Thursday, December 31, 2015

Brollini 2015

Brollini 2015! May this new year bring many opportunities your way, to explore every joy of life and turning all your dreams into reality and all your efforts into great achievements. Happy New Year!

Thursday, December 24, 2015

Thoughtful Thursday Christmas Greeting

2015 Thoughtful Thursdays Alaska Christmas greeting. Thank you to all who have participated in my Thoughtful Thursday activities celebrating and appreciating Alaska's oil industry since 2012 ( Look for lots of Thursday fun and education in 2016.


Saturday, August 15, 2015

Russia raises tensions; Submits claim for 463,000 square miles of Arctic seabed, including North Pole

Guy Park
For Petroleum News

Eight years ago a Russian polar expedition descended through the waters of the Arctic Ocean in a Mir submarine and dropped a canister containing a Russian flag to the sea bed, 2.5 miles beneath the North Pole.

Per Stig Moller, a former foreign minister of Denmark, which has also staked a claim to the pole, told his Russian counterpart: “Just because you plant a flag there doesn’t mean you own it,” to which the Russian replied: “Just because the Americans planted a flag on the Moon. ...”

Some tended to view the incident as a stunt. Others were less nonchalant and that mood has since been reinforced by the saber-rattling Russia has since indulged in, culminating with its annexation of Crimea, the threat it has posed to the Ukraine and the Baltic states and the combat exercises it has conducted in the Arctic.

That military presence in the Arctic - which has involved 38,000 troops, 50 surface ships and submarines and 110 aircraft this summer - has included the restoration of a Soviet-era base on the New Siberian Islands, along with other military outposts in the region.

Revised submission

Any doubts about the seriousness of Russia’s activities in the region have now been put to rest, with Moscow’s unveiling earlier in August of a revised international submission that lays claim to a broad expanse of Arctic territory, including the North Pole.

The Russian foreign ministry said it is claiming control over 463,000 square miles of Arctic sea shelf extending about 350 nautical miles from the shore.

Russia, the United States, Canada, Denmark and Norway have all been trying to assert jurisdiction over parts of the Arctic, which the U.S. Geological Survey estimates has one-eighth of the world’s untapped oil and a quarter of its natural gas.

Rivalry for development of those resources - which some had once hoped would be a gentlemanly competition - has intensified as shrinking polar ice has opened up new opportunities for shipping and exploration and lowered drilling costs in the process.

Russia was first to submit its claim in 2002, but the United Nations sent that back for lack of evidence.

The resubmitted bid contains “ample scientific data collected in years of Arctic research” to support the claim, the Russian ministry said, indicating it now expects the U.N. Commission on the Limits of the Continental Shelf to start reviewing the bid this fall.

The U.N. Convention on the Law of the Sea allows all coastal nations to extend their jurisdiction beyond 200 nautical miles as long as they can prove the boundary claim is a natural extension.

The submission made by Denmark last December is seen as a test of whether Russia is willing to uphold its commitment and abide by the convention which says countries may control an area of seabed if they can show it is an extension of their continental shelf.

The key element of the counterclaims is the Lomonosov Ridge which bisects the Arctic, starting in Greenland.

Canadian claims

Canada is also developing its own plan to assert sovereignty over part of the ridge.

In late 2013, Prime Minister Stephen Harper ordered officials to rewrite Canada’s Arctic claim to include the North Pole and conduct more survey work this summer before submitting the document.

When Russia released its updated submission, its embassy in Ottawa said that Russia and Canada had previously agreed to allow the U.N. commission overseeing the issue to evaluate and rule on the quality of the hydrographic research “without prejudice to the rights of the other state.”

Rob Huebert, a political science professor and an Arctic expert at the University of Calgary, said it is now Harper’s responsibility to make clear whether his government is willing to negotiate with Russia where claims intersect.

“It is in Canada’s interest to have a safe and stable Arctic,” he told the Globe and Mail.

But he suggested Canada’s recent use of the Arctic Council as a forum to hammer Russia and President Vladimir Putin over tensions in the Ukraine might pose a challenge to serious negotiations.

However, Huebert suggested it is “inevitable” that talks will take place over the next five years, adding that the more reasonable Russia appears to be on the issue the more Canada risks being isolated, especially now that it has been chastised by the United States for making the Ukraine an issue at the Arctic Council.

Read more:

Walker wants 51% stake in AK LNG

Alaska Contract Staffing
By Tim Bradner
Alaska Journal of Commerce

Alaska Gov. Bill Walker talks with BP Alaska President Janet Weiss during a May 22 visit to Prudhoe Bay. Walker has briefed legislators that he wants the state to take a 51 percent ownership in the Alaska LNG Project and that he may propose a gas reserves tax as leverage against North Slope gas owners BP, ExxonMobil and ConocoPhillips.

Alaska Gov. Bill Walker talks with BP Alaska President Janet Weiss during a May 22 visit to Prudhoe Bay. Walker has briefed legislators that he wants the state to take a 51 percent ownership in the Alaska LNG Project and that he may propose a gas reserves tax as leverage against North Slope gas owners BP, ExxonMobil and ConocoPhillips.

Gov. Bill Walker is still pushing North Slope producers for a larger share of the Alaska LNG Project, and may promote a state gas reserve tax as leverage against the companies, state legislative leaders briefed recently on the governor’s plans said in interviews.

The governor’s office would not comment on the briefings.

“This is all very deliberative, so it’s too soon for us to comment,” press secretary Katie Marquette wrote in an email.

Legislators were willing to share what they’ve heard so far.

“We were told the governor desires a majority ownership in the project, at least 51 percent, and that the administration is considering the use of a gas reserves tax if one or more of the companies don’t want to play,” said Rep. Mike Hawker, an Anchorage Republican who was one of the leaders briefed.

Hawker is chairman of the Legislative Budget and Audit Committee. He and House Speaker Mike Chenault, R-Nikiski, were briefed by administration officials.

A reserves tax is a property tax on the value of natural gas reserves in the reservoir.

Hawker said his overall concern is that the governor is veering away from a partnership concept in the plan now agreed to by the producers where each owner of gas resources on the North Slope, including the state, finances and owns a share of the project equal to the gas ownership.

Under this arrangement “alignment” on commercial terms among the parties is achieved, Hawker said.

“The governor’s idea (of a larger state ownership) goes another direction, possibly dividing the parties rather than seeking alignment,” he said.

Chenault said, “I know the governor wants a bigger piece of the pie but this project is working now as it was designed,” as a partnership with the state on an equal footing with each of the three major producers.

“For years the three producers tried to figure out a way to make this work having to pay 100 percent of the costs but getting only 75 percent of the revenues,” because of the state royalty and tax share, the Speaker said.

In making the state a partner, the costs and shares of revenues were aligned, “and it made sense,” Chenault said.

On the reserves tax, Chenault said people have talked about it for years and the option for the state is always there, but now is not the time.

“We shouldn’t be threatening them now. We should be working with them,” he said.

State Sen. Anna MacKinnon, R-Eagle River, another legislative leader who was briefed, voiced similar sentiments: “If you want to be partners who work your disagreements out, you don’t hammer people,” with things like a reserves tax.

MacKinnon is co-chair of the Senate Finance Committee. MacKinnon also said her impression is that Walker may be looking to enlarge the state share, or be ready to do it, as a hedge against one of the three producers balking at the last minute on the big project, which is now estimated to cost $45 billion to $65 billion.

MacKinnon and State Sen. Cathy Giessel, R-Anchorage, who was briefed along with MacKinnon, said they are primarily concerned with how Alaska will be able to pay for an enlarged share of the project given the state’s diminished finances and large budget deficits due to a sharp drop in oil revenues.

“For the state, the financing issues with this are mind-boggling,” Giessel said, who is chair of the Senate Resources Committee.

The lawmakers were told that the governor’s plan is to finance the state share — currently 25 percent but up to 51 percent if the state achieves a majority share — with debt through project revenue bonds and with no cash equity invested by the state. If the project cost is $50 billion, the state’s financing share would range from $12.5 billion to $25 billion.

“That is certainly possible, but it could be expensive in the long run,” Hawker said. “I’d also have to be convinced that it could be done without pledging the state’s general credit as a guarantee, particularly our Permanent Fund.”

Alaska’s Permanent Fund is a state savings fund of oil revenues, and now exceeds $55 billion in value. Tapping the fund to backstop a state gas project financing would likely require a constitutional amendment.

“I don’t have a great deal of confidence in this approach,” MacKinnon said, but she is still willing to listen to ideas for creative financing, she said.

Giessel said mentions were made in the briefings of possible state partnering with just one or two companies, including Japanese firms. Walker and senior state officials recently met privately with a senior Japanese government and industry delegation in Seattle and a follow-up meeting is planned in Tokyo in mid-September when the governor is to be there for a major LNG conference.

Total debt financing would leave the state with no equity and no profits earned on an equity share, which would reduce the revenues the project might bring the state over the long term, the legislators also said in the interviews.

Walker also appears intent on not having TransCanada Corp. as its partner in the project.

“This is what we’re hearing,” Giessel said.

MacKinnon said, “The governor has been fairly clear in his public statements that he would prefer that TransCanada not be part of the project.”

Currently, TransCanada would finance and own the state’s 25 percent share of the 800-mile, 42-inch pipeline and the large Gas Treatment Plant at Prudhoe Bay, with the state signing a long-term shipping contract to transport state-owned gas through TransCanda’s capacity in the treatment plant and pipeline.

The state would directly own, and finance, its 25 percent share of the large LNG plant planned at the southern terminus of the pipeline at Nikiski, south of Anchorage. However, the state’s agreement with TransCanada ends in December unless it is extended.

If the state does not extend it, TransCanada will be reimbursed for its investments to date, which are expected to exceed $100 million.

Another change the state is seeking is to enlarge the pipe diameter from 42 inches, in the current plan, to 48 inches, the legislators were told.

In their briefing, Giessel and MacKinnon said administration officials told them producing companies might go along with this if the state were willing to pay for it. Giessel expressed concern, however, about the effect such a change could have in delaying the Federal Energy Regulatory Commission permitting now underway.

Hawker said he has been told there are no U.S. steel mills capable of rolling 48-inch high-pressure steel and only three mills with that capability worldwide. The lack of manufacturing options could raise the price, he said.

MacKinnon said if the state pays for enlarging the pipe it would own the extra capacity and would have to manage it.

“We would be responsible for finding more molecules to ship. What experience do we have in this?” she said.

Chenault said he has told the governor that legislators want a regular flow of information, “so we can see where the administration is heading. We’ve got to get our members up to speed. They (the administration) can’t just dump all this on us a few days before a special session.”

Meanwhile, a reserves tax as a lever on the producing companies would face practical obstacles and would also likely spark lawsuits. The tax is essentially a property tax and while some government jurisdictions, mostly municipalities, levy property taxes on oil and gas reserves in the ground, there are complications.

One complication on the North Slope is that a reserves tax would have to uniformly be applied to all natural gas in a field without distinguishing among lease-owners or companies. To penalize one lease-owner and not another will be complex, although it is possible that a credit against the property tax might be granted for any gas produced.

More fundamentally, because the oil and gas fluids are comingled in the reservoir it would be tricky to have only the gas taxed without also taxing the crude oil.

Also, what is being taxed is the value of the unproduced hydrocarbons, and if there are honest disagreements over a economic viability of commercial production there will be big legal fights over the in-place value of the hydrocarbons.

Finally, having one company producing gas from a reservoir and not another will be complicated under the current operating rules for the fields.

Read more:

Susitna-Watana studies resume after spending freeze lifted

By Elwood Brehmer
Alaska Journal of Commerce

Researchers walk along the Susitna River in this 2012 Alaska Energy Authority photo. With a spending freeze lifted by Gov. Bill Walker, work is resuming on the Susitna-Watana hydroelectric project. However, the authority will need about $100 million in new funding to get through the Federal Energy Regulatory Commission licensing process and to construction.

Researchers walk along the Susitna River in this 2012 Alaska Energy Authority photo. With a spending freeze lifted by Gov. Bill Walker, work is resuming on the Susitna-Watana hydroelectric project. However, the authority will need about $100 million in new funding to get through the Federal Energy Regulatory Commission licensing process and to construction.

Work is resuming on the Susitna-Watana hydroelectric project under spending guidelines put in place by Gov. Bill Walker’s administration.

The overall cost for the proposed 705-foot dam in the upper reaches of the Susitna River has been pegged at $5.6 billion in 2014 dollars by the Alaska Energy Authority, or AEA.

AEA will need $105 million, maybe more, to get through the Federal Energy Regulatory Commission licensing process and to construction, authority Executive Director Sara Fisher-Goad said during an Aug. 6 board meeting. However, AEA only has the ability to spend the $6.6 million it has in the bank for the project through 2017.

That money should get the project to the study plan determination, at which point FERC would rule whether or not the authority has gathered sufficient relevant data to apply for a project license. The FERC license is the last and largest pre-construction hurdle.

Fisher-Goad said AEA will continue to update data with field studies as necessary to prevent work from becoming stale or outdated. National Marine Fisheries Service officials have questioned the validity of some Susitna-Watana fisheries studies.

“The longer we stretch this out, we’re losing our economy of scale to be able to have logistics support on several studies at one time,” she said. “We’re doing this in more of an incremental fashion.”

AEA has completed 14 of 58 FERC-approved studies so far, according to Dyok.

To date, the project has received $192 million in state appropriations. The Walker administration lifted an administrative order July 6 that halted spending on the dam, one of six large infrastructure projects that were put on hold in late December.

After 2017, once AEA has exhausted its funds for working towards a study plan determination, “the project will be revisited in the context of the fiscal environment and other competing major capital projects,” Office of Management and Budget Director Pat Pitney wrote in a memo to Fisher-Goad.

Mike Wood, president of the lead Susitna-Watana opposition group the Susitna River Coalition, in a July 16 release, called resuming the project a “slap in the face” to Alaskans as state leaders discuss ways to increase state revenue during a time of multi-billion dollar budget deficits.

“The proposed dam has already wasted hundreds of millions of state dollars and needs to be immediately shut down,” Wood said. “It diverts necessary funds for other, more responsible and reasonable alternative energy developments, as well as goes against Walker’s campaign promises of fiscal responsibility and fish-first policies.”

AEA has touted the dam, which would generate about 2,800 gigawatts, as a way to provide half of the Railbelt’s energy demand with clean energy at long-term stable prices.

Continuing at a slower pace to prevent unnecessary spending could end up costing the state if the dam is ultimately built, AEA Project Manager Wayne Dyok said at the AEA board meeting.

At $5.6 billion to build today, inflation on project financing could add up to $150 million to the cost each year construction is delayed, he said.

If everything goes according to the current plan, AEA will be able to submit its license application with FERC in 2019, and hopefully begin construction soon after a typical two-year review, according to Dyok. However, if AEA gets the $100 million-plus it needs to submit its application before 2017, that timeline could be accelerated by two years and potentially save the state $300 million.

The cost of financing the project could also have a direct impact on long-term electric rates.

“What you get out of a constructed hydro project is this inflation-proof aspect, but you don’t get that until it’s constructed and generating,” Fisher-Goad said.

Dyok said the dam would save Railbelt consumers an average of $224 million per year on energy costs over the first 50 years in production, a total savings of $11.2 billion over that time.

Initial electric rates from Susitna-Watana — with first power in 2029 — would be in the 13 cents per kilowatt-hour range, AEA estimates.

That price would continue to drop to an average of 6.6 cents per kilowatt-hour as about $8 billion in principal plus interest is paid off over 50 years.

By contrast, natural gas-generated electricity from the large Alaska LNG Project would be about 11 cents per kilowatt-hour in 2029 and increase to a more stable rate of about 15 cents per kilowatt-hour over several decades, according to Alaska Center for Energy and Power projections.

On the energy savings alone, Dyok said the cost-benefit ratio for the project is 2.39-to-1. When the avoided cost of building new gas-fired generating capacity, generation facility retirement, and greenhouse gas reductions are included, the ratio improves to more than 3-to-1, he said.

Roughly half of the project qualifies for a U.S. Department of Agriculture Rural Utilities Service loan, which is conservatively projected with 4 percent interest, Dyok said.

The rest of the project financing is planned as nearly $4 billion paid in state bonds at 5 percent interest over 30 years a portion of which would be refinanced at a lower rate, according to AEA officials.

Economic, study impacts

As an added bonus, Susitna-Watana would generate billions for Alaska’s economy during construction along with clean, affordable power once its turbines are turning, AEA claims.

The dam would have an economic impact of $3.4 billion and generate about 1,300 jobs each year during construction, according to a Northern Economics study commissioned by the authority.

Preconstruction study work has generated jobs, but also information that is being used by other state agencies.

“This project has advanced the state of science for a number of agencies, particularly the Alaska Department of Fish and Game through some of the salmon work,” Dyok said.

ADFG Mat-Su area sport fish biologist Richard Yanusz said in an interview that AEA’s funding for fisheries studies has provided significant benefit to the department. He said there is relatively little data on chinook salmon in the Susitna drainage, despite the popularity of the species. AEA’s studies in 2013-14 provided drainage-wide abundance estimates through radio telemetry tracking and mark-recapture efforts.

According to Yanusz, some of that information had not been gathered since the first time Susitna-Watana was proposed in the 1980s.

“It’s been a long time between those abundance estimates, so having such a basic piece of information is very helpful to management,” he said. “It is almost new information, very rare information, so just having those reference points will be helpful.”

Similar studies were done for coho salmon, the other primary sport fish in the drainage, on the main stem of the Susitna, without including the major tributaries such as the Yentna.

Dyok said the Department of Natural Resources has also found flow data helpful for other potential projects in the region.

Managing flow below the dam has been an issue of contention for those opposed to Susitna-Watana, because of the potential impacts to juvenile salmon, particularly in winter.

AEA is developing models to better project flow regimes throughout the year, but how much water is let through the dam is ultimately regulated by FERC, according to Dyok.

Average winter flow at the dam site would increase about four times and roughly be cut in half during the summer to retain water during times of lower electric demand based on early projections, he said.

Flow at the dam site currently comprises about 16 percent of the average annual water in the Susitna.

“Fisheries, recreation, and power; you need to balance all of those factors,” Dyok said.

Read more:

Sunday, August 2, 2015

Judge finds Greenpeace USA in contempt, sets escalating fines for bridge protest

By Elwood Brehmer
Alaska Journal of Commerce

Activists hang off the St. Johns Bridge to protest Shell Oil's drilling in the Arctic, in Portland, Ore., Wednesday, July 29, 2015. After the Shell-leased vessel Fennica turned away from the protesters Thursday morning, a federal judge in Alaska found Greenpeace USA in contempt of court and set fines that will begin at $2,500 per hour and escalate to $10,000 per hour if the protesters aren’t off the bridge by Sunday, Aug. 2.

Activists hang off the St. Johns Bridge to protest Shell Oil's drilling in the Arctic, in Portland, Ore., Wednesday, July 29, 2015. After the Shell-leased vessel Fennica turned away from the protesters Thursday morning, a federal judge in Alaska found Greenpeace USA in contempt of court and set fines that will begin at $2,500 per hour and escalate to $10,000 per hour if the protesters aren’t off the bridge by Sunday, Aug. 2.

Editor's note: This story has been updated to include comments from Greenpeace USA and Shell. According to the Greenpeace USA Twitter feed, the 13 support activists on the bridge have been removed by police, but the bridge danglers are still in place. Greenpeace USA wrote in its Twitter feed they would be staying "as long as possible." A live stream from Portland channel KGW at 2:45 pm Alaska time now indicates firefighters are attempting to remove the danglers. From the AP at 5 pm Alaska time: A Royal Dutch Shell icebreaker that was the target of environmental protesters is leaving Portland, Oregon, bound for an Arctic drilling operation. The Fennica headed out Thursday after authorities forced protesters in kayaks from a river and removed others dangling from a bridge.

Greenpeace USA must immediately get its activists out of the way of a vessel contracted to work in the Arctic for Shell or face fines ramping up each day until it does.

An annoyed-looking Alaska U.S. District Court Judge Sharon Gleason imposed a fine of $2,500 per hour beginning at 10 a.m. Alaska Time Thursday on Greenpeace until the 13 environmental protesters dangling from ropes below the St. Johns Bridge across the Willamette River in Portland, Ore., pull themselves onto the bridge. The fines will escalate daily until reaching $10,000 per hour if they aren’t off the bridge by 10 a.m. on Aug. 2.

Gleason also found Greenpeace in civil contempt of court for violating an injunction she issued in May that prohibits Greenpeace from impeding any vessels working on Shell’s offshore Arctic drilling.

She made her ruling at approximately 9:45 a.m. Thursday, setting the fines to begin accruing 15 minutes later and disregarding a Greenpeace request for a three-hour grace period to get the activists up from below the bridge.

Gleason said she was “unpersuaded that a grace period is warranted” before the fines take effect because there is no assurance Greenpeace would follow the latest order.

The activists can be on top of the bridge, she said, but need to be off the ropes beneath the structure.

Greenpeace immediately appealed Gleason’s decision to the 9th Circuit Court of Appeals and a hearing has been set for August.

Early Thursday before the hearing, the activists lowered themselves into the path of the icebreaker Fennica on its way from a Portland shipyard back to Alaska.

Greenpeace attorneys contended kayakers not associated with the environmental group got in the way of the vessel and the Fennica did not enter a 100-meter safety zone from the activists that would have violated the injunction.

Gleason said the evidence was “clear and convincing” that Greenpeace intended to violate the order, despite how close the Fennica actually got.

An email from the master of the ship Tommy Berg was filed with the court that stated the activists forced the Fennica to retreat.

“Please be advised that Fennica has made an attempt to sail for sea as instructed by Shell. However, the eNGO (environmental non-governmental organization) activists dangling from ropes off St. Johns Bridge clearly prevent the vessel from passing and cause a navigational hazard. We have thus decided to await further instructions,” Berg wrote. The Fennica is a 380-foot ice-management vessel. It was in Portland for repairs after it sustained a three-foot gash in its hull when it hit a shoal leaving Dutch Harbor for the Chukchi Sea July 3.

The hourly fines will increase $2,500 each day at 10 a.m. Alaska time until reaching $10,000 per hour the morning of Aug. 2, or when Greenpeace gets its employees out from under the bridge.

Shell first asked for fines of $2,500 per hour in a Wednesday hearing, which it says is equal to the contract rate it pays for the Fennica. In Thursday’s hearing the oil company’s representatives upped their request to $250,000 per day, arguing that Greenpeace uses its acts of protest as fundraising tools, which offsets smaller fines that might be levied against it.

Gleason said the progressive fines are intended to “coerce behavior that would have them leave.”

The environmental group offered its reaction to the decision in a formal statement from Greenpeace USA Executive Director Annie Leonard.

"Right now we're asking the activists what they think we should do next. As of this moment, the 26 activists will stay in place," Leonard said. "Shell is still trying to circumvent the growing global call to preserve the Arctic, and has turned to the courts for help. While we respect the courts, we also respect the increasingly urgent science that tells us Arctic oil needs to stay underground."

Shell was pleased with the outcome.

"We have consistently stated that we respect the right of individuals to protest our Arctic operations so long as they do so safely and within the boundaries of the law," wrote spokesperson Meg Baldino. "The staging of protesters in Portland was not safe nor was it lawful. Furthermore, Greenpeace demonstrated a complete lack of regard for the authority of a U.S. Federal Court. We are pleased with today’s court ruling that holds Greenpeace in contempt and prescribes fines for further non-compliance."

Gov. Bill Walker spoke with Portland Mayor Charlie Hales and Oregon Gov. Kate Brown’s chief of staff Thursday morning, according to a release from Walker’s office.

The governor urged Oregon’s leaders to stop the illegal protesting and allow Shell to conduct the activities it is permitted for.

“Alaska and the United States have the chance to be leaders in responsible offshore drilling in the Arctic,” Walker said in the release. “As our state faces a multi-billion dollar budget deficit, and an oil pipeline that is three-quarters empty, we would be foolish to turn away such significant economic opportunity. I hope that leaders from outside Alaska can understand and respect that.”

Shell’s two drilling vessels are in the Chukchi Sea and ready to drill, Shell and federal agency sources said July 29.

Shell has permission to drill “top holes,” or the upper parts of wells that do not penetrate potential oil-bearing formations, until the Fennica gets to the Arctic with the capping stack after its repairs.

Shell drills in the Chukchi Sea

Tim Bradner
Alaska Journal of Commerce

The Polar Pioneer drill rig is seen working in the Barents Sea for Statoil in this file photo. The Polar Pioneer began drilling for Shell in the Chukchi Sea on Wednesday afternoon.

The Polar Pioneer drill rig is seen working in the Barents Sea for Statoil in this file photo. The Polar Pioneer began drilling for Shell in the Chukchi Sea on Wednesday afternoon.

Shell is finally drilling in the Chukchi Sea. The semi-submersible Polar Pioneer “spudded” the Burger J well at 5 p.m. Wednesday, company spokeswoman Meg Baldino said. Meanwhile, an ice-management vessel sent to Oregon for repairs is now en route after police cleared protesters that were blocking the vessel.

“The Fennica is now safely on its way to Alaska and will join Shell’s exploration fleet in the Chukchi Sea — where the Transocean Polar Pioneer commenced initial drilling operations,” Baldino said in a statement. “We remain committed to operating safely and responsibly and adding to Shell’s long history of exploration offshore Alaska.

As the Polar Pioneer drills, Shell’s second drillship on the scene, the Noble Discoverer, is moored at the Burger V well location in the same area.

Until the Fennica arrives with a critical “capping stack” used to control an undersea blowout, The Bureau of Safety and Environmental Enforcement has given Shell permission to drill “top holes,” or the upper parts of wells that do not penetrate potential oil-bearing formations.

Shell may drill just one well at a time, although the second drillship can be kept nearby and ready to drill when the first vessel finishes a well. Federal rules prohibit simultaneous drilling by drill vessels within 15 miles, and Shell’s planned well locations, for this year, are nine miles apart.

Read more:

BP, ExxonMobil seek more Prudhoe

Tim Bradner
Alaska Journal of Commerce

BP and fellow Prudhoe Bay lease owner ExxonMobil have filed an application with the Alaska Oil and Gas Conservation Commission seeking to increase their gas offtake to supply the Alaska LNG Project. The commission will have to weigh the benefits of gas sales versus foregone oil recovery produced through reinjecting gas.

BP and fellow Prudhoe Bay lease owner ExxonMobil have filed an application with the Alaska Oil and Gas Conservation Commission seeking to increase their gas offtake to supply the Alaska LNG Project. The commission will have to weigh the benefits of gas sales versus foregone oil recovery produced through reinjecting gas.

BP and ExxonMobil, two of the three major Prudhoe Bay field owners, have applied to the Alaska Oil and Gas Conservation Commission for an increase in the allowable volume of natural gas that can be produced and sold from the North Slope field.

The AOGCC, a quasi-judicial state regulatory commission with oversight of oil and gas production practices, has set a public hearing date of Aug. 27.

In 1977, the commission set a limit on Prudhoe Bay gas offtake of 2.7 billion cubic feet of gas per day, but BP and ExxonMobil, citing new reservoir studies, have now asked for permission to increase the rate to 4.1 billion cubic feet per day to supply a planned gas pipeline and LNG export project.

By law the AOGCC is required to seek maximum recovery of hydrocarbon fluids and must ensure that too rapid a withdrawal of gas from the Prudhoe reservoir will not result in an unreasonable loss of long-term oil recovery.

Prudhoe Bay holds about 24 trillion cubic feet of natural gas in addition to about 12 billion barrels of remaining oil, although not all of the oil can be produced. Prudhoe has already produced about 12.2 billion barrels since operations began in 1977.

If the Alaska LNG Project is built, the field will supply the bulk of the gas, at least in the near term, while additional gas will come from the Point Thomson gas field 60 miles east of Prudhoe Bay. A separate application to the AOGCC for gas offtake from the Point Thomson field is expected later.

Read more:
ConocoPhillips, which is also a major lease owner at Prudhoe Bay, was not included in the application made by to the AOGCC by the two other companies. ConocoPhillips spokeswoman Natalie Lowman said her company has been working with BP and ExxonMobil on the offtake issue.

“We are not aware they intended to make a unilateral filing,” she said in a statement.

Lowman said ConocoPhillips will have more to say on the matter at the AOGCC hearing. BP spokeswoman Dawn Patience said her company could not comment on the matter and that there would be more discussion in the hearing in late August.

About 8 billion cubic feet of gas is now produced along with oil at Prudhoe but the majority of that injected back underground to maintain pressure in the reservoir to aid oil production.

Natural gas liquids, or NGLs, produced with the gas are also mixed with crude oil and shipped to market in the Trans-Alaska Pipeline System, while other NGLs are used to make a miscible injectant fluid that is used in Enhanced Oil Recovery on the slope.

The AOGCC’s concern is that if some of the produced gas, in this case up to half, is shipped to markets via pipeline, there will be less gas injected and less support for pressure in the reservoir. That could result in loss of oil.

In their application to the commission, BP and ExxonMobil said the loss of oil recovery would be mitigated by steps including injection of carbon dioxide in an enhanced oil recovery project.

Prudhoe Bay gas contains about 12 percent CO2, which must be extracted from gas before it can be shipped by pipeline to an LNG plant planned to be built in southern Alaska. That process will make large quantities of CO2 available on the North Slope to aid oil recovery.

In the Aug. 27 hearing, the two producers will present evidence showing that the loss of oil recovery can be minimized.

“In accordance with good oil field engineering practices, at various stages of field development the Prudhoe Bay field owners have evaluated the potential effects of Prudhoe Bay major gas sales on oil production and hydrocarbon recovery. Gas production from Prudhoe Bay (to date) has been used for extraction of miscible injectant, manufacture of natural gas liquids, pressure maintenance and enhanced oil recovery,” wrote Dave Lachance, BP’s vice president for reservoir development, in the application.

About 75 percent of the 3.5 billion cubic feet/day of gas supply needed for the Alaska LNG Project, or about 2.7 billion cubic feet/day, is expected to come from Prudhoe Bay. About 25 percent of supply for Alaska LNG will from other sources, Lachance wrote in the application. This would be mainly from Point Thomson.

About 600 million cubic feet per day will be needed to fuel field operations on the North Slope and for local gas sales to contractors, raising the average daily offtake requirement, including the fuel needs, to 3.3 billion cubic feet per day.

However, a contingency must be built in to account for potential interruptions in gas supply from other fields. To include that contingency, BP and ExxonMobil have requested authorization for up to 4.1 billion cubic feet per day to cover shortfalls if they occur, according to BP’s application.

Overall, the Alaska LNG Project will result in the production of an additional 3.8 billion barrels of “oil equivalent,” from Prudhoe Bay, the application said. Oil equivalent is a measure of production that reflects crude oil and natural gas together with the gas covered to the equivalent of liquid barrels of the same energy content as oil. One barrel of oil is equal to about 6,000 cubic feet of natural gas.

The CO2 injection will play an important part in producing oil that remains in the reservoir, according to BP’s application,

In 1979, after it was discovered, Prudhoe Bay was estimated to be able to produce about 9.6 billion barrels of about 23 billion barrels of oil in place in the reservoir rock, but the oil recovery has improved substantially due to a variety of steps including use of the existing gas production for pressure maintenance and to make the miscible injectant for enhanced oil recovery, BP said in the application.

Sunday, July 26, 2015

Approved to start; BSEE issues permits to Shell for top hole sections of Chukchi Sea wells

Alaska Contract Staffing
Alan Bailey
Petroleum News

On July 22 the federal Bureau of Safety and Environmental Enforcement issued permits allowing Shell to drill the top hole sections of two wells in the Burger prospect in the Chukchi Sea. Shell now has all of the permits that it needs to start drilling.

However, BSEE is prohibiting Shell from drilling into hydrocarbon bearing zones until the company has its capping stack staged, available for deployment within 24 hours if needed. The capping stack, a device that would be placed onto a well head to seal the well should the well’s blowout preventer fail during a well loss-of-control incident, is positioned on the icebreaker M/V Fennica.

The Fennica has had to divert to Portland, Oregon, for a repair to a gash in its hull after hitting an uncharted underwater obstruction near Dutch Harbor. Shell has said that it anticipates the vessel being repaired and transitioned to the Chukchi Sea with the capping stack before drilling operations reach the depths where hydrocarbons may be found.

“Without question, activities conducted offshore Alaska must be held to the highest safety, environmental protection, and emergency response standards,” said BSEE Director Brian Salerno. “Without the required well control system in place, Shell will not be allowed to drill into oil-bearing zones. As Shell conducts exploratory activities, we will be monitoring their work around the clock to ensure the utmost safety and environmental stewardship.”

BSEE says that agency safety inspectors will be present on Shell’s drilling units Noble Discoverer and Polar Pioneer to provide continuous oversight of all approved activities.

No simultaneous drilling

The BSEE drilling permits prohibit simultaneous drilling operations at both of Shell’s planned drilling sites. This limitation arises from a stipulation within the U.S. Fish and Wildlife Service’s letter of authorization, allowing the minor, unintended disturbance of walruses and polar bears during Shell’s operations. The stipulation requires simultaneous exploration activities to be spaced at least 15 miles from each other - Shell’s well locations are less than 15 miles apart. If Shell opts to start drilling two wells the company must plug and abandon the top section of the first well before commencing the drilling of the second well, BSEE says.

Drilling vessels dispatched

Shell spokeswoman Megan Baldino has told Petroleum News that the two drilling vessels under contract for the Chukchi Sea drilling have departed Dutch Harbor in the Aleutian Islands for the Chukchi Sea. “The Noble Discoverer left last night around 6:30 and the Transocean Polar Pioneer followed at approximately 1:00 p.m. this afternoon,” Baldino said in a July 17 email.

The two drilling units, with assistance from support vessels, will connect to anchors that Shell has recently placed over the drilling prospect in the Chukchi Sea, Baldino said. The Burger prospect lies about 70 miles northwest of the Chukchi coastal village of Wainwright. The sea depth at Burger is about 140 feet according to BSEE.

Baldino told Petroleum News in a July 22 email that Shell plans to begin drilling at the Burger J prospect using the Polar Pioneer once the area is substantially clear of sea ice.

“The company will comply with all permits,” Baldino said.

BSEE inspection

Between July 7 and July 12, prior to the departure of the Noble Discoverer and the Polar Pioneer from Dutch Harbor, BSEE conducted inspections of the two drilling units, assessing the overall readiness of the units for the Chukchi Sea drilling and testing key safety devices, BSEE said July 16. The inspectors also verified oil lease stipulations, environmental mitigation measures, air quality equipment and permit requirements for the discharge of waste, BSEE said. BSEE Alaska Region Director Mark Fesmire and BSEE personnel re-inspected Shell’s capping stack on board the M/V Fennica, to verify that the capping stack had not been damaged during the incident in which the Fennica’s hull had been breached, BSEE said.

Reactions to the permitting

U.S. Sen. Lisa Murkowski, R-Alaska, expressed her satisfaction with the issue of the BSEE drilling permits.

“Today’s approval by the Department of Interior of the permits Shell needs to resume drilling in the Chukchi Sea is good news for Alaska and our country,” Murkowski said in a July 22 press release. “However, it is not the final regulatory hurdle Shell faces and it is important that the agencies continue to work in good faith and in a timely fashion to complete the remaining regulatory requirements.”

But environmental organizations continue to express their opposition to Shell’s plans.

“Neither Shell nor the oil industry as a whole has learned the lessons of 2010 or 2012,” said Andrew Sharpless, CEO of Oceana. “As its ongoing missteps show, Shell is not prepared to operate safely in the Arctic Ocean where bad weather, darkness and floating ice increase the risks of an accident, and there is no proven way to clean up spilled oil. The government’s approvals for Shell’s drilling fly in the face of common sense.”

Read more:

Federal judge rejects state effort to explore ANWR plain

Alaska Contract Staffing
Tim Bradner
Alaska Journal of Commerce

Alaska U.S. District Court Judge Sharon Gleason has dealt the State of Alaska another setback in efforts to conduct exploration of the Arctic National Wildlife Refuge’s coastal plain.

In a decision issued July 21, Gleason upheld Interior Secretary Sally Jewell’s interpretation that her authority to approve limited exploration of the 1.2-million-acre coastal plain expired in 1987.

State attorneys said they are still studying Gleason’s decision and have not yet decided on an appeal to the 9th Circuit Court.

“After we have had time to review it, we will evaluate our options,” said Corri Mills, spokeswoman for the Department of Law.

Under former Gov. Sean Parnell in 2013, the state had proposed a limited winter seismic program to gather more information on potential resources, arguing that Jewell’s authority had not expired and the 1980 Alaska National Interest Lands and Conservation Act, or ANILCA, required her to allow ongoing resource assessments and approve any third party proposal to do it, such as from the state.

After Interior agencies repeatedly rejected the state’s plan, the lawsuit was filed in federal court in 2014 and oral argument was held Jan. 20.

Exploration in the Arctic refuge has been a hotly-contested issue for years. The 18.9-million refuge was created in 1980 by Congress, as an expansion of an 8.9-million-acre wildlife range created in 1960. However, the coastal plain area was withheld from wilderness status by Congress and set aside for potential oil and gas exploration.

Under the 1980 law Congress must approve oil and gas development in the coastal plain but gave the Interior Secretary limited authority to conduct exploration to assess the resource potential.

Congress actually passed a bill approving ANWR exploration once, when both the U.S. House and Senate were under Republican leaderships, but then-President Bill Clinton vetoed the measure.

Former Alaska U.S. Sen. Ted Stevens tried a different tack, placing the question on a budget resolution, a procedure that is not subject to a Senate filibuster (which requires 60 votes to overcome) but the effort failed by one vote.

Bad luck and timing has played a part in foiling the state’s efforts in ANWR at times. Congress appeared close to approving exploration in 1988 and early 1989 but that ended when the tanker Exxon Valdez hit a reef in Prince William Sound in March, 1989, causing a major oil spill.

Meanwhile, ANILCA required Interior to do a resource assessment that included seismic exploration for the purpose of preparing a report to Congress by 1987. When the state submitted its proposal to continue exploration, Jewell ruled that her authority to allow it had expired.

State officials contended that the authority had not expired, and that under the language of the 1980 law the Secretary was actually required to approve an application from a third party.

Gleason disagreed, however, ruling that there was an ambiguity in the statutory language that required that deference be given to Interior’s interpretation that the authority had expired.

In her decision, Gleason wrote: “Congress authorized the Secretary to approve limited-duration exploratory activity on the coastal plain and ordered a report generated from these activities by 1987. Whether the statute authorizes or requires the Secretary to approve additional exploration after the submission of the 1987 report is ambiguous.

“The Secretary’s interpretation that her statutory authority and obligation to review and approve exploration plans ceased after 1987 report has been completed is based on a permissible and reasonable construction of the statute.”

The language in ANILCA is unambiguous as to the Secretary’s authority up until the deadline for the 1987 report but is silent, and therefore ambiguous, on any deadline after that, Gleason noted in the decision.

The state argued in the January trial that the lack of any explicit deadline for the authority meant that it continued in effect, while Interior argued that the lack of a deadline for continuing authority in the statute left 1987, when the report was required, as the only deadline.

The fact that Congress did not insert another, later date for any continuing authority after 1987 indicated that the body intended 1987 to be the final date, Interior officials argued in the trial.

Gleason noted that there could be alternative ways the language can be interpreted but that she was bound to defer to a reasonable construction of the statute by the agency.

“The Court need not find that the agency’s interpretation is the only permissible construction or that it is the Court’s preferred construction,” Gleason wrote, but noted that Interior had stuck with its interpretation since a legal opinion was written by the agency’s Solicitor in 2001. The consistency of the agency’s position was a factor in her decision, Gleason wrote.

The issue of exploring in the coastal plain has a long history. The area has high potential for significant oil and gas discoveries, federal agencies concluded in the 1987 review of resource potential.

Many geologists, government and industry, feel the coastal plain is the last remaining unexplored onshore region of Alaska with potential for very large oil discoveries, such as those made in the central North Slope region.

Inupiat leaders of the North Slope have largely favored ANWR exploration and development because it is onshore, where development can be done carefully, and not offshore, where there are threats to subsistence resources created by potential oil spills.

The Inupiats also have an economic stake in ANWR through a 91,000-acre inholding of surface and subsurface lands in the coastal plain where the surface lands are owned by Kaktovik Inupiat Corp. of Kaktovik and the mineral rights are held by Arctic Slope Regional Corp. of Barrow, the regional Alaska Native development corporation.

Read more:

Exploration permits up in air after court ruling

Alaska Contract Staffing
By Tim Bradner
Alaska Journal of Commerce

A May 29 Alaska Supreme Court decision will have wide-ranging impact on the state mining industry after a ruling that declared bore holes drilled and filled during exploration constitute a permanent disposal of state land requiring public notice and comment. State agencies are still interpreting the ruling to decide how to change the current system for issuing Miscellaneous Land Use Permits.

An exploration site at the Pebble prospect near Iliamna Lake is seen from the air in this 2010 photo. A May 29 Alaska Supreme Court decision will have wide-ranging impact on the state mining industry after a ruling that declared bore holes drilled and filled during exploration constitute a permanent disposal of state land requiring public notice and comment. State agencies are still interpreting the ruling to decide how to change the current system for issuing Miscellaneous Land Use Permits.

State attorneys and natural resources officials are wrestling with the implications of a May 29 state Supreme Court decision requiring expanded public notice and review procedures for certain Miscellaneous Land Use Permits issued by the Department of Natural Resources.

The decision, in a lawsuit brought by Nunamta Aulukestai, a Bristol Bay Tribal group, and three individuals, could have widespread effects in natural resource development if it opens opportunities for new litigation. At the least, it raises new uncertainties for projects, people familiar with the case say.

Nunamta Aulukestai was contesting Miscellaneous Land Use Permits, or MLUPs, and Temporary Water Use Permits, or TWUPs, issued for mining exploration at the large Pebble copper/gold project near Iliamna.

In addition to Numamta Aulukestai, four others were plaintiffs: Bristol Bay residents Ricky Delkittie Sr. and the late Violet Willson, state constitutional delegate Vic Fischer and former First Lady Bella Hammond.

The original case, filed in 2009, argued that the drilling of exploration drill holes, which are commonly done in mining exploration, was causing environmental damage through pollution, that the public hadn’t been given adequate public notice and that cumulative effects of the Pebble exploration program, which was extensive, weren’t considered.

The Superior Court initially sided with the state and with Pebble Partnership, the company doing the exploration, but the Supreme Court reversed the lower court decision on the public notice aspect.

The plaintiffs also challenged DNR’s issuing of TWUPs, but the Supreme Court found that those were indeed temporary and were functionally revocable, unlike the land permits.

The Supreme Court found the MLUPs to be functionally irrevocable based on the large investment made by Pebble in exploration that the state would be unlikely to halt, and that the well casings left behind after drilling constitute a permanent “disposal” of public land that requires notice and comment under the state Constitution.

“This decision means that all Alaskans, especially those whose rights and livelihoods are jeopardized by intensive exploration activities like those at Pebble, have the constitutional right to participate in those decisions affecting them,” said Trustees for Alaska Executive Director Vicki Clark in a formal statement after the decision. Trustees for Alaska represented the plaintiffs in the case. “The State has issued permits behind closed doors without even looking at the harm to public resources.”

The Supreme Court did not give the state resources agency much guidance in correcting the legal defects. The matter is now more or less left to the DNR to interpret what court said and devise new procedures, and then wait to be sued again to see if the interpretation is correct.

State attorneys and resource officials are not saying what steps they may take to correct the situation. In a statement, Cori Mills, spokeswoman for the state Department of Law, said, “DNR’s evaluation of the regulatory changes necessary to address the Nunamta decision is underway and will take a bit of time to establish and implement. Any rulemaking that is require to codify changes would be subject to public review and comment.”

The state Legislature may have to step in to clarify statutes, although those already distinguish permits that need public notice from those that are minor, and do not.

Mills said the case is now back to the Superior Court, which will soon issue a declaratory judgment to the DNR that recognizes the Supreme Court decision. A motion on attorneys’ fees has also been made, she said. The Supreme Court also reversed the Superior Court order to make the plaintiffs pay a portion of the state’s and Pebble’s legal fees.

The Supreme Court wrote in its decision it expected Nunamta to file a motion to collect legal fees from the state and Pebble after becoming the prevailing party.

The May 29 court decision didn’t invalidate the MLUPs at Pebble, which were all expired by then, but it has caused a big wrinkle over how certain MLUPs are to be issued in the future, and a variety of industries besides mining could be affected.

This has created a dilemma for state land managers.

“The court didn’t say we couldn’t issue the permits but dealt with what kind of public notice we should issue,” for certain permits, said Wyn Menefee, Chief of Operations for the state Division of Mining, Land and Water.

The division makes all MLUPs available to the public through the state’s on-line public notice system. The public can comment within 14 days but it must be in writing or e-mail, Menefee said, because the state’s on-line system is not set up for on-line comments.

The same notification goes to other state agencies, and the agencies often provide comments and sometime ask for more time to look at the permits, he said.

Essentially, the May 29 decision said that the on-line posting isn’t enough for certain types of land-use permits, those that can be considered “irrevocable,” or more permanent in nature, compared to “revocable” permits which are truly temporary and which the state DNR can rescind within the period of the permit, typically three to five years.

The state high court found that the specific exploration holes drilled at Pebble, some of which were drilled to 7,000 feet and involved placement of permanent steel casing, were irrevocable permits similar land easements issued by DNR and thus needed a broader public notice procedure.

While the decision doesn’t appear to be retroactive in affecting existing land permits there was also little guidance from the court as to how the agency can define the types of activities that can distinguish between irrevocable and revocable MLUPs going forward.

Most important, the court didn’t signal what type of public notice procedure would be acceptable other than it must be more than what is now done.

“We’re still evaluating the decision, but there wasn’t a lot of guidance,” Menefee said. “Almost everything we do is noticed, but is it enough?”

The department will certainly plan a more widespread public notice procedure once it sorts out how to distinguish between activities that are irrevocable (most likely major mining drilling programs of the sort done at Pebble) but whatever the department does will be challenged by environmental groups, said John Shively, chairman of Pebble Partnership and a former state Commissioner of Natural Resources.

“How can this be sorted out? It’s a guessing game. I suspect the environmental groups will keep bringing lawsuits,” Shively said. “Anything the NGOs (non-governmental organizations) can to do make life miserable for miners they will do,” he said.

Shively said the original Nunamta Aulukestai lawsuit “was aimed at shutting us down at Pebble. It didn’t work.”

“They (the plaintiffs) had theories that we were destroying the environment with our drilling, but the Superior Court said there was no evidence of that and the Supreme Court didn’t disagree,” he said.

Pebble has tried to do its exploration in as much a benign way as possible. Exploration there began in 1988 and as of 2010, when the Superior Court trial was held, 1,269 holes had been drilled, along with seismic surveys. When the mineral cores were extracted from the holes they were plugged with concrete and rigs and drill-pads were removed by helicopter.

The plaintiffs lost on that point but the decision has still opened up a Pandora’s Box of other issues for land developers.

What concerns people most, Shively said, is whether continued litigation on the public notice procedures will ultimately lead to a formal Best Interest Finding, or BIF, procedure for mining exploration, but also a lot of activities that require temporary state land permits.

Best Interest Findings, or BIFs, is a state equivalent to a federal Environmental Impact Statement that are done with significant actions on state lands, such as oil and gas lease sales, forest sales or other land actions, and even sales of state royalty oil to refining companies.

Like the federal EIS, the state BIF procedure has provisions for public appeals of agency decisions. They are expensive to do, and can set the stage for litigation, but state BIFs were adopted to formally document state agency decisions and the weighing of alternatives, similar to what an EIS does on the federal level.

Ironically, the procedure was adopted to minimize the disruption to the state oil and gas lease sales cause by environmental lawsuits by spelling out in detail the rationale for the state decisions and consideration of alternatives.

Since BIFs were adopted no state oil and gas lease sale has been held up by an environmental lawsuit.

Nunamta Aulukestai raised the Best Interest Finding issues in the Pebble lawsuit but while the Supreme Court discussed it in its decision the matter was left unsettled.

The state high court said the state Constitution does not require a best interest finding. However, the decision did connect the issue with a previous Supreme Court decision, known as REDOIL (brought by Resisting Environmental Destruction on Indigenous Lands), which dealt with cumulative effects of a state decision.

“They (the plaintiffs) were obviously playing into the REDOIL decision,” Shively said.

Under the REDOIL decision an agency is required to perform some form of “continuing assessment” of impacts from a permit authorizing future actions. This moves in the direction of a cumulative effects analysis by a state agency, long a goal of environmental groups.

“I’m sure there will be more lawsuits on all this,” Shively said.

Other attorneys who familiar with the case, and state land management procedures, felt the Supreme Court decision, in finding the Pebble TLUPs permanent, or irrevocable, was correct.

“I think the court was swayed by the length of time and controversy of the interminable Pebble exploration, which comprised $300 million of expense and explosives, portable rigs, structures, fuel storage and helicopters,” said Jim Barnett, a private attorney who is also a former deputy state resources commissioner.

The sheer scale and the duration of the Pebble exploration is what set it apart, Barnett said. The department should have conducted some form of expanded public notice, he said.

Barnett said he believes that complying with the Supreme Court decision will ultimately require DNR to conduct a review of cumulative impacts, as required by the REDOIL decision, on mining exploration.

Menefee said many activities on state lands that are non-intrusive and don’t require permits, such as small-scale mining or activities with what are essentially hand tools. More substantial uses, such as drilling core holes to certain depths, do require the temporary land-use permits, the TLUPs.

The interpretation will be in what is a temporary permit, and revocable, compared with a de facto permanent permit, in practice irrevocable. The Supreme Court decision cited Pebble’s major investment in exploration at the time the lawsuit was filed, $300 million, as a factor in decided those particularly permits were permanent, but did not give any guidance as to what investment threshold might drive the determination.

Menefee said the installation of metal casing around drill holes, although discussed in the decision, might not be a workable threshold in a determination because many mining bore holes are cased and it is impractical, and very costly, to require the casing be taken out.

“The casing is always cut off below ground and covered,” and typically poses no environmental threat, Menefee said. “We often allow piping, cable or concrete to be left behind as long as it is non-polluting and doesn’t create a safety problem,” he said.

Once mining exploration gets to the stage where a lease is required it does trigger the DNR’s public notice requirements and often a formal Best Interest Finding process, Menefee said.

If the Legislature had wanted land-use permits to be subject to Best Interest Findings it would have required it in statute. Instead, the permits are specifically excluded from the BIFs, he said.

Meanwhile, the DNR will have to come up with some way of dealing with the court decision. “For now, we don’t see this as a big problem. It is something we can manage. But we’re left trying to interpret what the court meant, and someone may still sue us,” Menefee said.

“We want to ensure that our (new) procedures will match what the court said, he said.

Read more:

Friday, June 26, 2015

Alaska; a time of disruption, opportunity and leadership

Deborah Brollini
Alaska Energy Dudes and Divas

Alaska has been turned upside down due to low oil prices. June 20th, 2015 marked the 38-year anniversary of first oil through the Trans Alaska Pipeline (TAPS). For 38 years Alaska has never been able to control global oil prices, and lately our spending.  Our state’s financial house has been disrupted, and we can either play the blame game, or embrace opportunity.  I choose the latter.  I personally do not believe the sky is falling despite low oil prices. However, some do.

Alaska has gotten herself into a real financial pickle. So what are we going to do about it? The legislature is the appropriating body. However, what we need is a Governor who will lead, and do the heavy lifting in regards to state budget cuts because we are, not  On July 1, 2015, Governor Bill Walker should of released a 2017 proposed operating budget that is unapologetic in regards to budget cuts, and let the public digest it.

I would never expect the Governor to release a budget that would gut the state, because we do not want to tank Alaska’s economy. But, a budget that included substantial budget cuts to control spending, and restore the trust with Alaska's stakeholders, and constituencies.

Unfortunately, I’m not sure the Governor is up for challenge.

It would seem that the Governor would rather sit around and chat about our fiscal problems than lead e.g. Building a Sustainable Future: Conversations with Alaskans conference, cute fiscal budget game apps, and townhalls with folks breathing the same air who want to raise tax revenue.  Alaska needs leadership not groupthink

Alaska is a wealthy state that is reliant on oil taxes to fund our state government. Hardly a strategy with oil production dipping to less that 500,000 barrels per day in the near term, with 730,000 livelihoods at stake. What we need is a strategic plan, not an increase in oil taxes or the implementation of a state sales tax, or income tax.  The Governor needs to quit being scared of his own shadow, cut the budget, and most importantly lead.

I get the Governor did not create this fiscal mess. But, the fiscal mess is now on his watch. If Bill Walker is not careful, his legacy as the Governor of the state of Alaska will be the Governor who "woulda, coulda, shoulda."


Mindy Grossman, CEO of HSN speaks with Stanford MBAs about disruption, trust, engaging and inspiring constituencies, and leadership.  Outstanding talk.

Thursday, June 11, 2015

Walker pitches TransCanada buyout

Alaska Contract Staffing
Tim Bradner
Alaska Journal of Commerce

Gov. Bill Walker is considering ending the state’s relationship with TransCanada Corp. in the big Alaska LNG Project and taking over a full 25 percent share of the project.

In an interview June 7 in Fairbanks, Walker said that he is weighing the takeover option along with keeping TransCanada in the consortium under the current structure. Under that arrangement TransCanada would ship state-owned gas though its share of pipeline capacity.

A third option Walker is weighing is the state taking a 40 percent share of TransCanada’s interest in the project under the current contract with the state.

The state now has a contract with TransCanada that has the pipeline company owning and operating 25 percent of the large North Slope gas treatment plant and the 42-inch, 800-mile pipeline, and with the state itself owning 25 percent of the large liquefied natural gas plant planned for Nikiski.

North Slope producers BP, ConocoPhillips and ExxonMobil Corp. would own 75 percent of the overall project. The percentages will be roughly in line with the gas ownership of each participant, except that under the current arrangement the state would have TransCanada as a partner in its share.

“TransCanada is a very fine company and I have no problems with their capabilities,” Walker said.

However, the state assuming a larger share of ownership of the project may be in its long-term best interests, the governor said.

Walker made the comments at a conference on state fiscal issues in Fairbanks.

In a related development, Walker has shuffled the state’s management team on gas pipeline negotiations. He named Audie Setters, a 35-year industry veteran manager, as the state’s top manager for gas issues. Marty Rutherford, who formerly filled that role, will remain as deputy commissioner of Natural Resources, the governor said.

There was no announcement of the change but in an interview Walker described it as a “transition” that would bring more strength into the state’s negotiating team, while retaining Rutherford’s experience and allowing her to devote more time to Department of Natural Resources matters.

Rutherford would presumably remain engaged in key gas issues as they relate to the DNR, such as a pending decision to take royalty gas in-kind and a separate gas-balancing agreement.

Walker may face some embarrassing questions about naming Setters to the role, however, because he is a resident of Houston, Texas, although he has been working with the state on gas issues for about a year.

Early this year Walker fired a board member of the Alaska Gasline Development Corp. because he lived out of state, also in Houston.

On TransCanada, the governor has asked the state Legislature for $108 million to compensate the pipeline company for its expenses to date on the project. Legislators have asked for more details of the governor’s plans, however.

Walker did express concern over the added burden of financing a larger state share of the project in view of Alaska’s diminished finances, which are currently stressed by low oil prices and a sharp drop in state revenues.

The Heads of Agreement signed by the project participants with former Gov. Sean Parnell set the framework for the preliminary work on the pipeline and LNG plant. The state signed a separate agreement with TransCanada to allow the pipeline company to own a stake in the project. The contract expires in December, although the assumption has been that it would be extended.

Walker may opt not to extend the contract, however, leaving the state in full ownership of 25 percent of the pipeline and Slope gas plant along with its share of the LNG project.

The project is currently in the pre-Front End Engineering and Design, or pre-FEED, stage, with this phase of work to be wrapped up by early next year. The pre-FEED will include a revised cost estimate, which is currently pegged at $45 billion to $65 billion.

The next key decision for the overall project will be moving into full Front-End Engineering and Design, which could occur in mid-2016 and will involve an approximate $2 billion commitment by the parties.

Later this year, however, the state must decide on whether to extend its deal with TransCanada, and also finalize a fiscal agreement with North Slope producers covering gas production tax and royalty terms. Negotiations on the fiscal agreement and other pending issues such as a Payment-in-Lieu-of-Taxes, or PILT, on municipal and state property taxes, are currently under way.

In an email sent to state legislators May 29 but made available June 9, Walker said, “The agreement with TransCanada allows the state to remove the company as its agent at the end of the pre-FEED. The administration could choose to remove TransCanada at that time, and as late as July 2016. Alaska could then take a direct role in the project at the FEED stage.”

TransCanada’s role in the overall project has been somewhat controversial in Alaska. Parnell agreed to bring the pipeline company in as a partner to gain access to the pipeline company’s expertise in large project management and in dealing with the producer partners in capacity management and expansion issues.

Another consideration is that the arrangement would have TransCanada finance its share of equity in the project, which would amount to several billion dollars, with its own resources. That would relieve the state from the burden of having the raise the money, if it were to assume the full 25 percent share.

On the other hand, under that arrangement the state would not make as much profit from the project.

However, the TransCanada deal was also done partly to resolve potential legal issues related to terminating a previous contract the state had with the pipeline company under the Alaska Gasline Inducement Act, or AGIA. Many state legislators, and Walker as a candidate for governor, criticized Parnell’s move, arguing it gave up too much ownership and share of future revenues to the pipeline company.

There has also been an assumption that TransCanada, as a part owner, would also play a major role in managing the actual construction of the pipeline, an area where it is widely experienced. However, an industry source close to the project, asking not to be identified, said decisions on which entities would be involved in construction management have not been made.

In a response to Walker’s request for funds, state legislative leaders wrote, “Many in the Legislature support the termination of the state’s contract with TransCanada once sufficient financial review and a thorough evaluation of the benefits and risks is undertaken.”

The response was in a letter sent June 4 but not released to the public until June 9. It was signed by House Speaker Mike Chenault and Rep. Mike Hawker, R-Anchorage, chair of the Legislative Budget and Audit Committee, and the co-chairs of the House Resources Committee, Reps. Ben Nageak, D-Barrow and Dave Talerico, R-Healy.

Lawmakers also asked for details as to how the state can fund a larger commitment to the project: “Our partners, before progressing to FEED, will need to know the state has the ability to fund its FEED commitment, which will be significantly higher if TransCanada is no longer a partner in the venture.”

Read more:

Saturday, May 16, 2015

Educators misled by the NEA and the Partnership for Public Education

Kara Moriarty

Alaskans deserve facts on all major public policy issues. Sadly, misrepresentations about Alaska’s oil and gas tax credits threaten to turn a situation that requires a thoughtful and fact-based approach into a political skirmish complete with slogans and accusations.

It is impossible for anyone to track every issue, so we tend to rely on media outlets, unions, trade groups, etc., to provide us accurate information that enables us to learn about and take positions on public policies. Unfortunately, in this case, the union representing teachers has let its members down by continuing to spread inaccurate information for the last month -- even after hearing the facts.

The NEA commissioned a poll this spring, in conjunction with the members of the Partnership for Public Education, which include: AFL-CIO; Alaska PTA; Anchorage Polynesian Lions Club; Citizens for the Advancement of Alaska’s Children; NAACP; Polynesian Association of Alaska; and School Business Partnerships. One of the questions asked Alaskans how they felt about oil tax credits, and if the Legislature should revisit oil taxation. Fair question. However, the question as worded was blatantly incorrect. This could have been an honest mistake, but professional standards dictate that when an error is identified, the responsible party is obligated to correct it. To date, the NEA and the Partnership for Public Education refuse to take ownership of their error, which is especially regrettable when you consider this is the union that represents teachers who, more than any other professional, strive for truth in information as they educate the next generation of Alaskans.

More than a month ago, I respectfully presented the correct information from the Department of Revenue to the NEA and the PTA. I asked that they provide the facts to those that received the poll and put a disclaimer on the public results. Several emails and many weeks later, I have been ignored and nothing has been done. The pollster for this organization, Hays Research Group, is also unwilling to correct the record despite what appears to be a clear violation of the ethical guidelines outlined by that profession’s trade organization. As the head of a professional association whose mission is to provide Alaskans with factual, third-party referenced information, this kind of casual attitude toward the truth is unsettling. My professional training is in education; I used to be an elementary school teacher, and an NEA member, and I would be horrified to know my union was consciously choosing to misrepresent an issue that was proven to be false.

The inaccurate statement contained within the poll question posed to Alaskans read like this:

"The state revised its oil tax law in 2013, and Alaskans voted by a narrow margin in August not to repeal the new tax system. At current oil prices, the state gives out more in oil tax credits to the oil industry than it receives in revenue from the oil industry. Would you support the Legislature revisiting the issue of oil credits and taxes in light of the current deficit?"

Who wouldn’t respond with a “yes” to this question as worded? The trouble is, it’s just flat wrong.

In fact, its entire premise is wrong. It is an indisputable fact that the State of Alaska receives billions more in revenues than it pays out to oil companies when you look at all oil revenue sources: royalties (the state’s share as an owner), production taxes, income taxes, property taxes and other fees paid to the state.

Alaskans deserve an honest conversation based on facts as we tackle our fiscal challenges, not half-truths or political spin. No one is served when individuals or organizations throw out inflammatory accusations that are clearly either false or taken out of broader context.

The NEA has every right -- and even the responsibility -- to lobby rigorously for policies that benefit public education and teachers. But it should do so in a way that informs Alaskans with accurate information, not misleads them by spreading false information.

My organization has set up a special page on our website for readers who want more information on oil revenues and tax credits from objective, third-party sources. Visit and learn about it for yourself.


Kara Moriarty is executive director of the Alaska Oil and Gas Association, a nonprofit trade association whose mission is to foster the long-term viability of the oil and gas industry in Alaska.

Thursday, May 7, 2015

Pentex purchase could cut ratepayers’ bills immediately

Fairbanks Natural Gas customers could see their heating bills drop immediately if the utility is sold to the Alaska Industrial Development and Export Authority.

“We do believe through the financing tools that AIDEA has, we could reduce the (gas) rate in Fairbanks right away by approximately 14 percent,” former AIDEA director Ted Leonard said at the authority’s April 30 board meeting.

“Rationalizing” the two gas distribution systems being developed by Fairbanks Natural Gas and the Interior Gas Utility and forming one system could provide significant capital and operating cost savings, he said.

Leonard retired as AIDEA executive director earlier this year but has continued to work on the Interior Energy Project because of his extensive experience with the earlier North Slope work.

Further savings to ratepayers would come from the different business models — moving away from the inherent cost and return requirements in a privately-owned utility structure.

Mark Gardiner, a financial consultant who is working closely with AIDEA on the proposed deal, said that the current rate of $23.35 per thousand cubic feet, or mcf, of gas FNG customers are paying could be $20 next year if the sale goes through. The savings would be even greater if FNG’s pending rate case before the Regulatory Commission of $24.96 per mcf is accepted.

The potential cost savings from the purchase are separate from whether or not the Interior Energy Project moves forward. However, an early projection of $16.80 per mcf in 2020 for all customers of a blended utility was presented to the board.

That estimate assumes liquefied natural gas can be delivered to Fairbanks for the equivalent of $11 per mcf, a midstream price the Interior Energy Project will have to come close to in order to meet the stated goal of the project.

Leonard said North Slope gas trucking project models came in with a comparable price in the $13 to $13.50 per mcf range.

AIDEA projects full buildout of a consolidated Fairbanks gas utility to cost $223 million. To date, the authority has issued $52.8 million in loans for gas distribution from the $332.5 million Interior Energy Project state financing package.

AIDEA announced a preliminary agreement to purchase the parent company to Fairbanks Natural Gas, Pentex Alaska Natural Gas Co., in late January.

That announcement was met with resistance from some Alaska legislators who questioned the premise of the state purchasing outright a private business and how the AIDEA-Pentex sale would affect an earlier agreement for a Hilcorp subsidiary to purchase Titan Alaska LNG — Pentex’s LNG trucks and small Southcentral liquefaction facility.

The 10-year LNG supply agreement Harvest has with Pentex, as part of the Titan sale would remain as well. That agreement is to fuel existing gas customers and does not expand Interior’s natural gas supply.

It’s currently believed the two deals can coexist; AIDEA would purchase Pentex for $54 million and then sell Titan to Harvest Alaska (Hilcorp) for $15.1 million, which is the price Pentex and Harvest originally agreed to.

The AIDEA deal is set to close July 31. The Titan sale is being reviewed by the RCA and Attorney General Craig Richards and has a Sept. 31 financial close date.

If the Titan sale is denied or otherwise fails AIDEA would retain those assets.

Leonard and Gardiner said it is the authority’s intent to sell or otherwise transfer control of Fairbanks Natural Gas within two years to a local entity, most likely IGU, which is owned by the Fairbanks North Star Borough.

Fairbanks Natural Gas President and CEO Dan Britton, who is also a minority shareholder in Pentex, said in an interview that IGU leaders have generally been kept abreast of the negotiations with AIDEA and are supportive of the overall plan.

Fairbanks Natural Gas petitioned the RCA for IGU’s service area and Britton has said two operating gas utilities makes little sense for the small customer base that is the greater Fairbanks area.

IEP gets moving

Now that a bill has passed allowing Cook Inlet gas to be used as a possible supply, it’s full steam ahead for the Interior Energy Project, its manager Bob Shefchik said April 30.

The project team had meetings scheduled the week of May 4 with 15 to 18 parties that have expressed interest in partnering on the Interior Energy Project, Shefchik said.

“Because it’s been such a long process we want to bring them in, talk to them about where we’re headed, what we expect to be in the solicitation and get some feedback,” he told the AIDEA board.

A request for proposal, or RFP, for a private partner to expand Southcentral gas liquefaction capacity should be issued by AIDEA by mid-May and stay open for 30 days, according to Shefchik. Proposals for a small gas pipeline and propane solutions will also be accepted.

He said the board could expect the results of the RFP at its June 25 meeting.

Concurrently, the state Commerce Department along with the Revenue and Natural Resource departments are working on a gas supply solicitation.

Shefchik, a former Interior Gas Utility chair, said the Fairbanks utilities have agreed to participate in the RFP selection process and a range of acceptable gas prices will be worked out earlier than it was during the North Slope supply efforts to keep the utilities on board.

“The thing that has to be avoided is (price) being the last thing decided,” he said.

Sunday, April 5, 2015

State estimates $150B to treasury if ANWR ever opened

Alaska Contract Staffing
Tim Bradner
Alaska Journal of Commerce

Alaskans have long believed oil discovered in the coastal plain of the Arctic National Wildlife Refuge could help keep the Trans-Alaska Pipeline System operating and also replenish the state treasury.

It may be a pipe dream because the federal government shows no sign of opening the coastal plain to further exploration and Congressional approval is required for any exploratory drilling or leasing.

Interior Secretary Sally Jewell, who denied the State of Alaska’s proposal for new seismic exploration of the ANWR coastal plain and is awaiting the outcome of a court case challenging that decision, wants to make it wilderness, a permanent lockup.

But what if? What if there were exploration, and discoveries? How much oil could there be? State officials told legislators in February the revenue to the state treasury could total more than $150 billion over 50 years.

ANWR’s coastal plain, in the eastern North Slope, is thought by geologists to have the best potential for major discoveries of any unexplored onshore area of the U.S.

Major oil fields have been discovered in the central North Slope, including the very large Prudhoe Bay and Kuparuk River fields. There is potential for further discoveries in this area but they are expected to be smaller.

The southern North Slope, and the huge 23-million-acre National Petroleum Reserve–Alaska on the western Slope, are generally thought by geologists to be prone to natural gas discoveries although some oil will almost certainly also be found.

The most informed estimate on ANWR’s coastal plain area came from the U.S. Geological Survey in 1998, which made a “mean” estimate of 7.7 billion barrels of recoverable oil that could be discovered. “Mean” is basically mid-way between high and low estimates.

Whether oil is really there isn’t known for sure. The USGS worked with data from 1,180 miles of two-dimensional seismic program conducted between 1983 and 1985, plus what is known about the regional geology.

The only exploration well drilled in ANWR, in a 91,000-acre in-holding of private lands owned by Kakovik Inupiat Corp. and Arctic Slope Regional Corp., was drilled in the early 1980s by BP and Chevron Corp., and the results are still secret.

No matter what the drilling showed, development of even these private lands are blocked unless Congress decides to open the rest of the costal refuge.

Still, state legislators in Juneau want to know what Alaskans may be missing out on.

In mid-February, the House Resources Committee asked the state departments of Natural Resources and Revenue to develop the most plausible oil discovery and production scenarios based on that is known, and to derive state revenue estimates from those.

The two agencies presented their results to the committee on Feb. 12.

Paul Decker, acting director of DNR’s Division of Oil and Gas, described ANWR’s regional geology in the so-called “1002” area, a coastal plain area named for the section of the law in which Congress designated for additional study of petroleum resources in the Alaska National Interest Lands and Conservation Act of 1980, the federal law that created the refuge.

Decker said the best prospects for discovery are in the western third of the coastal plain, which state geologists believe to hold the most oil potential. Of the 7.7 billion barrels of resources estimated to be in the 1002 area, 6.4 billion barrels are expected to be in the western third.

That is about five times the oil potential of the eastern two-thirds of the coastal plain.

“The northwestern one-third of the coastal plain is geologically simpler and more favorable to hosting oil accumulations,” Decker told the committee.

The area is also adjacent to state lands across the Canning River where companies have made discoveries at Point Thomson (gas, liquid condensate, and oil), and Sourdough (oil). Oil has also been discovered offshore the 1002 area, with the Kuvlum well in 1993 and “Hammerhead” (where Shell is exploring) in 1985.

Geologists in the division did further analysis, predicting that most of the accumulations that might be discovered would be in the 32 million-barrel range to 256-million-barrel range, but accumulations of 1 billion barrels were also possible.

Based on that analysis, the Department of Revenue developed possible production and oil royalty and tax estimates. Ken Alper, director of the Tax Division, presented the conclusions, assisted by Dan Stickel, assistant chief economist.

The scenario presented by Alper and Stickel would have permission granted by Congress to explore in 2016 and leases issues between 2017 and 2019. Exploration would begin in 2019, with the first field located in 2022, and with its development beginning that same year.

First production would be in 2026. From that point on, the scenario foresees one new field discovered and brought into production every two years so that there would be 25 fields in total developed by 2074. The assumed size of discoveries vary along the lines of the estimates by the Division of Oil and Gas but most of the new fields would be between 64 million barrels and 512 million barrels of recoverable resources.

All prices and costs in the modeling assumed 2015 constant dollars and an oil price of $110 per barrel along the lines of the Revenue Department’s very long-range price forecast (a $90 per barrel case was also considered, however).

The modeling assumes no gas being developed, although surely there would be gas discovered also.

Given these assumptions in the modeling, a “base case” of 7.1 billion barrels of oil developed and produced until 2075 would bring $150.9 billion to the state treasury, although the number could be higher, or lower, depending on the amount of oil found.

The production profile in the base case was about 560,000 barrels per day, with a high case, with more oil discovered, of 760,000 barrels per day and a low case, with less oil discovered, or 350,000 barrels per day.

The required investment by industry would reach $5.75 billion per year in the development, pre-production phase, with continuing investment all through the operating lives of the fields.

Because of tax credits in the current state production tax the state treasury would not begin to experience income net of the tax credits until 2030 or 2031, but revenues would then increase rapidly to a peak of about $4.9 billion per year in 2045.

Revenues would the taper off gradually, but even by 2075, the end of the period modeled, there would still be $3.3 billion per year net to the state treasury.

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