Q&A: Giessel says AKLNG critical, budget priority; credits an issue page 5 l EXPLORATION & PRODUCTION l UTILITIES l INTERNATIONAL Vol. 21, No. 1 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of January 3, 2016 • $2.50 page 10 www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of January 3, 2016 l TECHNOLOGY Metals prices expected to slip further before bouncing in 2016 NORTHERN NEIGHBORS Compiled by Shane Lasley Dolly Varden drills northern silver targets Dolly Varden Silver Corp. Dec. 23 reported results from a 2,037-meter drill program at its Dolly Varden silver property in northwestern British Columbia. The known Dolly Varden deposits exhibit both volcanogenic massive sulfide (Eskay-like) and epithermal (Brucejack-like) mineralization styles which were the focus of the company’s maiden NI 43-101 mineral resource estimate completed in August. Though this resource remains open to expansion, the goal of the 2015 drill program was to explore targets identified by surface mapping and sam- pling as having similar high-grade potential in the northern half of the property, where lithologies, alteration and geochemical signatures extend on surface from the property’s historic mines, located on the southern portion of the property. Six holes of this year's 10-hole program targeted Ace-Galena, where the drilling confirmed the presence of VMS mineralization and intersected a new epithermal quartz vein and breccia with high-grade silver. Historical trench and recent surface samples at the McKay showing on Ace-Galena returned assays of up to 3,360 grams per metric ton silver over 1.3 meters. The Ace-Galena trend is projected to extend over a distance of five kilometers (three miles) to the Sault showing, also in the northern half of the Dolly Varden property. The 2015 drill holes at Ace-Galena were targeted to examine this VMS horizon down-dip and along DOLLY VARDEN SILVER CORP. A geologist collects samples from one of four historical high- grade silver mines located in the southern half of the Dolly Varden property in northwestern British Columbia. A ten-hole drill pro- gram completed by Dolly Varden Silver tested targets in the northern half of the property that show similarities to the past producing mines. LNG-fueled mine rigs Teck pilots dual fuel-haul trucks; Donlin Gold hopes tech is ready for mine By SHANE LASLEY Mining News D iesel has long been the fuel of choice for the enormous haul trucks, dozers, shovels and other equipment that most mines use. Many industry leaders, however, are looking ahead to natural gas as an economically and environmentally friendlier source of energy for the colossal machines. “LNG (liquefied natural gas) is a fuel source that has the potential to lower costs, significantly reduce emissions and improve environmental performance at our operations,” said Teck Resources Ltd. President and CEO Don Lindsay. “We are committed to minimizing our own carbon footprint, while at the same time continuing to provide the mining products that are essential to building a modern, low-carbon society.” To this end, Teck is piloting a project that is using a mixture of LNG and diesel to fuel six haul trucks at its Fording River steelmaking coal operation in southeastern British Columbia. In Alaska, LNG is one of the alternatives proposed to power haul trucks in a recently completed draft environmental impact statement for the Donlin Gold project, as a means of reducing the amount of diesel that would be needed to barged to the large open-pit mine once it is built and begins production. The technology needed to make LNG fuel a viable alternative, however, is relatively young and has only recently been put into commercial use on a limited basis. Piloting LNG trucks The LNG system being tested by Teck does not completely eliminate the need for diesel. Instead, a conversion is retrofitted on conventional diesel haul trucks that injects natural gas into air intake, supple- menting the heavier fuel. GFS Corp., the company that manufactures the units being tested, claims the system reduces diesel consumption by 50 to 70 percent while retaining the crucial power and torque for which diesel engines are notable. As an added benefit, LNG produces virtually no sulfur dioxide or particulates, and LNG-diesel trucks emit about 20 percent less greenhouse gas, compared with their conventional contemporaries. Teck says there is a potential to reduce carbon dioxide emissions by 35,000 metric tons per year and save C$20 million annually if the technology was implemented across its B.C. steelmaking coal opera- tions. This would be another step towards Teck’s overall goal of reducing its greenhouse gas emissions by 450,000 metric tons per year by 2030. Since imple- menting this plan in 2011, the diversified miner has cut annual CHG output by about 170,000 metric tons. “Like British Columbia, Teck is a global leader in finding innovative ways to reduce GHG emissions while continuing to create opportunity,” said B.C. Premier Christy Clark. “It’s a concrete example of the difference clean-burning LNG can make in the fight against climate change.” FortisBC, which distributes natural gas in the western province, is supplying the fuel and is helping see LNG FUEL page 12 see NORTHERN NEIGHBORS page 12 Teck Resources is piloting a project that is using a mix- ture of LNG and diesel to fuel six haul trucks at its Fording River steelmaking coal operation in south- eastern British Columbia. Upon completion of the trial, the diversified miner will evaluate the potential of implementing the LNG-diesel technology across a wider section of its haul-truck fleet. TECK RESOURCES L TD. This week’ s Mining News Many industry leaders are looking ahead to natural gas as a source of energy for the colossal mining haul trucks. Page 9 Celebrating 20 years: 1996-2016 ’15 dr i ll i ng up fro m ’14 Prudhoe Bay, Kuparuk River well counts increase by more than 30 percent By ERIC LIDJI For Petroleum News E ven decades after their discovery, and years past peak production, the Prudhoe Bay unit and Kuparuk River unit continue to be the two most active oil fields in Alaska. Although oil prices were drastically lower in 2015 than 2014, both units saw greatly increased drilling, according to Alaska Oil and Gas Conservation Commission records. Those records provide an opportunity to com- pare the development drilling at the two units between this year and last year — with two dis- claimers. First, as Petroleum News went to print, records were only available through mid- December 2015. With two additional weeks, the 2015 totals might be higher than what is reported here. Second, completion reports occasionally lag behind actual activity and are regularly revised, which means these numbers measure administra- tive filings as of mid-December 2015. Prudhoe up nearly 30 percent When BP Exploration (Alaska) Inc. sold much Although oil prices were drastically lower in 2015 than 2014, both units saw greatly increased drilling, according to Alaska Oil and Gas Conservation Commission records. see DRILLING NUMBERS page 19 Ch i na’s i nvest ment lull State-owned companies backing away from 2009-12 flurry of Canadian deals By GARY PARK For Petroleum News T o all intents, the Chinese appetite for Canadian oil and natural gas assets might seem to have evaporated at a time when it might have been expected to thrive. The combination of cheap commodities, the beginnings of global consolidation and China’s own rising crude consumption would, in other times, have been the basis for a second round of the buy- ing spree that preoccupied the industry and govern- ments in the 2009-12 period. The giant PetroChina led the charge with US$15.3 billion in deals in Canada and Australia, sending such a shiver across Canada that the federal government moved with haste to ban the outright takeover of oil sands operated by foreign state- owned enterprises. The resulting slowdown has been confined over the past two years to only one significant deal — the C$1.1 billion PetroChina paid to complete its Further gr i d progress Utilities report to RCA on progress forming single Railbelt transmission company By ALAN BAILEY Petroleum News T he Alaska Railbelt electric utilities have filed a joint report with the Regulatory Commission of Alaska, notifying the commission of progress towards the voluntary formation of a transmission company, or transco, to operate the Railbelt power transmission grid. Five of the six Railbelt utilities independently own and operate different sections of the grid, with the state of Alaska also owning one section. The aging grid, which stretches from Homer and Seward on the southern Kenai Peninsula to the Fairbanks region in the Alaska Interior, suffers from single points of failure and capacity constraints which limit the ability to flexibly ship power between power generation facilities and the various power demand centers along the grid’s length. Reports required Following a directive from the Alaska Legislature to investigate whether there would be benefit in transferring management of the grid to some form of independent operator, at the end of June the RCA reported that there would indeed be significant advantage in a transition to a single oper- “If Chinese oil companies don’t find a way to buy quality companies such as BP quickly, someone else such as ExxonMobil may.” —Gordon Kwan, Nomura see INVESTMENT LULL page 18 The transco would recover its costs through non-discriminatory, open-access transmission rates. see GRID PROGRESS page 20 Federal budget has Arcti c funds, money for i nfrastructure upgrades The year-end federal budget bill, signed by President Obama on Dec. 18, contains a number of funding items specific to the Arctic, Sen. Lisa Murkowski, R-Alaska, said in a Dec. 22 press release. Arctic fund- ing approved for the 2016 financial year will help pay for a number of Arctic initia- tives such as Arctic infrastructure improve- ments, including preparatory work for the construction of a new heavy-duty U.S. ice- breaker. “The Arctic is a national asset and should be treated as a DOG approves Great Bear seismic survey to cover 450 square miles Alaska’s Division of Oil and Gas has issued a permit, approving Great Bear Petroleum Operating LLC’s 3-D seis- mic survey, planned to be carried out this winter on the North Slope. The survey, to be conducted by Geokinetics Inc., will cover an area of about 450 square miles immediately south and southwest of Deadhorse. The new survey comes as part of Great Bear’s search for drilling targets in its North Slope acreage. In 2010 the compa- ny purchased a broad swathe of state leases along a fairway to the south of the central North Slope, to pursue the possibility of producing oil directly from the prolific oil source rocks of northern Alaska. The company has since expanded its lease holdings in the same general area and modified its exploration strategy, using high-resolution 3-D seismic surveying both to see ARCTIC FUNDING page 14 see SEISMIC PERMIT page 19 SEN. LISA MURKOWSKI SHANE LASLEY
Transcript
Q&A: Giessel says AKLNG critical,budget priority; credits an issue
page5
l E X P L O R A T I O N & P R O D U C T I O N
l U T I L I T I E S
l I N T E R N A T I O N A L
Vol. 21, No. 1 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of January 3, 2016 • $2.50
page10
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of January 3, 2016 l T E C H N O L O G Y
Metals prices expected to slipfurther before bouncing in 2016
NORTHERN NEIGHBORSCompiled by Shane Lasley
Dolly Varden drills northern silver targetsDolly Varden Silver Corp. Dec. 23 reported results from a
2,037-meter drill program at its Dolly Varden silver property innorthwestern British Columbia. The known Dolly Vardendeposits exhibit both volcanogenic massive sulfide (Eskay-like)and epithermal (Brucejack-like) mineralization styles whichwere the focus of the company’s maiden NI 43-101 mineralresource estimate completed in August. Though this resourceremains open to expansion, the goal of the 2015 drill programwas to explore targets identified by surface mapping and sam-pling as having similar high-grade potential in the northern halfof the property, where lithologies, alteration and geochemicalsignatures extend on surface from the property’s historic mines,located on the southern portion of the property. Six holes of thisyear's 10-hole program targeted Ace-Galena, where the drillingconfirmed the presence of VMS mineralization and intersecteda new epithermal quartz vein and breccia with high-grade silver.Historical trench and recent surface samples at the McKayshowing on Ace-Galena returned assays of up to 3,360 gramsper metric ton silver over 1.3 meters. The Ace-Galena trend isprojected to extend over a distance of five kilometers (threemiles) to the Sault showing, also in the northern half of theDolly Varden property. The 2015 drill holes at Ace-Galena weretargeted to examine this VMS horizon down-dip and along
DO
LLY
VAR
DEN
SIL
VER
CO
RP.
A geologist collects samples from one of four historical high-grade silver mines located in the southern half of the Dolly Vardenproperty in northwestern British Columbia. A ten-hole drill pro-gram completed by Dolly Varden Silver tested targets in thenorthern half of the property that show similarities to the pastproducing mines.
LNG-fueled mine rigsTeck pilots dual fuel-haul trucks; Donlin Gold hopes tech is ready for mine
By SHANE LASLEYMining News
D iesel has long been the fuel of choice for theenormous haul trucks, dozers, shovels and
other equipment that most mines use. Many industryleaders, however, are looking ahead to natural gas asan economically and environmentally friendliersource of energy for the colossal machines.
“LNG (liquefied natural gas) is a fuel source thathas the potential to lower costs, significantly reduceemissions and improve environmental performanceat our operations,” said Teck Resources Ltd.President and CEO Don Lindsay. “We are committedto minimizing our own carbon footprint, while at thesame time continuing to provide the mining productsthat are essential to building a modern, low-carbonsociety.”
To this end, Teck is piloting a project that is usinga mixture of LNG and diesel to fuel six haul trucks atits Fording River steelmaking coal operation insoutheastern British Columbia.
In Alaska, LNG is one of the alternatives proposedto power haul trucks in a recently completed draftenvironmental impact statement for the Donlin Goldproject, as a means of reducing the amount of dieselthat would be needed to barged to the large open-pitmine once it is built and begins production.
The technology needed to make LNG fuel a viablealternative, however, is relatively young and has onlyrecently been put into commercial use on a limitedbasis.
Piloting LNG trucksThe LNG system being tested by Teck does not
completely eliminate the need for diesel. Instead, aconversion is retrofitted on conventional diesel haultrucks that injects natural gas into air intake, supple-menting the heavier fuel.
GFS Corp., the company that manufactures theunits being tested, claims the system reduces dieselconsumption by 50 to 70 percent while retaining the
crucial power and torque for which diesel engines arenotable.
As an added benefit, LNG produces virtually nosulfur dioxide or particulates, and LNG-diesel trucksemit about 20 percent less greenhouse gas, comparedwith their conventional contemporaries.
Teck says there is a potential to reduce carbondioxide emissions by 35,000 metric tons per year andsave C$20 million annually if the technology wasimplemented across its B.C. steelmaking coal opera-tions.
This would be another step towards Teck’s overallgoal of reducing its greenhouse gas emissions by450,000 metric tons per year by 2030. Since imple-menting this plan in 2011, the diversified miner hascut annual CHG output by about 170,000 metric tons.
“Like British Columbia, Teck is a global leader infinding innovative ways to reduce GHG emissionswhile continuing to create opportunity,” said B.C.Premier Christy Clark. “It’s a concrete example of thedifference clean-burning LNG can make in the fightagainst climate change.”
FortisBC, which distributes natural gas in thewestern province, is supplying the fuel and is helping
see LNG FUEL page 12
see NORTHERN NEIGHBORS page 12
Teck Resources is piloting a project that is using a mix-ture of LNG and diesel to fuel six haul trucks at itsFording River steelmaking coal operation in south-eastern British Columbia. Upon completion of thetrial, the diversified miner will evaluate the potentialof implementing the LNG-diesel technology across awider section of its haul-truck fleet.
TEC
K R
ESO
UR
CES
LTD
.This week’s Mining News
Many industry leaders are looking ahead to natural gas as asource of energy for the colossal mining haul trucks. Page 9
Celebrating 20 years: 1996-2016
’15 drilling up from ’14Prudhoe Bay, Kuparuk River well counts increase by more than 30 percent
By ERIC LIDJIFor Petroleum News
Even decades after their discovery, and years
past peak production, the Prudhoe Bay unit
and Kuparuk River unit continue to be the two
most active oil fields in Alaska.
Although oil prices were drastically lower in
2015 than 2014, both units saw greatly increased
drilling, according to Alaska Oil and Gas
Conservation Commission records.
Those records provide an opportunity to com-
pare the development drilling at the two units
between this year and last year — with two dis-
claimers. First, as Petroleum News went to print,
records were only available through mid-
December 2015. With two additional weeks, the
2015 totals might be higher than what is reported
here. Second, completion reports occasionally lag
behind actual activity and are regularly revised,
which means these numbers measure administra-
tive filings as of mid-December 2015.
Prudhoe up nearly 30 percentWhen BP Exploration (Alaska) Inc. sold much
Although oil prices were drastically lowerin 2015 than 2014, both units saw greatlyincreased drilling, according to Alaska Oil
and Gas Conservation Commissionrecords.
see DRILLING NUMBERS page 19
China’s investment lullState-owned companies backing away from 2009-12 flurry of Canadian deals
By GARY PARKFor Petroleum News
To all intents, the Chinese appetite for Canadian
oil and natural gas assets might seem to have
evaporated at a time when it might have been
expected to thrive.
The combination of cheap commodities, the
beginnings of global consolidation and China’s own
rising crude consumption would, in other times,
have been the basis for a second round of the buy-
ing spree that preoccupied the industry and govern-
ments in the 2009-12 period.
The giant PetroChina led the charge with
US$15.3 billion in deals in Canada and Australia,
sending such a shiver across Canada that the federal
government moved with haste to ban the outright
takeover of oil sands operated by foreign state-
owned enterprises.
The resulting slowdown has been confined over
the past two years to only one significant deal —
the C$1.1 billion PetroChina paid to complete its
Further grid progressUtilities report to RCA on progress forming single Railbelt transmission company
By ALAN BAILEYPetroleum News
The Alaska Railbelt electric utilities have filed a
joint report with the Regulatory Commission of
Alaska, notifying the commission of progress
towards the voluntary formation of a transmission
company, or transco, to operate the Railbelt power
transmission grid.
Five of the six Railbelt utilities independently
own and operate different sections of the grid, with
the state of Alaska also owning one section. The
aging grid, which stretches from Homer and Seward
on the southern Kenai Peninsula to the Fairbanks
region in the Alaska Interior, suffers from single
points of failure and capacity constraints which limit
the ability to flexibly ship power between power
generation facilities and the various power demand
centers along the grid’s length.
Reports requiredFollowing a directive from the Alaska
Legislature to investigate whether there would be
benefit in transferring management of the grid to
some form of independent operator, at the end of
June the RCA reported that there would indeed be
significant advantage in a transition to a single oper-
“If Chinese oil companies don’t find a wayto buy quality companies such as BP
quickly, someone else such as ExxonMobilmay.” —Gordon Kwan, Nomura
see INVESTMENT LULL page 18
The transco would recover its coststhrough non-discriminatory, open-access
transmission rates.
see GRID PROGRESS page 20
Federal budget has Arctic funds,money for infrastructure upgrades
The year-end federal budget bill, signed
by President Obama on Dec. 18, contains a
number of funding items specific to the
Arctic, Sen. Lisa Murkowski, R-Alaska,
said in a Dec. 22 press release. Arctic fund-
ing approved for the 2016 financial year
will help pay for a number of Arctic initia-
tives such as Arctic infrastructure improve-
ments, including preparatory work for the
construction of a new heavy-duty U.S. ice-
breaker.
“The Arctic is a national asset and should be treated as a
DOG approves Great Bear seismicsurvey to cover 450 square miles
Alaska’s Division of Oil and Gas has issued a permit,
approving Great Bear Petroleum Operating LLC’s 3-D seis-
mic survey, planned to be carried out this winter on the North
Slope. The survey, to be conducted by Geokinetics Inc., will
cover an area of about 450 square miles immediately south
and southwest of Deadhorse.
The new survey comes as part of Great Bear’s search for
drilling targets in its North Slope acreage. In 2010 the compa-
ny purchased a broad swathe of state leases along a fairway to
the south of the central North Slope, to pursue the possibility
of producing oil directly from the prolific oil source rocks of
northern Alaska. The company has since expanded its lease
holdings in the same general area and modified its exploration
strategy, using high-resolution 3-D seismic surveying both to
Provides review of techniques, procedures and standardsfor preventing oil pollution from Arctic offshore oil and gas activities
6 AKLNG sends responses to scoping issues
Alaska LNG Project tells FERC it will continue to evaluateagency, public comments, including those received after Dec. 4 deadline
NATURAL GAS
15 Hamm says US quality reflected in price
14 BC looks to LNG as an economic driver
15 Trustee: Checks for train disaster victims
Federal budget has Arctic funds,money for infrastructure upgrades
DOG approves Great Bear seismicsurvey to cover 450 square miles
’15 drilling up from ’14
Prudhoe Bay, Kuparuk River well counts increase by more than 30 percent
China’s investment lull
State-owned companies backing away from 2009-12 flurry of Canadian deals
Further grid progress
Utilities report to RCA on progress forming single Railbelt transmission company
ON THE COVER
page11
Parnell heads governors’ 7-membercoastal states coalition E X P L O R A T I O N & P R O D U C T I O N
N A T U R A L G A S
E X P L O R A T I O N & P R O D U C T I O N
Vol. 17, No. 44 • www.PetroleumNews.comA weekly oil & gas newspaper based in Anchorage, Alaska
Week of October 28, 2012 • $2
The October issue of North of 60 Mining News is enclosed.
October Mining News inside
PHOTO BY CHRIS AREN D, COURT ES Y OF USI BELLI COA L MI NE I NC .
Thomas Tak e, ch arged w ith the large task of repairing
tires at the U sibelli Coal M ine in Healy, holds one of
some 4,500 high-paying mining jobs in Alaska. An
employment forecast published by the Alaska
Depa rtment of Labor and W or kforce Development in
October pegged the state’s mining sector job grow th
from 2010 t o 2020 at 19 percent. Page 14.
A special supplement to Petroleum NewsWEEK OFOctober 28, 2012
3 P en t a g o n ba ck s U cor e in no v a tio n
Contract ties DoD to Bokan, state-of-the-art method for extracting REEs
11 E m er a l ds g l im m e r in g o ld s e tt i n g
North C ountry Gold makes rare gem discovery in Nunavut greenstone belt
24 N e w G old t h ir s t y f or B l a ck w a te r
Miner dri lls 250,000 meters, makes vast land grab in gold-rich central BC
Budget planners cautious; landsales, well authorizations down
Bean counters and number crunchers are in full swing in
Canada assembling 2013 capital budgets against a worrying
backdrop of shaky industry forecasts, sharp declines in gov-
ernment land auctions and plunging new well permits issued
by regulators.The current betting points to troubles for the upstream,
reflected in gyrating oil and natural gas prices, and a contin-
uation of the lackluster showing in the drilling sector that has
extended over recent years.One of the early messages came from Schlumberger Chief
Executive Officer Paal Kibsgaard, who told analysts that liq-
uids activity in North America will “no longer be able to off-Hanging pipeline: September floodsleave Kenai area gas line dangling
Roads and railroad bridges weren’t the only things that
washed out in the heavy rains which hit Southcentral Alaska
in September. Marathon Oil, in the process of selling its Cook Inlet
assets to Hilcorp Alaska, is dealing with a washout along
Kalifonsky Beach Road near Kenai which left a segment of a
gas pipeline dangling. The Pipeline and Hazardous Materials Safety
Administration, PHMSA, described the situation and action it
requires in an Oct. 5 corrective action order. The affected line is a 20-inch diameter pipeline transport-
ing natural gas from the Kenai gas field to facilities south of
Kenai. PHMSA said the line was buried parallel to and with-
see BUDGET CAUTION page 18
see FLOODING AFTERMATH page 21
CD-5 is aliveConoco sanctions Alpine West; now needs partner approval; first oil by 2016
By ERIC LIDJIFor Petroleum NewsA fter years of permitting delays, ConocoPhillipsCo. is moving ahead on CD-5, the fourth satel-
lite of its Alpine field on the North Slope, the com-
pany announced Oct. 25.The ConocoPhillips board sanctioned the project
in October, Executive Vice President Exploration
and Production Matt Fox said during a third quarter
earnings call. “The project is now pending partner
approval, which is expected in November,” Fox said.
ConocoPhillips expects CD-5 production to begin
in 2016, Fox said. The company previously estimat-
ed construction would begin in 2014 with first oil in
late 2015.
After bringing the Alpine field at the Colville
River unit into production in 2000, ConocoPhillips
and its partner Anadarko brought three Alpine satel-
lites online over the following decade: Fiord in
August 2006, Nanuq in December 2006 and Qannik
in 2008. Also known as Alpine West, the CD-5 satellite
ConocoPhillips produced some 176,000barrels of oil equivalent per day in
Alaska during the third quarter, downsome 32,000 barrels of oil equivalent per
day from the same period last year.
see CD-5 page 22New field ‘challenge’ExxonMobil: Schedule is tight for achieving first production at Point Thomson
By WESLEY LOYFor Petroleum NewsM eeting the target date for starting productionfrom Alaska’s Point Thomson field will be “a
challenge,” an ExxonMobil executive said.The company has pledged to start producing natu-
ral gas condensate from the remote eastern North
Slope field by the winter of 2015-16.But it still has multiple permitting hurdles to clear
before it can begin construction of production facili-
ties and a pipeline to feed the condensate into the
existing North Slope transportation network.Company representatives appeared Oct. 23 at a
hearing of the Regulatory Commission of Alaska,
which is considering an ExxonMobil subsidiary’s
application for a certificate of public convenience and
necessity to build and operate the 22-mile pipeline.
One commissioner asked the ExxonMobil reps
whether they are on schedule with the Point Thomson
project.“We are on schedule, but it is very tight,” replied
Jeff Ray, vice president of PTE Pipeline LLC, the
company seeking the certificate for the Point
Aside from the certificate, ExxonMobilneeds a number of other major
authorizations before it can proceed withthe Point Thomson development.
see TIGHT SCHEDULE page 23Time for action is hereSouthcentral Alaska utilities are moving forward on options for gas imports
By ALAN BAILEYPetroleum NewsWith natural gas supplies from Cook Inlet set
to fall short of local gas demand by 2014 or
2015, the time has come tomove ahead with arrange-ments to supplement thoselocal supplies with importsfrom elsewhere, Southcentralpower and gas utility executives told the
Regulatory Commission of Alaska during a public
meeting on Oct. 24. Southcentral residents and
businesses depend on gas both for power genera-
tion and for the heating of buildings.“I’m personally done wringing my hands,”
Bradley Evans, CEO of Chugach Electric
Association, told the commissioners, saying he
takes responsibility for ensuring continuity of gas
supplies for his utility. Chugach Electric currently
generates about 90 percent its power using gas-
fueled power plants.
Lee Thibert, senior vice president ofChugach Electric, said that the utilities
have asked potential shippers of importedgas for expressions of interest in theimport arrangements.
see GAS IMPORTS page 24
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Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status
Alaska Rig StatusNorth Slope - Onshore
Doyon DrillingDreco 1250 UE 14 (SCR/TD) Prudhoe Bay P1-14 BPDreco 1000 UE 16 (SCR/TD) Prudhoe Bay, Standby BPDreco D2000 Uebd 19 (SCR/TD) Nanuq CD5-09 ConocoPhillipsAC Mobile 25 Kuparuk 2S-01 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 2S-13 ConocoPhillips 142 Rig Up ConocoPhillipsTSM 7000 Arctic Fox #1 Stacked
Kuukpik Drilling 5 Franklin Bluffs Icewine #1 Accumulate Engery Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Deadhorse Available Mid-Continental U36A 3-S Prudhoe Bay AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay AvailableDreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Kuparuk ConocoPhillipsOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location Brooks Range PetroleumEmsco Electro-hoist-2 18-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Varco 22-E (SCR/TD) Prudhoe Bay StackedTDS3Emsco Electro-hoist Canrig 27-E (SCR-TD) Point Thomson Exxon1050EEmsco Electro-hoist 28-E (SCR) Prudhoe Bay StackedOilwell 2000 33-E Prudhoe Bay Available Academy AC Electric CANRIG 99AC (AC-TD) Deadhorse AvailableOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Deadhorse Available Academy AC electric Heli-Rig 106AC (AC-TD) Deadhorse Available
Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site L-02 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site 15-49 BPIdeco 900 3 (SCR/TD) Milne Point L Pad, Well 48 Hilcorp
Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay DS 18 BPNOV ADS-10SD 273 Prudhoe Bay DSW-59 BP
North Slope - Offshore
BPTop Drive, supersized Liberty rig Inactive BP
Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Stacked
SDC Drilling Inc.SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available
Central Mackenzie Valley
AkitaTSM-7000 37 Racked in Norman Well, NT Available
Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of December 28, 2015.
Active drilling companies only listed.
TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig
This rig report was prepared by Marti Reeve
Baker Hughes North America rotary rig counts* Dec. 23 Dec. 18 Year AgoUnited States 700 709 1,840Canada 126 162 256Gulf of Mexico 24 24 56
Highest/LowestUS/Highest 4530 December 1981US/Lowest 488 April 1999Canada/Highest 558 January 2000Canada/Lowest 29 April 1992 *Issued by Baker Hughes since 1944
JUDY
PAT
RICK
By KRISTEN NELSONPetroleum News
T he Alaska Oil and Gas Conservation
Commission is proposing some
$910,000 in penalties against Hilcorp
Alaska for violations it says are “neither
isolated nor innocent” and which it calls
“emblematic of ongoing compliance prob-
lems with Hilcorp rig workover opera-
tions.”
In a statement provided by spokes-
woman Lori Nelson of Hilcorp Alaska the
company said it is taking the “alleged viola-
tions seriously” and conducting its own
review.
“That being said, we do take issue with
the characterization of our conduct by the
AOGCC in its correspondence.”
Following a story first reported by
Alaska Dispatch News, Petroleum News
obtained copies from the commission of its
recent actions against Hilcorp.
Milne Point J-08A workoverThe most significant event — for which
the commission is proposing $720,000 in
penalties — occurred at the Hilcorp Alaska-
operated Milne Point unit in September.
Hilcorp was performing workover oper-
ations with Automated Service Rig No. 1 at
the MPU J-08A well. It had received per-
mission from the commission to pull a
failed electric submersible pump and rerun
a new ESP completion, with a “fill cleanout
step” included in the procedure. The com-
mission said only seawater was referenced
in the sundry work procedure filed by
Hilcorp, but in the course of the work nitro-
gen was used in the well cleanout.
Hilcorp notified the commission Sept.
25 that three ASR1 personnel were “over-
come by something” in the enclosed mud
trailer at the well and were evacuated from
the rig.
An AOGCC inspector sent to the loca-
tion that same day was told that the fill
cleanout was done with nitrogen and sea-
water; the commission subsequently
requested more information from Hilcorp
and determined that a valve was left open
during the workover, providing “a flow
path for the nitrogen in the return fluids to
enter the enclosed mud trailer and displace
oxygen to a deadly level.”
Details of the incident cited by the com-
mission say the three men had initial symp-
toms from exposure to the oxygen-deficient
atmosphere in the mud trailer, but subse-
quently returned to work in the trailer and
then lost consciousness.
“The events associated with subsequent
entry into the oxygen-deficient space would
have been fatal for three ASR1 personnel
except for one worker’s good fortune to col-
lapse into the fresh air environment outside
of the enclosed trailer,” the commission
said.
No approval for nitrogen useThe commission said its regulations
require approval by AOGCC for any
change to an approved program or activity,
and said the approval it provided did not
authorize the use of nitrogen. Hilcorp told
the commission the use of nitrogen for fill
cleanout is a contingent plan executed only
if well conditions warrant it.
The commission said hazards associated
with commercial use of nitrogen are well
known and said “Hilcorp failed adequately
to identify the hazards, to assess the haz-
ards, and to implement actions to mitigate
the hazards and in doing so failed to main-
tain a safe work environment during the fill
cleanout operations.”
“Responsibility for assuring rig opera-
tions comply with good oilfield practices
rests with Hilcorp management and engi-
neering staff,” the commission said.
Not isolated The commission said the violations at
the MPU J-08A well “are neither isolated
nor innocent and are emblematic of going
compliance problems with Hilcorp rig
workover operations.”
AOGCC said issues with Hilcorp
include “ongoing failures to obtain neces-
sary approvals; failures to install, maintain,
and test required well control safety sys-
tems; failures to perform required tests; and
use of equipment that is unsuitable for the
operating environment.”
The $720,000 penalty includes $100,000
for changing work procedures, $600,000
“for failure to maintain a safe work environ-
ment in accordance with good oilfield engi-
neering practices” and $20,000 for failure
to provide results of a BOPE test.
“In addition to the potential severity of
the outcome of Hilcorp’s actions, Hilcorp’s
ongoing history of performing work outside
of approved permits or management-of-
change protocols, its history of compliance
issues and the need to deter are factors in
AOGCC’s analysis.” The commission said
a prior $115,000 penalty “imposed upon
Hilcorp for violations of essentially the
same nature has had no significant impact
on Hilcorp’s conduct.”
Other penalties proposedThe commission is also proposing fines
for failure to notify the commission that
blowout prevention equipment was used at
the MPU 1-03 well and failure to test
BOPE, for which a $40,000 penalty is pro-
posed.
In addition to the proposed penalty,
AOGCC said it intends to require Hilcorp
to provide a description and example of its
“regulatory compliance tracking program”;
“written management of change proce-
dures”; and a written explanation of how
Hilcorp “intends to prevent recurrence of
this violation.”
Two other fines, $75,000 each, are pro-
posed for changing work procedures with-
out approval — in both cases nitrogen was
used in cleanout procedures without com-
mission approval.
Health and safety In the statement which it provided
Hilcorp said: “The health and safety of our
employees and contractors is of the utmost
importance to Hilcorp.” The company said
l E X P L O R A T I O N & P R O D U C T I O N
Hilcorp practices take fire from AOGCCAgency proposing $910,000 in penalties for violations including incident at Milne Point unit where 3 workers overcome by nitrogen
Petroleum News: Before we lookahead, let’s look back at the special ses-sion and what’s transpired since. First,what’s your take on how things went?
Giessel: I was pretty proud of the
Senate Finance Committee who got
down to work and kept us all focused on
the subject. They did a great job with the
questions that were asked. I think as
well, they made a great decision in
determining when enough was enough. I
think there were possibly more questions
committee members wanted to ask and
delve into, but they were getting periph-
eral of the subject of TransCanada termi-
nation, so they did an exemplary job of
managing the subject and moving the
bill at the right time.
Petroleum News: Were there any con-cerns that emerged from the special ses-sion moving forward?
Giessel: I think that I have been
aware and am more aware now that I
should be keeping closer track of what
the AGDC board is doing going forward
now that we have the full 25 percent. I
think we need to know a bit more about
where regulations are coming from that
might be proposed by AGDC and the
role that the attorney general is playing.
Petroleum News: Are you OK withthe role that the attorney general has?
Giessel: Well, the attorney general is
wearing a lot of hats — a lot of hats. He
is advising the AGDC board. He’s craft-
ing the fiscal policy. He sits on the
Permanent Fund board. That’s a lot of
input from a single individual.
Petroleum News: So in the end, you
were a yes vote.What drove that?
Giessel: I had
been a fan of
TransCanada during
the SB 138 process
because I thought
they brought that
expertise that we
needed. I’m not a
fan of government
building large projects. I think roads are
something we’ve been doing for a very
long time and one could even argue the
private sector could do a better job of
building those in some cases.
For this project I have never believed
that our state government should be
building it. So it was difficult for me to
agree to terminate TransCanada. I don’t
know there was ever a choice however.
The governor verbalized his desire for
them to be gone five or six months prior
to that special session.
It was untenable for them to remain.
It was kind of like a wedding. The
groom says he doesn’t want the bride
anymore, what’s the bride supposed to
do. It was an off ramp for us to take,
buying out TransCanada’s share. It
seemed like the issue had aligned in that
direction.
As I’ve said, I’m going to be very
diligent in terms of AGDC’s function
now that it carries that full responsibility
for the state of Alaska. No one on the
AGDC board has ever built a mega proj-
ect, certainly not three mega projects,
which now is what we have — a fully
integrated project of the gas treatment
plant, the pipeline and the export facility.
So we need to make sure that we are
doing the right thing during the whole
process.
Petroleum News: Speaking of AGDC,they’ve had plenty of movement in justover a month since the special session,losing (president) Dan Fauske, (boardchair) John Burns and (vice president)Joe Dubler. Is this a natural settling stillwith the governor completing his firstyear in office, or is this too much move-ment?
Giessel: Certainly the governor had
the authority to remove John Burns. SB
138 gave him the authority to appoint or
remove board members. As far as
removing Dan Fauske and Joe Dubler,
that was the board’s decision.
I am very sorry to see Dan Fauske go.
He had been with the project since the
beginning. He had the trust of the
Legislature. We know he is certainly
skilled in financial issues and can also
manage very large projects and very
large teams of people. He’s demonstrat-
ed that over the years. Losing him I view
as a significant loss.
Joe Dubler was doing a superb job
managing the work at AGDC. He was
leading the ASAP pipeline team. That
team made significant
progress far ahead of the
AKLNG and it was Joe’s
diligence and team leader-
ship and management skills
I think are a credit for that.
Petroleum News: What kind of teamwould you like to see assembled regard-less of their names?
Giessel: Regardless of their names,
we need a president of AGDC that has
the credibility, and the experience,
knowledge to lead this kind of project, a
fully integrated, three megaprojects in
one project. I’m pleased to hear they are
going statewide, nationwide and interna-
tionally to find that person. I find that a
little puzzling since less than one year
ago, three people were removed from the
AGDC board because who had that kind
of experience. They were removed
because they didn’t live in Alaska, two
of them, so this is an interesting devel-
opment.
But that’s who I would like to see as
president, someone with that kind of
experience, certainly the management
lead to replace Joe Dubler.
There are folks who are already on
the team who could step into some
aspects of those roles.
The board chair, Dave Cruz, is filling
that spot. I think he is doing it quite
capably. I’m concerned looking at the
board membership how there is no one
on that board who has gas pipeline or
mega project experience. Probably the
closest person would be
Hugh Short who has expe-
rience as a venture capital-
ist. But as far as having
gas pipeline experience,
it’s simply not there.
Petroleum News: Also since the spe-cial session, the partners on Dec. 3agreed to move forward with the project.This didn’t surprise anyone, certainly,but still what does that tell you?
Giessel: I am pleased that our three
business partners agreed to move for-
ward. Many of us were concerned the
AGDC board would not cast as a yes on
behalf of the state of Alaska. Thankfully,
they did. I think the business partners
that we have are still indicating their
positive outlook on this project and
that’s what we need to know. They are
the people who have done this around
the world. If they are still thinking this is
a viable project, that’s a positive sign to
l G O V E R N M E N T
Giessel: AKLNG critical, budget prioritySenate Resources co-chair says state needs to be careful how it reworks oil tax credit and maintains its role in next year’s budget
PETROLEUM NEWS • WEEK OF JANUARY 3, 2016 5
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Denali routing, subsistenceAKLNG said there were issues raised
on the routing through Denali — both the
state and national parks — and said its
“environmental analysis includes an
assessment of potential impacts on the
recreational and visual values and uses of
the Denali area, and mitigation options.”
Individuals who commented at a
November scoping meeting held in Healy
were concerned about the impact of the
pipeline and its construction on views in
the area and on the area’s significant
tourism industry.
Among socioeconomic impacts dis-
cussed, AKLNG said it recognizes the
importance of subsistence and said
Alaska Department of Fish and Game
subsistence surveys provide the basis of
its analysis of subsistence, and will help
identify ways to reduce project impacts.
At scoping meetings on the North
Slope FERC heard concerns about
impacts on subsistence hunting.
North Slope Borough Mayor Charlotte
Brower said in a letter that the EIS analy-
sis must consider: “The full range of
potential impacts to subsistence, includ-
ing those associated with construction
and operation of project facilities, vessel,
vehicle, and aircraft traffic, impediments
to or deflection of caribou movement,
whale or pinniped movement, fish move-
ment, and waterfowl nesting and other
habitat uses, displacement from harvest
areas, and loss of potential harvest oppor-
tunities associated with project-related
employment.”
“The continued availability of and
access to subsistence resources is of criti-
cal importance to the residents of the
North Slope,” the mayor wrote. “North
Slope residents continue to depend heav-
ily on subsistence foods and practices for
maintaining both their physical and cul-
tural health.”
NikiskiAnother area where residents
expressed concern at a scoping meeting
was in Nikiski in October, with numerous
residents expressing concern about the
impact of the proposed LNG facility on
traffic, noise and light impacts from the
proposed facility and impact on adjacent
land values.
AKLNG has been acquiring property
in the Nikiski area, but residents in the
area of the proposed facility told FERC
they were concerned by the closeness of
the proposed plant and impact on the
value of their properties.
AKLNG said it has acquired more
than 560 acres of land in the Nikiski area
and continues negotiations.
In a related matter, AKLNG told
FERC in an Oct. 22 letter that the Kenai
Peninsula Borough has said AKLNG
needs to maintain properties it has
acquired and mitigate hazardous condi-
tions. AKLNG said certain tracts it has
acquired “contain uninhabited, and in
some cases derelict, structures that com-
plicate ongoing property management, in
some cases posing health and safety chal-
lenges,” and said it had made safety
determinations and in some cases been
advised of such concerns by residents,
l N A T U R A L G A S
AKLNG sends responses to scoping issuesAlaska LNG Project tells FERC it will continue to evaluate agency, public comments, including those received after Dec. 4 deadline
6 PETROLEUM NEWS • WEEK OF JANUARY 3, 2016
WELDING SUPPLIESLincoln Miller MilwaukeeStoody Tweco ThermalMathey ESAB Norton
& Victor Gas Equipment
CYLINDER GASESIndustrial, Blueshield Productivity Mixes, Medical and Specialty
Cylinders for rent, lease, and purchase
BULK LIQUID GASESOxygen, Nitrogen, Argon, Carbon Dioxide, and Dry Ice
In a related matter, AKLNG toldFERC in an Oct. 22 letter that theKenai Peninsula Borough has said
AKLNG needs to maintainproperties it has acquired andmitigate hazardous conditions.
see SCOPING ISSUES page 15
By GARY PARKFor Petroleum News
There was once a time when Encana
seemed untouchable in North
America’s natural gas industry.
It blazed a trail in development of
shale deposits and delivered 4 billion
cubic feet per day of gas into the conti-
nental market from plays that were once
scorned by its peers because of their
reliance on new, largely untested tech-
nologies.
The apparently endless horizon
stretching across the Calgary-based com-
pany’s future, with talk of LNG pro-
pelling the sector to unimagined heights,
emboldened it to spin off the bulk of its
oil and natural gas liquids business into
Cenovus Energy.
But that occurred just in time to see
natural gas prices spiral down.
In short order it was forced to concede
its strategic gamble had failed as it turned
to rebuilding its liquids interest, targeting
growth from 50,000 barrels per day n
2013 to a projected 250,000 bpd in 2017
— a goal that now seems remote with
Encana’s output in the third quarter of
2015 at 140,000 bpd, despite a 30 percent
rise year-over-year.
However, Chief Executive Officer
Doug Suttles is sticking to the high road,
insisting that during the quarter “all
aspects of our strategy came together to
drive performance and deliver value.”
“Disciplined capital allocation in our
core four assets (the Permian and Eagle
Ford plays in the U.S. and Duvernay and
Montney stakes in Western Canada),
combined with fast-paced operational
innovation, delivered sustainable per-
formance improvements and grew high-
margin, high-returns liquids volumes,
which helped offset the quarter-over-
quarter impact of lower liquids prices,”
he said.
Spending up, but not on gasThat sounded like the Encana of old,
with the company tied to bold plans and
groundbreaking technology.
Going forward, Encana aims to raise
spending in the Permian by US$150 mil-
lion by speeding up some projects, result-
ing in overall 2015 capital spending at the
upper end of guidance at US$2.2 billion
— US$900 million in the Permian,
US$550 million-$600 million in Eagle
Ford, US$200 million-$250 million in the
Duvernay and US$160 million-$175 mil-
lion in the Montney.
While the corporate thrust shifts to the
Texas sector, Encana plans to decelerate
its Alberta gas business pending the out-
come of the provincial government’s
review of royalty rates and climate
change policy.
Suttles said his company will push the
“pause” button on a gas processing plant
in northwestern Alberta until results of
the royalty review are made known.
“It’s only prudent to say, ‘We need to
know the rules of the game before we
start to play’,” Suttles said of that deci-
sion, although he is optimistic the New
Democratic Party government of Premier
Rachel Notley won’t make the local ener-
gy industry uncompetitive because it
understands “how important the oil and
gas sector is to Alberta and Canada.”
Concern about royaltiesThat confidence aside, he has no inten-
tion of making risky investment decisions
because any changes to royalties “could
be significant enough to change how
returns on investments would perform.”
For 2016, the capital program has been
set in a range of US$1.5 billion-$1.7 bil-
lion — down 25 percent from 2015 —
with 95 percent tagged for the four core
assets, including 50 percent for the
Permian.
Drilling and completion costs are tar-
geted for a 10 percent to 15 percent
reduction, plus a more than 10o percent
cut in corporate costs.
The budget is described as “highly
flexible ... that can be scaled up or down
and redirected based on market condi-
tions.”
Production from the “big four” is
expected to average 260,000-280,000 boe
per day, accounting for 75 percent of the
corporate total of 340,000-370,000 boe
per day.
Liquids output is projected at 120,000-
140,000 bpd and gas at 1.3 billion-1.4 bil-
lion cubic feet per day, each reflecting the
impact of previously announced and
completed divestitures.
Based on US$50 WTIThe spending is based on assumptions
of US$50 per barrel for West Texas
Intermediate crude and Nymex gas prices
of US$2.75 per British thermal unit and
will be funded through expected cash
flow of US$1 billion-$1.2 billion along
with existing credit facilities.
To boost its profitability, Encana said
its cost-cutting efforts, started in 2013,
have now removed US$300 million in
annual costs from the company, while its
payroll has been lowered by more than
400 people, with half stemming from the
sale of Louisiana and Colorado assets.
However, in the run up to Christmas,
Encana said closing the US$900 million
Colorado oil and gas sale was being
delayed by up to six months, without say-
ing why. The result was an immediate
trimming of another 5 percent from its
slumping shares.
The deal, announced in October,
involves offloading liquids-rich produc-
tion and 50,000 acres of DJ basin proper-
ties — which produce about 23,500 bar-
rels of oil equivalent per day, 63 percent
of that from oil and liquids — to Creston
Peak Resources, a new company 95 per-
cent owned by the Canada Pension Plan
Investment Board and 5 percent by The
Broe Group of Denver.
Encana said the effective sale date of
last April 1 and material terms of the deal,
including price, remain the same.
Board predicts big gas lossOn the gas front, the Conference
Board of Canada said the industry will
end 2015 by posting its worst collective
loss of C$1.5 billion before taxes since
2009, reflecting the fall in gas prices
along with related commodities such as
propane, butane, pentane and condensate.
Propane is especially troublesome.
Many gas producers are now having to
pay midstream companies to remove the
unwanted volumes, rather than getting
paid for the commodity.
Board economist Carlos Murillo said
more employment reductions or salary
cuts could come in 2016, while producers
will follow the oil industry in renegotiat-
ed drilling costs, enabling a return to
profitability over the next year.
The board reported that decreasing
revenues in the near term will “result in a
pullback in investment intentions,” with
Murillo forecasting that the largest pro-
l F I N A N C E & E C O N O M Y
Encana grappling with natural gasCuts costs, payroll, tightens focus to 4 areas; waits for Alberta to complete review; focus on discipline, innovation, sustainability
PETROLEUM NEWS • WEEK OF JANUARY 3, 2016 7
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Weather and iceFrom the perspective of weather and
ice forecasting, the report notes that,
despite reductions in the Arctic ice cap, it
remains important to take into account
the possibility of severe ice conditions
when designing technologies and equip-
ment for use in the Arctic. And the reduc-
tion in ice cover may lead to more severe
wave action in Arctic seas. The report
recommends improved weather forecast-
ing for polar regions through higher reso-
lution weather models and improved data
collection.
There are known methods for ice man-
agement including the towing of icebergs
and the disconnection of well risers dur-
ing ice conditions, the report says. But,
given the changing Arctic conditions,
research should focus on dealing with
small icebergs and ice floes — there has
been little research into the handling of
situations in which the sea ice has been
broken into small pieces, the report says.
Research into the dynamic positioning of
floating facilities in pack ice shows prom-
ise but is not yet proven, the report says.
The report also recommends the develop-
ment of technologies for the disconnec-
tion and reconnection of multiple well
risers, with current technologies having
limitations when it comes to multiple
reconnections.
Detecting an oil spill under ice at a
remote location is challenging. Although
two major joint industry projects have
addressed this issue, uncertainty over
detection methods remains and more
research is needed, the report says.
In terms of drilling technology, well
integrity and well control, the report rec-
ommends the continuation of current
work by the oil industry in developing
technologies that act as barriers to the
escape of oil when well control emergen-
cies arise. In addition, research should
emphasize measures that can be taken to
reduce the probability of a well control
problem, the report says.
Although much research has focused
on the protection of pipelines and other
subsea structures from damage from the
keels of ice ridges and icebergs, further
research in this area is needed. Further
work should also be conducted into meth-
ods of detecting leaks from subsea struc-
tures, the report says.
Ice loadsMuch research has also been conduct-
ed into the impact of ice loads on offshore
facilities. However, at this stage it is not
possible to determine whether this
research will result in inherently safe
facility designs, the report says. It is par-
ticularly important to identify the type of
ice feature that is creating an ice load, and
to take account of localized ice loads as
well as the total load on a structure, the
report says. There are international stan-
dards for materials suitable for use for the
manufacture of Arctic facilities.
There are systems for the loading and
offloading of oil at offshore installations
during normal ice drift conditions.
However, with an apparent absence of
loading systems that can operate during
icing conditions, loading should be
delayed, as necessary, until weather con-
ditions permit safe operations, the report
recommends.
While there are existing international
standards for the design and construction
of Arctic offshore structures, standards
for petroleum operations in the Arctic are
under development, the report says. The
report recommends the development of
further safety standards and stresses the
importance of the consistent use of stan-
dards across international borders.
New techniques?There are initiatives for devising new
exploration and oil production techniques
that might be applied in the Arctic off-
shore, although the development of these
techniques takes a considerable time. The
report recommends continuing efforts to
develop a subsea production solution for
use in the Arctic by evaluating known
deepwater technology that might be
transferred to Arctic offshore applica-
tions. Maintenance and inspection tech-
niques applicable in the Arctic could also
be improved, the report says.
The report says that the communica-
tions infrastructure in the Arctic is inade-
l I N T E R N A T I O N A L
Norway publishes Arctic safety reportProvides review of techniques, procedures and standards for preventing oil pollution from Arctic offshore oil and gas activities
8 PETROLEUM NEWS • WEEK OF JANUARY 3, 2016
ducers — Encana, Enerplus and
Tourmaline — will cut their spending by
a combined 21 percent in 2016.
Despite this bleak picture, Canada’s
biggest pension funds, the Canada
Pension Plan Investment Board and the
Ontario Teachers’ Pension Plan, say they
prefer to engage with fossil fuel compa-
nies and advocate for change on climate
change issues from within.
They don’t believe that divestment is a
useful tool, opting to assess long-term cli-
mate risk in their investment decisions.
`We`re much more in the camp of sup-
porting engagement — working with
companies, understanding what they are
doing, how they are managing these risks,
backing them when they are putting
things in place,” Teachers’ Senior Vice
President Barbara Zvan told the Globe
and Mail.
“I don`t think we generally take the
activist route. We would rather work pri-
vately with engagement,” she said.
Zvan said the Teachers’ fund assesses
each transaction on its merits, with a clear
eye to long-term risks as the world transi-
tions to a low-carbon economy. l
continued from page 7
ENCANA
The report says that thecommunications infrastructure inthe Arctic is inadequate for the
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of January 3, 2016
l T E C H N O L O G Y
Metals prices expected to slidebefore rebounding in year ahead
NORTHERN NEIGHBORSCompiled by Shane Lasley
Dolly Varden drills northern silver targetsDolly Varden Silver Corp. Dec. 23 reported results from a
2,037-meter drill program at its Dolly Varden silver property in
northwestern British Columbia. The known Dolly Varden
deposits exhibit both volcanogenic massive sulfide (Eskay-like)
and epithermal (Brucejack-like) mineralization styles which
were the focus of the company’s maiden NI 43-101 mineral
resource estimate completed in August. Though this resource
remains open to expansion, the goal of the 2015 drill program
was to explore targets identified by surface mapping and sam-
pling as having similar high-grade potential in the northern half
of the property, where lithologies, alteration and geochemical
signatures extend on surface from the property’s historic mines,
located on the southern portion of the property. Six holes of this
year's 10-hole program targeted Ace-Galena, where the drilling
confirmed the presence of VMS mineralization and intersected
a new epithermal quartz vein and breccia with high-grade silver.
Historical trench and recent surface samples at the McKay
showing on Ace-Galena returned assays of up to 3,360 grams
per metric ton silver over 1.3 meters. The Ace-Galena trend is
projected to extend over a distance of five kilometers (three
miles) to the Sault showing, also in the northern half of the
Dolly Varden property. The 2015 drill holes at Ace-Galena were
targeted to examine this VMS horizon down-dip and along
DO
LLY
VAR
DEN
SIL
VER
CO
RP.
A geologist collects samples from one of four historical high-grade silver mines located in the southern half of the Dolly Vardenproperty in northwestern British Columbia. A 10-hole drill pro-gram completed by Dolly Varden Silver tested targets in thenorthern half of the property that show similarities to the past-producing mines.
LNG-fueled mine rigsTeck pilots dual-fuel haul trucks; Donlin Gold hopes tech is ready for mine
By SHANE LASLEYMining News
D iesel has long been the fuel of choice for the
enormous haul trucks, dozers, shovels and
other equipment that most mines use. Many industry
leaders, however, are looking ahead to natural gas as
an economically and environmentally friendlier
source of energy for the colossal machines.
“LNG (liquefied natural gas) is a fuel source that
has the potential to lower costs, significantly reduce
emissions and improve environmental performance
at our operations,” said Teck Resources Ltd.
President and CEO Don Lindsay. “We are committed
to minimizing our own carbon footprint, while at the
same time continuing to provide the mining products
that are essential to building a modern, low-carbon
society.”
To this end, Teck is piloting a project that is using
a mixture of LNG and diesel to fuel six haul trucks at
its Fording River steelmaking coal operation in
southeastern British Columbia.
In Alaska, LNG is one of the alternatives proposed
to power haul trucks in a recently completed draft
environmental impact statement for the Donlin Gold
project, as a means of reducing the amount of diesel
that would be needed to barged to the large open-pit
mine once it is built and begins production.
The technology needed to make LNG fuel a viable
alternative, however, is relatively young and has only
recently been put into commercial use on a limited
basis.
Piloting LNG trucksThe LNG system being tested by Teck does not
completely eliminate the need for diesel. Instead, a
conversion is retrofitted on conventional diesel haul
trucks that injects natural gas into air intake, supple-
menting the heavier fuel.
GFS Corp., the company that manufactures the
units being tested, claims the system reduces diesel
consumption by 50 to 70 percent while retaining the
crucial power and torque for which diesel engines are
notable.
As an added benefit, LNG produces virtually no
sulfur dioxide or particulates, and LNG-diesel trucks
emit about 20 percent less greenhouse gas, compared
with their conventional contemporaries.
Teck says there is a potential to reduce carbon
dioxide emissions by 35,000 metric tons per year and
save C$20 million annually if the technology was
implemented across its B.C. steelmaking coal opera-
tions.
This would be another step towards Teck’s overall
goal of reducing its greenhouse gas emissions by
450,000 metric tons per year by 2030. Since imple-
menting this plan in 2011, the diversified miner has
cut annual CHG output by about 170,000 metric tons.
“Like British Columbia, Teck is a global leader in
finding innovative ways to reduce GHG emissions
while continuing to create opportunity,” said B.C.
Premier Christy Clark. “It’s a concrete example of the
difference clean-burning LNG can make in the fight
against climate change.”
FortisBC, which distributes natural gas in the
western province, is supplying the fuel and is helping
see LNG FUEL page 12
see NORTHERN NEIGHBORS page 12
Teck Resources is piloting a project that is using a mix-ture of LNG and diesel to fuel six haul trucks at itsFording River steelmaking coal operation in south-eastern British Columbia. Upon completion of thetrial, the diversified miner will evaluate the potentialof implementing the LNG-diesel technology across awider section of its haul-truck fleet.
NORTH OF 60 MINING NEWS is a weekly supplement of Petroleum News, a weekly newspaper.To subscribe to North of 60 Mining News,
call (907) 522-9469 or sign-up online at www.miningnewsnorth.com.
Several of the individualslisted above are
independent contractors
North of 60 Mining News is a weekly supplement of the weekly newspaper, Petroleum News.
Contact North of 60 Mining News:Publisher: Shane Lasley • e-mail: [email protected]
Phone: 907.229.6289 • Fax: 907.522.9583
l M A R K E T S
Across-the-board bearish outlookMost metals analysts predict more pain for the sector before base, precious metals prices tick upward during second half of 2016
“Citi’s outlook for end-2016projects higher prices for U.S.natural gas, crude oil, all base
metals but especially copper andnickel as well as platinum and
palladium.” –Ed Morse, analyst, Citigroup
11NORTH OF 60 MINING
PETROLEUM NEWS • WEEK OF JANUARY 3, 2016
Mining Companies
Kinross Fort Knox/Fairbanks Gold Mining Inc.Fairbanks, AK 99707Contact: Anna Atchison, Manager, Community and Government RelationsPhone: (907) 490-2218 Fax: (907) 490-2290E-mail: [email protected]: www.kinross.comLocated 25 miles northeast of Fairbanks, Fort Knox is Alaska’slargest producing gold mine; during 2011, Fort Knoxachieved 5 million ounces of gold produced, a modern recordin Alaska mining.
Usibelli Coal MineFairbanks, AK 99701Contact: Bill Brophy, VP Customer RelationsPhone: (907) 452-2625 • Fax: (907) 451-6543Email: [email protected]: www.usibelli.comOther OfficePO Box 1000Healy, AK 99743Phone: (907) 683-2226Usibelli Coal Mine is headquartered in Healy, Alaska and has700 million tons of coal reserves. UCM produces an average of2 million tons of sub-bituminous coal each year.
Service, Supply & Equipment
Alaska Analytical Laboratory1956 Richardson HighwayNorth Pole, AK 99705Phone: (907) 488-1266ax: (907) 488-077E-mail: [email protected] analytical soil testing for GRO, DRO, RRO, andUTEX. Field screening and phase 1 and 2 site assessments alsoavailable.
Alaska Rubber & Rigging Supply5811 Old Seward Hwy.Anchorage, AK 99518Contact: Mike Mortensen, General ManagerPhone: (907) 562-2200Fax: (907) 561-7600E-mail: [email protected]: www.alaskarubber.com.Alaska’s largest supplier of hydraulic and industrial hose soldin bulk or assembled to spec. We also stock a large selectionor wire rope, crane rope, lifting and transportation chain, soldin bulk or assembled to spec. We fabricate synthetic liftingslings, and supply shackles & rigging hardware. We sell andperform field installs of conveyor belting. We are Arctic Gradeproduct specialists. We sell and service a wide variety ofhydraulic, lubrication, fueling and pressure washing equip-ment. We sell high pressure stainless instrumentation fittingsand tube, sheet rubber, v-belts, pumps, Enerpac equipment,Kamlocks, plumbing fittings, and much more. We performhydro testing up to thirty thousand psi, & pull testing up to350 thousand pounds. All testing comes standard with certifi-cation & RFID certification tracking capabilities.
Alaska Steel Co.6180 Electron DriveAnchorage, AK 99518Contact: Joe Pavlas, outside sales managerPhone: (907) 561-1188Toll free: (800) 770-0969 (AK only)Fax: (907) 561-2935E-mail: [email protected] Full-line steel and aluminum distributor. Complete processingcapabilities, statewide service. Specializing in low temperaturesteel and wear plate.
Arctic Wire Rope & Supply6407 Arctic Spur Rd. Anchorage, AK 99518Contact: Mark LamoureuxPhone: (907) 562-0707Fax: (907) 562-2426Email: [email protected]: www.arcticwirerope.comArctic Wire Rope & Supply is Alaska largest and most com-plete rigging supply source. Our fabrication facility is locatedin Anchorage with distribution Fairbanks. We specialize in cus-tom fabrication of slings in wire rope, synthetic webbing/yarn, chain and rope. Radio-Frequency Identification (RFID) isavailable for all of our fabricated products. In addition, weoffer on-site inspection and splicing services. We carry a largeinventory of tire chains for trucks and heavy equipment.
Austin Powder CompanyP.O. Box 8236Ketchikan, AK 99901Contact: Tony Barajas, Alaska managerPhone: (907) 225-8236Fax: (907) 225-8237E-mail: [email protected] site: www.austinpowder.comIn business since 1833, Austin Powder provides statewideprepackaged and onsite manufactured explosives and drillingsupplies with a commitment to safety and unmatched cus-tomer service.
Calista Corporation5015 Business Park Blvd.Suite 3000Anchorage, AK 99503Phone: (907) 275-2800Fax: (907) 275-2919Website: www.calistacorp.comCalista is the parent company of more than 30 subsidiaries. Interms of land area and Shareholder base, Calista is the second
largest of the Regional Alaska Native corporations establishedunder ANCSA in 1971. Like us on Facebook (http://www.face-book.com/calistacorporation) and follow us on Twitter(http://twitter.com/calistacorp).
Construction Machinery Industrial, LLC 5400 Homer Dr.Anchorage, AK 99518Phone: (907) 563-3822Fax: (907) 563-1381Website: www.cmiak.comFairbanks officePhone: 907-455-9600 Juneau officePhone: 907-780-4030 Ketchikan officePhone: 907-247-2228 Sales and service for heavy equipment for construction, log-ging, aggregate, mining, oilfield and agricultural industriesthroughout Alaska. CMI represents more than 40 vendors,including Volvo, Hitachi, Atlas Copco, and Ingersoll-Rand.
GCI Industrial Telecom Anchorage:11260 Old Seward Highway Ste. 105Anchorage, AK 99515Phone: (907) 868-0400Fax: (907) 868-9528Toll free: (877) 411-1484Web site: www.gci.com/industrialtelecomRick Hansen, [email protected] Johnson, Business Development [email protected]:Aurora Hotel #205Deadhorse, Alaska 99734Phone: (907) 771-1090Mike Stanford, Senior Manager North [email protected], Texas:8588 Katy Freeway, Suite 226Houston, Texas 77024Phone: (713) 589-4456Hillary McIntosh, Account [email protected] Industrial Telecom provides innovative solutions to themost complex communication issues facing industrial clientele.We deliver competitive services, reputable expertise and safelyoperate under the most severe working conditions for the oil,gas and natural resource industries. GCI-your best choice forfull life cycle, expert, proven, industrial communications.
Greer Tank and Welding Inc. 3140 Lakeview DrivePO Box 71193Fairbanks, AK 99707Contact: Mark Greer, General ManagerPhone: (907) 452-1711Fax: (907) 456-5808Email: [email protected] offices: Anchorage, AK; Lakewood, WAWebsite: www.greertank.comGreer Tank & Welding are the premier tank and welding spe-cialists of Alaska and Washington. In business for over 57years, they have a long history of providing an array of prod-ucts and services for all contracting and custom fabricationneeds – all from their highly trained and experienced staff.
Hawk Alaska670 W Fireweed Lane, Suite 201Anchorage, AK 99503Contact: Maynard Tapp, Managing MemberPhone: (907) 278-1877Fax: (907) 278-1889E-mail: [email protected]
Hawk Texas16522 Avenplace RoadTomball, Texas 77377Contact: Pat McQuillanPhone: (832) 843-7608
Fax: (832) 761-7692E-mail: [email protected] provides people and resources across multiple indus-tries. Services include project management consulting, supple-mental professionals, client staff augmentation, constructiondispute resolution, management consulting services, craftslabor, inspection and expediting services.
HDR Alaska Inc. 2525 C St., Ste 305Anchorage, AK 99503Contact: Jaci Mellott, Marketing CoordinatorPhone: (907) 644-2091Fax: (907) 644-2022Email: [email protected]: www.hdrinc.comHDR Alaska provides engineering, environmental, planning,and consultation services for mining and mineral explorationclients. Services include: biological studies; cultural resources;project permitting; NEPA; stakeholder outreach; agency con-sultation; and environmental, civil, transportation, energy,and heavy structural engineering.
Judy Patrick Photography511 W. 41st Ave, Suite 101Anchorage, AK 99503Contact: Judy PatrickPhone: (907) 258-4704Fax: (907) 258-4706E-mail: [email protected]: www.judypatrickphotography.comCreative images for the resource development industry.
Last Frontier Air Ventures1415 N Local 302 Rd., Ste CPalmer, AK 99645Contact: Dave King, ownerPhone: (907) 745-5701Fax: (907) 745-5711Email: [email protected] Base (907) 272-8300Website: www.LFAV.comHelicopter support statewide for mineral exploration, surveyresearch and development, slung cargo, video/film projects,telecom support, tours, crew transport, heli skiing. Short andlong term contracts.
LyndenAlaska Marine LinesAlaska West ExpressBering Marine CorporationLynden Air CargoLynden InternationalLynden LogisticsLynden TransportAnchorage, AK 99502Contact: Jeanine St. JohnPhone: (907) 245-1544Fax: (907) 245-1744Toll Free: 1-888-596-3361E-mail: [email protected] is a family of transportation companies with the com-bined capabilities of truckload and less-than-truckload trans-portation, scheduled and charter barges, rail barges, inter-modal bulk chemical hauls, scheduled and chartered airfreighters, domestic and international air forwarding, interna-tional ocean forwarding, customs brokerage, sanitary bulkcommodities hauling, and multi-modal logistics.
Pacific Rim Geological ConsultingFairbanks, AK 99708Contact: Thomas Bundtzen, presidentPhone: (907) 458-8951Fax: (907) 458-8511Email: [email protected] mapping, metallic minerals exploration and industri-al minerals analysis or assessment.
TTT Environmental LLC 4201 “B” St.Anchorage, AK 99503Contact: Tom Tompkins, general managerPhone: 907-770-9041Fax: 907-770-9046Email: [email protected]: www.tttenviro.comAlaska’s preferred source for instrument rentals, sales, serviceand supplies. We supply equipment for air monitoring, watersampling, field screening, PPE and more.
Taiga Ventures2700 S. CushmanFairbanks, AK 99701Mike Tolbert - presidentPhone: 907-452-6631Fax: 907-451-8632Other offices:Airport Business Park2000 W. International Airport Rd, #D-2Anchorage, AK 99502Phone: 907-245-3123Email: [email protected] site: www.taigaventures.comRemote site logistics firm specializing in turnkey portable shel-ter camps – all seasons.
Usibelli Coal Mine100 Cushman St., Ste. 210Fairbanks, AK 99701Contact: Bill Brophy, VP Customer RelationsPhone: (907) 452-2625 • Fax: (907) 451-6543E-mail: [email protected]: www.usibelli.comUsibelli Coal Mine is headquartered in Healy, Alaska and has700 million tons of coal reserves. UCM produces 1 to 2 milliontons of sub-bituminous coal each year.
Advertiser IndexAlaska DreamsAlaska Steel Co.Arctic Wire RopeAustin Powder Co.Calista Corp.Constantine Metal ResourcesConstruction MachineryFort Knox Gold MineGCI Industrial TelecomGreer Tank Inc.Hawk AlaskaJudy Patrick PhotographyLast Frontier Air VenturesLyndenNature Conservancy, ThePacific Rim Geological ConsultingTaiga Ventures/PacWest
Drilling SupplyUsibelli Coal Mine
North of 60 Mining Directory
12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 3, 2016
trend of the projected system. Dolly Varden reports that the 2015 Ace-Galena drill
holes intercepted highly anomalous silver, lead and zinc mineralization in VMS hori-
zons. Highlights from this drilling include five meters of 51.2 g/t silver from a depth of
89 meters and 22.5 meters of 42 g/t silver from a depth of 110 meters in hole
DV15013; and 11 meters of 27 g/t silver from a depth of 90 meters in hole DV15014.
Hole DV15019 cut 3.15 meters of 591 g/t silver, but this intercept is considered to be
at a shallow angle to mineralization, skewing the results. “We are very encouraged by
the results from this new exploration confirming the sub-surface extent of VMS-style
mineralization at Ace-Galena,” said Rosie Moore, director and interim CEO, Dolly
Varden. “As a bonus, one of the Ace-Galena holes encountered a new, epithermal
quartz vein and breccia hosting visible native silver, and returning high-grade silver
assays. Both of these mineralization systems warrant further exploration.” In addition
to the holes drilled at Ace-Galena, a fan of three holes were drilled in the Kitsol area to
follow up on a significant 2014 drill intercept that averaged 712 g/t silver over a true
thickness of 22.6 meters. The new holes were sited 60 meters northeast of hole
DV14010 and were targeted to test the Kitsol vein down-dip form historic trench
results, which graded 626 g/t silver over 4.11 meters. The best intercept from the 2015
drilling at Kitsol was one meter of 117.8 g/t silver from a depth of 148 meters in hole
DV15021. Dolly Varden said the new drilling, along with the integration of a structural
study completed late in 2015 will assist in the future exploration at Kitsol.
Outlook bleak for B.C. miner Banks Island GoldBanks Island Gold Ltd. Dec. 23 reported the cancellation of an equity financing
announced on Dec. 1, due to the lack of sufficient interest to be able to close the C$3
million financing required to support its operations over the coming months. As a
result, the Banks Island has insufficient funds to maintain operations and has received
notice of claims from three significant trade creditors for payment of outstanding debt.
The British Columbia Ministry of Energy and Mines has confiscated the reclamation
bond posted by Banks Island. The company terminated all of its remaining employees,
effective Dec. 31. The company’s board is currently comprised of Ben Mossman,
Jason Nickel, John Anderson and Frederick Sveinson. Since its formation in 2010,
Banks Island has been working towards reaching commercial production at its Yellow
Giant gold-silver property on Banks Island, British Columbia. The company began
bulk sampling in 2014 and received permits that year for the construction of a 200-ton-
per-day grinding and flotation plant, an underground mine, and associated facilities
including rock stockpiles and other infrastructure. By January 2015, the company
declared commercial production. The company, however, suspended operation in late
July “until permitting and regulatory issues at the project are resolved and the company
has sufficient working capital to re-commence operations.” Banks Island said it is con-
sulting with its legal advisors, and will provide a further update on the company’s sta-
tus in the coming weeks.
Western ready for next phase of permittingWestern Copper and Gold Corp. Dec. 22 reported that its wholly-owned subsidiary,
Casino Mining Corp., has submitted the second supplementary information report for
the Casino copper-gold project to the Yukon Environmental and Socio-economic
Board. The supplemental information is part of a permitting process to develop an
open-pit mine with combined flotation mill and gold heap leach processing facilities.
The mill will process an average of 120,000 dry metric tons of ore per day, over a 22-
year mine life. This operation is anticipated to produce an average of 171 million
pounds of copper, 266,000 ounces of gold, 1.43 million oz. of silver and 15.5 million
lbs. of molybdenum per year. Since the filing of the first application for the develop-
ment of a mine at Casino, the company has submitted more than 14,000 pages of infor-
mation and over three years of engagement with regulatory agencies and federal, terri-
torial and First Nation governments. Additionally, the company said it has voluntarily
initiated a number of programs outside of the YESAA process to ensure expanded
technical and community input into the project. The purpose of the assessment process
is to incorporate concerns, views and mitigation from a broad range of stakeholders
into the project plan. In Western’s view, this process is limited until the screening phase
begins. It hopes that the latest supplemental information report will be sufficient to
begin the screening phase of the assessment process.
Copper Fox raises Eaglehead exploration fundsCopper Fox Metals Inc. Dec. 22 reported plans to complete a non-brokered private
placement to raise up to C$1.5 million in flow-through funds, money the company
plans to re-invest in Carmax Mining Corp. The offering will consist of 8,823,529 flow-
through common shares sold at a price of C17 cents each. The first tranche of the offer-
ing closed on Dec. 22, resulting in C$500,000 from the issuance of 2,941,176 flow-
through common shares at C17 cents each. Copper Fox will use the flow-through
funds generated from the offering to subscribe for flow-through common shares in its
wholly-owned, direct subsidiary Northern Fox Copper Inc., which will, in turn, use the
funds to subscribe for flow-through common shares in Carmax Mining, which is a par-
tially-owned, direct subsidiary of Northern Fox. Carmax’s placement will involve 30
million flow-through shares at C5 cents each. Following the financing, Northern Fox
will own 65.4 percent of the outstanding shares of Carmax on an undiluted basis and
68.2 percent on a fully diluted basis. Carmax will use the funds to carry out a 2016
exploration program on the Eaglehead copper-gold property in Northwest British
Columbia. In addition to the flow-through financing, Copper Fox raised C$150,000 by
issuing 1,153,846 common shares sold at C13 cents each. l
to finance the pilot.
“Teck is demonstrating leadership by
adopting natural gas as a cleaner and more
cost-effective fuel solution for their opera-
tions,” said FortisBC President and CEO
Michael Mulcahy. “LNG, as a vehicle fuel
source, provides both an economic and
environmental benefit to industry in our
province. Today’s announcement further
builds on the diversity of the more than 400
natural gas-fueled vehicles in British
Columbia.”
Teck plans to run the pilot until mid-
2016, at which point it can evaluate the
opportunity to implement the LNG-diesel
technology across a wider section of its
haul-truck fleet.
Donlin eyes developmentsOnce developed, the Donlin Gold Mine
in Southwest Alaska will have a fleet of
enormous haul trucks, an excess quantity of
natural gas and a need to barge and store a
year’s worth of diesel to the remote site
during a 110-day window. This combina-
tion could make the planned operation ide-
ally suited for LNG-fueled haul trucks.
Donlin Gold LLC – equally owned by
subsidiaries of Novagold Resources Inc.
and Barrick Gold Corp. – has been keeping
an eye on emerging technology.
Kurt Parkan, external affairs manager,
Donlin Gold, told Mining News that the
idea of LNG-fueled trucks was considered
when the partnership developed the mine-
plan, but without a surety that the technol-
ogy would be available for commercial
production, Donlin Gold could not build its
preferred mine plan around the fledgling
technology.
Regulators in charge of issuing permits
to develop the 40-million-ounce gold proj-
ect also see natural gas as a potential source
of fuel for the heavy haulers at Donlin.
As part of the EIS process, the U.S.
Army Corps of Engineers is tasked with
evaluating the mine plan submitted by the
project proponent as well as coming up
with alternatives that could potentially
reduce environmental risks. In the case of
Donlin Gold, the federal agency deter-
mined that using some of the excess natural
gas to fuel the haul trucks is one such alter-
native.
According to the recently published
draft EIS, LNG-fueled haul trucks could
reduce the amount of diesel needed at the
Donlin Gold operation under evaluation by
29 million gallons per year, or 68.5 percent
less than the 42.3 million gallons that
would be required to fuel conventional
trucks at the proposed large open-pit gold
mine.
“At present, LNG-powered haul trucks
are not currently in full commercial pro-
duction,” the Corps observed in the draft
EIS.
The potential upside of LNG-fired
trucks, however, was too compelling for
the agency to completely ignore.
Fueling the trucks with natural gas
would ease traffic on the Kuskokwim
River, one of the primary concerns the
Corps heard during an initial scoping peri-
od of the Donlin EIS process.
This alternative also would reduce the
amount of fuel storage needed at the mine
site and Bethel, a town at the mouth of the
Kuskokwim River where the river barges
would load diesel and other supplies and
equipment delivered via ships.
“If it does come into commercial pro-
duction, we will totally jump on top of that
because it will allow us to take more diesel
off the barges,” Parkan explained during a
recent interview with Mining News.
To make the natural gas usable for haul
trucks, a plant to convert the natural gas to
LNG and tanks to store the liquefied gas
would need to be built at Donlin. An invest-
ment and endeavor Donlin Gold believes
would be worthwhile if the technology gets
developed commercially.
“The LNG plant that we would need at
the project site is fairly simple and clearly,
the costs associated with putting that in is
compensated by the fuel-cost savings,”
Parkan said.
Donlin Gold is keeping an eye on the
pilot project being carried out by Teck and
other developments that would move the
emerging LNG-fueled haul truck technolo-
gy into the mainstream.
“It is definitely a win-win, if it becomes
commercially viable by the time we need
it,” he said.
Commercial viabilityIn addition to the tests being carried out
by Teck, at least one company in the
United States is increasing its fleet of
LNG-fueled trucks and a number of heavy
equipment manufacturers are developing
natural gas engines for the heavy haulers.
GFS Corp. has developed conversion
kits for a number of different makes and
models of haul trucks.
Arch Coal has been steadily increasing
the number of trucks at its Black Thunder
Mine in Montana that are equipped with
the GFS conversion kits.
Arch Coal converted its first batch of
Komatsu trucks to the LNG-diesel mix in
January 2014. This year, the company
ordered conversion kits for 10 additional
trucks.
In addition to two models of Komatsu,
GFS Corp. has developed conversion kits
for at least two Caterpillar haul-truck mod-
els.
Caterpillar is also working on develop-
ing haul-trucks that burn natural gas with-
out the need of after-market modifications.
“Of particular interest to many mining
customers, and Caterpillar is the potential
to leverage natural gas for reduced fuel
costs and greenhouse gas emissions,” the
company explains on its website. “The
technology we are pursuing for large min-
ing trucks offers substitution of diesel with
natural gas, as well as lower greenhouse
gas and criteria pollutant emissions when
compared to today’s diesel engines. This
technology in our fully integrated solution
will be a key differentiator in the mining
industry.”
Cummins is another company that is
developing natural-gas-fueled trucks
specifically to meet the growing demand
from mining operations.
“The rapid expansion and abundance of
natural gas in some areas of the world is
driving a dramatic cost advantage of natu-
ral gas over diesel fuel, making natural gas
a very economical fuel source for mine
sites,” Cummins explains.
The company said it plans to announce
the roll-out of its first batch of LNG-diesel
engines especially tailored for mining
applications in the near future.
The engines being developed by
Cummins actively monitors the work load
and adjusts the LNG-diesel ratio accord-
ingly. They also could run on diesel alone.
The company estimates that in typical
operations roughly half the energy could
be expected from natural gas, resulting in
about 30 percent in fuel savings.
So, whether a mining company is look-
ing to reduce its carbon footprint, increase
its bottom line or deliver more fuel via
pipeline and less via barge, it seems the
options for commercially available natural
gas fueled mining equipment will be
increasing in the coming months and
years. l
continued from page 9
NORTHERN NEIGHBORS
continued from page 9
LNG FUEL
By DAN JOLINGAssociated Press
Alaska Inuit hunter John Goodwin for
decades has hunted oogruk, the
bearded seal, a marine mammal prized for
its meat, oil and hide.
The largest of Alaska’s ice seals uses
sea ice to rest and birth pups, and after the
long winter, when ice breaks into floes,
there’s a window of opportunity for
Goodwin to leave his home in Kotzebue
and motor his boat between ice panels,
shoot seals and butcher them before they
migrate north through the Bering Strait.
A hunting season that used to last
weeks, however, has shrunk. Ice that for-
merly froze 5-feet thick or more is a frac-
tion of that. Ice disappears quickly, and so
do the seals.
“As soon as the sun comes out, it starts
melting, or we have a heavy rain,”
Goodwin said. “Basically, it’s the rain
that deteriorates the ice real quick. We
don’t have enough time to hunt.”
The environment is changing and the
Inuit, who consider themselves a part of
it, want measures taken to protect their
culture. A report issued in December by
the Inuit Circumpolar Council-Alaska,
which advocates for Inuit coast villages
from southwest to north Alaska, calls for
policies that protect Inuit traditional food
and the Arctic environment that produces
it.
“When we say food security, it has to
do with the health of all of it,” said
Carolina Behe, the organization’s indige-
nous knowledge and science adviser.
More than 90 percent of the food pur-
chased with cash in Alaska comes in from
elsewhere and a reliable food supply in
more urban communities like Anchorage
means affordable prices and uninterrupt-
ed service on groceries shipped north by
barge or jet.
For the Inuit, who have survived for
thousands of years in one of the harshest
climates on Earth, food is the connection
between the past and today’s culture,
according to the report.
Food is survival and identity. Over
millennia, the capturing of caribou or
seals, the gathering of salmonberries,
how they were processed, stored and
shared was incorporated into art, story-
telling, dance, drumming, education and
language.
“Our traditional foods are much more
than calories or nutrients; they are a life-
line throughout our culture and reflect the
health of the entire Arctic ecosystem,”
report authors said.
As changes arose, Inuit leaders began
talking at public forums about food. Their
concept of secure food differed from the
concept held by people in academia and
government, who spoke of nutritional
value and purchasing power.
“They were talking two different lan-
guages,” Behe said.
At a meeting four years ago, she
recalled, someone asked whether the
Inuit were looking forward to increased
shipping because it would create more
opportunity to move in food.
“Our people were saying the exact
opposite: We’re really concerned about
these ships because they’re going to dis-
rupt our hunting, the noise is disrupting
the animals, the pollutants, and that’s a
threat to food security,” Behe said.
The report, assembled through visits to
15 Inuit villages and with 146 listed
authors, urges Arctic policy decisions
through the lens of food. Inuit leaders
want the baseline data collected on the
Arctic ecosystem using both science and
indigenous knowledge, Behe said.
A scientist researching salmon might
look first at population dynamics. An
elder might taste the water, look at
streamside vegetation, check fish scales
and gauge the texture of the meat, Behe
said.
“You’re asking two different questions
but both of them are really needed,” Behe
said.
The report notes the fragmented nature
of land, ocean and wildlife management.
State officials set hunting seasons, which
may correspond to the best time to
process game, and the handling of food in
group settings. Federal officials oversee
harvesting of marine mammals and
industrial ocean fisheries whose by-catch
affect returns to Inuit on shore.
l E N V I R O N M E N T & S A F E T Y
Inuit link food to environmental healthReport from Inuit Circumpolar Council-Alaska addresses Arctic policy through lens of food; view of food as survival and identify
PETROLEUM NEWS • WEEK OF JANUARY 3, 2016 13
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Better.
quate for the operational requirements of
expected future Arctic maritime opera-
tions. Improved communications systems
are currently being implemented and
developed, with an anticipated result of
better Arctic communications services.
Arctic trainingRealistic training under cold weather
conditions, including relevant fitness
training, should be provided for person-
nel who will be involved in cold climate
operations. And managers involved in
operational decisions should also partici-
pate in training in realistic conditions, the
report recommends.
The report also comments on the num-
ber of research and development centers,
projects and forums that are focusing on
Arctic operations. It is important to main-
tain competence and expertise through
the publication of research and develop-
ment results, the report says. l
continued from page 8
NORWAY REPORT
For the Inuit, who have survivedfor thousands of years in one ofthe harshest climates on Earth,
food is the connection between thepast and today’s culture, according
to the report.
see FOOD LINK page 15
national priority,” Murkowski said. “As
new possibilities and opportunities emerge
in the Arctic, it is imperative that we invest
today in the infrastructure and the assets that
will be critical to supporting our Arctic
strategy. While the United States chairs the
Arctic Council for the next two years, we
have not only a big role but a tremendous
opportunity to be a global leader in the
region, and I believe we are heading in the
right direction.”
The general lack of a supporting infra-
structure has been a continuing issue for
those interested in commercial develop-
ment, including resource development, in
the Arctic region. And the fact that the
United States only possesses two opera-
tional icebreakers — the Healy and the
Polar Star — tends to figure large in U.S.
Arctic infrastructure concerns. In fact, of
these two vessels, only the Polar Star, an
aging ship commissioned in 1976, is a
heavy duty icebreaker, capable of cutting
through particularly thick polar ice.
The new federal spending bill Includes
$7.2 million in funding towards the eventu-
al construction of a new icebreaker,
Murkowski said. The money will be spent
on pre-acquisition activities, such as hiring
staff, finalizing requirements and preparing
requests for proposals, according to
Murkowski’s office.
In September President Obama, during a
trip to Alaska, pledged that his administra-
tion would accelerate the acquisition of
additional icebreakers to enable the United
States to operate safely in the Arctic. The
president said that he would take action to
enable a new U.S. icebreaker to go into
service in 2020, rather than 2022 as previ-
ously planned.
New Coast Guard cutterArctic infrastructure funding in the fed-
eral budget also includes $640 million for
the construction of a ninth national security
cutter for the U.S. Coast Guard, and
$480,000 for an Army Corps of Engineers
investigation of a small boat harbor at
Kotzebue, Murkowski said.
When it comes to maritime activities in
Arctic seas, accurate maps and marine
charts become critical to both safety and
efficiency. Accurate weather forecasting is
also critically important for marine opera-
tions.
The approved federal budget includes
funding for the National Oceanic and
Atmospheric Administration to conduct
hydrographic surveys or sonar mapping of
the U.S. coastline. Murkowski said that she
had attached to that funding a provision that
emphasizes the importance of Arctic map-
ping and sets deadlines for federal agencies
responsible for the Arctic region. She also
said that she has included a provision for
investigating the benefits of deploying elec-
tronic navigation buoys for the assistance of
vessels transiting Arctic waters.
Weather forecastingThe funding bill also requires the
National Weather Service to identify any
disparities between weather forecasting in
Alaska and forecasting in the Lower 48, and
to identify the resources needed to correct
these disparities. Despite having some of
the harshest weather in the United States,
Alaska sees less comprehensive weather
forecasting that do the Lower 48 states,
Murkowski said.
In terms of the military presence in
Arctic Alaska, the new federal budget
includes $2.5 million for the development
of new Arctic camouflage for the U.S.
Army. And the budget has set U.S Coast
Guard funding at $10.8 billion, $1 billion
more than the amount that President Obama
requested, Murkowski said. The Coast
Guard funding will improve the agency’s
readiness; enable the modernization of ves-
sels and aircraft; and improve the quality of
life for service members, she said.
The budget bill directs the Department
of the Interior to work cooperatively with
local stakeholders to enhance economic
opportunities for the people who live and
work in the Arctic. The bill also requests the
National Science Foundation to produce a
biennial report on federal activities in the
Arctic, to enable lawmakers and the public
to better understand work being done in the
Arctic, and to identify information gaps and
opportunities for better coordination,
Murkowski said.
—ALAN BAILEY
14 PETROLEUM NEWS • WEEK OF JANUARY 3, 2016
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ADMINISTRATIVE LAW AND LITIGATION
By GARY PARKFor Petroleum News
While the freshly minted Alberta government of
Premier Rachel Notley struggles to keep its head
above water as it faces a C$6.1 billion deficit in 2015-16,
its neighbor on the west side, British Columbia, is
expected to continue leading Canadian economic growth
over the next two years.
But achieving that lofty goal is by no means certain.
The Conference Board of Canada is pinning its out-
look on an assumption that Malaysia’s Petronas-led con-
sortium will give the green light to building an C$11 bil-
lion terminal at Prince Rupert as part of its C$36 billion
Pacific NorthWest LNG project.
Board chair Marie-Christine Bernard said that
“although there is no guarantee that the project will go
ahead,” her agency thought it was appropriate to com-
ment on the possible boost to British Columbia’s con-
struction, service and upstream drilling sector which
could account for a full percentage point of the 3.6 per-
cent growth forecast for the province in 2016.
As well as the liquefaction plant and tanker terminal
near Prince Rupert, the overall Pacific NorthWest invest-
ment includes a pipeline and natural gas development by
Petronas subsidiary Progress Energy, which has been
spending C$2 billion a year in recent years to build up a
supply of gas feedstock.
Despite evidence of a global glut of LNG that has cast
a shadow over British Columbia’s hopes in the sector,
Petronas Chief Executive Officer Datuk Wan Zulkiflee
Wan Ariffin told the Malay Mail recently that Pacific
NorthWest will proceed provided it receives environ-
mental approval from the Canadian government.
The project makes the difference between British
Columbia surpassing or just keeping pace with Ontario
(2.3 percent) and Manitoba (2.5 percent), the next
strongest growth provinces in the board’s forecast.
Although Alberta is expected to remain flat, overall
Canadian economic growth is expected to pick up
momentum, especially in trade-related sectors, because
of stronger U.S. growth and a weaker Canadian dollar
that will boost trade revenues.
While British Columbia has grounds for hope,
Alberta can only hope.
That province’s Finance Minister Joe Ceci told a con-
ference call that he is heartened mostly by some fore-
casts that say there’s nowhere to go but up.
“In some respects, people think we might be at the
bottom of the trough and that things are going to be
building and getting better.”
Not everyone shares that outlook, with Standard &
Poor’s lowering Alberta’s credit rating to AA-plus from
AAA, partly because of the New Democratic Party gov-
ernment’s refusal to adjust its plans, which include C$34
billion in infrastructure spending over the next five years
— a commitment that has some critics accusing the
administration of living in an unreal world. l
l N A T U R A L G A S
BC looks to LNG as an economic driver
continued from page 1
ARCTIC FUNDING
PETROLEUM NEWS • WEEK OF JANUARY 3, 2016 15
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International agreements are considered
in salmon and migratory bird decisions.
Sources within the United States and
internationally contribute to warming and
pollutants affecting the Arctic.
Fran Ulmer, chair of the U.S. Arctic
Research Commission, said food and
nutrition security is highlighted in the
commission’s goals. Researchers want a
better understanding on how rapid
change in the Arctic is affecting natural
systems and people. That’s also increas-
ingly important for the Arctic Council,
the eight-country forum that promotes
cooperation and interaction between
Arctic countries, she said.
People who are causing change in the
Arctic from greenhouse gases or pollu-
tion, Behe said, must take responsibility
for actions affecting the Inuit.
“The people causing the pollution
have to have more responsibility and
have to be expected to change their
behavior, as opposed to expecting Inuit to
change theirs,” she said. l
continued from page 13
FOOD LINK
their elected representatives and state
law enforcement representatives.
AKLNG said it “has made plans to
remove structures from properties
determined to present such hazards.”
Relocation of the Kenai Spur
Highway was a concern expressed by
many at the scoping meeting and
AKLNG said while that was not part of
AKLNG it is a “connected action” sup-
porting the proposed Nikiski LNG
location. It said the Alaska Department
of Transportation and Public Facilities
is evaluating potential routes and pro-
viding AKLNG “with guidance and
comments to progress the routing, pub-
lic engagement, permitting and con-
struction of the relocation.”
Residents also expressed concern
about Nikiski area commercial and per-
sonal use fisheries, and about access to
the shore around the proposed facility.
AKLNG said access for the public
around the proposed marine terminal
and LNG carriers will be considered in
project planning “based on current reg-
ulatory requirements.”
LNG shipping from the North SlopeAKLNG also discussed suggestions
that LNG should be shipped from the
North Slope. That was not considered,
it said, “because such an alternative is
not operationally or economically
viable and, accordingly, would not
achieve the purpose and need to com-
mercialize North Slope natural gas.”
AKLNG said “extreme weather and ice
conditions in the Arctic, and shallow
nearshore waters, would require the
design and construction of unique spe-
cialized vessels and offshore facilities
to operate year round.” And the cost to
construct LNG and marine terminal
facilities on the North Slope “would be
significantly higher,” AKLNG said. l
continued from page 6
SCOPING ISSUESFINANCE & ECONOMYTrustee: Checks for train disaster victims
A C$460 million settlement
fund for victims of an oil train dis-
aster in Canada is fully funded,
keeping the process on track for the
first payments to victims early in
the new year.
Robert Keach, the court-
appointed bankruptcy trustee in
Portland, Maine, announced that
the settlement is being wired to a
wrongful-death trustee and to the Canadian monitor, Richter Group.
About $114 million will be used to settle wrongful-death claims, and Keach
says the wrongful-death trustee will begin distributing those checks “as soon as
possible.” Distribution of the remainder to other victims will proceed as well.
The disaster was caused when a runaway train with 72 oil tankers derailed in
July 2013, in Lac Megantic, Quebec, killing 47 people and causing raging fires.
—ASSOCIATED PRESS
Hamm says US quality reflected in priceA prominent Oklahoma oilman says the high quality of U.S.-produced oil is
reflected in its rising price on international markets.
U.S. oil is trading higher than the international standard for the first time since
2010 after President Barack Obama signed a measure lifting the nation’s four-
decade ban on oil exports, the Oklahoman reported Dec. 25
(http://bit.ly/1kjEGmT ).
Domestic oil gained 60 cents to $38.10 a barrel Dec. 24 while oil produced
elsewhere added 53 cents to close at $37.89.
Harold Hamm, CEO of Continental Resources, says it’s a
sign that the world sees domestic light, low-sulfur oil as
superior to international oil, much of which is denser and
higher in sulfur.
“Now the premium quality of U.S. light sweet crude is
being recognized globally and rewarded by the market,” said
Hamm, chairman of the Domestic Energy Producers
Alliance.
Most refineries in Europe and Asia are designed to handle
primarily light sweet crude like that produced in the United
States. Light sweet historically has traded at a premium to
heavy sour blends.
But a rapid increase in domestic production over the past decade helped flip
the prices, setting domestic prices below the international rate.
As pipeline and other infrastructure struggled to keep up with new domestic
production, the spread between U.S. and international prices widened to as much
as $30 a barrel.
New pipelines and the increased use of trains to transport oil alleviated the
biggest glut in Cushing, Oklahoma, where domestic oil is priced, but the spread
didn’t disappear.
The spread remained at about 10 percent until November, when it gradually
began to shrink. Some industry observers have attributed the decline to a growing
belief that the export ban would be lifted. Others attributed it to slowing domestic
production alongside an increase in production in Saudi Arabia and other parts of
the Middle East.
—ASSOCIATED PRESS
HAROLD HAMM
About $114 million will be used tosettle wrongful-death claims, andKeach says the wrongful-death
trustee will begin distributing thosechecks “as soon as possible.”
Distribution of the remainder toother victims will proceed as well.
16 PETROLEUM NEWS • WEEK OF JANUARY 3, 2016
Oil Patch Bits
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Fugro wins state of Alaska North Star awardAlaska Gov. Bill Walker has
announced Fugro as winner of the2015 Governor’s North Star awardfor international excellence in thecategory of scientific exchange. Thisimportant accolade follows theSpotlight on Arctic Technologyaward announced during the annu-al Arctic Technology Conference lastyear.
Fugro was honored for its devel-opment of an airborne sea-ice man-agement capability that enables icethickness mapping, characteriza-tion, and monitoring over large geographic areas. Utilizing a unique radar mapping systemknown as GeoSAR, the ice management capability is designed to reduce risk in Arctic opera-tions.
Fugro’s Alaska Division Manager Rada Khadjinova accepted the award, saying, “It is anhonor to be recognized by Gov. Walker for this important work. This is truly an Alaska-borndiscovery, made during our early work on the Alaska Statewide Digital Mapping Initiative, andnow being utilized in other Arctic regions.”
Originally designed as a regional-scale topographic mapping solution, Fugro deployed theGeoSAR system to Alaska in 2010 to help update the state’s baseline mapping data. It wasduring this project that Fugro realized the depths to which its GeoSAR system could penetratesnow and ice. Efforts to exploit this capability began in 2012 and have continued every sum-mer since then. In 2016, Fugro anticipates bringing the capability into commercial operations.
Crowley recognized for road safety efforts in Costa RicaCrowley Maritime Corp.’s liner and logistics
group in Central America recently receivednational road safety recognition from the CostaRica Ministry of Public Works for their focus onregional, national and local road safety. Duringan awards ceremony, which took place Dec. 10,in San José, Costa Rica, Crowley was recognizedfor their strategies to reduce accidents and fatal-ities while transporting cargo.
Bernard Paniagua, Health, Safety, Securityand Environment, regional road safety projectmanager, accepted the special recognition onbehalf of Crowley.
“This special recognition would not have been possible without the support of CentralAmerica senior management, especially Jorge Campabadal, southern zone vice president,who championed the initiative,” said Paniagua. “The land operations team’s focus onCrowley’s goal of zero — zero harm to people, property and the environment — also con-tributed heavily. Together, we are focusing on setting the regional road safety benchmarkwhen it comes to moving cargo.”
The national road safety recognitions are presented to companies which take a leader-ship position by formulating and implementing high level road safety initiatives. In 2015,Crowley met all the requirements of this program by analyzing drivers’ traffic infractionsand road safety risk factors; attending more than 25 road safety management trainingcourses; and developing and sharing road safety best practices, such as their expert drivercampaign which is focused on carriers, owners, coordinators, drivers and other industrystakeholders.
DET-TRONICSDowland-Bach Corp.Doyon AnvilDoyon AssociatedDoyon DrillingDoyon, LimitedDoyon Universal Servicesexp Energy ServicesF. Robert Bell and AssociatesFairweatherFlowline AlaskaFluorFoss MaritimeFugro
From left, Bernard Paniagua, CarlosSegnini Villalobos and JorgeCampabadal.
CO
URT
ESY
FUG
RO
CO
URT
ESY
CR
OW
LEY
me. That’s what I’m looking for is their
expertise and knowledge to let us know
if this is doable.
Petroleum News: Now looking aheadto the coming session, what are your pri-orities, first for the session and possiblyfor a special session afterward?
Giessel: The No. 1 priority in all of
the Senate’s minds is the budget and
how we are going to manage the $3 bil-
lion to $4 billion shortfall because of the
price of oil. That’s No. 1. Going along
with that, as the Senate Resources chair,
my focus has always been is how to
grow the pie — the pie being the devel-
opment of our resources which ultimate-
ly leads to revenue through production
taxes, royalty, property taxes and corpo-
rate income taxes.
My attention has been on the projects
going on the North Slope as well as
Cook Inlet, and their success. That leads
me to, of course, the oil tax credit, which
was the focus of a working group con-
vened this summer. We arrived at some
recommendations. They are high level
recommendations and yet in a sense they
are concrete as we look at the principles
demonstrated in those recommendations
then look at the governor’s budgets,
there will be some discussions.
The governor’s budget was pretty
vague in terms of the tax credit. There is
a single line on his fiscal 2017 spread-
sheet — line 33 — he showed $73.4 mil-
lion in oil and gas tax credits line. This
is the statutory required level for those
tax credits. Under that there is new legis-
lation placeholder $1.2 billion, so he has
verbalized his intent to start a revolving
loan program for the tax credits. I have
not seen legislation that backs up what I
see on the spread sheet. So truly any-
thing related to this is speculation.
The fact is the tax credits are signifi-
cantly supporting our oil and gas proj-
ects around the state, in Cook Inlet, the
North Slope as well as the frontier basin
in the Interior. While I agree the tax
credits need some adjustment, I’ll use
the phrase the governor has used last
year based on the Senate budget cuts, in
this case I think the governor has gone
too far.
So this will be a discussion point, cer-
tainly for me and for my committee and
I believe the Finance Committee as well.
About 50 percent of the members of my
working group were finance members
and that was done by design as this is a
finance topic.
Petroleum News: what was your
biggest take away from the workinggroup that you convened?
Giessel: Some of the main talking
points were major changes should be for-
ward, meaning none of them retroactive.
There are many projects under develop-
ment right now that to remove those tax
credits abruptly would cause those proj-
ects to falter. It would be false economy
to say we aren’t going to give those tax
credits because it costs too much. We’ve
already invested with them. We’ve part-
nered with them. To stop partnering with
them now would cause our previous
investment to be wasted. That would not
be prudent.
The thing that I think is lost on many
people is the fact that the tax credit is
importing capital into the state and that
comes from capital investors like Bank
of America and IMG.
Some people have asserted that these
big oil companies come in, take our
resources and leave the state. These tax
credits are importing new capital into
Alaska. This is one of the key reasons I
oppose setting up a revolving loan sys-
tem through AIDEA using state money.
That’s simply taking our own money and
re-running it, using it in-state and hoping
the project will pay back. It’s far more
reasonable and strategic to allow those
tax credits to be used as collateral by
these smaller companies who go outside
the state, get loans from the entities that
work internationally and carefully vet
these projects and bring that new capital
back into the state.
Another topic was the production tax
floor. In SB 21, the Legislature instituted
a minimum production tax, in other
words it can’t go below 4 percent. It has
come to our awareness that with some of
the taxpayer liability issues that it would
actually be possible to penetrate that 4
percent floor. Our recommendation is
that the 4 percent minimum tax be hard-
ened. In other words, not able to use net
operating loss credits to go below 4 per-
cent tax.
We looked at the frontier basin, the
basins throughout the Interior and the
Northwest Arctic area. One of the things
that came out was the frontier basin
credits were not all that helpful. They
take much longer for the companies to
get the credits. They are not as nimble.
So those companies are using Cook Inlet
credits in the frontier basin. So those
frontier basin credits are due to expire.
Our recommendation was let them
expire.
Our last recommendation is we hear a
lot from the tax credit opponents who
say we don’t really know what the com-
panies are investing. We are giving them
tax credits but we don’t know what they
are doing with it. That’s one of the rec-
ommendations we are suggesting: that
the companies consider allowing some
of their investment information to be
public. This would be a voluntary thing,
but let us know what are you investing
in Cook Inlet and the Cosmopolitan field
for example and how much in credits are
you getting to offset your investment.
Petroleum News: So in the end, doyou believe you’ve got to have somethingyou can afford but isn’t something youfeel is punitive?
Giessel: That is exactly the goal,
something that isn’t going to decimate
our heretofore partnership with the com-
panies. These are the smaller and mid-
size companies. They are not the big
three we talk about. You might remem-
ber former DNR commissioner spent a
lot of time traveling to the Lower 48 and
overseas talking to companies and tout-
ing the resources here.
They looked at what we were offering
in terms of tax credits, what it costs to
work up here, what the climate was like,
what the workforce was like, what the
infrastructure was like and they decided
to come here. For us to suddenly change
the tax credit, which helped make these
projects economic, will be hurtful to our
credibility going forward.
We’ve heard not only from the capital
investment companies but also the lead-
ers of the smaller companies how they
trusted the state when they said the tax
credits were available. Now for them to
suddenly disappear when these projects
are midway through their development,
I’m not sure we will be able to redeem
our credibility if we decimate this pro-
gram now.
Petroleum News: Back to the gas line,what would you like to see done duringsession and beyond now that the
TransCanada issue has been resolvedand the partners have committed to mov-ing forward?
Giessel: When we are talking about
priorities, the budget is No. 1 and tax
credits play a role in that of course. Also
on the plate for Senate Resources is the
AKLNG. We’ve been getting updates to
stay on top of what’s been happening.
We will likely open up the first commit-
tee hearings with an AKLNG update
again.
There are aspects of it that the state
hasn’t settled on our side of the table and
one of them is the PILT, the payment in
lieu of taxes. Commissioner (Randall)
Hoffbeck has been leading that process
and meeting with the municipal advisors
group. The most recent information that
I have is the state is proposing that the
state take 50 percent of the impact and
other taxes.
That was an interesting proposal that I
had not seen prior. It was my under-
standing that the payment in lieu of taxes
would go to the very municipalities that
were being impacted by the project. That
gives me some concern that the adminis-
tration is taking a new approach to this.
Petroleum News: What are yourthoughts on a prospective constitutionalamendment that some believe is neces-sary to lock in fiscal agreements andadvance the project?
Giessel: The constitutional amend-
ment question is an interesting one and
not without questions. It’s my under-
standing — and I’ve heard from folks on
both sides of this topic — the governor
and the attorney general are convinced
that it is required.
I know the governor is planning to
propose a constitutional amendment. In
PETROLEUM NEWS • WEEK OF JANUARY 3, 2016 17
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GIESSEL Q&A
see GIESSEL Q&A page 19
18 PETROLEUM NEWS • WEEK OF JANUARY 3, 2016
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