery margins pushedearnings down as
the world’s biggest investor-owned oil company kicked off the
first-quarterreports for the industry.
Exxon Mobil Corp. reported overall profits of$2.09 billion, a
drop of 68 percent from the firstquarter of 2001,when high
prices,particularly fornatural gas, pro-duced the second-largest
quarterly earnings in the company’s history— $5 billion. The
Irving, Texas company made$2.68 billion in the fourth quarter.
Gas prices in North America were 70 percentbelow the robust
amounts received in the 2001quarter, and crude oil brought 20
percent less. That
cut upstream earnings by $1.77 billion to $2.01 bil-lion. Much
of that came in the United States,which was responsible for $1.2
billion of thedecline.
Big surprise in downstream results
The big surprise was in downstream results,even though companies
across the industry havesaid refinery margins are slim.
ExxonMobil reported a loss of $28 million onthose operations,
even though U.S. refineriesincreased their throughput by 5 percent.
That com-pares with profits of just under $1 billion in the2001
quarter from the downstream.
“In total, the confluence of margin weakness inboth the refining
and marketing sectors led to adownstream margin environment that
was theworst seen since the mid-80s,” said Lee R.Raymond,
ExxonMobil’s chairman.
see EXXONMOBIL page 6see MARATHON page 6
Phillips said contractual pricing lags inAlaska and other areas
hurt results even
though crude prices rose in the first quartercompared with the
fourth quarter of 2001.
see PHILLIPS page 6
-
FINANCE & ECONOMY6 Petroleum News • Alaska Week of April 28,
2002
Margins improve in new quarter
The company says margins haveimproved in the early weeks of the
newquarter.
Overall, product sales dropped by 288thousand barrels daily to
7.70 billion bar-rels, as demand slipped in Europe andAsia.
The company boosted capital andexploration spending by $458
million, or18 percent, to $2.97 billion. Focus was onthe upstream,
where those investmentsrose 28 percent as part of the company’sgoal
to boost production by 3 percentannually.
But instead, production slipped 3 per-cent for both liquids and
gas comparedwith the year-ago period. Liquids slid to2.54 million
barrels a day, while daily gasflow dropped to 11.74 billion cubic
feet.
ExxonMobil said that OPEC quotarestrictions and natural field
declines
were the reason for the drop in oil pro-duction.
Gas volumes up in Asia-Pacific
Gas volumes were up in the Asia-Pacific region as the big Arun
field inIndonesia wasn’t curtailed as it was a yearago. But that
was more than balanced bynatural field decline and lower demand
inEurope.
Profits dropped by a third in the chem-ical business, which
showed earnings of$132 million.
Bigger pension payments kicked cor-porate and financing costs up
71 percentto $116 million, while merger expensesof $60 million were
down by a third com-pared with the 2001 quarter.
Revenues dropped $13.77 billion, or24 percent, to $43.53 billion
in the firstquarter of 2002 compared with the year-ago period.
That was down 8 percent from the$47.3 billion ExxonMobil
collected in thefourth quarter. ◆
continued from page 5
EXXONMOBIL
refineries, up 2 percent compared with the2001 quarter.
But the refining and wholesale marketingmargin was a razor-thin
1.62 cents per gal-lon, compared with 8.65 cents a year
earlier.
E&P profits way down
Exploration and production producedprofits of $165 million for
the quarter, bare-ly a fourth of the $600 million generated
lastyear, when prices were significantly higher.
The Houston-based company collectedan average of $18.06 for each
barrel of oil,down 26 percent from the $24.35 it receivedin the
first quarter of 2001. Gas brought$2.46 per thousand cubic feet,
not even halfof the $5.47 received last year.
Hedging activities helped a bit on the gassales, but hurt the
results from oil.
Liquids production worldwide for thequarter dropped 8 percent to
206,000 barrelsdaily from 222,900 barrels. U.S. liquidsdeclined
slightly to 122,200 barrels dailyfrom 124,400 barrels.
Worldwide gas production rose a bit to1,309 million cubic feet
daily, from 1,222million cubic feet a year ago. But new gasfrom
West Africa brought 49 million cubicfeet daily.
Production declined in all other regions.Marathon bought
producing properties in
Equatorial Guinea at the beginning of theyear for $993 million.
It also traded someassets with XTO Energy to acquire coalbedmethane
reserves in the Powder RiverBasin.
Revenues and other income totaled $6.45billion, a drop of 26
percent from $8.72 bil-lion a year earlier. Revenues for the
fourthquarter were $6.85 billion.
—Allen Baker, PNA contributing writer
continued from page 5
MARATHON
$472 million of a year ago as prices weresignificantly lower for
both oil and gas.
Steep drop in Alaska
Alaska operations showed an evensteeper drop, with the state
contributing$33 million in profits this quarter, com-pared with
$227 million a year ago. Thatcame even though Alaska production
roseto 353,000 barrels daily from 349,000 ayear ago.
Phillips said contractual pricing lags inAlaska and other areas
hurt results eventhough crude prices rose in the first
quartercompared with the fourth quarter of 2001.Revenues from the
E&P segment droppedby more than a billion dollars overall
com-
pared to the 2001 quarter, to $1.29 billionfrom $2.31
billion.
The chemicals business, a joint opera-tion with ChevronTexaco,
cut its losses abit, to $8 million from $39 million a yearago.
But corporate expenses drained $139million from the bottom line,
up from$125 million a year ago.
The company said that was due to $15million in benefit-related
costs, particular-ly accelerated vesting of some stock
com-pensation because shareholders approvedthe merger with
Conoco.
Revenues for the quarter were $9.40billion, compared with $5.32
billion a yearearlier, before the Tosco acquisition. Thecompany
took in 6 percent less than theprior quarter, when revenues were
$9.96billion. ◆
continued from page 5
PHILLIPS
BARTLESVILLEPhillips Alaska queries employeesabout possible
staff reductions
Phillips Alaska, looking to downsize amid its parent company’s
pending mergerwith Conoco, is asking some employees if they want to
take retirement or buyoutpackages.
Phillips, based in Oklahoma, employs 960 people in Alaska. The
company has dis-tributed surveys to some departments asking workers
if they are interested in keepingtheir jobs, retiring or accepting
a buyout, said Dawn Patience, a Phillips spokes-woman.
She described those who received the survey as providing
“centralized support ser-vices,” which could include some
administrative positions.
“We don’t expect there will be a very large impact,” she said.
Phillips plans to complete its merger with Texas-based Conoco this
summer, an
$18 billion deal that would create the No. 3 U.S. oil company.
All Alaska employees should know their fate within 45 days after
the deal closes,
Patience said. One reason the merger should not affect Alaska
much is because Conoco does not
have a presence in the state. The company left Alaska in 1993
when it traded theNorth Slope’s Milne Point oil field to BP in
exchange for properties in the Gulf ofMexico.
Phillips is looking to streamline jobs at its oil tanker
division, based in LongBeach, Calif. The tankers move Alaska crude
from Valdez to the West Coast. Conocoalso has a tanker company,
Patience said.
—The Associated Press
JUNEAUTesoro loses bid to limit state probe
The Alaska Supreme Court has ruled against Tesoro Petroleum
Corp. in its attemptto limit the scope of the state attorney
general’s gasoline price-fixing investigation.
The high court, with the justices split 3-1, affirmed Superior
Court Judge PeterMichalski’s ruling that the state wasn’t seeking
an “unreasonable and oppressive” stackof records. The majority also
found that the law firm of Hosie, Frost & Large qualifiedas an
“authorized employee” of the state and therefore may see the
documents from theinvestigation. Ron Noel, general counsel for
Tesoro in Alaska, said April 24 that theSupreme Court ruling was
mainly moot, as the company already had turned over allrequested
records to the state by the middle of last year. The company firmly
denies ithas conspired with other companies to limit competition
and keep fuel prices high inAlaska, he said.
—The Associated Press
-
Week of April 28, 2002
WORLD OIL
Petroleum News • Alaska 7
EUROPEShell completes acquisitionof solar energy joint
venture
Shell Renewables said April 22 that it has concluded
acquisitionof all the shares held by Siemens AG and E. ON Energie
AG in theformer solar photo-voltaic joint venture Siemens und Shell
SolarGmBH.
Shell said regulatory approval for closing the transaction
hasalready been received.
Philippe de Renzy-Martin, executive vice president of
ShellSolar, a Shell Renewables’ business, said: “I am delighted
that wehave concluded this deal today. We now combine
state-of-the-artmanufacturing facilities in Europe and North
America with salesorganizations on all continents. We are in a very
strong position tobuild a sustainable, commercially successful PV
business.”
Shell Solar, which is now the fourth largest photo-voltaic
com-pany in the world, has world-class operations in both research
anddevelopment and manufacturing, and employs some 1,100 people,the
company said.
Shell said the deal reaffirms the Royal Dutch/Shell Group ofCos.
Commitment to new energies — solar, wind, hydrogen andgeothermal
and is part of a potential investment of a half-billion toa billion
dollars in solar and wind energy over the next five years.
State wants PUC to setpump prices
The Hawaii Public Utilities Commission would regulate whole-sale
and retail gasoline prices in Hawaii under legislation proposedby
the attorney general’s office.
The proposal was submitted April 19 in the form of an amend-ment
to a Senate bill aimed at reducing pump prices.
Tesoro Hawaii spokesman Nathan Hokama said the companyreserved
comment until it had time to review the legislation.
The commission would set maximum prices each week, basedon
prices of regular unleaded gas over the previous five businessdays
in Los Angeles, San Francisco and the Pacific Northwest.Adjustments
would be made for the Neighbor Islands.
Manufacturers, wholesalers and retailers who sell gasolineabove
the maximum prices wold be fined by the PUC.
Those who overcharge would face a penalty of $250,000 orthree
times the overcharges, plus costs of bringing civil
action,whichever is greater.
Gas station lease rent would also be capped under the proposal.
The attorney general’s office investigated gasoline prices for
four years before the state reached a $20 million settlement
withseveral oil companies earlier this year.
The Hawaii Department of Business, Economic Developmentand
Tourism and the oil industry have raised concerns in the pastover
price regulation.
—The Associated Press
HAWAII■ C A N A D A
British Columbia sees energy as a ‘cornerstone’ of
economyProvince announces package of legislative amendments to
attract C$24 billion innew investment over next six years; premier
says province ready to ‘serve’ industry
By Gary Park PNA Canadian Correspondent
The British Columbia government has takenanother step to entice
the oil and gas industry tothe province by introducing legislation
thatreduces red tape, improves access to resources
and creates a better investment climate. Energy Minister Richard
Neufeld said April 19
his government “aims to double oil and gas produc-tion ... by
fulfilling our commitment to removing bar-riers that stand in the
way of reaching those goals andto create single-window authorities”
for energydevelopment.
High on the list of proposed amendments is amove towards
granting single exploration permits fora general area, rather than
issuing approvals on awell-by-well basis.
The province also expects the changes will accel-erate
development of coalbed methane, where BritishColumbia reserves have
been estimated at 90 trillioncubic feet scattered across the
province.
British Columbia Premier Gordon Campbell,speaking to industry
leaders in Calgary April 18,vowed the British Columbia Oil and
GasCommission will become more efficient in providinga greater
volume of permit approvals in a “timelierfashion” in a province
that has often been seen ashostile to oil and gas development.
Goal of billions
The province has set a goal of attracting C$24 bil-lion (US$15
billion) in energy and mineral invest-ment over the next six
years.
“It’s one thing to be open for business and anoth-
■ W E S T E R N C A N A D A
Drillers, land buyers keep lowprofile in Western CanadaFirst
quarter returns on land auctions plunge 55 percent; new well
permitsdive 33 percent, reflecting sharp cuts in capital spending
budgets
By Gary Park PNA Canadian Correspondent
The latest blip in oil and natural gas prices hasfailed to
register on land buying and drillingacross Western Canada.
Exploration land, withthe single exception of northeastern
British
Columbia, is selling at its lowest price in three yearsand
governments are bearing the cost.
Auctions of publicly owned rights fetchedC$207.8 million in the
first quarter, a huge 55 percentplunge from a year earlier when
payments reachedC$464 million.
At total of 2.49 million acres was sold, down 22percent from the
3.21 million acres a year earlier.
The average price per acre slumped 22 percent toC$83 from C$188
in the first three months of 2001.
Alberta sales down
Alberta’s five land sales fetched C$113 million,
down from C$238 million a year earlier, with only thefoothills
area of the Canadian Rockies bucking thedownward trend, where
average prices jumped toC$152 an acre from C$123.
In northern Alberta, average per acre pricesdropped the most to
C$49 from C$119, while thePlains area fell to C$56 from C$85.
Northeast British Columbia continued to set thepace for all of
Canada, with by far the priciest land.The first quarter average was
C$193, short of lastyear’s average C$208, but a strong gain from
theC$145 in the final quarter of 2001. The pace quick-ened again in
the province’s last sale of the quarter,with British Columbia
averaging C$209 an acre com-pared with only C$80 in Alberta’s
latest sale.
The focus of most British Columbia speculation isan area about
40 miles southwest of the prolificLadyfern discovery, where
Calgary-based brokeragePeters & Co. Ltd. said in a recent
research note that
see CORNERSTONE page 8
see PROFILE page 8
-
Canadian Natural Resources Ltd. may havemade a “major
successful” discovery. CNR,which has four wells in various stages
ofcompletion, has refused to comment until itswinter drilling
program is completed.
But so far this year, buyers have spentC$14 million acquiring
exploration proper-ties near Ladyfern, including a staggeringC$1.65
million by Canadian CoastalResources Ltd. for 700 acres of
deeperrights.
Less than 50 percent of rigs working
Utilization of Canada’s drilling fleet hasdropped sharply before
spring break-up,with less than 50 percent of the rigs at workfor
the first time this year.
In the latest survey of drilling contrac-tors, 309 rigs were
reported to be at work,down 111 from a year ago.
The first quarter had an average 443 rigsemployed or 67 percent
of the available fleetof 663 — the lowest three-month countsince
1999 and down 22 percent from theJanuary-March 2001 total of 572
rigs, or 91percent fleet utilization.
The busiest rigs this year have been thosewith depth capacities
greater than 15,000
feet, with 22 of 39 units active at the end ofMarch.
Sharply reduced capital budgets this yearare expected to show up
even more dramat-ically in drilling programs in the spring
andsummer.
The Canadian Association of OilwellDrilling Contractors said the
spring thawwill likely see rig utilization drop to 20 per-cent,
compared with the usual 40 percent atthis time of year.
Permits down
Operators in Alberta, British Columbiaand Saskatchewan have
already signaledtheir intentions to back off by reducing
theirdemand for new well permits by 33 percentin the first quarter
— a 28 percent drop forgas-targeted well and 47 percent for oil
tar-gets.
Regulators authorized 4,298 new wellsduring the quarter, down
from 6,381 in thesame period last year and the lowest since1999,
although not far from the seven-yearaverage of 4,343.
A total of 2,872 gas permits were issued,while oil licenses
tumbled to 977.
Development and exploratory drillingwere both down by about
one-third, withdevelopment authorizations at 2,665 andexploration
licenses at 1,310.
Leading the pact of most active operatorsis EnCana Corp., with a
combined 937 per-mits issued to Alberta Energy Co. Ltd.
andPanCanadian Energy Corp. before theymerged.
Next were Husky Energy Inc. 227,Canadian Natural Resources Ltd.
204 andBurlington Resources Canada Energy Ltd.163. The most active
explorers werePanCanadian 148, Husky 121 andBurlington 105. ◆
WORLD OIL8 Petroleum News • Alaska Week of April 28, 2002
er thing to serve business,” he said.“Energy is a critical
cornerstone of B.C.’seconomic future.”
Campbell said there are many moregas pools in northeastern
BritishColumbia to match the Ladyfern discov-ery, Canada’s largest
gas find in 15 years,and “we intend to find them.”
He also said a report by an indepen-dent panel of scientists on
the BritishColumbia offshore wills soon be released.
Without disclosing any details, he sug-gested the industry will
like what it hears.
Coalbed methane
Among its legislative changes, thegovernment said it hopes to
encouragecoalbed methane development by elimi-nating the current
2,000-foot depthrestriction on exploratory drilling,
thusencouraging the industry to developunexplored resources.
Schemes that may be approved underthe British Columbia Petroleum
andNatural Gas Act will be broadened toinclude projects to develop
resources
such as coalbed methane, which theprovince hopes will facilitate
its royaltyincentive for natural gas produced fromcoal formations.
Another change to theact would eliminate the current calendar-year
term for geophysical licenses andadd a provision for the term of a
licensesto be prescribed by regulation.
Increased access
Neufeld said the province aims toincrease access to
government-ownedlands and develop unexplored resources.
The act is also being amended toestablish a “coordinated
cost-recoverysystem associated with the development,operation and
maintenance of much-needed resource infrastructure. The
(gov-ernment) will pursue public-private part-nerships to implement
the system.”.
As an example, Neufeld cited a road innortheastern British
Columbia which pro-vides access to about 10,500 square milesof oil
and gas territory and resulted in theprovince collecting C$126
million in landsales and C$232 million in royalties andtaxes in
2001.
The new legislation would allow theprovince to continue that
partnership andto negotiate other similar deals. ◆
continued from page 7
CORNERSTONE
continued from page 7
PROFILE
-
Week of April 28, 2002
EXPLORATION & PRODUCTION
Petroleum News • Alaska 9
PRUDHOE BAYBP has spill at H pad; oilcontained on snow
surface
The Alaska Department of Environmental Conservation,Division of
Spill Prevention and Response, said April 18 that BPExploration
(Alaska) Inc. reported a spill at well 21 at H pad inthe western
operating area at Prudhoe Bay.
The spill, estimated at 63 gallons of brine and 21 gallons
ofcrude oil, occurred when a well line on the H-21 well
rupturedfollowing an unexpected shutdown atGathering Center 2 which
occurred dur-ing maintenance work.
DEC said all GC-2 well pads shutdown as designed after the
facility shut-down, causing wells that were flowinginto GC-2 to
reach their static shutdownpressures.
BP spokesman Ronnie Chappell toldPNA April 22 that “all of the
safety sys-tems worked exactly as they were supposedto.”
The occasion of the break was the wellshutdown caused by the
CG-2 shutdown, but this break,Chappell said, occurred because of
corrosion and could havebeen triggered by a planned well
shutdown.
Western operating area wells have injectors on them throughwhich
we inject corrosion inhibitor to protect this piping, he said.
“This particular well was one of a handful that had the
injec-tor lower on the S riser than it is on most wells and the
well linefailed above the injection point.”
Chappell said BP will be moving the injection point on thatwell
and on about two dozen others in the western operatingarea.
Oil on snow surface
DEC said the automatic shut-in valve on well 21 activatedafter
the release and stopped the flow of oil.
The oil is contained on the snow surface, DEC said, allowingfor
easy recovery operations. Seventy cubic yards of contami-nated snow
had been removed April 18 and the well house wasto be dismantled
and removed to a wash bay for cleaning and thewell head and
pipeline cleaned by hand, DEC said.
Both the well house and the well head were damaged in
therelease.
DEC said cleanup continues and an investigation team hasbeen
assembled to determine the root cause of the release.
High winds spread the aerosol type release over the gravelpad
and tundra and approximately 1.5 acres in the vicinity of thewell
house were lightly oiled, while a larger area was contami-nated
with sporadic traces of oil. Contaminated snow is beingmelted for
reinjection.
—Kristen Nelson, PNA editor-in-chief
Ronnie Chappell, BPExploration (Alaska)spokesman
Kri
sten
Nel
son
■ F A I R B A N K S
Tapping North Slope heavy oil Phillips Alaska uses new drilling
technology to boost heavy oil production
By Patricia JonesPNA Contributing Writer
North Slope oil fields contain a number ofvery large and
virtually untapped resources— several billion barrels of heavy or
vis-cous oil contained in shallow deposits,
either within or just belowpermafrost layers.
How to economicallyproduce oil from thesetechnologically
challeng-ing reservoirs has plaguedoperators on the NorthSlope for
years, accordingto Steve Bross, PhillipsAlaska’s satellite
fielddirector at the Kuparukfield.
“Over the last 15 years,there’s been about $750 million spent on
heavy oilon the North Slope,” he said, during a viscous
oilpresentation April 11 at an energy workshop held
at the University of Alaska Fairbanks. During his presentation,
Bross outlined charac-
teristics of heavy or viscous oil on the North Slope,explained
technical and economic challenges fordeveloping those resources and
described somesuccessful wells that Phillips has completed inrecent
months.
New drilling techniques boost production
Key to recent success has been implementationof a new drilling
technique called multi-lateralwell drilling, Bross said.
Using this technique imported to the NorthSlope, drillers use
horizontal directional drillingtechniques to drill multiple
sidetracks out from onemain vertical well bore.
That way, a larger area of the shallow layer ofoil-rich sands
can be tapped from one well bore,increasing the oil flow from
conventional welldrilling.
“We made a quantum leap from wells that pro-duced 250 to 300
barrels a day, to wells making
■ F A I R B A N K S
Enhanced oil recovery methods outlinedU.S. Department of Energy
funds numerous EOR research projects
By Patricia JonesPNA Contributing Writer
For years, U.S. Department of Energyresearchers have
collaborated with industry tostudy various techniques to improve
produc-tion levels from oil and gas deposits.
Charles Thomas, Ph.D., a U.S. Department ofEnergy representative
who has participated in anumber of different enhanced oil recovery
studies,presented an overview of such government-fundedresearch
during an energy workshop held at theUniversity of Alaska Fairbanks
on April 11 and12.
Researchers have come to some general conclu-sions about
enhanced oil recovery techniques, hesaid, some of them fairly
obvious to the oil and gasindustry.
“The reality is that recoverable effectiveness ofmethods are
lower in the field than in the lab,”Thomas said, generating a
substantial amount oflaughter from the more than 100 industry,
govern-
ment and university personnel attending first dayof the
workshop.
“We have also learned that we have to under-stand the geology of
our target reservoir,” headded.
Knowledge about underground structures andformations hosting
crude is necessary to developappropriate recovery methods, he said.
“It doesn’tmatter how good the project is if you can’t contactthe
oil to sweep it up.”
Finally, Thomas praised the use of certainchemicals injected
underground to increase oilrecoveries. “The small slugs of high
contact chem-icals do work well, and if you can control them,you
can have an economic recovery.”
Yet the most common methods of enhanced oilrecovery involve
thermal steaming and the injec-tion of gas liquids, he said.
EOR methods outlined
Using cartoon-like drawings to illustrate each
Steve Bross, PhillipsAlaska’s satellitefield director
atKuparuk
Pat
rici
a Jo
nes
see HEAVY OIL page 10
see RECOVERY page 11
-
well over 1,000 barrels and even up to2,000 barrels a day,”
Bross said.
And the increased production hascome with “not substantially a
lot moremoney for the base well design,” headded.
As the first multi-lateral wells held andproduced at elevated
rates, with 1,500-foot lateral extensions, the company has“gotten
more aggressive with it,” Brosssaid. “We’ve pushed the drilling
envelopewith every success we’ve had drilling.”
Currently, Phillips is operating sixmulti-lateral wells in the
Kuparuk Riverunit. One well drilled was over four milesin length,
but only 3,500 feet deep.
“We’re staying in the sands 100 per-cent of the time, so this is
state of the artdrilling technology here,” Bross said.
The breakthrough came in 2000, whenviscous oil managers felt
that a “technol-ogy step change” was necessary, Brosssaid.
Heavy oil historically expensive,low producer
During the 1990s, Alaska’s NorthSlope producers all took various
shots attapping the massive-sized heavy oildeposits. From Conoco’s
initial efforts atMilne Point, to BP Exploration’s work atSchrader
Bluff, the combined total spend-ing on North Slope heavy oil was
$750million, Bross said.
Included in that effort was Phillips’predecessor, ARCO Alaska,
which spent$250 million on a pilot program thatincluded drilling 20
test wells in WestSak in 1998.
The company applied technology usedin Lower 48 heavy oil
deposits, he said:“The result we were getting were these $5million,
300-barrel per day wells thatnone of our management liked.”
Even though capital costs werereduced due to the use of existing
infra-structure, the crude produced from WestSak typically is lower
in value. That’sbecause it lacks the higher end productsthat are
more valuable to refiners, Brosssaid.
“You’re starting out several dollars abarrel deficit in price
and value of thecrude when you put it in the pipeline,” hesaid.
Couple that with a slope-wide trendfor expensive operations and
an increaseon top of that for the labor and equip-
ment-intensive viscous oil wells — pro-ducers are looking at
marginal returns inthe best case scenario.
“If you drop a couple dollars in valuefrom low oil quality, and
pick up a coupledollars per barrel in operating costs,we’re four or
five dollars a barrel in thehole when we start to do viscous
oildevelopment,” Bross said.
Therefore, low market prices directlyaffect progress on such
programs.
“Because of higher operating costs andlower values, anytime the
price takes adownturn, this is one of the first projectsthat comes
up on the cutting blocks,”Bross said.
“Too good to walk away from”
Why tackle all of these technologicaland economic challenges?
Because thesize of the heavy oil resource is so large,it makes
these hurdles look like meremosquitoes to slap out of the way.
“There’s general agreement that it’sbig, really big, and it all
underlies existinginfrastructure,” Bross said. “That’s whathas
driven this $750 million investment— we keep spending money on it
becauseit’s too good to walk away from.”
Estimates vary on the actual size ofheavy oil deposits, and how
much of thatresource is actually recoverable. Duringhis
presentation, Bross went throughsome of the known
accumulations,reporting deposit size and then how muchis believed
to be recoverable.
All told, he described up to 8 billionbarrels in core areas of
Schrader Bluff,West Sak and Ugnu as recoverable, usingconventional
heavy oil technology, thenew multi-lateral drilling and in
thefuture, still different technology thatPhillips is looking at in
Canada.
That new technology would be usedon the Ugnu deposit, located
above theWest Sak accumulation. Estimates putUgnu’s total resource
at 7 billion barrels,Bross said, all located in a shallow layerwith
many areas bound by permafrost.
Yet more heavy oil resources existoutside the core areas of Ugnu
and WestSak. These are considered immobile oil,and will require new
technology to tap,Bross said.
Using primary and secondary recoverywith water flooding,
Phillips expects toproduce 20 percent of the West Sakresource,
Bross said. “That’s a good num-ber for West Sak.”
Additional enhanced oil recovery tech-niques should add another
8 to 10 percentto the amount of oil recovered, he said.
Keeping heavy oil developmentcosts down
One benefit that the North Slope heavyoil deposits can tout is
an existing infra-structure network for processing
andtransportation.
“Part of the attractiveness of theresource is that it sits all
underneath exist-ing infrastructure, and we can developfrom
existing pads,” Bross said.
Hence, the recent efforts to tap heavyoil. That’s because heavy
oil can be pro-duced and processed economically onlywhen offset
with a mix of higher quality,lower cost crude also flowing through
thesame infrastructure.
“Time is not our friend, because weare captive of the economics
of the fieldthat anchor us,” Bross said. “It’s impor-tant to do
these projects while the basefield is healthy, and we have the
infra-structure to support us.” ◆
EXPLORATION & PRODUCTION10 Petroleum News • Alaska Week of
April 28, 2002
continued from page 9
HEAVY OIL “Time is not our friend... It’simportant to do these
projects whilethe base field is healthy, and we have
the infrastructure to support us.” —Steve Bross, Phillips Alaska
Inc.
SAN FRANCISCOBP’s Laird wins award for speech
Paul Laird of BP Exploration (Alaska) Inc. has received an award
for his speech-writing. Laird won the award for a speech he wrote
for Richard Campbell, former headof BP in Alaska. The speech,
titled “Following the Yellow Brick Road,” was given atthe Resource
Development Council’s annual meeting last June.
The Gold Quill Excellence Award comes from the International
Association ofBusiness Communicators in San Francisco. It was one
of just 46 of the awards givenout to public relations workers in a
competition spanning more than 20 countries.There were more than
1,300 entries.
-
process, Thomas outlined severalenhanced oil recovery methods
that thefederal energy department has spent timeand money
researching.
One process he described was steamflooding, injecting steam into
the under-ground formation. As the steam cools, itcondenses to
water. “In the same process,it heats the oil and causes it to
flow.”
In situ combustion achieves the sameresult, Thomas said, except
that air isinjected into the reservoir to create a com-bustion
front.
He briefly talked about gas flooding,which involves injecting
natural gas liq-uids or even CO2 into underground reser-voirs to
increase oil flow. This techniqueworks on the North Slope, Thomas
said,because of the large quantities available.“This is just a case
of looking at the spe-cific needs and having the opportunity totake
advantage of it.”
“What we usually find in carbon diox-ide flooding or any other
gas project isthat you use the gas — CO2, nitrogen orinjectant,
followed by water, followed byanother slug, followed by water,”
headded.
Researchers have also tested the injec-tion of certain
chemicals, which will con-tact crude oil and help to mobilize
it.
“In this process, to protect your poly-mers you have to
pre-flush the reservoirs,then inject the chemicals,” Thomas
said.“These are the kinds of innovative tech-nologies that we’ve
been working on formany years.”
Finally, researchers have also investi-gated the use of
microorganisms in aprocess similar to the chemical injectantmethod.
“It’s complicated like the chemi-cal processes, but with this, you
also havemicro-organisms to manage.”
EOR benefits North Slopeproducers
Thomas pointed out how enhanced oilrecovery methods have already
benefitedAlaska’s North Slope producers.
“Prudhoe Bay got into gas and waterinjection — it started very
early (in thefield’s life), which was the right thing todo,” he
said. “As technology came along,it was either applied or developed
atPrudhoe Bay, where it was all put togeth-er in a very intelligent
way.”
At the start of Prudhoe Bay’s develop-ment, producers estimated
the field con-tained about 9 billion barrels of recover-able crude,
Thomas said. “By 1986, thishad already increased to 10.2 billion,
withthe introduction of these technologies ofrecovery,” he said.
“In 2000 it was up toaround 13 billion barrels and now it’s over14
billion.”
Miscible injectant projects at Kuparukhave also helped to
increase production atthat field, which contains some heavy
oildeposits.
Continued research is focused onheavy oil, Thomas said.
“Outside of finding new fields, we’relooking at enhanced oil
recovery inheavy oils, which is a major target ofabout 25 to 30
billion barrels of oil,” hesaid. “Maybe 3 to 6 billion barrels is
areasonable target — we certainly hopeso.”
Continuing the flow of crude oilthrough the trans-Alaska
pipeline is cru-cial to the North Slope oil industry,Thomas
said.
“As oil throughput declines, tariffscontinue to go up,” Thomas
said. “It’simportant to maintain throughput …important not just for
new projects, butit’s important to everything existing onthe North
Slope.” ◆
EXPLORATION & PRODUCTIONPetroleum News • Alaska 11Week of
April 28, 2002
continued from page 9
RECOVERY
Continued research is focused onheavy oil. “Outside of finding
new
fields, we’re looking at enhanced oilrecovery in heavy oils,
which is amajor target of about 25 to 30
billion barrels of oil. Maybe 3 to 6billion barrels is a
reasonable target
— we certainly hope so.” —Charles Thomas,
Department of Energy
WASHINGTON, D.C.Heavy oil tax incentive amendmentpasses U.S.
Senate
The United States Senate approved an amendment April 24 to the
energy billwhich includes language by Alaska Sen. Frank Murkowski
that will encourageproduction of viscous oil from Alaska’s North
Slope and help Alaska coal to beused to produce synthetic fuels,
the senator’s office said.
The amendment calls for Alaska heavy oil to receive a $3 per
barrel federal taxcredit, an incentive designed to encourage
production of an additional 200 millionbarrels of heavy oil from
Phillips Alaska Inc.’s West Sak field over the nextdecade.
The amendment also provides a $3 credit (equivalent to
oil-produced energy)for low-pollutant synthetic fuels to be
produced from coal. The measure specifi-cally expands and extends
an existing tax credit to apply to fuels produced fromeither tar
sands, brine, biomass or coal before 2007.
The Murkowski language was included in the tax portion of a
FinanceCommittee amendment to the energy bill.
-
By Kristen Nelson PNA Editor-in-Chief
Unocal Alaska anticipates that its KingSalmon platform in
northern CookInlet will be back in full productionbetween April 27
and May 10 after a
fire April 20, Unocal Alaska spokeswomanRoxanne Sinz told PNA
April 22.
In an April 23 statement the companysaid “the K-17 well has been
shut in withnew blow-out prevention equipment and issafe. The
structural integrity of the facilityhas been assessed as suitable
for currentoperations.”
A pressure seal will be installed in thewell to facilitate
investigation and to restorethe facility to production, and the
platformis expected to be back in full productionbetween April 27
and May 10.
Unocal had said April 22 that no struc-tural damage to the rig
was apparent andthat production areas and the platformstructure
were not effected.
Cause under investigation
The fire started when gas was releasedduring well work, Sinz
said. The cause isstill under investigation.
Four people were injured. Three weretreated and released at
local hospitals, shesaid. The fourth person was sent toHarborview
Medical Center in Seattle as aprecautionary measure with a burn to
hishand and a burn to his face, Sinz said. Thecompany said April 22
that the worker atHarborview was in satisfactory condition.
Of the workers treated and released inAlaska, one received a
shoulder injury, onewas treated for smoke inhalation and
onereceived a first-degree burn.
Damage occurred to the drilling rig atthe platform, which had
been producing7,000 barrels per day of crude oil gross, aswell as
natural gas which is used as fuel onthe platform.
Although the U.S. Coast Guard respond-ed, Sinz said workers on
board the platformput out the fire within 45 minutes.
“We’re very proud of employeesbecause they responded in
accordance withthe emergency training they have received,”she
said.
Sinz also said that Unocal was pleasedwith the cooperation the
company receivedfrom governmental and regulatory agen-cies.
Blowout preventer damaged
Unocal said April 22 that the K-17 wellhas been stable since the
initial incident, butthat a small amount of gas flowed to the
sur-face and was vented early in the morning ofApril 22.
The blowout prevention system on theK-17 well is functioning,
the company said,but the system was damaged in the fire andits
integrity is uncertain.
Unocal said April 22 that “until a newblowout preventer can be
installed on top ofthe damaged preventer and a plug placed inthe
well, the condition is considered stablebut serious” and only
personnel essential tocurrent operations are being allowedonboard
the platform.
Unocal said all production for the plat-form has been shut in
and will remain shutin until the assessment is complete.
The Unocal Corp. investigation hasbegun. “The investigation team
is not con-sidered essential to the current assessmentand repair
operation. As such, they do nothave access to the platform at this
time,” thecompany said April 23. Both the UnocalCorp. investigation
team and the U.S.Occupational Safety and HealthAdministration have
been provided officespace in Kenai to begin reviewing docu-ments,
Unocal said April 23.
Safety and rescue equipment, includingtwo helicopters and work
boats, continue onstandby.
Replacing a pump in the well
The fire began about 3:30 p.m. April 20while crews were
replacing a pump in thewell.
Unocal said the well and platform imme-diately ceased operations
and there was nooil spilled.
COOK INLET12 Petroleum News • Alaska Week of April 28, 2002
■ K I N G S A L M O N P L A T F O R M
Platform to be operational againby May 10 after April 20
fireUnocal has shut in well with new blowout preventionequipment;
no structural damage apparent to rig;production areas and platform
structure not effected
see PLATFORM page 13
-
COOK INLETPetroleum News • Alaska 13Week of April 28, 2002
ANCHOR POINTAnchor Point may study constructionof harbor to
boost local economy
Residents of Anchor Point are exploring the possibility of
constructing a harborto help boost the local economy.
Backers of the project say a harbor would make it much easier to
launch boatsat Cook Inlet. The area’s economy is heavily dependent
on recreation, tourism andfishing.
“From the chamber’s perspective and from a business perspective,
a harborhere would be of just critical importance,” said Tom Clark,
chairman of theAnchor Point Chamber of Commerce. “Anything you can
do to improve the infra-structure is very important to
business.”
The Kenai Peninsula Borough clerk’s office certified a petition
in March thatwould create a service area, allowing backers of the
harbor proposal to partnerwith the borough government.
Residents and businesses in the service area could be taxed to
fund a feasibili-ty study. The establishment of a service area
would also allow the borough to seekgrants for the study.
Borough mayor Dale Bagley estimates the cost of the study at
about $1 million.A public hearing on the harbor proposal is
scheduled for May 8.
—The Associated Press
Unocal said its incident commandresponse structure was
immediately initiat-ed April 20. Teams secured the platformand the
company said it is working closelywith all appropriate
agencies.
Fifty-two workers were on the platformat the time of the
incident. Twenty-six non-
essential personnel were evacuated by heli-copter to nearby
platforms within the hour.
The King Salmon platform is 55 milessouthwest of Anchorage and
24 milesnorthwest of Kenai.
King Salmon is one of four platforms atthe McArthur River field
in Cook Inlet.King Salmon, along with Grayling andDolly Varden, was
installed in 1967;Steelhead was installed in 1986. ◆
continued from page 12
PLATFORM
■ C O O K I N L E T
Marathon announces two moresuccessful tests at Ninilchik
unit
By Petroleum News • Alaska
Two more wells at Marathon Oil Co.’sNinilchik exploration unit
south ofKenai have been successfully tested fornatural gas, the
company said April 24.
The discovery well, the Grassim OskolkoffNo. 1, was announced
earlier in the year.
Marathon is operator of the Ninilchikunit, which is 35 miles
south of Kenai. Thecompany holds a 60 percent working inter-est in
the unit; Unocal Alaska holds theremaining 40 percent.
The recently drilled Grassim OskolkoffNo. 2 well, drilled off
the same pad as theGrassim Oskolkoff No. 1, “separately testedthree
sands at a combined restricted gas rateof 11.9 million cubic feet
per day,” the com-pany said. “The three tests were from a
totalperforated interval of 169 feet, ranging indepth from
8,048-9,440 feet.”
The Falls Creek Unit No. 1 redrill testedgas at a restricted
rate of 6.8 million cubicfeet per day from 36 feet of perforations
in asingle sand at a depth of 8,714 feet. “Severalpromising
intervals shallower in the well
were not tested,” Marathon said. The small-er Falls Creek unit,
which lies in the north-ern third of the Ninilchik unit, is
completelysurrounded by Ninilchik unit acreage andhas been
incorporated into the Ninilchikunit, John Barnes, manager of
Marathon’sAlaska business unit, told PNA April 24.
“Marathon is very encouraged by threesuccessful wells at
Ninilchik, which havetested at a combined gas rate of nearly
30million cubic feet per day. Additionalexploratory drilling is
expected in 2002 and2003 in preparation for first gas sales by
thebeginning of 2004,” Barnes said.
As reported in the April 21 edition ofPetroleum News Alaska,
Marathon plans tobegin gas development activities at theGrassim
Oskolkoff drill pad approximatelynine miles north of Ninilchik in
August andstart producing gas from the pad inDecember 2003.
Ninilchik gas will be transported to exist-ing or new markets
through the proposedKenai-Kachemak Pipeline, a company joint-ly
owned by Marathon and GUT, a sub-sidiary of Unocal. ◆
-
CONFERENCE14 Petroleum News • Alaska Week of April 28, 2002
-
By The Associated Press
Asix-person team is traveling fromNome to Barrow by snowmobile
thismonth, hauling a compact computerlab on skis, as part of a
scientific inves-
tigation of snow cover, climate change andArctic haze
pollutants.
The SnowSTAR 2002 traverse includesresearchers from the U.S.
Army’s ColdRegions Research and Engineering Lab inFairbanks. The
team will measure the snowat more than 75 locations during its
700-mile trek across the Seward Peninsula, theBrooks Range and the
North Slope.
“We’re trying to catch the broad regionaltrends of the snow —
how it varies — andthat’s why it takes us so long,”
expeditionleader Matthew Sturm, of the Cold Regionslab, said during
a phone interview fromSelawik. “We’ve been taking samples allalong
the way. We go no more than 10miles, and we stop.”
The expedition set out from Nome onMarch 22 and has passed
through WhiteMountain, Council, Buckland, Selawik andAmbler. After
crossing the Brooks Range,the team expects to reach the village
ofAtqasak April 16.
Supported by the National ScienceFoundation, the project is part
of a largerresearch effort into Arctic climate change,under the
foundation’s Office of Polar
Programs.Building on previous research by Sturm
and others, the team will measure depth,density and layering
with a battery ofsophisticated instruments. One test usesfiber
optics and sensors to detect how muchlight filters through the
snowpack.
“The team is documenting how depthcorresponds to geography,”
Sturm said.“We’re trying to find out where the moisturecomes from.
We’re particularly interested inwhether the storms that produce
snow southof the Brooks Range are related to thestorms that produce
snow north of theBrooks Range.”
Knowing the source of storms and snowcould help address other
questions about thechanging Arctic climate, Sturm said.
Other tests involve collection of samplesfor lab analysis to
track pollutants that mayhave drifted into Alaska from sources
inAsia, a phenomenon known as Arctic haze.Gathering such detailed
information aboutsnow along a 700-mile traverse in a singleseason
will ultimately give scientists base-line data for gauging climate
change. ◆
SAFETY & ENVIRONMENTPetroleum News • Alaska 15Week of April
28, 2002
HOUSTONBP’s Glover receives national MMScorporate leadership
award
Nick Glover, crisis management coordinator for BP Exploration
(Alaska) Inc.,received the U.S. Minerals Management Service
Corporate Leadership Award for 2001at an April 11 ceremony in
Houston, Texas.
MMS recognized Glover for his contributions in response planning
and coordinationwith regulatory authorities, oil spill response
research, and risk assessment which haveenhanced Arctic oil spill
response preparedness. The agency said Glover is a key play-er in
developing response strategies and tactics that represent the most
realistic scenar-ios for responding to an oil spill in the Beaufort
Sea, including broken ice conditions.
“Mr. Glover continues to be a positive force in expanding the
knowledge and capa-bilities of response to oil spills in arctic
waters,” said MMS Alaska Regional DirectorJohn Goll. “He willingly
shares his extensive knowledge and experience in Arctic
spillresponse with federal, state and other industry personnel to
develop an effective arrayof response options to protect the Alaska
environment,” he added.
The Corporate Leadership Award is given to individuals who have
worked closelywith MMS to improve revenue collection and processes
for offshore development.
■ N O R T H E R N A L A S K A
Science team studies Arcticsnow cover, climate change
The team will measure the snow atmore than 75 locations during
its700-mile trek across the SewardPeninsula, the Brooks Range
and
the North Slope.
ExxonMobil wins safety, goodcitizen national MMS award
Exxon Mobil Corp. said April 11 that the U.S. Department of
Interior’sMinerals Management Service has selected ExxonMobil to
receive its 2001National Safety Award for Excellence and the
Corporate Citizen Award.
ExxonMobil received the National SAFE Award in the high-activity
categoryfor the outer continental shelf in recognition of the
company’s safety record andoperational performance at its offshore
facilities in the Gulf of Mexico and off thecoast of California.
The award honors companies for outstanding safety and
envi-ronmental results and for demonstrating notable efforts to
train and motivate theiremployees to conduct offshore operations in
a highly responsible manner.
WASINGTON, D.C.Barrow slated for $35 million project
An amendment adopted April 23 to the Senate energy bill includes
languageauthored by Sen. Ted Stevens for the creation of a Barrow
arctic research center for cli-mate change research and scientific
activities. The $35 million project is intended toreplace the
decades-old Naval Arctic Research Laboratory in Barrow.
The amendment establishes a national climate change strategy to
stabilize green-house gas levels without harming the economy,
doubles the investment in energy tech-nology research and
development, identifies response actions, and expands climatechange
research, according to a statement by Stevens.
“Regardless of cause there has been a dramatic warming trend in
the Arctic areas ofAlaska,” Stevens said. “Pack ice, which
insulates our coastal villages from winterstorms, has shrunk.
Increased storm activity has caused significant beach erosion
thatmay displace entire communities along the coastline of
Alaska.”
— Steve Sutherlin
Let people know you’re part of Alaska’s oil and gas industry
Call (907) 245-2297Advertise in Petroleum News • Alaska
-
LAND & LEASING16 Petroleum News • Alaska Week of April 28,
2002
Major state oil and gas lease holdersMarch Sept. Mar. 30, 2002
Difference Mar. 30, 2002 Sept. 1, 20012002 2001 total March '02 %
total totalranking ranking company acres to Sept. '01 acres
acres
1 1 Phillips Alaska 1,045,320 11.30% 25.13% 939,1612 2 BP Expl
(Alaska) 785,358 14.15% 18.88% 688,0333 4 Anadarko Petroleum
361,319 62.64% 8.69% 222,1534 3 Chevron USA Inc 307,465 20.24%
7.39% 255,7025 5 Union Oil Co 217,357 4.06% 5.23% 208,8866 6
ExxonMobil 185,738 -0.26% 4.47% 186,2167 7 Forest Oil Corp 171,102
0.76% 4.11% 169,8168 23 EnCana (AEC) 164,940 630.21% 3.97% 22,5889
no acres BBI Inc 101,828 2.45% 010 8 Marathon Oil Co 56,354 -2.58%
1.36% 57,84511 9 Evergreen Resources 48,573 -5.92% 1.17% 51,62812
44 AVCG LLC 47,018 2348.84% 1.13% 1,92013 11 * Lappi, Cory 44,919
no change 1.08% 44,91914 12 * Lappi, Troy 44,091 no change 1.06%
44,09115 13 * Bradshaw, Kory 43,669 no change 1.05% 43,66916 14 *
Lappi, Linda 43,210 no change 1.04% 43,21017 15 * Orell, Elizabeth
A 42,738 no change 1.03% 42,73818 16 * Bradshaw, Caroline 42,707 no
change 1.03% 42,70719 17 * Fitzpatrick, Karen 41,728 no change
1.00% 41,72820 no acres 3793885 Canada Ltd. 35,348 0.85% 0
totals this group 3,830,782total leased acreage 4,158,845
18.972% 3,495,637
* shallow gas leases only
NOTE: BBI Inc. has acquired acreage formerly held by
Escopeta.NOTE: EnCana is the new company formed by the recent
merger of AlbertaEnergy Co. and PanCanadian Energy Corp.
Editor's Note: Acreage totals shown do not include results of
the state's 2001 North Slope Foothills sale, the 2001 NorthSlope
sale or the 2001 Beaufort Sea sale because leases for those tracts
have not yet been issued.
STATEWIDEPotential State and Federal Oiland Gas Lease
SalesAgency Sale and Area Proposed Date
DNR Cook Inlet Areawide May 1, 2002DNR Foothills Areawide May 1,
2002BLM NE NPR-A June 3, 2002MHT Cook Inlet Fall 2002 DNR North
Slope Areawide Oct. 23, 2002DNR Beaufort Sea Areawide Oct. 23,
2002MMS Sale 186 Beaufort Sea 2003MMS Sale 188 Norton Basin 2003DNR
Cook Inlet Areawide May 2003DNR Foothills Areawide May 2003DNR
North Slope Areawide October 2003DNR Beaufort Sea Areawide October
2003MMS Sale 191 Cook Inlet/Shelikof Strait 2004MMS Sale 193
Chukchi Sea/Hope Basin 2004DNR Cook Inlet Areawide May 2004DNR
Foothills Areawide May 2004BLM NW NPR-A mid-2004DNR North Slope
Areawide October 2004DNR Beaufort Sea Areawide October 2004MMS Sale
195 Beaufort Sea 2005DNR Cook Inlet Areawide May 2005DNR Foothills
Areawide May 2005DNR North Slope Areawide October 2005DNR Beaufort
Sea Areawide October 2005MMS Sale 199 Cook Inlet/Shelikof Strait
2006MMS Sale 202 Beaufort Sea 2007MMS Sale 203 Chukchi Sea/Hope
Basin 2007
Agency key: DNR, Alaska Department of Natural Resources,
division of oil and gas, managesstate oil and gas lease sales
onshore and in state waters; MHT, Alaska Mental Health TrustLand
Office, manages sales on trust lands; MMS, U.S. Department of the
Interior’s MineralsManagement Service, Alaska region outer
continental shelf office, manages sales in feder-al waters offshore
Alaska.
This week’s lease sale chartsponsored by:
PGS Onshore, Inc.
If you’re looking for informationabout Alaska’s oil and gas
industry,where is the best place to find it?
The answer: Petroleum News • Alaska.
Go to the world’s most popularsearch engine, Google.com,
andsearch for Alaska + petroleum.
The first publication web site you findis
www.PetroleumNewsAlaska.com.
So, if someone is interested ininvesting in oil and gas leases
orrelated business ventures in Alaska,where do you think they will
look?
And soon they will have another rea-son to look at our newspaper
andweb site because Petroleum News •Alaska will soon carry a
classifiedssection that will have several cate-gories, including
Leases for Sale andInvestment Opportunities.
If you’d like to place an ad, contactEd Brandt at Petroleum News
•Alaska today. (907) 644-4444 [email protected]
Oil and Gas Leases For Sale
-
THE REST OF THE STORYPetroleum News • Alaska 17Week of April 28,
2002
the administration negotiate fiscal termsfor a project.
Kott disagreed with administration fis-cal notes for the bill:
there is no loss ofrevenue, he said, because without this billthere
won’t be anything to tax.
As this issue of PNA went to press, thebill was being held in
House Finance fora second day of hearings and was tenta-tively
scheduled to be heard in HouseRules April 29.
Action needed now
David Marquez, an attorney represent-ing VECO Corp., said the
companybelieves Alaska’s economy desperatelyneeds a gas pipeline.
The producers haveindicated that federal legislation is neces-sary,
he said, but so is Alaska tax certain-ty and clarity.
“VECO feels a sense of urgency,” hesaid: “If action is not taken
this year theonly opportunity for a significant boost inthe state
economy may be lost.”
Asked about differences between thisbill and Senate Bill 360,
the proposal forpipeline relief that is moving in theSenate,
Marquez said SB 360 requires“clear and convincing” evidence that
taxrelief is needed. That is a very vague test,and may be
insurmountable, he said, andpredicted it would be a test that
woulddiscourage producers from taking it on.
VECO Chairman and CEO Bill Allenand Vice President Rick Smith
told thecommittee that VECO believes the stateneeds to act quickly
to seize uniqueopportunities to market North Slope gas
while the window of opportunity is open. VECO “strongly
suspects,” Allen said,
that “if the window shuts it may neveropen again.”
They also said that Sen. FrankMurkowski said recently that
opponentsof an Alaska gas pipeline are now point-ing to a lack of
commitment from Alaska.
BP, Phillips support bill
Both Ken Konrad, BP’s vice presidentfor gas, and Joe Marushack,
PhillipsAlaska’s vice president for gas commer-cialization, told
the committee their com-panies support the bill.
Konrad said HB 519 is modeled afterthe 1998 stranded gas act. It
updates that
act and makes it available for a gaspipeline project.
There would be negotiations, he said,negotiations which both the
executivebranch and the Legislature would need toapprove under the
stranded gas act provi-sions, because that is the only way for
theproducers to ensure fiscal certainty overthe life of the
project.
Marushack said Phillips does notbelieve federal legislation is
not a certain-ty.
State participation is important, hesaid, and HB 519 would be an
“importantsignal to Congress” that Alaska hasstepped up to the
plate on the project. ◆
Administration wants negotiation The administration opposes the
tax incentive portion of House Bill 519 and
supports the portion reviving the Alaska Stranded Gas
Development Act, whichexpired last June.
Commissioner of Natural Resources Pat Pourchot said April 19 in
the HouseSpecial Committee on Oil and Gas that the administration
opposes the bill becauseit would provide a grant of up to $500
million of state and local taxes and theadministration does not
support tax relief outside of a negotiated process. By April24,
however, when the bill was heard in House Finance, administration
estimatesof lost revenues had risen to between $760 million and
$900 million.
Deputy Commissioner of Revenue Larry Persily said Revenue
prefers negoti-ation under the framework of the stranded gas act.
He said the state could negoti-ate a lower take during construction
and in the early years, but a higher rate whenthe line was
profitable.
Asked to explain the changing fiscal note, Persily told House
Finance that thefirst fiscal note was based on the proportion of
the line which would be built inAlaska and assumed an average cost
per mile of pipe. But the department lookedat it again, he said,
and realized it would probably cost more to build in Alaskathan in
Canada. Alaska is about 20 percent of the pipe by miles, but would
prob-ably be 30 percent of the cost, he said.
The $760 million lower end of the estimated range would be
one-quarter of allproperty tax revenue the department estimates
over a 35-year project; at the high-er end, $900 million, it’s the
equivalent of one-third of the total take, Persily said.
Pourchot also said the administration sees no link between the
bill’s tax exemp-tion and the application under the stranded gas
act — once granted, the propertytax exemption is granted, he said,
it’s not something to be negotiated under thestranded gas act.
continued from page 1
HB 519
VECO “strongly suspects (that) ifthe window shuts it may never
open
again.” —Bill Allen, VECO Corp.
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ALASKA ANVILINCORPORATED
509 W. 3rd Ave.Anchorage, AK 99501-2237(907) 276-2747FAX: (907)
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Permanent protection the goal
The Canadian government wants theUnited States to join in giving
permanentprotection to wildlife populations on bothsides of the
Alaska-Yukon border, rein-forcing Canada’s development ban on
thehabitat of the Porcupine caribou herd.
Anderson said that if forecasts areaccurate that it would take
10 years forany ANWR oil to reach market “theAmericans have a much
bigger problemthan they’ve been willing to admit on theissue of
supply of energy.”
Loan guarantees to support develop-ment of a pipeline from the
North Slopethrough Canada to the Lower 48 woulddestroy the
economics of gas developmentin the Mackenzie Delta, said Kakfwi at
thesame time that he welcomed the Senatestance on ANWR.
“We are afraid that the Americans,who are supposed to be
champions of freeenterprise, are now starting to talk
aboutsubsidizing these huge volumes of Alaskagas,” he said.