l EXPLORATION & PRODUCTION l UTILITIES l GOVERNMENT Vol. 20, No. 20 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 17, 2015 • $2.50 page 5 Q&A: Giessel has ambitious plans, sees plenty of work for interim page 10 Tangen: Congress moves on definition of WOTUS www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 17, 2015 NEWS NUGGETS Compiled by Shane Lasley l EXPLORATION Bokan REE resource gets an upgrade Ucore Rare Metals Inc. May 11 reported a significant upgrade and expansion of the mineralized resources at the Dotson-Ridge deposit of its Bokan Mountain rare earths project in Southeast Alaska. The deposit now contains an estimated indicated resource of 4.79 million metric tons averaging 0.6 percent (63.54 million pounds) total rare earth oxides, a roughly 63 percent increase over the 2.94 million metric tons of indicated resource included in a 2013 estimate. Additionally, the deposit has 1.05 million metric tons of inferred resource averaging 0.6 percent (13.96 million lbs.) TREO. About 39 percent of the TREO in both categories are the high- er valued heavy rare earths. “We’re pleased to announce this important resource upgrade as Ucore continues its progress toward production,” said Ucore President and CEO Jim McKenzie. “This resource upgrade, together with our recent advances in molecular recognition technology for refining applications, makes for a compelling mine-to-metal story at Bokan.” Insiders back US$1.5M Zazu financing Zazu Metals Corp. May 8 reported completion of the final tranche of a US$1,497,800 million non-brokered private place- ment financing. In a second tranche, Zazu sold more than 3.46 million common shares of the company at US20 cents each for gross proceeds of US$692,800. Zebra Holdings and Investments S.a.r.l., a company con- trolled by a trust settled by the late Adolf H. Lundin, purchased more than 2.16 million of these shares. Zebra, which previously owned or controlled 8,860,280 Zazu shares, owns roughly 19.9 percent of the company’s issued and outstanding shares upon comple- tion of the offering. Zazu Chairman and CEO Gil Atzmon bought 1 million of the shares offered in the second tranche. Atzmon, which previously owned or controlled 5,789,500 Zazu shares, owns roughly 12.3 percent of the company’s issued and outstanding shares upon completion of the offering. Zazu intends to use proceeds from the offering for development expenditures related to its Lik zinc-lead-silver project in Northwest Alaska and general working capital purposes. Ruptured line spills tailings at Pogo Sumitomo Metal Mining Pogo May 7 reported to Alaska Department of Environmental Conservation that a ruptured line spilled roughly 90,000 gallons of paste backfill at the Pogo gold mine in Interior Alaska. The 8- inch line delivers paste backfill, a mixture of tailings and cement, into the underground mine for disposal. Once underground, the concrete created from the tailings fills mined-out areas, provid- ing support for continued mining. The backfill material is reported to contain 1-3 parts-per-million cyanide but is ren- dered inert by the high pH of the concrete mixture. Once hard- ened, the spilled tailings are being removed with heavy equip- ment and hand tools. Palmer doubles in size Tough markets fail to slow resource expansion at SE Alaska VMS project By SHANE LASLEY Mining News W hile many of its peers are struggling to find money to continue exploration at their promising mineral prospects and deposits, Constantine Metal Resources Ltd. has managed to forge ahead with hefty programs at its copper- and zinc-rich Palmer project in Southeast Alaska. This includes C$7.13 million invested in exploring the volcanogenic massive sulphide deposit in 2014. Last year's program, funded by Dowa Metals & Mining Co. Ltd., along with drilling completed at Palmer in 2010 and 2013, have culminated in a 97 percent expansion of the resource, compared to the last time a calculation was completed for the deposit in 2010. The results of the resource estimate published by Constantine on May 11 outlines an inferred resource of 8.125 million metric tons averaging 1.41 percent (252.6 million pounds) copper, 5.25 percent (940.4 million lbs.) zinc, 0.32 grams per metric ton (83,600 ounces) gold and 31.7 g/t (8.3 million oz.) silver for Palmer. “The resource estimate significantly increases the size of the deposit, highlighting the tremendous success of recent drill campaigns and the growing potential of the project,” said Constantine President and CEO Garfield MacVeigh. “It is open to expansion in most areas with the thickest part of the deposit located at the current down-dip limit of the South Wall Zone where mineral zoning and geophysics support potential for a high-grade cop- per core within a more extensive area of zinc-cop- per-barite mineralization.” Constantine and Dowa are continuing to explore this growth potential with a US$5 million program budgeted for this year. Good deal Most of the new resource reported by Constantine has been added since Dowa joined as a funding partner at Palmer in 2013. According to an agreement inked between Dowa and Constantine in February of that year, the Tokyo-based smelting and mining company can earn a 49 percent stake in Palmer by investing US$22 million in the VMS project over a four-year span. At the time, some analysts felt that Constantine was giving up too large a portion of the Palmer project for the money. Following two years of resource expansion in tough equity markets, how- ever, the deal has worked out well for both parties. “We felt from the beginning the scale of invest- ment Dowa is making to earn 49 percent would give us a good chance to establish a resource at Palmer with potential for mine viability,” Constantine Vice President of Exploration Darwin Green told Mining News. Dowa, which got its start from mining Kuroko deposits in northern Japan, has more than 120 years of experience exploring for, mining and smelting ore from VMS deposits like the one at Palmer. This makes the Southeast Alaska project an ideal fit for the Tokyo-based company’s expert- ise. Additionally, being located only 33 miles from a Pacific Rim deep-sea port at Haines, a mine at Palmer would be well-situated to provide zinc and copper concentrates to Dowa’s state-of-the-art smelters in Japan. For its part, Constantine is benefiting from Dowa’s vast VMS experience and a partnership deal that is structured in a way that allows it to complete multimillion-dollar exploration pro- grams, while avoiding a significant dilution from selling shares in a market that has been unkind to junior mining companies. “It has been very refreshing to be able to focus near 100 percent of our efforts at growing and building the asset at Palmer, and avoid the distrac- tion of constantly chasing financings, which in this market has become a Herculean task,” Green said. As part of the agreement, Constantine receives annual cash payments totaling US$1.25 million over four years. This, along with any other option payments and management fees received, has allowed the company to maintain a healthy bank account. “We are currently cash-flow positive, which is a bizarre and privileged position to be in,” observed Green. At the end of January, the company had C$636,135 in cash and its working capital totaled C$664,811. Continued expansion Over the previous two years, Dowa has invested roughly US$10 million in advancing the VMS deposit and has agreed to invest another US$5 mil- lion in 2015. This work is primarily targeting expansion of Glacier Creek, a region of the project that consists of five inter-related subzones of massive sulfide mineralization – RW East, RW West, and South Wall zones 1, 2 and 3. The South Wall zones are parallel layers of near- ly vertical VMS mineralization. At the upper extent see PALMER DOUBLES page 10 JIM MCKENZIE Zazu intends to use proceeds from the offering for development expenditures related to its Lik zinc-lead-silver project in Northwest Alaska and general working capital purposes. CONSTANTINE METAL RESOURCES L TD. Drilling at Palmer in 2014 cut copper- and zinc-rich mineralization at a 400-square-meter conductive plate identified with downhole geophysics. The 8-inch line delivers paste backfill, a mixture of tailings and cement, into the underground mine for disposal. This week’ s Mining News Tough markets fail to slow resource expansion at Southeast Alaska’ s Palmer VMS project. More in North of 60 Mining, page 9. Shell plan approved BOEM issues its conditional go ahead to planned Chukchi Sea exploration drilling By ALAN BAILEY Petroleum News O n May 11 the Bureau of Ocean Energy Management announced its conditional approval of Shell’s plan to drill up to six exploration wells in the Chukchi Sea, starting this year. The company wants to search for oil in the Burger prospect, about 70 miles northwest of the Chukchi coastal village of Wainwright. The BOEM approval is subject to several conditions, including Shell obtaining all of the permits needed for its operations and the company complying with the requirements of the Marine Mammals Protection Act and the Endangered Species Act. “We have taken a thoughtful approach to careful- ly considering potential exploration in the Chukchi Sea, recognizing the significant environmental, social and ecological resources in the region and establishing high standards for the protection of this Notley rattles i ndustry New Alberta premier ponders royalty review, chooses pipeline winners, losers By GARY PARK For Petroleum News C anada’s Calgary-based petroleum industry is foaming at the mouth over the stunning election of a left-of- center New Democratic Party govern- ment in Alberta, while incoming Premier Rachel Notley is trying to tiptoe between introducing a new style of government and accepting the reality that energy con- tributes 25 percent of her province’s gross domes- tic product. If she is unable to pull off that high-wire act, Alberta could find itself in even deeper economic trouble Her campaign promise of a royalty review has the industry flailing in all directions, unaccustomed to not getting its way with the Alberta government in the 65 years since the province entered the oil-producing age. During the 44 years of Progressive Conservative administrations that ended May 5, the industry was able to wield a club over the government, threatening and, occasionally even delivering on those threats, to withdraw billions of dollars in capital invest- MEA moves to new plant Utility has own power supply after transition into new gas-fueled Eklutna plant By ALAN BAILEY Petroleum News M ay 1 was something of a red-letter day for power utility Matanuska Electric Association, as the utility finally switched over to supplying its own electricity from its new power plant at Eklutna, northeast of Anchorage. After several years of planning, design and con- struction, the Eklutna plant actually started to ramp up its operations in December, when the first of its 10 massive Wartsila reciprocating engines fired up. By Jan. 31 four of the engines became commer- cially available, with all 10 engines then being operational on March 27, Julie Estey, Matanuska Electric’s director of public relations, has told Petroleum News. Delay in startup The electric utility had originally planned on a full startup of the power plant at the end of 2014, the time at which a previous arrangement expired, under which the utility had been purchasing much see SHELL PLAN page 19 see NOTLEY ERA page 15 see MEA PLANT page 20 RACHEL NOTLEY Mainly because of the cost of the gas supply for the Eklutna plant, Matanuska Electric customers will see rate increases as a consequence of the plant coming on line, the utility has said. Thumbs down to LNG offer; First Nations has salmon concerns Chances of a breakthrough in relationships between LNG proponents and British Columbia First Nations have been snuffed out almost as fast as they surfaced. A small aboriginal community in the province’s northwest unanimously spurned an offer of C$1.15 billion in cash and 5,400 acres of land in return for endorsing the Petronas-led Pacific NorthWest LNG project. Other members of the Lax Kw’alaams nation living in Prince Rupert and Vancouver have yet to hold their votes ahead of a May 12 membership meeting in Vancouver. It took only a few days from the initial cash-and-land offer for 180 members off Lax Kw’alaams living in the Port BP challengi ng Ol i ktok rates; issue over expected gas volumes BP Exploration (Alaska) Inc. is challenging a rate increase on the Oliktok Pipeline. The North Slope producer wants state regulators to investigate the proposed increase, which BP called “unsupported, unjust and unreasonable.” The changes propose a more than six-fold increase in the rate to ship natural gas through the pipeline between the Prudhoe Bay unit and the Kuparuk River unit. According to BP, owner Oliktok Pipeline Co. assumed “unrealis- tically low” throughput on the pipeline and may have failed to accurately calculate costs that have already been recovered through earlier shipping fees. “There may be other reasons why the dramatic increases in the revised rates are not just and reasonable which will become apparent upon investigation,” attorneys for BP wrote to the see LNG OFFER page 14 see OLIKTOK RATES page 18 COURTESY SHELL The drill ship Noble Discoverer
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l E X P L O R A T I O N & P R O D U C T I O N
l U T I L I T I E S
l G O V E R N M E N T
Vol. 20, No. 20 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 17, 2015 • $2.50
page5
Q&A: Giessel has ambitious plans,sees plenty of work for interim
page10
Tangen: Congress moves on definition of WOTUS
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 17, 2015
NEWS NUGGETSCompiled by Shane Lasley
l E X P L O R A T I O N
Bokan REE resource gets an upgradeUcore Rare Metals Inc. May 11 reported a significant
upgrade and expansion of the mineralized resources at theDotson-Ridge deposit of its Bokan Mountain rare earths projectin Southeast Alaska. The deposit nowcontains an estimated indicated resourceof 4.79 million metric tons averaging 0.6percent (63.54 million pounds) total rareearth oxides, a roughly 63 percentincrease over the 2.94 million metric tonsof indicated resource included in a 2013estimate. Additionally, the deposit has1.05 million metric tons of inferredresource averaging 0.6 percent (13.96million lbs.) TREO. About 39 percent ofthe TREO in both categories are the high-er valued heavy rare earths. “We’re pleased to announce thisimportant resource upgrade as Ucore continues its progresstoward production,” said Ucore President and CEO JimMcKenzie. “This resource upgrade, together with our recentadvances in molecular recognition technology for refiningapplications, makes for a compelling mine-to-metal story atBokan.”
Insiders back US$1.5M Zazu financingZazu Metals Corp. May 8 reported completion of the final
tranche of a US$1,497,800 million non-brokered private place-ment financing. In a second tranche, Zazu sold more than 3.46million common shares of the company at US20 cents each forgross proceeds of
US$692,800. Zebra
Holdings and InvestmentsS.a.r.l., a company con-
trolled by a trust settled bythe late Adolf H. Lundin,purchased more than 2.16million of these shares.
Zebra, which previously
owned or controlled
8,860,280 Zazu shares,
owns roughly 19.9 percentof the company’s issued and outstanding shares upon comple-tion of the offering. Zazu Chairman and CEO Gil Atzmonbought 1 million of the shares offered in the second tranche.Atzmon, which previously owned or controlled 5,789,500 Zazushares, owns roughly 12.3 percent of the company’s issued andoutstanding shares upon completion of the offering. Zazuintends to use proceeds from the offering for developmentexpenditures related to its Lik zinc-lead-silver project inNorthwest Alaska and general working capital purposes.
Ruptured line spills tailings at PogoSumitomo Metal Mining Pogo
May 7 reported to AlaskaDepartment of EnvironmentalConservation that a ruptured linespilled roughly 90,000 gallons ofpaste backfill at the Pogo goldmine in Interior Alaska. The 8-inch line delivers paste backfill, amixture of tailings and cement,into the underground mine for disposal. Once underground, theconcrete created from the tailings fills mined-out areas, provid-ing support for continued mining. The backfill material isreported to contain 1-3 parts-per-million cyanide but is ren-dered inert by the high pH of the concrete mixture. Once hard-ened, the spilled tailings are being removed with heavy equip-ment and hand tools.
Palmer doubles in sizeTough markets fail to slow resource expansion at SE Alaska VMS project
By SHANE LASLEYMining News
While many of its peers are struggling to findmoney to continue exploration at their
promising mineral prospects and deposits,Constantine Metal Resources Ltd. has managed toforge ahead with hefty programs at its copper- andzinc-rich Palmer project in Southeast Alaska. Thisincludes C$7.13 million invested in exploring thevolcanogenic massive sulphide deposit in 2014.
Last year's program, funded by Dowa Metals &Mining Co. Ltd., along with drilling completed atPalmer in 2010 and 2013, have culminated in a 97percent expansion of the resource, compared to thelast time a calculation was completed for thedeposit in 2010.
The results of the resource estimate publishedby Constantine on May 11 outlines an inferredresource of 8.125 million metric tons averaging1.41 percent (252.6 million pounds) copper, 5.25percent (940.4 million lbs.) zinc, 0.32 grams permetric ton (83,600 ounces) gold and 31.7 g/t (8.3million oz.) silver for Palmer.
“The resource estimate significantly increasesthe size of the deposit, highlighting the tremendoussuccess of recent drill campaigns and the growingpotential of the project,” said ConstantinePresident and CEO Garfield MacVeigh. “It is opento expansion in most areas with the thickest part ofthe deposit located at the current down-dip limit ofthe South Wall Zone where mineral zoning andgeophysics support potential for a high-grade cop-per core within a more extensive area of zinc-cop-per-barite mineralization.”
Constantine and Dowa are continuing to explorethis growth potential with a US$5 million programbudgeted for this year.
Good dealMost of the new resource reported by
Constantine has been added since Dowa joined asa funding partner at Palmer in 2013.
According to an agreement inked betweenDowa and Constantine in February of that year, theTokyo-based smelting and mining company canearn a 49 percent stake in Palmer by investingUS$22 million in the VMS project over a four-yearspan.
At the time, some analysts felt that Constantinewas giving up too large a portion of the Palmerproject for the money. Following two years ofresource expansion in tough equity markets, how-ever, the deal has worked out well for both parties.
“We felt from the beginning the scale of invest-ment Dowa is making to earn 49 percent wouldgive us a good chance to establish a resource atPalmer with potential for mine viability,”Constantine Vice President of Exploration DarwinGreen told Mining News.
Dowa, which got its start from mining Kurokodeposits in northern Japan, has more than 120years of experience exploring for, mining andsmelting ore from VMS deposits like the one atPalmer. This makes the Southeast Alaska projectan ideal fit for the Tokyo-based company’s expert-ise.
Additionally, being located only 33 miles from
a Pacific Rim deep-sea port at Haines, a mine atPalmer would be well-situated to provide zinc andcopper concentrates to Dowa’s state-of-the-artsmelters in Japan.
For its part, Constantine is benefiting fromDowa’s vast VMS experience and a partnershipdeal that is structured in a way that allows it tocomplete multimillion-dollar exploration pro-grams, while avoiding a significant dilution fromselling shares in a market that has been unkind tojunior mining companies.
“It has been very refreshing to be able to focusnear 100 percent of our efforts at growing andbuilding the asset at Palmer, and avoid the distrac-tion of constantly chasing financings, which in thismarket has become a Herculean task,” Green said.
As part of the agreement, Constantine receivesannual cash payments totaling US$1.25 millionover four years. This, along with any other optionpayments and management fees received, hasallowed the company to maintain a healthy bankaccount.
“We are currently cash-flow positive, which is abizarre and privileged position to be in,” observedGreen.
At the end of January, the company hadC$636,135 in cash and its working capital totaledC$664,811.
Continued expansionOver the previous two years, Dowa has invested
roughly US$10 million in advancing the VMSdeposit and has agreed to invest another US$5 mil-lion in 2015.
This work is primarily targeting expansion ofGlacier Creek, a region of the project that consistsof five inter-related subzones of massive sulfidemineralization – RW East, RW West, and SouthWall zones 1, 2 and 3.
The South Wall zones are parallel layers of near-ly vertical VMS mineralization. At the upper extent
see PALMER DOUBLES page 10
JIM MCKENZIE
Zazu intends to useproceeds from the offering
for developmentexpenditures related to its
Lik zinc-lead-silverproject in NorthwestAlaska and general
working capital purposes.
CO
NST
AN
TIN
E M
ETA
L R
ESO
UR
CES
LTD
.
Drilling at Palmer in 2014 cut copper- and zinc-richmineralization at a 400-square-meter conductiveplate identified with downhole geophysics.
The 8-inch linedelivers paste backfill,a mixture of tailingsand cement, into the
underground mine fordisposal.
This week’s Mining News
Tough markets fail to slow resource expansion at SoutheastAlaska’s Palmer VMS project. More in North of 60 Mining, page 9.
Shell plan approvedBOEM issues its conditional go ahead to planned Chukchi Sea exploration drilling
By ALAN BAILEYPetroleum News
O n May 11 the Bureau of Ocean Energy
Management announced its conditional
approval of Shell’s plan to drill up to six exploration
wells in the Chukchi Sea, starting this year. The
company wants to search for oil in the Burger
prospect, about 70 miles northwest of the Chukchi
coastal village of Wainwright. The BOEM approval
is subject to several conditions, including Shell
obtaining all of the permits needed for its operations
and the company complying with the requirements
of the Marine Mammals Protection Act and the
Endangered Species Act.
“We have taken a thoughtful approach to careful-
ly considering potential exploration in the Chukchi
Sea, recognizing the significant environmental,
social and ecological resources in the region and
establishing high standards for the protection of this
Notley rattles industryNew Alberta premier ponders royalty review, chooses pipeline winners, losers
By GARY PARKFor Petroleum News
Canada’s Calgary-based petroleum
industry is foaming at the mouth
over the stunning election of a left-of-
center New Democratic Party govern-
ment in Alberta, while incoming Premier
Rachel Notley is trying to tiptoe between
introducing a new style of government
and accepting the reality that energy con-
tributes 25 percent of her province’s gross domes-
tic product.
If she is unable to pull off that high-wire act,
Alberta could find itself in even deeper economic
trouble
Her campaign promise of a royalty
review has the industry flailing in all
directions, unaccustomed to not getting
its way with the Alberta government in
the 65 years since the province entered
the oil-producing age.
During the 44 years of Progressive
Conservative administrations that ended
May 5, the industry was able to wield a
club over the government, threatening
and, occasionally even delivering on those threats,
to withdraw billions of dollars in capital invest-
MEA moves to new plantUtility has own power supply after transition into new gas-fueled Eklutna plant
By ALAN BAILEYPetroleum News
M ay 1 was something of a red-letter day for
power utility Matanuska Electric
Association, as the utility finally switched over to
supplying its own electricity from its new power
plant at Eklutna, northeast of Anchorage.
After several years of planning, design and con-
struction, the Eklutna plant actually started to ramp
up its operations in December, when the first of its
Delay in startupThe electric utility had originally planned on a
full startup of the power plant at the end of 2014,
the time at which a previous arrangement expired,
under which the utility had been purchasing much
see SHELL PLAN page 19
see NOTLEY ERA page 15
see MEA PLANT page 20
RACHEL NOTLEY
Mainly because of the cost of the gassupply for the Eklutna plant, MatanuskaElectric customers will see rate increasesas a consequence of the plant coming on
line, the utility has said.
Thumbs down to LNG offer; FirstNations has salmon concerns
Chances of a breakthrough in relationships between LNG
proponents and British Columbia First Nations have been
snuffed out almost as fast as they surfaced.
A small aboriginal community in the province’s northwest
unanimously spurned an offer of C$1.15 billion in cash and
5,400 acres of land in return for endorsing the Petronas-led
Pacific NorthWest LNG project.
Other members of the Lax Kw’alaams nation living in
Prince Rupert and Vancouver have yet to hold their votes
ahead of a May 12 membership meeting in Vancouver.
It took only a few days from the initial cash-and-land offer
for 180 members off Lax Kw’alaams living in the Port
BP challenging Oliktok rates;issue over expected gas volumes
BP Exploration (Alaska) Inc. is challenging a rate increase on
the Oliktok Pipeline.
The North Slope producer wants state regulators to investigate
the proposed increase, which BP called “unsupported, unjust and
unreasonable.” The changes propose a more than six-fold
increase in the rate to ship natural gas through the pipeline
between the Prudhoe Bay unit and the Kuparuk River unit.
According to BP, owner Oliktok Pipeline Co. assumed “unrealis-
tically low” throughput on the pipeline and may have failed to
accurately calculate costs that have already been recovered
through earlier shipping fees.
“There may be other reasons why the dramatic increases in the
revised rates are not just and reasonable which will become
apparent upon investigation,” attorneys for BP wrote to the
Parnell heads governors’ 7-membercoastal states coalition 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
E X P L O R A T I O N & P R O D U C T I O N
Vol. 17, No. 44 • www.PetroleumNews.comA weekly oil & gas newspaper based in Anchorage, Alaska
Week of October 28, 2012 • $2
The October issue of North of 60 Mining News is enclosed.
October Mining News inside
PHOTO BY CHRIS AREN D, COURT ES Y OF USI BELLI COA L MI NE I NC .
Thomas Tak e, ch arged w ith the large task of repairing
tires at the U sibelli Coal M ine in Healy, holds one of
some 4,500 high-paying mining jobs in Alaska. An
employment forecast published by the Alaska
Depa rtment of Labor and W or kforce Development in
October pegged the state’s mining sector job grow th
from 2010 t o 2020 at 19 percent. Page 14.
A special supplement to Petroleum NewsWEEK OFOctober 28, 2012
3 P en t a g o n ba ck s U cor e in no v a tio n
Contract ties DoD to Bokan, state-of-the-art method for extracting REEs
11 E m er a l ds g l im m e r in g o ld s e tt i n g
North C ountry Gold makes rare gem discovery in Nunavut greenstone belt
24 N e w G old t h ir s t y f or B l a ck w a te r
Miner dri lls 250,000 meters, makes vast land grab in gold-rich central BC
Budget planners cautious; landsales, well authorizations down
Bean counters and number crunchers are in full swing in
Canada assembling 2013 capital budgets against a worrying
backdrop of shaky industry forecasts, sharp declines in gov-
ernment land auctions and plunging new well permits issued
by regulators.The current betting points to troubles for the upstream,
reflected in gyrating oil and natural gas prices, and a contin-
uation of the lackluster showing in the drilling sector that has
extended over recent years.One of the early messages came from Schlumberger Chief
Executive Officer Paal Kibsgaard, who told analysts that liq-
uids activity in North America will “no longer be able to off-Hanging pipeline: September floodsleave Kenai area gas line dangling
Roads and railroad bridges weren’t the only things that
washed out in the heavy rains which hit Southcentral Alaska
in September. Marathon Oil, in the process of selling its Cook Inlet
assets to Hilcorp Alaska, is dealing with a washout along
Kalifonsky Beach Road near Kenai which left a segment of a
gas pipeline dangling. The Pipeline and Hazardous Materials Safety
Administration, PHMSA, described the situation and action it
requires in an Oct. 5 corrective action order. The affected line is a 20-inch diameter pipeline transport-
ing natural gas from the Kenai gas field to facilities south of
Kenai. PHMSA said the line was buried parallel to and with-
see BUDGET CAUTION page 18
see FLOODING AFTERMATH page 21
CD-5 is aliveConoco sanctions Alpine West; now needs partner approval; first oil by 2016
By ERIC LIDJIFor Petroleum NewsA fter years of permitting delays, ConocoPhillipsCo. is moving ahead on CD-5, the fourth satel-
lite of its Alpine field on the North Slope, the com-
pany announced Oct. 25.The ConocoPhillips board sanctioned the project
in October, Executive Vice President Exploration
and Production Matt Fox said during a third quarter
earnings call. “The project is now pending partner
approval, which is expected in November,” Fox said.
ConocoPhillips expects CD-5 production to begin
in 2016, Fox said. The company previously estimat-
ed construction would begin in 2014 with first oil in
late 2015.
After bringing the Alpine field at the Colville
River unit into production in 2000, ConocoPhillips
and its partner Anadarko brought three Alpine satel-
lites online over the following decade: Fiord in
August 2006, Nanuq in December 2006 and Qannik
in 2008. Also known as Alpine West, the CD-5 satellite
ConocoPhillips produced some 176,000barrels of oil equivalent per day in
Alaska during the third quarter, downsome 32,000 barrels of oil equivalent per
day from the same period last year.
see CD-5 page 22New field ‘challenge’ExxonMobil: Schedule is tight for achieving first production at Point Thomson
By WESLEY LOYFor Petroleum NewsM eeting the target date for starting productionfrom Alaska’s Point Thomson field will be “a
challenge,” an ExxonMobil executive said.The company has pledged to start producing natu-
ral gas condensate from the remote eastern North
Slope field by the winter of 2015-16.But it still has multiple permitting hurdles to clear
before it can begin construction of production facili-
ties and a pipeline to feed the condensate into the
existing North Slope transportation network.Company representatives appeared Oct. 23 at a
hearing of the Regulatory Commission of Alaska,
which is considering an ExxonMobil subsidiary’s
application for a certificate of public convenience and
necessity to build and operate the 22-mile pipeline.
One commissioner asked the ExxonMobil reps
whether they are on schedule with the Point Thomson
project.“We are on schedule, but it is very tight,” replied
Jeff Ray, vice president of PTE Pipeline LLC, the
company seeking the certificate for the Point
Aside from the certificate, ExxonMobilneeds a number of other major
authorizations before it can proceed withthe Point Thomson development.
see TIGHT SCHEDULE page 23Time for action is hereSouthcentral Alaska utilities are moving forward on options for gas imports
By ALAN BAILEYPetroleum NewsWith natural gas supplies from Cook Inlet set
to fall short of local gas demand by 2014 or
2015, the time has come tomove ahead with arrange-ments to supplement thoselocal supplies with importsfrom elsewhere, Southcentralpower and gas utility executives told the
Regulatory Commission of Alaska during a public
meeting on Oct. 24. Southcentral residents and
businesses depend on gas both for power genera-
tion and for the heating of buildings.“I’m personally done wringing my hands,”
Bradley Evans, CEO of Chugach Electric
Association, told the commissioners, saying he
takes responsibility for ensuring continuity of gas
supplies for his utility. Chugach Electric currently
generates about 90 percent its power using gas-
fueled power plants.
Lee Thibert, senior vice president ofChugach Electric, said that the utilities
have asked potential shippers of importedgas for expressions of interest in theimport arrangements.
see GAS IMPORTS page 24
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Kuukpik 5 Prudhoe Bay Available Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Nabors yards completing demobilization procedures Mid-Continental U36A 3-S Prudhoe Bay AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay AvailableDreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Kuparuk ConocoPhillipsOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location, Brooks Range Petroleum Under contract to Brooks Range PetroleumEmsco Electro-hoist-2 18-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Varco 22-E (SCR/TD) Prudhoe Bay StackedTDS3Emsco Electro-hoist Canrig 27-E (SCR-TD) Deadhorse, under contract 1050E to ExxonMobil for 2015
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Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site E-15 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site F-36L1 BPIdeco 900 3 (SCR/TD) Milne Point MP-H-04 Hilcorp
Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay DS 18 BPNOV ADS-10SD 273 Prudhoe Bay DSW-59 BP
North Slope - Offshore
BPTop Drive, supersized Liberty rig Inactive BP
Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Spy Island SP04-SE5 L1 ENI
Patterson UTI Drilling Co LLC 191 West McArthur River Unit #8 Cook Inlet Energy
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AkitaTSM-7000 37 Racked in Norman Well, NT Available
Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of May 14, 2015.
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 Marti Reeve
Baker Hughes North America rotary rig counts* May 8 May 1 Year AgoUS 894 905 1,855Canada 75 79 145Gulf 33 33 58
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:
Petroleum News: What’s your take onhow things went during the session?
Giessel: I am concerned that the focus
on budget causes a slip in the timeline. A
property tax bill was introduced, but it did
not include a PILT provision, despite the
revenue commissioner saying it would. It
seemed to be a template bill, requiring
work in the interim to gain credibility and
legislative passage.
The AGDC appointments were made
on time. At issue was the expertise for
some of the appointees. That was reflected
in the votes for two of those appointees.
Hopefully, the governor now appoints
people with really high technical expertise
comparable to the three he replaced.
What was troubling during this session
was a conflation of tax credits for oil and
gas development, and a call for new rev-
enues. Don’t get me wrong; we are in
unchartered waters with the budget short-
fall. But oil pays nearly 90 percent of that
bill.
We are a state that’s second biggest
source of revenue is a tobacco tax. We do
not pay a state income or sales tax, and
our citizens continue to receive a dividend
from the Permanent Fund Earnings. It is
critical to remember the source, oil, that
foots the bill for all our public needs and
wants.
I want to take this opportunity to set
the record straight: the amount of govern-
ment take at the state level from the major
oil companies is still greater than the cred-
its they receive for production. If that was
not the case, there would be no revenue in
this year’s budget to
spend, no royalties
going into the per-
manent fund. Money
is going in there.
Still, it felt like
the focus was on
making sure
progress was contin-
uing forward on
AKLNG, but like I
said most of the focus was on the budget
and how we would be proceeding with
our resource development and grow our
economic pie so to speak.
We know we are in times of constraint
so the goal of the Resources Committee,
of course, is to increase the amount of
revenue coming in. We’ve seen Caelus
being given the royalty modification. So
that’s a good thing. They are moving for-
ward with that project.
Many other projects on the Slope are
moving forward because of tax credits for
smaller independents. That’s all positive.
We still see wonderful gas developments
and/or oil exploration, of course in Cook
Inlet. Again because of those tax credits
for Cook Inlet. So we’ve been trying to
kind of keep things moving forward has
been our focus, I’d say.
Petroleum News: Can you talk a littlebit more about that tax issue? That was ahot-button topic, and still is, during thebudget debate over priorities and whatneeds to be cut and what should be kept.
Giessel: Tax credits for the majors on
the North Slope is meant to encourage
production. And it’s funny how the recent
reports of flat production are being cast as
bad news. Back in 2013, when SB 21 or
MAPA (More Alaska Production Act) was
being deliberated, Alaska was suffering
from a 7 percent annual decline in TAPS
throughout. We have pushed back the
decline curve, an event many opponents
said was not realistic.
We don’t have any control over what
OPEC does on oil prices. We cannot influ-
ence the needle on the price oil is sold at
around the world. The one real tool in our
house is encouraging production, and we
have done it.
Not only that, but people need to
remember that SB 21-MAPA is bringing
in more revenue at current prices than
ACES, the previous tax regime. There
actually is a floor, and the tax credits go
away under MAPA when the prices get
near that lower price threshold. ACES, the
previous tax policy, didn’t have that. We
protected the state from a double shock: a
drop in prices but also a true negative
drop in revenue.
I asked the Department of Revenue to
summarize for me the total amount of tax
value in a barrel of oil at today’s prices of
about $60 per barrel. At that price of oil,
under the SB 21 tax policy, the total state,
federal and local property taxes scoop 75
percent of the value of a barrel of oil. The
producers get to take home 25 percent of
the value of the barrel of oil. We are still
getting a majority share of the value for
our oil.
There is another element
to the tax credits, and that is
the tax credits paid to small
producers, independents,
and Cook Inlet explorers.
Those credits make up the
bulk of the total amount of
dollars being thrown around. This is really
important because these are different cred-
its serving very different purposes.
We hear from the minority and from
this governor that we should not be
beholden to the Big Three producers. We
need energy security. Well, again, short-
term memory loss may come into play
here. I remember when, three years ago,
we were talking about brown-outs in
Southcentral due to a lack of natural gas.
We were seriously talking about importing
LNG.
The irony of that, and the ramifications
to the reliability of the Railbelt’s intertie
aside, imagine what the fluctuations of a
heating bill would be then. We put those
credits in place, and now we have an
amazing gas supply coming online.
Schools are of no value if they aren’t
heated. Businesses can’t function without
a stable energy source. Those tax credits
offset the economic costs to the state of
the largest population area not having an
energy source. Our next challenge is to
secure stable, lower cost energy source for
the Interior.
If one looks at who supported those
independent and Cook Inlet credits that
make up most of our tax credits amounts,
you’ll be surprised. Some are the very
same people saying that we are giving
away our resource for pen-
nies on the dollar, and
assigning that tax credit lia-
bility to companies that are
not actually receiving those
credits, that is, the large pro-
ducers on the North Slope.
Oh well, it’s complicated.
Petroleum News: So you’ve been ableto stay busy as busy as you had hoped,even with no significant gas line deci-sions to make?
Giessel: Well, there haven’t been any
decisions to make, well except for the
pipeline right-of-way bill. We asked the
governor for that bill. He did deliver it.
We asked DNR and Fish and Game to go
over it and over it because we didn’t want
any errors in the identification of proper-
ties. We did find a couple of other slight
changes in Senate Finance but we did get
l G O V E R N M E N T
Resources Chair Giessel has ambitious plansAnchorage Republican says there is plenty of work to be done during interim, leading up to special session on Alaska LNG project
PETROLEUM NEWS • WEEK OF MAY 17, 2015 5
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Production declineEIA said the estimate for U.S. crude oil
production in March was 9.3 million bar-
rels per day, but the agency expects pro-
duction to decline from June through
September before growth resumes. Based
on its price forecast, EIA said it is project-
ing U.S. crude oil production to average
9.2 million bpd in both 2015 and 2016, and
said the 2015 forecast was down 40,000
bpd, 0.5 percent, from the April forecast,
while the 2016 was down 100,000 bpd, 1.1
percent.
U.S. crude oil production averaged 8.7
million bpd in 2014.
“Lower oil prices and fewer rigs
drilling for crude will take a bite out of
U.S. oil production growth this year and in
2016,” EIA Administrator Adam
Sieminski said in a statement. The agency
said the number of rigs drilling for oil in
early May was the lowest in almost five
years.
“While there are fewer rigs drilling for
crude, U.S. oil production this year is still
on track to be the highest in more than four
decades,” Sieminski said.
In March, EIA was forecasting 9.3 mil-
lion bpd this year and 9.5 million bpd in
2016, close to the peak 9.6 million bpd
annual average of U.S. production in 1970.
Increasing production in 2016EIA said it expects U.S. onshore pro-
duction to decline beginning in the second
quarter of 2015 “because of unattractive
economic returns in some areas of both
emerging and mature production regions.
Reductions in 2015 capital expenditures,
cash flows, and low-cost credit availability
have encouraged companies to defer
investment or redirect investment away
from marginal exploration and research
drilling to focus on core areas of major
tight plays.”
The agency said projected crude oil
prices for this year are high enough for
development drilling to continue in the
core areas of the Bakken, Eagle Ford,
Niobrara and Permian basins. “Companies
with lower drilling and debt-service costs
that operate on acreage in the sweet spots
of these regions are expected to continue
to drill highly productive wells in 2015.”
EIA said with WTI crude oil prices
expected to rise to an average of $67 per
barrel in the second quarter of 2016
drilling activity is expected to pick up,
with companies taking advantage of lower
costs for leasing, drilling and well comple-
tions, “resulting in growing production
beginning in the second quarter of 2016.”
Federal offshore and Alaska production
are “less sensitive to short-term price
movements than is onshore production in
the Lower 48 states,” the agency said, and
federal offshore production is projected to
rise although Alaska production continues
to fall.
Henry Hub downEIA is forecasting an average Henry
Hub natural gas price of $2.93 per million
British thermal units this year and $3.32
per million Btu next year, down 14 cents
and 13 cents respectively from the
agency’s April forecast.
Natural gas prices fell in April, then
rose slightly in the early part of May.
“Production and inventories remain abun-
dant, which is expected to keep prices at
relatively low levels in 2015,” EIA said.
Natural gas production averaged 70.46
billion cubic feet per day last year and is
projected to average 74.77 bcf per day this
year and 76.03 bcf per day in 2016, a pro-
jected increase of some 4.5 bcf per day, 6
percent, this year, and 1.3 bcf per day, 1.7
percent, in 2016, “reflecting continuing
production growth in the Lower 48 states,
which more than offsets the long-term
declining production in the Gulf of
Mexico.”
While natural gas prices are expected to
remain low, the agency said it expects
increases in drilling efficiency and increas-
es in oil production will continue to sup-
port growing natural gas production, with
most growth expected to come from the
Marcellus shale.
Increases in production are expected to
decrease demand for natural gas imports
from Canada growth in exports to Mexico,
particularly from the Eagle Ford in South
Texas. l
l F I N A N C E & E C O N O M Y
EIA forecasts $61 Brent average in 2015US crude production averaged 9.3 million bpd in March, expected to decline June thru September, average 9.2 million bpd this year
AOGCC schedulesenforcement hearingThe case involves alleged safety valve system violations at CookInlet Energy’s Sword No. 1 oil well; hearing set for Aug. 4
NORTH OF 60 MINING NEWS is a weekly supplement of Petroleum News,a weekly newspaper. To subscribe to North of 60 Mining News,
call (907) 522-9469 or sign-up online at www.miningnewsnorth.com.
Several of the individualslisted above are
independent contractors
North of 60 Mining News is a weekly supplement of the weeklynewspaper, Petroleum News.
NORTHERN NEIGHBORSCompiled by Shane Lasley
Rickford: Mining matters to CanadiansCanada Minister of Natural Resources Greg Rickford May 11 commemorat-
ed the 19th National Mining Week, which ran from May 11 to 17. “National
Mining Week is an opportunity to recognize Canada’s international leadership
and innovation in the mining sector and to underscore the importance of mining
to communities across the country,” he said. One of the largest mining nations
in the world, Canada produces more than 60 minerals and metals. “Quite sim-
ply, mining matters to Canadians. It is a cornerstone of our economy and pro-
vides benefits from coast to coast to coast. The mining and mineral processing
industry generates close to $60 billion for Canada’s GDP, employs more than
380,000 Canadians, including 10,000 Aboriginal Peoples, and accounts for one-
fifth of Canada’s merchandise exports,” said Minister Rickford. In Economic
Action Plan 2013, the Government of Canada committed $100 million over
seven years to renew the Geo-mapping for Energy and Minerals program to sig-
nificantly advance and modernize geological knowledge in the North. Economic
Action Plan 2015 proposes spending C$22 million over five years on a geo-
science initiative focused on deeper deposits; and C$23 million on another five-
year program looking into the technological innovation needed to separate and
develop rare earth elements and chromite. “Our government’s plan for responsi-
ble resource development is enhancing Canada’s position as a global mining
and exploration giant, creating jobs and opportunity for Canadians,” said
Rickford.
Seabridge targets Deep Mitchell at KSMSeabridge Gold Inc. May 12 said the 2015 exploration program at its KSM
Project in northwestern British Columbia is planned to begin with drilling at the
lower elevations of the Mitchell valley and then proceed to Kerr and Iron Cap.
Over the past two years, Seabridge has targeted higher grade core zones beneath
KSM’s near surface porphyry deposits, resulting in the discovery of Deep Kerr
and the Iron Cap Lower Zone, two copper-rich deposits that have added nearly
one billion metric tons to project resources. This year’s main target is a possible
higher grade core zone beneath Mitchell, the largest deposit at KSM. A high res-
olution airborne magnetic survey has recently been completed to aid in refining
the drill targets, particularly at Mitchell. “The potential under Mitchell has been
our top exploration target for more than four years but earlier attempts to drill it
ran into technical difficulties. We believe we now have a reliable solution that
will enable us to complete holes into this high value target,” explains Seabridge
Chairman and CEO Rudi Fronk. This year’s program at KSM is considerably
smaller than previous years, reflecting the completion of an environmental
assessment process which culminated in provincial and federal approvals in
2014. The company said the C$16.4 million financing completed last month
will provide plenty of funds to complete its planned 2015 program.
Schaft Creek JV continues optimizationCopper Fox Metals Inc. May 6 said the summer field program for the Schaft
Contact North of 60 Mining News:Publisher: Shane Lasley • e-mail: [email protected]
Phone: 907.229.6289 • Fax: 907.522.9583
see NORTHERN NEIGHBORS page 11
l O P I N I O N
Solons seek clarityon ‘waters of U.S’Though it is too soon to break out the champagne, Congresshopefully will pass bipartisan legislation to bring the EPA to heel
By J. P. TANGENSpecial to Mining News
A fter six years of lackluster perform-
ance under the leadership of Sen.
Harry Reid, D-Nev., Congress now
appears poised to seize the initiative and
rein in the U.S. Environmental Protection
Agency’s ambitious assertion of jurisdic-
tion over the waters of the United States.
The EPA has long used the Clean Water
Act as a federal zoning tool and implicit-
ly asserted jurisdiction over virtually
everything that is wet, ever has been wet
or ever will be wet. In Alaska, because
permafrost comes within the agency’s
definition of something wet, tens and tens
of millions of acres within the state have
been regarded as wetlands and, therefore,
waters of the United States that EPA feels
justified in attempting to regulate.
The definition of what constitutes
waters of the United States has been con-
troversial since the early 1970s and the
EPA has been persistent in pushing the
envelope at every opportunity, taking the
question twice to the Supreme Court of
the United States, without having the
matter meaningfully resolved. Most
recently, the EPA promulgated an
extremely aggressive definition of what
comprised the waters of the United
States; however, because the EPA took
the position that its definition did not
constitute a change in the law, it argued
that it was not subject to the numerous
fail-safes that Congress had enacted to
ensure that the Agency’s interpretation of
its jurisdiction did not sublimate the man-
dates of other agencies of government.
States that produce the commodities
upon which we all rely are frequently
sparsely populated and depend on vast
tracts of land, often public land, to pro-
duce the corn and cattle and timber and
copper that our society demands. The
economies of those states generally are
dependent upon the availability of water
and access to land that is sometimes wet.
Although the EPA commonly gives pass-
ing weight to the economic impact of its
regulations, the focus of its regulatory
efforts is invariably to control and restrict
rather than foster and encourage resource
development and commodity production.
Alaskans have long suffered from this
singular bias; however, we are not alone.
In the land between the Appalachians and
the Rockies, farmers and cattlemen have
borne the unrelenting brunt of the EPA’s
insensitivity, and now, through their con-
gressional delegations, Democrats and
Republicans alike, they are fighting back.
On May 12, the U.S. House of
Representatives passed H.R. 1732 by a
vote of 261-155, with the support of 24
Democrats. The U.S. Senate is also con-
sidering bipartisan legislation to require
the Secretary of the Army and the
Administrator of the EPA to propose a
regulation revising the definition of the
waters of the United States and this time
to comply with the Administrative
Procedures Act, the Regulatory
Flexibility Act, the Small Business
Regulatory Enforcement Fairness Act,
the Unfunded Mandates Act, and
Executive Orders 12866, 13563 and
13132; all things the EPA decided that it
did not have to do when it proposed its
rule last year.
The legislation consistently is an effort
to leverage the EPA into a mode wherein
it is regulating pollution of traditional
waterways and not underground hydrolo-
gy or isolated water bodies. It is legisla-
tion that bodes well for resource develop-
ers throughout the nation and especially
in Alaska and bears watching.
Assuming that the legislative process
is now working again, and that the House
and Senate will agree on a bill that has
strong bipartisan support, all that remains
is for the President to sign it into law.
The current proposals are reasonable on
their face, are consistent with the best
interests of the national economy and
should be met with the President’s
approval.
For the first time in more than six
years, the light of hope is appearing on
the distant horizon. Let this be the first of
many measures that meet the needs of the
nation. l
continued from page 9
PALMER DOUBLES
Mining & thelaw
The author,J.P. Tangen hasbeen practicingmining law in J.P. TANGENAlaska since 1975. He can be reached [email protected] or visit his Web site atwww.jptangen.com. His opinions do notnecessarily reflect those of the publishersof Mining News and Petroleum News.
see PALMER DOUBLES page 11
opens up the opportunity for considerable
further expansion and will be a focus for
ongoing drilling,” MacVeigh said at the
time. “The thickness and high copper
content associated with a large conduc-
tive target enhances the potential around
this new area.”
While not as rich in copper, CMR14-
65 cut higher grade zinc across the widest
mineralized intercept to-date at Palmer.
Intersecting the conductor plate at
South Wall about 50 meters east and 50
meters above hole 54, hole 65 cut 89
meters grading 0.79 percent copper, 5.03
percent zinc, 21.1 g/t silver and 0.32 g/t
gold. This long intercept included 15.4
meters of 0.5 percent copper and 7.9 per-
cent zinc in an upper zone and 37.4
meters of 1.2 percent copper and 6.0 per-
cent zinc in the lower zone.
Both holes targeted a 400-square-
meter conductive plate that has proven to
be a rewarding resource expansion target
at Palmer, and will be the first area target-
ed when drilling resumes in early June.
In addition to expanding the conductor
plate, the company is looking forward to
testing an area farther down the moun-
tain.
“We are also really excited about test-
ing the faulted offset of the zone below
the Kudo fault. The zone appears to be
thickening with depth up to the edge of
where it intersects the fault, and mineral
zoning suggests increasing copper grade
and potential for a copper-rich vent center
at depth,” said Green.
Barite-richUpon reporting the new resource,
Constantine also noted that a significant
portion of this deposit is barite, a high-
density material widely used as a weight-
ing agent in drill muds to prevent
blowouts during oil and gas exploration.
Common throughout most of the min-
eralization at Palmer, barite presents mul-
tiple benefits for the potential develop-
ment of the project.
First, unlike pyrite, barite is a stable
sulfur-bearing mineral that is not prone to
acid rock drainage.
Second, the mineral sells for more
than US$100 per ton, providing the
potential for selling a product that would
normally be sent to tailings. According to
the U.S. Geological Survey, the United
States imports 79 percent of its barite,
most of which comes from China.
The resource area at Palmer is estimat-
ed to consist of roughly 14 percent barite
by volume or about 24 percent by weight,
making the Southeast Alaska project a
potential domestic source for the mineral.
While the junior still has to work out
whether it can economically produce a
marketable product from the barite at
Palmer, management is hopeful.
“Of significance is the fact we would
likely be pulling any barite from the
rougher tails after already being milled,
and passed through the copper and zinc
flotation circuits. So (there) shouldn’t be
a lot of additional process cost,” Green
said.
In the meantime, Constantine and
Dowa will continue efforts to expand the
barite-rich VMS deposit.
“We are very pleased with progress to
date and, with $12 million left to spend
over the next two years, believe we are on
the right track,” Green added. l
11NORTH OF 60 MINING
PETROLEUM NEWS • WEEK OF MAY 17, 2015
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Creek copper-gold project in northwestern British Columbia is expected to start
in early June. The Schaft Creek joint venture – 25 percent Copper Fox, 75 per-
cent Teck Resources – is planning a 2,500-meter diamond drill program to test
the depth of copper mineralization observed in veins on surface and in
hydrothermal breccia at the LaCasse zone. Work on a comminution (grinding)
study to determine power requirements and circuit design; modelling of the geo-
metallurgical domains for the Schaft Creek deposit; and other studies related to
optimization work for the Schaft Creek deposit is ongoing. If warranted by the
new studies, updating of operating and capital costs, flow-sheet design criteria,
and a new financial simulation are planned for later in the year. A feasibility
study completed in 2013 outlined a 130,000-metric-ton-per-day open-pit mine
operating for 21 years at Schaft Creek based on proven and probable reserves of
940.8 million metric tons averaging 0.27 percent copper, 0.19 grams per metric
ton gold, 0.018 percent molybdenum and 1.72 g/t silver.
Canada Zinc readies to drill CardiacCanada Zinc Metals Corp. May 12 outlined a 5,000-meter drill program that
will focus primarily on its Cardiac Creek zinc-lead-silver deposit at its Akie
project in northern British Columbia. Crews are to mobilize to the project early
in June and drilling is expected to continue into September. A total of 126 holes
(53,750 meters) have been drilled on the
Akie property, 78 of which contribute to
an NI 43-101-compliant resource estimate
for the Cardiac Creek deposit. An addition-
al 35 drill holes test the Cardiac Creek
horizon over a 7,000-meter strike length,
or other exploration targets on the proper-
ty. The primary goal of the 2015 program
is to expand the down-dip extents of the
high-grade core to the Cardiac Creek deposit. “We strongly believe the recent
upturn in the price of zinc is signaling the beginning of the long-expected dra-
matic decline in global zinc inventories and lack of new supply. In the face of
the looming zinc shortage, Canada Zinc Metals is positioned as a premier zinc
explorer with a world-class zinc deposit situated in a geopolitically and finan-
cially stable jurisdiction,” said Canada Zinc Metals President and CEO Peeyush
Varshney.
High-grade zinc cut at Prairie CreekCanadian Zinc Corp. May 5 reported that the first four drill holes of an ongo-
ing underground drill program cut the high-grade zinc structure targeted at the
Prairie Creek Mine in the Northwest Territories. The 6,000-meter drill program
is testing for new areas of mineralization in proximity to the mine workings and
aiming to convert a portion of the large inferred mineral resource at Prairie
Creek to the indicated category for potential inclusion in an update of the pre-
liminary feasibility study scheduled to be completed later this year. In this par-
ticular area of the mine, the mineralization occurs either in the Main Quartz
Vein – a high-grade, steeply dipping, fault structure that hosts the majority of
the defined reserves and resources – or in the Stockwork Zone – a series of nar-
row high-grade veins occurring at an oblique angle to the MQV. All four holes
intersected the MQV structure, the best of which cut 3.03 meters grading 30.5
percent zinc, 27.5 percent lead and 289 grams per metric ton silver. Three of the
holes intersected the Stockwork Zone, the best of which cut 3.63 meters grading
11.9 percent zinc, 7.2 percent lead and 89 g/t silver. l
continued from page 10
NORTHERN NEIGHBORS
continued from page 10
PALMER DOUBLES“It has been very refreshing to beable to focus near 100 percent of
our efforts at growing andbuilding the asset at Palmer, andavoid the distraction of constantlychasing financings, which in thismarket has become a Herculean
task.” –Darwin Green, vicepresident of exploration,
Constantine Metal Resources Ltd.
The primary goal of the 2015program is to expand the
down-dip extents of the high-grade core to the Cardiac
Vigor expands its new build capacity in TacomaFabrication teams at Vigor Industrial’s
Tacoma, Washington, shipyard have deliv-ered three 60-foot by 24-foot by 15.5-footbreasting barges to Foss Maritime. Thebarge system will be used to moor Shell’sdrill rigs at Terminal 5 in Seattle,Washington, where the company is sched-uled to ready its fleet for Arctic drilling thissummer.
The project was completed in less thantwo months and created 60 family wagejobs for the Tacoma yard and its subcontractors. “We are so pleased that our Tacoma ship-yard is now building new vessels,” said Bryan Nichols, Vigor Fab sales manager. “Over theyears, Tacoma teams have earned a stellar reputation for quality commercial ship repairand major refits. Adding new builds to its resume increases our capacity in the region.”
“With Tacoma’s history of satisfied customers in refits and module construction, thiswas a logical next step,” added Nichols. “Our goal has been to create facilities that fill theneeds of different types of customers. Tacoma offers the responsiveness of a smaller yardwith the resources of the broader Vigor family.”
Cindy Shake inducted into Anchorage Athena Society Cindy Shake of AECOM was inducted into the Anchorage Athena
Society at the annual luncheon March 30. The Anchorage AthenaSociety is a program of the Anchorage Chamber of Commerce andlocal chapter of an international organization. The society describesits purpose as encouraging the potential of women as valued mem-bers and leaders of the business community.
Shake is an award-winning communication professional, whowas named the 2014 Marketer of the Year by the AmericanMarketing Association, Alaska Chapter. She was principal of a suc-cessful graphic design firm for more than 25 years and has 30 yearsof combined professional experience in marketing, business devel-opment, management, communications and graphic design.
Global Diving & Salvage announces addition of GTS Global Diving & Salvage is pleased to announce the addition of Global Technical
Services to its existing three core services, marine construction, marine casualty response
see OIL PATCH BITS page 18
CINDY SHAKE
VIG
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PETROLEUM NEWS • WEEK OF MAY 17, 2015 17
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Petroleum News: Did the PILT billcome a bit late for your liking?
Giessel: Very late.
Petroleum News: What is your out-look on how things are right now withthe AKLNG project?
Giessel: Well, I am cautiously opti-
mistic. What I am hearing from AGDC
and the AKLNG people, things are mov-
ing forward. I’m hopeful that will contin-
ue. Of course, I have concern the governor
is spending time and money to do a 45-
day review of the AKLNG project and I’m
hoping that the outcome is one that still
supports that project going forward.
I certainly understand as the state’s new
chief executive that he would want in-
depth information about the most signifi-
cant project that we have. At the same
time, I’m hopeful the people doing this
review have the experience, credentials
and expertise to give it a proper vetting, so
we’ll see how that turns out.
Gov. Walker is well intentioned, and
there are growing pains to a new adminis-
tration. That said, his talk of a competing,
line to AKLNG is disconcerting. It is espe-
cially so when Gov. Walker talks about a
pipeline that is, at minimum, 51 percent
bought and paid for by the state, at a time
when we are facing an $8 billion budget
shortfall over the next two years.
Despite not having our side of the
house in order, our partners in AKLNG
are plowing ahead. We want to make sure
the negotiating teams for the state contin-
ue to hash out the best agreements with
our other partners.
There are many types of agreements
that need to be made. Exxon lead engi-
neer, Steve Butt, and his team are really
hard at work. It looks like pre-feed devel-
opment work will be done by this fall. We
have to reach agreements in order to give
them more work to do. This is an A-plus-
plus team; to keep that band together they
need sheets of music. For all the criticism
of the parties in the past (some of it
frankly well founded), I don’t want the
state of Alaska to be the party that holds
up the project this time, after we’ve
demanded a gas pipeline for over 40
years.
Overall, this was by no means an oil
and gas session. We did pass SB 70, a
right-of-way bill. It passed the Senate
unanimously and I’m pretty sure it passed
the House as well in such a fashion.
Petroleum News: Several lawmakers,including yourself, have gone out of yourway to give the governor the benefit ofthe doubt for being new in his role. Thatsaid how would you characterize theLegislature’s relationship with the gover-nor?
Giessel: Well, I think that the governor
and the Legislature spent the last session
getting to know each other. The governor
was learning the process and the rules of
various branches of government. I think
he has a clearer picture now that the
Legislature is a separate but equal branch,
and where we fall in the government
structure. I’m hoping that will make our
relationship going forward a bit smoother,
perhaps a bit more mutually respectful, but
that remains to be seen. I think we need to
be patient with each other and a bit more
respectful.
Petroleum News: Do you think thatrespect could be tested in October ifthere is a special session?
Giessel: Yes, it certainly could, and I’m
hoping that doesn’t happen. It would not
benefit the state if that were to happen.
Petroleum News: Do you still want tosee a special session in the fall?
Giessel: Yes, I think first of all, it
would mark a continued movement for-
ward of AKLNG because there will be
then some contracts for the Legislature to
review, and that’s a good thing. It would
also be a time when we could address the
payment in lieu of taxes issue. There may
be need for additional attention to the
budget, depending on what happens with
this first special session.
Petroleum News: One of the budgetissues lingering is AGDC money beingremoved from the budget to fund educa-tion. Under the governor’s new budgetproposal, he wants money put back in.He says he needs it for negotiations withTransCanada. What do you make of that?
Giessel: I’m not clear what that means.
We signed a memorandum of understand-
ing with TransCanada and I’m not sure
what finances would be needed to go for-
ward in negotiating further. That was
never defined, so I’m confused by that.
Petroleum News: So does that giveyou pause about keeping money there orputting it back?
Various functionsThe Kuparuk Pipeline Co. built what is
now known as the Oliktok Pipeline in 1980,
as a 16-inch crude oil pipeline leaving the
Kuparuk River unit. When Kuparuk
Pipeline built a 24-inch crude oil pipeline
for the field, in 1985, it converted the small-
er line to deliver gas from the Kuparuk
River unit to Pump Station 1 of the trans-
Alaska oil pipeline.
Oliktok Pipeline Co. was created to
operate the renamed pipeline. Today, the
company is a subsidiary of ConocoPhillips
Alaska Inc., which operates the Kuparuk
River unit.
That function lasted until 1988, when the
Oliktok Pipeline stopped operations. The
pipeline resumed operations about 1995,
this time shipping natural gas and natural
gas liquids the opposite direction, to the
Kuparuk River unit, for enhanced oil recov-
ery.
The pipeline made another change in
2014, this time to deliver only gas to the
Kuparuk River unit to power field opera-
tions. The oil field had typically produced
enough associated gas to inject into the field
for enhanced oil recovery with volumes left
over to power field operations. Declining
oil production in recent years meant declin-
ing gas production, making imports neces-
sary. Those shipments began in November
2014.
As a 26.36 percent owner (and operator)
of the Prudhoe Bay unit and a 38.2 percent
owner of the Kuparuk River unit, BP has
interests on both ends of the Oliktok
Pipeline.
Old charges less than $1Under the proposed changes, the cost to
ship a thousand cubic feet of gas from
Prudhoe Bay to the Milne Point connection
would increase to $2.55, from 41 cents. The
cost to ship a thousand cubic feet of gas
from Prudhoe Bay to the Kuparuk River
unit would increase to $3.34, from 54 cents.
In April, the Regulatory Commission of
Alaska approved the increase on a tempo-
rary and refundable basis while it consid-
ered the matter.
The main argument is over throughput.
Generally speaking, when a pipeline is car-
rying fewer supplies, it must compensate by
increasing rates. With regulated pipelines,
operators use actual throughput figures
from recent years to estimate future ship-
ments.
Those calculations can become compli-
cated when a pipeline is new or beginning
new service. BP believes Oliktok Pipeline
Co. estimated throughput for the coming
year based on initial rates without consider-
ing what might happen once service is
“fully ramped up.”
On top of that, BP believes throughput
will only rise as Kuparuk River unit oil pro-
duction — and therefore associated gas pro-
duction — continues to decline as the field
ages.
Another point of contention is the age of
the pipeline. BP believes Oliktok Pipeline
may have calculated the age of the pipeline
from 1985, when natural gas shipments
began under the Oliktok Pipeline name,
rather than from 1980, when the pipeline
was built.
—ERIC LIDJI
18 PETROLEUM NEWS • WEEK OF MAY 17, 2015
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Anyone from the administration, too,
they are certainly welcome. We will be
inviting Deputy (Resources)
Commissioner (Marty) Rutherford, who
has signed the confidentiality agreement.
ADGC board members as well will be
there. We’ll be getting an update on things
going forward, or any glitches if there are
any.
Petroleum News: During your commit-tee hearings, you noted how SB 57, cleanair act bill, is also a priority for the interimand moving forward. What’s driving thisbill?
Giessel: The concern of course is these
rules being promulgated by the EPA are
intended to discontinue coal-powered gen-
eration. Here in Alaska we depend on that
coal. It is one of our low-cost fuel sources.
The rules we anticipate would be unattain-
able. The bill requests the Department of
Environmental Conservation to do a cost
analysis impact in Alaska. It would be part
of their work anyway, but we are asking
them to do it a more structured format and
something the Legislature will be able to
review. The number one request in the bill
is that we seek an exemption for the state
of Alaska.
So we will work on that as well. But the
Resources Committee will want an update
on the Interior Energy Project. We passed
HB 105, and we will want to hear the
progress. It is an important issue to get
affordable energy to Fairbanks and time is
of the essence.
Petroleum News: Let’s talk about theIEP bill. You say you want to monitorprogress, but what would you expect tohear so soon?
Giessel: It’s not necessarily that they
will have completed aspects, but we want
to watch the progress as they go forward
and what the fiscal analysis looks like,
how they are making the decision of
what’s economic and what’s not. They set
the target price of $15 of gas delivered to
the burner tip in Fairbanks. That’s a pretty
high bar. I’m wondering, first of all, how
they set that bar. Second, if they are able
achieve it, that would be pretty impressive.
You might have heard me say at the end of
the committee meeting that the Resources
Committee is concerned that AIDEA does-
n’t step in between the private sector’s
process in the sale of assets, and it felt like
that was happening. They say it wasn’t.
I’m interested in following that process
and making sure that wasn’t going on.
Petroleum News: OK, looking even fur-ther ahead. I realize you’ve noted plans forthe interim and a hope for the fall specialsession, but can you provide a look aheadfor the second year of the 29th Legislaturein January?
Giessel: I want to focus on a climate of
stability for investment. Oil prices are driv-
ing investment into very conservative
plays. SB 21 did that. Despite higher gov-
ernment take at these prices, this is a better
overall system because it is stable and con-
sistent.
I continue to have an interest in what
our shale oil opportunities look like. We
have not heard much about Great Bear
Petroleum’s work in the last few years. I
recall several Senate Resources Committee
meetings in years past in which very opti-
mistic forecasts were made about oil pro-
duction from our shale deposits.
Next session will be touching up any-
thing not covered in the fall special session
related to AKLNG. Our goal is to get to a
FEED decision by the second quarter of
next year. That’s a big deal. That’s tens of
billions of dollars in this project, that’s six
TAPS projects bundled into one.
That’s good jobs for our labor force,
getting our trade halls, technical education
and job centers jammed with new folks
learning a trade that will give them good
paying wages for nearly a decade. This is
the legacy I want to leave our next genera-
tion, just as my generation benefited from
TAPS and North Slope oil discovery.
My focus on next session is keeping
track of the long haul. We cannot be penny
wise and pound foolish. There is not an
income tax high enough, or an industry
robust enough, to replace the revenue we
get from oil.
Our biggest shot at growing the pie is a
gas pipeline. I will be focusing on that.
Any legislation that undercuts that, includ-
ing raising taxes after we’ve spent the last
10 years doing nothing but argue and
change oil taxes, will not get a warm wel-
come from me. l
continued from page 17
GIESSEL Q&A
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