Saturday, February 28, 2015

DOI wants operation plan, relief well rig for exploration drilling

Alaska Contract Staffing
Alan Bailey
Petroleum News

The Bureau of Safety and Environmental Enforcement and the Bureau of Ocean Energy Management, the two agencies within the Department of the Interior responsible for oversight of U.S. outer continental shelf oil activities, have released proposed new regulations for exploration drilling in federal waters of the Beaufort and Chukchi seas.

The agencies have been developing the regulations in the aftermath of the Deepwater Horizon disaster in the Gulf of Mexico - the draft regulations had been under review by the White House Office of Management and Budget since August and were released on Feb. 20. The regulations are subject to a 60-day comment period that will begin following publication in the Federal Register.

“The Arctic has substantial oil and gas potential, and the U.S. has a longstanding interest in the orderly development of these resources, which includes establishing high standards for the protection of this critical ecosystem, the surrounding communities, and the subsistence needs and cultural traditions of Alaska Natives,” said Secretary of the Interior Sally Jewell. “These proposed regulations issued today extend the administration’s thoughtful approach to balanced oil and gas exploration in the Arctic, and are designed to ensure that offshore exploratory activities will continue to be subject to the highest safety standards.”

Performance-based and prescriptive

Interior says the new regulations contain a combination of performance-based and prescriptive standards that cover all phases of offshore exploration in the Arctic.

The proposed rule includes requirements that an offshore operator file an integrated operations plan for proposed drilling operations; that the operator of a drilling project has available a capping stack and containment dome for dealing with an out-of-control well; and that the operator has available a second rig for the drilling of a relief well, should a well loss-of-control incident arise.

“This proposed rule is designed to ensure safe energy exploration in unforgiving Arctic conditions,” said BSEE Director Brian Salerno. “It builds upon our existing Arctic-specific standards and experience with previous operations offshore Alaska, encourages further development of technology, and includes rigorous safeguards to protect the fragile environment.”

“As we make the vast majority of the Arctic oceans offshore Alaska available for oil and gas leasing, we have an obligation to provide the American people with confidence that these shared resources can be developed responsibly,” said BOEM Director Abigail Ross Hopper.

The regulations specifically relate to exploration drilling, rather than the drilling required for oilfield development or maintenance.

During a Feb. 20 news conference Salerno said that a final version of the regulations will not be completed before this summer’s Arctic offshore drilling season and will not, therefore, apply to Shell’s planned exploratory drilling in the Chukchi Sea this year. But, Salerno commented, provisions within the regulations draw heavily on requirements that were set during Shell’s 2012 Arctic drilling operations, on lessons learned from those operations and on discussions held with Shell regarding its 2015 plans. Thus, if Shell does drill in 2015, the company will need to comply with some new requirements that correspond to features of the new regulations, Salerno said.

Integrated operations plan

The purpose of the integrated operations plan, which, according to the proposed regulations, an Arctic offshore operator would have to file with Interior at least 90 days prior to filing an exploration plan, is to provide government agencies with early information about what an operator intends to do and to stimulate early discussions about the operator’s intentions. “The whole purpose behind the operational plan is to provide early indications of how an operator proposes to approach a drilling season,” Salerno said.

The integrated operations plan would include information such as proposed vessel and equipment specifications; the schedule of operations; the drilling program objectives and timeline; contractor management arrangements; and plans for the preparation and deployment of spill response assets. The plan would not require formal agency approval, as is needed for an exploration plan.

Salerno said that the proposed regulations require that a company conducting drilling operations in the Arctic outer continental shelf has available in the Arctic the appropriate systems needed for the capping of a well following a loss-of-control incident, and for the containment of spilled oil, should the capping system fail. A capping stack, for sealing the wellhead, must be available for transfer to the well site within 24 hours of an incident, while cap-and-flow and containment systems, for gathering spilled oil and transferring the oil into surface vessels, must be available within seven days.

Salerno said that, given the remote nature of the Arctic, it would not be acceptable for an operator to contract the use of capping and containment systems that are stationed in the Gulf of Mexico.

Relief well capability

One particular feature of the proposed regulations is the mandating of a second drilling rig for the drilling of a relief well following a loss-of-control incident - a relief well is a secondary well drilled after a well blowout, to enable cement to be injected into the problem well bore, to permanently seal the well. The need for the rig and the need for a time window before the onset of the winter to drill a relief well add significant cost to an Arctic drilling operation. In a presentation to the Office of Management and Budget Shell argued there has been no recorded instance of a relief well bringing a well blowout under control, and that new well capping technology, coupled with improved well integrity management, can effectively reduce the probability of a loss of well control.

“We understand that the same-season relief rig is somewhat controversial,” Salerno said. “From our perspective that sets a level of protection for the Arctic that is necessary.”

Interior is also insisting that an operator has available sufficient mechanical oil recovery equipment to recover all oil spilled in a worst case spill scenario, even although there are alternative techniques, such as in-situ burning and dispersant use, that could be employed if appropriate.

And during drilling operations, it will be necessary to test the well blowout preventer every seven days rather than every 14 days, as is mandated elsewhere.

The discharge of drilling waste into the ocean has in the past proved controversial, especially in the context of Arctic offshore drilling. The proposed regulations would prohibit the discharge of any petroleum-based drilling mud and associated cuttings and would also give Interior’s regional supervisor the discretion to ban the discharge of water based mud.

And during drilling operations an operator must transmit drilling data to an onshore location, and make the data available to BSEE on request.

Varied responses

Shell, in its response to the proposed regulations, said that it supports regulations that further its concern about safety and environmental protection.

“We support regulations that further these imperatives in the Arctic, provided they are clear, consistent and well-reasoned,” said Shell spokeswoman Megan Baldino in a Feb. 23 email. “While we review the draft Arctic regulations put forward by the Department of Interior, we will continue to work with federal agencies, the State of Alaska, local communities, and contractors to develop a 2015 drilling program that achieves the highest technical, operational, safety and environmental standards.”

U.S. Sen. Lisa Murkowski, R-Alaska, chair of the Senate Committee on Energy and Natural Resources, said on Feb. 20 that she was still reviewing the proposed regulations and that she wants to evaluate what impact the regulations may have on the economic development of Alaska’s vast resources.

“Given the opposition this administration has shown so far to responsible resource development, I’m reserving judgment until it’s demonstrated that these regulations will not unnecessarily block investment,” Murkowski said. “If this administration is truly committed to developing our Arctic resources then it is imperative that the Interior Department provide clear direction to Shell and the other leaseholders in the region on how they can proceed.”

Environmental organizations praised the tightening of drilling regulations for the Arctic offshore while also expressing concern about the risks associated with drilling for oil in Arctic conditions.

“We applaud the government for recognizing that existing oil and gas regulations are not adequate,” said Susan Murray, Oceana’s deputy vice president, Pacific. “The new rules clearly are needed and are an improvement, but they do not ensure safe and responsible operations in the Arctic Ocean. There is no proven way to respond to a spill in icy Arctic waters and, as Shell unfortunately demonstrated, companies simply are not ready for the Arctic Ocean.”

Read more:

Thursday, February 26, 2015

Good trends for Alaska; Annual BP Energy Outlook 2035 sees a global shift in trade patterns for energy

Alaska Contract Staffing
Eric Lidji
For Petroleum News

With oil prices at six-year lows, it can be difficult to see much optimism for Alaska.

But three trends bode well for the oil and gas sector in Alaska over the next 20 years, according to the most recent edition of the BP Energy Outlook 2035, released Feb. 17.

First, the global energy system is changing directions. Second, global oil market should return to their normal balance. Third, liquefied natural gas should become dominant.

With Alaska sitting at the edge of the Asia-Pacific market and working toward expanding LNG exports while finding a market for existing oil supplies, those trends could help.

The annual outlook is a projection of current energy trends and policies rather than a prediction of what will happen, according to BP Group Chief Economist Spencer Dale.

Rising in the west

As always, trade patterns come down to supply and demand.

The growth of unconventional oil supplies in North America, the growth in oil demand in developing economies like China and India and the flattening of demand in developing economies such as North America, are currently shifting how energy moves around the world. Simply put, oil is moving from west to east after decades of moving east to west.

Specifically, imports to Asia are expected to account for 80 percent of trade among regions by 2035, up from 60 percent today, while exports from the Middle East are expected to fall from 55 percent in 2013 to slightly less than 50 percent by 2035.

At the same time, North America should soon become a net exporter of oil. While the United States imported some 12 million barrels of oil per day in 2005 - or 60 percent of its total demand - the country is on pace to become self-sufficient by the 2030s. By 2035, China should surpass the United States as the leading consumer of liquid fuels.

While unconventional oil production in North America is expected to flatten in the coming decades, the United States and Canada are expected to remain at the forefront of the boom currently under way, even though similar resources exist in other countries.

The current “weakness” in oil markets, as BP phrased it, is largely seen as the result of unconventional oil from North America backing out imports and glutting the market.

Seeing as how these resources drove the two largest single-year increase in domestic oil production in 2013 and 2014, the glut should take several years to “work through,” according to the outlook. Eventually, the high decline rate of unconventional wells and the limited available oil resource should lead domestic tight oil production to flatten.

As it does, global demand is expected to increase. The outlook expects the demand for oil to grow by 19 million barrels per day by 2035, which is the equivalent of adding another United States to global demand. The increase will come largely from China and India.

While tight oil supplies from North America will accommodate much of the demand in the short term, the Organization of Petroleum Exporting Companies is expected to meet the rising demand toward the end of the forecast period, which could rebalance the global market to the position it held long before North American tight oil.

Of the three fossil fuels, natural gas is expected to grow the most by 2035.

While coal has been the fastest growing fossil fuel in recent years, it is expected to become the slowest over the next 20 years as Chinese demand moderates, more policies aim to reduce carbon dioxide emissions and plentiful gas supplies ease conversion.

The outlook expects demand for gas to increase 1.9 percent each year through 2035 with about half being met by increased production from Russia, the Middle East and shale gas.

What is more relevant for Alaska is an expected change in the way natural gas moves.

As part of the changing movement of global energy supplies, the Asia-Pacific is expected to overtake Europe as the leading region for natural gas imports by the early 2020s and growing shale gas production will turn North American from an importer to an exporter.

The “overwhelming majority” of this increasing trade will come in the form of LNG, according to the outlook, which expects 8 percent growth per year through 2020. More tellingly, the outlook expects LNG to overtake pipelines by 2035 - a first in history.

Such a shift would impact gas pricing, as well as the geography of supply and demand.

Of that growth, about half should come over the next five years, as projects currently in the works come into operation. The rest should come between 2025 and 2035.

Given that LNG tankers are more mobile than pipelines, and therefore able to respond to price signals more quickly, an increase in LNG supplies would have the effect of integrating the global natural gas market, which is currently constrained by region.

While LNG is unlikely to create a “global gas price,” according to the outlook, it could cause gas prices around the world to move up and down in unison, with the differences between regions reflecting transportation costs rather than regional issues of supply and demand.

Read more:

US releases ‘One Arctic’ theme as it readies to take chair

DJ Summer

The Arctic Council wants to make sure citizens and politicians start looking northward as trade routes, natural resource development and national security issues emerge.

The United States will enter into the chair position of the Arctic Council in April 2015, taking over for Canada, which held the position since 2013. The chair position is held for two years before being taken by another of the eight member countries.

The U.S. is a member thanks to Alaska, along with the Russian Federation, Canada, the Kingdom of Denmark (including the Faroe Islands and Greenland), Iceland, Norway, and Sweden. The politicians working on the council, many of whom are Alaskans, say they plan to use the country’s position to bring more public, private, and political attention to an Arctic that’s rapidly becoming a focal point for everything from environmental concerns to international trade.

The council is an international study group of the eight countries that touch the Arctic Circle, founded by the Ottawa Declaration of 1996 to provide a means for its members to work on mutual Arctic-centric issues.

It makes no grants and builds no projects, focusing its efforts mostly on information gathering, sharing, and disseminating, both through collaborations among government bodies and working relationships with private advocacy groups, academic organizations, or any other organization who wants to contribute to Arctic study.

Alaska organizations like the Aleutians International Association partner with the council to work on projects involving climate change, ocean acidification, geophysical mapping, search and rescue, renewable energy studies, and social concerns like suicide prevention for rural Alaska communities.

The U.S. will serve as council chair under the administration of Secretary of State John Kerry, who will host a yearly summit of Arctic nations and maintain diplomacy but cede operations to the senior Arctic official, Julia Gourley.

Senior Arctic officials representing each member nation meet on regular basis to manage the council’s operations under an Arctic senior official chair held by the Arctic Council chair nation, in this case the U.S.

The U.S. Arctic senior official chair position has not been officially announced, but the name most frequently brought up as hopeful is David Balton. Balton has served since 2009 as Deputy Assistant Secretary for Oceans and Fisheries, Bureau of Oceans and International Environmental and Scientific Affairs within the U.S. Department of State.

Under the senior official body are several task forces, each concerned with marine oil pollution prevention, circumpolar business development, scientific cooperation, and black carbon and methane study.

Former Alaska Lt. Gov. Fran Ulmer will inform Kerry as a special adviser on Arctic science and policy. The last time the U.S. chaired the council was from 1998-2000, at which time then-Lt. Gov. Ulmer served as the state representative to interact with the council. Ulmer, who currently serves as chair of the U.S. Arctic Research Commission, said the U.S. has chosen a message of cooperation and stewardship as its mission statement.

“The U.S. has chosen for its broad theme for the chairmanship, ‘One Arctic, shared opportunities, challenges, and responsibilities,’” said Ulmer at an Arctic Council presentation at the Dena’ina Center on Feb. 11. “And under all three of those there’s a lot that we can talk about.”

Under the “One Arctic” mission statement, Ulmer says the U.S. has three focus points for the next two years: security and stewardship of the Arctic Ocean, climate change and improving the economic conditions of Arctic peoples.

Specific projects within that scope are being planned, Ulmer says, but the council process operates under a consensus rule, and any plans or proposals must have the majority support of Arctic nations before implementation.

The council will focus on getting the attention of citizens and lawmakers who otherwise might not have a reason to pay attention to the region.

“We’re trying to make brochures that tease out some info to get people interested,” Ulmer said. “We’re trying to explain to the Lower 48 and the rest of the world how important this place is and that we should treat it with respect. We need infrastructure that’s capable of responding. How do we get that? By getting those people and people in the U.S. congress to say ‘yes.’”

Craig Fleener has been appointed by Gov. Bill Walker as special Arctic advisor. Fleener echoes Fulmer’s call for greater attention to Arctic issues, especially for Alaskans.

“If it wasn’t for Alaska, the U.S. wouldn’t be an Arctic nation,” Fleener said. “We cannot treat this as a two-year slice of time. This will continue to be our home when Finland or Russia takes the chair.”

Fleener says that the state’s focus in its involvement with the Arctic Council will be on bolstering “community sustainability.” Emphasizing proper fish and game management and finding solutions for energy cost reduction, he says, are key to state survival, and developing regional and academic partnerships will be instrumental in furthering those goals.

Admiral Bob Papp was appointed in 2014 to serve as special representative to the Arctic. In this role, Papp serves as a kind of ambassador between Arctic nations beyond just the scope of the council.

Read more:

Saturday, February 14, 2015

‘Back to business’ as CH2M Hill calls off Alaska unit sale

Alaska Contract Staffing
Tim Bradner
Alaska Journal of Commerce

Senior managers of CH2M Hill were in Alaska Feb. 4 meeting with the company’s employees.

Their message: The company’s oil and gas business is no longer for sale and it’s business as usual.

CH2M Hill Senior Vice President for Corporate Development Matt McGowan and Senior Vice President and Regional Managing Director Patrick O’Keefe said the company wanted to test the market’s reception on a possible sale when it was announced last October.

There were a lot of inquiries and a lot of interest but the unexpected oil price plunge affected the outlook and increased uncertainty among potential buyers, McGowan said in a Feb. 4 interview with the Journal at the company’s Anchorage office. In mid-January, the company announced the sale was off.

It was still a worthwhile exercise, McGowan said, because it validated CH2M Hill’s sense that its Alaska-based oil services division, the former Veco Corp., was a valuable business. CH2M is happy to continue owning it, he said.

“We’re back to business, developing our long-term strategy and making sure the Alaska division has the allocations of capital that it needs,” McGowan said.

“We did a lot of work on the sale and we learned a lot about the business. Then, oil prices changed, dramatically. The price change has not affected us — our own (engineering and oilfield construction) business is holding up — but the price change caused a lot of turmoil among the parties we were dealing with.

“There was a lot of interest, however, and it confirmed the value of the (Alaska oil services) business.”

It was unusual for a company to announce in public that it was putting a major division up for sale, McGowan said, but CH2M Hill wanted to be as transparent as possible about it.

Terry Bailey, the company’s Alaska manager, said it was also done to control the rumors that would inevitably have started among employees and customers.

“We wanted to get ahead of this,” Bailey said.

CH2M Hill is a major employer in the state and a big player on the North Slope as well as non-petroleum infrastructure projects in the state.

Across the Slope, the company is now providing engineering services, construction and oilfield maintenance, from the ExxonMobil-led Point Thomson in the east to ConocoPhillips’ CD-5 project in the west.

The company employs about 1,900 on the Slope and this will increase to 2,000 or more as work on the $4-billion Point Thomson project peaks this summer, Bailey said. CH2M Hill is playing a key role in that project as manager of the installation of four huge gas production and process modules that will arrive on the 2015 summer sealift.

The company is doing a lot of other work on Point Thomson, too, including the fabrication of smaller “truckable” modules and facility components in fabrication shops in Anchorage, he said.

Point Thomson will begin production of liquid condensates in 2016. Natural gas produced in the process will be injected back underground.

CH2M Hill is also managing the installation of production facilities at CD-5, a $1-billion ConocoPhillips project near the Alpine field on the western North Slope. CD-5 is expected to begin production late this year.

A large non-petroleum infrastructure project CH2M Hill is managing is the plan for completing the Port of Anchorage reconstruction. This is being managed by the Alaska Division, Bailey said, but the project teams are drawing on CH2M Hill divisions elsewhere that have special expertise in port development.

Patrick O’Keefe, the company’s regional director, said CH2M Hill purchased U.K.-based Halcrow Group three years ago, a veteran engineering company specializing in port and harbor infrastructure. Halcrow already had a U.S. base but the acquisition strengthened the company in this country and added to CH2M Hill’s infrastructure work in Europe and the Middle East, where Halcrow was active.

CH2M Hill acquired VECO Corp. in 2007, which now constitutes the oil services division, but the company has had a presence in Alaska for more than 50 years in its traditional water, sewer and power generation infrastructure projects. The company opened its office in 1964 to aid in earthquake reconstruction.

In addition to the direct oil field services provided in Alaska and Sakhalin Island, Russia, it also does a lot of work in oilfield infrastructure worldwide. Using its water and wastewater expertise the company provides maintenance management in water and sewer utilities, for example in a Denver suburb.

O’Keefe said the company’s work on nonpetroleum infrastructure in the state has been stable, and the company hopes to grow that segment of its work.

Meanwhile, CH2M Hill is heavily engaged in natural gas project development. On the state-led 36-inch Alaska Stand-Alone Pipeline, or ASAP, CH2M Hill is the program manager, and is also engaged in pre-FEED engineering and design work for the larger Alaska LNG Project, the 42-inch pipeline,large natural gas liquefaction plant and marine terminal.

The company’s share of that large project is the marine infrastructure facilities at Nikiski, which is the proposed site of the LNG plant.

Read more:

Monday, February 9, 2015

Alaska Energy Dudes and Divas Website

Welcome to the soft launch of the Alaska Energy Dudes and Divas Website

Environmentalist Presidents; the last puzzle piece to lock up Alaska

Environmentalist Presidents
Deborah Brollini
Alaska Energy Dudes and Divas

I was surprised that Obama is giving President Jimmy Carter the last puzzle piece to lock up Alaska. ANILCA in fact is President Carter's environmentalist agenda, not Obama's. The President is known for his arrogance, and to carry out a past President's agenda and dreams seems a bit odd.

In addition, Obama claims to care deeply about Alaska's first people and our tribes. Shutting down ANWR, and OCS development harms all Alaskans. Most especially Alaska's first people.

Former President Jimmy Carter is introduced by Thomas Strickland, Assistant Secretary of the Interior for Fish, Wildlife & Parks. This event was at the National Conservation Training Center in Shepherdstown, W.Va. on Jan. 18, 2011.

Former President Jimmy Carter talks about time he spent at the Arctic National Wildlife Refuge (ANWR).

American Indian leaders from 566 federally recognized tribes joined President Barack Obama and other Cabinet members Wednesday for the fifth annual Tribal Nations Conference at the White House.

I'm a tad confused. Is the President's intention to harm, or help Alaska's first people by his ANWR/OCS executive orders.

Saturday, February 7, 2015

ConocoPhillips delays GMT-1 amid BLM talks

Tim Bradner
Alaska Journal of Commerce

ConocoPhillips has delayed a decision to develop its Greater Moose’s Tooth-1, project in the National Petroleum Reserve-Alaska as negotiations continue over permitting issues with the U.S. Department of the Interior.

“We have no specific timeframe for revisiting the Final Investment Decision, but having alignment with BLM is important to that,” ConocoPhillips spokeswoman Amy Jennings Burnett said.

The delay in securing permits is one of several factors in the decision along with current oil prices, she said. However, sources in congressional offices say they have been informed that BLM’s insistence on a set of costly mitigation measures has also become a factor.

Greater Moose’s Tooth-1, or GMT-1, would produce 30,000 barrels per day at peak and would have started production in late 2017 had the company started construction this year. That schedule may now have slipped.

In a statement, ConocoPhillips’ Alaska President Trond-Erik Johansen said, “We are deferring the final investment decision for GMT-1. The project is challenged by permitting delays and requirements, as well as the current oil price environment.”

Seismic work planned for the GMT-1 area this winter will continue, he said.

Meanwhile, ConocoPhillips is proceeding on other planned projects, including an expansion of viscous oil production in the Kuparuk River field, Johansen said. The $450 million North East West Sak, or NEWS, project is expected to add 9,000 barrels per day of new production in 2016.

In October, the company announced that it is proceeding with its new Drill Site 2S in the Kuparuk field, a $600 million project that will have peak production at 8,000 barrels per day with first production beginning in late 2015.

Also, the CD-5 project now under construction is also on schedule and will also start up late in 2015, with peak oil production of 16,000 barrels per day.

On GMT-1, however, ConocoPhillips has been frustrated by delays in securing final permits from the U.S. Bureau of Land Management, the Interior Department agency that administers the 23-million-acre NPR-A.

BLM issued a final supplemental environmental impact statement, or SEIS, on Oct. 24 but has yet to issue a Record of Decision. The ROD typically leads to federal permits being issued, and the delay will likely lose the 2015 winter construction season for ConocoPhillips, which could set the schedule back a year.

Congressional sources familiar with the project say the main problem the company now faces is BLM’s request on a set of mitigation measures that will add an estimated $40 million to GMT-1’s cost.

“ConocoPhillips has already built mitigation for wetlands impacts into its project plan using the customary three-for-one formula (three acres of restored wetlands for one acre affected by gravel placement) but BLM is insisting on further steps that would add $40 million in costs,” said Robert Dillon, spokesman for the Senate Energy and Natural Resources Committee, which is chaired by Alaska U.S. Sen. Lisa Murkowski.

Dillon said ConocoPhillips had briefed Murkowski on the negotiations with BLM.

He does not know the details of the additional mitigation or other stipulations BLM is seeking but at one point BLM sought ConocoPhillips’ agreement that the company would fund cleanup of old exploration wells drilled decades ago in the reserve by the federal agencies. Those were abandoned in an unsafe condition and Alaskans officials have been pressing BLM for years on funding a cleanup the wells, some of which are leaking.

There is also a disagreement between the BLM and the U.S. Army Corps of Engineers over the route of an eight-mile road to GMT-1 from CD-5, a drill site now under construction that is on the boundary with state lands to the east of the federal petroleum reserve.

Dillon said BLM and ConocoPhillips expect to be able to resolve differences over the road, but that there is an impasse over the mitigation.

“Our concern is that this will kill the project,” Dillon said. “It sets a precedent for future activity in the petroleum reserve. No one will buy NPR-A leases if they see they will be bled to death by project stipulations.”

Neither ConocoPhillips or BLM would comment on the status of the mitigation negotiations.

Alaska officials are watching the GMT-1 project closely because the additional production in 2018 and beyond will be important in offsetting declines from producing fields in the central North Slope area.

Also, GMT-1 and its access road will lead to further development in the reserve. ConocoPhillips is already working on plans for a GMT-2 project further west but that would be delayed if GMT-1 is not constructed on schedule.

Meanwhile, the GMT-1 access road disagreement involves a route favored by ConocoPhillips, labeled as “Alternative A” in the SEIS document, and a slightly-longer “Alternative B” that was favored by BLM.

The U.S. Army Corps of Engineers favors Alternative A because it is shorter by about one mile, at 7.7 miles, than Alternative B, and would have a smaller gravel “footprint” of 72.7 acres compared with 80.4 acres covered by gravel in the Alternative B routing.

BLM’s decision favoring the longer road route stems partly from support for that from the Native Village of Nuiqsut, the tribal community for the nearby Nuiqsut village, because the route avoids an important subsistence use area in the Fish Creek area.

Conservation groups have also supported the tribal group in supporting Alternative B.

“The Fish Creek area was set aside for protection in 1998 to protect acquatic habitat, which is considered of international significance, and that was reaffirmed by the BLM in 2013 with the adoption of an Integrated Activity Plan for the national petroleum reserve,” said Nicole Whittington-Evans, Alaska director for the Wilderness Society.

“If BLM were to favor Alternative A it would constitute a violation of the agency’s own management plan,” she said.

Members of the Nuiqsut tribe were not available for comment but Whittington-Evans said she has understood that many of the concerns rise from the high elevation of some of the Alpine field roads built by ConocoPhillips and the concern that the road to GMT-1 would be of similar height, constituting a barrier for wildlife movements.

“The SEIS says that the road will be a minimum of five feet in height but does not state a maximum,” she said.

The Native community on the North Slope is divided on the issue, however.

Kuukpik Corp., the village corporation for Nuiqsut; Arctic Slope Regional Corp. and the North Slope Borough have joined ConocoPhillips in support of Alternative A.

In an Oct. 30 letter to the BLM, North Slope Borough Mayor Charlotte Brower said, “We understand that BLM’s concerns (over the road routes) are based on discussions with the Native Village of Nuiqsut about not permitting the road in the Fish Creek buffer, as a way to mitigate the impacts to subsistence.”

However, “Because of the reduced (gravel) footprint, we continue to support Alterative A,” she said.

Overall, the borough supports GMT-1 development because its expected 30,000 barrels per day of development, “will provide significant economic benefits to Alaska Natives on the North Slope and throughout the state through direct payment of royalties and revenue-sharing among the Native regional corporations,” Brower and Rex Rock Sr., president of Arctic Slope Regional Corp., wrote in a separate letter.

“New resource development in Alaska will help offset the current North Slope production decline and help meet the energy demands in the state and nation,” Brower and Rock wrote.

NPR-A was originally created in 1923 as Naval Petroleum Reserve No. 4 by President Warren Harding with the intention of exploring to find oil reserves for the U.S. Navy. The Navy itself funded exploration in the 1950s and found small oil and gas deposits but none of a size sufficient to develop.

In 1975 the reserve was transferred to BLM and a second round of federally-funded exploration was initiated, led by the U.S. Geological Survey. This effort also failed to find significant oil and gas.

In the 1980s President Ronald Reagan opened the reserve to leasing by private industry. Over three decades, industry exploration, led by ConocoPhillips and its partner, finally found commercial deposits in the northeast part of the reserve, which has become the company’s GMT-1 project.

Read more:

Inlet rebound comes at cost to state during price plunge

Alaska Contract Staffing
Tim Bradner
Alaska Journal of Commerce

The turnaround in Cook Inlet oil and gas production in recent years is one of the big success stories for Alaska. It has come at a hefty expense, however, to the state treasury.

It turns out that Inlet producers are being heavily subsidized by the state of Alaska, consultants to the state Legislature say in a report.

Since the state budget is 90 percent dependent on North Slope oil production revenues, this also means that, in effect, the big producing companies on the Slope are paying for the Cook Inlet producers.

What matters most to Alaskans is that the Cook Inlet turnaround, no matter who pays for it, has increased natural gas production in Southcentral Alaska, easing a worry that gas supplies might run short and that utilities might have to import liquefied natural gas, at great expense.

Still, the matter of who pays the bill is important with the plunge in oil prices and huge year-to-year state deficits looming.

The Legislature’s oil and gas consultants, Janak Mayer and Nikos Tsafos, said the development incentive tax credits paid to Cook Inlet producers in fiscal year 2015, the state’s current budget year, constitute about half of the state’s cash outlays to companies under the credit program, or about $300 million.

Mayer and Tsafos spoke to the Senate Finance Committee in Juneau on Jan. 27.

Statewide, the total cash outlay for the credits are $625 million, according toDepartment of Revenue data, which actually exceeds state petroleum tax income by $101.4 million, according to the Revenue Department figures Mayer and Tsafos presented to legislators.

The state’s total cash outlay for the tax credits are estimated at $625 million this year.

“Since the state does not levy a profit-based production tax in Cook Inlet, these (tax credits) essentially constitute a subsidy to Cook Inlet producers rather than an investment in future tax revenue (and production),” Mayer and Tsafos said in a paper prepared for the Legislature.

The state’s net profits production tax applies only to the North Slope fields. Cook Inlet fields are under a very minimal production tax. However, because Cook Inlet companies can take the same advantage of the state tax credit cash payments as do North Slope explorers, the result is a subsidy — more paid to the companies compared with production tax revenue paid.

Cook Inlet companies do pay state royalty, although with some Inlet fields this is reduced, and state corporate income tax in some cases.

The state’s tax credit program also allows companies with production who pay production taxes to credit their tax credits against production tax liability. This money never shows up in the state general fund because the companies do not have to pay it, although the state tracks the amount.

A part of the tax credit program, however, also allows companies with no production tax liability, such as exploring companies who have not yet made discoveries, to turn in their credits for a cash refund from the state. This is money that must be appropriated from the state general fund because it is an actual expenditure by the state.<br>

Mostly the cash refunds are to help small independent companies who are aggressively exploring but often on shoestring budgets. But because Cook Inlet producers, even larger companies, do not pay production tax under the special tax provisions for the Inlet, they are also eligible for the cash refunds.

Under state law the Department of Revenue cannot release information on which companies are applying for and receiving credits, but some small independents use the anticipated state cash refunds, and even boast about them, to raise financing including equity investment to fund their exploration.

As to the Cook Inlet question, Mayer and Tsafos recognized the benefits of the industry’s surge of activity in the Inlet.

“While these subsidies have played an important role in turning around investment and production in Cook Inlet, it may now be an opportune time to reconsider the future of these credits,” the consultants said in their report.

“In particular, it may be worth examining whether financing solutions that leverage the strength of the state’s balance sheet to assist these companies in gaining access to reasonably-priced capital might present an alternative to credits that makes more efficient use of the state’s resources, at lower costs to the state.”

One example of an alternative financing strategy is the possible $50 million equity investment by the Alaska Industrial Development and Export Authority in the Kitchen Lights gas development project being led by Furie Operating Alaska, a small independent.

Furie’s project is a new gas production platform and connector pipelines to shore in Cook Inlet. AIDEA, the state economic development finance corporation, is studying the investment with Furie.

AIDEA has also made an equity investment with Brooks Range Petroleum, an independent developing a small oil field on the North Slope.

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Funding questions for state Arctic policy

Alaska Contract Staffing
Allen Bailey

During a Feb. 2 press conference announcing the publication of the final report from the Alaska Arctic Policy Commission, questions were asked about the state’s ability to fund some of the policy actions recommended in the report, given the current severe constraints on the state’s budget. For example, the report recommends state involvement in actions that encourage resource development.

Sen. Cathy Giessel, the commission member who had worked on the economic development aspects of the commission’s report, said that the current budget situation presents challenges and will require reconsideration of some actions. However, it is still possible to aim at the target that the policy presents, she said.

“The resource is still there and the opportunity is still there,” Giessel said.

Commission co-Chair Lesil McGuire emphasized that much resource development has in the past happened through private investment. McGuire said that an assessment of investment potential had indicated that there is about $100 billion in private capital available for investment across the entire Arctic region. Alaska needs to make sure that it is placed to benefit from some of that investment money, she said.

McGuire also commented that the Alaska Industrial Development and Export Authority has funds available for low interest loans, to encourage private investment in Arctic infrastructure. There are also opportunities for research grant funding through the University of Alaska, she said.

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Alaska looks to future; New state Arctic policy reflects views and concerns of the state’s inhabitants

Alan Bailey
Petroleum News

The Alaska Arctic Policy Commission has published its final report setting out an Alaska perspective for the future of the state’s Arctic region. The report, a result of a more than a year’s work by a team that convened public meetings across the state to gather the views of the state’s inhabitants, emphasizes a need for economic development in the Arctic, coupled with the maintenance of a healthy environment; collaboration between a wide variety of organizations; and respect for the culture and knowledge of the Arctic people.

The Alaska Legislature established the Alaska Arctic Policy Commission during the 2012 legislative session to formulate a state policy and implementation strategy, to help the state take a leadership role in a continuing national and international Arctic dialogue. The federal government has been formulating its own Arctic policy, as the United States prepares to take over in April the chairmanship of the Arctic Council, the intergovernmental forum of the eight Arctic nations. Alaska officials have been concerned to ensure that the state has a clear vision of its Arctic priorities.

The Alaska Arctic Policy Commission, chaired by Sen. Lesil McGuire and Rep. Bob Herron, consists of 10 members of the Legislature and 16 people from a variety of backgrounds, including the state administration, the federal government, rural communities; the fishing, oil, mining and shipping industries; academia and conservation groups.

Underpins Alaska

During a Feb. 2 press conference announcing publication of the commission’s report Sen. McGuire said that the Arctic underpins Alaska’s identity.

“Alaskans fundamentally all view themselves as Arctic,” McGuire said. “I think that’s a really exciting part of what we bring forward in the report.”

With the policy being directed at the state Legislature, the state’s executive branch and the federal government, the hope is that people will look to Alaskans for views on the Arctic, rather than just looking at the region through the lens of Washington, D.C., McGuire said.

“The commission operated under the conviction that the state is an active and willing leader and a partner and a sovereign in Arctic decision making, with reliable expertise and experience,” she said.

Vision statement The completed policy report presents four primary vision statements for Alaska’s Arctic region:

  • A commitment to vibrant communities sustained by development activities consistent with the state’s responsibility for a healthy environment.
  • Collaboration between government, tribes, industry and non-governmental organizations for transparent and inclusive Arctic decision-making for more informed, sustainable and beneficial outcomes. •Achieving a safe and secure Arctic for individuals and communities.
  • Valuing and strengthening the resilience of communities, with respect for and the integration of the culture and knowledge of Arctic peoples.

Economic development

In terms of economic development, the policy wants to see benefits accruing to Arctic residents and communities. There need to be improved government permitting and regulatory processes, as well as an attractive investment climate, supported by the development of strategic infrastructure, the report says. There need to be sustained approaches to responding to the changing Arctic climate. And it is necessary to encourage industrial and technical innovation, seeking emerging opportunities and addressing challenges.

Stakeholder cooperation needs to include the maintenance of international relationships through organizations such as the Arctic Council and through support for U.S. ratification of the U.N. Convention on the Law of the Sea, the policy report says.

Safety and security arrangements in the Arctic must include enhanced disaster preparedness, including enhanced capabilities for oil spill prevention and response, and for rescue operations. Maritime transportation needs to be safe, secure and reliable. Appropriate infrastructure needs to be sustained or developed. And there needs to be an increased Arctic U.S. Coast Guard presence.

Achieving community resilience must include a recognition of Arctic indigenous peoples’ culture and their relationship to the environment, including their traditional reliance on a subsistence way of life. Strategic planning for the Arctic must consider scientific, local and traditional knowledge, while people must also encourage the more effective integration of local and traditional knowledge into scientific research and into resource management decision making.

Implementation plan

The commission’s report also presents an implementation plan for achieving the policy’s vision. The implementation plan lists things that need be done under four lines of effort: economic and resource development; addressing emergency response capacity; supporting healthy communities; and the strengthening of Arctic science and research.

The promotion of economic and resource development should include actions such as the development of Arctic port systems; taking a lead in collaborative efforts to achieve efficient government permitting; the promotion of prudent oil and gas exploration and development, with support for the multiple uses of public lands; and the encouragement of investment through stable, predictable and competitive tax policies.

Addressing gaps in Arctic emergency response capabilities needs to include support for improvements in communications and mapping; expanding systems for monitoring and communicating Arctic maritime information; and assuring the availability of oil spill prevention and response resources. A strengthening of private, public and non-profit oil spill response organizations would ensure an ability to support oil spill response contingency plans and to operate effectively in the Arctic, the report says.

Healthy communities

Support for healthy Arctic communities would include initiatives to reduce the cost of power and heating in rural Alaska; anticipating and responding to the impacts of climate change; and promoting practices for sustaining subsistence resources while protecting against the impacts of over-zealous Endangered Species Act designations. Strengthening science and research would require improved collaboration within the research community; strengthened efforts to incorporate local and traditional knowledge into research; and support for data collection for research into Arctic ecosystems and regional climate change. The state should ensure adequate funding for Arctic research in the University of Alaska, the report says.

Proposed bill

The commission’s report also includes the wording of a proposed bill for enacting the state’s Arctic policy. McGuire said that this proposed legislation is being introduced as Senate Bill 16 and House Bill 1 in the current legislative session. Rep. Herron told the Feb. 2 press conference that, rather than being a prioritized list of actions, the policy implementation plan should be viewed as a menu of desired action items, with individual legislators able to pick up on individual items that they wish to pursue. However, given the fact that U.S. chairmanship of the Arctic Council is just three months away, the commission has already requested Gov. Walker to help in establishing a state committee for hosting Arctic Council meetings, Herron said. With 15 to 18 world leaders periodically coming to Alaska to conduct Arctic Council meetings, it is imperative that the state plays a role as meeting host, he said.

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TAPS TALKS: Legacy In Our Hands

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AIDEA approves $37.7M Interior Gas Utility loan

Alaska Contract Staffing
Elwood, Brehmer
Alaska Journal of Commerce

The Interior Gas Utility got approval for a $37.7 million construction loan from the Alaska Industrial Development and Export Authority board at a special Feb. 5 meeting.

With several members attending via teleconference, the board unanimously approved the loan for development of the utility’s natural gas distribution system.

AIDEA will fund the loan from the $332.5 million Senate Bill 23 Interior Energy Project financing package it was authorized to use towards getting natural gas to the region.

The Sustainable Energy Transmission and Supply Fund loan package is an expansion of an $8.1 million loan AIDEA approved to get IGU’s distribution system work started last spring. It will cover the cost of initial distribution construction in North Pole and installation of temporary gas storage.

IGU was formed by the Fairbanks North Star Borough in November 2012 to spur additional natural gas use in the borough. With little cash or collateral to back it and favorable terms — 1 percent interest and a 48-year payback — the loan to the utility is outside of AIDEA’s normal lending practices because it is SB 23 money.

“(SB 23) pretty much says, do what you need to do to meet the Legislature’s intent,” AIDEA Executive Director Ted Leonard said.

AIDEA’s proposed purchase of Fairbanks Natural Gas, the other gas utility in the area, and its parent company, has put the Interior Energy Project back on a late-2016 timeline for first gas, according to those familiar with the project.

IGU board chair Bob Shefchik said getting natural gas to the utility by the fall of 2016 will give it a customer base and subsequent revenues with which it can pay off the loan.

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