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  • pg 1
									                                                                                                                                               page Prudhoe study, negotiations on
                                                                                                                                               A5 access to Point Thomson model
Vol. 11, No. 5 • www.PetroleumNews.com                           A weekly oil & gas newspaper based in Anchorage, Alaska                          Week of January 29, 2006 • $1.50

                                                                              ●    ANCHORAGE
  January Mining News inside

                                                                              Shell declares hand
                                                                              Focused on offshore in Alaska, committed to using cutting-edge technology
                                                                                           By ALAN BAILEY                                           Ryan cited new technology and avail-
                                                                                            Petroleum News                                      able capacity in the trans-Alaska pipeline
                                                                                                                                                as key factors in Shell’s decision.

                                                                                      hen Shell announced its re-entry to                           “Shell’s re-entry focuses on the outer
                                                                                      the Alaska oil and gas industry                           continental shelf with 102 leases now in the
                                                                                      through its purchase of a swathe of                       Beaufort,” he said. “We’re looking to try
                                                                                      leases in the March 2005 Beaufort                         seismic this season (summer) and we’re
                                                                              Sea outer continental shelf lease sale, many                      hoping to drill our first well of this modern
                                                                              people speculated on the mega-major’s                             campaign no later than next year.”
                                                                              intentions. Those intentions became crystal ROB RYAN                  Shell also purchased 33 nearshore and
                                                                              clear on Jan. 20 when Rob Ryan, Shell                             onshore leases in Bristol Bay in the state of
                                                                              Exploration and Production’s vice president for cor-    Alaska’s fall 2005 lease sale Ryan said.
                                                                              porate affairs, addressed the Alaska Support Industry      But Shell is no newcomer to Alaska.
                                                                              Alliance’s Meet Alaska conference in Anchorage.            “Since the 1950s Shell has explored almost all of
                                                                                 “We’ve been watching for the right opportunity to    the major Alaska basins,” Ryan said.
                                                                              re-enter the Alaska scene, and we believe that time        Ryan explained that in the 1980s Shell was a part-
                                                                              has come,” Ryan told the conference attendees.                                             see SHELL page A11

                                                                               ●    NORTH SLOPE

                                                                              LoSal™ test at Endicott
                                                                              BP plans worldwide pilot for enhanced waterflood recovery on North Slope
                                                                                               By KRISTEN NELSON
                                                                                                                                         “It’s really fun to be in a place where
                                                                                                 Petroleum News
                                                                                                                                         we’re doing things that are going to be

  This month's North of 60 Mining News contains stories on everything               new enhanced oil recovery technique using              game changes for Alaska, or game
  from Barrick's Alaska acquisitions to the latest from the Pogo mine,              water could be tested at Endicott on Alaska’s
  which is headed for first-quarter startup, and Kutcho Creek's promis-
                                                                                                                                        changes for BP or maybe game changes
  ing copper target.                                                                North Slope.                                        for the industry.” —John Denis, BP Exploration
                                                                                       BP Exploration (Alaska) is doing prelimi-
                                                                                                                                                (Alaska) ACT subsurface team leader
                                                                              nary engineering for a full field test of its propri-
  Heinze predicts January ‘07 for                                             etary low-salinity waterflood, LoSal™, and hopes           Waterflood, like gas flood, is one of the stan-
  Alaska gas pipeline contract vote;                                          to sanction the project this year.                      dard techniques industry uses, Dennis said. Gas
                                                                                 Steve Marshall, president of BP Exploration
  Canada elects new prime minister                                            (Alaska), gave an overview of the project at the
                                                                                                                                      flooding is followed by miscible injectant, an EOR
                                                                                                                                      technique, and LoSal is “almost like the water
    WHAT WILL THE NEXT ALASKA                                                 Alaska Support Industry Alliance “Meet Alaska”          equivalent” of miscible injectant, with low salinity
  LEGISLATURE be doing in January                                             conference Jan. 20.                                     water following standard waterflood. Both misci-
  2007?                                                                          Petroleum News sat down Jan. 25 with BP’s            ble injectant and LoSal™ are techniques stimulat-
     If Harold Heinze is right, they’ll be                                    John Denis and Kirk Johnson to learn more about         ing oil movement in the subsurface and both are
  voting on a gas pipeline contract.                                          the project. Denis is BP’s Alaska consolidated          EOR techniques, he said.
     Heinze, chief executive officer of the                                   team subsurface team leader; Johnson is the
  Alaska Natural Gas Development                                              Endicott LoSal™ project manager.                                                            see TEST page A10
  Authority, told his board at a Jan. 23
  meeting that he now believes it could be                                    ●    ANCHORAGE
  2007 before the Legislature votes a gas
  pipeline contract up or down.
     Earlier this January the Murkowski
  administration announced it would be introducing legislation to
                                                                              Alaska target five years
  change the state’s oil production tax system (see story in Jan. 22          Pioneer’s CEO says takes 5 years to bring a development online in Alaska
  issue of Petroleum News).
                                                                                          By KAY CASHMAN                                    Slope Oooguruk discovery.
                                                   see INSIDER page A12                     Petroleum News                                     Sheffield said the five-year time-
                                                                                                                                            frame is for near-infrastructure discov-

                                                                                    cott Sheffield, the chairman and                        eries    such     as     Oooguruk      and
 B R E A K I N G                                     N E W S                        CEO      of    Pioneer     Natural                      Cosmopolitan, which is in the Cook
                                                                                    Resources, gave a speech at the                         Inlet basin. In the more remote National
 A4 Global competition tough: Van Meurs says Alaska partici-                        Jan. 20 Meet Alaska conference in                       Petroleum Reserve-Alaska where
 pation in gas line will reduce investment required, protect state revenues   Anchorage, re-confirming the compa-                           Pioneer’s Alaska subsidiary is a minori-
                                                                              ny’s plans for its Alaska oil and gas                         ty partner with operator ConocoPhillips,
                                                                              assets. In his presentation Sheffield SCOTT SHEFFIELD         he said it will take longer.
 A6 Woodside goes offshore: Plans California LNG system                       revealed an interesting number.                                  “We are hoping we can bring most of
 offshore, hoping to sidestep terrorism, environmental concerns                  He said his company is targeting a maximum our … near-infrastructure projects online in a
                                                                              of five years as the length of time it expects it to five year time period or less … except NPR-A,”
 A8 Canadians bet on diverse supply mix: Canadian Gas                         take to bring Alaska projects online — an aggres- Sheffield told attendees of the annual energy
 Association report sees growing demand, calls for more diverse supply        sive number by North Slope standards but one conference.
                                                                              Pioneer is likely to meet with its proposed North                                   see PIONEER page A12
A2                                                                                                  PETROLEUM NEWS      •   WEEK OF JANUARY 29, 2006

contents                                                 Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska

     ON THE A COVER                                                     FINANCE & ECONOMY
     Shell declares hand                                                A6 Oil could top $100 if U.N. sanctions Iran
     Focused on offshore in Alaska, committed                                Experts: oil prices could rise producing economic
     to using cutting-edge technology                                        slowdown if Iran cuts oil exports in response
                                                                             to action against nuclear program
     LoSal™ test at Endicott
                                                                        B3   Husky boosts Newfoundland offshore hopes with
     BP plans worldwide pilot for enhanced                                   $C350M spending pledge
     waterflood recovery on North Slope

     Alaska target five years                                           GOVERNMENT
     Pioneer’s CEO says takes 5 years to bring a                        A3   BLM proposes to update NEPA manual
     development online in Alaska                                       A5 AOGCC begins Prudhoe reservoir study
                                                                             Six-month modeling effort under way to study Prudhoe
     OIL PATCH INSIDER                                                       gas offtake; negotiations with Exxon for
     A1    Heinze predicts January ‘07 for Alaska                            access to Thomson model
           gas pipeline contract vote                                   A5   Bill would change commissioner qualifications
     A12 Canada elects new prime minister                               B2   Beluga whale numbers stagnant
                                                                        B3   DGGS releases new geophysical data, maps
     ON THE B COVER                                                     B3   McCain: U.S. can’t depend on ‘wackos’
     Busy times for Conoco
                                                                        B8   Nukes, natural gas, renewables in, coal out
     Focused on offshore in Alaska, committed
     to using cutting-edge technology                                        Ontario lays out roadmap for energy future;
                                                                             emphasis on salvaging nuclear power;
                                                                             natural gas figures large despite uncertainties
                            BP to invest $14 billion in
                            Alaska over next 10 years
                                                                        A3   Agip offices in Nigeria robbed; nine are killed
                            Marshall: ’05 turning point with pipeline
                            refurbishing, Prudhoe wells, tanker fleet   A3   Norway, Russia discuss cooperating on oil
                                                                             and gas development in Barents
     Invaders on the horizon
                                                                        A7   Chavez: Venezuela will get $1.5B more
     Canadian-owned companies shed foreign
     production, brace for possible takeovers                                Additional income will come from return of 32
                                                                             privately operated fields to state control;
                                                                             government has also audited companies
     State wants stake in oil pipeline
     Conference abstracts due Feb. 7                                    LAND & LEASING
                                                                        B4   Sale dates set for Cook Inlet, Foothills
     A3 CORRECTION                                                      NATURAL GAS
           State did not convert any Pioneer                            A4 Van Meurs: Global gas competition tough
           leases to Net Profit Share leases                                 Consultant says Alaska participation in gas
     A7 Barge spill highlights hurricane hazards                             pipeline will reduce investment required,
                                                                             keep total revenues to state the same
           November Gulf spill due to submerged drilling platform;
           owners didn’t have lighted buoy at wreck;
                                                                        A6   Woodside plans offshore
          167 storm-damaged platforms                                   A8   Gas industry bets on diverse supply mix

     B4 Three-way race shapes up in oil sands                           A8   Canada topples gas export volumes

           United States, China, France expected to take major          B2   Conoco pans Dems’ plan to tax gas
           stakes in Athabasca region; Japan interested
           in more non-Middle East oil                                  PIPELINES & DOWNSTREAM
     B4    Paramount enters sands with 2 projects                       B6 Web posting calls for attacks on pipeline
     B5    MMS: Production off to next storm season                          Site claiming al-Qaida affiliation; nonprofit
                                                                             translated information in December;
     B5    CN repurchases short oil sands rail lines                         security agencies, Alyeska, aware of posting
PETROLEUM NEWS          •   WEEK OF JANUARY 29, 2006                                                                                                                                    A3

●      P O R T      N A R C O U R T ,        N I G E R I A

                                                                                              WASHINGTON, D.C.
Agip offices in Nigeria                                                                       BLM proposes to update NEPA manual
                                                                                                 On Jan. 25 the Bureau of Land Management placed in the Federal Register an

robbed; nine are killed                                                                       announcement about proposed changes to the section of the U.S. Department of the
                                                                                              Interior’s manual that guides BLM’s implementation of the National Environmental
                                                                                              Policy Act.
             By ONYEMA GODWIN                    the base affected by the incident and the       The proposed changes would update BLM’s NEPA procedures to include general
             Associated Press Writer             situation is currently under control.”       requirements for consultation and coordination; public involvement; consensus-based
                                                    The company said there were others        decision making; and adaptive management. There is a new subpart in the manual that

      amouflage-clad attackers raided            injured, but it was unclear how many.        requires proposals to be in conformance with existing land use plans. Another new
      an Italian oil company’s riverside         Italy said none of its citizens were         subpart incorporates current guidance for the use of previous NEPA analysis. The revi-
      offices in Nigeria, sparking a gun-        among the dead.                              sions include new proposed BLM categorical exclusions.
      fight that left nine people dead              A rash of attacks and kidnappings in         BLM said “the proposed revisions are necessary to update the procedures used to
before assailants fled by speedboat into         recent weeks by militia groups demand-       determine what level of NEPA compliance is appropriate for various types of actions
the oil-rich delta’s waterways, police           ing the release from prison of local lead-   taken in managing public lands,” and that periodically updating the agency’s manual
said.                                            ers have cut Nigeria’s daily exports of      “allows for increased efficiency in managing the NEPA process.”
   The Jan. 24 attack on Agip’s offices          2.5 million by nearly 10 percent and            Comments on the proposed changes must be mailed by the close of the public com-
in the southern oil center of Port               claimed at least 23 lives.                   ment period on Feb. 24. Details of the changes and information about submitting com-
Harcourt was the latest in a recent rash            But Adetuyi said there was no imme-       ments can be found in the Federal Register. BLM expects to issue a final version of
of violence across the restive Niger             diate evidence that the Jan. 23 attack on    the changes in the spring of 2006. BLM manages 261 million acres of surface land
Delta that has killed nearly two dozen           Agip was linked to that.                     and 700 million acres of subsurface mineral estate, mostly in the 12 western states.
people, cut petroleum production in                 “I can’t confirm whether there is any                                                                             —ALAN BAILEY
Africa’s largest oil exporter and helped         link with militiamen,” Adetuyi said.
push up prices of crude worldwide.
   The attackers, wearing army-style             Much of Nigeria in poverty                   BARENTS SEA
uniforms, cruised up behind Agip’s                  Despite the massive amounts of
riverbank facility in their boat, forced
their way into the compound and stole
                                                 crude pumped from southern Nigeria,
                                                 much of the region remains in abject
                                                                                              Norway, Russia discuss cooperating
about US$28,000 in cash before the
shoot-out with security forces, said
                                                 poverty and activist groups have been        on oil and gas development in Barents
                                                 agitating for President Olusegun
Samuel Adetuyi, the head of the police                                                            Norway’s Oil and Energy Minister Odd Roger Enoksen was visiting Moscow Jan.
                                                 Obasanjo’s federal government to pro-
in the city.                                                                                  24 to 26 to meet Gazprom Chief Executive Alexei Miller, Russian Energy and
                                                 vide them with a greater share of state
   Seven uniformed police, a plain-                                                           Industry Energy Minister Viktor Khristenko and several energy and natural resource
                                                 oil revenues.
clothed security official and one compa-                                                      politicians, according to a Dow Jones report. Norway and Russia have signed memo-
                                                    At least 14 other people have been
ny employee died in the gunfight that                                                         randums of understanding to study cooperation in petroleum development in the
                                                 killed in oil-platform attacks and other
ended when the attackers fled in their                                                        Barents Sea, in which the two countries share a disputed border. The Barents Sea is
                                                 violence since earlier this year.
speedboat back into the region’s                                                              estimated to hold around 40 billion barrels of oil and gas.
                                                    Meanwhile, militants claiming to
labyrinth of creeks and swamps, he said.                                                          Russia wants to use Norwegian offshore technology and Norway wants involve-
                                                 hold four foreign hostages elsewhere in
                                                                                              ment in developing Russia’s huge petroleum reserves.
                                                 the Niger Delta said the oil workers are
Eni has temporarily evacuated staff              in decent health but had been moved
                                                                                                  Gazprom has short listed Norwegian companies Statoil ASA and Norsk Hydro
                                                                                              ASA for participation in developing the 3.2 trillion cubic meter Shtokman gas field in
   Agip’s parent company Eni SpA said            deeper into the region of swamps and
                                                                                              the Barents Sea. Chevron, ConocoPhillips and Total SA are also short listed. Gazprom
in Italy that it “has temporarily evacuat-       creeks after the government failed to
                                                                                              has said that it plans to decide on the final stakeholders in the project by March. The
ed staff and contractors from the area of        meet the captors’ demands. .●
                                                                                              Norwegian government owns major shares in the two Norwegian companies.
                                                                                                                                                                      —ALAN BAILEY

    State did not convert any Pioneer
    leases to Net Profit Share leases
        In the Dec. 25 and Jan. 22 editions of Petroleum News we reported that the com-
    missioner of the Alaska Department of Natural Resources had signed a preliminary
    findings and determination document on a royalty modification for Pioneer Natural
    Resources that essentially approved Pioneer’s request. That decision started a 30-day
    public hearing process.
        We reported in both stories (the one on Jan. 22 was about Kerr-McGee’s royalty
    application but referred to Pioneer’s preliminary findings document) that the com-
    missioner decided to drop royalties from 12. 5 and 16.6667 percent to 5 percent on all
    of the 18 Oooguruk leases and that four of those were 30 percent Net Profit Share leas-
        We also reported that the commissioner decided to convert five other leases to NPS
    leases, which was incorrect. He did not convert any of the leases to NPS leases.
        The text in both stories on Petroleum News’ Web site will be changed to reflect the
    correct information.
A4                                                                                                                                                                       PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006

●      A N C H O R A G E

Van Meurs: Global gas competition tough
Consultant says Alaska participation in gas pipeline will reduce investment required, keep total revenues to state the same
                By KRISTEN NELSON                        Alaska’s gas                                                               You can’t base the pipeline on “fanta-

                                                                                                                  JUDY PATRICK
                   Petroleum News                        project weak                                                            sy prices that may occur,” he said. The           The stick
                                                                                                                                 state has compared this project to other

     he administration of Alaska Gov.                        Van Meurs said                                                      projects at a “stressed price” of $3.50 in           If the Murkowski administration
     Frank Murkowski has been trying to                  Alaska’s gas project                                                    Chicago, and at that price the project            is offering the North Slope produc-
     move a pipeline gas project forward                 is weak “compared                                                       makes a 15 percent rate of return.                ers a carrot to develop the slope’s
     through negotiations for a fiscal cer-              to other gas projects                                                      Van Meurs said he researched more              natural gas through state participa-
tainty contract with the North Slope pro-                in the world. It has a                                                  than 50 projects worldwide and “could             tion in a gas pipeline, an Anchorage
ducers.                                                  low rate of return; it                                                  only find one that made a lower rate of           lawmaker is offering a stick.
   In the 1990s Alaska tried to move a                   has a low relative                                                      return number at stressed price,” a field in         Rep. Eric Croft, D-Anchorage,
                                                                                There are stranded
liquefied natural gas project forward with               wellhead netback gas reserves in the                                    Norway with special financing.                    the sponsor of House Bill 223, intro-
the original Stranded Gas Development                    value; it has a long world equal to 150                                    The Alaska project is weak “from the           duced last year, told the House Ways
Act. This LNG proposal was the project                   lead time; it has high North Slope proj-                                rate of return point of view,” he said, and       and Means Committee Jan. 13 that
                                                                                ects, all seeking
Yukon Pacific had been promoting, con-                   risks, in particularly markets. Each year                               that “justifies that we consider this             Alaska falls in line behind foreign
sultant Pedro van Meurs said Jan. 20. It                 precisely because there is room for                                     stranded gas and that we have stranded            gas projects for company investment
would have moved Alaska North Slope                      the project is so one stranded gas                                      gas negotiations” on the project.                 because the companies that own the
                                                                                project in the world
gas to the Far East as LNG.                              large.”                market. “So you can                                                                                North Slope natural gas, BP,
   That project didn’t work out, he told                     At a Chicago gas imagine that the                                   Strengthening the profitability                   ConocoPhillips and ExxonMobil,
the Alaska Support Industry Alliance                     price of $5.50 per competition is                                                                                         also have gas in other countries.
                                                                                fierce.” —Pedro van                                 Van Meurs said profitability for an
“Meet Alaska” conference, “because of                    million Btu, he said, Meurs                                                                                                  If a company has reserves else-
                                                                                                                                 economist is the ratio between profits and
strong competition from other projects in                the project makes a                                                                                                       where in the world and there is pres-
                                                                                                                                 investment. To improve profitability you
the East Asian market.”                                  20 percent rate of                                                                                                        sure to develop those reserves, if
                                                                                                                                 can increase profits or reduce the required
   Van Meurs, the State of Alaska’s chief                return. The future price of gas may aver-                                                                                 Indonesia and Russia and the Middle
consultant in the gas fiscal negotiations,               age $5 per million Btu over the next cou-                                                                                 East are better at pressuring for pro-
                                                                                                                                    The State of Alaska could improve
said there are stranded gas reserves in the              ple of decades, but van Meurs said he had                                                                                 duction, then Alaska’s gas reserves
                                                                                                                                 profits by eliminating its take from the
world equal to 150 North Slope projects,                 been in the energy business long enough                                                                                   will stay at the end of the line, he
                                                                                                                                 project. Van Meurs said he looked at a
all seeking markets. Each year there is                  “to know what whatever goes up comes                                                                                      said.
                                                                                                                                 case where the state set all of its taxes for
room for one stranded gas project in the                 down. After every boom, it’s a bust. And                                                                                     Croft told the committee that the
                                                                                                                                 the project at zero: no royalty, no produc-
world market.                                            consequently the most dangerous thing                                                                                     fundamental idea of a state oil and
                                                                                                                                 tion taxes, no property taxes and no cor-
   “So you can imagine that the competi-                 today is that we are now in a boom and                                                                                    gas lease is that the state puts itself
                                                                                                                                 porate income tax.
tion is fierce,” he said.                                we don’t know when the bust will come.”                                                                                   in the same place as the companies.
                                                                                                                                    At a stressed gas price of $3.50 that
                                                                                                                                                                                   The equation breaks down, he said,
                                                                                                                                 improved the project’s rate of return by
                                                                                                                                                                                   when our interests start to diverge
                                                                                                                                 about 2.5 percent.
                                                                                                                                                                                   from those of the companies.
                                                                                                                                    “That’s not much: there’s not much
                                                                                                                                                                                      Reserves are important to a com-
                                                                                                                                 Alaska can do about this project,” he said.
                                                                                                                                                                                   pany’s stock price and as companies
                                                                                                                                    That’s because the project is so large
                                                                                                                                                                                   combine and get larger and larger
                                                                                                                                 and the lead time is so long — and then
                                                                                                                                                                                   there is pressure for more reserves:
                                                                                                                                 for every dollar Alaska takes off, the fed-
                                                                                                                                                                                   “I don’t want to be Exxon’s
                                                                                                                                 eral government gets 35 cents. “So taking
                                                                                                                                                                                   reserves,” he said.
                                                                                                                                 money off is an inefficient way of pro-
                                                                                                                                                                                      Croft said his bill, which propos-
                                                                                                                                 moting this project.”
                                                                                                                                                                                   es a tax on large North Slope gas
                                                                                                                                 Reducing the investment                           accumulations, ensures that Alaska
                                                                                                                                                                                   won’t be a warehouse for the com-
                                                                                                                                    But, he said, with 20 percent participa-       panies’ reserves.
                                                                                                                                 tion by the state, including taking gas in
                                                             www.PetroleumNews.com                                               kind from royalties and taxes, the rate of
                                                                                                                                 return improves about 2 percent. “Almost
                                                                        ADDRESS                                                  the same improvement in profitability for           What the state has proposed, he said, is
    Dan Wilcox                        PUBLISHER & CEO
                                                                        P.O. Box 231651                                                                                          to take its royalty and tax in-kind, make
    Mary Lasley                       CHIEF FINANCIAL OFFICER           Anchorage, AK 99523-1651
                                                                                                                                 this project if you participate for 20 per-
                                                                                                                                 cent or if you take all the state’s revenues    its own shipping commitment, market its
    Kay Cashman                       EXECUTIVE EDITOR                                                                                                                           own gas and participate for 20 percent of
                                                                        EDITORIAL                                                out,” van Meurs said.
    Kristen Nelson                    EDITOR-IN-CHIEF                   Anchorage
                                                                                                                                    Alaska, he said, loses nothing: “The         the gas pipeline.
                                                                        907.522.9469                                                                                                 “And this is such a significant boost to
    Laura Erickson                    ASSOCIATE PUBLISHER                                                                        total revenues to Alaska are the same as
                                                                        Editorial Email                                          under the status quo; in fact, they are         the economics of this project, and lowers
    Susan Crane                       ADVERTISING DIRECTOR
                                                                        Anchorage                                                slightly better.”                               the fiscal risk of this project so signifi-
    Amy Spittler                      SPECIAL PUBLICATIONS EDITOR       publisher@petroleumnews.com                                                                              cantly that we have dramatically
                                                                        Canada                                                      Van Meurs said that in his model he
    Gary Park                         CONTRIBUTING WRITER (CANADA)
                                                                                                                                 had deducted what the state had to invest       improved the possibility that this project
    Ray Tyson                         CONTRIBUTING WRITER                                                                        in the line as well as $700 million (5.5        will actually come about, and not be nib-
                                                                        BOOKKEEPING & CIRCULATION                                                                                bled to death by other more competitive
    Steve Sutherlin                   ASSOCIATE EDITOR
                                                                                                                                 cents per million Btu) for extra gas mar-
                                                                                                                                 keting costs.                                   projects over the next 10 years.” ●
    Alan Bailey                       STAFF WRITER                      Circulation Email
    John Lasley                       STAFF WRITER

    Allen Baker                       CONTRIBUTING WRITER               ADVERTISING
    Rose Ragsdale                     CONTRIBUTING WRITER               Advertising Email
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    Paula Easley                      DIRECTORY PROFILES/SPOTLIGHTS     CLASSIFIEDS
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            Petroleum News (ISSN 1544-3612) • Vol. 11, No. 5 • Week of January 29, 2006
                    Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518
                                    (Please mail ALL correspondence to:
                               P.O. Box 231651, Anchorage, AK 99523-1651)
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PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006                                                                                                                                                   A5

●    N O R T H       S L O P E

AOGCC begins Prudhoe reservoir study
Six-month modeling effort under way to study Prudhoe gas off take; negotiations with Exxon for access to Thomson model
            By KRISTEN NELSON
                                                                                                                                                             Foerster told the House Special
               Petroleum News                                   Bill would change commissioner qualifications                                               Committee on Oil and Gas Jan. 24

        laska Oil and Gas Conservation                             A bill to change qualifications for the public member of the Alaska Oil and Gas              that the commission is in
        Commission Commissioner Cathy                           Conservation Commission, introduced last year by Rep. Vic Kohring, R-Wasilla,                  discussions with the Point
        Foerster told the Alaska Natural                        chair of the House Special Committee on Oil and Gas, has been revised and
                                                                passed out of Oil and Gas.
                                                                                                                                                             Thomson owners for a reservoir
        Gas Development Authority board
                                                                   The original bill required that the public                                               model study similar to that being
Jan. 23 that typically you produce all of
the oil from a reservoir before you pro-                        member should be a licensed, experienced attor- The original bill required                   done for Prudhoe, although she
duce the gas and replace the voidage with                       ney or have a bachelor’s degree in business man- that the public member                         said the issues with Point
water. The commission is just beginning a                       agement and not less than two years of business        should be a licensed,                 Thomson will be different than
six-month study using the Prudhoe Bay                           management experience or not less than six years experienced attorney or                            those at Prudhoe.
reservoir        model                                          of experience in business management.                have bachelor’s degree in
                                               JUDY PATRICK

developed by the                                                   The committee substitute changes the require-                                            build its own model, and was able to reach
                                                                ment for the public member to “training or expe-
                                                                                                                      business management
owners, based on an                                                                                                                                         an agreement to use the operator’s model.
                                                                rience that gives the person a fundamental under-     and not less than two
agreement the com-
mission        reached                                          standing of the oil and gas industry in the state.”      years of business                  Point Thomson
with operator BP                                                   AOGCC Commissioner Dan Seamount, who management experience                               negotiations under way
and the other owners                                            holds the geology seat on the commission, told or not less than six years
                                                                                                                                                               Foerster told the House Special
at the field, to deter-                                         the committee that the commission supports the of experience in business
                                                                                                                                                            Committee on Oil and Gas Jan. 24 that
mine what the maxi-                                             bill, but said the commission doesn’t feel there’s
                                                                                                                           management.                      the commission is in discussions with the
mum gas production                                              been a problem with public members. Since oil
                        CATHY FOERSTER                                                                                                                      Point Thomson owners for a reservoir
could       be    from                                          and gas operations are becoming much more
                                                                                                                                                            model study similar to that being done for
Prudhoe before the end of oil production                        complex, Seamount said it is good insurance that all members have good knowl-
                                                                                                                                                            Prudhoe, although she said the issues
to maximize total hydrocarbon produc-                           edge of the industry.
                                                                                                                                                            with Point Thomson will be different than
tion.                                                              Asked by Rep. Ralph Samuels, R-Anchorage, if “fundamental understanding”
                                                                                                                                                            those at Prudhoe.
    In the 1970s, before production began,                      has a definition, Seamount said the wording of the committee substitute leaves
                                                                                                                                                               She said what the commission wants is
the commission set a maximum daily                              evaluation of fundamental understanding up to the governor and the Legislature.
                                                                                                                                                            the same thing: the ability to lift up the
withdrawal rate of 2.7 billion cubic feet;                         Commissioner Cathy Foerster, who holds the petroleum engineer seat on the
                                                                                                                                                            hood and take the engine apart on the
the current plan the North Slope produc-                        commission, said the commission didn’t want to see the Legislature limit good
                                                                                                                                                            reservoir model so it knows what’s in the
ers are discussing calls for 4.5 bcf a day                      applicants by requiring things such as college degrees.
                                                                                                                                                            model assumptions. Commission staff
of gas offtake.                                                    John Norman, an attorney, currently holds the public seat on the commission
                                                                                                                                                            and a reservoir modeling engineer con-
    At Prudhoe, where wells were drilled                        and is the commission chairman.
                                                                                                                                                            sultant will then be passengers in the car
to produce oil, the field eventually began                         Rep. Norm Rokeberg, R-Anchorage, said the seat should not be a political
                                                                                                                                                            and get to see what the operator is doing
to also produce gas, so in addition to                          award. A standard of knowledge has been missing in the past, he said.
                                                                                                                                                            to model when you start gas offtake, how
injecting water into the field, gas is also                        The bill, House Bill 300, was passed out of Oil and Gas Jan. 24 and goes next
                                                                                                                                                            much offtake there is and what the miti-
injected back into the field. This, Foerster                    to House Resources.
                                                                                                                                                            gation measures are. The Prudhoe agree-
said, maintains reservoir pressure, keep-                                                                                          —KRISTEN NELSON
                                                                                                                                                            ment gives commission staff and consult-
ing the reservoir energy high enough that                                                                                                                   ant access to computers and allows them
there is enough pressure to push oil out of                                                                                                                 six months to get familiar with all details
the field.                                                       A third thing happens with early gas        maximum recovery of hydrocarbons,
                                                                                                                                                            of the Prudhoe reservoir as modeled, and
    The oil sits in the reservoir in the                      production: As the gas is produced, the        there is a balance that needs to be consid-
                                                                                                                                                            to see how the variables affect each other.
spaces between sand grains, she said, and                     pressure drops, and with lower pressure,       ered, Foerster said.
                                                                                                                                                               Foerster told the committee the com-
pressure allows it to move to wells and                       the oil becomes thicker and harder to pro-        The operators are already implement-
                                                                                                                                                            mission is confident it can get what it
rise to the surface. If the gas were pro-                     duce, Foerster said.                           ing mitigating measures that will mini-
                                                                                                                                                            needs in six months, but if more time is
duced now, a lot of pressure in the reser-                                                                   mize the oil loss once gas production
                                                                                                                                                            needed, the agreement allows the com-
voir would go a way, and eventually there                                                                    begins. Water is being injected into the
                                                              Oil produced first                                                                            mission to request a reasonable exten-
would be no pressure left. Think of an                                                                       gas cap, which will help ensure that the oil
aerosol can, she said: When the pressure                         In an ideal world the oil would be pro-     does not move up into what is now a dry
                                                                                                                                                               The commission is still in the early
in the can goes to zero, you can’t get the                    duced first, but on the North Slope there      gas cap, and will keep pressure up, she
                                                                                                                                                            stages of the process of working out a
remaining contents out.                                       are other considerations, she said. The        said.
                                                                                                                                                            Point Thomson agreement with
    The second thing that would happen                        economic life of the facilities is a factor.      The six-month reservoir study starts
                                                                                                                                                            ExxonMobil, the operator of that field.
with gas production now is that the oil                       You might get all the oil and then there       today, Foerster told the board Jan. 23. This
                                                                                                                                                            She said the commission expects an
would move up into the dry rock in the                        might not be enough economic justifica-        process was negotiated with BP,
                                                                                                                                                            agreement this summer. While there is no
reservoir — the space now occupied by                         tion to replace facilities needed for gas,     ConocoPhillips and ExxonMobil. The
                                                                                                                                                            production from Point Thomson,
the gas cap. Oil that had been in rock                        Foerster said.                                 commission got money from the
                                                                                                                                                            ExxonMobil has been looking at the
already wet from oil moves to dry rock,                          The rate of throughput on the trans-        Legislature last year to do its own reser-
                                                                                                                                                            reservoir for a long time she said, and has
and oil will cling to the rock, reducing the                  Alaska oil pipeline is also a factor, and      voir modeling, she said, although the
                                                                                                                                                            updated the model with results from seis-
amount of oil that can be produced.                           while the commission’s role is to ensure       commission hoped it wouldn’t have to
                                                                                                                                                            mic. ●
A6                                                                                                                                               PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006

●     V I E N N A ,         A U S T R I A

Oil could top $100 if U.N. sanctions Iran
Experts: oil prices could rise producing economic slowdown if Iran cuts oil exports in response to action against nuclear program
       By BRAD FOSS & GEORGE JAHN                 ity worldwide. It also controls the strategic           For weeks, Iran’s state television has        don’t know which side is going to blink
            Associated Press Writers              Strait of Hormuz, a critical shipping lane in       sought to show a people united behind the         first,” said Leonard Spector, deputy director
                                                  the Middle East.                                    leadership, showing passers-by on Tehran          of the Monterey Institute of International

       surge in oil prices in mid-January to          “Even if Iran pulled a small amount of          city streets expressing their support for the     Studies’ Center for Nonproliferation
       almost $70 a barrel on concerns            its oil off the market, say it pulled a half mil-   country’s strivings for nuclear independ-         Studies.
       about the restart of Iran’s nuclear pro-   lion barrels a day, I could see oil prices lit-     ence.                                                 It’s also not clear the United States could
       gram only hints at what may lie            erally jumping over the $100 per barrel                 Still, Alani of the Gulf Research Center      win a referral on sanctions at the Security
ahead.                                            mark,” said James Bartis, a senior                  questioned “whether the ordinary citizens         Council, where members Russia and China
   Prices could soar past $100 a barrel,          researcher at Rand Corp.                            will be willing to risk sanctions and endure      are Iran’s main allies. Both have strong eco-
experts say, if the U.N. Security Council             But other oil analysts say prices would         a lot of suffering like the Iraqis suffered for   nomic and strategic ties to Iran, with China
authorizes trade sanctions against the            likely not climb much higher than $75 a             13 years” under U.N. sanctions.                   a large oil consumer and drilling partner and
Middle Eastern nation, which the West             barrel before strategic reserves would be                                                             Russia a key supplier of arms and nuclear
accuses of trying to make nuclear bombs,          released and demand would begin to taper            Consuming nations have reserves                   technology and services for what Tehran
and Iran curbs oil exports in retaliation. A      off as economic activity slowed around the              Oil consuming nations, meanwhile, have        says is a peaceful program. Additionally, oil-
sharp global economic slowdown could fol-         world.                                              at least one ace up their sleeves — crude         rich Russia would benefit from higher prices
low.                                                  So who would be hurt more? The United           reserves. The United States and other mem-        and increased demand for its crude if Iran’s
   That’s the dilemma the United States           States and other nations say it would be            bers of the International Energy Agency           oil were off the market.
and European nations face as they decide          Tehran and argue against succumbing to              have a combined 1.48 billion barrels of oil           Influential India, which imports 75 per-
whether to act. But Iran would also pay a         economic blackmail in any case. “We can-            in their emergency stocks. That’s equivalent      cent of the crude it consumes, some from
hefty price if the petro-dollars that now rep-    not be intimidated by economic threats              to about 600 days of Iran’s net oil exports of    Iran, is a wild card in the referral struggle.
resent 80 percent of export revenues are          from their side,” Sen. Trent Lott, a                2.4 million barrels per day.                          It joined the U.S., Britain, France and
reduced, potentially stirring civil unrest in a   Mississippi Republican told CNN.                        OPEC might be able to add 1.5 million         Germany in September to back an IAEA
nation with a 14 percent unemployment                                                                 barrels per day to world production, mostly       resolution that set the stage for reporting Iran
rate.                                             DOE: exports finance                                from Saudi Arabia. And oil analyst Fadel          for violating the Nuclear Nonproliferation
   “They would shoot themselves in the            half of Iranian budget                              Gheit at Oppenheimer & Co. in New York            Treaty. But pressure is building on the Indian
foot,” said Mustafa Alani, director of               The U.S. Department of Energy esti-              said Russia might be able to crank up             government not to vote against Iran when
national security and terrorism studies at the    mates that oil exports finance about half of        exports by about 500,000 barrels once its         the 35-nation IAEA board meets Feb. 2 to
Dubai-based Gulf Research Center. “It’s           the Iranian government’s budget. And while          domestic home-heating demand eases.               consider actual referral.
one thing to test the market psychology, it’s     high oil prices have boosted the annual                 Gregory L. Schulte, chief U.S. delegate           “India must not allow itself to be dra-
another to take the actual step and stop oil      growth rate to about 5 percent, Iran has            to the International Atomic Energy Agency,        gooned into joining the Washington-led
exports.”                                         never really recovered from its 1980-1988           accused Iran the week of Jan. 16 of deceiv-       nuclear lynch mob against Iran,” The Hindu,
                                                  war against Iraq and trade restrictions on          ing the world about its atomic program,           one of India’s most influential newspapers,
Iran exports 2.5 million bpd                                                                          declaring that moves to haul it before the        cautioned Jan. 19. “Aside from the lack of
                                                  sensitive     technologies.     The    Iran
   Iran, the second-largest oil producer          Nonproliferation Act, which the U.S.                U.N. Security Council were meant to deny          any legal basis for threatening Iran with
within the Organization of Petroleum              Congress passed in 2000, deters interna-            “the most deadly of weapons to the most           sanctions, India should consider what the
Exporting Countries, exports roughly 2.5          tional support for Iran to develop nuclear,         dangerous of countries.”                          U.S. pressure on Tehran will do to interna-
million barrels per day — 1 million barrels       chemical and biological weapons programs                His comments were part of increasing          tional oil prices as well as to the overall
more than current excess production capac-        and missile-delivery systems.                       international pressure on Iran since it           security scenario in West Asia.”
                                                                                                      removed seals from uranium enrichment                 The United States and its allies are
                                                                                                      equipment earlier in January and said it          thought to have the majority behind them on
                                                                                                      would start small scale work on the process       any vote for referral. Still they would like to
                                                                                                      that can make both fuel and the fissile core      see India, China and Russia on board — all
                                                                                                      of nuclear warheads.                              three countries carry weight among other
                                                                                                                                                        IAEA board nations, and Moscow and
                                                                                                      Who will blink first?                             Beijing both have the power to veto any res-
                                                                                                          “It’s a very difficult situation where you    olution before the Security Council on what
                                                                                                                                                        to do about Iran, once it is referred. ●

                                                                                                      ●     C A L I F O R N I A

                                                                                                      Woodside plans offshore
                                                                                                      California LNG system
                                                                                                      Australian company hopes to sidestep concerns about terrorism,
                                                                                                      environmental problems with tankers that can regasify LNG onboard
                                                                                                                     By ALLEN BAKER                     U.S. Coast Guard and the California State
                                                                                                                    For Petroleum News                  Lands Commission, the company said,
                                                                                                                                                        and probably the Federal Energy

                                                                                                               oodside Petroleum Ltd. is aban-          Regulatory Commission and others as
                                                                                                               doning the traditional route for         well.
                                                                                                               bringing Australia’s LNG into the           Woodside had been a backer of the
                                                                                                               California market, announcing it         Crystal Energy LLC proposal for an off-
                                                                                                      would use offshore regasifying tankers            shore LNG terminal on a former oil plat-
                                                                                                      instead. The system used by Woodside              form, but withdrew from that project last
                                                                                                      would be similar to the Gulf Energy               summer.
                                                                                                      Bridge that Excelerate Energy LLC put
                                                                                                      into operation in the Gulf of Mexico last         Most other projects stalled
                                                                                                      March, using an underwater buoy 116                  Competitor Sempra Energy of San
                                                                                                      miles offshore.                                   Diego is building a terminal in Baja
                                                                                                         The Australian company said Jan. 19            California, just south of the U.S.-Mexico
                                                                                                      that it would put its OceanWay unloading          border, but other projects to serve the
                                                                                                      operation at least 15 miles off the coast of      California market have been stalled by
                                                                                                      California. Several sites are being consid-       controversy. Australian rival BHP
                                                                                                      ered, the company says, with Woodside             Billiton wants to build a terminal 14 miles
                                                                                                      looking for a site well removed from pop-         off the coast near Malibu. ConocoPhillips
                                                                                                      ulation centers, with safe oceanographic          and Mitsubishi Corp. have proposed an
                                                                                                      conditions and minimal on-shore disrup-           onshore facility in Long Beach.
                                                                                                         Approvals will be needed from the                                   see WOODSIDE page A10
PETROLEUM NEWS         •   WEEK OF JANUARY 29, 2006                                                                                                                                     A7

●     C A R A C A S ,          V E N E Z U E L A

Chavez: Venezuela will get $1.5 billion more
Additional income will come from return of 32 privately operated fields to state control; government has also audited companies
         By NATALIE OBIKO PEARSON                companies        sign                            Chavez: foreign companies                     line, gas oil, fuel oil — about 50,000 bar-
        Associated Press Business Writer         agreements to give                               have looted VEnezuela                         rels a day of petroleum. When there
                                                 up those contracts                                                                             comes a point in the coming years that we

      resident Hugo Chavez said Jan. 20          and form new state-                                 Chavez, who accuses foreign oil com-       are able to substitute that internal con-
      that Venezuela expects to reap an          controlled joint ven-                            panies of having looted Venezuela, has        sumption with gas, we can export (that
      additional US$1.5 billion this year        tures, known as                                  promised his socialist “revolution” is        oil),” he said.
      in oil income with the return of 32        “mixed companies,”                               freeing the country from “imperialist”           Venezuela would earn an extra US$25
privately operated oil fields to state con-      with PDVSA.                                      interests and restoring its sovereignty.      million a day or US$9 billion a year with
trol.                                               “Now this per-                                   On Jan. 20 he also said that Venezuela     those sales, Chavez said.
    This “shows how important it is that a       verse mechanism is HUGO CHAVEZ                   plans to replace domestic fuel consump-          Venezuela is the world’s fifth-largest
country manages its strategic resources,”        over,”        Chavez                             tion with natural gas in order to export an   exporter of oil. It has the largest proven
Chavez said in a nationally broadcast            declared as he promised to divert the            extra US$9 billion worth of petroleum a       oil reserves outside of the Mideast and
speech.                                          additional revenues from the mixed com-          year.                                         the second-largest gas reserves in the
    Chavez’s government has declared as          panies to social programs.                          “We are consuming in fuel — gaso-          Western Hemisphere. ●
illegal contracts under which foreign oil           In its effort to squeeze more money
companies like Royal Dutch Shell PLC,            from the industry amid high oil prices, the
Chevron Corp., BP PLC, and Brazil’s              government conducted an audit of the
Petrobras S.A. independently pumped oil          companies and claimed they owe billions
at the Venezuelan fields.                        of dollars in unpaid taxes.
    He said Jan. 20 that those contracts            On Jan. 20, the tax agency, however,
allowed foreign companies to extract oil         sharply revised downward its tax bill for
at US$4 a barrel then sell it to the nation-     Royal Dutch Shell, saying the company
al oil company, Petroleos de Venezuela           owed US$13 million instead of US$130
SA, or PDVSA, at US$20. The contracts            million for the tax period from 2001 to
also required PDVSA to pay the related           2004 — a 90 percent cut.
royalties.                                          The agency said in a statement that it
                                                 reached the figure after reviewing tax
New state-controlled JVs required                documents that the company submitted
    The government recently made all             following the original bill last year.

●     M O B I L E ,         A L A .

Barge spill highlights
hurricane hazards
November Gulf spill due to submerged drilling platform; owners
didn’t have lighted buoy at wreck; 167 storm-damaged platforms
            THE ASSOCIATED PRESS                 paid for the cleanup, but future litigation is
                                                 expected against the owner of the platform,

       double-hulled tanker barge spilled
       more than one million gallons of oil in   Coast Guard environmental specialist
       the Gulf of Mexico last year after hit-   Patrick Cuty in New Orleans told The
       ting a submerged drilling platform        Associated Press on Jan. 20.
wrecked by Hurricane Rita, the Coast Guard
                                                 Marker at wreck not lighted
   The Nov. 11 spill off the coasts of              The wrecked platform, owned by
Louisiana and Port Arthur, Texas — and the       Houston-based Targa Resources, was
$35 million cleanup associated with it —         marked only with floating plastic balls
might have been avoided if the owners of         described as “cherry fenders.” Such buoys
the oil platform had marked the submerged        are not lighted and would be difficult to see
wreck with a lighted buoy, as required under     at midnight, when the accident happened.
federal law, Coast Guard officials told the         Targa spokesman Joe Bob Perkins said
Mobile Register for a story Jan. 20.             Jan. 20 there were no lights on the WC-229
   The       barge     operator,      K-Sea      platform, but “it was marked” and the loca-
Transportation, based in Staten Island, N.Y.,                         see HAZARDS page A10
A8                                                                                                                                 PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006

●      C A N A D A

Gas industry bets on diverse supply mix
Canadian Gas Association report sees growing demand, calls for more diverse supply mix, policy action by Canadian government
                                                                                                          By GARY PARK
    The recipe for an energy future                                                                     For Petroleum News

        The Canadian Gas Association calls for policy action in Canada to:                       ou might expect a gas industry
        • Recognize the connectivity of the energy system, not just individual elements.
        To that end government and regulatory policy must recognize that significant
    investment in existing and new gas transmission and distribution systems will be
    needed over the next decade to ensure the continued reliability of Canada’s gas sys-
                                                                                                 association to see natural gas as a
                                                                                                 key component of a sustainable
                                                                                                 energy world over the next 30 to 50

    tem. Policy must establish the necessary conditions for long-term contracts to            But the vested interests of the
    allow investment in infrastructure projects.                                           Canadian Gas Association do not prevent
        • Allow consumers to see the price signals for their energy options.               it from calling for a deeper debate on
        Consumers must see the costs for their energy supply choices, with those vul-      what constitutes a “sustainable energy
    nerable to higher energy prices gaining protection through income-based measures.      future” and what role gas can play in that
        • Approval processes to co-ordinate and run in parallel to improve efficiency      future.
    and timeliness.                                                                           Wrestling with many long-held
        A streamlined regulatory, environmental and commercial framework to pro-           assumptions takes on added significance
    mote innovative energy sources such as liquefied natural gas, coalbed methane and      as Alaska and Canada sit on the doorstep
    methane hydrates.                                                                      of opening up trillions of cubic feet of
        • Achieve desired near- and long-term environmental outcomes rather than           Arctic resources.
    specifying particular fuels or technologies.                                              In a recent report entitled “A              ability” that “in the past have led us down
        Policies need to encourage environmental improvement across the spectrum of        Sustainable Energy Future: The Role of         blind alleys and there is a risk that they
    fuel sources and technologies.                                                         Natural Gas”, the association attempts to      will do so again today.”
        • Develop appropriate government codes and standards for all energy activities.    get the ball rolling on a debate in an envi-      “In our view, sustainability in a mean-
        Recognition and support of the benefits of combined heat and power and dis-        ronment       of     “increasingly     tight   ingful and operational sense needs to con-
    tributed generation systems.                                                           supply/demand balances, high prices and        sider multiple characteristics.
        • A proactive government role in supporting technology development.                environmental challenges” and the desire          “A sustainable energy future is one
        A joint effort by educational institutions and government to promote research      to ensure continued economic and social        that meets the diverse energy service
    and technology development aimed at new uses of natural gas.                           benefits from the gas delivery system.         needs of society in a reliable, secure, effi-
        • Emissions management through a variety of mechanisms such as emissions              The association’s bottom line conclu-       cient, affordable and environmentally
    trading and carbon sequestration.                                                      sion is that growing demand will require       acceptable way.”
        • Change tax treatment.                                                            a supply mix that is more diverse, with
        A capital cost allowance should be structured to at least be consistent with the                                                  Consumers need maximum choice
                                                                                           gas sharing the stage with traditional and
    useful economic lives of assets, while avoiding internationally uncompetitive tax      alternative energy sources.                       Moving towards a sustainable future
    treatment which inhibits Canadian industry’s ability to compete for capital. Tax                                                      will “rest largely on well functioning
    incentives are also urged to promote innovation and technology development.            Evolution expected                             energy markets where consumers have
                                                                           —GARY PARK         The study believes the next several         maximum choice, good information and
                                                                                           decades will see the evolution of an ener-     are able to respond to a market price
                                                                                           gy system that embraces current or             when they make their choices.”
                                                                                           emerging fuel and technology options,             In examining the special attributes of
                                                                                           but will see traditional and alternative       gas, the association notes that gas
                                                                                           sources working together.                      accounts for 46 percent of Canada’s pri-
                                                                                              However, for natural gas to play a key      mary energy production, exceeding
                                                                                           role in residential, commercial, industrial,   domestic requirements and allowing for
                                                                                           power generation and motor vehicle uses        about half of the production to be export-
                                                                                           needs the participation of policy makers       ed to the United States.
                                                                                           at a time when Canada’s growing econo-            On the issue of reliability, the associa-
                                                                                           my requires incremental energy supplies,       tion said that close to 300,000 miles of
                                                                                           notwithstanding dramatically stepped up        underground transmission and delivery
                                                                                           conservation and efficiency measures, the      systems can hold 14-16 percent of North
                                                                                           association suggests.                          America’s total consumption and achieve
                                                                                              The report said its most basic proposi-     99.999 percent reliability, which is meas-
                                                                                           tion is to determine the meaning of “sus-      ured as the number of service days lost as
                                                                                           tainability,” while rejecting simplistic       a proportion of the total number of gas
                                                                                           notions of “energy policy and/or sustain-      service days in a year. ●

                                                                                             Canada topples gas export volumes
                                                                                                 The pockets of Canadian natural gas producers are bulging from new export
                                                                                                 National Energy Board statistics show that revenues from the contract year of
                                                                                             November 2004 to October 2005 edged
                                                                                             past C$33 billion, beating the previous October’s average export price
                                                                                             high of C$28.6 billion in 2000-01.
                                                                                                                                              of C$12.84 per gigajoule was
                                                                                                 For the first 10 months of 2005, the tally
                                                                                             was C$27.4 billion, toppling the full-year
                                                                                                                                              more than double the C$6.01
                                                                                             benchmark of C$26.7 billion set in 2004.          in the same month of 2004,
                                                                                                 For the contract year, the board reported while volumes climbed to 303.2
                                                                                             average export prices of C$8.19 per giga-         billion cubic feet from 283.4
                                                                                             joule, compared with C$6.52 the previous         bcf, with shipments up to the
                                                                                             year, while volumes rose to 3.72 trillion         Midwest, Northeast, Pacific
                                                                                             cubic feet from 3.54 tcf.
                                                                                                                                                   Northwest and Rocky
                                                                                                 October’s average export price of
                                                                                             C$12.84 per gigajoule was more than dou-                Mountain regions.
                                                                                             ble the C$6.01 in the same month of 2004,
                                                                                             while volumes climbed to 303.2 billion cubic feet from 283.4 bcf, with shipments up
                                                                                             to the Midwest, Northeast, Pacific Northwest and Rocky Mountain regions.
                                                                                                 For the contract year, exports to the Midwest totaled 1.56 tcf, followed by the
                                                                                             Northeast at 1.26 tcf, the Pacific Northwest at 446.5 bcf, California 439.1 bcf and the
                                                                                             Rocky Mountains 14.4 bcf.
                                                                                                                                                                      —GARY PARK
PETROLEUM NEWS            •    WEEK OF JANUARY 29, 2006                                                                                                                                                                                               A9

    Companies involved in Alaska and northern
         Canada’s oil and gas industry                                                                                                                                                             Business Spotlight
   ADVERTISER                                                      PAGE AD APPEARS                ADVERTISER                                                       PAGE AD APPEARS                            By PAULA EASLEY

                                                                                                  Kuukpik Arctic Catering

                                                                                                                                                                                                                                              COURTESY PHOTO
  Ace Transport                                                                                   Kuukpik - LCMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A12
  Acuren USA (formerly Canspec Group)                                                             Lasser Inc.
  Aeromed                                                                                         LCMF
  AES Lynx Enterprises                                                                            LCMF - Barrow Village Response Team (VRT)
  Agrium                                                                                          Lounsbury & Associates
  Air Liquide                                                                                     Lynden Air Cargo
  Air Logistics of Alaska                                                                         Lynden Air Freight
  Alaska Airlines Cargo                                                                           Lynden Inc.
  Alaska Anvil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2   Lynden International
  Alaska Coverall                                                                                 Lynden Logistics
  Alaska Dreams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B5      Lynden Transport
  Alaska Interstate Construction                                                                  Mapmakers of Alaska
  Alaska Marine Lines                                                                             Marathon Oil
  Alaska Railroad Corp.                                                                           Marketing Solutions                                                                              Aaron Athanas, Mechanical
  Alaska Rubber & Supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . A10               Mayflower Catering                                                                               Engineer, P.E.
  Alaska Telecom                                                                                  MI Swaco
  Alaska Tent & Tarp
  Alaska Textiles
                                                                                                  MWH                                                                                              Great Northern
                                                                                                  MRO Sales
  Alaska USA Mortgage Company                                                                                                                                                                      Engineering
  Alaska West Express
  Alaska’s People
                                                                                                                                            N-P                                                        Great Northern Engineering is a
  Alliance, The                                                                                                                                                                                    full-service engineering firm specializ-
                                                                                                  Nabors Alaska Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B6            ing in industrial power and petrochem-
  Alpine-Meadow                                                                                   NANA/Colt Engineering
  American Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B10                                                                                                          ical engineering. Its range of compre-
                                                                                                  NANA Oilfield Services                                                                           hensive services includes mechanical,
  Arctic Controls                                                                                 Natco Canada
  Arctic Foundations                                                                                                                                                                               electrical, civil, structural, rotating
                                                                                                  Nature Conservancy, The                                                                          equipment and corrosion engineering.
  Arctic Fox Environmental                                                                        NEI Fluid Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B4
  Arctic Slope Telephone Assoc. Co-op                                                                                                                                                              Great Northern also provides consult-
                                                                                                  NMS Employee Leasing                                                                             ing services in project design, prepara-
  Arctic Structures                                                                               Nordic Calista
  Arctic Wire Rope & Supply. . . . . . . . . . . . . . . . . . . . . . . . . . . A3                                                                                                                tion of project documents, bid assis-
                                                                                                  North Slope Telecom                                                                              tance, project management and cost
  ASRC Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A5           Northern Air Cargo
         Engineering & Technology . . . . . . . . . . . . . . . . . . . . . A5                                                                                                                     estimating and inspections.
                                                                                                  Northern Transportation Co.                                                                          Aaron Athanas is a UAF graduate in
         Operations & Maintenance. . . . . . . . . . . . . . . . . . . . . A5                     Offshore Divers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A4
         Pipeline Power & Communications . . . . . . . . . . . . . . A5                                                                                                                            mechanical engineering who worked
                                                                                                  Oilfield Improvements                                                                            for Design Alaska and RSA Engineering
  AutryRaynes Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . A10                 Oilfield Transport
         and Environmental Consultants                                                                                                                                                             before joining Great Northern this
                                                                                                  Pacific Power Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B11
  Avalon Development                                                                                                                                                                               summer. He and wife Adrienne are
                                                                                                                                                                                                   competitors in the local and state
                                                                                                  PDC Harris Group
                                            B-F                                                   Peak Oilfield Service Co.
                                                                                                                                                                                                   championship Alaska Motocross circuit.
                                                                                                                                                                                                   Weather permitting, they spend leisure
  Badger Productions                                                                                                                                                                               time training, repairing and riding
                                                                                                  Perkins Coie
  Baker Hughes                                                                                                                                                                                     motorcycles. Aaron and Adrienne have
                                                                                                  Petroleum Equipment & Services
  Brooks Range Supply                                                                                                                                                                              two toddlers, Anthony and Alexander.
                                                                                                  Petrotechnical Resources of Alaska . . . . . . . . . . . . . . . . . . . A7
  BW Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B12                                                                                                          Dad’s motto: Seize the day, not your
                                                                                                  PGS Onshore
  Capital Office Systems                                                                                                                                                                           engine!
                                                                                                  Pipe Wranglers Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A6
  Carlile Transportation Services . . . . . . . . . . . . . . . . . . . . . . . A7                Prudhoe Bay Shop & Storage
  Chiulista Camp Services                                                                         PTI Group
  CN Aquatrain
  ConocoPhillips Alaska
  Construction Machinery Industrial
  Coremongers                                                                                     QUADCO
  Crowley Alaska                                                                                  RAE Systems
  Cruz Construction                                                                               Rain for Rent
  Dowland - Bach Corp.                                                                            Ranes & Shine Welding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B9
  Doyon Drilling                                                                                  Renew Air Taxi
  Doyon LTD                                                                                       Salt + Light Creative
  Doyon Universal Services                                                                        Scan Home
  Dynamic Capital Management                                                                      Schlumberger
  Engineered Fire and Safety                                                                      Security Aviation
  ENSR Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2    Seekins Ford
  ESS/On-Site Camp Services                                                                       Span-Alaska Consolidators
  ESS Support Services Worldwide . . . . . . . . . . . . . . . . . . . . . A3                     Spenard Builders Supply
  Evergreen Helicopters of Alaska                                                                 Steel Brothers
  Fairweather Companies, The. . . . . . . . . . . . . . . . . . . . . . . . A11                   STEELFAB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B4
  Flowline Alaska                                                                                 Superior Machine and Welding
  Friends of Pets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B10     3M Alaska
                                                                                                  Tire Distribution Systems
                                           G-M                                                    TOTE
                                                                                                  Totem Equipment & Supply
  Gene's Chrysler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B11       Trinity Inspection Services
  Great Northern Engineering                                                                      Tubular Solutions Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . A4
  Great Northwest                                                                                 UAA Department of Engineering
  Hanover Canada                                                                                  Udelhoven Oilfield Systems Services
  Hawk Construction Consultants                                                                   Unique Machine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B10
  H.C. Price                                                                                      Unitech of Alaska
  Hilton Anchorage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B3        Univar USA
  Holaday-Parks                                                                                   Usibelli
  Hotel Captain Cook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B11          U.S. Bearings and Drives
  Hunter 3-D                                                                                      VECO
  Industrial Project Services                                                                     Welding Services
  Inspirations                                                                                    Wiggy's-Alaska
  Jackovich Industrial & Construction Supply. . . . . . . . . . . . . B3                          Worksafe
  JEMS Real Estate                                                                                WSI-Total Safety
  Judy Patrick Photography. . . . . . . . . . . . . . . . . . . . . . . . . . . . B5              XTO Energy
  Kenai Aviation
  Kenworth Alaska                                                                                          All of the companies listed above advertise on a regular basis
                                                                                                                              with Petroleum News
A10                                                                                                                                     PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006

continued from page A1                                                                        module,” Johnson said. The module will            target, and with infrastructure in place, “if
                                                 Endicott has production of more              come up on sealift in 2008.                       we can find these new technologies,”
TEST                                             than 200,000 barrels of water a                 There will be some civil work required         there are “nice targets” remaining, he
                                                day, Denis said. “We won’t build a            at Endicott, a new pipeline will be built         said.
Idea has long history                           plant big enough to replace all of            and some wells will be converted.
     Denis said the idea of using different       that, but we’ll build a plant to               A good portion of the work will proba-         Should apply to Prudhoe, other fields
water has been around in the industry for             produce 50,000” bpd.                    bly be in 2008, Johnson said, but BP                 In terms of the sub-surface the technol-
decades, but “I don’t think the industry                                                      would like to do some work — “retrofit of         ogy should work at Prudhoe and in the
ever really figured it out. We think we             BP screened its worldwide portfolio of    existing modules, the pipeline, that type         Prudhoe satellites, Denis said. BP has
may have. And so we’re moving forward           fields and Endicott was selected as the       of work” — in advance of 2008 because             already done some low-salinity work at
with this in a new and different way than       best place to test the technology, Denis      of limited space at Endicott.                     Milne Point.
anybody else has.”                              said.                                                                                              The fluids in each reservoir are unique,
     The process has been under develop-                                                      Plant will handle 50,000 bpd                      he said, and you have to get “the right
ment by BP at its Sunbury research lab in       Preliminary engineering                           Endicott has production of more than          cocktail for the right application. But
England for about three years.                      Johnson said preliminary engineering      200,000 barrels of water a day, Denis             early indications are that there’s a lot of
     There’s been anecdotal evidence, some      for the Endicott test is going on now. In     said. “We won’t build a plant big enough          the North Slope reservoirs that this will
of it on the North Slope, but in the last few   the conceptual phase Endicott was select-     to replace all of that, but we’ll build a         work for.”
years BP researchers “began to connect          ed for the test both because of the kind of   plant to produce 50,000” bpd. The field              The exception, Denis said, is
the dots,” he said.                             field it is and because it “has much of the   will be flooded area by area, and as each         Northstar, “essentially a clean reservoir
     At Milne Point BP does some water-         infrastructure already in place required to   area is depleted of oil, they’ll move on to       with very volatile fluids. If you don’t have
flood with low salinity water, using            produce a lower-salinity water source to      another area.                                     a lot of residual oil left, you don’t have a
source water from a well which is less          the wells” such as the seawater processing        The surveillance portion of the project       big target to chase.”
saline than Beaufort Sea water. BP              facility.                                     will also require some new technology,               Applications would be at fields with
Exploration (Alaska) spokesman Daren                The elements that BP will add are         Johnson said. Because Endicott is produc-         significant residual oil, “most of our big
Beaudo said BP “saw an impact from the          reverse osmosis and micro-filtration. Both    ing so much water in some areas “it’s             major fields and our more viscous fields.”
lower salinity water” at Milne Point.           are membrane technologies, Johnson said,      going to take some new technology to              But there is a limitation to the technology
     The technique has worked in the lab,       and BP wants to “prove these up for future    really pick up subtle changes in water cut        with viscous oil, because some viscous oil
where core from reservoirs is flooded           use in the near term ... at Prudhoe Bay and   because the rates are so high.”                   is waterflood-able, and some is not.
with different waters. BP has also done         then eventually at our global facilities.”        Endicott is “so mature, we’ve stripped        Where viscous oil can be waterflooded,
“near-wellbore tests where we’re investi-           Reverse osmosis technology is used        the easy oil out,” Denis said.                    low-salinity may have applications, Denis
gating out a few tens of feet into the reser-   worldwide in desalination to take solids          But significant oil remains, although         said.
voir,” using tracers to watch for changes,      and salt out of water. It’s not a new tech-   incremental oil recovery is now in the 3
Denis said.                                     nology, Johnson said, but is a new tech-      percent to 7 percent range, and “you’ll           Challenge of new technology
     The technique works in the lab and in      nology for this application. Micro-filtra-    want to be precise in finding those small             Marshall talked about a “buzz” in BP’s
well tests. What BP needs now, he said, is      tion will be used to take solids down to      differences because that’s actually a big         Anchorage headquarters.
tests between wells of a few thousand feet      less than 10 microns.                         chunk of your recovery given there’s                  “It’s really fun to be in a place where
in a reservoir.                                     There will be some retrofit to existing   mostly water left and not much oil left.”         we’re doing things that are going to be
     “And that’s the piece where you have       facilities at Endicott, “but we do plan to        Endicott currently produces some              game changes for Alaska, or game
to just go and put your money down and          construct and erect a module that will        19,500 bpd, down from a peak of 115,000           changes for BP or maybe game changes
... test it and get the confirmation.”          require sealift, a pretty substantial-sized   bpd, Denis said. State records show that          for the industry.” There’s uncertainty that
                                                                                              through November the field had produced           goes with being the first to try something
                                                                                              almost 444 million barrels of oil.                new, and certainly naysayers, he said. It
                                                                                                  Marshall said the incremental recovery        was the same with miscible injectant:
  continued from page A6                        proposition.                                  at Endicott from this technology could be         there were industry experts who said that
                                                   But Woodside wants to fast-track its
  WOODSIDE                                      $3.7 billion Pluto project offshore
                                                                                              some 30 million barrels, with hundreds of
                                                                                              millions of barrels possible across the
                                                                                                                                                wouldn’t work when it was first tried.
                                                                                                                                                    With any new EOR process you’re
                                                Western Australia, and it also could          North Slope.                                      changing things in the subsurface. You
     Shipments for the Woodside ven-
                                                send some of its share of LNG from the            Part of the reason Endicott was chosen        can do remote sensing, but you can’t actu-
  ture would start in 2010, the company
                                                North West Shelf venture, which it            is that the field has 400 million to 500          ally see what’s going on, Denis said.
  said, with the aim of bringing ashore
                                                operates. The Browse and Sunrise              million barrels of oil remaining in the               He compared it to going to the moon:
  700 million to 1.4 billion cubic feet of
                                                fields could also provide fuel, possibly      ground, Denis said. “And without this             you can do all the work, but you don’t
  natural gas daily. It would take sever-
                                                via an expanded LNG liquefaction              technology we might walk away from that           know until you actually do it. “We can do
  al ships to make deliveries at that rate,
                                                plant in Darwin. Pluto is expected to         field and shut it and there’d still be 400        all this work; we can do all the analysis;
  with each ship costing in the neigh-
                                                produce 7 million tonnes of LNG annu-         million barrels down there just because           we can do all the modeling; we can do all
  borhood of a quarter to a third of a bil-
                                                ally, which converts to nearly a billion      the oil hangs onto the rock and you can’t         the testing.”
  lion dollars. So it’s an expensive
                                                cubic feet of gas per day. ●                  liberate it.”                                         The proof will be in the full-field test
                                                                                                  The remaining oil at Endicott is a large      at Endicott. ●

                                                                                              continued from page A7                            acknowledge they have no idea how many
                                                                                                                                                have working marker lights.
                                                                                              HAZARDS                                               The        Register       said       that
                                                                                                                                                www.tradewinds.no, an online shipping
                                                                                              tion was well known to mariners. He said
                                                                                                                                                trade journal, reported in December that
                                                                                              the barge was “significantly” off course
                                                                                                                                                Coast Guard officials had instructed Targa
                                                                                              when it struck the platform.
                                                                                                                                                Resources to install a lighted buoy over the
                                                                                                  “The Coast Guard advised all mariners
                                                                                              of the location of the sunken platform and        wrecked platform.
                                                                                              that it was only marked with unlighted                According to the Tradewinds article,
                                                                                              buoys,” Perkins told the AP.                      Targa Resources was “unable to locate one
                                                                                                  The damaged 442-foot barge, now float-        amid an equipment shortage in the aftermath
                                                                                              ing upside down at a dock off Mobile Bay,         of back-to-back Gulf hurricanes.”
                                                                                              has been drained. A gash in the hull is 35 feet       Targa’s spokesman said Jan. 20 the Coast
                                                                                              long and 6 feet wide.                             Guard approved using unlit buoys and
                                                                                                  The fuel oil on board was so heavy it         advised Targa it could deploy lighted buoys
                                                                                              sank to the seafloor as it gushed from three      when they became available and when
                                                                                              separate cargo holds and, according to Coast      crews and ships could be found to deploy
                                                                                              Guard news releases, has not washed up on         the buoys.
                                                                                              any shorelines.                                       According to the Code of Federal
                                                                                                  An estimated 134,400 gallons of the           Regulations, it is the responsibility of the
                                                                                              spilled oil was recovered from the seafloor.      owner of a wrecked platform to ensure that
                                                                                              But rough weather immediately after the           it is appropriately marked.
                                                                                              accident thwarted cleanup efforts for days at         Officials at Coast Guard headquarters
                                                                                              a time. The barge held 9.3 million gallons.       said the agency does not have an inspection
                                                                                                                                                process to determine if the wrecked plat-
                                                                                              At least 167 platforms damaged                    forms have been properly marked. But, they
                                                                                                 Federal records show at least 167 Gulf         said, companies are subject to fines if they
                                                                                              platforms were damaged or destroyed dur-          are found to have shirked the buoy require-
                                                                                              ing the active 2005 hurricane season, the         ment.
                                                                                              Register said.                                        Targa has cooperated fully with the Coast
                                                                                                 Many of these are now submerged or so          Guard’s investigation of the barge’s acci-
                                                                                              damaged that the warning beacons on them          dent, the company spokesman said, and no
                                                                                              no longer function, and federal officials         action has been taken against Targa. ●
PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006                                                                                                                                                                                     A11

continued from page A1

                                                                                                                                             COURTESY SHELL EXPLORATION AND PRODUCTION
                                                                                                                                                                                         mentally sensitive Pinedale anticline, a critical
                                                                                                                                                                                         habitat area for deer, antelope and other
SHELL                                                                                                                                                                                    wildlife. He said that Shell has minimized the
                                                                                                                                                                                         footprint of operations that produce 150 mil-
ner in six of the 12 Beaufort Sea discoveries and                                                                                                                                        lion cubic feet per day of natural gas from
drilled four of the five exploration wells in the                                                                                                                                        more than 60 wells. Additionally the company
Chukchi Sea. But oil prices had not been high                                                                                                                                            has funded local wildlife protection initiatives
enough to justify development of any discover-                                                                                                                                           and taken other measures to minimize envi-
ies and the company relinquished all of its leas-                                                                                                                                        ronmental impacts.
es.                                                                                                                                                                                         “By deploying portable gas processing
    Ryan pointed out that, whereas Shell has not                                                                                                                                         units Shell has reduced flaring during comple-
been active in Alaska in recent years, the com-                                                                                                                                          tion operations 98 percent in just three years,”
pany has been involved in some major Arctic                                                                                                                                              Ryan said. “… (That was) something that
projects in Russia, the Mackenzie Delta and                                                                                                                                              needed to be done and we’ve started to do it.”
Norway.                                                                                                                                                                                     And for Alaska, Ryan said that Shell is
                                                                                                                                                                                         designing new and better emergency response
Global agenda
                                                                                                                                                                                         systems for ice-covered seas and finding ways
    Alaska dovetails right into Shell’s current                                                                                                                                          to protect endangered marine mammals.
global business strategy.
    That strategy consists of three themes: new                                                                                                  Alaska communities
                                                    Is this the future of Alaska offshore oil and gas development? Subsea completions and
material oil; more unconventional oil; and more a remote operated vehicle in Norway’s Ormen Lange gas field.                                        Shell has already started talking to local
integrated gas — Alaska enjoys huge potential                                                                                                    communities in Alaska about the company’s
to support all of these themes, Ryan said.                            “Over the past 10 years our deep-water operations have plans, Ryan said. In particular the company has been work-
    “We need to make Alaska one of Shell’s production             taught us much about how to keep oil and gas flowing in ing to complete a conflict avoidance agreement with the
heartlands in support of this strategy,” he said.                 such frigid conditions,” he said. “Much of this technology communities for the upcoming exploration season. Ryan
    From the point of view of material oil, “there are still is directly applicable to the Arctic subsea.”                         said that Shell pioneered this type of negotiation back in the
many unexplored and underexplored basins in Alaska,”                  But sea ice remains a major challenge, especially when 1980s.
Ryan said. There are major discoveries for those willing to drilling wells. Shell hopes to try the use of air cushion sup-            “We have great respect for the people who live in the
make the commitment and develop them in a responsible ported drilling rigs, with a hovercraft-like rig design pio- area in which we plan to operate, generations of whom have
manner, he said. And unconventional oil, especially in the neered on the Siberian tundra back in the 1960s. This type developed a livelihood and a culture in these extreme con-
form of heavy oil deposits, exists in billions of barrels.        of rig could perhaps hover over ice after the end of the open ditions, and for whom the Arctic is home,” Ryan said.
    Additionally, Alaska is rich in gas.                          water season.                                                       He said that Shell will also develop contracting strate-
    “We are excited about the positive steps to see that gas          “In areas where the open season is very short this type of gies to support its exploration programs. The company
eventually gets to market,” Ryan said.                            drilling platform might be able to extend the drilling season anticipates development opportunities and jobs in the com-
    Ryan said that Shell also sees potential for a world-class by more than 50 percent, and so reduce exploration and munities where it operates and sees many opportunities for
liquefied natural gas project in the Bristol Bay area.            development time and cost,” Ryan said.                           local people if the company’s operations prove commer-
    “One area that could provide relatively direct access to          Shell is also investigating the use of ice-resistant tension cially successful.
the U.S. and Asia-Pacific LNG market is Bristol Bay,” he leg drilling platforms. Ryan said that this technology did not               Meantime the company has been moving ahead with a
said. “We look forward to the opportunity to one day              exist in a mature form when Shell last explored offshore program of Alaska hire in support of its growing Alaska
acquire seismic and explore in the shallow ice-free waters Alaska. A study has now indicated that a flexible structure operations. Earlier in January the company announced the
of this prospective basin. We believe it can be done with no using a tension leg platform designed for Arctic applica- hiring of an Alaska management team consisting of Alaska
adverse impact on the fisheries or the marine mammals.”           tions could withstand sea ice up to six feet thick, he said.     Asset Manager Rick Fox; Alaska Government and External
    Ryan emphasized that Shell did not see that type of LNG The environment and communities                                        Affairs Manager Cam Toohey; and Community Affairs
project competing with or undermining the proposed North                                                                           Manager George Ahmaogak Sr. Fox has previously worked
Slope gas line development.                                           Ryan said that in addition to having clear oil and gas in the Bering, Beaufort and Chukchi Seas; Toohey is a life-
    Shell sees new technology as a key component of Arctic business objectives in its new foray into Alaska, Shell views long Alaskan; and Ahmaogak is a lifelong Alaskan, who
exploration and development, especially in the ice-prone environmental protection and the interests of local commu- was formerly mayor of the North Slope Borough, president
and stormy outer continental shelf offshore northern Alaska. nities as top priorities “to cause no long term harm to the of Ukpeagvik Inupiat Corp. and Piquniq Management
Recent advances in subsea technology may, in particular, environment and to make a positive impact on the commu- Corp. and a member of the Interior’s National Outer
                                                                                                                                   Continental Shelf Policy Committee.
unlock oil and gas deposits in this challenging environment. nity.” Protecting the environment involves operating in the
                                                                                                                                      “We’re not done hiring,” Ryan said, adding that Shell
    “Long distance subsea projects can extend our onshore most responsible and safest manner, and leaving as small a
                                                                                                                                   also looks forward to working with Alaska Support Alliance
reach without the need for permanent offshore structures,” footprint as possible, Ryan said. Working with local com-
Ryan said.                                                        munities means being a good corporate citizen, providing companies. Shell wants to employ Alaskans with the criti-
                                                                                                                                   cal skills needed to operate its future assets, Ryan said.
    Ryan particularly cited the Ormen Lange gas field, off- jobs, respecting cultures and enhancing the lives of people.
                                                                      “For Shell it just makes good business sense,” he said.         “To achieve this we will partner with the University of
shore Norway, where subsea completions are being tied
                                                                      Ryan cited Shell’s Athabasca oil sands project in Canada     Alaska, the community colleges, industry liaisons and other
back 75 miles to onshore facilities. State-of-the-art remote
operated vehicles have also made deep-sea work possible.          as an example of community involvement. There the com- as we search out proactively staff that can fill our needs,” he
                                                                                                                                   said. Meantime the company expects to hire about six
In the United States, for example, Shell has used remote pany worked with the local First Nations community to
                                                                                                                                   interns this year, with a need for more interns in future as
operated vehicles to repair the Mars field export pipelines establish contracts for services such as heavy trucking, he the operations mature.
that were damaged in last year’s Gulf of Mexico storms.           said. That has resulted in local long term employment, with
                                                                                                                                      “We really are glad to be back in Alaska,” Ryan said. “…
    “You can imagine 3,000 feet of water and doing the $1 million per year in local services 10 years ago growing The world needs energy and it’s no secret that Shell is in the
repairs on two pipelines which were damaged by the storm to more than $20 million per year now.
entirely with remote operated vehicles,” Ryan said.                   And in the massive Sakhalin-2 project, in the Russian energy business … and we believe responsible develop-
                                                                                                                                   ment of Alaska’s resources is in everyone’s best interests.
    Shell’s experience in deep waters of the Gulf of Mexico Far East, more than 75 percent of the 17,000 project work-                Ryan said that Shell wants to set the standard for social-
also gives the company confidence that it can maintain ers are Russian and more than 40 percent of the workers are ly responsible and environmentally mindful development.
product flow through pipelines in frigid water — the water from Sakhalin Island, Ryan said. Shell has a 55 percent                    “Alaska is a place of great vision, commitment and
temperature at depths of 8,000 feet in the Gulf of Mexico is interest in that project, he said.                                    stamina,” he said. “We see how the land is and we intend to
similar to that in the Arctic, Ryan said.                             Ryan also described Shell’s efforts to minimize the
                                                                  impact of gas development around Wyoming’s environ- be part of it.” ●
A12                                                                                                                                                     PETROLEUM NEWS      •   WEEK OF JANUARY 29, 2006

continued from page A1                                         public review and legislative hearings in       But, he said, it is the governor’s intention   without a majority in
                                                               August and September, followed by revi-         that this Legislature and this governor        the House of
INSIDER                                                        sions to the contract based on public input     make this decision this session.               Commons “Harper
                                                               in October.                                        Porter said Revenue has been working        may lead a weak,
    Heinze’s timeline includes introduction                        The revised contract and related legisla-   on the production tax issue for a couple of    unstable government
of that legislation in February. In March a                    tion would be sent to the Legislature in        years, and both the Legislature and the        opposed by three
contractor for the Legislature would ana-                      November.                                       administration have spent a lot of time        left-of-center parties
lyze the revenue impacts. His estimate is                          Nov. 7 is Election Day — for both the       working on the present system and the          represented in
that House and Senate committee would                          Legislature and the governor.                   economic limit factor.                         Parliament.”
hold hearings on the                                               Heinze told the board that after the           The question, he said, is how fast the          The Times also       STEVEN HARPER
proposed oil tax

                                               FORREST CRANE
                                                               issue of the oil production tax was added       Legislature will act on a tax change.          says Harper will
changes in April and                                           to the mix it seemed to him the process                                                        “almost certainly bring, at the least, a
                                                                                                                                         —KRISTEN NELSON
a new production tax                                           would probably take longer. If it gets to be                                                   warming of relations” with Washington
bill would be passed                                           fall and there hasn’t been a vote, he said he                                                  and the Bush administration.
in May.                                                        thinks the vote likely won’t take place until
                                                                                                               Canada elects                                      Harper, 46, an economist and social
    Consultant Pedro                                           January.                                        new prime minister                             conservative who is writing a book on the
van Meurs told legis-                                              There’s a lot of risk in this decision,                                                    history of ice hockey, is from Alberta
lators that passage of                                                                                            THE RESULTS OF CANADA’S elec-
                                                               Heinze said, and he doesn’t think legisla-      tions are in and Gary Park, Petroleum          where the energy industry is the prime eco-
a revised oil produc-                                          tors will want to be exposed to risk over a                                                    nomic driver, so it’s no surprise he opposes
tion tax would have HAROLD HEINZE                                                                              News’ Canadian writer, is out — just for a
                                                               very short time before an election.             few days, so watch for more in next            the Kyoto Treaty. Since Canada isn’t any-
to happen before a                                                 If he’s right, the Legislature would                                                       where near reaching its Kyoto targets will
gas pipeline fiscal contract is presented to                                                                   week’s edition.
                                                               organize in December and the vote would-           Here’s the basics from PN’s Yanks:          Harper consider joining the Asian Pacific
the Legislature.                                               n’t come up until the new Legislature con-                                                     Partnership forged by Bush last year? Or,
    Heinze estimates that the governor will                                                                    New Conservative Party Prime Minister-
                                                               venes in January.                               elect Steven Harper defeated Paul Martin,      as some suggest, drop Canada’s opposition
reach agreement with the producers and a                           Deputy Revenue Commissioner Steve                                                          to ANWR drilling?
contract and best interest finding will be                                                                     unseating Martin’s Liberal Party after 13
                                                               Porter told the board the state’s negotiators   years in power.                                    We’ll leave the answers to Mr. Park…..
finished in June and released in July, with                    have long since given up predicting timing.        Still, according to the New York Times,                                 —KAY CASHMAN

continued from page A1                                                                                            But Sheffield offered a different           of the governor, Congress and the agen-
                                                               The company is up to 26 employees               start-up date than he previously antici-       cies up here … welcoming the inde-
PIONEER                                                         in Alaska, having first entered the            pated for Oooguruk, saying first oil           pendents” is why Pioneer came to
                                                                state at the end of 2003. Sheffield            would be produced in 2008, maybe               Alaska.
   In an interview with Petroleum News
                                                               said Pioneer will add another six or            2009. The company had initially hoped             An attractive fiscal regime is one of
following his speech Sheffield said five
                                                                    seven employees in 2006.                   for production to start as early as 2007.      the reasons Pioneer also has a strong
years is an acceptable number — about
                                                                                                                  The only holdup on the project is the       presence in South Africa, Sheffield said,
the same amount of time it takes to bring
                                                               out” the federal offshore.                      U.S. Army Corps of Engineers permit.           noting South Africa offered the equiva-
a deepwater Gulf of Mexico discovery
                                                                                                                  Pioneer is also waiting for approval        lent of a one percent royalty.
                                                               Excited about Cosmopolitan                      of royalty modification from the State of         The best way to attract new oil and
   “If we were a ConocoPhillips or a
                                                                  In his speech Scott Sheffield                Alaska, but state officials say it will        gas companies to Alaska is an attractive
Shell we could look at projects that took
                                                               addressed his company’s interest in the         likely be approved and signed in the           fiscal package, he said, noting there has
10 to 15 years to bring online, but we’re
                                                               Cosmopolitan oil exploration prospect           next few days.                                 been a lot of exploration in Alaska over
a mid-cap independent … with a $9 bil-
                                                               for the first time in any length.                  Pioneer is hoping to begin construc-        the last 20 years but many of the discov-
lion enterprise value … and anything
longer than five years could hurt our                             Although Pioneer isn’t interested in         tion of the project’s gravel island this       eries have not been developed.
rates of return … involve a higher level                       pursuing any other investments in Cook          winter, but that is dependent on when —           Higher oil prices, he said, will likely
of risk that wouldn’t be acceptable to                         Inlet, he said the company was “very            and if — the company receives a permit         improve Alaska’s competitive position.
our investors,” he said.                                       excited” about Cosmopolitan where it is         from the Corps, which has said it hopes        Sheffield thinks the price of crude oil
   When asked if his company was                               partners with Devon Energy and opera-           to have a decision by the end of January.      will probably stay in the $50 to $100
interested in moving into the federal                          tor ConocoPhillips.                             Corps officials have not indicated             range “for the next several years.”
waters offshore the North Slope,                                  “We shot 3D seismic there (last sum-         whether Pioneer’s permit application
                                                               mer). We’re evaluating it now. … We’re          will be approved.                              Maybe four wells this winter
Sheffield said probably not.
   “We have our hands full with the 1.6                        looking at making a decision early this                                                           Sheffield said Pioneer hoped to drill
million acres (gross) we have onshore                          summer about picking up another 40              Fiscal package a draw                          as many as four exploration wells this
and near shore. And we’re looking at                           percent interest and taking over opera-            The company is up to 26 employees           winter on the North Slope, whereas pre-
adding more onshore acreage in north-                          tions” at Cosmopolitan.                         in Alaska, having first entered the state      vious estimates put the top number of
ern Alaska, but I don’t see us being                                                                           at the end of 2003. Sheffield said             wells at three.
interested in the OCS,” he said, refer-                        Corps permit only hold-up                       Pioneer will add another six or seven             “We’re now drilling Hailstorm in the
ring to Pioneer’s preferred five-year                             In reference to Pioneer’s proposed           employees in 2006.                             Storms area, which will be followed by
time period for bringing projects online                       Oooguruk project, Sheffield said the               Sheffield said one of the reasons           Cronus and then Antigua. Two of those
in Alaska, which wouldn’t be the likely                        company was “within days” of making a           Pioneer recently pulled out of Argentina       wells     are   being    drilled     with
time frame for a discovery in the feder-                       decision to sanction development.               was because the country was “becoming          ConocoPhillips,” he said.
al waters of the Chukchi or Beaufort                              Located in the shallow waters of the         over-taxed.”                                      “We expect to have a very, very
seas, he said.                                                 Beaufort Sea, Oooguruk is expected to              “Tax relief in Alaska … is one of the       active drilling program on the North
   But Ken Sheffield, president of                             hold some 70 million barrels of recover-        reasons we are here,” he said, referring       Slope over the next several winters. …
Pioneer’s Alaska subsidiary, said the                          able oil and produce 15,000 to 20,000           to exploration incentives offered by the       We’re looking forward to a long rela-
company “wasn’t completely ruling                              barrels per day.                                state. “The openness of the government,        tionship in Alaska,” Sheffield said. ●
                                                                                                                                                                         PETROLEUM NEWS
                                                                                                                                                                            Volume 11, No. 5
                                                                                                                                                                                WEEK OF
            www.PetroleumNews.com              ●   A weekly oil & gas newspaper based in Anchorage, Alaska                                                                  January 29, 2006

                                                                                 ●    ANCHORAGE
CN repurchases rail lines
                                                                                Busy times for Conoco
                                                                                Construction, well work hit highs; exploration near Teshekpuk, in Chukchi
                                                                                              By ALAN BAILEY                                                       Fiord and Nanuq

                                                                                                                                                     AL GRILLO
                                                                                              Petroleum News                                                           ConocoPhillips is bringing Alpine
                                                                                                                                                                   satellite fields, Fiord and Nanuq, on line

                                                                                     o stem the decline in North Slope oil
                                                                                     production ConocoPhillips is forging                                          in the Colville River delta.
                                                                                     ahead on three fronts: developing                                                 “Those are two satellite fields that will
                                                                                     new satellite fields near the Alpine                                          come into Alpine,” Bowles said. “…
                                                                                field, developing viscous or heavy oil in                                          Both of those when they’re done will
                                                                                the central North Slope and exploring for                                          ultimately produce peak rates upwards of
                                                                                new oil fields. That was a key message 2006 “will be the                           30,000 barrels a day.”
                                                                                that Jim Bowles, president of biggest year we’ve                                       The company plans a third-quarter
                                                                                ConocoPhillips Alaska, delivered at the had in Kuparuk                             2006 startup for Fiord and a fourth-quar-
                                                                                                                           since the early ‘80s.”                  ter startup for Nanuq, Bowles said.
                                                                                Alaska Support Industry Alliance’s Meet —Jim Bowles, presi-
                                                                                Alaska conference on Jan. 20.              dent, ConocoPhillips                        And viscous oil development also
                                                                                    “We offset (production decline) with Alaska                                    continues apace.
                                                                                continuing investments in our work on the slope,”                                      Bowles said that ConocoPhillips had
                                                                                Bowles said.                                                                                            see CONOCO page B11

CN Rail has repurchased a pair of short-line railroads in northern              ●    ANCHORAGE
Alberta to provide feeder lines for the railroad’s bulk commodity
and merchandise businesses. The lines being purchased are the
Mackenzie Northern Railway and the Lakeland & Waterways
Railway, both north of Edmonton. The Lakeland line will boost
CN’s oil sands area network, while the Mackenzie line will help
                                                                                BP to invest $14 billion in
                                                                                Alaska over next 10 years
serve the proposed Mackenzie natural gas pipeline. See story on
page B5.

State wants stake in oil pipeline
                                                                                Marshall: ’05 turning point with pipeline refurbishing, Prudhoe wells, tanker fleet
    Gov. Frank Murkowski has been saying for months that the
                                                                                            By KRISTEN NELSON                              commitment “to the biggest refurbish-
                                                                                                                                                    JUDY PATRICK

state should own a piece of the proposed natural gas pipeline.
    Now he’s touting another idea: buy-                                                       Petroleum News                               ment program for Prudhoe Bay wells in
                                                                 JUDY PATRICK

ing a share of the 800-mile trans-Alaska                                                                                                   its history, laying the groundwork for

oil pipeline.                                                                         P plans to spend some $14 billion                    the future.”
    It’s a concept state political leaders                                            in Alaska over the next 10 years,                        Marshall said, as BP officials have
have kicked around since before oil                                                   almost half of that on the compa-                    said before, that the company envisions
starting sliding down the nation’s most                                               ny’s oil business, BP Exploration                    being in Alaska for another 50 years or
famous pipeline in 1977.                                                        (Alaska) President Steve Marshall told                     more. While the company is no longer
    Even though the pipe is nearly 30                                           the Alaska Support Industry Alliance’s                     exploring for oil in Alaska, it has 5 bil-
years old, and Prudhoe Bay and other                                            annual “Meet Alaska” conference in STEVE MARSHALL          lion to 6 billion barrels of oil and gas
North Slope oil fields are wearing out                                          Anchorage Jan. 20.                                         resources in the state yet to be devel-
after pumping more than 15 billion bar- Gov. Frank
                                                                                   He said 2005 was “something of a turning point oped, much of that “critically challenged.”
rels, it still could be a smart move for the                                    for BP here,” citing the addition of the second and He said he has been asked how the company
state to buy into the line, Murkowski said.                                     third new tankers to the company’s Alaska fleet,
    The governor mentioned the idea in his State of the Budget                  refurbishing of the trans-Alaska pipeline and a                                        see BP page B9
speech Jan. 12 and again at a meeting of oil industry contrac-
tors Jan. 20.                                                                   ●    CANADA
    Murkowski and his aides say an ownership stake could save
the state millions of dollars in payments to ship the state’s
                                               see STAKE page B9
                                                                                Invaders on the horizon
                                                                                Canadian-owned companies shed foreign production, brace for possible takeovers
Conference abstracts due Feb. 7
                                                                                        By GARY PARK                                                           Canada’s leading oil and gas
   The deadline is approaching for abstracts for the May joint                                                                                                 producers will be swallowed
                                                                                       For Petroleum News
meeting of the Cordilleran Section of the Geological Society                                                                                                   by one of the many interna-
of America, the Pacific Section of the American Association

                                                                                      aving ended a year                                                       tional giants scouring the
of Petroleum Geologists and the Western Region of the                                 when its companies                                                       world for fresh opportunities.
Society of Petroleum Engineers.                                                       staged a major pullback                                                     Based on the 13th annual
   The meeting will be in Anchorage; the theme is “North to                           from global operations,                                                  Canadian Energy Venture
Alaska: geoscience, technology and natural resources.”                          Canada could face a year                                                       Abroad report by analyst Ian
Technical sessions of the joint conference will take place May                  when a foreign invasion                                                        Doig, Canadian E&P compa-
8 to May 10 and there will be pre-meeting and post-meeting                      changes the complexion of its EnCana CEO Randy                                 nies entered 2005 producing
                                                                                                                                         Talisman CEO Jim
field trips. The conference will include exhibits, theme ses-                   domestic industry.              Eresman                  Buckee                905,000 barrels per day of
sions, workshops and short courses.                                                Producing        properties,                                                crude oil and natural gas liq-
   Registration for the conference is open now. And anyone                      reserves and pipeline assets were shed in large          uids in 31 countries and almost 2 billion cubic feet
also wishing to submit an abstract for an oral or poster techni-                quantities as Canadian-based companies disposed          per day of gas.
cal presentation needs to do so by Feb. 7.                                      of holdings that in many cases were a greater                Over the past 12 months there has been a dra-
   Further information on the joint conference is available at                  source of grief than reward and in others were part      matic slide in those volumes.
http://www.anchorage2006.com.                                                   of a strategic realignment.
                                                                                   Now speculation is building that at least one of                                                    see INVADERS page B10
B2                                                                                               PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006

     ●     C O O K       I N L E T

     Beluga whale numbers stagnant
     NOAA survey in Alaska’s Cook Inlet last summer estimated 278 whales southwest of Anchorage
                              By MARY PEMBERTON                                 taken for subsistence compared to an average harvest of about 70
                              Associated Press Writer                           before restrictions were enacted in 1999.
                                                                                    “We felt the harvest was the key problem, when the harvest was

            survey of beluga whales in Cook Inlet finds that numbers            reduced the population would recover,” Hobbs said. “It hasn’t
            remain stagnant and could be declining despite a lengthy            shown the sort of recovery we were anticipating.”
            effort to get the white whales to rebound.                              So far, nothing has panned out for certain; the subsistence har-
               Fisheries biologists with the National Oceanic &                 vest is minimal, contaminant loads are comparable or less than
     Atmospheric Administration conducted an aerial survey of the inlet         other Alaska and Canada belugas and the number of strandings was
     just southwest of Anchorage early last summer to count the belugas.        within the expected range in 2004 and 2005, said Doug DeMaster,
     An analysis of the survey data indicates there were an estimated 278       administrator of the Seattle center.
     beluga whales in Cook Inlet in 2005, down from 366 the year                    Hobbs said calving rates and available habitat are being looked
     before, scientists said Jan. 20.                                           at, as well as predation by killer whales, the idea being that “the har-
        The estimate, while lower than previous years, does not neces-          vest was fairly significant and that certainly had some impact, but
     sarily mean numbers are falling, said Rod Hobbs, a researcher at the       may have been masking other problems that were impacting the
     Alaska Fisheries Science Center in Seattle, who conducted the pop-         whales.”
     ulation analysis. However, the best that can be said is numbers are            “Nothing really stands out as a factor,” Hobbs said.
     remaining flat, he said.
        “We expect a certain amount of variability from year to year and        New review under way for depleted status
     survey to survey, however this falls near the lower limit of the              The belugas were declared depleted under the Marine Mammal
     expected variability for a stable population,” Hobbs said.                 Protection Act in 2000. At that time, they were not recommended
        There were an estimated 1,300 belugas in Cook Inlet in the              for listing under the federal Endangered Species Act because the
     1970s. The goal is to help the whales recover to about 780 animals.        subsistence harvest was believed to have been the reason for the
        The reason for the stagnant numbers remains largely a mystery,          decline.
     Hobbs said.                                                                   Brad Smith, a biologist with the National Marine Fisheries
                                                                                Service in Anchorage, said a new review for ESA listing is being
     Recent subsistence take down                                               conducted and should be completed at the very latest by this fall.
         It was believed that over-harvesting by Alaska Natives was             The new review is looking at the stagnant or declining numbers, he
     largely to blame for the stock declining by nearly 50 percent              said.
     between 1994 and 1999. But the stagnant numbers since the sub-                There are five beluga stocks recognized in U.S. waters: Cook
     sistence harvest was severely restricted has scientists looking for        Inlet, Bristol Bay, eastern Bering Sea, eastern Chukchi Sea and
     other reasons for why the population is not growing.                       Beaufort Sea. Researchers estimate there are about 60,000 belugas
         In the last seven years, only five Cook Inlet belugas have been        in Alaska waters outside of Cook Inlet. ●

     ●     J U N E A U

     Conoco pans Dems’ plan to tax gas
     Spokesman questions measure’s constitutionality, says lost interest would offset any tax credits from plan
                   By ANNE SUTTON                       companies $1 billion for every year they             Griffin said the project cannot move for-
                 Associated Press Writer                didn’t deliver the gas to market.                ward, however, without the economies of
                                                           Sponsors of the bill, Anchorage               scale that would result from an agreement

            plan to tax oil companies as long as        Democrats Eric Croft and Harry Crawford,         with all three of the major producers. Those
            Alaska’s natural gas remains                said the measure would help spur construc-       talks with ExxonMobil and BP are still
            untapped        would        penalize       tion of a natural gas pipeline. They also have   under way with the governor’s office.
            ConocoPhillips despite its willingness      as backup a proposed citizen’s initiative that
     to move forward on construction of a natu-         would levy the same $1 billion tax on oil        $200M tax even with cooperation
     ral gas pipeline, an oil company executive         companies.                                          Griffin told the House Ways and Means
     said Jan. 25.                                         ConocoPhillips, the state’s biggest oil       Committee that ConocoPhillips has worked
         Jack Griffin, vice president of external       producer, says it has reached a tentative        cooperatively with the governor and
     affairs for ConocoPhillips Alaska, testified       agreement with the state on fiscal terms for     Legislature, but even so, it would be taxed
     against the bill that would tax North Slope        the joint pipeline project.                      an estimated $200 million a year for the
                                                                                                         next 10 to 25 years.
                                                                                                            “This tax is automatic and unavoidable.
                                                                                                         If we started welding steel and laying pipe
                                                                                                         tomorrow, we could not avoid this new
                                                                                                         tax,” he said.
                                                                                                            The bill would be repealed if a pipeline
                                                                                                         were built. At that time, oil companies
                                                                                                         could claim credit for some of the taxes
                                                                                                         they would have paid.
                                                                                                            The producers estimate it would take at
                                                                                                                                      see TAX page B3
PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006                                                                                                                                     B3

●     A L A S K A

DGGS releases new                                                                                Husky boosts Newfoundland offshore
                                                                                                 hopes with $C350M spending pledge
geophysical data, maps                                                                              Husky Energy has given a major lift to hopes for offshore Newfoundland,
                                                                                                 pledging to spend C$350 million in the region this year.
                                                                                                    Having picked up more than 38,000 acres in the Jeanne d’Arc Basin at a recent
               By ALAN BAILEY                    for new mineral resources and could enable      land sale and brought its White Rose oil project on stream ahead of schedule and
                                                 new interpretations of some of the existing     under budget, Husky is now ready to tackle a fourth well at White Rose and con-
               Petroleum News
                                                 mineralized areas.                              duct drilling to delineate reserves in a second White Rose pool.

       laska’s Division of Geological and                                                           “We believe there is strong potential for development of further oil and gas
       Geophysical Services has released         Obtain from DGGS                                reserves in Jeanne d’Arc,” Husky President John Lau said in a news release, not-
       new airborne electromagnetic and             The data were compiled and processed         ing that his company is now one of the basin’s largest landholders.
       magnetic data and maps for five areas     under contract between the division and            He said the White Rose infrastructure is a platform for growth and adding to
in Alaska. The areas covered consist of a        Stevens Management Corp. Subcontractor          the land portfolio, underscoring Husky’s “confidence and long-term commit-
1,447-square mile National Petroleum             Fugro Airborne Surveys acquired the data in     ment” to offshore Newfoundland.
Reserve-Alaska tract in the north-central        2005. The U.S. Bureau of Land                      The company has two production licenses and several exploration licenses as
Brooks Range in the Howard Pass and              Management funded the south NPR-A sur-          the basis for an active drilling program, depending on the availability of rigs.
Misheguk Mountain quadrangles; 405               vey to assist in an ongoing mineral assess-                                                                           —GARY PARK
square miles in the Circle quadrangle north-     ment. This information will aid BLM and
east of Fairbanks; 224 square miles in the
east Richardson area; 67 square miles
                                                 stakeholders in developing an integrated
                                                 activity plan for the southern NPR-A plan-
                                                                                                 WASHINGTON, D.C.
around Liscum; and 222 square miles in the       ning area. The State of Alaska funded the
Black Mountains. The east Richardson,
Liscum and Black Mountains areas are in
                                                 other surveys, with AngloGold Asanti            McCain: U.S. can’t depend on ‘wackos’
                                                 (U.S.A.) Exploration Inc. partially funding         A top Republican lawmaker said Jan. 22 that America must explore alternate
the Big Delta quadrangle.                        the Liscum survey.
   The survey northeast of Fairbanks pro-                                                        energy sources to avoid being held hostage by Iran or by “wackos” in Venezuela
                                                    A location map and ordering information      — an apparent reference to Hugo Chavez, Venezuela’s populist president.
vides contiguous coverage between the divi-      is                available                at
sion’s previously published Fairbanks and                                                            U.S. Sen. John McCain, a potential presidential contender in 2008, said recent
                                                 www.dggs.dnr.state.ak.us/geophys.htm#ge         action by “Mr. Chavez” and by Iran’s leaders make it clear that the United States
Circle airborne geophysical surveys.             ophysical_data. All of the materials are        will be vulnerable as long as it remains dependent on foreign energy.
                                                 available at the cost of reproduction from          “We’ve got to get quickly on a track to energy independence from foreign oil,
Detailed surveys                                 DGGS, 3354 College Road, Fairbanks, AK          and that means, among other things, going back to nuclear power,” McCain said
   Most of the surveying involved flying at      99709-3707, telephone (907) 451-5020,           on Fox News.
200 feet above ground level with a line spac-    and at the Alaska Department of Natural             “We better understand the vulnerabilities that our economy, and our very lives,
ing of one-quarter mile. Areas with tighter      Resources Public Information Center, 550        have when we’re dependent on Iranian mullahs and wackos in Venezuela,” said
line spacing include the western half of the     West 7th Ave., Suite 1260, Anchorage, AK,       McCain, who challenged President George W. Bush for the Republican presiden-
Liscum survey, which was flown with three-       telephone (907) 269-8400. Mail orders           tial nomination in 2000.
sixteenths-mile line spacing, and the            should be sent to the Fairbanks DGGS                Iran is OPEC’s second-largest producer. Venezuela is the world’s fifth-largest
Drenchwater Creek area in the southern           office, fax (907) 451-5050.                     oil exporter, with the largest proven oil reserves outside of the Mideast.
NPR-A survey, which was flown with one-             The materials will be also available for         Chavez, a frequent U.S. critic, accuses foreign oil companies of having looted
eighth-mile line spacing.                        inspection beginning Feb. 13 at the Alaska      Venezuela. He has promised that his socialist “revolution” is freeing the country
   The detailed geophysical data obtained in     Resources Library and Information               from “imperialist” interests and restoring its sovereignty.
the surveys shows contrasts in the magnetic      Services, 3211 Providence Drive,
                                                                                                                                                            —THE ASSOCIATED PRESS
and electrical properties of rock units.         Anchorage, AK 99508, telephone (907)
   Products available include 1:63,360-          272-7547. And beginning on Feb. 20 the
scale full-color maps of aeromagnetic data,      materials will be available at the Historical
1:63,360-scale full-color apparent resistivity   Collection of the Alaska State Library in the
maps and CD ROMs containing gridded              State Office Building in Juneau from 1 p.m.
and processed data from the surveys. The         to 5 p.m. Monday through Friday, contact
maps and data provide tools for exploration      Patience Frederikson at (907) 465-2927. ●

continued from page B2                           R-Juneau, said he will continue to hold
                                                 meetings on the bill. He said the committee
TAX                                              will expand its meeting schedule to include
                                                 Monday meetings in order to address its
least 10 years from the time an agreement        busy calendar.
was reached to begin flowing gas through a          The bill is House Bill 223. ●
   Griffin said by that time lost interest on
the tax payments and other factors would
significantly offset any refund.
   He added that requiring a private com-
pany to spend billions of dollars whether or
not the investment makes sense is an
unprecedented use of the state’s taxing
authority, one he suggested may run afoul
of state and federal constitutions.

Croft says producers could recoup
   Rep. Norm Rokeberg, R- Anchorage,
agreed. He told Griffin it appeared “grossly
unfair to point a pistol at your head when
common sense requires you move for-
   But bill sponsors say the companies
have reason to stall for competitive purpos-
es while they develop gas reserves in other
parts of the world.
   Croft said producers could recoup the
entire tax “if they move quickly.”
   “And every year they will start to pay
more, and more so, if they do put it on hold,
they will start to pay without any hope of
getting it back,” he said.
   Croft said a similar tax on oil producers
in the 1970s helped spur the flow of oil
from Prudhoe Bay.
   Committee chairman Bruce Weyhrauch,
B4                                                                                                                                      PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006

                                                                                               ●     A L B E R T A

 Sale dates set for Cook Inlet, Foothills
        May 24 has been set as the proposed sale date for the state’s 2006 Cook Inlet and
                                                                                               Three-way race
     North Slope Foothills areawide sales.
        The Alaska Department of Natural Resources Division of Oil and Gas is request-
     ing new information which has become available since its most recent findings for
                                                                                               shapes up in oil sands
     the sale areas were written.                                                              United States, China, France expected to take major stakes in
        The call for new information opens Jan. 23 and closes Feb. 22.
        The division said that based on information received it will determine whether         Athabasca region; Japan interested in more non-Middle East oil
     there is “substantial new information” which justifies supplements to the existing
     best interest findings.                                                                                  By GARY PARK
                                                                                                                                                 France’s Total, which has already
        All available state acreage in the areas would be offered.                                          For Petroleum News
                                                                                                                                                  set a goal of producing 500,000
        The final best interest findings and their supplements are available on the divi-

                                                                                                     he United States, China and France         barrels per day from the oil sands,
     sion’s Web site: www.dog.dnr.state.ak.us.                                                       are all saddling up for the Great          anticipates spending billions over
                                                                        —PETROLEUM NEWS              Alberta Oil Sands Derby, with Japan             the next few years on both
                                                                                                     emerging as an outsider.
                                                                                                                                                upstream and upgrading ventures.
 ALBERTA                                                                                           As global interest builds in the potential
                                                                                               of the resource, companies from the three
                                                                                                                                                target set by the world’s fourth-largest
                                                                                               countries are expected to take major stakes
 Paramount enters sands with 2 projects                                                        in the Athabasca region over the next 12
                                                                                                                                                integrated oil company, he has disclosed
                                                                                                                                                that the company — which has consider-
         Paramount Resources has tossed its name in the oil sands ring by unveiling plans to   months.
                                                                                                                                                able experience in Venezuela’s heavy oil
     develop two projects, including a wholly owned operation and a joint venture with             France’s Total, which has already set a
                                                                                                                                                fields — is now eying a 200,000 bpd
     North American Oil Sands Corp., both of them designed to produce 10,000 barrels per       goal of producing 500,000 barrels per day
                                                                                                                                                upgrader in the oil sands to convert raw
     day.                                                                                      from the oil sands, anticipates spending
                                                                                                                                                bitumen into refinery-ready crude.
         The company expects to drill 40                                                       billions over the next few years on both
                                                   The company expects to drill 40                                                                  Guiziou said Total will not be content to
     evaluation wells and acquire four                                                         upstream and upgrading ventures.
                                                  evaluation wells and acquire four                                                             confine itself to production alone, telling a
     square miles of 3-D seismic in the                                                            Now a survey of industry executives
                                                                                                                                                Calgary conference that a downstream
     Surmont area of northeastern Alberta square miles of 3-D seismic in the                   and investment bankers by research firm
                                                                                                                                                strategy is necessary to protect bitumen
     this year and next, following 10 evalu-        Surmont area of northeastern               Mergermarket for the law firm of Blake,
                                                                                                                                                producers from price swings between
     ation wells over the past two years.            Alberta this year and next,               Cassels & Graydon points to the U.S. and
                                                                                                                                                heavy and light crudes.
         It is also working on front-end engi- following 10 evaluation wells over              China battling to see which of the two will
                                                                                                                                                    He said Total could invest US$9 billion
     neering designs for both ventures.                                                        become the most active foreign investor.
                                                          the past two years.                                                                   in its Joslyn project, including US$5 bil-
         The project with North American                                                           Craig Spurn, head of oil and gas prac-
                                                                                                                                                lion for an upgrader to handle the project’s
     Oil Sands involves 150 evaluation                                                         tice in the law firm, said “enormous” inter-
                                                                                                                                                200,000 bpd output, indicating that a deci-
     wells this year, following 24 over the past two years, and 157 square miles of 3-D and    est from Chinese investors could see China
                                                                                                                                                sion on upgrader location will be made in
     2-D seismic.                                                                              grow rapidly from its current small-player
                                                                                                                                                the next 12 to 18 months.
         The Surmont site could generate 30,000 bpd of production at its peak and the joint    role.
                                                                                                                                                    Guiziou said Asia is emerging as a pos-
     venture with North American Oil Sands is targeted at 80,000 bpd.                              To date, Sinopec and China National
                                                                                                                                                sible market for oil sands production,
         Independent evaluations estimate Paramount’s leases contain 3.58 billion barrels of   Offshore Oil Corp., or CNOOC, have
                                                                                                                                                although the U.S. will remain the primary
     bitumen in place — 1.07 billion on the Surmont lease and 2.52 billion at the joint ven-   minority stakes in start-up projects and
     ture.                                                                                     PetroChina is a contender as the anchor
                                                                                                                                                    So far, Total has made no moves to
         Total recoverable resources are thought to range from 1.63 billion to 523 million     shipper on Enbridge’s planned Gateway
                                                                                                                                                secure capacity on any of the proposed
     barrels, with 923 million thought to be most likely.                                      pipeline.
                                                                                                                                                pipelines to the British Columbia coast for
         The net present value of Paramount’s recoverable bitumen is estimated at C$1.18           But the survey points to a major surge
                                                                                                                                                tanker delivery to Asia, he said.
     billion (most probable), C$178 billion (high) and C$553 million (low).                    in interest from Chinese producers follow-
                                                                                                                                                    Although its major Canadian focus is
                                                                              —GARY PARK       ing the rejection of CNOOC’s attempted
                                                                                                                                                on the oil sands, Total is also open to tak-
                                                                                               takeover of Unocal.
                                                                                                                                                ing on prospects in the Arctic and East
                                                                                                   Spurn said so long as oil and gas prices
                                                                                                                                                Coast, but has yet to identify the right
                                                                                               stay robust there is every reason to expect
                                                                                                                                                opportunity, Guiziou disclosed.
                                                                                               greater merger and acquisition activity in
                                                                                                                                                    “If geology looks good on any given
                                                                                               the oil sands sector.
                                                                                                                                                prospect, we would be interested,” he said,
                                                                                               Total eyes upgrader                              listing the Mackenzie Delta as a contender.
                                                                                                                                                    But he conceded that Total has yet to
                                                                                                   Jean Luc Guiziou, president of Total’s       develop the expertise required to embark
                                                                                               Canadian unit, sent out a clear message          on the frontier plays.
                                                                                               that China and the U.S. will not have the
                                                                                               field to themselves.                             Japanese companies could be buyers
                                                                                                   In addition to the ambitious production
                                                                                                                                                    Japanese companies are moving into
                                                                                                                                                line as prospective investors or buyers of
                                                                                                                                                oil sands crude, the Japanese consulate in
                                                                                                                                                Canada says.
                                                                                                                                                    A delegation of government and indus-
                                                                                                                                                try officials was in Alberta in mid-January
                                                                                                                                                meeting with production and pipeline
                                                                                                                                                    The delegation included representatives
                                                                                                                                                from Japan’s natural resources ministry
                                                                                                                                                and officials from Cosmo Oil, Idemitsu
                                                                                                                                                Kosan, Nippon Oil, Japan Energy Corp.,
                                                                                                                                                Mitsubishi and Mitsui.
                                                                                                                                                    In fact, Japan has had a low-key pres-
                                                                                                                                                ence in the oil sands for three decades,
                                                                                                                                                with Japan Canada Oil Sands operating a
                                                                                                                                                10,000 bpd project in northeastern Alberta,
                                                                                                                                                but has been reluctant to take on a larger
                                                                                                                                                role because of its well-established
                                                                                                                                                reliance on Middle East oil, which con-
                                                                                                                                                tributes 85 percent of its imported oil.
                                                                                                                                                    But the Japanese government has
                                                                                                                                                shown signs of wanting to diversify its
                                                                                                                                                supply sources, bringing the oil sands into
                                                                                                                                                    The Gateway pipeline could open that
                                                                                                                                                door, with 100,000 bpd or more up for
                                                                                                                                                grabs in Japanese and South Korean mar-
                                                                                                                                                kets if China and California take their
                                                                                                                                                expected 75 percent share. ●
PETROLEUM NEWS         •   WEEK OF JANUARY 29, 2006                                                                                                                                  B5

●     G U L F      O F      M E X I C O

MMS: Production off                                                                            CN repurchases short oil sands rail lines
                                                                                                  CN Rail has repurchased a pair of short-line railroads in northern Alberta to

to next storm season                                                                           provide feeder lines for the railroad’s bulk commodity and merchandise busi-
                                                                                               nesses. It had shed the lines back in the 1990s.
                                                                                                  CN will pay C$26 million to RailAmerica, with a possible additional payment
Agency says at least one-sixth of Gulf of Mexico oil production                                of up to C$4 million if the lines bring in more business, the company announced
                                                                                               Jan. 19.
will still be off when 2006 hurricanes begin; future repairs slow                                 The lines being purchased are the Mackenzie Northern Railway and the
               By ALAN SAYRE                                                                   Lakeland & Waterways Railway, both north of Edmonton. As part of the deal CN
                                                 The report indicates the Gulf will            will also add the Central Western Railway, a 21-mile line in east-central Alberta
        Associated Press Business Writer
                                                     not be able to provide any                used mostly for training. RailAmerica had announced it wanted to exit the Alberta

      he Gulf of Mexico’s offshore petro-          immediate relief to consumers               business.
      leum industry is far from recovering         from high oil and natural gas
      from hurricanes Katrina and Rita,                                                        Tracks will be upgraded
                                                    prices. Oil prices have been
      and at least one-sixth of the region’s                                                       CN plans to upgrade tracks on the Mackenzie and Lakeland lines to provide
normal daily oil production will still be
                                                around $67 per barrel and gas has              more capacity for hauling building materials, oil sands by-products, minerals, for-
off line at the start of next storm season, a     hovered — after a huge jump in               est products and grain. The improvements are expected to cost around C$40 mil-
federal agency says.                            the fall — around $9 per thousand              lion.
   Katrina and Rita                                          cubic feet.                           The Lakeland line will boost CN’s oil sands area network, while the
destroyed 115 of the                                                                           Mackenzie line will help serve the proposed Mackenzie Delta natural gas
Gulf’s 4,000 pro-                               mately 255,000 barrels a day and 400           pipeline.
duction platforms                               million cubic feet of gas a day will prob-         The 600-mile Mackenzie line runs north from Smith, Alberta, about 130 miles
and damaged anoth-                              ably not be restored to production prior to    north of Edmonton, to Hay River, Northwest Territories. The Lakeland line con-
er 52, according to a                           the start of the 2006 hurricane season,”       nects with CN in the Edmonton area and runs 118 miles to Boyle, Alberta, where
report released Jan.                            the report said.                               it connects with the Athabasca Northern Railway. The Central Western Railway
19 by the Minerals                                 Hurricane season begins June 1.             links with CN near Drumheller, Alberta.
Management                                         The report indicates the Gulf will not          CN, which began operating the rail lines Jan. 19, has promised to honor exist-
                          “The overall dam-
Service, which man- age caused by hurri-        be able to provide any immediate relief to     ing labor contracts. The operations have a total of about 130 employees and han-
ages federal offshore canes Katrina and         consumers from high oil and natural gas        dled about 50,000 carloads of freight last year.
leases.                   Rita has shown                                                                                                                           —ALLEN BAKER
                          them to be the        prices. Oil prices have been around $67
   The storms’ com- greatest natural dis-       per barrel and gas has hovered — after a
bined fury was much asters to oil and gas       huge jump in the fall — around $9 per
stronger when they development in this          thousand cubic feet.
                          history of the Gulf
swept across the of Mexico.” —MMS                  To quantify the damage caused by the
Gulf than when they regional director           two storms, the MMS said Hurricane Ivan
hit shore, and they Chris Oynes                 in 2004 destroyed only seven production
also damaged 183                                platforms.
pipelines, including 64 classified as              “The overall damage caused by hurri-
major. As of Jan. 19, only 22 had been          canes Katrina and Rita has shown them to
returned to service, the MSS said.              be the greatest natural disasters to oil and
   There are about 33,000 miles of petro-       gas development in this history of the
leum pipelines in the Gulf of Mexico,           Gulf of Mexico,” said MMS regional
22,000 miles of which were exposed to           director Chris Oynes.
the two storms.                                    The MMS said Katrina, which was a
   As of the week of Jan. 16, MMS said          Category 5 storm as it moved through the
396,000 barrels per day of the Gulf’s nor-      petroleum regions of the Gulf, destroyed
mal production of 1.5 million bpd of oil        46 platforms and damaged 20 others.
were being kept from market because of          Rita, a Category 4 storm in the Gulf,
storm damage, along with 1.8 billion            destroyed 69 platforms and damaged 32
cubic feet of the region’s normal daily         others on a course much closer to Texas.
production of 10 bcf of natural gas.               There were 418 minor pollution inci-
                                                dents and no major incidents reported, the
MMS: future repair work slow                    MMS said. The agency defined a minor
 Future repair work will be slow, the           incident as one involving a spill of less
MMS projected.                                  than 500 barrels of oil that does not reach
 “For a long-term projection, approxi-          the coastline. ●
B6                                                                                                                                      PETROLEUM NEWS                       •   WEEK OF JANUARY 29, 2006

●     A N C H O R A G E

Web posting calls for attacks on pipeline
Site claiming al-Qaida affiliation; nonprofit translated information in December; security agencies, Alyeska, aware of posting
                                                                                                                                                              Security agencies aware of posting

                                                                                                                                               JUDY PATRICK

         Web site claiming to be affiliated                                                                                                                       Spokesmen for the FBI and other securi-
       with al-Qaida has called for attacks                                                                                                                   ty agencies said they were aware of the post-
       against the trans-Alaska oil pipeline.                                                                                                                 ing. None would say whether it had prompt-
           The posting calls on jihadists to                                                                                                                  ed extra measures in Alaska.
shower the pipe with bullets or hide and det-                                                                                                                     Curtis Thomas, a spokesman for the
onate explosives along its length, the                                                                                                                        Alyeska Pipeline Service Co., the oil com-
Anchorage Daily News reported. It also                                                                                                                        pany consortium that runs the 800-mile
calls for attacks on the Valdez tanker dock.                                                                                                                  pipeline, said his company also was aware
   The unknown author encourages small                                                                                                                        of the posting.
cells of four or five mujahedeen, or Muslim                                                                                                                       “We’re not aware at this time of any
guerrillas, living in the United States or in                                                                                                                 imminent threat,” he said.
Canada or Mexico to mount the attacks.                                                                                                                            Company policy prohibits discussion of
   The 10-page posting includes numerous                                                                                                                      security procedures, staffing levels or other
links to Web sites providing maps and other                                                                                                                   issues, he said.
information about the pipeline.                                                                                                                                   FBI spokesman Eric Gonzales said the
   Attacking oil and gas targets in the                                                                                                                       posting did not seem to contain information
United States and other countries is key to                                                                                                                   beyond what is readily available to anyone
bringing down the economy of the                The trans-Alaska oil pipeline
                                                                                                                                                              with a little digging.
“American devils,” the author wrote, saying        The Arabic posting was discovered           al terrorists.                                                     “I don’t think it’s a secret to anyone that
the message was posted in response to calls     and translated in late December by the             There is no way to identify the author or                  the trans-Alaska pipeline, the terminal at
from Osama bin Laden and his top al-Qaida       SITE Institute, a Washington, D.C., non-       know whether it could inspire an attack, said                  Valdez, is a critical asset not only to the state
deputy, Ayman al-Zawahri.                       profit organization that tracks internation-   SITE director Rita Katz.                                       but the country,” Gonzales said. “It’s stating
                                                                                                                                                              the obvious — that this pipeline plays a crit-
                                                                                                                                                              ical role in this nation’s economy.”

                                                                                                                                                              Line carries about
                                                                                                                                                              one-eighth of U.S. production
                                                                                                                                                                  The Alaska pipeline carries more than
                                                                                                                                                              800,000 barrels of crude a day from the
                                                                                                                                                              North Slope oil fields to the Valdez tanker
                                                                                                                                                              port, about one-eighth of the U.S. produc-
                                                                                                                                                              tion. The author notes that 300,000 gallons
                                                                                                                                                              of crude oil spewed out of a bullet hole in
                                                                                                                                                              2001 and that the pipeline is largely above
                                                                                                                                                              ground, exposed and close to a highway.
                                                                                                                                                                  A Livengood man was sentenced to 16
                                                                                                                                                              years in state prison after his conviction for
                                                                                                                                                              oil pollution, criminal mischief, handling a
                                                                                                                                                              firearm while drunk and other charges.
                                                                                                                                                              Authorities say he shot the pipeline with a
                                                                                                                                                              .338-caliber hunting rifle.
                                                                                                                                                                  Pipeline operators have found numerous
                                                                                                                                                              other bullet strikes over the years that did
                                                                                                                                                              not puncture the pipeline’s steel wall.
                                                                                                                                                                  Security for the pipeline and Valdez
                                                                                                                                                              tanker dock was heightened after the Sept.
                                                                                                                                                              11, 2001, terror attacks in New York City
                                                                                                                                                              and Washington, D.C. One of the biggest
                                                                                                                                                              changes was creation of a security zone the
                                                                                                                                                              Coast Guard enforces around the dock. The
                                                                                                                                                              zone remains in effect.

                                                                                                                                                              Posting contains errors
                                                                                                                                                                  The posting includes numerous errors,
                                                                                                                                                              including a sentence saying the pipeline
                                                                                                                                                              starts at the North Pole and ends at Valdez
                                                                                                                                                              “on the Atlantic Ocean.”
                                                                                                                                                                  Katz, the SITE director, said her organi-
                                                                                                                                                              zation has analyzed and translated many ter-
                                                                                                                                                              rorism-related Web postings for its clients,
                                                                                                                                                              including oil companies, and this one stood
                                                                                                                                                                  “When I saw this message, I was
                                                                                                                                                              shocked,” Katz said. It was much longer,
                                                                                                                                                              more thoughtful and more fully researched
                                                                                                                                                              than the normal posting, she said.
                                                                                                                                                                  The posting might have come from any-
                                                                                                                                                              one. What’s more important than the source
                                                                                                                                                              is the influence it might have.
                                                                                                                                                                  “Once there’s an idea there, then you
                                                                                                                                                              don’t know who saw that idea and might
                                                                                                                                                              take the initiative and go forward,” she said.
                                                                                                                                                                  “We take all of these matters quite seri-
                                                                                                                                                              ously,” said John Madden, state Homeland
                                                                                                                                                              Security director. However, the posting was
                                                                                                                                                              “not any great, analytical document,” but
                                                                                                                                                              rather a collection of information available
                                                                                                                                                              from open sources.
                                                                                                                                                                  In December federal pipeline regulators
                                                                                                                                                              ordered Alyeska to develop new spill
                                                                                                                                                              cleanup drills with “terrorist attack scenar-
                                                                                                                                                              ios” in mind. ●
B8                                                                                                                                      PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006

●     O N T A R I O

Nukes, natural gas, renewables in, coal out
Ontario lays out roadmap for energy future; emphasis on salvaging nuclear power; natural gas figures large despite uncertainties
               By GARY PARK                                                                    add 9,400 to 12,400 megawatts of nuclear         cent, 42 percent and 43 percent by 2025,
             For Petroleum News                 In an effort to placate the “green”            energy by 2025. Currently, Ontario has 16        increasing from 7,855 megawatts in 2005 to
                                                    community, the government                  nuclear reactors that generate a total of        15,500 megawatts in 2025.

       hose looking for a blueprint on future   followed the report by negotiating             11,400 megawatts.
      energy consumption in North America        C$2 billion in contracts to build                 It is adamant that by properly managing      Nuclear to be 50%
      might be well advised to pay close
                                                wind and hydro power projects to               the construction and financial risks and         of electric generation
      attention to Ontario, Canada’s indus-                                                    maintaining high capacity factors and con-           Nuclear generation will stick close to 50
trial heartland and most populous province       have 10 percent of electricity in             sistent operation, nuclear generation offers
                                                  Canada’s biggest market come                                                                  percent of electricity production over the
with 13 million residents.                                                                     an “excellent alternative” to natural gas        two decades, with its contribution to pro-
    Pledged to close all of its coal-fired            from renewable sources.                  generation, which is expected to be a major      duction rising from 11,397 megawatts to
power plants and facing an uncertain supply                                                    resource to carry Ontario through its phase-     15,000 megawatts.
and price future with natural gas, the          province facing a widening gap between         out of coal-fired power, then play a “more
                                                supply and demand.                                                                                  Under government policy, coal is fore-
province is set to embrace a revival of                                                        targeted role,” reflecting unease over future    cast to drop from 6,434 megawatts in 2005
nuclear-powered electricity generation,                                                        supplies from Western Canada and the
while reaching out to renewable energy          Nuclear recommendation                         Arctic.
                                                                                                                                                to zero by 2015.
                                                most controversial                                                                                  However, the authority concedes that
sources.                                                                                           Gas is expected to edge up from 7 per-       gas-fired generation has a number of attrac-
    Premier Dalton McGuinty has also left a         The report’s most controversial recom-     cent as feedstock for current electricity pro-   tive features: It can be built quickly, located
crack in the door open should efforts to        mendation is to spend C$40 billion on          duction to 11 percent in 2015, then slide to     to relieve transmission bottlenecks and can
develop clean-coal technology achieve a         nuclear plants over the next two decades,      9 percent in 2020 and 6 percent in 2025, but     complement wind generation in meeting
breakthrough.                                   regardless of woeful experience with           more than double as an output source from        demand, especially in summer.
    The outline was contained in a report by    nuclear power, including a C$20 billion        just under 5,000 megawatts in 2005 to                But a four-fold rise in gas prices over the
the Ontario Power Authority, a govern-          debt left by Ontario’s earlier misadventures   11,000 megawatts in 2025.                        past five years gives rise to a belief that gas
ment-created independent body assigned to       in the sector.                                     Renewables are projected to climb in         prices will “remain high and volatile” and,
ensure long-term energy supply in a                 The authority says the province needs to   increments from 23 percent today to 40 per-      because of competition among residential,
                                                                                                                                                commercial and industrial users, “puts its
                                                                                                                                                availability at a premium or even at risk.”
                                                                                                                                                    The authority did not recommend gas-
                                                                                                                                                fired generation “for base-load generation
                                                                                                                                                because in that role it presents risks across
                                                                                                                                                all three dimensions of cost, environmental
                                                                                                                                                impact and financial risk.”
                                                                                                                                                    As a result, the report turned its major
                                                                                                                                                thrust to the building of new reactors or
                                                                                                                                                refurbishing existing plants to maintain
                                                                                                                                                nuclear power’s 50 percent share of the
                                                                                                                                                province’s overall electricity production.
                                                                                                                                                    It suggests the government needs to
                                                                                                                                                spend up to C$83 billion over the next two
                                                                                                                                                decades to build reactors and hydroelectric
                                                                                                                                                dams as well as some gas-fired generation

                                                                                                                                                Electricity bills expected to grow 17%
                                                                                                                                                    Chief executive officer of the authority,
                                                                                                                                                Jan Carr, said the capital costs of such a
                                                                                                                                                plan will increase customers’ electricity
                                                                                                                                                bills by 17 percent from the current C$12
                                                                                                                                                billion a year.
                                                                                                                                                    But that doesn’t end the bad news. A
                                                                                                                                                separate report by the Association of Major
                                                                                                                                                Power Consumers in Ontario warns the
                                                                                                                                                government’s plan to shut down all of the
                                                                                                                                                coal-fired generating plants by 2009 will
                                                                                                                                                add another C$3 billion a year to electricity
                                                                                                                                                    But the 1,100 page report said it would
                                                                                                                                                “make sense to continue monitoring the
                                                                                                                                                timing risks” around the current schedule to
                                                                                                                                                phase out coal plants.
                                                                                                                                                    It says the facilities at coal-fired plants
                                                                                                                                                should be retained in case technology to
                                                                                                                                                clean up and increase the use of coal
                                                                                                                                                becomes economically feasible, despite the
                                                                                                                                                insistence of Energy Minister Donna
                                                                                                                                                Cansfield that there is no such thing as
                                                                                                                                                clean-coal technology and her determina-
                                                                                                                                                tion to eliminate up to 30 million metric
                                                                                                                                                tons a year of greenhouse gas emissions by
                                                                                                                                                replacing coal.
                                                                                                                                                    In an effort to placate the “green” com-
                                                                                                                                                munity, the government followed the report
                                                                                                                                                by negotiating C$2 billion in contracts to
                                                                                                                                                build wind and hydro power projects to
                                                                                                                                                have 10 percent of electricity in Canada’s
                                                                                                                                                biggest market come from renewable
                                                                                                                                                    Cansfield granted contracts for eight
                                                                                                                                                wind facilities and one hydroelectric devel-
                                                                                                                                                opment to supply 975 megawatts to power
                                                                                                                                                more than 250,000 homes over the 2006-
                                                                                                                                                2008 period.
                                                                                                                                                    “We have made an important commit-
                                                                                                                                                ment to clean, green, renewable energy,”
                                                                                                                                                she said. ●
PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006                                                                                                                                                      B9

continued from page B1                            First, one of the

                                                                                              JUDY PATRICK
                                                                                                             beneath state-owned tundra. This royalty           “If we owned the pipeline, we wouldn’t
                                               five oil companies                                            oil amounts to 12.5 percent of total North      save that entire amount,” Logsdon said.
STAKE                                          that own the line                                             Slope production.                               That’s because, as an owner, the state
                                               would have to agree                                               The pipeline, though aging, still has a     would have a share in the costs of operat-
share of North Slope oil through the           to sell. The state also                                       lot of life left, the governor said. In 2002,   ing the pipeline, he said.
pipeline, and it could end chronic legal       would have to figure                                          regulators approved new 30-year right-of-          But most likely, state ownership would
fights between the state and the pipeline      out where to get the                                          way agreements for the pipeline across          result in substantial savings — plus a
owners over pipeline transportation rates,     money to make the                                             state and federal lands. And if a gas           share of the pipeline’s profits.
which have a big bearing on how much oil       purchase, and own-                                            pipeline is ever built, that could spark a         “How much we could save, that’s
revenue the state collects.                    ing the pipeline MIKE MENGE                                   rush of exploratory drilling and new finds      going to take some analysis,” Logsdon
   In the governor’s view, “it makes good      could conflict with                                           of oil to keep the pipeline busy, he said.      said.
business sense” to evaluate a pipeline pur-    the state’s role as a pipeline regulator.                     The pipeline currently carries close to            On the downside, the state might be
chase, although he said the work won’t            Mike Menge, the state’s natural                            900,000 barrels of oil per day, about half      buying a costly obligation because, some-
begin in earnest until after state negotia-    resources commissioner, said no decision                      what it once did but still about one-eighth     day, the pipeline will have to be disman-
tors finish work toward a tax contract for     has been made on how big a share the                          of total U.S. production.                       tled and the route cleaned up, said Ken
possible construction of a $20 billion gas     state would pursue, or whether to use the                                                                     Boyd, a former state oil and gas director
pipeline to carry the North Slope’s prodi-     state’s recent budget surpluses or some                       Ownership would produce savings                 now working as an industry consultant.
gious gas reserves as far as the Midwest.      other funding source to pay for it.                              Chuck Logsdon, a Murkowski aide and
                                                  Murkowski, however, mentioned that                         the state’s former chief oil economist, said    Pipeline valued at $3 billion
                                               the state might seek a pipeline piece equal                   the state pays about $230 million a year to        And buying even a small share of the
   But buying into the oil pipeline pres-      to the state’s share of oil pumped from                       have its oil shipped down the pipeline.
ents difficulties.                                                                                                                                                                    see STAKE page B11

continued from page B1                         pulling tubing and casing for eight miles.                    base.”                                          wells.
                                               Production will be tied back to either                           The team is in place, he said, and BP           Viscous oil is being accessed with
BP                                             Badami or Endicott.                                           hopes to have the project operational in        multi-laterals, wells with three or more
                                                                                                             2008.                                           branches off the main well bore.
can have a 50-year future in Alaska with-      LoSal™ for Endicott                                                                                              What if, Marshall asked, in 10 or 15
out exploration. In addition to working on                                                                   Heavy vs. viscous oil                           years drilling technology had developed
                                                  BP will be doing a low-salinity water-
developing what’s already been discov-                                                                                                                       to the point where 20 branches could be
                                               flood at Endicott (see story in this issue),                      The main production on the North
ered, BP is also looking at ways to                                                                                                                          drilled from a single main bore? That
                                               a first for this BP technology.                               Slope has been conventional oil. More
improve recovery factors from known                                                                                                                          would reduce 20,000 wells to a thousand.
                                                  BP produces 10 barrels of water for                        recently viscous oil has been produced
reserves: A 1 percent improvement in                                                                                                                         And those wells produce for 75 years:
                                               every barrel of oil at Endicott, which is                     and Marshall noted that it took the indus-
recovery is about 600 million barrels, he                                                                                                                    “They don’t produce a lot; they go on for
                                               the downside of water in oil fields,                          try an investment of three-quarters of a
said, the equivalent of four fields the size                                                                                                                 a long, long time.”
                                               Marshall said, while on the plus side,                        billion dollars before viscous oil, the con-
of Northstar.                                                                                                                                                   Steam-assisted gravity drainage is
                                               waterflood, along with enhanced oil                           sistency of molasses compared to an olive
   What would it take to do that?                                                                                                                            used elsewhere in the world to produce
                                               recovery, can double recovery from a                          oil like consistency for conventional oil,
Marshall listed several technologies:                                                                                                                        heavy oil: Two horizontal wells are
                                               field.                                                        became commercial.
moving beyond 3-D seismic to 4-D seis-                                                                                                                       drilled parallel to each other and steam is
                                                  BP is injecting 2 million barrels of                           It took new technologies — multi-lat-
mic; looking at carbon dioxide injection;                                                                                                                    injected into one and oil is produced out
                                               water daily at Endicott to help maximize                      eral drilling and jet pumps — to make
cheaper ways of drilling wells; thermal                                                                                                                      of the other. Another method involves
                                               oil recovery.                                                 viscous commercial, and he said the oper-
technologies to unlock heavy oil; ultra-                                                                                                                     injecting steam for six months, allowing it
                                                  Marshall said a BP team investigated                       ators are “still encountering significant
extended reach drilling; and low-salinity                                                                                                                    to soak and heat up the reservoir, produc-
                                               what would happen if salts were taken out                     operational headaches with sand and sand
waterflood.                                                                                                                                                  ing oil for a few months and then flipping
                                               of the water being injected and found                         management and the need to add heat to
   BP is “not chasing new barrels through                                                                                                                    back to steam injection. That goes on for
                                               “when we inject cleaner, low-salinity                         the facilities that weren’t designed for this
wildcatting” in Alaska, but it is chasing                                                                                                                    20 to 70 years. “It’s quite a different busi-
                                               water we get up to about a 15 percent”                        viscous oil.”
more barrels. Over the past 10 years, he                                                                                                                     ness from what we do today.”
                                               increase in the recovery, an expected                             But beyond — and above — viscous
said, “we had five times more success                                                                                                                           Today BP is looking at the possibility
                                               addition of some 30 million barrels from                      oil, there is heavy oil.
doing that” — making known barrels                                                                                                                           of an 8 percent recovery rate from the 20
                                               Endicott.                                                         Some 20 billion barrels, Marshall said,
commercial — than in exploration                                                                                                                             billion barrels of heavy oil on the North
                                                  The project requires a plant at Endicott                   “about the same size Prudhoe was before
drilling.                                                                                                                                                    Slope, Marshall said, while in Canada
                                               and will cost some $100 million.                              we started producing.” This heavy oil,
                                                  This is BP’s worldwide test of its                         which has the consistency of liquid             they are looking at 50 percent recovery
The future: gas,
                                               LoSal™ technology, Marshall said. “We                         asphalt, overlies Kuparuk and Milne. It’s       rates.
Liberty, LoSal™; heavy oil                                                                                                                                      Three or four years out we could see
                                               decided Alaska is the right place to do it                    just below permafrost, so it’s cold. “And
   Natural gas development will extend         and the Endicott reservoir is the best                        it’s got tremendous, tremendous chal-           an Alaska heavy oil pilot project, he said.
North Slope field life, Marshall said.         reservoir we could try that on.” He said                      lenges,” he said.                                  But all of these projects are based not
“The life of oil fields will go on way         BP wants to make sure the technology is                           In Canada heavy oil exists at even          on just an oil industry, but on an oil and
beyond what they might have otherwise          scalable to other fields, and estimates that                  shallower depths and without permafrost         gas industry. “Some people say we’re
done. It causes us to think very different-    when applied to other fields in Alaska it                     and there are plans to drill 20,000 wells to    not interested in gas: I would say just
ly about our oil business. We have to          has the potential to add “hundreds of mil-                    access the heavy oil. “We just can’t see        the opposite — we need gas,” Marshall
think in a 50 or 50-year plus kind of          lions of barrels to the producing reserve                     that working here,” he said: not 20,000         said. ●
   As for the future of BP’s oil business
in Alaska, Marshall discussed three proj-
   Liberty is a 150 million barrel field
offshore. “It’s arguably one of the best
undeveloped reservoirs on the North
Slope,” he said.
   BP made a decision last year to devel-
op Liberty from shore using extended
reach drilling and estimates the project at
about a billion dollars, Marshall said.
   BP developed Northstar, another off-
shore North Slope field, as an island and
he said regulatory issues around that
development were a contributing factor to
“a three-times cost overrun” on the proj-
ect. Drilling Liberty from shore elimi-
nates island, causeway and some environ-
mental and regulatory issues, he said.
   The Alaska ERD record is about
19,000 feet or some three miles, set at
Niakuk. Liberty is four to eight miles off-
shore, so wells will be the equivalent of a
rig in downtown Anchorage drilling out
to Rabbit Creek Road, and hitting a target
about the size of a single-car garage,
Marshall said.
   He said the Liberty project will entail a
single pad and require a new rig because
there isn’t a rig in Alaska capable of
B10                                                                                                                               PETROLEUM NEWS      •   WEEK OF JANUARY 29, 2006

continued from page B1                       PetroKazakhstan, ending a turbulent 15        grief because of the fiscal terms imposed     pany, outside the reach of all but a few
INVADERS                                     years in the one-time Soviet republic.
                                                China National Petroleum Corp. paid
                                                                                           by the Syrian government.
                                                                                              In addition Al Furat was in rapid
                                                                                                                                             It would also be challenging for those
                                             US$4.18 billion for 550 million barrels       decline from the net 106,300 bpd that         companies larger than EnCana to launch
EnCana’s focus in North America              of reserves, production of 153,000 bpd        Petro-Canada enjoyed three years ago          a raid, given that they trade on measures
   No company was more active than           and Kazakhstan’s key refinery.                and was blamed by analysts for a large        of earnings, while independents trade on
EnCana, which has decided its future lies       The transaction was concluded amid a       portion of a 12 percent drop in Petro-        measures of cash flow, he said.
in unconventional resource plays in          tangle of threats, lawsuits and accusa-       Canada’s shares a year ago.                       It would be difficult for one of the
North America.                               tions of an unfair deal, but has since been      Wilf Gobert, vice chairman of Peters       global giants to digest EnCana because
   It bailed out of an increasingly trou-    resolved with state-owned KazMunaiGaz         & Co., described the economics of oper-       of the impact “we’d have on their earn-
blesome venture in Ecuador by selling        negotiating a deal with the Chinese           ating in Syria as “horrendous,” with the      ings in the short run,” Eresman told the
75,000 bpd of production, 143 million        owner to acquire a major stake in the oil     government taking 95 percent of any           Calgary Herald.
barrels of reserves and a 36.3 percent       production and refinery.                      price increases.                                  He left no doubt that EnCana will not
stake in a 450,000 bpd pipeline for             Simultaneously, Nelson Resources,                                                        be a willing seller because of its unwa-
US$1.42 billion to Andes Petroleum, a        another company with Canadian inter-          Talisman adds to North Sea holdings           vering commitment to its asset base and
joint venture of Chinese state-owned         ests, was pulling up stakes in Kazakhstan        The one significant reversal of the        its “unbooked” resource potential in nat-
companies believed to include China          after five years of turning a bargain pur-    Canadian pullback occurred in late 2005       ural gas and the oil sands.
National Petroleum Corp.                     chase of Kazakh oil fields into 270 mil-      when Talisman Energy hooked Britain’s             At the same time, Eresman said
   That was followed two months later        lion barrels of reserves and 32,000 bpd of    Paladin Resources for C$2.5 billion,          EnCana has no thoughts of doing major
when it unloaded a 50 percent interest in    production.                                   adding to its substantial North Sea hold-     acquisitions because of the large invento-
the Chinook heavy oil discovery offshore        Russia’s giant Lukoil scooped up           ings.                                         ry of land in its portfolio.
Brazil to Norway’s Norsk Hydro for           those assets for US$2 billion, amid accu-        Of Paladin’s 190 million boe of                “There is no need for us to do any
US$350 million, although EnCana had          sations from angry Nelson shareholders        proved plus probable reserves, 75 percent     acquisition,” and besides making a deal
not booked any reserves for the discov-      that five insiders of their company had       are in the Norwegian, British and Danish      in a high price environment “is very chal-
ery and is continuing an active explo-       sold 4.7 million shares for C$2.82 each       sectors. In addition, Norway offers           lenging,” he said.
ration program on several other conces-      two weeks before the Lukoil offer of          600,000 net undeveloped acres and
sions offshore Brazil.                       C$2.57.                                       underpin Talisman’s goal of boosting          Speculation around Talisman
   Those deals trailed EnCana’s late                                                       output to 70,000 boe per day in 2009             Talisman Chief Executive Officer Jim
2004 bailout from the British North Sea,     China National teamed with India              from the current 46,000 boe per day.          Buckee has often said he would not want
when it sold interests in a major discov-       China National Petroleum Corp. again          Even limiting the count to the major       or welcome a takeover bid, although the
ery, two producing fields and interests in   surfaced in a Canadian-related deal in        divestitures, it appears overseas oil pro-    door is open to any prospective buyer
exploratory blocks covering 740,000 net      December when it teamed up with India’s       duction by Canadian-owned companies           who is willing to pay a premium.
undeveloped acres for US$2.1 billion.        state-controlled Oil & Natural Gas Corp.      dropped by about 318,000 bpd, wiping             Intense speculation in the second half
   The surprise buyer of those holdings,     to pay C$676 million for Petro-Canada’s       close to one-third of the 2004 tally.         of 2005 that Talisman was being targeted
including a resource base of 250 million     38 percent share of a Syrian oil project.        What’s next is far from certain, but       culminated in November when Buckee
equivalent barrels and output of 19,000         The two Asian buyers will share            persistent speculation focuses on the         confirmed that an offer had been made by
barrels of oil equivalent per day expected   58,000 bpd of production from reserves        chances of a Canadian company falling         an unidentified “major,” and was rejected
to reach at least 90,000 barrels in 2007,    of 66.3 million barrels in the Al Furat       into the fold of an international company     because it fell short of the required “fat
was EnCana’s cross-town rival Nexen.         field, a venture with Royal Dutch Shell       other than one based in the United States.    premium.”
                                             and Syria’s national petroleum company.          The Chinese and Indians are always a          One of the first to topple in 2006
PetroKaz departs Kazakhstan                     Although the assets contributed sig-       threat as they fan out around the globe in    could be high-flying Niko Resources,
   By far the most celebrated and contro-    nificant volumes, they represented less       their desperate effort to meet domestic oil   which produces oil and gas in India and
versial sale of 2005 involved the depar-     than 4 percent of Petro-Canada’s earn-        demand; Royal Dutch Shell is hungry for       Bangladesh.
ture      from       Kazakhstan       by     ings and were an increasing source of         new reserves; and France’s Total has set         Before Christmas it rejected a prelim-
                                                                                           a goal of producing 500,000 bpd from the      inary US$1.4 billion takeover bid by
                                                                                           Alberta oil sands, more than double the       Indian Oil Corp., India’s largest refiner,
                                                                                           projects it already has under way.            for most of Niko’s assets in that country.
                                                                                              When such super-majors are in the             Indian Oil offered roughly C$50 a
                                                                                           buyers’ market,          virtually    every   share and was expected to return with
                                                                                           Canadian-controlled E&P company               something closer to C$70, despite a 28
                                                                                           could be seen as potential quarry.            percent slide in Niko’s stock in recent
                                                                                              There has been no shortage of rumors       months from a record high of C$71 in
                                                                                           over recent months involving EnCana,          March.
                                                                                           Petro-Canada, Talisman Energy, Nexen             Niko has an estimated 530 billion
                                                                                           and Canadian Natural Resources.               cubic feet of proved plus probable gas
                                                                                                                                         reserves and 200 million barrels of oil
                                                                                           Speculation over Shell and EnCana             and liquids.
                                                                                              The speculation reached fever pitch in        Vic Vallance, an analyst with Fraser
                                                                                           October when Royal Dutch Shell was            Mackenzie in Toronto, said the attempted
                                                                                           claimed to have made an offer for             takeover of Niko was an example of how
                                                                                           EnCana, forcing the Canadian independ-        shareholders in higher-risk international
                                                                                           ent to issue a denial.                        plays were able to cash in on speculative
                                                                                              Randy Eresman, who has just taken          investments.
                                                                                           over as EnCana chief executive officer           He said there are usually exit opportu-
                                                                                           from Gwyn Morgan, said that even if his       nities for companies “if they get to a cer-
                                                                                           company stumbles in its pursuit of pro-       tain size,” especially in a country like
                                                                                           duction goals it will remain a large com-     India where there are many buyers for
                                                                                                                                         not many properties. ●
PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006                                                                                                                                         B11

continued from page B1                           season’s flurry of exploration activity in the   continued from page B9                          rejected the offer “in part because state
                                                                                                                                                  officials believed state ownership would
CONOCO                                           Storms area, southeast of the Kuparuk
                                                 River unit, following a 3D survey last win-      STAKE                                           unacceptably increase the conflict
                                                 ter.                                                                                             between the state’s regulatory responsibil-
started up production from the viscous oil                                                        pipeline would be expensive.                    ities with respect to pipeline operation and
West Sak accumulation from the Kuparuk           Increased well work                                  Last year, state tax officials valued the   the state’s interest in maximizing public
unit 1E pad last year and from the 1J pad                                                         pipeline overall at $3 billion. The industry,   revenue,” according to a 2002 Department
                                                     In addition to new development and           resisting higher property taxes, pegged the
through the end of the year. The company                                                                                                          of Revenue study.
                                                 exploration, the past few years have seen a      value at half that.
expects ultimate peak production upwards
                                                 major increase in well work in existing              Since 2000, several ownership shares
of 45,000 barrels per day from West Sak.
                                                 fields. And that trend looks set to continue.                                                    BP holds largest share
   “This is a project that could really make                                                      have changed hands. Most recently, in
                                                     2006 “will be the biggest year we’ve                                                             BP holds the largest share of the
significant advancement over the years,”                                                          2004 a subsidiary of Koch Industries paid
                                                 had in Kuparuk since the early ‘80s,”                                                            pipeline at 46.93 percent, followed by
Bowles said.                                                                                      The Williams Cos.
                                                 Bowles said.                                                                                     ConocoPhillips at 28.29 percent,
   Spending on the satellite fields amounts                                                       $100 million for a
                                                     Bowles particularly pointed out an                                                           ExxonMobil at 20.34 percent, Koch at
to about $500 million, as does spending on                                                        3.08 percent share of
                                                 increase in the use of coiled tubing drilling                                                    3.08 percent and Chevron at 1.36 percent.
West Sak development, Bowles said.                                                                the pipeline, accord-
                                                 in field development. From relatively little                                                         BP still is interested in selling some of
                                                                                                  ing to an appraisal
Moving west                                      use a few years ago, this technique has                                                          the pipeline to the state, and company and
                                                                                                  report the pipeline
                                                 become a normal part of business, he said.                                                       state officials have talked recently about
     Development of new fields is progres-                                                        owners prepared last
                                                 The technique is helping maintain produc-                                                        it, BP spokesman Daren Beaudo said Jan.
sively moving west, with permitting in                                                            year. The appraisal,
                                                 tion rates.                                                                                      23.
progress for Alpine West, in the northeast                                                        however, says the
                                                     “Kuparuk set a world record of an                                                                “We’re willing to discuss it in more
National Petroleum Reserve-Alaska.                                                                price was “not ... a
                                                                                                                                                  detail when the state thinks the time is
ConocoPhillips is also in the process of
                                                 18,000-foot plus departure with 2-inch           reliable indicator of KEN BOYD
                                                 coiled tubing,” Bowles said.                                                                     right,” he said.
authorizing funding for that project.                                                             the value” of the pipeline because the sale
                                                                                                                                                      Chevron, which last year took over
     “That would be the first field that would                                                    was part of a much bigger transaction
                                                 Low sulfur diesel                                                                                Unocal and its small share of the oil
actually be developed and produced out of                                                         involving a refinery in North Pole.
                                                     The introduction of low sulfur diesel to                                                     pipeline, announced it planned to spin off
NPR-A proper,” Bowles said.                                                                           The same 3.08 percent share traded for
                                                 replace conventional diesel fuel on the                                                          some assets. But no decisions have been
     The next field in line will be Lookout, a                                                    $35 million in 2000, and again for $40
                                                 North Slope is also triggering a major                                                           made on the fate of Alaska properties,
little further into NPR-A than Alpine West.                                                       million the next year, according to the
                                                 amount of work. But in addition to being a                                                       spokeswoman Roxanne Sinz said.
     “Roughly $500 million we’re looking at                                                       appraisal.
                                                 large project in terms of the work involved,         In the late 1970s, BP offered to sell its                                 —WESLEY LOY
on these two projects here, hopefully in the
                                                 Bowles sees conversion to low sulfur             pipeline interest to the state, but the state                           Anchorage Daily News
2007-2008 timeframe,” Bowles said.
                                                 diesel as having a major impact on the
Exploration                                      slope. Conversion will reduce acid fuel
                                                 emissions by 40 percent over a four-year
    Bowles said that ConocoPhillips will be      time period, he said.
participating in seven exploration wells on          ConocoPhillips, in conjunction with BP
the North Slope this winter — he included        and Exxon, plans to transition to the new
three West Sak-equivalent viscous oil wells      fuel two years earlier than mandated and
in that count. He also included the recently     has agreed with the state on some flexibili-
announced I-100 heavy oil well, in which         ty around how to do the transition. The
ConocoPhillips will be participating with        transition project will involve a major mod-
BP.                                              ification to the Kuparuk topping plant that
    Bowles said that success with drilling       refines diesel fuel — that modification will
for viscous oil could lead to some major         entail a major sealift in 2007, Bowles said.
new development.
    “If we can have some success drilling        High workload
those, it could spin off a future large proj-
                                                     With so many projects going on, the
ect development for this West Sak viscous
                                                 ConocoPhillips’ North Slope workload is
oil,” he said. “So, it’s going to be an impor-
                                                 particularly high at the moment — the
tant season for us as far as what we see on
                                                 company estimates that it will require
the exploration front.”
                                                 about 2.2 million man hours just in con-
    ConocoPhillips also plans to push the
                                                 struction work in 2006. There’s a 50 per-
frontiers of exploration in northern Alaska
                                                 cent increase from 2004 in direct man
by participating in two new 3D seismic sur-
                                                 hours on construction projects, Bowles
veys. One of these surveys will be in the
Teshekpuk Lake area of NPR-A, recently
                                                     “This just goes to show that there’s a lot
opened for exploration by BLM.
                                                 of activity on the Slope in trying to contin-
    “We see that as a significant area,”
                                                 ue development of reserves,” Bowles said.
Bowles said. “… We have a lot of high
                                                 “… It’s going to be a very busy year for us
hopes for what that might lead to.”
                                                 in ’06.”
    The other 3D survey will be in the
                                                     But, with so much work going on,
Chukchi Sea.
                                                 Bowles emphasized the continued need to
    “That’s an area where we are preparing
                                                 focus on safety. 2005 showed a 28 percent
to participate in a 3D survey and we do see
                                                 improvement in contractor safety for
a lot of resource potential in the Chukchi,”
                                                 ConocoPhillips, he said.
Bowles said.
                                                     “Be careful out there,” he said, as he
    As an example of what can happen after
                                                 concluded his presentation to the Meet
conducting a 3D survey, Bowles cited this
                                                 Alaska conference. ●
    2 B.C. mine awaits power decision
          All systems go for Red Chris copper-gold project if hooked up to grid

    8 New Select chief ready to deal
           Sets sights on Interior exploration, possible calcium carbonate mine

    11 Barrick deal good for Alaska
           Acquisition of Placer Dome could light fire under Donlin Creek project

                                                                                  A special supplement to Petroleum News
WESTERN KELTIC IS ONE OF SEVERAL COMPANIES                                                       WEEK OF
EXPLORING IN NORTHERN BRITISH COLUMBIA                                                   January 29, 2006
2                                                                                                                                                              PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006
                         NORTH OF 60 MINING
●     B R I T I S H       C O L U M B I A

B.C. mine awaits power line decision
All systems go for Red Chris copper-gold project as soon as the provincial government hooks undeveloped region up to the grid
              By SARAH HURST                                                                                                                                          mately C$70 million.

                                                  COURTESY BCMETALS
               For Mining News
                                                                                                                                                                      Company intends to develop mine

       s the mining industry booms and                                                                                                                                    Unlike many projects, where junior min-
       companies rush to develop new prop-                                                                                                                            ing companies enter into partnerships or sell
       erties, there is often one major snag                                                                                                                          their properties to larger companies,
       in remote northern regions: inade-                                                                                                                             bcMetals intends to develop the Red Chris
quate infrastructure. This is the case with                                                                                                                           mine and put it into operation by itself,
the Red Chris property in British Columbia,                                                                                                                           Smith told Mining News. Smith brought his
which completed the province’s environ-                                                                                                                               expertise as a mining engineer to the com-
mental assessment process last August.                                                                                                                                pany in 2003. He graduated from the
Vancouver-based bcMetals is champing at                                                                                                                               University of Queensland, Australia in
the bit to obtain permits and start construc-                                                                                                                         1966 and has worked in Papua New
tion of its proposed copper-gold mine, but                                                                                                                            Guinea, New Mexico, South America and
everything hinges on whether or not the                                                                                                                               China.
British Columbia government will build a                                                                                                                                  “The difference here obviously is the cli-
37.5-megawatt power line into the area.                                                                                                                               mate,” Smith said. “But Red Chris is in the
   A decision on the power line could come                                                                                                                            rain shadow, we don’t get a lot of snow like
at any time, but neither bcMetals nor the                                                                                                                             Eskay Creek or Galore Creek. It’s a run-of-
government can or will say when that might                                                                                                                            the-mill porphyry copper-gold project,
be. The mining company has been one of                                                                                                                                smaller than others I’ve worked in. Red
the leaders of a coalition of interested firms,                                                                                                                       Chris will be one of the easiest mines to
associations and individuals called                                                                                                                                   develop — it’s close to a main road, pre-
Highway 37 to campaign for the power                                                                                                                                  production stripping will be minimal and
line, which would be an extension of the                                                                                                                              we don’t have to get into any major clearing
existing line from Meziadin Junction to                                                                                                                               of trees.”
Iskut or Dease Lake. The extension could                                                                                                                                  The company was co-founded by anoth-
be up to 208 miles long and cost between                                                                                                                              er two mining heavyweights, Carl Zuber
C$185 million and C$368 million, accord-                                                                                                                              and Bob Buchan, both formerly from
ing to studies done for B.C. Transmission.                                                                                                                            Kinross Gold — the owner of Alaska’s Fort
                                                  COURTESY BCMETALS

                                                                                                                                            Above, the mining
                                                                                                                                            company has been          Knox mine. Buchan was president and
Power for region                                                                                                                            one of the leaders of a   CEO of Kinross until last year. “BcMetals
    “This is not a power line for Red Chris,                                                                                                coalition supportive of
                                                                                                                                            the proposed power
                                                                                                                                                                      was formed to be another Kinross with the
it’s for an undeveloped region — we just                                                                                                    line, which would be      focus on the base metals side,” Smith said.
happen to be the first ones who will use it,”                                                                                               an extension of the       “Bob and Carl are obviously two people
Ian Smith, president and CEO of bcMetals,                                                                                                   existing line from
                                                                                                                                            Meziadin Junction to
                                                                                                                                                                      who have immense experience and stand-
told Mining News. “We’ve brought togeth-                                                                                                    Iskut or Dease Lake.      ing within the mining community. They’re
er the coalition to get broader-based aware-                                                                                                At left, the camp at      a huge plus.” Initially Buchan and Zuber
ness of the benefits that would accrue,” he                                                                                                 the Red Chris proper-
                                                                                                                                            ty is in place and con-
                                                                                                                                                                      formed an Alberta-based company that was
added. A spokesman for the British                                                                                                          struction of the mine     exploring for oil in Guatemala, but when
Columbia government’s Ministry of                                                                                                           could start soon after    they saw the political climate changing in
Energy, Mines and Petroleum Resources,                                                                                                      the power line deci-
                                                                                                                                            sion comes.
                                                                                                                                                                      British Columbia with the election of the
Jake Jacobs, told Mining News that he had                                                                                                                             right-of-center Liberal Party in 2001, they
no information about whether a decision on                                                                                                                            decided to move into the province and look
the power line would soon be forthcoming.                             The bank has been performing due dili-          engineering and construction services for       for minerals.
    In the meantime, bcMetals is proceeding                           gence on the company and lawyers are fine-      the Red Chris project. Located 280 miles
on the basis that the power line will be built,                       tuning the details of the agreement, Smith      north of Smithers and 11 miles southeast of     Also has properties in Alaska
according to Smith. The company has                                   said. The extension of the power line is a      the village of Iskut, Red Chris would be an
                                                                                                                                                                         BcMetals was exploring for molybde-
arranged US$110 million of debt financing                             condition of the financing.                     open pit mine that would employ approxi-
                                                                                                                                                                      num at the Fire Mountain property east of
with the UK subsidiary of South African                                  BcMetals also announced in December          mately 250 people full-time during opera-
                                                                                                                                                                      Atlin until recently, but has now dropped
bank Investec. Repayment would take place                             that it had issued letters of intent to enter   tions. The capital cost of building the mine
                                                                                                                                                                      that project. It has picked up some addition-
over seven years, commencing in year three                            into contracts with AMEC Americas and           is estimated at C$200 million and annual
                                                                                                                                                                      al properties in the Alaska Range area, 93
following a two-year construction period.                             Merit Consultants International to provide      operating expenditures would be approxi-
                                                                                                                                                                      miles southeast of Fairbanks, and did limit-
                                                                                                                                                                      ed drilling there in 2005. “Unfortunately we
                                                                                                                                                                      had exceptional snowfall and couldn’t get
                                                                                                                                                                      to the more prospective locations,” Smith
                                                                                                                                                                      said. “Our main focus is on getting Red
                                                                                                                                                                      Chris up and running.”
                                                                                                                                                                         AMEC compiled the now approved
                                                                                                                                                                      application for an environmental assess-
                                                                                                                                                                      ment certificate for the Red Chris project.
                                                                                                                                                                      The mine plan envisages processing 27,500
                                                                                                                                                                      metric tons of ore per day through the mill
                                                                                                                                                                      over a projected mine life of 18 years,
                                                                                                                                                                      according to the application. The project
                                                                                                                                                                      will require cooperation with the First
                                                                                                                                                                      Nations in the region, the Tahltan and the
                                                                                                                                                                      Iskut, with whom bcMetals signed a
                                                                                                                                                                      Memorandum of Understanding in January
                                                                                                                                                                         Metal mines operating in British
                                                                                                                                                                      Columbia have fallen from a peak of 120 to
                                                                                                                                                                      the current level of five, according to the
                                                                                                                                                                      Red Chris application. No new metals
                                                                                                                                                                      mines have opened in the province since
                                                                                                                                                                      1997. “The current B.C. government has
                                                                                                                                                                      indicated that it wishes to send a clear mes-
                                                                                                                                                                      sage to the mining industry and the interna-
                                                                                                                                                                      tional finance community that B.C. is open
                                                                                                                                                                      for business and that mining in B.C. is a
                                                                                                                                                                      sunrise, not a sunset industry,” the applica-
                                                                                                                                                                      tion says. ●
PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006                                                                                                                                             3
                                                                                                                      NORTH OF 60 MINING
●    A L A S K A

Wastewater discharge                                                                        Lawmakers to hear mixing zones plan
                                                                                                The Alaska House Special Committee on Fisheries took up consideration Jan. 20

rule changes on tap                                                                         of House Bill 328, a bill that would prohibit mixing zones in freshwater spawning
                                                                                            streams. (See related story on page 3 of this issue.)
                                                                                                Mixing zones are used throughout the state, mainly by municipal wastewater treat-
                                                                                            ment plants, seafood processors and some placer mines.
Legislature to consider permanent prohibition on relaxing standards                             State officials are confident newly revised, but controversial, Department of
for wastewater discharge permits for Alaska’s natural streams                               Environmental Conservation mixing zones regulations will protect Alaska’s fish,
                                                                                            including freshwater species such as grayling, trout and whitefish as well as spawning
            By ROSE RAGSDALE                                                                areas of salmon.
                                              “Fish and Game actually observed                  But legislators from fishing communities, led by Rep. Paul Seaton, R-Homer, want
              For Mining News
                                              spawning salmon in a mixing zone              to set the mixing zones prohibition in state statute to prevent an undermining of those

A                                             and did studies and found no harm
       bill being considered by the Alaska                                                  rules over time.
       Legislature this session may put to     was done to the fish,” said Nancy                The committee was scheduled to hear the bill again on Jan. 27.
       rest, once and for all, recent con-      Sonafrank, section manager in                                                                                 —THE ASSOCIATED PRESS
       troversy over proposed easing of
                                                   DEC’s Division of Water.
certain restrictions on wastewater dis-
charges in fish spawning areas of Alaska      would need a 30-day waiting period,”          HEALY, ALASKA
streams.                                      Sonafrank said. “It could be sometime
   House Bill 328, introduced by House
Fisheries Chairman Rep. Paul Seaton, R-
                                              before a new rule takes effect.”              Usibelli sets lost time injury record
Homer, would set in statute Alaska            Bill protects pristine image                     Usibelli Coal Mine in Healy, Alaska, has achieved an all-time safety record for no
Department          of     Environmental                                                    lost time injuries. The company said Jan. 17 that from Jan. 27, 2004, to the present,
                                                  Meanwhile, HB 328 could set the           Usibelli’s employees have collectively achieved more than 720 days of continuous
Conservation regulations that prohibit
                                              prohibition against mixing zones in           operations without a lost time injury.
the use of so-called “mixing zones” in
                                              state statute, a move that could poten-          “This is a significant accomplishment considering the challenging conditions we
the state’s natural waterways.
                                              tially create problems for mining opera-      work in every day, while maintaining an impressive on-time delivery schedule to our
   The move is aimed at protecting the
                                              tions seeking to do business in Alaska.       customers,” said Keith Walters, Usibelli’s general manager. “We have produced
pristine image of Alaska’s wild salmon
                                                  “If our bill goes through, exceptions     approximately 1.5 million tons of coal each year during calendar year 2004 and 2005
and other fisheries, which the bill’s advo-
                                              to the prohibition on mixing zones in the     for delivery to six Interior Alaska power plants and for export to South Korea and
cates say offers considerable value to the
                                              state’s natural streams would not be          Chile.”
state and its commercial fishing industry.
                                              allowed,” said Seaton aide Louie Flora.          “I am tremendously proud of every employee,” said Usibelli Coal Mine President
   A “mixing zone” is a three-dimension-
                                              “By opening the door to that possibility,     Joe Usibelli Jr. “We enjoy a very professional and dedicated workforce with great
al area in a body of water where waste-
                                              we will slowly open the door for under-       leadership and teamwork. Accomplishments like this don’t come easy. Two years
water that does not meet the strictest
                                              mining the purity of Alaska fish.             without a lost time injury is outstanding.” Usibelli Coal Mine is a third-generation
standards for removal of potential con-
                                              Commercial fishermen in Alaska pay a          family owned business and the only operational coal mine in Alaska. The surface
taminants can be lawfully discharged.
                                              marketing tax to promote that concept.        coal mine has been in operation since 1943.
   Mixing zones are generally specified
                                              We don’t want to see it lost.”
where an “end-of-pipe” discharge does                                                                                                                                   —SARAH HURST
                                                  Flora said Seaton and the bill’s other
not meet environmental regulators’
                                              co-sponsors, Reps. Kurt Olson, R-
Aquatic Life Standards but where mixing
                                              Kenai, Carl Gatto, R-Palmer and
with receiving water will result in those
                                              Gabrielle LeDoux, R-Kodiak, do not
standards being met further downstream.
                                              believe the mining industry will be                Contact North of 60 Mining News:
Mixing-zone rule dates from ’70s              adversely affected by the legislation.
                                                                                                               Editor: Sarah Hurst editor@MiningNewsNorth.com
                                                  “We’ve been in contact with the
   Alaska’s regulation prohibiting mix-                                                                            Phone: 907.248.1150 • Fax: 907.522.9583
                                              developers of one of the largest gold
ing zones dates back to 1973. Recently,                                                                         Address: P.O. Box 231651, Anchorage, AK 99523
                                              mines in North America, the Pebble
DEC officials found that in some              Mine on the Alaska Peninsula, and they
instances the rule seemed overly restric-     said they won’t need a mixing zone,” he
tive, and proposed a new regulation that                                                                                    North of 60 Mining News is a monthly supplement of the weekly
                                              added.                                                                        newspaper, Petroleum News. It will be published in the fourth or
allows site-specific exceptions while the         Northern Dynasty Ltd., the Pebble                                         fifth week of every month.
general prohibition remains in place.         project’s developers, declined to com-
   “Fish and Game actually observed           ment on whether it will require a mixing                                                                         ADDRESS
                                                                                            Dan Wilcox                       PUBLISHER & CEO
spawning salmon in a mixing zone and          zone to handle wastewater at the mine.                                                                           P.O. Box 231651
did studies and found no harm was done                                                      Mary Lasley                      CHIEF FINANCIAL OFFICER           Anchorage, AK 99523-1651
                                              However, a statement posted on the
to the fish,” said Nancy Sonafrank, sec-      company’s Web site indicated that cur-        Kay Cashman                      EXECUTIVE EDITOR
tion manager in DEC’s Division of             rent plans do not involve seeking a mix-      Kristen Nelson                   EDITOR-IN-CHIEF
Water.                                        ing zone permit from state regulators.        Sarah Hurst                      EDITOR (Contractor)               907.522.9469
   An exhaustive process in which the                                                                                                                          Canada
                                                                                            Laura Erickson                   ASSOCIATE PUBLISHER
state agency held public meetings and         Measure accommodates miners                                                                                      farnorth@petroleumnews.com
received more than 1,000 public com-                                                        Susan Crane                      ADVERTISING DIRECTOR
                                                 Still, HB 328 may already address                                                                             BOOKKEEPING & CIRCULATION
ments culminated with a workshop Dec.                                                       Steve Sutherlin                  ASSOCIATE EDITOR
                                              the needs of miners.                                                                                             907.522.9469
19.                                                                                         Curt Freeman                     COLUMNIST                         Circulation Email
                                                 “We added a provision that will allow
   DEC is expected to take feedback                                                         Gary Park                        CANADIAN CORRESPONDENT            circulation@petroleumnews.com
                                              mixing zones in manmade ditches such
from the workshop and analysis of the
                                              as tailings ponds or any artificial facili-   Allen Baker                      CONTRIBUTING WRITER               ADVERTISING
latest round of some 400 public com-
                                              ty channeling or holding water,” Flora        Rose Ragsdale                    CONTRIBUTING WRITER               907.770.5592
ments and come up with a final decision
                                              said.                                         Amy Spittler
                                                                                                                                                               Advertising Email
on the proposed rule in the near future,                                                                                     SPECIAL PUBLICATIONS EDITOR
                                                 The exception is actually a case of art
according to Sonafrank.                                                                     Judy Patrick Photography         CONTRACT PHOTOGRAPHER
                                              imitating life in that the Municipality of
   “If the commissioner decides to go                                                                                                                          CLASSIFIEDS
                                              Valdez dug a ditch for wastewater that        Forrest Crane                    CONTRACT PHOTOGRAPHER
ahead with a new rule, it then goes to                                                                                                                         907.644.4444
                                              subsequently was invaded by pink              Steven Merritt                   PRODUCTION DIRECTOR
the lieutenant governor and then we
                                              salmon,” he added. ●                          Tom Kearney                      ADVERTISING DESIGN MANAGER        FAX FOR ALL DEPARTMENTS
                                                                                            Mapmakers Alaska                 CARTOGRAPHY

                                                                                            Heather Yates                    CIRCULATION MANAGER

                                                                                            Dee Cashman                      CIRCULATION REPRESENTATIVE
                                                                                                                                                                 Several of the individuals
                                                                                                                                                                      listed above are
                                                                                            Tim Kikta                        CIRCULATION REPRESENTATIVE           independent contractors

                                                                                            NORTH OF 60 MINING NEWS is a monthly supplement of Petroleum News,
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4                                                                                                                                  PETROLEUM NEWS      •   WEEK OF JANUARY 29, 2006
                      NORTH OF 60 MINING
●    C O L U M N

      Mining news update from Curt Freeman:
          ‘When the pony runs, you ride’
Metals high: Gold up 77% from January 2002, silver 94%, platinum 87%, copper 206%, nickel 429%, lead 174%, zinc 141%
— exploration and development plans for Alaska focused on all of these metals in projects stretching from the Brooks Range
                    to far southeastern Alaska, from the Alaska-Yukon border to the Seward Peninsula

     n a welcome respite from the madness                                                  with four rigs beginning in March.             Alaska Range
     of most of 2005, the last month has          The                                         As a consequence of the significantly
                                                                                                                                              USIBELLI COAL MINE recently cele-
     seen a slowing of information from                                                    higher grades being encountered in the
     companies and individuals exploring
                                                 author                                                                                   brated two milestones for their 63-year old
                                                                                           East zone, the company has revised its
and developing Alaska. While develop-             The author                                                                              operations near Healy.
                                                                                           exploration and development plans to
ment work continues at Pogo and               Curt Freeman,                                                                                   The first was the completion of a full
                                                                                           allow for a more complete drilling defini-
Kensington and permitting and feasibili-      CPG #6901, is a                                                                             year of operations without a lost time
                                                                                           tion of the East zone. As a consequence,
ty/preliminary feasibility work continues     well-known geol-                                                                            accident during 2005. This seminal event
                                                                                           completion of the planned feasibility
at Rock Creek, Donlin Creek and Nixon         ogist who lives in                                                                          is accompanied by a coveted Sentinels of
                                                                                           study and environmental applications has
Fork, the exploration industry is busy        Fairbanks. He pre-                                                                          Safety award to be issued by the Mine
                                                                                           been deferred until the results of the East
making plans for 2006.                        pared this column CURT FREEMAN                                                              Safety and Health Administration in con-
                                                                                           Zone drilling can be integrated into the
    With a number of metals pushing at        Jan. 12. Freeman can be reached by                                                          junction with the National Mining Assoc.
                                              mail at P.O. Box 80268, Fairbanks, AK        overall project planning.
all-time or generational price highs, I                                                                                                       The second milestone was passing 700
                                              99708. His work phone number at                 LIBERTY STAR GOLD CORP.
decided to quantify just how much has                                                                                                     days without a lost time accident, a record
                                              Avalon Development is (907) 457-5159         announced preliminary results from its
changed since the doldrums of 2001-2002                                                                                                   the company has never exceeded. Hats off
                                              and his fax is (907) 455-8069. His email     Big Chunk copper-gold project near
when the industry was on its knees and                                                                                                    to the employees and management for a
                                              is avalon@alaska.net and his web site is     Iliamna. Two areas of porphyry copper
more than a few pundits were intoning                                                                                                     job more than well done!
                                              www.avalonalaska.com.                        mineralization were partially tested by
last rights. Between January 2002 and                                                                                                         PIPER CAPITAL announced that it has
                                                                                           drilling (Baltusrol and Point Grey) while a
January 2006 gold prices have risen 77                                                                                                    staked a large land position in the Mount
                                            per tonne and 0.023 percent molybdenum         third area will require additional geochem-
percent, silver 94 percent, platinum 87                                                                                                   Estelle area of the south-central Alaska
                                            including a 330 foot interval grading 1.82     istry and IP geophysics to determine spe-
percent, copper 206 percent, nickel 429                                                                                                   Range. The South Estelle prospect is adja-
                                            percent copper equivalent (0.64 percent        cific drill targets.
percent, lead 174 percent, zinc 141 per-                                                                                                  cent to KENNECOTT EXPLORATION’S
                                            copper, 1.81 grams gold per tonne and              One large area of anomalous gold and
cent, molybdenum 480 percent and urani-                                                                                                   Whistler copper-gold project. The compa-
                                            0.019 percent molybdenum).                     molybdenum in vegetation requires addi-
um 172 percent.                                                                            tional geochemistry, IP and drill testing.     ny’s interest in the South Estelle project
                                                Hole 5335 intersected 2,478 feet grad-
    Worldwide demand for each of these                                                     Baltusrol is hosted by felsic porphyry         area was the result of anomalous gold val-
                                            ing 1.21 percent copper equivalent con-
metals is outstripping supplies and the                                                    intrusives, intrusive breccias and por-        ues in stream sediment samples reported
                                            sisting of 0.81 percent copper, 0.44 grams
under-populated mining industry is find-                                                   phyry-style alteration and mineralization      by the U.S. Geological Survey.
                                            gold per tonne and 0.023 percent molyb-
ing itself hard-pressed to meet the                                                                                                           Reconnaissance sampling by the com-
                                            denum.                                         that returned 50 feet grading 1033 parts
demand. Exploration and development                                                                                                       pany in September 2005 confirmed miner-
                                                Hole 5336 intersected 2,584 feet grad-     per million copper and 0.0018 ounces of
plans for Alaska that are already known                                                                                                   alization in the previously reported
                                            ing 1.13 percent copper equivalent con-        gold per ton.
for 2006 will be focused on all of the                                                                                                    Revelation Vein and identified three new
                                            sisting of 0.67 percent copper, 0.23 grams         Mineralization remains open and
above-named metals in projects stretching                                                                                                 prospects designated Shoeshine, Train and
                                            gold per tonne and 0.055 percent molyb-        untested to the northeast, south and at
from the Brooks Range to far southeastern                                                                                                 Saddle.
                                            denum.                                         depth. A single drill hole at the Point Grey
Alaska, from the Alaska-Yukon border to                                                                                                       Highlights of grab and chip sampling
                                                Hole 5337 intersected 2028 feet grad-      prospect intercepted 0.0078 ounces of
the Seward Peninsula. As the old cowboy                                                                                                   from this effort include 34.4 grams gold
                                            ing 1.28 percent copper equivalent con-        gold per ton over 177 feet including 10
said, “when the pony runs, you ride”.                                                                                                     per tonne, 8.1 grams silver per tonne and
                                            sisting of 0.83 percent copper, 0.34 grams     feet of 0.059 ounces of gold per ton.
                                                                                           Associated minerals indicate this to be a      0.1 percent copper in a vein on the
Western Alaska                              gold per tonne and 0.041 percent molyb-
                                                                                                                                          Revelation prospect that has been traced
                                            denum.                                         gold-silver system. Mineralization remains
                                                                                           open to expansion.                             for over 200 meters on surface; 112.5
                                                Mineralization in these holes was inter-
LTD. announced additional high-grade                                                                                                      grams gold per tonne, 245 grams silver
                                            cepted from 1,550 to 1,700 feet below              At the Augusta prospect on the western
intercepts in the East zone at its Pebble                                                                                                 per tonne and 0.13 percent copper in an
                                            surface and remains open to expansion to       side of the claim block the company has
deposit near Iliamna.                                                                                                                     intrusive-hosted vein on the Shoeshine
                                            the east and at depth. The company indi-       outlined a 5.7 mile by 2 mile area of
   Hole 5334 intersected 915 feet grading                                                                                                 prospect; 23.8 grams gold per tonne, 91.4
                                            cated that it spent C$44.7 million             anomalous gold and molybdenum in veg-
1.38 percent copper equivalent consisting                                                                                                 grams silver per tonne and 0.33 percent
                                            (US$38.5 million) at Pebble in 2005 and        etation samples. Additional work is
of 0.62 percent copper, 1.06 grams gold                                                                                                   copper in a sulfide boulder train on the
                                            intends to start the 2006 drilling program     planned for the project.
                                                                                                                                          Train prospect; and 7 grams gold per
                                                                                                                                          tonne and 1.9 grams silver per tonne in a
                                                                                                                                          mineralized dike that has been traced for
                                                                                                                                          over 2 kilometers on the Saddle prospect.
                                                                                                                                              Mineralization in the Mount Estelle
                                                                                                                                          area is related to late Cretaceous compos-
                                                                                                                                          ite alkalic intrusions within the 35 kilome-
                                                                                                                                          ter-long Mount Estelle batholith. These
                                                                                                                                          composite bodies are zoned from potassic
                                                                                                                                          gabbro and ultramafic rock on their mar-
                                                                                                                                          gins to granites in their cores. Platinum
                                                                                                                                          group element mineralization often occurs
                                                                                                                                          in more mafic and ultramafic rocks while
                                                                                                                                          gold-silver occurrences are more typically
                                                                                                                                          associated with the central granitic facies.
                                                                                                                                              The company’s claims include rocks of
                                                                                                                                          both intrusive phases. The company is
                                                                                                                                          planning additional work on the project in
                                                                                                                                              Earlier in the year, Kennecott
                                                                                                                                          announced discovery of both low grade
                                                                                                                                          and “significant” grade copper-gold min-
                                                                                                                                          eralization on the adjacent Whistler
                                                                                                                                          prospect which now has 12 drill holes into
                                                                                                                                              All of the holes intercepted broad inter-
                                                                                                                                          vals of copper and gold mineralization.
                                                                                                                                          Additional work is planned for 2006 by
                                                                                                                                          Kennecott at Whistler and at one or more
                                                                                                                                          of the eight other targets identified in the
                                                                                                                                          district. ●
PETROLEUM NEWS        •                                    WEEK OF JANUARY 29, 2006                                                                                                                                                            5
                                                                                                                                                          NORTH OF 60 MINING
●     S O U T H W E S T                                          A L A S K A

Pebble contractors: quality and quantity
Northern Dynasty employed 45 consulting firms last year to conduct baseline studies, is reaching out to the local community
              By SARAH HURST                                                                                                                                                                       collected data on Pebble. “There was some

                                                                                                                                                                             COURTESY SLR ALASKA
               For Mining News                                                                                                                                                                     very interesting stuff, very puzzling, to do
                                                                                                                                                                                                   with the distribution of juvenile salmon in

       orthern Dynasty may only be a junior                                                                                                                                                        the area,” Buell told Mining News. “I had
       mining company, but it has marshaled                                                                                                                                                        trouble understanding why they weren’t in
       an army of contractors to conduct                                                                                                                                                           certain places. The south fork of the Koktuli
       baseline environmental studies for its                                                                                                                                                      River went dry in the summer, and the
Pebble project in southwest Alaska.                                                                                                                                                                assemblage of species in the north fork was
Companies that competed against each                                                                                                                                                               very rich, there were many kinds of fish, it
other to win the contracts are now working                                                                                                                                                         was very impressive.”
as a team taking samples, monitoring condi-                                                                                                                                                            Flying over the Pebble site for Northern
tions and analyzing data that will eventually                                                                                                                                                      Dynasty in the winter of 2004, “I saw a lot
be used in the permit applications for the                                                                                                                                                         of open water in certain areas and it all
proposed copper-gold mine.                                                                                                                                                                         became clear,” Buell said. “A lot of the
   In 2005 the Pebble project employed 45                                                                                                                                                          streams are dominated by ground water
consulting firms, with a total Alaska work-                                                                                                                                                        influence. If you really want to understand
force of 457, plus another 152 non-                                                                                                                                                                this system, you have to go there in winter.”
Alaskans, according to Northern Dynasty.                                                                                                                                                           Buell is now overseeing all the aquatic and
Of the Alaskans, 112 were from local Bristol                                                                                                                                                       fisheries investigations on the project, which
Bay communities.                                                                                                                                                                                   takes about 60 percent of his time.
                                                                                                                                                                                                   “Northern Dynasty is being very attentive,
HDR began work in 2004                                                         Willow Weimer, an environmental scientist, and Robert Klieforth, a geological engineer with
                                                                               SLR, working at the Pebble site.                                                                                    that was part of the deal,” he said. “I wanted
    One of these contractors, HDR, a large                                                                                                                                                         to be part of the team in a real sense.
                                                 recruit local people to assist the various field                             monitoring program. For almost four                                  Communication back and forth is very
architectural, engineering and consulting
                                                 crews. Like HDR, SLR is an environmental                                     months last summer the company was                                   important.”
firm with offices in Anchorage and Juneau,
                                                 science and engineering consultancy firm                                     drilling 24 hours a day in a 10-mile by 10-
began working for Northern Dynasty in
                                                 with numerous offices around the country.                                    mile area. Including some that were drilled Hoefler: air quality baseline work
2004. “We went through the pre-qualifica-
                                                 SLR has 16 people in its Anchorage office                                    previously, there are now some 160 wells on
tion process. They were looking for a vari-                                                                                                                                    On the air quality side, the Anchorage-
                                                 and has been working on the Pebble project                                   the site, usually about 100 feet deep, which
ety of disciplines and wanted to know what                                                                                                                                  based Hoefler Consulting Group has been
                                                 for the past year, implementing a ground                                     have to be monitored at monthly and quar-
we were interested in,” Mark Dalton,                                                                                                                                        collecting baseline data at the Pebble site,
                                                 water program and a program to identify                                      terly intervals for two years.
HDR’s Alaska operations manager, told                                                                                                                                       primarily by installing meteorological sta-
                                                 trace elements in the soil and vegetation at                                     “We’re really getting to do true science,
Mining News. The company already had                                                                                                                                        tions that measure conditions such as tem-
                                                 the mine site. In the field, the scientists are                              our life aspirations,” Cougan said. “It has
local expertise, as it had worked on various                                                                                                                                perature, wind speed and humidity. The sta-
                                                 usually accompanied by a local-hire helper                                   enormous benefits for the scientific commu-
projects in the Iliamna-Nondalton area,                                                                                                                                     tions consist of 10-meter high towers with
                                                 and a local bear guard. “We needed people                                    nity, to add to the databases.
including designing
                                                                           who were very good                                 Getting a government grant

                                                                                                                                                                                                                                                    COURTESY HDR ALASKA
and permitting a

                                                                           mechanically,” said                                for some of this would be
small hydroelectric
                                                                           Scott Rose, SLR’s                                  much more difficult.” The
power plant on the
                                                                           principal geologist.                               contracts with Northern
Tazimina River.
                                                                           “Northern Dynasty                                  Dynasty account for about
    HDR also had
                                                                           would find local peo-                              30 percent of the work of
experience working
                                                                           ple or give them the                               SLR’s Anchorage office.
with the mining
                                                                           training.”                                         Their other main clients are
industry: it did an
                                                                               “The bear guards                               Alyeska              Pipeline,
                                                                           added so much infor-                               ConocoPhillips and BP.
impact statement for
                                                                           mation about subsis-                               Although the company only
Red Dog mine in the
                                                                           tence. It’s amazing to                             came to Alaska in 2001, its
early eighties and
                                                                           me how much the                                    staff has decades of experi- Local resident Dwight Analon and Rebecca Moore from
more recently has
                                                                           locals      use    the                             ence, including working on HDR’s Anchorage office worked on the fish crew for the
been involved with
                                                                           plants,” said Karen                                projects for Fort Knox and Pebble project.
Pogo and Donlin
                                                                           Cougan, SLR’s prin-                                Greens Creek mines.
Creek and some                                                                                                                                                              instrumentation at the top, which can be
                                                                           cipal scientist. “This
smaller projects in                                                                                                           Biologist working on baseline info            read remotely on the computers in the
                                                                           is a new type of work
Southeast Alaska.                                                                                                                                                           Anchorage office, Brian Hoefler, the firm’s
                                                                           for them. They liked                                   Fisheries biologist Jim Buell also worked president, told Mining News.
On the Pebble proj- Eric Brudie, a lifelong Alaskan, is a field
                                                                           being paid to be out-                              with Fort Knox last year on a re-evaluation
ect         Northern engineer with the Hoefler Consulting                                                                                                                      “Northern Dynasty is a great set of folks,
                                                                           side and look at the                               of the mine’s wetlands program, which they understand the nature of the business,
Dynasty initially Group who helped install the weather sta-
                          tions for the Pebble project.                    vegetation, and scope                              rehabilitates wetlands in the area that were and they’re working very hard to do the
wanted HDR to
                                                                           out for animals.” To                               damaged by previous placer mining activi- right thing. We’ve enjoyed working with
focus on fish and wet-
                                                 avoid endangering subsistence resources,                                     ties. Buell is based in Portland, Ore., but them,” said Hoefler. About 16 people from
lands issues, with some limited stream biol-
                                                 the crews working for Northern Dynasty are                                   started working in Alaska in the late 1970s. Hoefler’s staff of 25 or so worked on the
ogy work that involved sampling streams to
                                                 not allowed to hunt, fish, or eat berries or                                 In 1991-93, when Cominco owned the Pebble project in 2005, devoting 3,000 to
find out what lived there. “In 2005 they
                                                 other plants on the site.                                                    Pebble claims, Buell began putting together 4,000 man-hours to the work, Hoefler said.
came back to us and asked if we would take
                                                     Contractors are also prohibited from                                     baseline information about fish on the site. Hoefler founded his environmental consult-
on additional work — water quality and sur-
                                                 using vehicles on the ground, so instead of                                  Later the company put the project on hold, ing company in 1995 and has been working
face water hydrology,” Dalton said.
                                                 wheeling a drill rig 10 feet to a new location,                              but after Northern Dynasty took over, Buell with the mining industry since 1991,
    The Northern Dynasty contracts are
                                                 it has to be dismantled and transported in 10                                was invited to get involved again.
worth more than $1 million annually to                                                                                                                                      including projects for Teck Cominco at Red
                                                 to 25 helicopter loads. SLR uses specialized                                     Buell was keen to answer some of the Dog, Teck-Pogo and the Mystery Creek
HDR. Out of their Anchorage workforce of
                                                 drill rigs to drill wells for the ground water                               questions that had been raised when he first mine. ●
100, around 20 have worked on the Pebble
project. HDR takes samples from the mine
site and also the planned access road corri-
dor year-round. All kinds of information is
collected, from the types of species that are
out there, to the chemistry of the water,
when there are high flows and low flows,
and when break-up takes place. “Northern
Dynasty has done a very good job of laying
out the logistics and requirements for field
crews, and they are terribly sensitive to safe-
ty issues,” Dalton said. “They provide
places for people to live, helicopter support
and communications.”

SLR using local-hire helpers
    Northern Dynasty also makes an effort to
6                                                                                                                                                                       PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006
                        NORTH OF 60 MINING
●     B R I T I S H       C O L U M B I A

Kutcho Creek makes promising copper target
Junior Western Keltic purchased B.C. property from two majors and has taken it into the environmental assessment process
                      By SARAH HURST                                                                                                                            Toronto-based Breakwater Resources, rather than a

                                                                                                                                COURTESY WESTERN KELTIC MINES
                       For Mining News                                                                                                                          major, Butterworth said. There might also be investment
                                                                                                                                                                from Asian countries that are keen to secure concentrate,

       Vancouver-based junior that has been conducting a                                                                                                        he added. “There seems to be a voracious appetite for
       drilling program on its sole property, Kutcho Creek                                                                                                      base metals at the moment,” Butterworth said.
       in northern British Columbia, formally entered the
       environmental assessment process last summer with                                                                                                        Kutcho Creek purchased in 2004
a view to developing a mine. Western Keltic Mines will                                                                                                             Western Keltic purchased Kutcho Creek in March
soon start making presentations to local communities to                                                                                                         2004 from two majors, Barrick and Sumac Mines, a
ensure that First Nations are on board. The company is                                                                                                          Canadian subsidiary of Sumitomo. The property, whose
striving to catch up with the more advanced development                                                                                                         value was discovered in the late 1970s by Sumac Mines
projects in the area, NovaGold’s Galore Creek and                                                                                                               and Esso Minerals, is located approximately 56 miles east
bcMetals’ Red Chris. Near to all of those is Barrick Gold’s                                                                                                     of the town of Dease Lake, on land which is part of the
Eskay Creek mine, which is approaching the end of its life.                                                                                                     aboriginal territory of the Tahltan and Kaska Dena First
                                                                 Anja Weiss, project geologist for Western Keltic Mines and
    Two of the Kutcho Creek property’s three deposits have       Paul Wojdak, regional geologist with the B.C. government,                                      Nations. Dease Lake has a population of 650. Other com-
been found to be potentially economic so far. The Kutcho         sitting on core boxes at Kutcho Creek.                                                         munities that may be affected by the development of a
deposit contains measured and indicated resources of 13.1       two drilling campaigns,” Brian Butterworth, a geologist                                         mine are Smithers, Talkwa, Terrace and Stewart.
million metric tons grading 1.94 percent copper, 2.59 per-      with Western Keltic told Mining News. “The objective was                                           After considering open pit and underground mining
cent zinc, 33.7 grams per ton silver and 0.41 grams per ton     to collect material for metallurgical test work.” The compa-                                    methods, Western Keltic now believes that a blend of
gold, while the Esso West deposit contains 2.1 million tons     ny took samples to find out whether it would be viable to                                       both would be the best approach for Kutcho Creek. The
grading 3.3 percent copper, 5.8 percent zinc, 75.7 grams per    deal with the metallurgy of the deposits and the results were                                   company anticipates milling rates to be 3,000 to 4,000
ton silver and 0.71 grams per ton gold. The deposits contain    positive, Butterworth said. Next year there will be more                                        metric tons per day, or approximately 1 million to 1.2
a total of 670 million pounds of copper and 950 million         drilling and environmental baseline studies.                                                    million tons per year, with a minimum 11-year mine life,
pounds of zinc and are open to expansion, according to              Previous owners of the property spent around C$20                                           according to the project description that it submitted to
Western Keltic.                                                 million exploring it and Western Keltic has spent C$20                                          the British Columbia Environmental Assessment Office.
                                                                million in the past two years. If a mine is developed at                                        The concentrates would be transported by truck from the
Two drilling campaigns                                          Kutcho Creek, Western Keltic would most likely make a                                           mine to the port of Stewart for shipment to Asian
    “The project since we acquired it two years ago has had     deal with a mid-tier producing type company such as                                             smelters. ●

●     A L A S K A

State gets good report card, can do better
Alaska Minerals Commission encourages initiatives by governor, Legislature; calls for increased funding in ‘06 to back up ideas
              By SARAH HURST                                                                    state agencies.”                                                               Alaska President Mark Hamilton has com-
               For Mining News                                                                      The Murkowski administration’s Roads                                       mitted to funding a president’s professor of
                                                                                                to Resources program stimulates explo-                                         Mining and Energy Technologies for the

      ermitting, legislation, taxation and                                                      ration investment and allows development                                       next five years — a world-class researcher
      education are some of the key issues                                                      projects to proceed more rapidly, according                                    who would help to “jump start” the
      discussed by the Alaska Minerals                                                          to the report, although the availability of                                    University of Alaska Fairbanks’s newly
      Commission in its 2006 report, pub-                                                       electrical power is a significant challenge to                                 merged College of Engineering and Mines
lished in January. The report praises the                                                       mineral development in Alaska. The com-                                        — but the position has not yet been filled.
state’s continuing efforts to improve the cli-                                                  mission recommends that the governor and                                       The Legislature should ensure that the uni-
mate for the mining industry, but also gives                                                    the Legislature support the development of a                                   versity has the funding to support the posi-
a number of recommendations on what else                                                        long-term electrical generation plan for the                                   tion, the report said.
could be done in this period of unusually                                                       existing electrical grid in Alaska that incor-                                    The possible formation of boroughs in
high activity. The commission has advised                                                       porates the use of coal.                                                       rural areas of Alaska, with the intent to tax
Alaska’s leaders since its creation in 1986.                                                                                                                                   new mines such as Pogo, is an issue that has
    “A cloud of uncertainty has been cast                                                       Ameref support needed                                                          been hotly debated in the past year. The
over the industry by the U.S. Army Corps of                                                        The governor and Legislature should                                         Alaska Miners Association supported a bill
Engineers’ decision to suspend a key permit                                                     also give a boost to activities of the Alaska                                  by Sen. Gene Therriault, R-North Pole, that
for the Kensington mine,” the report said.                                                      Mineral and Energy Resource Education                                          would have established a set property tax for
“This decision by the federal agency is          regulations. The state must demand that fed-   Fund by appropriating $100,000 to the                                          the unorganized borough, but the bill didn’t
counterproductive to the state’s efforts to      eral permitting agencies be accountable and    Department of Education for curriculum                                         pass.
present itself as a jurisdiction possessing      provide timely, responsive product review      development, the report said. The commis-                                         “While the mining industry does expect
tough but efficient environmental permitting     and permit issuance in cooperation with        sion also points out that University of                                                            see REPORT CARD page 7
PETROLEUM NEWS         •   WEEK OF JANUARY 29, 2006                                                                                                                                                7
                                                                                                                                    NORTH OF 60 MINING
●     D E L T A      J U N C T I O N ,            A L A S K A

Pogo mine headed for first-quarter startup
Mine managers resolve power dispute with Golden Valley Electric, begin six-month climb to full gold production by mid-summer
             By ROSE RAGSDALE                                                                        the RCA and a win for Golden Valley.”              to its design.
               For Mining News                                                                           RCA spokeswoman Grace Salazar said                 “The objective is to synchronize the
                                                                                                     Jan. 17 the commission had received no             process for gold recovery,” he explained.

      eck-Pogo Alaska is back on track to                                                            notification of a settlement between GVEA          “We’ve put the first ore into the mill but we
      achieve first production this quarter at                                                       and Teck-Pogo and still planned to conduct         have no product yet. But we’re certainly
      the Pogo gold mine project near Delta                                                          a pre-conference hearing Jan. 24.                  going to make our target to begin operation
      Junction after clearing up a dispute that                                                          But Pogo spokesman Karl Hanneman               in the first quarter.”
erupted last year with Golden Valley                                                                 said GVEA and Teck-Pogo were working                   Underground, poor ground conditions
Electric Association over electricity rates.                                                         on documents to submit to the RCA Jan. 18.         continue to slow the advance of construc-
    Teck-Pogo complained to the                                                                          “They (GVEA) have agreed to provide            tion at Pogo, but crews are resolving the
Regulatory Commission of Alaska in                                                                   us the electric power we need to operate the       problems by applying shot-crete, a cement
October that GVEA planned to renege on a                                                             Pogo facilities, and they agreed to provide it     paste blown onto the walls in a spray appli-
contract the two companies entered in                                                                at the tariff rate we agreed to initially, which   cation to strengthen tunnels, shafts and
January 2005 in which GVEA agreed to                                                                 is what we requested from the RCA,”                other mine structures.
provide up to 13 megawatts of power to             The agreement paves the way for the Pogo          Hanneman said.                                         Though its mill is relatively modest in
Pogo during its operating life and binding         mine, located 85 miles southeast of                                                                  size, Pogo is expected to produce 400,000
                                                   Fairbanks, to come on line in the first quar-
the mine’s owner to a yearly minimum pay-          ter and gradually ramp up to full production
                                                                                                     Way clears for first gold                          to 500,000 ounces of gold a year because
ment.                                              by July. Pogo is estimated to contain 7.7 mil-       The agreement paves the way for Pogo,           of the high quality of its ore.
    Under the contract, GVEA was not               lion tons of ore that should yield just under                                                            With capital costs ranging upwards of
                                                   a half-ounce of gold per ton.                     located 85 miles southeast of Fairbanks, to
required to provide more than 2 megawatts                                                            come on line in the first quarter and gradu-       $330 million, the Pogo mine is expected to
of power to the mine during the first six          sales agreement for the purchase of electric-     ally ramp up to full production by July, he        yield commercial quantities of gold for at
months of 2006, according to the com-              ity from Aurora Energy’s power plant on           said.                                              least a decade with an average life-of-mine
plaint.                                            the Chena River in downtown Fairbanks.               Pogo is estimated to contain 7.7 million        direct operating cost of about $150 per
    When Teck-Pogo pushed forward the                 GVEA said the new contract replaced            tons of ore that should yield just under a         ounce. Gold currently sells for about
mine’s completion date, mine managers              the original one negotiated as part of the        half-ounce of gold per ton. The mine will          $558.50 per ounce.
asked for more than 2 megawatts of elec-           sale of the City of Fairbanks utility system      employ 240 permanent workers. Most                     To be milled on site, Pogo’s gold will be
tricity earlier than July. GVEA answered           in 1997. Aurora Energy has challenged the         positions have been filled, but managers           produced as bullion and cast as gold doré,
that it would have to charge a much higher         original contract before the RCA since            are still recruiting underground miners.           or bars, ranging in size from several hun-
rate because the demand would require the          2003. The new contract, which is subject to          Commissioning is under way on the               dred to 1,000 ounces. It will then be
use of rarely operated power plants that           RCA approval, resolves not only the dispute       mine’s 2,500-ton-per-day mill, while con-          shipped outside Alaska for additional pro-
were expensive to run.                             with Aurora Energy but also the more              struction continues underground on the             cessing.
    In December, the RCA decided to inves-         recent difficulty with Teck-Pogo, GVEA            conveyor, ore bin and feeder, said                     Teck-Pogo is a subsidiary of Teck
tigate the complaint and scheduled an initial      said.                                             Hanneman, who is Pogo’s manager of                 Cominco Ltd., which owns a 41 percent
hearing Jan. 24.                                      “The Holy Grail in business ethics is          public and environmental affairs and spe-          interest in the Pogo deposit. Co-owners are
                                                   negotiating the win-win agreement. This is        cial projects.                                     Sumitomo Metal Mining Co. Ltd. which
Two agreements in one stroke                       a four-way win,” said GVEA President and             Commissioning is the process of going           owns a 51 percent stake and Sumitomo
   But GVEA announced resolution of the            CEO Steven Haagenson. “It is a win for            systematically through the plant to con-           Corp., which holds 9 percent interest in the
dispute Jan. 13, after renegotiating a power       Aurora Energy, a win for Pogo, a win for          firm that it is set up to operate according        mine. ●

continued from page 6                              Natural Resources to map Alaska’s mineral
REPORT CARD                                        resources.
                                                       As in 2005, the commission endorsed the
                                                   state’s efforts to assume primacy over the
to pay its fair share of future municipal gov-
                                                   National Pollutant Discharge Elimination
ernment costs, if and when it is appropriate
                                                   System program, which is currently over-
to form these local governments, it should
                                                   seen by the U.S. Environmental Protection
do so by an equitable, broad-based tax such
                                                   Agency, and called on the Alaska
as a property tax, not an industry-specific tax
                                                   Legislature to ensure that the NPDES pro-
such as a severance tax,” the commission
                                                   gram is appropriately funded during the
said. “Without the mitigating effects of a
                                                   five-year transition period. Gov. Frank
broad-based tax, the mining industry could
                                                   Murkowski signed legislation in 2005 that
then end up facing a very onerous tax struc-
                                                   directs the Department of Environmental
ture. Such uncertainty serves as a strong dis-
                                                   Conservation to work towards assumption
incentive to the very investment and eco-
                                                   of NPDES primacy.
nomic diversification that is so vital to rural
                                                       The department should develop a gener-
                                                   al permit for small remote work camps that
Increase in geophysical surveys urged              are used for construction and mining explo-
                                                   ration, the commission advised. “These
    The commission noted that in 2005 the          camps are short-term, low-impact facilities
Alaska Division of Geological and                  with common features,” the report said.
Geophysical surveys completed the ground           “However, the camps require several state
surficial geological mapping project of the        permits to address waste, wastewater, drink-
Council mining district and conducted geo-         ing water, food service and other environ-
physical surveys northeast of Fairbanks, in        mental and health regulations.” The com-
the Black Mountain area and east of                mission suggested that a general permit or a
Richardson in the Pogo area. A geological          simplified permitting method would ease
mapping program was conducted in the               the burden on applicants.
Liberty Bell area south of Healy and an air-           Most of the mineral exploration funding
borne geophysical survey funded by the             in Alaska comes from Canadian-based
Bureau of Land Management was initiated            sources, and a lesser amount from U.S. com-
on 1,448 square miles of the southern              panies, the commission noted. Very little
National Petroleum Reserve of Alaska.              Alaska exploration funding originates out-
    The commission recommended increas-            side North America. The state could make
ing state’s annual rate of investment in geo-      better use of its foreign trade representatives
physical surveys by about $400,000 to more         in Korea, Japan, China and Taiwan to find
than $1 million a year. Another $500,000           potential investors, the report said.
should also be provided to complete both               “Despite the very positive changes that
surficial and bedrock geology mapping of           have been made, it is necessary to follow
the Delta Junction-Canadian border pipeline        through and convince mineral exploration
corridor, $150,000 more than the governor          and development managers and financiers
has proposed, the report said. Shortly before      around the world that Alaska truly is, in a
the start of this year’s legislative season in     global context, one of the best places in the
Juneau, Therriault filed a bill that would         world to explore and develop minerals
allocate $5 million to the Department of           deposits,” the report said. ●
                                 8                                                                                                                                         PETROLEUM NEWS       •   WEEK OF JANUARY 29, 2006
                                                         NORTH OF 60 MINING
                                 ●     A L A S K A

                                 New head: Select Resources ready to deal
                                 California-owned company setting sights on Interior Alaska minerals exploration, possible development of calcium carbonate mine
                                                       By SARAH HURST                                Select purchased the Admiral                                  copper on its properties, there will be no problem finding
                                                        For Mining News                           Calder mine from Sealaska in July                                customers. There are two anomalies — a gold anomaly
                                                                                                  last year. The mine is not currently in                          and a copper-gold anomaly — to explore on the Shorty

                                       he new president of Alaska-focused exploration com-        operation. “Sealaska is not a mining                             Creek prospect this summer. High gold anomalous values
                                      pany Select Resources is ready to talk to any potential     company and they didn’t recognize                                have also been detected on the company’s Richardson
                                      customer or joint venture partner if there is an opportu-   the type of commitment it would                                  property. “We think it’s one of the largest under-explored
                                      nity to develop the business. That’s the message from       take, the time to develop markets,”                              pieces of ground in central Alaska today,” Sandri said.
                                 Henry “Rick” Sandri, who was promoted from executive             Sandri said. “It takes multiple years                            “It’s a very interesting target. There are outcroppings and
                                 vice president in December after Harry Noyes resigned his        of slow market penetration.” The                                 inferred intrusive ore bodies.” Tri-Valley’s Democrat
                                 officer and director positions for family reasons. Select        calcium carbonate on the property is Select Resources'           mine was located in this area some years ago.
                                 Resources is a mining subsidiary of Bakersfield, Calif.-         a rare ultra-light grade that could new president,                   “We plan to stake a long-term relationship in Alaska,”
                                                                                                                                           Henry Sandri, at the
                                 based Tri-Valley, an oil and gas developer.                      possibly be used in the paint, paper Admiral Calder calci-       Sandri said. Noyes, the former president, had worked for
                                     “Every asset we have is for sale, lease, trade, expansion    and plastics industries as a whitening um carbonate mine         Alaska Native corporation Doyon for 14 years. The com-
                                 or development,” Sandri told Mining News. These assets           product, according to Sandri. The                                pany’s senior geologist, David Oliver, who joined Select
                                 include copper-gold and gold properties in the Fairbanks         company has to send out samples of the commodity so that         last October, was based in Alaska for 12 years with
                                 area, a gold property in Yukon, the recently acquired            they can be tested for use in different product lines. “I hate   American Copper and Nickel, then joined Sealaska in
                                 Admiral Calder calcium carbonate mine on Prince of Wales         to say it, but it will be a slow process,” Sandri said.          1999.
                                 Island in southeast Alaska and a 50-percent interest in the                                                                           Tri-Valley’s president and CEO, Lynn Blystone, has
                                 Monarch calcium carbonate mine in eastern Kern County,           Exploration this summer                                          been involved in Alaska’s mining and oil industries for
                                 California.                                                         On the other hand, if Select finds sufficient gold or         more than 20 years, Sandri said. ●

                                 ●     F A I R B A N K S

                                 Heap leach could add value at Fort Knox
                                 Decision to construct heap leach facility depends on results of metallurgical tests, due in April; first indications encouraging
                                                                                                                                                 By SARAH HURST

                                                                                                                                                                                   “I feel confident that we have a
                                                                                                                                                 For Mining News
                                                                                                                                                                                     well-designed project. ... If a

                                                                                                                                        ort Knox mine near Fairbanks is           project like this can’t be permitted,
                                                                                                                                        considering the construction of a             then heap leaching can’t be
                                                                                                                                        heap leach pad to improve its recov-       permitted anywhere in Alaska.”
                                                                                                                                        ery rate and take advantage of soar-                —Lorna Shaw, Fort Knox
                                                                                                                                  ing gold prices. The project is still in the              community affairs director
                                                                                                                                  planning stages, but if mine owner
                                                                                                                                  Fairbanks Gold Mining — a subsidiary            tion, the north corner of the existing tail-
                                                                                                                                  of Kinross — decides it is viable, the          ings facility, was completed at the end of
                                                                                                                                  estimated capital cost would be $22 mil-        2005. “Results are pending to determine
                                                                                                                                  lion. Operating costs would be approxi-         whether the Walter Creek drainage area
                                                                                                                                  mately one-third of the current mill oper-      is appropriate,” Shaw said. “We need to
                                                                                                                                  ating costs, and the heap leach would be        ensure that the site doesn’t contain any
                                                                                                                                  used in addition to the mill processes.         economic gold.”
                                                                                                                                     “Heap leaching is being evaluated to            Geotechnical studies were completed
                                                                                                                                  improve mine efficiency,” Lorna Shaw,           last summer and all results indicate the
                                                                                                                                  community affairs director at Fort Knox,        technical feasibility of the project,
                                                                                                                                  told Mining News. “It would allow us to         according to Fairbanks Gold Mining.
                                                                                                                                  lower our cut-off grade and process ore         “We need to evaluate the economics to
                                                                                                                                  that is not economic to mill under current      make sure this is a good business deci-
                                                                                                                                  commodity prices.” Condemnation                 sion,” Shaw said. “It primarily hinges on
                                 Alaska’s Fort Knox gold mine was acquired by Kinross in 1998.                                    drilling in the proposed heap leach loca-       the metallurgy and there is current test
                                                                                                                                                                                  work being done to determine the recov-
                                                                                                                                                                                  ery characteristics of the material.” The
                                                                                                                                                                                  mill’s recovery rate at present is 86 per-
                                                                                                                                                                                  cent. The metallurgical report on the
                                                                                                                                                                                  heap leach project is due to be ready in

                                                                                                                                                                                  Ground clearing could begin this year
                                                                                                                                                                                     If the metallurgical results are encour-
                                                                                                                                                                                  aging, ground clearing could begin later
                                                                                                                                                                                  this year and the heap leach could begin
                                                                                                                                                                                  working in 2007. Knight Piesold was
                                                                                                                                                                                  contracted to do the pad design and Mine
                                                                                                                                                                                  and Mill Engineering put together the
                                                                                                                                                                                  plant design. “I feel confident that we
                                                                                                                                                                                  have a well-designed project. ... If a proj-
                                                                                                                                                                                  ect like this can’t be permitted, then heap
                                                                                                                                                                                  leaching can’t be permitted anywhere in
                                                                                                                                                                                  Alaska,” Shaw said. No permit applica-
                                                                                                                                                                                  tions have been filed yet.
                                                                                                                                                                                     Cyanide heap leach pads require care-
                                                                                                                                                                                  ful maintenance and have caused prob-
                                                                                                                                                                                  lems at other sites where mining compa-
                                                                                                                                                                                  nies have gone bankrupt. In Alaska this
                                                                                                                                                                                  occurred at the Illinois Creek mine,
                                                                                                                                                                                  which was recently reclaimed successful-
                                                                                                                                                                                  ly in a partnership between the state and
                                                                                                                                                                                  private industry. Fairbanks Gold Mining
                                                                                                                                                                                  already uses cyanide in its mill processes
                                                                                                                                                                                  at Fort Knox. ●
PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006                                                                                                                                          9
                                                                                                                            NORTH OF 60 MINING
●     F A I R B A N K S

GVEA seeks mediation                                                                              GVEA hires former DNR commissioner
                                                                                                     Tom Irwin has joined Golden Valley Electric Association as vice president of gov-

in Healy plant dispute                                                                            ernmental and public affairs, a newly created position, GVEA said in a statement Jan.
                                                                                                     Irwin, 59, is a mining industry veteran with more than 30 years of management
AIDEA files lawsuit against Interior cooperative in hopes of                                      experience. He stepped down from his job as commissioner of the Alaska Department
                                                                                                  of Natural Resources in October after disagreeing with Gov. Frank H. Murkowski
getting mothballed clean-coal facility in Interior up and running                                 about the direction of the state’s natural gas pipeline negotia-
                                                                                                  tions with the North Slope producers.
             By ROSE RAGSDALE                    $117 million toward the $297 million cost of        At GVEA, Irwin will serve as the cooperative’s liaison to
               For Mining News                   the plant.                                       government, at both local and state levels. He also will oversee
                                                    The authority claims Golden Valley is in      GVEA’s public relations staff, the co-op said.

       olden Valley Electric Association         breach of an agreement it entered with
       hopes to get help from a mediator to      AIDEA in 2000 to settle 1998 litigation          Position already in structure
       resolve its long-running dispute with     regarding the coal-fired power plant.
                                                                                                      “This position mirrors contemporary cooperative organiza-
       the Alaska Industrial Development            Aside from the brief test run, the moth-
                                                                                                  tional models. We’ve had this position in our structure for the
and Export Authority regarding the Healy         balled clean-coal facility has never actually
                                                                                                  past year and the timing of Tom being available made us decide
Clean Coal Project.                              generated electricity. Over the years, both
                                                                                                  to fill the position now,” said GVEA President & CEO Steven TOM IRWIN
    The electric cooperative, which serves       parties made several agreements that result-
                                                                                                  Haagenson, who also praised Irwin’s track record of hard work and ethical standards.
Interior customers from Healy to Fairbanks       ed in disputes over the plant’s operation.
                                                                                                      Since Murkowski dismissed him in October, Irwin has continued to speak out
and east to Delta Junction, filed a motion in       “In my view, tens of millions of public
                                                                                                  against the state’s strategy in the ongoing gas line talks. He had served as DNR com-
Alaska Superior Court in Fairbanks,              funds have been put into that plant, and
                                                                                                  missioner since January 2003.
requesting mediation in the case, saying it      AIDEA has a responsibility to put the plant
                                                                                                      Irwin holds a bachelor’s degree in mineral engineering from the Colorado School
has the best chance of a lasting resolution.     into operation. That’s the reason they filed
                                                                                                  of Mines. He has 33 years experience in the mining industry, evaluating, designing,
    “Golden Valley believes mediation will       the lawsuit. They want to get the plant up
                                                                                                  permitting and operating mining and milling properties. Past positions include a stint
allow both parties to come to the table and      and running and generating electric power,”
                                                                                                  as general manager of Amax Gold’s Sleeper mine in Nevada before moving to Alaska
resolve complex issues,” the co-op said Jan.     Cole said.
                                                                                                  in 1992. From 1992-96, Irwin was vice president of operations for Fairbanks Gold
                                                 Homer Electric would operate                     Mining Inc., and was directly involved with design, permitting, and start-up of the
    The move came in response to a lawsuit
                                                                                                  Fort Knox mine. Between 1996 and 2001, he served as operations manager and gen-
AIDEA filed Nov. 7, claiming Golden                  AIDEA Executive Director Ron Miller          eral manager of Fort Knox and True North mines. From 2001-2003, he was vice pres-
Valley breached its contract with the state-     said the authority must protect nearly $300      ident of business development for Fairbanks Gold.
owned authority and demonstrated lack of         million of federal tax dollars and state funds       GVEA, with its growing customer base of mining operations, is a good fit with
good faith and fair dealing and unjust           invested in the Healy project. “It’s unfortu-    Irwin, Haagenson added.
enrichment in its actions related to the Healy   nate that GVEA’s board and management
plant.                                                                                                                                                                   —MINING NEWS
                                                 have exposed their rate-payers to the claims
    “They’ve asked the court for an order        in this lawsuit,” he said. “Our fight is not
staying the litigation and to enter an order
requiring both parties to resolve the dispute
                                                 with the GVEA members but with their
                                                 board and management. AIDEA is, in fact, a
in mediation,” Fairbanks attorney Charlie        member of the co-op, since we pay GVEA
Cole said Jan. 19. Cole, who represents          nearly $40,000 per month for electricity.”       Second ball mill ready for Yukon’s Minto
AIDEA in the case, said he was talking with          Having given up on Golden Valley,               Vancouver-based Sherwood Copper has acquired a second ball mill for its Minto
Golden Valley’s attorneys about their pro-       AIDEA spent much 2005 looking for anoth-         copper-gold project in the Yukon, the company announced Jan. 5. The 10.5-foot by 12-
posal.                                           er operator for the Healy plant. In October,     foot Allis Chalmers ball mill was purchased from ASARCO for US$75,000, including
    “We have not rejected the proposal, but      Homer Electric Association expressed inter-      a 900 horsepower motor, drive assembly, lubrication system and scoop feeder. This
we want to learn from them the issues they       est in not only managing the facility but also   ball mill is a twin to the one that is already at the Minto site.
want to mediate, and we’re talking toward        purchasing power it would generate. The             Preliminary grinding studies indicated that the current plant design was capable of
that end,” Cole said.                            Kenai Peninsula utility is currently studying    processing an average of 1,564 metric tons of ore per day, while the addition of the
                                                 ways to restart the plant.                       second ball mill could increase throughput to approximately 2,000 to 2,200 metric tons
AIDEA wants right to re-start Healy                  Golden Valley also filed a 20-page           per day. The second ball mill will remain in storage in Arizona for the present.
    AIDEA is seeking more than $167 mil-         chronological narrative “Statement of Fact”         Sherwood also announced that it has been granted an amendment to its Quartz
lion in damages from Golden Valley in the        with its Jan. 9 motion. The co-op listed 122     Mining License from the Yukon government that extends the expiry date to June 30,
suit and has asked the court to enforce its      points, defending its position. Golden Valley    2016. Construction of a mine at Minto by previous owners was suspended in the late
rights to re-start and operate the Healy plant   said it repeatedly expressed concerns about      1990s due to low copper prices. Infrastructure such as accommodation and an 18-mile
to produce electric power for the Railbelt.      the commercial feasibility of the Healy proj-    access road already exist at the site. Independent consultants Hatch are updating the
    The Healy project began in 1988. Golden      ect from its inception and received numer-       historic feasibility study for Minto that was completed by ASARCO in 1995 and
Valley was the plant operator and had con-       ous assurances from AIDEA over the years.        reviewed by Hatch in 2000.
tracted to buy power from the 50-megawatt            “Had AIDEA followed GVEA’s advice,              The Minto project contains measured and indicated resources of 9.2 million tons at
coal-fired plant. The facility was completed     operation of (the Healy plant) would have        a grade of 1.8 percent copper, 0.016 ounces per ton gold and 0.2 ounces per ton silver,
in 1997 and operated for a year and a half       begun to generate a significant stream of        and an additional inferred resource of 0.8 million tons grading 1.4 percent copper,
testing new coal-burning and emissions-          payments — millions of dollars per year —        0.013 ounces per ton gold and 0.2 ounces per ton silver.
control technologies for the U.S.                to AIDEA … in 1999 or 2000,” the co-op                                                                                  —SARAH HURST
Department of Energy, which contributed          observed. ●
10                                                                                                                                         PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006
                          NORTH OF 60 MINING

                 Companies involved in Alaska and northern
                        Canada’s mining industry
     Ace Transport                                                 Contact: Leslye Langla, managing direct.                      Email: nkarnos@nac.aero • Web site: www.nac.aero
     Anchorage, AK 99502                                           Phone: (907) 777-1501 • Fax: (907) 777-1515                   Serving the aviation needs of rural Alaska for almost 50
     Contact: Henry Minich, owner                                  Email: llangla@capital-office.com                             years, NAC moves nearly 100 million pounds of cargo on
     Phone: (907) 243-2852 • Phone: (907) 229-9647 (cell)          Asset management, systems furniture, project coordina-        scheduled flights to 17 of Alaska’s busiest airports.
     Fax: (907) 245-8930 • Email: henryminich@aol.com              tion, space planning, systems delivery/installation, furni-
     Specializing in heavy hauling. Equipment includes 85-ton      ture refurbishing, and relocation/remodel services.           Pacific Power Products
     lowboy.                                                       Authorized Steelcase dealer for Alaska.                       Anchorage, AK 99507
                                                                                                                                 Phone: (907) 522-3434 • Fax: (907) 522-1198
     Aeromed International                                         Carolina Mat Co.                                              Web site: www.pacificdda.com
     Anchorage, AK 99503                                           Plymouth, NC 27962                                            Other office: Fairbanks, AK 99709
     Contact: Brooks Wall, director                                Contact: Susan Harrison, owner                                In Alaska, we are distributors for Detroit Diesel, Allison
     Phone: (907) 677-7501 • Fax: (907) 677-7502                   Phone: (252) 793-4045 • Fax: (252) 793-5187                   and Kohler. We have served Alaska for over 30 years with
     Email: brooks_wall@ykhc.org                                   Email: carolinamat@earthlink.net                              quality products for the petroleum industry.
     Web site: www.ykhc.org                                        Web site: www.carolinamat.com
     Aeromed International is an all jet critical care air ambu-   Company established in 1985. Manufacture 3-ply patent-        Pacific Rim Geological Consulting
     lance fleet based in Anchorage. Medical crews are certi-      ed, bolted, portable, reusable, solid oak construction        Fairbanks, AK 99708
     fied Flight Nurses and certified Flight Paramedics.           mats. Guaranteed to hold up to 50 tons, the mats are          Contact: Thomas Bundtzen, president
                                                                   interlocking and non-interlocking, countersunk or non-        Phone: (907) 458-8951 • Fax: (907) 458-8511
     Air Liquide                                                   countersunk.                                                  Email: bundtzen@mosquitonet.com
     Anchorage, AK 99518                                                                                                         Geologic mapping, metallic minerals exploration and
     Contact: Brian Benson                                         Chiulista Camp Services/Mayflower Catering                    industrial minerals analysis or assessment.
     Phone: (907) 273-9762 • Fax: (907) 561-8364                   Anchorage, AK 99507
     Email: brian.benson@airliquide.com                            Contact: George B. Gardner, pres/gm                           Panalpina
     Air Liquide sells, rents, and is the warranty station for     Phone: (907) 278-2208 • Fax: (907) 677-7261                   Anchorage, AK 99502
     Lincoln, Miller, Milwaukee, Victor and most other welding     Email: ggardner@calistacorp.com                               Contact: John Hodel, branch mgr.
     equipment and tool manufacturers.                             The 100 percent Alaska Native owned and operated              Phone: (907) 245-8008 • Fax: (907) 245-8018
                                                                   catering company on the North Slope, catering and             Email: john.hodel@panalpina.com
     Alaska Airlines Cargo                                         housekeeping to your tastes, not ours.                        International and domestic freight forwarding and logis-
     Seattle, WA 98168                                                                                                           tics services. Integrated solutions for supply chain man-
     Contact: Keola Pang-Ching, director, cargo sales              CN Aquatrain                                                  agement. Specialists in mining projects.
     Phone: (206) 433-3122 • Fax: (206) 433-3225                   Anchorage, AK
     Email: Keola.pang-ching@alaskaair.com                         Contact: Laurie A. Gray, agent                                Peak Oilfield Service Co.
     Award winning cargo services to more places, more             Phone: (907) 279-3131                                         Anchorage, AK 99503
     often, with more lift to, from, and within the state of       Toll Free: (800) 999-0541 • Fax: (907) 272-3963               Contact: Ben Cleveland, vp
     Alaska.                                                       CN Aquatrain has provided Alaska with dependable              Phone: (907) 263-7000 • Fax: (907) 263-7070
                                                                   access to Canadian and Lower 48 markets for 38 years.         Email: bencleveland@peakalaska.com
     Alaska Cover-All                                                                                                            Web site: www.peakalaska.com
     Anchorage, AK 99507                                           Construction Machinery                                        Alaska based general contractors.
     Contact: Paul Nelson, mgr.                                    5400 Homer Dr.
     Phone: (907) 346-1319 • Fax: (907) 346-4400                   Anchorage, AK 99518                                           PTI Group
     Email: paul@alaskacoverall.com                                Contact: Ron Allen, Sales Manager                             Edmonton, AB, Canada T6N 1C8
     Contact: Henry Brown                                          Phone: (907) 563-3822                                         Phone: (800) 314-2695 • Fax: (780) 463-1015
     Phone: (907) 646-1219 • Nat. Ctr. (800) 268-3768              Fax: (907) 563-1381                                           Email: ptigroup@ptigroup.com
     We are the Alaska dealers for Cover-All Building Systems.     Email: r.allen@cmiak.com                                      Website: www.ptigroup.com
     Steel framed, fully engineered, LDPE fabric covered,          Web site: www.cmiak.com                                       PTI Group Inc. is the premium supplier of integrated
     portable buildings in 18 to 270 foot widths and any           Other Offices:                                                remote site services. Offering full turnkey packages or
     length.                                                       Fairbanks office                                              individual services such as construction, catering and
                                                                   Phone: 907-455-9600 • Fax: 907-455-9700                       wastewater treatment, PTI delivers above and beyond
     Alaska Earth Sciences                                         Juneau office                                                 client expectations.
     Anchorage, AK 99515                                           Phone: 907-780-4030 • Fax: 907-780-4800
     Contact: Bill Ellis, Rob Retherford                           Ketchican office                                              Rimfire Minerals Corp.
     or Dave Lappi, owners                                         Phone: 907-247-2228 • Fax: 907-247-2228                       Vancover, BC V6C 1G8 Canada
     Phone: (907) 522-4664 • Fax: (907) 349-3557                   Wasilla Office                                                Contact: Lisa May, Mkt. Coordinator
     Email: wte@aes.alaska.com                                     Phone: 907-376-7991 • Fax: 907-376-7971                       Phone: (604) 669-6660
     A full service exploration group that applies earth sci-                                                                    Fax: (604) 669-0898
     ences for the mining and petroleum industries providing       Fairbanks Gold Mining/Fort Knox Gold Mine                     Email: lisam#rimfire.bc.ca
     prospect generation, evaluation and valuation, explo-         Fairbanks, AK 99707                                           Web site: www.rimfire.bc.ca
     ration concepts, project management, geographic infor-        Contact: Lorna Shaw, community affairs director               Gold and silver projects in Alaska, Yukon, BC and
     mation systems and data management. We also provide           Phone: (907) 488-4653 • Fax: (907) 490-2250                   Nevada. Preferred partner of senior mining firms.
     camp support and logistics, geologic, geochemical and         Email: lshaw@kinross.com                                      Partnered with the world’s three largest gold produc-
     geophysical surveys.                                          Web site: www.kinross.com                                     ers.
                                                                   Located 25 miles northeast of Fairbanks, Fort Knox is
     Alaska Interstate Construction (AIC)                          Alaska’s largest operating gold mine, producing 340,000       Security Aviation
     6751 S. Airpark Place                                         ounces of gold in 2004.                                       Anchorage, AK 99502
     Anchorage, AK 99502                                                                                                         Contact: S. Joe Kapper
     Contact: John Ellsworth                                       Jackovich Industrial & Construction Supply                    Phone: (907) 248-2677 – 24-hour service
     Phone: (907) 562-2792 • Fax: (907) 562-4179                   Fairbanks, AK 99707                                           Fax: (907) 248-6911
     Email: info@aicllc.com • Web site: www.aicllc.com             Contact: Buz Jackovich                                        Email: lhansen@securityaviation.biz
     AIC provides cost-effective solutions to resource develop-    Phone: (907) 456-4414 • Fax: (907) 452-4846                   Web site: www.securityaviation.biz
     ment industries. We provide innovative ideas to meet          Anchorage office                                              All twin engine turbine and piston fleet. Alaska, Canada,
     each requirement through the provision of best-in-class       Phone: (907) 277-1406 • Fax: (907) 258-1700                   Lower 48. Crew changes, hot freight/HAZMAT, VIP tours,
     people and equipment coupled with exceptional per-            24- hour emergency service. With 30 years of experience,      emergency response and aerial surveys. Approved by all
     formance.                                                     we’re experts on arctic conditions and extreme weather.       oil and gas companies, Alyeska Pipeline Service Co., Dept.
                                                                                                                                 of Defense, Dept. of Interior, Dept. of Transportation and
     Arctic Controls                                               Judy Patrick Photography                                      the State of Alaska.
     Anchorage, AK 99501                                           Anchorage, AK 99501
     Contact: Scott Stewart, president                             Contact: Judy Patrick                                         Unitech of Alaska
     Phone: (907) 277-7555 • Fax: (907) 277-9295                   Phone: (907) 258-4704 • Fax: (907) 258-4706                   Anchorage, AK 99507
     Email: sstewart@arcticcontrols.com                            Email: jpphoto@mtaonline.net                                  Contact: Debbie Hawley
     Website: www.arcticcontrols.com                               Website: JudyPatrickPhotography.com                           Phone: (907) 349-5142
     An Alaskan owned and operated company since,1985,             Creative images for the resource development industry.        Phone: (800) 649-5859
     Arctic Controls has been highly successful as manufacturer                                                                  Fax: (907) 349-2733
     representatives for the state of Alaska in the Process        Lynden                                                        Email: unitech@alaska.com
     Control and Instrumentation field.                            Alaska Marine Lines • Alaska Railbelt Marine                  Email: dhawley@unitechofalaska.com
                                                                   Alaska West Express • Lynden Air Cargo                        UOA is Alaska’s only 24-hour oil spill remediation,
     Arctic Foundations                                            Lynden Air Freight • Lynden International                     environmental and industrial supply company.
     Anchorage, AK 99518-1667                                      Lynden Logistics • Lynden Transport                           Specialty areas include sorbents, geotextile, contain-
     Contact: Ed Yarmak                                            Anchorage, AK 99502                                           ment berms, drums and ice melt.
     Phone: (907) 562-2741 • Fax: (907) 562-0153                   Contact: Jeanine St. John
     Email: info@arcticfoundations.com                             Phone: (907) 245-1544 • Fax: (907) 245-1744                   U.S. Bearings & Drives
     Website: www.arcticfoundations.com                            Email: custsvc@lynden.com                                     Anchorage, AK 99518
     Soil stabilization – frozen barrier and frozen core dams to   The combined scope of the Lynden companies includes           Contact: Dena Kelley, branch mgr.
     control hazardous waste and water movement.                   truckload and less-than-truckload highway connections,        Phone: (907) 563-3000 • Fax: (907) 563-1003
     Foundations – maintain permafrost for durable high            scheduled barges, intermodal bulk chemical hauls, sched-      Email: dkelley@bearings.com • Web site:
     capacity foundations.                                         uled and chartered air freighters, domestic and interna-      www.bearings.com
                                                                   tional air forwarding and international sea forwarding        U.S. Bearings & Drives has been providing solutions to it
     Austin Powder Company                                         services.                                                     customers for over 25 years. We offer quality compo-
     P.O. Box 8236                                                                                                               nents, name brands and highly trained personnel.
     Ketchikan, AK 99901                                           MRO Sales
     Contact: Tony Barajas, alaska manager                         Anchorage, AK 99518                                           Usibelli Coal Mine
     Phone: (907) 225-8236                                         Contact: Don Powell                                           Fairbanks, AK 99701
     Fax: (907) 225-8237                                           Phone: (907) 248-8808 • Fax: (907) 248-8878                   Contact: Bill Brophy, vp cust. relations
     Email: tony.barajas@austinpowder.com                          Email: Sales1@mrosalesinc.com                                 Phone: (907) 452-2625 • Fax: (907) 451-6543
     Web site: www.austinpowder.com                                Website: www.mrosalesinc.com                                  Email: info@usibelli.com • Web site: www.usibelli.com
     In business since 1833, Austin Powder provides                MRO Sales offers products and services that can help          Other Office
     statewide prepackaged and onsite manufactured                 solve the time problem on hard to find items.                 P. O. Box 1000 • Healy, AK 99743
     explosives and drilling supplies with a commitment to                                                                       Phone: (907) 683-2226
     safety and unmatched customer service.                        Northern Air Cargo                                            Usibelli Coal Mine is headquartered in Healy, Alaska and
                                                                   Anchorage, AK 99502                                           has 200 million tons of proven coal reserves. Usibelli pro-
     Capital Office Systems                                        Contact: Nick Karnos                                          duced one million tons of sub-bituminous coal this year.
     Anchorage, AK 99508                                           Phone: (907) 249-5161 • Fax: (907) 249-5194
                                                    All of the companies above are regular advertisers in North of 60 Mining News.
PETROLEUM NEWS        •   WEEK OF JANUARY 29, 2006                                                                                                                                            11
                                                                                                                             NORTH OF 60 MINING
●      G U E S T      C O L U M N

                                                                                                   SOUTHWEST ALASKA
Barrick’s acquisition                                                                              Toronto-based giant Barrick Gold takes
                                                                                                   over Placer Dome, Donlin Creek
of Placer Dome bodes                                                                                   Barrick Gold’s takeover of Placer Dome could light a fire under the Donlin Creek
                                                                                                   project in southwest Alaska. Toronto-based Barrick, the world’s No. 3 gold producer,

well for Alaska                                                                                    mounted an initially hostile bid to purchase Vancouver-based Placer Dome late last
                                                                                                   year, but the two companies subsequently agreed on an offer of $10.4 billion that they
                                                                                                   believe will benefit them both.
                                                                                                       “One of the significant rationales behind the takeover bid was to build up the proj-

         hen I heard that Barrick Gold Corp.
                                                                                                   ect pipeline,” Vincent Borg, Barrick’s vice president for communications, told Mining
         had made an unsolicited offer on           Mining                                         News. “Donlin Creek is a key project in the new combined pipeline. Barrick has been
         Oct. 31, 2005, to purchase Placer
         Dome Inc. my first move was to
                                                   & the law                                       known to aggressively develop projects, and if there is any leeway for us to aggres-
purchase 100 Barrick shares. Although the              The author, J.P.                            sively develop Donlin Creek, we’ll review what we can do.” In this region Barrick
acquisition was initially rejected, on Dec.        Tangen has been                                 owns the Eskay Creek gold-silver mine in British Columbia, which produced 289,568
22 a follow-up offer was greeted more              practicing mining                               ounces of gold and 15,751 million ounces of silver in 2004.
favorably.                                         law in Alaska                                       Placer Dome is the manager and operator of the Donlin Creek project, with a 30
    This appears to be a fortuitous marriage.      since 1975. He                                  percent stake. Vancouver-based NovaGold Resources owns 70 percent of the project
In the 60 days I have held the stock it has        can be reached at                               in a joint venture agreement. The planned open pit mine is currently in the pre-feasi-
                                                                              J.P. TANGEN
gone from $25.05 per share to $29.48, an           jpt@jptangen.co                                 bility stage. On Jan. 20, the day after Barrick’s takeover of Placer Dome, NovaGold
increase in value of 17.68 percent (106 per-       m or visit his Web site at www.jptan-           announced that based on an updated 3D geologic and mineralization model, a new
cent annualized). I like that kind of invest-      gen.com. His opinions do not necessarily        resource estimate had increased Donlin Creek’s measured and indicated resource cat-
ment.                                              reflect those of the publishers of Mining       egory by 3.7 million ounces or 33 percent to 14.8 million ounces of gold grading an
    Why has the market treated Barrick so          News and Petroleum News, but they fre-          average of 2.76 grams per metric ton. The inferred resource decreased by 0.7 million
well? Perhaps it is because the price of gold      quently do reflect the opinions of pro-         ounces to 13.6 million ounces of gold grading 2.72 grams per ton through conversion
is also going nuts having moved from               industry groups such as the Alaska              to the measured and indicated category. This is the first new resource estimate for the
$464.90 on Oct. 31 to over $565.00                 Miners Association and the Resource             project since April 2003.
(briefly). But the exciting nature of the gold     Development Council of Alaska.                      “Right now our plans for 2006 have not changed. It’s business as usual as we start
market and the sharp increase in Barrick’s                                                         the year,” Stan Foo, Placer Dome’s project manager for Alaska, told Mining News.
price is not the sole reason for being           With Donlin, mining                               “We’re looking at starting the Donlin Creek feasibility study in mid-2006 and doing
pleased with the acquisition. Barrick will       industry could hit $4 billion                     some pretty active drilling. We’re trying to keep it moving forward at a good speed.”
now become the largest gold producer in                                                            Foo hasn’t discussed Donlin Creek with anyone from Barrick yet, he added.
the world and one of its new properties,             With Donlin Creek added to the mix, it
                                                                                                                                                                           —SARAH HURST
Donlin Creek, is right here in the Great         is projected that the mining industry will be
Land. While it is unknown whether Barrick        a $4 billion industry within five years.
will elect to develop Donlin Creek, this tar-
get is thought to contain at least 23 million
                                                 Although mining does not generate the big
                                                 dollars that are associated with oil and gas,
ounces of gold.                                  it is a labor intensive industry that creates a
                                                 cash economy with attractive local multi-          State releases 4 aerial mineral surveys
Alaska on edge of great leap                     pliers near the property.                             Aerial surveys released by the Alaska Division of Geological & Geophysical
    In context, Alaska is on the edge of a           Mining in general and gold mining in          Surveys could help identify areas worth exploring for minerals.
great leap forward, not just with regard to      particular will serve to open up the country          Four surveys released Jan. 23 fall short of offering a bull’s eye for exploration
increased oil production, if ANWR ever           by making access feasible and infrastruc-
                                                                                                   companies, but help pinpoint promising sites, according to state geologist Melanie
makes the cut, or the gas pipeline, if there     ture possible. Good jobs mean enhanced
                                                                                                   Werdon. Werdon said a “pretty hot mineral target area” borders a previously studied
ever is an agreement on that proposal, but       opportunities of every description for rural
                                                                                                   section that includes the Pogo gold mine northeast of Delta Junction.
also in the production of precious minerals.     Alaskans. From education to health care to
                                                                                                       The Black Mountain area contains rock formations and gold-related features sim-
    Already, Fort Knox is in production          essential services, those who live near the
                                                                                                   ilar to those at the Pogo deposit, which contains an estimated 3.6 million ounces of
(approximately 324,000 ounces of gold            mines will benefit.
                                                                                                   gold, according to mine operator Teck-Pogo Inc.
produced in 2005); the Pogo mine is finish-          Mines are unlikely to adversely impact
                                                                                                       “I’m sure people are going to be really interested,” Werdon said. There was already
ing construction (projected production may       the local environment or traditional activi-
                                                 ties such as commercial fishing or subsis-        active prospecting there, she added.
be as much as 400,000 ounces per year);                                                                Areas in northeast Fairbanks and southeast of Delta Junction also were studied. So
the Kensington mine is also in construction      tence hunting and gathering. They will,
                                                 however, make cash more available in the          was a section of the National Petroleum Reserve-Alaska considered likely to contain
(anticipated production is approximately                                                           a large zinc-lead deposit.
100,000 ounces annually when the permit-         towns and villages that support the projects.
                                                 They will create a tax base that will facili-         By studying areas that have been surveyed and explored, geologists can determine
ting process is final); the Pebble project,                                                        which geologic features are likely to contain gold or other minerals in the same locale.
though still in exploration, when it com-        tate enhanced law enforcement and sanita-
                                                 tion. Miners are traditionally good neigh-        The technology also is used by mining companies for preliminary exploration.
mences production, could produce more                                                                  Geophysical surveys done in 2000 helped companies exploring the large Pogo
than 700,000 ounces per year; Greens             bors, as our existing association with Placer
                                                 Dome over the years has clearly shown.            gold deposit, Werdon said. After maps were released, mineral exploration companies
Creek’s yearly production is approximately
                                                     Should the merger with Barrick go             rushed in.
80,000 ounces of gold; placer mining oper-
                                                 through as everyone expects, we will wel-             “They wanted to run right out with a helicopter and stake claims,” Werdon said.
ations across the state produce over 28,000
                                                 come the company to Alaska. As the                “Everybody wanted a piece of the ground.” The geophysical mapping program began
ounces of gold each year; and the mines at
                                                 Donlin Creek project advances through the         in the early 1990s with the goal of attracting mineral investment.
Nixon Fork and Rock Creek may also soon
                                                 permitting process, Alaska can look for-              “Essentially we’re competing for worldwide exploration dollars,” Werdon said.
be weighing in.
                                                 ward to a golden future. ●                        She added that Alaska’s surveying lags behind that of many other countries.
                                                                                                       Over 14 years, approximately 9,600 square miles have been surveyed at a cost of
                                                                                                   more than $5 million. This year’s surveys cover 918 square miles.
    ANCHORAGE                                                                                          The Senate Resources Committee is considering a bill introduced by Sen. Gene
                                                                                                   Therriault, R-North Pole, that would increase funding of the project to $5 million over
                                                                                                   five years. The Alaska Minerals Commission, an industry-comprised board created to
    Loeffler joins consulting firm Jade North                                                      advise the Legislature and governor, supports the legislation.
       Bob Loeffler, who resigned recently as director of the Alaska Department of Natural                                                                        —THE ASSOCIATED PRESS
    Resources’ Division of Mining, Land and Water, has joined Jade North LLC. Founded
    in 2000, the Anchorage-based company provides consulting services in a broad range
    of natural resource, Alaska Native and government sectors. In his new job Loeffler will
    represent clients with natural resource extraction and transport interests, as well as
    assist clients with land management projects and issues with government, Native and
    private land owners, according to Jade North.
                                                                             —SARAH HURST
12                        PETROLEUM NEWS   •   WEEK OF JANUARY 29, 2006

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