Investing in Alaska O&G properties:facilitating companies’ objectives

l E X P L O R A T I O N & P R O D U C T I O N

l P I P E L I N E S & D O W N S T R E A M

l L A N D & L E A S I N G

Vol. 23, No. 30 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of July 29, 2018 • $2.50

page4

Narwhal, Willow in Nanushuk;investors unworried w. oil price

IF YOU’RE WONDERING WHETHERConocoPhillips has changed the name of theNanushuk formation to Narwhal or Willow,the answer is no. Independent Armstrong andits partners first went after Nanushuk west ofthe central North Slope, although Conoco haddrilled through the formation but never pur-sued it on their own acreage until they wit-nessed Armstrong’s amazing success in theBrookian topset sequence, which is the youngest and shallowestof the petroleum bearing rock sequences in Arctic Alaska.

When asked whether the Narwhal wells Putu and Stony Hill,were in the Nanushuk formation, U.S. Geological Survey geolo-

Eni says drilling at Nikaitchuqcould resume as early as this fall

Eni could resume development drilling at the Nikaitchuq unitas soon as this fall, if the timing and results of its ongoing explo-ration campaign in the region accommodate.

In its 11th plan of development for the North Slope unit, thelocal subsidiary of the Italian major announced plans to drill asmany as three new wells and to add laterals to as many as eightexisting single lateral wells at its Spy Island Drillsite as soon asOctober 2018.

The work depends on the progress at the Nikaitchuq Northexploration project. The start of that project was delayed back inDecember 2017 and now faces seasonal restrictions.

The planned development work depends on the ongoing

Oil supply weakening, says PaalKibsgaard, Schlumberger exec

In its July 20 second quarter earnings conference callSchlumberger Chairman and Chief Executive Officer PaalKibsgaard shared his observations of the world’s oil supply base,which he says is dwindling.

“In spite of OPEC’s recent decision to increase oil production,the supply base continues to weaken, with growing geopoliticalpressure to remove Iranian barrels from the market, with noapparent resolution to the falling production in Venezuela, andwith Libyan exports continuing to be volatile,” Kibsgaard said.

At present, “OPEC spare production capacity is limited to 2.1million barrels per day from Saudi Arabia, Kuwait and the UAE,which is approaching the lowest levels seen in the last twodecades.”

In North America, he said, “the pressure on infrastructure and

BLM requesting nominations for2018 NPR-A oil & gas lease sale

The federal Bureau of Land Management is requestingnominations and comments on available tracts for considera-tion in its December 2018 oil and gas lease sale in theNational Petroleum Reserve-Alaska.

BLM announced a 30-day period for nominations or com-ments which closes Aug. 20.

“Requesting comments about which tracts should beincluded in the sale allows us to ensure industry, conservationgroups, and other stakeholders have an opportunity to provideinput,” Karen Mouritsen, BLM Alaska acting state director,said in a July 19 statement. “This is one of several actions weare taking to further the direction in Secretarial Order No.3352, relating to expanding energy development in the

see INSIDER page 8

see NIKAITCHUQ DRILLING page 6

see SCHLUMBERGER EXEC page 5

see LEASE SALE page 5

Bids on blocksDO&G to offer special lease sale areas — Harrison Bay, Gwydyr Bay, Storms

By KRISTEN NELSONPetroleum News

The Alaska Division of Oil and Gas iscombining unleased acreage backed

by publicly available information on thoseleases to offer three blocks of leases in itsfall oil and gas lease sales.

Large contiguous acreage blocks inthree North Slope and Beaufort Sea areaswill be offered in a sale to be held concur-rently with its annual fall 2018 competitive oil andgas lease sales.

“These unique lease sale blocks are groups ofNorth Slope and Beaufort Sea Areawide lease saletracts that will be offered together as Special AlaskaLease Sale Areas (SALSA),” Division of Oil and Gas

Director Chantal Walsh said in describingthe program on the division’s website.

She said the division “has gathered andhighlighted large amounts of publiclyavailable data that bears on the SALSAareas.”

The areas are: Harrison Bay on the coastwest of the Colville River unit; GwydyrBay on the central North Slope coast,between Milne Point and Northstar northof Prudhoe Bay; and Storms, south of the

Prudhoe Bay unit and immediately east of the Guitarunit.

The block sizes vary, with the Harrison BaySALSA the largest at some 66,430 acres, followed by

Canada risky, uncertainImperial Oil, unhappy with red tape, backs off growth opportunities, limits capex

By GARY PARKFor Petroleum News

With billions of dollars of foreign-sourced cap-ital investment being scaled back and hun-

dreds of industry employees still collecting pinkslips, the impression is building that Canada’s oilpatch is in an irreversible decline.

And just in case anyone thought a reversal mightstill be possible that hope has been dealt a setback byImperial Oil — 70 percent owned by ExxonMobiland long the powerhouse of Canadian oil develop-ment and refining — whose Chief Executive OfficerRich Kruger delivered the bleakest of messages toThe Globe and Mail and the National Post, Canada’stwo national newspapers.

He said Imperial has stopped all new growthspending until governments act to improve compet-itiveness and reduce red tape, noting that his owncompany will, at most, spend only C$1.7 billion thisyear just to “care and feed” its existing asset base.

“This is not a place where Canada has been his-torically,” he said. “We all shy away from risk,

Cross inlet approvalRCA approves Harvest-owned lines requests; pipeline will end need for Drift River

By KRISTEN NELSONPetroleum News

The Regulatory Commission of Alaska hasapproved applications by Cook Inlet Pipe

Line Co. and Kenai Beluga Pipeline LLC forpipeline changes in Cook Inlet which will allowfor movement of crude oil from the west side to theeast side by pipeline, eliminating the need fortanker transport from the Drift River Terminal tothe Andeavor (formerly Tesoro) refinery atNikiski.

The pipelines are owned by Harvest Alaska, awholly owned subsidiary of Hilcorp Alaska, CookInlet’s largest oil and gas producer. Applicationsfor the changes were filed with the commissionlast September.

The commission has approved conversion of aportion of the Kenai Beluga Pipeline gas system,CIGGS-A, into an oil pipeline and connection ofthat line with existing Cook Inlet oil pipelines onthe east and west sides of Cook Inlet.

Cook Inlet Pipe Line has been authorized to

see SALSA BLOCKS page 6

see IMPERIAL OUTLOOK page 6

see PIPELINE CHANGES page 7

CHANTAL WALSH

“We all shy away from risk, beyond thetechnical and operational risk we accept.

And today there is more risk anduncertainty.” —Imperial CEO

Rich Kruger

The capacity exchange agreementbetween CIPL and KBPL states that CIPL

will bear the investment cost ofreconfiguring the lines and KBPL’s natural

gas shippers will not experience a rateincrease as a result of reconfiguration.

l G O V E R N M E N T

Legislators hear departments on initiativeBallot measure 1, the ‘salmon initiative’, would be costly to state; state challenging validity of measure at Alaska Supreme Court

By KRISTEN NELSONPetroleum News

The Alaska Senate’s State Affairs Committee heardan update July 20 from state departments on the

potential impact of ballot measure No. 1, the so-calledsalmon initiative.

A memo from Legislative Legal Services toCommittee Chair Kevin Meyer, R-Anchorage, provideda brief summary of the initiative, telling the committee it“would establish a multi-tiered permitting regime foractivities likely to adversely affect anadromous fishhabit,” amending Alaska Statute 16.05 “by adding newsections to describe fish and wildlife protection stan-dards … and permitting requirements ‘before initiatingany activity that may use, divert, obstruct, pollute, dis-turb or otherwise alter anadromous fish habitat.’”

Lt. Gov. Byron Mallott denied certification of the ini-tiation as an unconstitutional appropriation of stateassets last September, but in October the Superior Courtfound that the initiative did not appropriate a state asset

and granted a motion for summary judgment in favor ofthe initiative group, requiring the division of elections toprovide petition signature booklets to initiative sponsors.

The state appealed the Superior Court’s determina-tion. Legal Services said the issue before the AlaskaSupreme Court is whether the initiative usurps theLegislature’s “discretion to allocate anadromous fishhabitat among competing users and purposes.”

Fish & GameCommissioner of Fish & Game Sam Cotton and Ron

Benkert, fish and game coordinator, habitat southcentral,reviewed the department’s current statutory authorityand the new duties the initiative would require of thedepartment.

They said that under the initiative the presumption isthat naturally occurring connected water bodies andadjacent riparian areas are anadromous, whereas thedepartment’s current jurisdiction ends at the ordinaryhigh-water mark of documented anadromy.

The initiative may prevent the department from issu-

ing permits for the proposed Donlin Prospect minebecause two anadromous streams would be permanentlyeliminated and the initiative would restrict project miti-gation to on-site only. Major highway projects could beaffected because highways often parallel streams andrivers, requiring extensive erosion control or relocationand because the adverse effect on anadromous fish habitpotentially could not be permitted.

Time and cost would be increased for stakeholders,the department said, and the department would berequired to hire additional staff and develop new regula-tions.

Transportation & Public FacilitiesDepartment of Transportation & Public Facilities

Commissioner Marc Luiken and the department’sstatewide environmental program manager, Ben White,said the ballot measure would require an additional eightpositions within the department at an annual increase of

2 PETROLEUM NEWS • WEEK OF JULY 29, 2018

INSIDE ALASKA EXPLORATION

INVESTOR CORNER

GOVERNMENT

3 Heading back to the North Slope

Big Nanushuk oil discoveries by Armstrong, Repsol, forcesrethink of North Slope potential

4 Investing in Alaska O&G properties

Sutherlin works to facilitate objectives of companies and investors in regard to projects and leases — from Cook Inlet to North Slope

2 Legislators hear departments on initiative

Ballot measure 1, the ‘salmon initiative’, would be costly to state; state challenging validity of measure at Alaska Supreme Court

Bids on blocksDO&G to offer special lease sale areas

Canada risky, uncertainImperial Oil backs off growth opportunities, limits capex

Cross inlet approvalRCA approves Harvest-owned lines requests

ON THE COVER

Oil Patch Insider: Narwhal, Willow in Nanushuk;investors unworried w. oil priceEni says drilling at Nikaitchuqcould resume as early as this fallOil supply weakening, says PaalKibsgaard, Schlumberger execBLM requesting nominations for2018 NPR-A oil & gas lease sale

Petroleum News Alaska’s source for oil and gas newscontents

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see SALMON INITIATIVE page 5

PETROLEUM NEWS • WEEK OF JULY 29, 2018 3

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l I N S I D E A L A S K A E X P L O R A T I O N

Heading back to the North SlopeBig Nanushuk oil discoveries by Armstrong, Repsol, thenConocoPhillips forces rethink of North Slope potential

By KAY CASHMANPetroleum News

New major discoveries in theNanushuk formation on Alaska’s

North Slope are causing some significantrethinking of the oil potential of theregion, as companies move toward devel-opment of these finds and assess furtherexploration opportunities — companiessuch as the Oil Search/ArmstrongEnergy/Repsol group; ConocoPhillips;Paul Craig; the 88 Energy consortium;and Malamute Exploration.

Veteran oil and gas investor and devel-oper Paul Craig told Petroleum News,“Some people are preoccupied withANWR opening … but we (the westernNorth Slope) have the biggest clinothemin the world.”

In Craig’s opin-ion, “The Lower 48has shifted fromexploration to min-ing projects in tightoil (commonlyreferred to as shaleoil) when they canget production costslow enough. It does-n’t have exploratoryrisk, but BillArmstrong and hispartners are still outthere doing realexploration. Thattakes guts andvision. Armstrongwas preceded on theNorth Slope byARCO’s Robert O.Anderson at thePrudhoe Bay discov-ery. That’s whatmade America greatin the first place —people who tookintelligent risks.”

Petroleum geolo-gist Paul Deckerfrom Alaska’sDivision of Oil andGas talked toPetroleum News in June 2018 about thenature and significance of the new finds.Decker sees the new Nanushuk oil play asopening the possibility of further signifi-cant discoveries to the west of the centralNorth Slope. The play may also provevaluable as a geologic paradigm for oilprospects in the newly opened 1002 areaof the Arctic National Wildlife Refuge, orANWR, Decker said

Recent finds include Armstrong’sPikka/Horseshoe trend in the Nanushuk,Conoco’s Willow discovery in theNanushuk of the northeastern NationalPetroleum Reserve-Alaska, or NPR-A, aswell as Conoco’s Narwhal trend in theNanushuk (see July 2018 map with thisstory in upcoming edition of InsideAlaska Exploration).

Mark Myers said in 2016 of theArmstrong discoveries that “the provencontingent oil reserve number makes thediscovery the largest since the Alpinefield, the probable contingent reservenumber the largest since the Kuparuk

field, and the possible contingent numbermakes the discovery the largest sincePrudhoe.”

The company and its latest partnerwho has taken over as operator, OilSearch, continue to talk to Myers andshow him geologic data.

Myers’ career includes commissionerof the Alaska Department of NaturalResources; director of Alaska’s Divisionof Oil and Gas; director of the U.S.Geological Survey; and earlier seniorstaff geologist for exploration for ARCOAlaska and Phillips Alaska (before merg-ers created ConocoPhillips) includingsurvey chief forfield programs in theMackenzie Delta,Cook Inlet andNorth Slope. Hereceived his doctor-ate in geology fromthe University ofAlaska Fairbanks,specializing in sedi-mentology, clasticdepositional envi-ronments, surface and subsurfacesequence analysis and sandstone petrog-raphy.

First Nanushuk developmentAfter paying $400 million and agree-

ing to cover most of the exploration anddevelopment costs (undisclosed amount),Oil Search in collaboration withArmstrong is firstpursuing a 120,000barrel-per-day proj-ect in the Nanushukin the Pikka unit.

Interests as ofFebruary 2018 in thePikka unit are OilSearch 25.5 percent,Armstrong 19.125percent, GMT 6.375percent and Repsol49 percent. Interests in adjacent explo-ration areas include Oil Search 25.5 per-cent, Armstrong 37.125, GMT 12.375 and

see ANS POTENTIAL page 5

Reprint from:

INSIDEALASKA EXPLORATION

OPPORTUNITIES FOR PROFITS IN ALASKA’S NEW OIL BOOM

A special publication from the publisher of Petroleum News.

W H A T ’ S I N S I D E ?

Welcome to InsideAlaska Exploration

Hendrix: Open O&Gdialog from state

Indie paves way toNorth Slope oil

ConocoPhillips’march west from

Kuparuk

North Slope multi-million barrel leftovers

Hilcorp’s measuredsteps in Far North

Brooks Range,ASRC push

developments

MapmakersNorthern Alaska

highlights

BY KAY CASHMANPetroleum News

R eferring to Armstrong andRepsol’s huge North Slope

discovery, Mark Myers toldPetroleum News on Feb. 14, 2016,“the proven contingent oil reservenumber makes the discovery thelargest since the Alpine field, theprobable contingent reserve numberthe largest since the Kuparuk field,and the possible contingent numbermakes the discovery the largest sincePrudhoe,” with one caveat: Armstrong and partnerRepsol’s “discovery” was in “multiple different reservoirs,not just one major reservoir as in the case of the originalKuparuk and Alpine discoveries.”

Myers, who at the time was commissioner of the AlaskaDepartment of Natural Resources, called the Armstrong-operated Pikka unit find “amazing” and was “very excited”to see the development moving forward.

The Nanushuk pool had a 650-foot-plus oil column,good porosity and 150-foot thick net pay, he said.

More than 15 years earlier Myers had worked in the areaas an exploration geologist for ARCO Alaska (todayConocoPhillips), and had come across the Nanushuk play.“We saw very good evidence for the Nanushuk oil thatArmstrong and Repsol have identified and delineated. Atthat time we had no idea of the size of the accumulation.”Shortly later ARCO Alaska exited the area.

Myers remained intrigued by what he’d seen, but didnot suspect that the Nanushuk reservoir was sourced fromthe north, from under the Barrow Arch, unlike the North

Slope’s producing fields such asPrudhoe Bay, Kuparuk and others,which had been sourced from thesouth.

The leases ARCO dropped wereeventually picked up by independentoil man Bill Armstrong of Denverwho had entered Alaska in late 2001(see Armstrong’s Alaska story onpage 12) with a small staff of expertsand a determination to pick up a

chunk of the millions of barrels of North Slope reserveslargely ignored by the majors operating there.

Armstrong had a reputation for identifying promisingoil deposits, then planning and permitting explorationbefore bringing in a larger partner to finance and operatethem. The independent had already had several successesin Alaska, before acquiring the leases that would one daybe in the 65,000-plus acre Pikka unit.

Drilled less than 10% leaseholdIn 2011, Armstrong brought in mega-major Repsol and

embarked on an aggressive $1 billion exploration programthat put down 16 wells in four scant winter explorationseasons, drilling less than 10 percent of the total 750,000leasehold acres it held with Repsol and a smaller partner.

Big new North Slope playIndependent Armstrong to develop Nanushuk reservoir, oil from unanticipated source to the north

First oil 2021By February 2016, Bill Armstrong had formally

announced his intention of moving forward withdevelopment of the 120,000 barrel-a-day Pikka proj-ect, hoping to be in production by 2021 due to a two-year delay instigated by requesting an environmentalimpact statement be done by the U.S. Corps of ArmyEngineers.

The project is also referred to as Nanushukbecause that reservoir was the largest of those dis-covered and represented a new play in northernAlaska.

Armstrong’s partners include mega-major Repsoland Denver independent GMT Exploration.

Armstrong had brought in Repsol in 2011, largelyto finance a $1 billion-plus, 16-well exploration andappraisal program and operate their shared 750,000acres, but by early 2016 had convinced Repsol torelinquish operatorship in favor of Armstrong takingover to move the project into development and pro-duction.

State Commissioner of Natural Resources MarkMyers said of Pikka in a Feb. 14, 2016, email toPetroleum News, “a production rate of 120,000 bar-rels of oil per day is not unreasonable under theprobable contingent reserves reported, with a peak

see PLAY page 21

see 2021 page 22

MARK MYERS BILL ARMSTRONG

Another big findConocoPhillips announces Willow oil discoverywest of Mooses Tooth 2, in Nanushuk horizon

BY ALAN BAILEYPetroleum News

C onocoPhillips has announced a newNanushuk oil find in the Greater

Mooses Tooth unit inthe northeasternNational PetroleumR e s e r v e - A l a s k a .Discovered by theTinmiaq Nos. 2 and 6exploration wellsdrilled in early 2016,the find, called theWillow discovery,could hold 300 million barrels of recover-able oil, the company said in a Jan. 13 pressrelease. Depending on the results of fur-ther appraisal drilling and the chosen devel-opment scenario, the field could produce ata rate of up to 100,000 barrels per day, thecompany said. ConocoPhillips has a 78percent interest and Anadarko Petroleum a22 percent interest in the find.

A test using the Tinmiaq No. 2 well

showed a flow rate of 3,200 barrels per dayof light 44 degree API oil over a 12-hourperiod, ConocoPhillips said. The companysaid that it will further appraise the discov-ery through a 3-D seismic survey com-

mencing in January2017. The find lieswest and slightlynorth of the compa-ny’s Mooses Tooth 2development.

“This discovery istremendously excit-ing not only forConocoPhillips, but

also for the state of Alaska,” said JoeMarushack, president of ConocoPhillipsAlaska. “Willow’s proximity to existinginfrastructure improves the economic via-bility of the discovery. Development ofWillow, a potential multibillion-dollarinvestment, could provide thousands ofjobs during construction and could gener-

$36.6 million in bidsState of Alaska, BLM, attract bids on more than1 million acres across North Slope, Beaufort Sea

BY KRISTEN NELSONPetroleum News

The state of Alaska had one of thelargest lease sales on Dec. 14, 2016,

since it went to the areawide sale system inthe late 1990s, with offerings received bothfor the North Slope and the Beaufort Seasales. On the same day the federal Bureauof Land Management, in its 13th NationalPetroleum Reserve-Alaska sale since 1999,brought in almost as much as the state inapparent high bids, some $36.6 millionbetween state and federal sales.

The state received no bids for theareawide North Slope Foothills sale, butreceived 402 bids on 384 tracts from sixbidder groups in the North Slope areawidesale and eight bids on seven tracts fromthree bidder groups in the Beaufort Seasale.

BLM received 92 bids on 67 tracts, withfive companies or bidding groups partici-pating and all but one having at least oneapparent high bid.

Apparent high bids totaled $16.9 millionfor the state’s North Slope sale and$870,431 in the Beaufort Sea sale. BLMapparent high bids totaled $18.8 million.

The division said that by acreage the2016 North Slope sale was the secondlargest of its kind since 1998, when areaw-ide oil and gas leasing began, while by dol-lar amount the sale was the third largestsince 1998.

North SlopeThe state received the most bids, 402 on

384 tracts, in the North Slope areawidelease sale, with almost 600,000 acres receiv-ing bids and $16,900,490 in apparent highbids.

Initial bidder group data from the divi-sion lists acreage on which bidders or bid-der groups bid: Alliance Exploration Inc.,12,800 acres; Accumulate Energy AlaskaInc. and Burgundy Xploration LLC,142,560 acres; Armstrong Energy LLC

We’ve got running roomnow to test that new playon state lands and onto

federal lands.” —ConocoPhillips Alaska

President Joe Marushack

see FIND page 20 see BIDS page 19

New edition coming soon

PAUL CRAIG

BILL ARMSTRONG

RYAN LANCEConocoPhillipsERIK OPSTAD

88 Energy

KEIRAN WULFFOil Search

By KAY CASHMANPetroleum News

This section features individuals whodeal with the acquisition and/or sale

of Alaska oil and gas leases, projects andassociated properties; a service that oftenincludes guidance to private individualsand public groups looking at investing inAlaska and/or considering operations inthe state. The last time Investor Cornerappeared, in the Nay 27 edition ofPetroleum News, veteran investor PaulCraig was interviewed.

Every month or two another qualifiedindividual’s name is drawn from a jar tobe featured. They are each given theopportunity to offer advice they think ismost pertinent.

Stephen “Steve” Sutherlin, founderand operative of Strategic ActionAssociates, has a background that makeshim particularly suited for the role heplays with prospective investors, as he isknowledgeable about Cook Inlet, theNorth Slope and areas in-between.

Raised in Anchorage, Sutherlin is a

former reporter forPetroleum News; henow owns a smallpiece of the newspa-per and its associat-ed publications,although he has noeditorial control.Writing for thenewspaper soonafter its inception in1995, he covered everything oil and gasrelated statewide.

Sutherlin left the editorial staff ofPetroleum News in 2005 to work forEscopeta Oil and Gas as strategic officerand spokesman and was instrumental in aJones Act waiver that allowed the compa-ny to bring a jack-up rig to its KitchenLights prospect in Cook Inlet.

When Escopeta president and founderDanny Davis was replaced and the newlyre-organized company became known asFurie, Sutherlin remained in the sameposition. In addition to heading govern-ment and public affairs, he interfacedwith contractors, planned and negotiated

transport and winter storage of the jack-up rig, instituted programs to protect theendangered Cook Inlet Beluga whalesand avoid conflicts with the local fishingfleet. He was responsible for underwatersafety, coordinating operations withFurie’s diving contractor and othermarine assets and is cross-trained in a variety of posi-tions in spill response andprevention.

After leaving the Kitchen Lights proj-ect in 2013 Sutherlin conducted a foren-sic study of the 1989 Exxon Valdez oilspill response, which led to a consultancyon a proposed spill response center forthe Gulf of Mexico, and later to an invita-tion to address an international leadershipconference in Equatorial Guinea.

One of the key initiatives of the Africaconference was to adopt the “AlaskaModel” of oil spill prevention andresponse for the Gulf of Guinea.Sutherlin returned to Alaska and formed acompany which developed a comprehen-sive oil spill prevention and response planfor Equatorial Guinea and the 16 nationsthat line the Gulf of Guinea.

Also in 2013, Sutherlin reported forPetroleum News Bakken — from itsinception until its closure in 2015 due tolow oil prices. This was a period ofremarkable advancement in horizontaldrilling and fracking technology.

In 2016, he began doing consultingwork and geologic studies on the unde-veloped Stinson discovery on the easternNorth Slope near the Arctic NationalWildlife Refuge, or ANWR.

Sutherlin has worked with numeroussmall investors and leaseholders, andlarge companies as well, such as Shell Oilfrom 2007 to 2015 as a scientific and his-torical researcher during its nine-yeareffort to explore the Chukchi andBeaufort seas. There he proposed the useof air curtain technology to mitigate theeffect of industrial percussion on whalecommunication and navigation.

Sutherlin is an oil and gas historianwith numerous publications to his credit.A scientific generalist, he studied envi-ronmental chemistry and did extensivefield work with the late Dr. J. CalvinGiddings — the inventor of field-flowfractionation — at the University of Utahas well as geology, meteorology and engi-neering. At the University of AlaskaAnchorage he studied biology, anthropol-ogy, astronomy, music theory and aircraft

mechanics, graduating with a Bachelor ofArts in journalism with film and televi-sion specialty. At UAA he worked profes-sionally in distance education, includingthe live series “TalkBack” — over RuralAlaska Television Network — and the“Crossroads for Justice” series. He was

awarded two CINEGolden Eagle awards forproduction of AlaskaCenter for International

Business educational documentaries onAlaska value-added businesses.

Sutherlin continues scientific inquiryin non-university settings, notably inmarine acoustics and ecosystems, explor-ing commercial applications for theGEDEX High Definition AirborneGravity Gradiometer, and with Dr. RobertB. Blodgett in the field of stratigraphyand paleontology.

Advice to investors: The state sets the rules

“The challenge for smaller investors inAlaska’s oil and gas leases,” Sutherlintold Petroleum News, “is primarily tofind a niche in an arena that is suited forextremely deep pocketed operators. Likethe fabled king crab fishery in the Gulf ofAlaska, the environment is threatening,the work is hard and survival is alwaysthe prime consideration — but the poten-tial rewards are high.”

“The large players” in Alaska’s oilindustry “are well capitalized, and wellconnected in government and in the busi-ness community.

“In Alaska, most of the non-federallands that are prospective for oil and gasare centrally owned by the state govern-ment. The state sets the rules, and if you,the lessee, have a dispute with your land-lord, your landlord is the arbiter, the reg-ulator, and the enforcer,” he cautioned.

“Under Alaska’s constitution, anyparty 18 and older may buy state oil andgas leases. The state can, and has, setlease terms that make it expensive toacquire leases, and it has recently set itsterms to make it brutally expensive tohold leases more than a few years. For aninvestor, time is short and the clock isticking loudly once possession of a leaseis taken.”

What about the small investor? “Thesmall investor is not particularly wel-comed to the table — but the potential

l I N V E S T O R C O R N E R

Investing in Alaska O&G propertiesSutherlin works to facilitate objectives of companies and investors in regard to projects and leases — from Cook Inlet to North Slope

4 PETROLEUM NEWS • WEEK OF JULY 29, 2018

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STEVE SUTHERLIN

see INVESTOR CORNER page 5

PETROLEUM NEWS • WEEK OF JULY 29, 2018 5

$953,900; Fish & Game had cited a $1.3million annual cost.

DOT&PF projects involve work withinand near fish habitat for culverts, bridges,roadway embankment protection andstream realignments — temporary and per-manent. They said proposed languagecould restrict or prohibit culverts withinverts, riprap for erosion protection, chan-nel maintenance and temporary construc-tion activities, and noted that project deliv-ery would be delayed because the initiativelanguage requires applicants to prove fishdo not exist for all work in Alaska waters.Language could require an environmentalassessment (1-3 years to develop) or envi-ronmental impact statement (up to 5 ormore years) whereas most current minormaintenance work falls under a categorical

exclusion (6-12 months). DOT&PF cited one of the same issues

as Fish & Game — mitigation is requiredon-site.

Natural ResourcesNatural Resources Commissioner Andy

Mack and Kyle Moselle, associate direc-tor, Office of Project Management &Permitting, said while the initiative focus-es primarily on Title 16 fish habitat permitsand Fish & Game statutory authorities, ifpassed into law it may constrain DNR’sstatutory authorities to appropriate water,which is does for transportation projects,mining/industrial projects, pipelines, resi-dential/commercial construction projects,municipal water and sewer and schoolsand other municipal buildings and manysmaller projects.

DNR must consult with Fish & Gameand the Department of Environmental

Conservation in temporary water useauthorizations.

For large projects, DNR’s Office ofProject Management and Permitting maycoordinate review of larger scale projectsin the state and facilitates multi-discipli-nary agency teams to review plans. Theinitiative would require additional publicnotice.

Environmental ConservationCommissioner of Environmental

Conservation Larry Hartig and AndrewSayers-Fay, the department’s director ofwater, reviewed Alaska water quality stan-dards, noting they were set through a pub-lic process with the federal EnvironmentalProtection Agency. Point sources of waste-water discharging pollutants require a per-mit under the National Pollutant DischargeElimination System; the state’s wastewaterdischarge program is called the Alaska

Pollutant Discharge Elimination System.The APDES permit process includes con-sulting with Fish & Game and the appli-cant to determine if discharge is to ananadromous waterbody.

DEC said there is a rebuttable presump-tion under the salmon initiative that allwaters in Alaska are anadromous, with nomixing zones allowed.

DEC would be required to review allexisting permits with mixing zones infreshwater. For new systems, or at renewalfor existing systems, the requirementwould be to meet water quality standardsat the end of the discharge pipe, withincreased complexity for the engineeringplan review and more stringent permit lim-its. DEC said it would require a new per-mit writer and engineer under the salmoninitiative. l

continued from page 2

SALMON INITIATIVE

Repsol 25. Interests in the Horseshoeleases are held by Oil Search 37.5 per-cent, Armstrong 28.125, GMT 9.375 andRepsol 25.

Oil Search has an option through June30, 2019, to acquire an even larger inter-est in the project. For an additional $450million, the company could acquireArmstrong’s remaining 25.5 percent andpartner GMT Exploration’s remaining37.5 percent interests in the Pikka unitand the Horseshoe block, as well as anadditional 25.5 percent interest in adja-cent exploration acreage and 37.5 percentin the Hue shale.

During the winter of 2017-18 Conocoencountered commercial quantities of oilin the Putu Nos. 2 and 2A wells, and inthe Stony Hill No.1 well, all in thatPikka/Horseshoe trend. Conoco is nowplanning a standalone development of itsWillow discovery, rather than do anotherstep-out from Alpine (Colville River unitfacilities) because the large amount of oilexpected from Willow would overloadthe existing facilities.

Brookian oil playsThe Nanushuk formation is part of what

geologists refer to as the Brookiansequence, the youngest and shallowest ofthe petroleum bearing rock sequences inArctic Alaska. The sediments that formedthe rocks were deposited down the marginof an ancient marine basin that filled fromwest to east, with the basin margin itselfmigrating in that same direction, as thebasin filled. The more sandy sedimentsdeposited in shallow water at the top of themargin later formed the Nanushuk forma-tion.

Oil in the Nanushuk is found in whatare called stratigraphic traps, hydrocarbontraps created through the disposition andsequence with which the sediments form-ing the rocks were laid down. The key tounderstanding the success of the Nanushukplay is the effect of cycles of sea levelchange and corresponding changes in sed-iment deposition, as the ancient basin mar-gin migrated east, Decker explained.

During periods of relatively low sealevel, rivers dumped large quantities ofsand out across to the basin shelf edge; italso appears that the sands were common-ly reworked along the shelf edge to formelongated sand bodies, in some cases sev-eral miles long, such as is now observed in

the Pikka/Horseshoe trend, Decker said.

Distinctive oil trapsThen, as sea level rose, submerging the

sands, the tops of the sand bodies werescoured off and impervious muddy sedi-ments were deposited on top, to form whatwould later become hydrocarbon seals. Incross-section, the package of sedimentstook on a sigmoidal shape, pointed at topand bottom, with the sand at the top pinch-ing out between mud above and below, andwith the pointed end of the sand body

directed towards the west, towards thesource of the sediment pouring into thebasin. Oil later accumulated in upper partsof the sand bodies. l

Editor’s note: See full story in theupcoming Inside Exploration special pub,expected to be released by PetroleumNews in August.

continued from page 3

ANS POTENTIAL

To advertise in Petroleum News, contact Susan Crane

at 907.770.5592petroleumnews.com

rewards are high,” Sutherlin said. “Do not invest money you can’t afford

to lose. Do not invest money until youinvest time in understanding the industry,”he said, noting things are very different inAlaska than in other states.

“It is said that information is the coin ofthe realm in the oil and gas business.Remember this, because for the smaller

investor, information is the key to survival.Information — and the ability to act quick-ly on it — is the only advantage the smallerinvestor can gain or hope for.

“The big oil companies, for all theirstrength, cannot be everywhere. There areopportunities that have been overlooked;there are opportunities that have been dis-carded in the past. There are challenges forwhich study and ingenuity can find a solu-tion,” Sutherlin said.

“The smaller investor must have knowl-edge of geology, finance, oil markets, poli-

tics, the competition and of which compa-nies may become interested in Alaska.

“There are resources for the smallinvestor. State meetings and hearings areopen to the public. The doings of theAlaska Legislature are televised.Luncheons of the Alaska GeologicalSociety have informative speakers and areopen to the public, as are those of theAlaska Association of ProfessionalLandmen. State and federal oil and gaslease sales are open to the public.”

Sutherlin’s final piece of advice: “There

is no oil and gas arena quite like Alaska.Alaska has never been forgiving for theunprepared. Alaska can be harsh — but thepotential rewards are high.” l

Note: You can contact Steve Sutherlinat Strategic Action Associates, PO Box112546, Anchorage, Alaska 99511, emailstevepna@hotmail.com, mobile 907 250-1533.

continued from page 4

INVESTOR CORNER

export pipeline capacity from the Permianbasin is becoming an increasing constraint toproduction growth, which will likely not beresolved until the second half of 2019.”

U.S. tight oil (commonly referred to asshale oil) producers are “also experiencingproduction challenges linked in part to wellinterference as infill drilling in the producingacreage increases and as drilling continues tostep out from the tier 1 acreage,” Kibsgaardsaid.

And “lastly, after more than three years ofE&P underinvestment, the international pro-duction base has started to show acceleratingsigns of weakness with noticeable year-over-year production declines in 15 of the world’s

producing countries.”If he’s right, the situation bodes well for

future crude prices and capital investment byoil companies.

The future looks bright for Schlumbergerand Baker Hughes, two of the top three glob-al oilfield service providers said Kibsgaardand Baker Hughes top executive LorenzoSimonelli in their second quarter earningsconference calls.

Both men predicted a positive outlook forthe service industry for the rest of the yearand continuing even stronger into 2019 and2020. l

Note: This story was derived from readingsecond quarter results and reviewing SeekingAlpha transcripts (https://seekingalpha.com)

—KAY CASHMAN

National Petroleum Reserve inAlaska.”

Tract selection for the sale will beconsistent with allocations and stipula-tions identified in the NPR-A 2013Record of Decision for the IntegratedActivity Plan, BLM said, with 11.8million acres identified available forleasing in the IAP.

The 895 tracts available for nomina-tion and comment cover some 10.25million acres.

There are currently 196 active oiland gas leases, 1,452,686 acres, inNPR-A.

Last year’s sale, held Dec. 6, offered

five high potential tracts (22,412 acres)and 895 low potential tracts (10.2 mil-lion acres). Of the 900 tracts offered,seven low potential and no high poten-tial tracts received bids — all fromConocoPhillips Alaska, which is in theprocess of developing Greater MoosesTooth in NPR-A.

BLM’s map of NPR-A tracts, avail-able on its website atwww.blm.gov/alaska, shows that themajority of unleased high potentialtracts, in the north and northeast of thesale area, are not available for leasing.That was also true for last year’s sale.

—KRISTEN NELSON

continued from page 1

SCHLUMBERGER EXECcontinued from page 1

LEASE SALE

6 PETROLEUM NEWS • WEEK OF JULY 29, 2018

exploration program in part for a very prac-tical reason: Eni is using the same rig —Doyon 15 — for both drilling efforts.

The relationship between the two pro-grams may also concern drilling targets. Inits plan, Eni said that the development pro-gram could begin as early as late 2018“pending the results and scope of explo-ration work.” From the beginning, the pur-pose of the exploration program was to addreserves to Nikaitchuq and to increase oilproduction.

The Nikaitchuq unit is located innearshore state waters north of the KuparukRiver unit.

Upcoming plansThe plan for the current year, running

through September 2019, calls for drillingthree new wells at Spy Island and convert-ing eight existing Spy Island wells into mul-tilaterals.

According to a drilling schedule in theplan, the new Spy Island wells are SP03-FN9, SP06 and SI02-SE6, planned forOctober 2018 through late February 2019.(In a different part of the plan, Eni listsSP03-FN9, SI02-SE5 and SI06-FN8.) The

eight new laterals are SP33-W3, SP30-W1L1, SP16-FN3L1, SP27-N1L1, SP23-N3L1, SP10-FN5L1, SP18-N5L1 andSP05-FN7L1, planned for late February2019 through mid-September 2019.

Under the current naming conventionsused at Spy Island, wells beginning with“SP” represent productions wells whilewells beginning with “SI” represent injec-tion wells.

Eni is using Doyon 15 for its Spy Islandprogram. The company contracted the rig inpreparation for its Nikaitchuq North explo-ration program earlier this year. The pro-gram involved drilling an ultra-extendedreach well from the Spy Island Drillsite intofederal waters north of the Nikaitchuq unit,and the rig required considerable modifica-tion.

The timetable of the proposed develop-ment activities depends on the timing andresults of the NN-01 exploration well beingdrilled into the Harrison Bay Block 6423Unit.

Eni had initially planned to spud the wellby Dec. 10, 2017, completed the well inmid-February 2018 and conduct flow test-ing between mid-February and mid-March2018.

The actual spud date was pushed to Dec.23, with drilling activities beginning in

February 2018 and expected to continueinto mid-July, with flow testing occurring inlate July or August. The delays forced thecompany to defer plans to drill a sidetrack inorder to comply with summer drillingrestrictions in the waters off the NorthSlope. The company still plans to drill aNN-02 appraisal well during the upcomingwinter exploration season.

The company is not planning to resumedevelopment drilling from the Oliktok PointPad but does plan to continue its ongoingworkover activities from the pad in early2019.

The company is also planning to conductworkover activities on Spy Island wells.

Prior suspensionEni suspended development drilling at

Nikaitchuq in May 2015 in response to theglobal downturn in oil prices. The suspen-sion occurred as the company was complet-ing some of its initial development plansand was beginning to consider expansionopportunities.

The company completed its initialdrilling plans for the Oliktok Point Pad inOctober 2012 and conducted a sidetrackcampaign on select wells in 2013 and 2014.The additional work also included anappraisal in mid-2014 to evaluate an N sand

target. All the previous wells drilled fromthe Oliktok Point Pad had targeted an OAreservoir.

Since the end of the sidetrack program inMay 2014, all development activity at theOliktok Point Pad shifted from drilling toworkover operations. The company eventu-ally released its Nabors 245 rig in late 2017and contracted the Nordic Calista 4 rig.

A continuous drilling program at SpyIsland began in November 2012. The pro-gram was expanded in early 2013 with thefirst multilateral at Nikaitchuq and expand-ed again in late 2013 with a campaign toadd a second lateral to all new Spy Islandproduction wells.

The company conducted the WestExtension Project at Spy Island between thethird quarter of 2014 and early 2015 andlaunched the East Extension Project in2015, before suspending all drilling activi-ties at the unit and putting the Doyon 15 rigin cold stack.

Average daily production at Nikaitchuqpeaked in late 2015 at around 27,000 barrelsper day, according to Eni. The unit had pro-duced 45 million barrels through April2018.

—ERIC LIDJI

beyond the technical and operational risk we accept. Andtoday there is more risk and uncertainty,” Kruger said in arare public expression of his company’s thinking.

If anything, Imperial, despite 138 years of almostunblemished success, has traditionally been the mosttight-lipped of Canada’s major energy companies and theslowest to embark on new ventures.

Warning But in a clear warning to political leaders, he said “the

real determination of what our near-term or medium-terminvestment will be will largely hinge on how the compet-itiveness situation is addressed.”

Reflecting that corporate mood has been a halt to plansfor a C$4 billion, 150,000 barrels per day Aspen in situ oilsands project in Alberta, which was first submitted for reg-ulatory approval at the end of 2013, despite offering anadvanced technology that would reduce greenhouse gas

emissions intensity by 25 percent and achieve a similargoal in water consumption.

“I have lived and worked in a lot of places (during 37years with ExxonMobil) and four and a-half years to get aproject that has strong economics, pace-setting environ-mental performance, is inordinately long,” he said earlierthis year. “That is not world class.”

Drawing on Imperial’s playbook, Kruger said his com-pany views Aspen as a “winner,” although the venture willnot go ahead even with final approval until the conditionsare weighed and a judgment is rendered.

Cold Lake stalledExpanding operations at the Cold Lake heavy oil oper-

ation in northeastern Alberta by 55,000 bpd from the cur-rent capacity of 180,000 bpd achieved through measuredgrowth over 43 years has also been stalled by regulators.

Kruger is encouraged by the Canadian government’sacquisition of the existing Trans Mountain pipeline forC$4.5 billion, giving it control over the contentioustripling of capacity to 890,000 bpd, because that move

“shows a clear recognition and resolve at the federal leveland, from an industrial standpoint, that’s a good thing.”

That move recognized the industry’s efforts to gainaccess to markets and international oil prices beyondNorth America, but “that alone will not be sufficient,” hesaid.

Full confidence in the government cannot be restoreduntil the expanded pipeline is built and shipments start, hesaid.

He cautioned that Canada’s competitive position willbe measured by federal, provincial, municipal and carbontaxes, pointing to the Trump administration’s cuts to cor-porate taxes as an example.

For now, Kruger noted, “capital is flowing, it’s just notflowing” in Canada.

Syncrude CanadaImperial remains disappointed in the performance of

the Syncrude Canada oil sands operation, of which it is a

Storms at some 30,720 acres and GwydyrBay at some 23,040 acres.

Terms and conditions of the sale will beavailable in mid-August, Walsh said, whenthe public notice is released.

The data summary, available on the divi-sion’s website,http://dog.dnr.alaska.gov/Information/DocumentLibrary, includes links to informationon the areas.

State as aggregatorThe state is acting as aggregator with the

SALSA program: it has identified prospectsand assembled the leases.

Although in the case of these blocks theareas have been previously leased, seismichas been shot and and in some cases wellsdrilled: the areas were just never developed.

The wells shown for the Harrison BaySALSA appear to be outside the boundariesof the block, with the Atigaru Point No. 1the closest, apparently adjacent to the north-west corner of the block. That 11,535-footwell was drilled in the National PetroleumReserve-Alaska in 1976-77, was a legacywell tackled by the federal Bureau of LandManagement in the early phase of cleanupand has been plugged and abandoned to thesurface. South Harrison Bay 1 is just southof the block and Qugruk No. 4 is to the east.

There are six wells in the Gwydyr Bay

SALSA block, including Northstar 3, LongIsland 1, Gwydyr Bay wells either drilled inor with bottom holes in the block and theSak River 1A which has a bottom hole inthe block.

The Hailstorm 1 was drilled on the east-ern edge of the Storms block; Hemi SpringsUnit 3 is off the southeast corner of theblock.

It appears from the division’s graphicsthat only the Sak River 1A flowed hydrocar-

bons to the surface.

Previously usedThe division used a block bidding

method in 2011 in Cook Inlet, groupingthree tracts surrounding the Cosmopolitanunit into Part B of the two-part sale, requir-ing bidders to bid on all three tracts with aminimum bid of $50 per acre. The mini-mum bid for the remainder of the sale, Part

A, was $10 an acre. The division also required a work com-

mitment for the Part B leases in that sale,with a lease plan of exploration requiredwithin six months of leases being issued,and the plan required to describe proposedexploration activities, including bottom-hole locations, depths of proposed wells andthe estimated date when drilling wouldbegin.

continued from page 1

SALSA BLOCKS

continued from page 1

NIKAITCHUQ DRILLING

continued from page 1

IMPERIAL OUTLOOK

see IMPERIAL OUTLOOK page 7

Harrison Bay

Storms

Gwydyr BayN. Shore

Proposed Special Lease SaleFall 2018

SALSA Areas

Lease data: June 2018

see SALSA BLOCKS page 8

STA

TE O

F A

LASK

A

construct an extension of its existing oilpipeline on the west side of Cook Inletthat will connect to KBPL’s newly con-verted CIGGS-A and to construct andoperate a new segment of the Cook InletPipeline on the east side of the inlet thatwill connect to existing east side oilpipeline infrastructure.

In a related approval, RCA has grantedthe joint application of CIPL andSwanson River Oil Pipeline LLC, alsoowned by Harvest, to connect the neweast side segment of the Cook InletPipeline to the Swanson River OilPipeline, allowing delivery to the KenaiPipe Line Co. for further delivery to theNikiski refinery. These lines are alsoowned by Harvest.

From private to publicCook Inlet Pipe Line, currently an oil

pipeline carrier, applied for gas pipelinecertification. The line will convert fromprivate to public use.

The application of CIPL to connectboth ends of the newly extended and cer-tificated Tyonek Pipeline to the KenaiBeluga Pipeline is granted, the commis-sion said. The Tyonek Pipeline isapproved for extension from the offshoreTyonek Production Platform, operated byHilcorp Alaska, to Ladd Landing on thewest side of Cook Inlet.

The commission issued temporaryconstruction permits to CIPL inDecember.

RCA received comments when theapplications went out for public notice,and Harvest responded to the comments,but when the commission held publichearings in May and only KBPL andCIPL testified.

Related applicationsThe commission said CIPL, KBPL and

Swanson River jointly with CIPL, filedfour related applications “intended toeffectuate a reconfiguration of the com-mon carrier oil and gas pipeline infrastruc-ture in the Cook Inlet area,” by reconfigur-ing oil and natural gas pipeline infrastruc-ture to meet current needs of shippers.

All of Cook Inlet Pipeline’s currentfacilities are on the west side and crude oilis delivered to the pipeline for transportfrom Hilcorp’s Granite Point and TradingBay units and from Glacier Oil’s Redoubtand West McArthur River units. The CookInlet Pipeline also receives oil from theTrading Bay Production Facility and fromCook Inlet Energy’s Kustatan ProductionFacility.

Combined crude oil flows south to theDrift River Oil Terminal, where it is tem-porarily stored for load out to tankers fromthe Christy Lee Tanker Terminal.

KBPL has facilities on both the east andwest sides of Cook Inlet and also crossesthe inlet, RCA said, with its natural gastransportation system extending northalong the east side from near Ninilchiknorth to the KPL Junction and then farthernorth to East Forelands near Nikiski, andacross Cook Inlet from East Forelands toKaloa Junction via two 10-inch subseapipelines, CIGGS-A and CIGGS-B.

KBPL’s natural gas pipeline systemextends from Trading Bay north to KaloaJunction on the west side where it inter-sects CIGGS-A and CIGGS-B and contin-ues north to Beluga where it connects tothe Alaska Pipeline Co. transmission line,a natural gas utility pipeline, not a com-mon carrier line.

Gas is received and delivered at numer-ous locations on the KBPL system; mostsegments of that system are bidirectionaland have seasonal swings in flow rate, thecommission said.

Harvest Alaska also owns the TyonekPipeline, which is not currently a commoncarrier; it transports gas from the offshoreTyonek Platform to Moose Point and thenalong the shore to the Kenai LNG Plant atNikiski. The commission said natural gascan be delivered to the LNG plant orKBPL.

ChangesRCA said the major change proposed is

conversion of CIGGS-A from natural gasto oil transportation. KBPL owns CIGGS-A and will continue to own and maintain it,but CIGGS-A will be made available toCIPL for operational use in oil transporta-tion under the capacity exchange agree-ment.

CIPL will extend and modify its sys-tem, including installation of a new 3.3-mile onshore segment designated CIPL W-10 on the west side.

CIPL will extend a currently unused 10-inch line, LP CIGGS owned by Hilcorp,using a portion to connect KPL’s MiddleGround Shoals Facility to CIGGS-A.

Natural gas pipeline changes includeextension and modification of the TyonekPipeline with replacement of an existing 8-mile segment; modification of KPLJunction piping; necessary modificationsand repairs to remaining portions of theTyonek line between Halbouty Hill andMoose Point; and construction of a new7.5-mile extension of the Tyonek line toLadd Landing, allowing gas from theTyonek Platform and the KPL Junction toenter the Beluga Pipeline segment ofKBPL’s pipeline system in a parallel pathwith the existing CIGGS-B pipeline.

The capacity exchange agreementbetween CIPL and KBPL states that CIPLwill bear the investment cost of reconfigur-ing the lines and KBPL’s natural gas ship-pers will not experience a rate increase asa result of reconfiguration.

Benefits of reconfigurationRCA said CIPL and KBPL provided a

description of benefits for reconfigurationin their filings, asserting that the plan “willreduce environmental hazards by eliminat-ing marine tanker transportation of crude oiland by reducing the amount of crude oilstored in an area that is volcanically active,”will more efficiently use rights of way, putexisting infrastructure to its highest and bestuse, “improve the quality and efficiency andreduce the costs of transporting hydrocar-bons in the Cook Inlet area” and benefit thelocal economy.

On costs, the companies said therewould be “an overall reduction of trans-portation costs for oil produced on the westside of Cook Inlet that will extend the eco-nomic viability of Cook Inlet productionand the Tesoro refinery (now Andeavorowned) and will encourage future explo-ration and development.”

By separating CIGGS-A and CIGGS-Blines and making the Tyonek Pipeline avail-able for gas transportation, an alternativegas line will be physically separated fromthe two CIGGS lines, reducing the risk of “asystem-wide disabling event caused by acommon incident.”

Capacity exchange, constructionRCA said the under the capacity

exchange agreement CIPL and KBPL “haveagreed to exchange all of the oil carryingcapacity of CIGGS-A owned by KBP for allof the gas carrying capacity of the TyonekPipeline owned by KBPL,” with neitherparty required to compensate the other.

RCA said it issued temporary construc-tion permits requiring CIPL to begin con-struction and said this order grants permis-sion for continued construction and com-pletion of the work. l

PETROLEUM NEWS • WEEK OF JULY 29, 2018 7

(907) 562-5303 | akfrontier.com

Safety Health Environment Quality

THE TEAM THAT

DELIVERS

continued from page 1

PIPELINE CHANGES

25 percent owner, but where a “string ofevents (including a power outage in Junethat will not be fully repaired untilSeptember) over the last several yearshave led to a performance well below theexpectations of any and all owners,” hesaid.

The Syncrude consortium, whosemajority partner is Suncor Energy, is aboutto start up a coking unit that will convert150,000 bpd of bitumen into lighter crude.

The senior partners are also examiningways to improve the overall reliability oftheir bitumen mine, but Kruger said “wehave not found the magic elixir yet toenhance” the operation’s reliability.

A new report from the research firmIHS forecasts the oil sands will add500,000 bpd of output over the next twoyears, before hitting a deceleration point in2020, largely because the world still has aglut of crude supplies, with the heavy oilsector taking the brunt of a tighteningglobal market.

Senior IHS director Kevin Birn said thecontinuing completion of oil sands proj-ects that were sanctioned before oil pricesslumped in 2014, the return to somedeferred projects and new investments incapital efficiency will mean continuedgrowth over the next 18 months.

The firm said it was likely oil sandsproduction will resume growth in themedium and long term, based partly onthe belief that rail can be used to get thatnew output to market. l

continued from page 6

IMPERIAL OUTLOOK

gist Dave Houseknecht told PetroleumNews July 18 they were, along withArmstrong’s Pikka and Horseshoe discov-eries. He had previously said Willow wasalso in the Nanushuk.

A Conoco geologist told PetroleumNews the names Narwhal and Willow areinternal, informal prospect names — notgeologic terms.

He said the difference between Willowand Narwhal in the Nanushuk is their age— i.e. when the sediments were laid down— with the Willow prospect being olderand Narwhal the youngest.

The Willow prospect (and WestWillow) in NPR-A, or National PetroleumReserve-Alaska, includes the Hunter well,Tinmiaq wells, Greater Mooses Tooth unitwells and possibly extends into the BearTooth unit. In 2017 Conoco also integratedits previous Cassin 3-D seismic programinto its evaluation of Willow.

According to state of Alaska geologistPaul Decker, the API density of the oil inthe Nanushuk may relate to the oil sourcerock. The Pikka/Horseshoe oil is thoughtto have originated from a source in theShublik formation and has an API of 42 to43. Willow oil has an API of around 30.Conoco has not said what the source rockfor Willow is, nor has the USGS made adetermination of the likely source rock,although there is speculation that it mayhave come from the HRZ or from aJurassic source.

The Nanushuk runs throughArmstrong’s Pikka unit, which will soonbe developed by a new partner, Oil Search,and all the way west through NPR-A andsouth into the foothills of the BrooksRange, encompassing Umiat, a 1 billionbarrel field on the eastern NPR-A border.

Although the Umiat field was discov-ered by the U.S. Navy in 1946, it has yetto be developed, primarily because of itsremote location and technical challenges,

although infrastructure has been drawingcloser with Armstrong and ConocoPhillips’discoveries to the north.

De-risking of Umiat to finish early 2019

CONSULTANCY FIRM RYDERSCOTT conducted several Umiat fieldassessments, the latest in 2015, estimatinga 50 percent probability of nearly 99 mil-lion barrels of oil being economicallyrecoverable and a 10 percent chance ofmore than 154 million recoverable barrelsfrom the billion barrels of oil in place.

Malamute Energy, new operator of theUmiat prospect, is working withresearchers and technical experts to devel-op solutions to the challenges of producinglight oil from the very shallow permafrost-hosted reservoir.

Company President Leonard Sojka toldPetroleum News May 8 that in late 2017,“Malamute convened a multi-disciplinarytechnical workshop to evaluate the pastwork, technical assumptions, and openquestions concerning production of the

Umiat oil field. As a result … Malamute isnow working with University of Alaskaresearchers and third party technical spe-cialists to develop solutions” to Umiat’s“specific challenges.”

Among other things, the independent is“fully defining the controls on seal andcompartmentalization, determining the bestdrive mechanism required to produce fromthe low-energy shallow reservoir, and opti-mal orientation and configuration of pro-duction and injection wells are all part ofMalamute’s work to de-risk and advancethe Umiat field toward production,” hesaid.

Petroleum News sources said in Maythat once the work to re-risk Umiat is com-pleted, Malamute will look for investors orbuyers for the prospect.

When asked July 23 in an emailwhether the company had completed thede-risk work and was ready to talk topotential investors, Sojka said, “Malamuteis in the midst of working with several par-ties to study various characteristics of theUmiat Oil Field. While we are interested inspeaking with potential investors/partnersat any time, we have not completed thecurrent phase in our hopefully valued-added de-risking process. We continue togain insight into the oil field, but are tar-geting early 2019 as to accomplishing ourcurrent set of initiatives.”

Investors unconcernedabout crude price drop

ACCORDING TO A BLOOMBERGSTORY RELEASED ON JULY 17 andreprinted on the same day in the AlaskaDepartment of Revenue’s daily oil priceemail, investors in oil companies don’t

care about crude’s drop in the second weekof July. Although the price of crude hasbegun to creep up since the 17th, Brentcrude had fallen more than 9 percent.

European oil companies are “weather-ing the slump,” the article reported, “sig-naling a change in fortunes for last year’slaggards. … the Stoxx Europe 600 Oil &Gas index has retreated just 3.9 percent.”

Bloomberg credited oil companies’“discipline during the 2014-2016 crash,”alleging it “proved to investors they cannow easily withstand such crude-price cor-rections.”

Ahmed Ben Salem, an analyst at OddoBhf, was quoted in the story as saying,“Oil companies have done a good jobadjusting their budgets to the lower oilprice environment and their shareholdersare now benefiting from that.

“The resilience is mainly linked to thefact that oil companies have an oil cashbreakeven as low as $50 per barrel andtheir budget and share-buyback plans arebased on $60.”

Investors have also been encouraged bya buoyant outlook for second-quarter earn-ings, Bloomberg reported: “Analystsexpect the European oil sector to report thehighest profit growth among 10 industries.The biggest companies are also set todeliver the highest free cash flow in almosta decade, according to Goldman SachsGroup.”

At the close of business July 20,Alaska’s Department of Revenue reportedAlaska North Slope crude was at $74.20;Brent was at $70.46.

—KAY CASHMAN

8 PETROLEUM NEWS • WEEK OF JULY 29, 2018

judypatrickphotography.comCreative photography for the oil & gas industry.

907. 258.4704

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This was the sale dominated by ApacheAlaska, which has since exited the state.Apache took 90 tracts in the 2011 sales forsome $6.9 million (of 104 tracts sold in thesale for a total of $7.9 million) including thethree tracts in Part B of the sale for $70 anacre.

3-D seismic availableEach of the SALSA lease blocks has 3-

D seismic available, data which wasacquired through the state’s tax credit pro-gram and is available through theDepartment of Natural Resources for amodest fee, Walsh said.

The SALSA information includes mapsshowing the blocks, where seismic is avail-able and wells in the areas which flowedhydrocarbons to the surface.

There are links to the Alaska Oil and GasConservation Commission’s website, with alist of information available from AOGCC,

and a link to the Division of Geological andGeophysical Surveys Alaska GeologicalMaterials Center, and materials availablethere, as well as a list of information avail-able from the division.

A bidding history for tracts in the blocksis included, and links to informationsources on the leases.

Jump startWalsh said the SALSA information “is

meant to give you a jump start in under-standing what data is available for the leasesale blocks,” with sources of data providedso searches can be expanded outside theSALSA file. “This rich and insightful infor-mation will help you interpret and evaluateAlaska’s resources more quickly,” she said.

Formal information on the fall sales willbe posted as available at:

http://dog.dnr.alaska.gov/Services/BIFAndLeaseSale. l

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SALSA BLOCKS