Q&A: Josephson says oil tax creditwork unfinished, issues could return

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

l F I N A N C E & E C O N O M Y

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

Vol. 21, No. 25 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of June 19, 2016 • $2.50

page11

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of June 19, 2016

White Rock seeks other VMSdeposits in Bonnifield district

Unlike traditional lore, huge deposits of zinc lie at the end of this rainbow touching down on the Lik propertyin Northwest Alaska. The near-surface Lik South deposit hosts 18.74 million metric tons of indicated resource,grading 8.08 percent zinc, 2.62 percent lead and 52.8 grams per metric ton silver. The deeper Lik North contains5.18 million metric tons of inferred resource, grading 9.65 percent zinc, 3.25 percent lead and 51 g/t silver.

NEWS NUGGETSCompiled by Shane Lasley

Endurance plans to drill five holes at Elephant Mountain gold propertyEndurance Gold Corp. June 15 posted its 2016 explorationplans for the Elephant Mountain gold property located nearEureka in the Rampart-Manley Hot Springs area of InteriorAlaska. Three targets are being prioritized for drilling within a1,800- by 600-meters intrusive-hosted gold target. South Zone,the highest priority drill target, has very few outcrop exposuresbut has yielded the highest gold values in rock samples fromthe property. Surface grab rock samples from South Zoneinclude: 12.98 grams per metric ton, 5.21 g/t, 4.44 g/t, 3.02 g/t,and 2.59 g/t gold associated with iron oxide stained and alteredgranitic rocks. In 1991, Placer Dome collected a grab samplefrom the South Zone target that assayed 12 ounces per ton gold(411.4 g/t gold). Sampling by Endurance in 2015 confirmed acontinuous 1,000-meter-long soil anomaly exceeding 100 partsper billion gold with peak values up to 320 ppb gold. The inter-preted source area of the anomaly remains untested by drilling.Three drill holes are currently planned for this target. TheNorth Zone target is a 1,200- by 500-meter gold-arsenic soilanomaly with peak values of up to 1,540 ppb gold. In 1992,Placer Dome drilled eight holes at North Zone, the best ofwhich averaged 0.514 g/t gold over 99.4 meters and bottomedin mineralization. Endurance has collected seven grab sampleswithin North Zone, which returned gold values of between1.01 g/t and 1.92 g/t gold. One drill hole is planned in theNorth Zone target. The Central Zone Target, an area of no out-crop, is interpreted to be an area of altered intrusive. Endurancereports that an induced polarization survey completed by PlacerDome identified a 1,500- by 500-meter chargeable anomalybetween the North and South Zones. This geophysical targetwas never been tested with diamond drilling, and remainsunexplained. One hole is planned in the Central Zone target totest the source of the geophysical response. Located 76 milesnorthwest of Fairbanks, Elephant Mountain can be accessed byhighway, road and all-terrane vehicle trails from Eureka, anhistoric and active placer gold mining camp.

Northern Empire picks new CEO; raising funds for AK explorationNorthern Empire Resources Corp. June 13 introduced

Michael Allen as a new director, president and CEO of thecompany. A geologist by training, Allen graduated from theUniversity of Alberta in 1998 and started his career exploringfor diamonds. While exploring for gold at the Hope Bay proj-ect in Nunavut, he worked with Adrian Fleming, a director ofNorthern Empire, after which he joined De Beers to assist indeveloping the Snap Lake Mine. Over the past six years, Allenserved as vice president of exploration for West KirklandMining. “As president and CEO, Mike will lead efforts toadvance our Richardson Gold Property in Alaska, and seeknew accretive acquisition opportunities to grow the companyand add value for shareholders,” said Northern EmpireChairman John Robins. Allen will step into the executive rolespreviously held by Jim Paterson, who continues as a director ofthe company. Northern Empire also announced that JeffreySundar is relinquishing his role as vice president of corporatedevelopment but is joining the company’s board of directors.Northern Empire also announced plans to carry out a nonbro-kered private placement of up to C$1,050,000 through the issueof up to 7 million units at C15 cents apiece. Each unit willinclude one common share and one half of a purchase warrant,with each warrant entitling the holder to purchase one addition-al Northern Empire share at C25 cents for a period of 18

months. The proceeds of the financing will be used to fund

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

see NEWS NUGGETS page 11

Returning to LikTSX review, rising zinc prompt Zazu to step up work at NW Alaska project

By SHANE LASLEYMining News

I t has been several years since Zazu Metals Corp.has made any significant investments in its Lik

zinc-lead-silver project in Northwest Alaska, a situa-tion that is threatening the company’s eligibility to belisted on the Toronto Stock Exchange.

According to exchange rules, a company mustspend at least C$350,000 on its core projects duringthe previous year to be eligible to continue listing itsshares on the TSX. Zazu, however, has reined in itscash outlay until zinc prices rise and global miningmarkets improve.

“Due to poor market conditions Zazu manage-ment decided to cut back on any developmentexpenses that could be deferred. For that reason onlyongoing studies required to advance permitting wereincluded in the budget. These studies were inexpen-sive; consequently, the company did not meet theminimum annual expenditures,” explained ZazuCEO Gil Atzmon.

Zinc prices started the year soft, dipping belowUS70 cents per pound in January, before rallying toclimb above US94 cents/lb. earlier this month.

Goldman Sachs Group Inc. sees zinc prices con-tinuing to rise due to a shortage of supply.

The New York-based investment bank forecaststhat demand for refined zinc will outstrip supply by114,000 tons this year, a shortage that is expected tomore than triple, to 360,000 tons next year.

“Zinc has by far the most bullish supply-sidedynamic,” the bank wrote in a May report.

Zazu has long considered Lik as a potential mineto help fill this zinc shortage that has been predictedfor several years.

In 2014, the company published a preliminaryeconomic assessment for developing a mine at Lik,which is located about 14 miles from TeckResources’ Red Dog Mine.

As modeled, a 5,500 metric-ton-per-day mill pro-cessing ore from an open-pit mine at Lik South, oneof two deposits that make up the project, would pro-duce 234,000 dry metric tons of zinc concentrate and55,800 dry metric tons of lead concentrate annuallyover an initial nine-year mine life.

In total, 17.1 million metric tons of ore milled atan average grade of 7.7 percent zinc, 2.6 percent leadand 47 grams per metric tons silver is expected fromthe Lik South open pit.

The PEA does not consider Lik North, a contigu-ous deposit that would be mined using undergroundmethods if economics proved viable.

Lik has the advantage of being situated near theDelong Mountain Transportation System, a state-owned haul road and concentrate-shipping port serv-icing the Red Dog Mine.

Alaska Industrial Development and ExportAuthority, the state entity that owns the road and port,has conducted analysis on the construction of a 19-mile (30 kilometers) extension to the road and anyport modification requirements to accommodate Lik.

AIDEA identified a number of benefits to devel-oping the road if a mine at Lik is developed, includ-ing: extending the use of the existing road and port,which would lengthen the cash-flow to the state andgenerate more money for the Northwest ArcticBorough; and the mine would be another source ofjobs for the region.

Following the completion of the PEA, Zazu initi-ated several studies in preparation for permitting.

“These studies were nearing conclusion in 2015.However, in light of market conditions in early 2015,Zazu management determined to support only ‘mis-sion critical’ studies with the remainder temporarilysuspended,” the company explained in a quarterlyfinancial report published in May.

Zazu went on to say these “studies can be re-initi-ated in a short timeframe.”

The company, which has until Oct. 12 to demon-strate TSX listing compliance, said it will be workingwith the exchange throughout the review process andexpects to formulate a plan to satisfy the require-ments.

“Zazu plans to engage in a more active programthis season and expects to meet the minimum expen-ditures prior to the end of the TSX review,” Atzmonsaid.

Teck and Zazu are currently 50 percent joint ven-ture partners in Lik. Zazu has the right to increase itsownership to 80 percent by meeting certain spendingcommitments by 2018.

l

ZAZU

MET

ALS

CO

RP.

This week’s Mining News

TSX review, rising zinc prompt Zazu to step up work at Lik zinc-lead-silver project in Northwest Alaska. See page 9.

Celebrating 20 years: 1996-2016

Federal acreage downRepsol departs Chukchi, as offshore acreage drops; onshore also down

By ALAN BAILEYPetroleum News

The Bureau of Ocean Energy Management’s

Chukchi Sea lease map, not too long ago a

checkerboard of lease blocks, is now essentially a

blank sheet with a single tiny square in the middle.

Repsol has dropped all of its Chukchi Sea leases,

following Shell and ConocoPhillips’ relinquish-

ment of their leases and the earlier departure of

Statoil. The forlorn square on the BOEM map

depicts Shell’s remaining lease, the lease contain-

ing the Burger J well that the company drilled in

2015 — presumably the company is holding the

lease to maintain the confidentiality of the well

data.

Beaufort SeaThe situation in federal waters of the Beaufort

Sea appears to be heading in a similar direction,

although there are two oil development possibili-

ties in the offing.

Caelus suspends drillingCould resume at Oooguruk if price rebounds; Nuna startup moved to 2018 or later

By ERIC LIDJIFor Petroleum News

As a response to low oil prices, Caelus Natural

Resources Alaska LLC wants to suspend

development drilling and workover activities at the

Oooguruk unit for the coming year.

The local subsidiary of Texas-based Caelus

Energy LLC is planning no wells, sidetracks or

workover operations at the North Slope unit

through August 2017, according to a recent plan of

development filed with the state Division of Oil

and Gas in early June.

Although Caelus is being cautious at the

moment, the company seemed to maintain longer-

term confidence in the Oooguruk development,

saying it would resume its previous drilling pro-

gram “when oil prices recover and investor confi-

dence resumes.”

In addition to the suspension of drilling, Caelus

also reduced its workforce in Alaska by 25 percent

this year, in an attempt to reduce costs during the

current economic climate.

Caelus also postponed the first phase of its pro-

posed Nuna development, although the company

plans to continue facility design, geologic and geo-

physical analyses and long lead procurement over

the coming year, in preparation for construction in

Analyzing rig problemsAlaska entrepreneurs develop computer-based system to spot drilling rig problems

By TIM BRADNER For Petroleum News

Two Alaska entrepreneurs

are teaming up with part-

ners in the Lower 48 and

Europe to develop advanced

computer-based analytic

tools for the oil and gas

industry.

The goal is to spot prob-

lems developing on drill rigs or in other complex

mechanical systems. The system would alert rig

operators and owners to potential problems earlier

than sensor systems now in use.

Advanced warning on mechanical problems can

save on maintenance and rig downtime. Enhanced

safety will be another benefit.

Microsoft, the information

services giant, is interested in

the venture and is providing

assistance.

Matt Larkin and Thor

Kallestad are the Alaska part-

ners in DataCloud

International Inc. Mike

Miller, a 30-year BP veteran,

is drilling advisor to the

group.

Larkin owns and operates Dittman Research, a

survey firm he purchased from David Dittman in

early 2011. Kallestad is a petroleum engineer for-

CIRI partnering in Nenana basin;joins Doyon in exploration efforts

Cook Inlet Region Inc. has announced that it is investing

together with Doyon Ltd. in the exploration of the Nenana

basin that Doyon has been spearheading for a number of

years. CIRI is the Native regional corporation for Southcentral

Alaska, while Doyon is the Native regional corporation for the

Alaska Interior.

Doyon is seeking oil and gas in the Nenana basin, a large

sediment-filled basin southwest of the city of Fairbanks. The

corporation has conducted seismic surveys in the basin and on

June 1 spudded the Toghotthele No. 1, the third well of the

corporation’s exploration program. The previous two wells,

while not finding a viable hydrocarbon resource, provided

Pipeline feuding; Trans Mountainshowdown over benefits, fears

Skirmishing over the future of new oil pipelines in Canada

has turned into a brawl between big city and provincial lead-

ers.

The industry, meanwhile, is left to watch the melee unfurl,

while trying to appease its opponents.

Kinder Morgan has made another overture to gain approval

for its plan to triple capacity on the Trans Mountain pipeline

to 890,000 barrels per day by increasing the use of tugs to

accompany tankers from Vancouver to the Juan de Fuca Strait,

which separates the United States and Canada.

Master mariner Bikram Kanjilal, the lead for marine issues

on the Trans Mountain project, said the company has decided

to expand tug-escort requirements for third-party tankers.

see NENANA ARTNERSHIP page 20

see PIPELINE FEUDING page 19

see FEDERAL ACREAGE page 19

see CAELUS DRILLING page 18

see COMPUTER SYSTEM page 20

Shell, the sole owner of 42 of theremaining Beaufort Sea leases, all of them

scheduled to expire at the end of 2017,has said that it has no plans to explore in

the Arctic offshore in the foreseeablefuture.

The company had initially forecaststarting up Nuna by late 2017.

MATT LARKIN THOR KALLESTAD

2 PETROLEUM NEWS • WEEK OF JUNE 19, 2016

Petroleum News North America’s source for oil and gas newscontents

14 AIDEA bill out of House Finance

Legislation would set up Oil and Gas InfrastructureDevelopment Program Fund; bill hasn’t moved in Senate; not expected to be capitalized

18 Committee unsure about PFD bill

Legislation would roughly halve Alaska’s more than $3 billion deficit by drawing 5.25% of the AlaskaPermanent Fund annually

13 AOGA drawing raises $10,000 for AWAIC

Abused Women’s Aid in Crisis founded in 1977; fundswill support mission to provide domestic violence safe shelter, intervention

ALTERNATIVE ENERGY

ASSOCIATIONS

EXPLORATION & PRODUCTION

4 Technology change and demand transition

Coal usage plunges as shale development drives downnatural gas prices and China transitions away from energy-hungry industries

FINANCE & ECONOMY

18 More legacy well funds proposed

15 Alyeska plans 36-hour pipeline shutdown

15 Juneau Hydropower awaits project license

15 IEA: Oil unlikely to rise much further

15 US rig count rises 6, 2nd week of gains

NATURAL GAS7 AGDC names Keith Meyer president

LAND & LEASING6 State approves lease deals in May

7 Scientists request no Arctic offshore drilling

7 The state, Anadarko contest TAPS rates

Say that the revised rates filed by pipeline owners in compliance with FERC rate case order includeinadmissible cost elements

PIPELINES & DOWNSTREAM

5 Josephson: Oil tax credit work unfinished

Anchorage Democrat and House Resources Committeemember says issues driving concerns over oil tax structure, credits could return

8 REI plugs away on Cook Inlet LNG plant

Low LNG prices in Japan, obtaining Cook Inlet naturalgas at reasonable price, biggest challenges; lookingfor investment partners

GOVERNMENTFederal acreage down

Repsol departs Chukchi, as offshore acreage drops; onshore also down

Caelus suspends drilling

Could resume at Oooguruk if price rebounds; Nuna startup moved to 2018 or later

Analyzing rig problems

Alaska entrepreneurs develop computer-based system to spot drilling rig problems

ON THE COVER

CIRI partnering in Nenana basin;joins Doyon in exploration efforts

Pipeline feuding; Trans Mountainshowdown over benefits, fears

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Call for a free quote today: 800.321.6518 | alaskarailroad/freight

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

l U T I L I T I E S

l G O V E R N M E N T

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.YY.ELLY

PETROLEUM NEWS • WEEK OF JUNE 19, 2016 3

Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Milne Point C-15A Hilcorp Dreco 1000 UE 16 (SCR/TD) Standby BPDreco D2000 Uebd 19 (SCR/TD) Alpine CD5-08 ConocoPhillipsAC Mobile 25 StandbyOIME 2000 141 (SCR/TD) Kuparuk 2S-12 ConocoPhillips 142 (SCR/TD) Kuparuk 1L-20 ConocoPhillips

Hillcorp Alaska LLC Rig No.1 Milne Point Hilcorp Alaska LLC

Kuukpik Drilling 5 Offshore Modification Hilcorp Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Deadhorse Available Mid-Continental U36A 3-S Deadhorse AvailableOilwell 700 E 4-ES (SCR) Deadhorse AvailableDreco 1000 UE 7-ES (SCR/TD) Deadhorse AvailableDreco 1000 UE 9-ES (SCR/TD) Deadhorse AvailableOilwell 2000 Hercules 14-E (SCR) Deadhorse AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location Available Oilwell 2000 Canrig 1050E 27-E (SCR-TD) Deadhorse Available Oilwell 2000 33-E Deadhorse Available Academy AC Electric CANRIG 99AC (AC-TD) Deadhorse AvailableOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Deadhorse Available Academy AC electric Heli-Rig 106AC (AC-TD) Deadhorse Available

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay, Standby BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Drill Site 1 , Well 24 BPIdeco 900 3 (SCR/TD) Available

Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay DS 18 BPNOV ADS-10SD 273 Prudhoe Bay DSW-59 BP

North Slope - Offshore

BPTop Drive, supersized Liberty rig Inactive BP

Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Stacked

Nabors Alaska DrillingOIME 1000 19AC (AC-TD) Oooguruk Cold Stacked Caelus Alaska

Interior Alaska

Doyon DrillingTSM 7000 Arctic Fox #1 Nenana Toghotthele #1 Horizon Oil

Cook Inlet Basin – Onshore

Miller Energy ResourcesMesa 1000 Rig 37 Mobilized to North Fork to begin Miller Energy Resources drilling this winter

All American Oilfield LLCIDECO H-37 AAO 111 In All American Oilfield’s yard in Kenai, Alaska Available

Aurora Well ServicesFranks 300 Srs. Explorer III AWS 1 Stacked out west side of Cook Inlet Available

SaxonTSM-850 147 Stacked Hilcorp Alaska LLCTSM-850 169 Stacked Hilcorp Alaska LLC

Cook Inlet Basin – Offshore

Hilcorp Alaska LLC National 110 C (TD) Platform C, Stacked Hilcorp Alaska LLC Rig 51 Steelhead Platform, Stacked Hilcorp Alaska LLC Rig 51 Monopod Platform, Drilling Hilcorp Alaska LLC Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Furie Upper Cook Inlet KLU#1Cook Inlet EnergyNational 1320 35 Osprey Platform, Suspended Cook Inlet Energy

Mackenzie Rig Status

Canadian Beaufort SeaSDC Drilling Inc.SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available

Central Mackenzie ValleyAkitaTSM-7000 37 Racked in Norman Well, NT Available

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of June 15, 2016.

Active drilling companies only listed.

TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig

This rig report was prepared by Marti Reeve

Baker Hughes North America rotary rig counts*

June 10 June 3 Year Ago United States 414 408 859Canada 65 41 127Gulf of Mexico 20 20 29

Highest/LowestUS/Highest 4530 December 1981US/Lowest 488 April 1999Canada/Highest 558 January 2000Canada/Lowest 29 April 1992 *Issued by Baker Hughes since 1944

JUDY

PAT

RICK

By ALAN BAILEYPetroleum News

Part one of this two-part series on

findings from the BP Statistical

Review of World Energy 2016 focused on

global oil and natural gas markets. This

second part of the

series covers coal and

non-fossil fuel markets,

and the insights that

data presented in the

review may provide for assessing future

energy trends.

Spencer Dale, BP group chief econo-

mist, overviewed the statistical review

during a June 8 webcast.

Dale characterized world energy mar-

kets as being in a state of flux, as the

industrialization of China slows down

while rapid advances in energy technolo-

gies impact the supply side of the energy

market equation. Low oil prices have

buoyed the demand for consumer-related

oil products such as gasoline, while low

natural gas prices have boosted the use of

gas for power generation.

Coal lost outThe biggest energy supply loser in

2015 was coal, as industrial coal demand

in China fell sharply and as cheap natural

gas displaced coal for power generation

in the United States.

“2015 was undoubtedly an annus hor-

ribilis for coal,” Dale said. “Global pro-

duction and consumption both recorded

the largest falls records, and coal prices

fell by around 20 percent.”

In China, 2015 proved to be the sec-

ond year in a row in which coal consump-

tion dropped, as industrial production

braked sharply and coal lost out to com-

petition from other energy sources in the

power sector. The shifting pattern of the

Chinese economy towards slower, more

service oriented growth, coupled with a

determination to move to cleaner, lower

carbon fuels, are creating a strong struc-

tural force, pushing in the direction of

lower coal usage, Dale said.

Chinese output of iron, steel and

cement all fell in absolute terms in 2015

for the first time in nearly 35 years, he

said. However, future trends of Chinese

coal consumption remain unclear.

In the United States, technical innova-

tion in the form of the shale gas revolu-

tion pushed down gas prices, enabling

gas to displace coal for power generation.

Tightening environmental policies also

drove down coal demand, with coal con-

sumption falling by more than 12 percent.

And, while a similar drop in U.S con-

sumption in 2012 was counterbalanced

by increased U.S. coal exports, in 2015

the coal could not easily be sold overseas:

The consequence was a drop of more than

10 percent in U.S. coal production, Dale

said.

Non-fossil fuelGlobal non-fossil fuel energy usage,

on the other hand, grew by 3.6 percent in

2015, a rate of growth slightly higher than

the average over the last 10 years. In par-

ticular, renewable energy sources, re-

enforced by a reputation for being “the

next big thing” for energy supplies and by

falling costs coupled with improving

technology, grew by more than 15 percent

in 2015, a growth level that accounted for

more than one-third of the total global

growth in energy consumption, Dale said.

Wind power led the charge towards the

adoption of renewable energies, but with

solar power catching up fast in the renew-

able energy mix — Solar energy usage

expanded by almost one third in 2015,

with China overtaking Germany and the

United States as the largest generator of

this form of energy, Dale said.

But the trend in carbon emissions in

2015 provided perhaps the most striking

data in the statistical review, Dale said.

Essentially, carbon emissions were flat,

thanks to a slowing growth in energy

demand and a shift away from coal

towards lower carbon fuels. That flat

emissions growth represented the slowest

growth in nearly a quarter century, apart

from the slow growth following the 2008

financial crisis.

Although some of the carbon emis-

sions growth hiatus in 2015 can be attrib-

uted to relatively weak economic growth,

the majority of the effect resulted from

improved energy intensity and changes in

the fuel mix. Energy intensity refers to

the quantity of energy used per unit of

economic activity. China was responsible

for the vast majority of the emissions

growth slowdown, with that country’s

carbon emissions actually estimated to

have fallen slightly in 2015, the first time

this has happened in almost 20 years,

Dale said.

Future trendsSo what might all of this say about

future energy trends?

Dale suggested three key issues likely

to have major impacts on global energy

over the next 20 to 30 years: the future

decline rate of China’s energy intensity;

the speed at which renewable energies

gain share in the global energy mix; and

the global drive to reduce carbon emis-

sions.

In terms of energy demand, the future

trend of China’s energy intensity matters

as much, if not more, than the country’s

economic growth, Dale said. And,

although it is possible to gain insights

about what is happening in China from

what has happened to energy intensity in

countries such as Japan and South Korea,

the energy intensity level in these coun-

tries fell rather slower than in China when

at similar stages of economic develop-

ment. Ultimately, much will depend on

the twin Chinese objectives of improved

energy efficiency and a shift towards a

more serviced-based, less energy inten-

sive pattern of economic growth.

When it comes to the growing role of

renewable energies, Dale cautioned

against assuming unrealistic growth rates,

especially given the inertia associated

with the highly capital intensive nature of

l F I N A N C E & E C O N O M Y

Technology change and demand transitionCoal usage plunges as shale development drives down natural gas prices and China transitions away from energy-hungry industries

4 PETROLEUM NEWS • WEEK OF JUNE 19, 2016

Kay Cashman PUBLISHER & EXECUTIVE EDITOR

Mary Mack CEO & GENERAL MANAGER

Kristen Nelson EDITOR-IN-CHIEF

Susan Crane ADVERTISING DIRECTOR

Bonnie Yonker AK / NATL ADVERTISING SPECIALIST

Heather Yates BOOKKEEPER

Shane Lasley NORTH OF 60 MINING PUBLISHER

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Alan Bailey SENIOR STAFF WRITER

Tim Bradner CONTRIBUTING WRITER

Eric Lidji CONTRIBUTING WRITER

Wesley Loy CONTRIBUTING WRITER

Gary Park CONTRIBUTING WRITER (CANADA)

Steve Quinn CONTRIBUTING WRITER

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Mapmakers Alaska CARTOGRAPHY

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Renee Garbutt CIRCULATION MANAGER

Ashley Lindly RESEARCH ASSOCIATE

ADDRESSP.O. Box 231647Anchorage, AK 99523-1647

NEWS 907.522.9469publisher@petroleumnews.com

CIRCULATION 907.522.9469 circulation@petroleumnews.com

ADVERTISING Susan Crane • 907.770.5592scrane@petroleumnews.com

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FAX FOR ALL DEPARTMENTS907.522.9583

OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 21, No. 25 • Week of June 19, 2016

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alaska@amarinecorp.com

China was responsible for the vastmajority of the emissions growth

slowdown, with that country’scarbon emissions actually

estimated to have fallen slightly in2015, the first time this has

happened in almost 20 years, Dalesaid.

see ENERGY REVIEW page 6

By STEVE QUINNFor Petroleum News

House Rep. Andy Josephson says

while HB247 may not have done

all he had hoped with the Legislature’s

discussions on oil tax credit reform, the

recently passed bill may not be the final

word, either. Too many questions

remain, he says.

The Anchorage Democrat, who sits

on House Resources, probably aligns

himself philosophically with conserva-

tive views when it comes to resource

development, but he still has concerns

about the mounting costs of credits

against chronically low oil prices.

He spoke to Petroleum News about

his views.

Petroleum News: HB 247 passed yourchamber then came back for anothervote from the Conference Committee andit passed, 21-19. You were a no vote.Talk about that vote.

Josephson: I was captivated and

moved by the Seaton-Wilson compro-

mise. I think that that coalition, starting

with Republicans largely and some Bush

Democrats, was one of the more interest-

ing stories that came out of the entire

session. It took five months, but that’s

what’s there.

When we met, and here I mean some

members of the Independent Democratic

Caucus, when there was a meeting with

the Seaton-Wilson team, they were

receptive to some of our additions to the

bill.

Particularly, they agreed to add 5 per-

cent (gross minimum) at $70. That

would not have generated more than

about $50 million a year but they were

receptive to it. They were receptive to a

measure where GVR oil (the gross value

reduction for new oil) would drop from

seven years to as little as three years if

the price of a barrel of oil averaged $70

for three years. And there were a couple

of other features, too, that made a differ-

ence.

In my caucus, those who really found

SB 21 troublesome and who wanted a

tax effort as much as a tax credit reform

effort, which I never thought was some-

thing before us in this session, they

remained not wholly satisfied with the

Seaton-Wilson plan. A minority of the

minority if you will, wanted more, but

they were willing to vote affirmative on

the Seaton-Wilson plan when it first

came to the floor.

What I found particularly beneficial

about that bill was the way it dealt with

net operating losses. I didn’t harbor any

illusions that the Senate would embrace

every aspect of the House version and be

done with it. I wasn’t naïve about what

might come back from the Senate. The

Senate version, as is well known, did

make reforms in Cook Inlet. It used a

placeholder tax on oil and gas in Cook

Inlet that was too small while the

Seaton-Wilson plan was too big, and

there should have been a compromise

made there.

The Senate version, in my opinion,

didn’t go far enough on the North Slope.

I guess what was most frustrating is

Senate majority members saying yes but

the net operating loss credit has resolved

itself because we are over $50 a barrel

and we are hopeful that net operating

losses won’t happen.

The obvious

retort is if that

won’t happen then

you shouldn’t mind

something pre-emp-

tive that would stop

us from when or if

prices return to

something less than

$50 a barrel. I con-

veyed to members

of the House who were on the fence that

this vote was critical to sustaining sup-

port for an overall fiscal plan.

The public had, I think through mes-

saging and a large amount of press cov-

erage on the oil and gas tax credit issue,

had come to the belief that these reforms

were necessary and that what we were

doing was unsustainable, that we

couldn’t place a burden on them and

their pocketbooks while paying the

industry something that was unsustain-

able.

Petroleum News: So do you think thestate is protected on the low side of theper barrel price range?

Josephson: No. As I understand it, it’s

not protected. The GVR can still go

under the 4 percent gross minimum tax.

The per barrel cannot but it never could.

The NOL can. Of course the argument

with the NOL was whether we should

take some minimum amount or take vir-

tually nothing and erase those NOLs

faster. I think that was a debate that I

wasn’t as intrigued by because I view it

as debt either way. There were members

of the Independent Democratic Caucus

who said we need a hard floor with

NOLs so we get some tax. I think the

number floating around was around

$300 million. I didn’t view that as a deal

breaker because I knew we either had to

pay it now or pay it later. I think the

industry should view the reforms that

came out of the past version of HB 247

with some hesitancy. I’m not convinced

those reform efforts are over.

Petroleum News: The industry’s posi-tion was no change at all. What do you

think the industry could have done dif-ferently to facilitate a compromise, andI’m not suggesting they should havedone anything at all, I’m wondering ifyou think there were those options?

Josephson: It was interesting to see

that the three majors — some would say

four majors — and the smaller inde-

pendents were willing to play hardball

with one another, that they would frac-

ture just like a political caucus would

fracture. I think we saw some of that.

They have a corporate position,

which is in the interest of their share-

holders, but by definition a program of

credits back in 2006 was

$53 million and is now

over $900 million. It’s not

sustainable. It’s not even

close to being sustainable.

The original argument

was SB 21 could give us an increase in

production. It then became a stem the

decline argument. And that’s fine. I’m

not here to criticize what some might see

as an evolution of that argument.

But I think if you look at the stem the

decline position, it’s hard to say the

increase of production or the cessation

of the decline rate, that 100,000 barrels

that may not have been there otherwise

is sufficient to justify the credit outlay.

That’s my problem. You do see the

morphing of the industry position that

says yes, but you’re getting royalty. I

think the industry largely prevailed and

I’m not so sure that the reform effort is

complete.

Petroleum News: Would you like tosee the governor veto HB 247?

Josephson: If the governor were to

veto it, as someone who is moderate

with my own caucus on this issue, some

would even say even more conservative,

there are good things and bad things

right now. The good thing is it would

send a signal that in January the entire

discussion would start again.

It would defeat the argument that we

hear from industry that boy this keeps

coming up every year, some new legisla-

tion every year. The retort would be yes,

but there wasn’t last year because noth-

ing passed.

On the other hand, as Commissioner

(Randall) Hoffbeck said today in the

House Finance Committee when

addressing the Permanent Fund restruc-

turing bill, there are reforms in HB 247

that have merit. Selfishly if the governor

vetoed this bill, it would signal he wants

to keep us here through June and into

July. That’s not something I relish.

I’m not hung up on whether he vetoes

it. I think there is an argument that some

of the appropriations should be vetoed

because I think that it’s just not reason-

able to be paying — we

saw the most egregious

example — 85 cents on

the dollar for exploration

and development costs —

frequently 55 and 65 cents

on the dollar.

We don’t do that for other industries.

It’s not my goal to offend or upset indus-

try’s position. I want them to thrive here.

I just think just as they have retracted

their own rig count and their exploration

and development costs, it’s unfair to say

you the state of Alaska must maintain,

keep doing exactly what you’ve been

doing. It’s not reasonable. I think the

veto of some of the appropriations is

allowed by statute and might be warrant-

ed as a way of signaling that the state

doesn’t find the existing outlay sustain-

able or affordable.

Petroleum News: So do you expectthis issue to come before you again inJanuary?

Josephson: I do. I do. One thing —

and I never heard anybody rebut this,

never — is there wasn’t sufficient mod-

eling at these low prices. No one consid-

ered in 2013 during the SB 21 talks that

a fiscal downturn could result in net

operating losses for the Big 3. I think it’s

reasonable to look at making sure that

cannot happen again. It’s inadequate to

say yeah but prices are higher so don’t

worry about it, so yeah I think there will

l G O V E R N M E N T

Josephson: Oil tax credit work unfinishedAnchorage Democrat and House Resources Committee member says issues driving concerns over oil tax structure, credits could return

PETROLEUM NEWS • WEEK OF JUNE 19, 2016 5

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the energy ecosystem, with many long-

life assets.

“The simple lesson from history is that

it takes a long time, numbering several

decades, for new energies to gain a sub-

stantial foothold within global energy,”

Dale said.

It took oil usage, for example, more

than 40 years to expand to just 10 percent

of the world’s primary energy portfolio.

And thus far the market penetration tra-

jectory for renewable energies has fol-

lowed a similar relatively fast track to that

of nuclear energy. Even assuming that

renewable energy usage grows somewhat

faster than any other energy source in his-

tory, renewable energy use will barely

reach 8 percent of total primary energy in

20 years time, Dale said.

Carbon emissionsFrom a carbon emissions perspective,

Dale sees 2015 as a landmark year, mark-

ing the first occasion when carbon inten-

sity — the amount of carbon emissions

per unit of economic activity — dropped

at a time when oil prices have not been

rising.

“So, real progress last year,” Dale

commented.

But, with the average annual carbon

intensity decline still needing to drop over

each of the next 20 years by double the

rate of decline in 2015, much remains to

be done to achieve carbon emissions goals

set in Conference of Paris meetings in

2015.

From an economist’s perspective, by

far the most efficient means of achieving

the Paris objectives would be through

government policies that set a price for

carbon rather than set carbon-limiting reg-

ulations, Dale suggested. While regula-

tion unrealistically depends on govern-

ments picking winning and losing tech-

nologies for an unpredictable future, car-

bon pricing allows the business communi-

ty and the market to allocate capital in the

most efficient manner, he said.

Importance of efficiencyDale also commented that improved

energy efficiency deserves much more

attention in the effort to reduce carbon

emissions.

“What I find deeply frustrating is that

much of the popular discussion when

thinking about climate is all of the discus-

sion seems to focus on the fuel mix,” Dale

said.

And, while issues with the fuel mix

have a habit of being “someone else’s

problem,” energy efficiency, with its

focus on how people use energy, becomes

everyone’s problem, he said.

Bob Dudley, BP group chief executive,

said during the June 8 webcast that he

views natural gas as a transition fuel that

will lead to the low carbon future.

“So you’re seeing more and more of

our capital investment go into natural gas

projects,” Dudley said.

Commenting that BP constantly

adjusts its decision making to reflect the

changing world energy scene, Dudley

said that, despite a massive selloff in

assets to cover the costs of the Deepwater

Horizon disaster, BP retained a major

wind farm business in the United States

and a large biofuel business in Brazil. In

the interests of learning about new tech-

nologies, to enable BP to position its port-

folio for the future, the company invests

in a wide spectrum of companies, Dudley

said.

The oil marketIn terms of oil, Dale commented that,

being driven by an oversupply rather than

low demand, the current low oil price sit-

uation is likely to be somewhat more pro-

longed than demand-driven price drops of

the late 1990s or late 2000s. Although the

oil market should return to balance later

this year, with the market already

responding to price signals, the current

overhang in oil stocks will still need reso-

lution before the market can truly return

to normal.

If oil prices go above $50 per barrel

and appear set to remain there, people will

start wanting to bring drilling rigs back

into operation, Dale said. But, the speed

with which oil development can resume

will depend on the availability of person-

nel, many of whom have already left the

oil producing regions, and on the avail-

ability of financing from perhaps reluctant

banks and private equity funds, he said. l

continued from page 4

ENERGY REVIEW

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

State approves lease deals in MayBy ERIC LIDJI

For Petroleum News

The state approved a scattering of lease transactions in

May.

The Alaska Department of Natural Resources approved

a transfer of 11.25 percent working interest and between 9

and 9.84375 percent royalty interest in 56 Beaufort Sea

leases from Armstrong subsidiary 70 & 148 LLC to part-

ner GMT Exploration Co. LLC.

For several years, the two companies have been part-

nering on a North Slope exploration program operated by

Repsol E&P USA Inc. Armstrong recently took over the

program.

The state issued 121 leases on the North Slope to

Accumulate Energy Alaska LLC. The independent, along

with its partner Burgundy Xploration LLC, acquired the

leases in a November 2015 sale for $4.74 million. The

acreage expands existing holdings the partners previously

acquired on either side of the Dalton highway and the

trans-Alaska oil pipeline. The partners have expressed an

interest in developing oil from source rocks.

In late 2015, the partners drilled the Icewine No. 1

exploration well from the Franklin Bluffs gravel pad adja-

cent to the haul road with an objective in the HRZ shale.

At the Point Thomson unit, the state rejected a request

from ExxonMobil Alaska Production Inc. to transfer

0.0066507 percent working interest and between

0.0053206 and 0.0058194 percent royalty interest in 12

leases to Sunlite International Inc.

Also at Point Thomson, the state is considering eight

separate requests from three small investors to transfer

royalty interests in values of less than 1 percent to related

groups.

Cook InletIn Cook Inlet, the independent New Energy Alaska

LLC transferred 100 percent working interest and 84.2

percent royalty interest in two leases to Cook Inlet Oil &

Gas Corp., which immediately changed its name to Alaska

Natural Gas Corp. The offshore leases, ADL 391463 and

ADL 391464, are between the Trading Bay and Redoubt

units.

Cook Inlet Oil & Gas Corp. was created in November

2014, according to the state corporations database. The

initial officers were Robert Fowler (president and treasur-

er) and David Johansson (secretary), both of Washington

state. In May 2015, Johansson left the company, Louis

Hoel became secretary and Jean-Robert Pronovost

became treasurer.

New Energy Alaska was created in 2009 as Alaskan

New Energy LLC, according to state records, and is cur-

rently owned entirely by Richard Stryken of Palmer,

Alaska.

The state terminated an Apache Alaska Corp. lease for

failure to pay rent. The offshore lease, ADL 392211, was

just beyond the outer boundary of the Ninilchik unit. The

state also terminated a small lease owned by Nancy Black

Miller for failure to pay rent. The onshore lease, ADL

34898, was in the southern Kenai Peninsula, west of

Nikolaevsk.

The state is considering six separate requests from the

Spielman Family Trust to transfer small royalty interests,

less than 1 percent, in two leases at the Tiger Eye unit,

ADL 391103 and ADL 391104, to Terry A. Spielman,

Linda S. Doupe and Helene M. Dahl. l

—A copyrighted oil and gas lease map fromMapmakers Alaska was a research tool used in prepar-ing this story.

PETROLEUM NEWS • WEEK OF JUNE 19, 2016 7

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NATURAL GASAGDC names Keith Meyer president

The Alaska Gasline Development Corp has named Keith Meyer president.

AGDC said June 9 that the announcement is the culmination of a five-month

national search begun in December following the resignation of Dan Fauske.

Meyer assumes his new role June 15.

AGDC said Meyer is a seasoned energy executive with more than 35 years

industry experience, including 15 years focused on liquefied natural gas initia-

tives.

Meyer joins AGDC from LNG America, an energy logis-

tics company he founded in 2008 to provide end-to-end LNG

distribution solutions to increase the use of LNG as a fuel

within the marine, transportation and other high horsepower

industries.

Prior to that Meyer was a senior executive with Cheniere

Energy Inc., ultimately serving as president of Cheniere

LNG where he oversaw development of the Sabine Pass

receiving terminal. While at Cheniere Meyer also led other

parts of the company and was on Cheniere’s executive com-

mittee.

Prior to joining Cheniere, Meyer led domestic and international pipeline and

gas storage development for CMS

Energy, a large U.S. utility holding com-

pany. Meyer began his career as a mar-

keting and strategic planning executive

with ANR Pipeline Co. He holds a

finance degree from Wayne State

University and an MBA from Rice

University.

AGDC said its board identified

Meyer as a leading candidate early in its

recruitment process and placed him

under contract in March to advise the

corporation on project and commercial

activities, allowing the board time to further evaluate his qualifications.

AGDC, a public corporation of the state of Alaska, is charged with advancing

development and construction of a North Slope natural gas pipeline and liquefied

natural gas product, and with securing long-term energy supply for Alaska.

AGDC owns a 25 percent interest in the Alaska LNG export project, along with

partners ExxonMobil, BP and ConocoPhillips.

—PETROLEUM NEWS

KEITH MEYER

Meyer joins AGDC from LNGAmerica, an energy logistics

company he founded in 2008 toprovide end-to-end LNG

distribution solutions to increasethe use of LNG as a fuel withinthe marine, transportation and

other high horsepowerindustries.

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

The state, Anadarkocontest TAPS ratesSay that the revised rates filed by pipeline owners in compliancewith FERC rate case order include inadmissible cost elements

By ALAN BAILEYPetroleum News

Challenges continue to the revised oil

shipping rates for the trans-Alaska

pipeline, following a November finding

by the Federal Energy Regulatory

Commission that the strategic reconfigu-

ration project, a major upgrade project for

the pipeline, had been imprudent. The lat-

est challenges have been filed with FERC

by the state of Alaska and Anadarko

Petroleum.

Late last year, in the culmination of a

massively complicated rate case, FERC,

the federal agency that regulates the inter-

state transportation of oil, barred the

pipeline owners from recovering much of

the cost of the strategic reconfiguration

project from the pipeline rates and

ordered the owners to develop revised

rates for the years during which project

costs had been recovered.

The pipeline owners have filed new

rates in compliance with the FERC order,

but the state of Alaska and some other

shippers of oil on the pipeline have ques-

tioned the validity of the rate revisions.

The state, Tesoro and Anadarko had pre-

viously complained to the Regulatory

Commission of Alaska about the recovery

from rates of litigation costs associated

with the strategic reconfiguration project

— in early June the commission turned

down that complaint.

Five issues raisedThe state, in its complaint to FERC,

has questioned five features of the

pipeline owners’ compliance tariff filings.

The state says that two of the owners, by

calculating pipeline operating costs for a

time period when pump station 1 was

being upgraded, have inadmissibly

included some strategic reconfiguration

costs in their rate calculations. The state

has also complained that some costs to be

recovered from rates consist of pipeline

dismantlement expenses that are already

accounted for separately as part of the

pipeline dismantlement, removal and

restoration components of the rates.

Supplemental property tax payments

relating to a tax correction have been

improperly included; excessive litigation

costs have been claimed; and pipeline

operating costs have not been calculated

accurately, the state claims.

Anadarko’s complaint to FERC also

claims that some compliance filings

including strategic reconfiguration costs

at pump station 1 and that the rates

include the inadmissible recovery of sup-

plemental property tax payments.

Anadarko also says that the filings do not

provide sufficient information about cost

calculations to determine whether some

litigation costs have been double counted.

The rates charged for shipping oil on

TAPS form a critically important compo-

nent of the overall cost of North Slope

crude oil. Moreover, by impacting the

wellhead value and the delivery cost of

the oil, the rates impact the state’s royal-

ties and production taxes levied on the

oil. l

LAND & LEASINGScientists request no Arctic offshore drilling

Nearly 400 scientists, mainly from the United States but also from other coun-

tries around the world, have written to President Obama requesting that the

Chukchi and Beaufort seas be removed from the next five-year outer continental

shelf lease sale program. The Bureau of Ocean Energy Management has been

accepting comments on a proposed version of the program, which runs from 2017

to 2022. The program includes a Beaufort Sea sale in 2020 and a Chukchi Sea sale

in 2022. Public comments on the program were due by June 16.

see DRILLING REQUEST page 8

8 PETROLEUM NEWS • WEEK OF JUNE 19, 2016

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Better.

The letter, published by the Pew

Charitable Trusts, says that climate-

change-associated loss of sea ice,

ocean acidification and increased

access for industrial activities all pose

significant risk to the ocean environ-

ment. The scientists say that they sup-

port additional action to ensure the

resilience of the Arctic marine

ecosystem and to sustain the people

who use the marine wildlife for their

sustenance.

“No new oil and gas leasing or

exploration should be allowed in the

Chukchi and Beaufort seas in the

foreseeable future, including in the

next five-year leasing plan,” the letter

says. “Additional ecologically impor-

tant and sensitive marine habitats

should be placed off-limits to oil and

gas activity, while honoring subsis-

tence hunting fishing and other uses

and access for indigenous peoples, to

protect the long-term health and func-

tion of these waters.”

The scientists ask the president for

consultation with indigenous com-

munities and Arctic scientists over

potential withdrawals from future

sales of further areas of particular

environmental sensitivity — the sig-

natories of the letter include 26 scien-

tists from the University of Alaska.

While environmental groups have

remained vehemently opposed to off-

shore oil drilling, saying that the

drilling and subsequent development

would pose too high a risk to the del-

icate Arctic marine environment, the

oil industry has argued that it can

operate safely in the region. Three oil

fields have been operating without

incident for several years from artifi-

cial islands in the shallow waters of

the Beaufort Sea.

Alaska lawmakers consistently

support offshore drilling, viewing

offshore Arctic development as a key

to sustaining oil flow through the

trans-Alaska pipeline and hence sup-

porting the Alaska economy.

—ALAN BAILEY

continued from page 7

DRILLING REQUEST

By TIM BRADNER For Petroleum News

The economic headwinds are strong, but REI Alaska,

the Japanese company hoping to develop a small

liquefied natural gas, or LNG, project on Cook Inlet, is

still plugging away.

The company is taking the long

view. “LNG prices are low but REI

looks at this as a 20-year project,”

says Mary Ann Pease, REI’s

Alaska vice president.

“Alaska and Japan have a 45-

year history in trading LNG, and

our project is about maintaining

relationships and building partner-

ships,” she said.

REI continues to do technical

work to advance its project, most recently geotechnical

soils work at the proposed site of a medium-sized LNG

plant adjacent to Port MacKenzie in the Matanuska-

Susitna Borough, Pease said.

REI would be capable of exporting 1 million tons a

year of LNG with an expansion capability built into its

design.

The company’s plant site is on leases adjacent to the

borough-owned port where REI has options. Golder and

Associates of Anchorage is doing the work, which is to

ensure that soils are strong enough to support heavy

LNG plant equipment and tanks, Pease said. If the proj-

ect proceeds REI will need about 128 acres in total.

The Japanese company is also doing an assessment of

the borough’s current dock at Port MacKenzie to see if it

can provide support for the LNG project.

Continued interestMunicipal governments, utilities and companies in

Japan continue to be interested in REI’s project. REI

recently hosted a high-level delegation of Kyoto officials

and industry leaders, and on Aug. 17 top officials of

Mitsubishi Gas Chemicals will arrive in Alaska, for a

visit to REI’s Mat-Su port site and Agrium Corp.’s fertil-

izer plant at Nikiski, which is closed but which Agrium

is considering restarting.

Mitsubishi Gas Chemicals Chairman Kazuo Sakai is

heading the visiting delegation, which will include three

other top company officials.

On the commercial side, Pease said REI is continuing

to look for North American investment partners and for

“offtake” partners, or customers, in Japan. Mitsubishi

Gas Chemicals itself has been engaged with REI in var-

ious studies over several years.

Prices, supply challengesThe two biggest challenges for REI at this point are

the low LNG prices in Japan and obtaining natural gas in

Cook Inlet at a price the company can afford, Pease said.

Energy prices are cyclical so at some point LNG prices

will rise.

Gas prices in Southcentral Alaska have meanwhile

been at $7 and $8 per thousand cubic feet in recent years

but are trending downward in recently signed gas con-

tracts, Pease said.

REI was formed by a group of Japanese municipal

governments, utilities and medium-sized companies to

l N A T U R A L G A S

REI plugs away on Cook Inlet LNG plantLow LNG prices in Japan, obtaining Cook Inlet natural gas at reasonable price, biggest challenges; looking for investment partners

MARY ANN PEASE

see REI ALASKA page 15

page11

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of June 19, 2016

White Rock seeks other VMSdeposits in Bonnifield district

Unlike traditional lore, huge deposits of zinc lie at the end of this rainbow touching down on the Lik propertyin Northwest Alaska. The near-surface Lik South deposit hosts 18.74 million metric tons of indicated resource,grading 8.08 percent zinc, 2.62 percent lead and 52.8 grams per metric ton silver. The deeper Lik North contains5.18 million metric tons of inferred resource, grading 9.65 percent zinc, 3.25 percent lead and 51 g/t silver.

NEWS NUGGETSCompiled by Shane Lasley

Endurance plans to drill five holes at Elephant Mountain gold property

Endurance Gold Corp. June 15 posted its 2016 exploration

plans for the Elephant Mountain gold property located near

Eureka in the Rampart-Manley Hot Springs area of Interior

Alaska. Three targets are being prioritized for drilling within a

1,800- by 600-meters intrusive-hosted gold target. South Zone,

the highest priority drill target, has very few outcrop exposures

but has yielded the highest gold values in rock samples from

the property. Surface grab rock samples from South Zone

include: 12.98 grams per metric ton, 5.21 g/t, 4.44 g/t, 3.02 g/t,

and 2.59 g/t gold associated with iron oxide stained and altered

granitic rocks. In 1991, Placer Dome collected a grab sample

from the South Zone target that assayed 12 ounces per ton gold

(411.4 g/t gold). Sampling by Endurance in 2015 confirmed a

continuous 1,000-meter-long soil anomaly exceeding 100 parts

per billion gold with peak values up to 320 ppb gold. The inter-

preted source area of the anomaly remains untested by drilling.

Three drill holes are currently planned for this target. The

North Zone target is a 1,200- by 500-meter gold-arsenic soil

anomaly with peak values of up to 1,540 ppb gold. In 1992,

Placer Dome drilled eight holes at North Zone, the best of

which averaged 0.514 g/t gold over 99.4 meters and bottomed

in mineralization. Endurance has collected seven grab samples

within North Zone, which returned gold values of between

1.01 g/t and 1.92 g/t gold. One drill hole is planned in the

North Zone target. The Central Zone Target, an area of no out-

crop, is interpreted to be an area of altered intrusive. Endurance

reports that an induced polarization survey completed by Placer

Dome identified a 1,500- by 500-meter chargeable anomaly

between the North and South Zones. This geophysical target

was never been tested with diamond drilling, and remains

unexplained. One hole is planned in the Central Zone target to

test the source of the geophysical response. Located 76 miles

northwest of Fairbanks, Elephant Mountain can be accessed by

highway, road and all-terrane vehicle trails from Eureka, an

historic and active placer gold mining camp.

Northern Empire picks new CEO; raising funds for AK exploration

Northern Empire Resources Corp. June 13 introduced

Michael Allen as a new director, president and CEO of the

company. A geologist by training, Allen graduated from the

University of Alberta in 1998 and started his career exploring

for diamonds. While exploring for gold at the Hope Bay proj-

ect in Nunavut, he worked with Adrian Fleming, a director of

Northern Empire, after which he joined De Beers to assist in

developing the Snap Lake Mine. Over the past six years, Allen

served as vice president of exploration for West Kirkland

Mining. “As president and CEO, Mike will lead efforts to

advance our Richardson Gold Property in Alaska, and seek

new accretive acquisition opportunities to grow the company

and add value for shareholders,” said Northern Empire

Chairman John Robins. Allen will step into the executive roles

previously held by Jim Paterson, who continues as a director of

the company. Northern Empire also announced that Jeffrey

Sundar is relinquishing his role as vice president of corporate

development but is joining the company’s board of directors.

Northern Empire also announced plans to carry out a nonbro-

kered private placement of up to C$1,050,000 through the issue

of up to 7 million units at C15 cents apiece. Each unit will

include one common share and one half of a purchase warrant,

with each warrant entitling the holder to purchase one addition-

al Northern Empire share at C25 cents for a period of 18

months. The proceeds of the financing will be used to fund

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

see NEWS NUGGETS page 11

Returning to LikTSX review, rising zinc prompt Zazu to step up work at NW Alaska project

By SHANE LASLEYMining News

It has been several years since Zazu Metals Corp.

has made any significant investments in its Lik

zinc-lead-silver project in Northwest Alaska, a situa-

tion that is threatening the company’s eligibility to be

listed on the Toronto Stock Exchange.

According to exchange rules, a company must

spend at least C$350,000 on its core projects during

the previous year to be eligible to continue listing its

shares on the TSX. Zazu, however, has reined in its

cash outlay until zinc prices rise and global mining

markets improve.

“Due to poor market conditions Zazu manage-

ment decided to cut back on any development

expenses that could be deferred. For that reason only

ongoing studies required to advance permitting were

included in the budget. These studies were inexpen-

sive; consequently, the company did not meet the

minimum annual expenditures,” explained Zazu

CEO Gil Atzmon.

Zinc prices started the year soft, dipping below

US70 cents per pound in January, before rallying to

climb above US94 cents/lb. earlier this month.

Goldman Sachs Group Inc. sees zinc prices con-

tinuing to rise due to a shortage of supply.

The New York-based investment bank forecasts

that demand for refined zinc will outstrip supply by

114,000 tons this year, a shortage that is expected to

more than triple, to 360,000 tons next year.

“Zinc has by far the most bullish supply-side

dynamic,” the bank wrote in a May report.

Zazu has long considered Lik as a potential mine

to help fill this zinc shortage that has been predicted

for several years.

In 2014, the company published a preliminary

economic assessment for developing a mine at Lik,

which is located about 14 miles from Teck

Resources’ Red Dog Mine.

As modeled, a 5,500 metric-ton-per-day mill pro-

cessing ore from an open-pit mine at Lik South, one

of two deposits that make up the project, would pro-

duce 234,000 dry metric tons of zinc concentrate and

55,800 dry metric tons of lead concentrate annually

over an initial nine-year mine life.

In total, 17.1 million metric tons of ore milled at

an average grade of 7.7 percent zinc, 2.6 percent lead

and 47 grams per metric tons silver is expected from

the Lik South open pit.

The PEA does not consider Lik North, a contigu-

ous deposit that would be mined using underground

methods if economics proved viable.

Lik has the advantage of being situated near the

Delong Mountain Transportation System, a state-

owned haul road and concentrate-shipping port serv-

icing the Red Dog Mine.

Alaska Industrial Development and Export

Authority, the state entity that owns the road and port,

has conducted analysis on the construction of a 19-

mile (30 kilometers) extension to the road and any

port modification requirements to accommodate Lik.

AIDEA identified a number of benefits to devel-

oping the road if a mine at Lik is developed, includ-

ing: extending the use of the existing road and port,

which would lengthen the cash-flow to the state and

generate more money for the Northwest Arctic

Borough; and the mine would be another source of

jobs for the region.

Following the completion of the PEA, Zazu initi-

ated several studies in preparation for permitting.

“These studies were nearing conclusion in 2015.

However, in light of market conditions in early 2015,

Zazu management determined to support only ‘mis-

sion critical’ studies with the remainder temporarily

suspended,” the company explained in a quarterly

financial report published in May.

Zazu went on to say these “studies can be re-initi-

ated in a short timeframe.”

The company, which has until Oct. 12 to demon-

strate TSX listing compliance, said it will be working

with the exchange throughout the review process and

expects to formulate a plan to satisfy the require-

ments.

“Zazu plans to engage in a more active program

this season and expects to meet the minimum expen-

ditures prior to the end of the TSX review,” Atzmon

said.

Teck and Zazu are currently 50 percent joint ven-

ture partners in Lik. Zazu has the right to increase its

ownership to 80 percent by meeting certain spending

commitments by 2018. l

ZAZU

MET

ALS

CO

RP.

10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JUNE 19, 2016

Shane Lasley PUBLISHER & NEWS EDITOR

Rose Ragsdale CONTRIBUTING EDITOR

Mary Mack CEO & GENERAL MANAGER

Susan Crane ADVERTISING DIRECTOR

Heather Yates BOOKKEEPER

Bonnie Yonker AK / INTERNATIONAL ADVERTISING

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Curt Freeman COLUMNIST

J.P. Tangen COLUMNIST

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Renee Garbutt CIRCULATION MANAGER

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ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647

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North of 60 Mining News is a weekly supplement of the weekly newspaper, Petroleum News.

NORTHERN NEIGHBORSCompiled by Shane Lasley

Auryn agrees to buy Homestake, gain B.C. gold projectAuryn Resources Inc. June 13 said it has entered into a binding arrange-

ment to acquire Homestake Resource Corp. in an all-share arrangement val-

ued at C$8.9 million. Under the arrangement, Homestake shareholders would

receive one Auryn share for each 17 Homestake common shares held. As of

June 13, Auryn was trading at C$2.68 per share. The acquisition price repre-

sents a 31 percent premium to the volume weighted average price of

Homestake shares on the TSX Venture Exchange for the 20-day period prior

to June 14. The roughly 3.3 million Auryn shares to be issued would be

roughly 5.72 percent of that company’s outstanding shares after completion of

the arrangement. The acquisition is not expected to be subject to Auryn share-

holder approval. Homestake directors and officers are required to enter into

support agreements concurrently with execution of a definitive arrangement

agreement to be entered into between Auryn and Homestake within about 30

days. Homestake’s key asset is Homestake Ridge, a high-grade gold project in

northwestern British Columbia. According to a 2013 calculation, the three

main deposits at Homestake hosts 604,000 metric tons of indicated resource

averaging 6.4 grams per metric ton (124,000 ounces) gold; 48.3 g/t (939,000

oz.) silver; and 0.18 percent (2.4 million pounds) copper. Additionally, these

deposits host 6.77 million metric tons of inferred resource averaging 4.2 g/t

(911,000 oz.) gold; 93.6 g/t (20.37 million oz.) silver; and 0.11 percent (16.3

million lbs.) copper. Auryn President and CEO Shawn Wallace said, “The

acquisition of Homestake is the next step in our stated goal of acquiring high-

grade gold projects in stable jurisdictions. We look forward to leveraging the

C$35 million of exploration work completed by Homestake to date and fully

unlocking the mineral potential of this highly prospective project.” Pursuant

to the agreement, Homestake is subject to customary non-solicitation

covenants and has agreed to pay a termination fee of C$200,000 to Auryn in

the event it terminates the agreement in favor of a superior offer or completes

any alternative transaction within six months of termination for any reason.

Homestake’s board of directors has unanimously determined that the arrange-

ment is in the best interests of Homestake and its security holders. Homestake

Chairman Lawrence Page said, “The proposed arrangement with Auryn pro-

vides our company with a depth of financial and professional expertise con-

tained within Auryn to bring the Homestake project to its full potential within

a realistic time frame and allows Homestake shareholders the ability to profit

from the development of other mineral properties owned by Auryn which are

currently under exploration and development.” Auryn’s portfolio includes the

Committee Bay gold project in Nunavut and gold properties in Peru. During

the arrangement process, Auryn has agreed to provide to Homestake a loan of

up to C$150,000 on an interest free, unsecured basis. The transaction is

expected to close before the end of September.

Stakeholder begins 2016 ground-truthing at BallaratStakeholder Gold Corp. June 14 reported that exploration is underway at

its Ballarat gold project, located about 16 kilometers (10 miles) northeast of

Kaminak Gold’s Coffee project in the White Gold District of the Yukon

Territory. GroundTruth Exploration Inc. is carrying out the roughly four-week

exploration program that will investigate the Ballarat’s Northwest and the

Eastern zones. Planned work for this phase 1 program includes: a drone-gen-

erated high resolution topographic survey of the entire property; detailed geo-

logical mapping of Northwest and Eastern zones; induced polarization-DC

resistivity surveys at both properties; bedrock interface sampling at the

see NORTHERN NEIGHBORS page 11

l O P I N I O N

Federal overreachstymied by ScotusOnce again, the Army Corps of Engineers has its interpretationof the Clean Water Act scrutinized by courts and found wanting

By J. P. TANGENSpecial to Mining News

“What good does it do me, after all, ifan ever-watchful authority keeps an eyeout to ensure that my pleasures will betranquil and races ahead of me to wardoff all danger, sparing me the need evento think about such things, if that author-ity, even as it removes the smallestthorns from my path, is also absolutemaster of my liberty and my life; if itmonopolizes vitality and existence tosuch a degree that when it languishes,everything around it must also languish;when it sleeps, everything must alsosleep; and when it dies, everything mustalso perish?”

—Alexis de Tocqueville (1835)

In 1831, 26 year-old French lawyer

Alexis de Tocqueville visited the

United State [sic] of America for about

10 months and returned to his homeland

to write the seminal “Democracy in

America” wherein he described the

experimental democratic republic for the

benefit of his European peers. His mas-

terpiece is a fountainhead of observa-

tions and concerns and it advances pre-

science reminiscent of Michel de

Nostradame (a/k/a Nostradamus).

On the one hand, Tocqueville seem-

ingly admires the structure of our consti-

tution which divides power among three

branches of government, thwarting the

potential for despotism, especially the

potential despotism of a tyrannous

majority; and, on the other, he warns

about the centralization of administrative

control – something we might call “fed-

eral overreach” today.

If we fast-forward 200 years, the mer-

its of Tocqueville’s antipathy is palpable.

In recent years, the U. S. Supreme Court

has spoken several times about how the

Environmental Protection Agency and

the U.S. Army Corps of Engineers have

twisted their purported statutory authori-

ty to an extreme when dealing with wet-

lands and waters of the United States.

For the EPA/ACE, if land ever was wet

or might ever be wet, in their mind it is

jurisdictionally theirs to regulate. Flip a

coin as to which agency has the lead.

Witness the conversation about a pre-

emptive 404(c) veto of the Pebble

Project.

Recently, the Pacific Legal

Foundation (“may its tribe increase”)

scored twice before the Supreme Court

of the United States, in ramping back the

propensity of EPA/Corps to expand its

collective reach.

In the first instance, Army Corps of

Engineers v. Hawkes, decided May 31,

2016, Scotus upheld an Eighth Circuit

decision that an approved Corps jurisdic-

tional determination declaring that wet-

lands on a land parcel located 120 miles

away from the nearest river had a signif-

icant nexus to “waters of the United

States” was a final decision and was,

therefore, appealable under the

Administrative Procedures Act.

In the second case, Kent Recycling

Services v. U. S. Army Corps of

Engineers, decided June 6, 2016, the

same issue, whether landowners may

appeal directly to the courts if their prop-

erty is declared “wetlands” subject to

federal control, was addressed and the

judgment of the U. S. Court of Appeals

for the Fifth Circuit was vacated and

remanded for further consideration in

light of Scotus’ decision in Hawkes.

Given that the Hawkes decision was

unanimous, and given that these two

cases are literally the fifth and sixth time

that Scotus has slapped the hand of the

Corps over its interpretation of its juris-

diction, it would appear that the “democ-

ratic republic” that Tocqueville admired

and worried about continues to thrive.

For Alaska’s miners, as well as any-

one else in the country, the brash

methodology used by the Corps is to

make an “approved” jurisdictional deter-

mination finding that wetlands have a

significant nexus to waters of the United

States so that the applicant can begin a

very expensive and time-consuming per-

mitting process, which may result in the

denial of the permit. The approved juris-

dictional determination is reviewable

under the federal Act, “only if there are

no adequate alternatives to APA review.”

The Corps responded that the miner can

always proceed without a permit, and

risk civil and criminal penalties. Scotus

found that alternative inadequate.

According to Scotus a developer has the

right to challenge such jurisdictional

determinations immediately.

The high court’s opinion in Hawkes

was authored by Chief Justice Roberts;

however, separate concurring opinions

also were placed in the record. Justice

Kennedy, joined by Justices Thomas and

Alito, observed that ‘The [Clean Water]

Act … continues to raise troubling ques-

tions regarding the Government’s power

to cast doubt on the full use and enjoy-

ment of private property throughout the

Nation.” Justice Kagan separately con-

curred, emphasizing that the decision by

the Corps qualified as a final and there-

fore appealable decision. Justice

Ginsburg agreed with the majority that

the Corps’ jurisdictional determination

was “definitive” and had “an immediate

and practical impact” and therefore was

“final.”

This clear standard, hopefully, will be

taken to heart broadly by the Corps. To

paraphrase Tocqueville, we have no need

of a government that, in the name of

looking after us, is the absolute master

of our liberty and life. l

Mining & thelaw

The author,J.P. Tangen hasbeen practicingmining law in J.P. TANGENAlaska since 1975. He can be reached atjpt@jptangen.com or visit his Web site atwww.jptangen.com. His opinions do notnecessarily reflect those of the publishersof Mining News and Petroleum News.

exploration at the Richardson gold proper-

ty in Interior Alaska; general corporate pur-

poses; and property holding and mainte-

nance costs.

Australian junior eyeslarger VMS potentialof Bonnifield district

White Rock Minerals Ltd. June 9

reported that it has begun compiling histor-

ical geochemical and geophysical surveys

in order to define new high-grade zinc -sil-

ver exploration targets at the Red

Mountain volcanogenic massive sulfide

project in the Bonnifield District of central

Alaska. The company believes there is sig-

nificant potential to discover other VMS

deposits similar to the Dry Creek and West

Tundra Flats deposits that have already

been identified on the property. Significant

drill results from Dry Creek include 4.6

meters grading 23.5 percent zinc, 531

grams per metric ton silver, 8.5 percent

lead, 1.5 g/t gold and 1 percent copper; and

5.5 meters grading 25.9 percent zinc, 346

g/t silver, 11.7 percent lead, 2.5 g/t gold

and 0.9 percent copper. Significant drill

results from West Tundra Flats include 1.3

meters grading 21 percent zinc, 796 g/t sil-

ver, 9.2 percent lead, 10.2 g/t gold and 0.6

percent copper; and three meters grading

7.3 percent zinc, 796 g/t silver, 4.3 percent

lead, 1.1 g/t gold and 0.2 percent copper.

White Mountain said statistical analysis

suggests that the Red Mountain camp has

the potential for another large VMS

deposit similarly rich in zinc, silver and

lead, along with the potential for smaller

deposits that could be developed as a series

of smaller mines. Historical explorers and

the Alaska Division of Geological and

Geophysical Surveys have completed

numerous surface geochemical and geo-

physical surveys in the district, including

the roughly 17,500-acre Red Mountain

land package currently held by White

Rock. In addition, the DGGS completed an

airborne electromagnetics and magnetics

survey in 2007. White Rock has begun a

multi-disciplinary compilation of all avail-

able data sources of this district, combined

with an interrogation and interpretation of

the data. This work will use the power of

modern vector analysis and 3D processing

and will be directed towards defining a

combination of targets, including specific

extensions to the known mineralization as

well as district-wide targets. Jim Franklin,

a global VMS expert, has been engaged to

assist in the assessment of the data, partic-

ularly with regard to using modern vector

analysis of the geochemical data to identify

new exploration targets. Additionally,

Condor Consulting Inc. has been retained

to perform a detailed interpretation of the

electromagnetics and magnetics surveys.

White Rock anticipates that this work will

provide a pipeline of targets for further

field work in the coming months. And in

turn this work will define targets for drill

testing. White Rock CEO Matt Gill said,

“We are wasting no time in advancing the

Red Mountain project by using the exten-

sive historical data to define new drill tar-

gets that can be tested in the near term.

Using a combination of industry leading

experts, our aggressive approach reinforces

our belief that the Red Mountain VMS

camp will yield significant new discoveries

at a time when commodity prices, particu-

larly zinc, look to be on the up.”

Redstar Gold seeks new Unga targets

Redstar Gold Corp. June 8 reported the

start of an exploration program focused on

delineating new drill targets at the

Shumagin prospect of its Unga gold proj-

ect, located on Unga and Popof Islands just

off the Alaska Peninsula. Past trenching

and drilling in the Shumagin prospect area

has traced high-grade gold-silver veins for

more than 1,200 meters along strike and to

a depth of 330 meters. The company said

multiple dilation zones and coincident

gold-silver bearing breccia bodies that

have yet to be thoroughly tested exist

along strike Shumagin scarp. This year’s

program also will include detailed structur-

al mapping and drill targeting at Empire

Ridge, the southwest extension of the his-

toric Apollo gold mine. Up to 157 grams

per metric ton silver have been collected in

exposed vein gossans at Empire Ridge.

Quartz vein breccias sampled at the south-

ernmost exposure of the Apollo open

stope, roughly 500 meters northeast of

Empire Ridge, returned assays of 216 g/t

gold and 74.5 g/t silver. The company also

plans to carry out reconnaissance mapping

and sampling focused on identifying drill

targets at Orange Mountain, a roughly one

square kilometer (250 acres) alteration

zone that is interpreted to lie above an

epithermal system(s) that is an extension to

the Shumagin prospect to the southwest. l

11NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF JUNE 19, 2016

kinross.com

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Northwest zone with GroundTruth’s exclusive GT

Probe drill.; and conventional soil sampling at the

Eastern zone. Pending success, Stakeholder is planning

a phase II program for 2016 that will include rotary air

blast drilling of targets defined during the initial phase.

Strategic initial sweep of Yukon gold properties

Strategic Metals Ltd. June 13 reported the imminent

start of an initial phase of its 2016 exploration program

aimed at acquiring additional information at some of its

most prospective gold projects in the Yukon Territory.

“In 2015, Strategic made several promising discoveries

during brief property examinations. The phase 1 pro-

gram is designed to better assess the significance of

those discoveries,” said Strategic President and CEO

Doug Eaton. “Strategic has a stellar pipeline of gold

and/or silver projects including: 16 that are drill-con-

firmed and open to extension, 17 that host high-grade

showings but have not yet been drill-tested, and 44 that

are still considered to be early-stage prospects. Once

the phase 1 results are available, all of the projects will

be re-evaluated and selected targets will be drilled.”

Strategic is a project generator and the largest claim

holder in Yukon. The company currently holds

approvals for large drill programs at 11 of its projects

and has applications in process for another 12. All of

the company’s projects are wholly-owned and nearly all

have no underlying royalties attached to them. Strategic

is discussing potential options for some of the projects

with other parties and invites new inquiries. Strategic

has a current cash position of more than C$20 million

and significant shareholdings in a number of active

mineral exploration companies.

Millrock nabs high-grade Golden Triangle property

Millrock Resources Inc. June 10 reported the pur-

chase of Willoughby, a high-grade gold prospect in the

Golden Triangle region of Northwest British Columbia.

The 995-hectare (2,460 acres) claim block is located

three kilometers (two miles) east of the Red Mountain

gold project being developed by IDM Mining Ltd. and

eight kilometers (five miles) south of Millrock’s Poly

and LNT gold-copper properties. High-grade gold and

silver intercepts were reported by exploration programs

on the Willoughby property in the past, including: 20.5

meters of 25 grams per metric ton gold and 184.2 g/t

silver in a hole drilled in 1989; and 2.9 meters of 398

g/t gold and 199.4 g/t silver in a hole drilled in 1995.

“The prospect is in steep mountainous terrain on the

eastern edge of the Cambria Icefield. The terrain will

present challenges, but also opportunities. Glaciers have

been rapidly receding over the years since the last

exploration drilling work was done in 1995. Much

more may now be visible and accessible,” explained

Millrock President and CEO Greg Beischer. Millrock

has purchased a 100 percent interest in Willoughby

from Yukon prospector John Bernard Kreft for

C$40,000 and 300,000 Millrock shares. Millrock also

has agreed to pay C$40,000, or issue 200,000 Millrock

shares, Kreft’s option, upon completion of 2,500 meters

of drilling at the project; to pay C50 cents per ounce of

gold contained in an inferred resource for the property,

up to C$2 million, if a preliminary economic assess-

ment is completed; and to pay C$1 per ounce of gold

contained in reserves and resources, up to C$5 million,

if a decision to mine the project is made. Mine produc-

tion, if it occurs, will be subject to a 3 percent net

smelter returns royalty, which may be purchased in its

entirety for C$3 million at any time prior to the com-

mencement of commercial production.

Kaminak starts 2016 program,sets special buyout meeting

Kaminak Gold Corp. June 9 reported the start of a

C$2.6 million initial phase of the 2016 exploration pro-

gram at the Coffee Gold project in the Yukon Territory.

The program is designed to test resource expansion

potential proximal to the proposed mine site as well as

to further investigate priority gold-in-soil anomalies

identified during past exploration. Priority targets for

phase 1 include: expansion drilling at Supremo T3 and

Latte, two mineralized structures that jointly contribute

significant gold ounces in the current mine plan; sys-

tematic testing of early stage drill discoveries and over

gold-in-soil anomalies proximal to the proposed Coffee

Gold mine plan; and the testing of priority gold-in-soil

anomalies with trenching or drilling. A roughly C$2.4

million second phase of exploration is planned for later

this summer, contingent upon results of phase I.

Additionally, Kaminak has called a special meeting of

shareholders and option holders to be held on July 12 to

consider and approve a plan of arrangement by which

Goldcorp Inc. would acquire all of Kaminak’s issued

and outstanding shares in an all shares transaction val-

ued at about C$520 million. Kaminak’s board of direc-

tors has unanimously recommended that shareholders

vote in favor of the arrangement. l

continued from page 9

NEWS NUGGETS

continued from page 10

NORTHERN NEIGHBORS

12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JUNE 19, 2016

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By KAY CASHMANPetroleum News

Thanks to generous donations from

Lawer Estates and Alaska Airlines, a

grand prize drawing at the Alaska Oil and

Gas Association’s recent conference raised

just under $10,000 for Anchorage-based

Abused Women’s Aid in Crisis.

Jim Posey was the grand prize winner of

six round trip Alaska Airlines tickets and a

three night stay in the farmhouse at Lawer

Estates, a private vineyard in Knights

Valley, California, between Napa and

Sonoma.

Founded in Anchorage in 1977 as a safe

home for battered women and their chil-

dren, AWAIC offers some alarming statis-

tics:

•51 percent of women in Anchorage

have experienced intimate partner violence,

sexual assault or both in their lifetimes.

•On average, 24 people per minute are

victims of rape, physical violence or stalk-

ing by an intimate partner in the United

States — more than 12 million women and

men over the course of a year.

•American Indians and Alaska Natives

are 2.5 times as likely to experience violent

crimes – and at least two times more likely

to experience rape or sexual assault crimes

– compared to all other races.

•Children in the United States are more

likely to be exposed to violence and crime

than are adults.

•The majority of U.S. nonfatal intimate

partner victimizations of women (two-

thirds) occur at home. Children are resi-

dents of the households experiencing inti-

mate partner violence in 43 percent of inci-

dents involving female victims.

•Between 2003 and 2008, 142 women

were murdered in their workplace as a

result of intimate partner violence. This

amounts to 22 percent of workplace homi-

cides among women.

And the list goes on.

(http://www.awaic.org/about-abuse/the-

facts)

Fortunately, the volunteer group of

determined Anchorage women who estab-

lished the temporary emergency shelter for

women and children, evolved into the

AWAIC of today, offering both residential

and non-residential services and reaching

out into the community with information

and skill-building groups for participants.

AWAIC also provides community edu-

cation through public and school presenta-

tions.

In 1983, AWAIC opened the doors of its

present facility.

For the first time, all of AWAIC’s pro-

grams were in one building. The 52-bed

shelter allowed women and children a stay

of up to one month, with extensions

approved on a case-by-case basis.

“It is unfortunate that society needs a

domestic violence program. Given the

need, it is fortunate that a shelter does exist,

as well as an educational program for vic-

tims and their children. Only through the

awareness and efforts of many can we con-

tinue AWAIC’s services and hope to

achieve our goal of eliminating domestic

violence from our community,” the organi-

zation says on its website.

What does AWAIC have to say about its

fundraiser?

What is AWAIC going to do with the

nearly $10,000 donation from AOGA?

“The event was a great success and we

so appreciate AOGA choosing AWAIC,”

Suzi Pearson, executive director of the

organization, told Petroleum News June 15.

What will AWAIC do with the money

AOGA pulled in from conference attendees

with its Grand Prize drawing?

“The funds raised from the event will

support AWAIC’s mission to provide

domestic violence safe shelter and interven-

tion. Our 52-bed emergency shelter for

women and children is the largest in the

state and the only emergency shelter for

domestic violence victims in Anchorage.

AWAIC provides crisis intervention, case

management, transportation and more to

ensure victims have the opportunity to

achieve safety and success,” Pearson said.

“AWAIC provides a full continuum of

services for all victims of domestic violence

and every donation makes it possible to

help vulnerable individuals,” she added.

“Once again, thank you to all those who

participated and helped to show how our

community cares,” Pearson said. l

l A S S O C I A T I O N S

AOGA drawing raises $10,000 for AWAICAbused Women’s Aid in Crisis founded in 1977; funds will support mission to provide domestic violence safe shelter, intervention

PETROLEUM NEWS • WEEK OF JUNE 19, 2016 13

Marilyn Romano, regional vice president, Alaska, Alaska Airlines and Betsy Lawer of Lawer Estates listen as AOGA President and CEO KaraMoriarty gives conference attendees one last chance to donate to Anchorage-based Abused Women’s Aid in Crisis (AWAIC) before the grandprize drawing at the AOGA conference on May 25.

JUD

Y P

ATR

ICK

The original 1940s farmhouse at the 109-acre Lawer Estates vineyard is just minutes fromworld-class wine regions, hundreds of wineries, outstanding restaurants and farmers’ mar-kets. The farm house has a custom decorated kitchen, wood stove, pool and an outdoorpatio set among the vines and olive trees. The working vineyard has 20 acres of vines linedby an olive grove and apple orchard. The grapes are harvested each fall to make the goldmedal Lawer Family Wines.

LAW

ER E

STA

TES

14 PETROLEUM NEWS • WEEK OF JUNE 19, 2016

CELEBRATING 20 YEARS!

By KRISTEN NELSONPetroleum News

House Bill 246, which would estab-

lish a new fund at the Alaska

Industrial Development and Export

Authority for oil and gas infrastructure,

moved out of the House Finance

Committee June 15.

The bill had not been scheduled for the

House Floor when this issue of Petroleum

News went to press June 16.

The Senate version of the bill has not

moved in that body after a hearing before

Senate Resources in early April.

This is an administration bill. The gov-

ernor’s transmittal letter says the goal is

to create a new tool for AIDEA to use in

assisting small or medium-sized oil and

gas producers with infrastructure devel-

opment. Such companies can have a sig-

nificant impact on the state’s economy,

the letter says, but do not always have

access to the capital they need.

And to ensure that the state does not

bear too much of the development bur-

den, companies accepting AIDEA assis-

tance would not be able to “take, apply

for, or accept a gas exploration and devel-

opment credit or a production tax credit

from the State.”

The bill has been amended to specify

that participants in the financing “will not

take, apply for, or accept a tax credit for

expenditures on the oil and gas fields”

after the date of AIDEA’s financing com-

mitment. They would be eligible to

accept tax credits earned prior to the

AIDEA financing.

The bill was also amended to specify

that AIDEA “will not be responsible for

costs incurred in connection with disman-

tlement, removal, or remediation of the

oil and gas infrastructure development.”

InfrastructureAIDEA has three funds: a revolving

fund; the Sustainable Energy

Transmission and Supply Development

Program, SETS (its energy infrastructure

fund); and the Arctic Infrastructure Fund.

It also has special appropriations for the

Interior Energy Project and the Ambler

Mining District Industrial Access Project.

Existing projects and loans are weight-

ed to mining (20 percent), retail (11 per-

cent), maritime (10 percent), fuel distri-

bution (8 percent), tourism (8 percent),

oil and gas (8 percent) and oil and gas

support (6 percent).

Presentations on the bill by officials of

AIDEA and the Alaska Department of

Commerce and Economic Development

emphasized that AIDEA would not be

using the proposed fund to invest in the

risky downhole exploration portions of

projects, but only in the roads, pads,

camps, processing facilities, gathering

systems or other on-site improvements or

equipment needed for production. The

bill also provides that projects must sup-

port fields with proven reserves.

AIDEA would base interest rates on

project risk, borrower creditworthiness,

owner and financing partner commit-

ments and benefits to the state, and those

interest rates, because of inherent indus-

try risk, may be higher for oil and gas

infrastructure projects.

The bill also modifies financing limits

of existing funds to match the proposed

oil and gas infrastructure fund, proposing

that the three funds be able to loan up to

50 percent of an eligible project or offer a

loan guarantee of up to $25 million.

Existing limits are up to a third of the

project and up to $20 million.

The bill was amended in House

Finance to require that AIDEA obtain leg-

islative approval for a loan of more than

50 percent of the capital cost of a quali-

fied energy development or $100 million.

AIDEA finances at market-based rates

reflecting project risk; loans are repaid

with interest; AIDEA earns revenue,

some of which is paid to the state as a div-

idend and some of which funds future

projects.

Officials emphasized to legislators that

AIDEA essentially comes in at the con-

struction phase, basing its investment on

operating experience, capital contribu-

tion, final design plans and specifications,

complete permits, signed purchase agree-

ments and signed sales agreements.

What’s requiredMinor modifications of AIDEA’s regu-

lations would be required, but those

would be accomplished in-house and

would not require an appropriation.

Program implementation and manage-

ment costs would be absorbed.

Officials said they did not expect the

fund to be capitalized under the state’s

present fiscal situation, but said the fund

would provide AIDEA with a tool it could

use.

The fund would consist of monies

appropriated by the Legislature and

“unrestricted loan repayments, interest, or

other income earned on loans, invest-

ments, or assets of the fund.”

Legislators had expressed concern

about the ability of the AIDEA board to

transfer monies into the fund, but the

authority said the language in the bill was

similar to that for other funds and asked

that the oil and gas infrastructure program

be treated similarly. l

l G O V E R N M E N T

AIDEA program fund out of House FinanceBill would set up Oil and Gas Infrastructure Development Program Fund; bill hasn’t moved in Senate; not expected to be capitalized

The bill was amended in HouseFinance to require that AIDEAobtain legislative approval for aloan of more than 50 percent of

the capital cost of a qualifiedenergy development or $100

million.

PETROLEUM NEWS • WEEK OF JUNE 19, 2016 15

Sponsorship opportunities still available!For additional information and registration

visit akrdc.org or call 907-276-0700

2016 BP StatisticalReview of World Energy

Thursday, June 30, 2016

Growing Alaska Through Responsible Resource DevelopmentRESOURCE DEVELOPMENT COUNCIL

41develop an LNG project that could pro-

vide a supply of liquefied gas at an

assured price.

The Japanese entities wanted to own

the project, or most of it, to provide LNG

supply and price security instead of hav-

ing to buy LNG from others, including

the major North Slope producers who are

part of the Alaska LNG Project.

Another motivation for REI is that a

smaller LNG project can be built faster

than a large one like that proposed by

Alaska LNG. The company proposes to

build its plant as modules which are

based on currently operating designs.

REI’s most recent planning incorpo-

rated an Air Products and Chemicals Inc.

liquefaction process for its plant.

Once REI is established and has a

foothold in the Japan market it can be

expanded if North Slope gas becomes

available, Pease said. l

continued from page 8

REI ALASKA

Contact Tim Bradner at timbradner@gmail.com

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

Alyeska plans 36-hour pipeline shutdownBy KRISTEN NELSONFor Petroleum News

Alyeska Pipeline Service Co. has a 36-hour mainte-

nance shutdown planned for the trans-Alaska oil

pipeline and the Valdez Marine Terminal June 24-25.

In a June 13 statement the company, which operates

the pipeline for the owners, primarily BP Pipelines

(Alaska), ConocoPhillips Transportation Alaska and

ExxonMobil Pipeline Co., said Alyeska employees and

contractors will complete projects at various locations

along the 800-mile pipeline, from Pump Station 1 in

Prudhoe Bay to the Valdez Marine Terminal.

Planned maintenance shutdowns of the trans-Alaska

oil pipeline in summer are normal.

“Reliable TAPS operations are critical to the Alaska

economy,” Tom Barrett, Alyeska president, said in a

statement. “Major maintenance shutdowns help us sus-

tain our commitment to operating TAPS reliably and

safely which protecting Alaska’s environment.”

Work planned during the shutdown includes:

•Modification of piping at Pump Station 1 to use new

above-ground path for suction, discharge and mainline

pumps;

•Isolation of below-ground piping at the Valdez

Marine Terminal for internal integrity inspection using

new technology; and

•Annual inspection and maintenance of the Pump

Station 9 power substation.

Other work plannedAlyeska said it has other project and major mainte-

nance work planned for the upcoming months that will

take place during short-duration shutdowns lasting

between six and 10 hours.

Regular pipeline system shutdowns are conducted so

that Alyeska can perform maintenance projects that can

only be done while the pipeline is not in its regular oper-

ating state, the company said, allowing crews time to

work on projects simultaneously along the pipeline and

at the Valdez Marine Terminal.

North Slope workNorth Slope operators regularly do planned mainte-

nance in the summer in conjunction with the pipeline

shutdown and to take advantage of warmer weather.

For example, BP’s summer maintenance schedule is

already underway, company spokeswoman Dawn

Patience told Petroleum News in a June 15 email.

She said the company has one scheduled turnaround

at its Prudhoe Bay facilities this summer at the seawater

treatment plant, with work “focused on facility mainte-

nance, vessel repairs and other improvement projects.”

Summer maintenance is planned to take advantage of

milder weather and other temporary facility or pipeline

shutdowns to allow workers to safely work around

equipment, she said. l

Alyeska said it has other project and majormaintenance work planned for the upcoming

months that will take place during short-duration shutdowns lasting between six and 10

hours.

FINANCE & ECONOMYIEA: Oil unlikely to rise much further

The price of oil is unlikely to rise much further after rallying almost 90 percent

since January, as the global market shows signs of stabilizing, the International

Energy Agency said June 14.

The Paris-based agency, which advises the world’s

top oil consuming nations, nudged up its estimate for

global oil demand this year in its monthly report. It noted,

however, that supply and past inventories remain high.

“At halfway in 2016 the oil market looks to be balanc-

ing,” said the IEA in its monthly market report.

After touching a 13-year low in January, the interna-

tional price of oil has rallied to trade above $50 a barrel

in recent days and has struggled to advance any further.

On June 14, the Brent benchmark for international oil

was down 56 cents at $49.79 a barrel.

In its report, the IEA raised its forecast for world demand in 2016 to 96.1 million

barrels a day, up 0.1 million barrels from its previous prediction. It expects demand

to grow next year by 1.3 million barrels a day, the same as this year.

However, the IEA noted that large volumes of production remain affected by shut-

downs. That’s true particularly in Nigeria, where regional militants have blown up

pipelines, and Libya, which is struggling to emerge from conflict. When that oil starts

returning to market, it would boost supply, weighing on prices.

Inventories are also high globally after three years of overproduction, the agency

said. “This is likely to dampen prospects of a significant increase in oil prices,” its

report concluded.

—ASSOCIATED PRESS

In its report, theIEA raised its

forecast for worlddemand in 2016 to96.1 million barrelsa day, up 0.1 million

barrels from itsprevious prediction.

EXPLORATION & PRODUCTIONUS rig count rises 6, 2nd week of gains

The number of rigs drilling for oil and natural gas in the U.S. rose by six the

week ending June 10 to 414, the second consecutive week the count has increased

after a slide that lasted months and pushed the count to record-low levels amid col-

lapsed energy prices. A year ago, 859 rigs were active.

Houston oilfield services company Baker Hughes Inc. said 328 rigs were drilling

for oil and 85 for natural gas. One was listed as miscellaneous.

Among major oil- and gas-producing states, North Dakota and Texas each

gained two rigs and Alaska, Ohio, Oklahoma and Utah each gained one.

Pennsylvania declined by one rig.

Arkansas, California, Colorado, Kansas, Louisiana, New Mexico, West Virginia

and Wyoming were unchanged.

The U.S. rig count peaked at 4,530 in 1981.

—ASSOCIATED PRESS

Juneau Hydropower awaits project licenseThe company behind a proposed hydroelectric dam project in Juneau is one step

closer to beginning its operations after federal regulators determined it had

addressed environmental concerns surrounding the project.

Duff Mitchell, managing director of Juneau Hydropower, said the Federal

Energy Regulatory Commission has approved the company’s environmental impact

ALTERNATIVE ENERGY

see DAM PROJECT page 18

16 PETROLEUM NEWS • WEEK OF JUNE 19, 2016

Oil Patch Bits

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Companies involved in Alaska and northern Canada’s oil and gas industry

All of the companies listed above advertise on a regular basis with Petroleum News

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North Slope Telecom open house and annual BBQIn an era where technologies are constantly

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Second Foss arctic class ocean tug christenedFoss recently said that the second of three state-of-the-art arctic class tugs, the Denise

Foss, was christened June 1 at the Foss Waterway Seaport in Tacoma, Washington. Built atthe Foss Rainier, Oregon, shipyard, the Denise is designed to operate in the extreme condi-tions of the far north, and will enter service this summer.

In opening remarks Foss COO John Parrott applauded the hard work and dedication ofthe people, designers and customers that made this project possible. He also introducedDenise Tabbutt, the vessel’s namesake and one of the three sisters who are primary share-holders of Saltchuk, the parent company of Foss Maritime.

Tabbutt spoke at the event and had the honor of breaking the ceremonial bottle ofchampagne across the hull of the Denise Foss.

The Denise Foss is ice class D0, meaning the hulls are designed specifically for polarwaters and are reinforced to maneuver in ice. The first of the three arctic tugs, the MicheleFoss, debuted in 2015 and has performed above and beyond expectations. The Michelelead the way in safely pioneering a new route across the North Slope, while operating inextreme conditions of first year ice a meter thick.

Like the Michele, the Denise complies with the requirements in the ABS Guide for

see OIL PATCH BITS page 17

PETROLEUM NEWS • WEEK OF JUNE 19, 2016 17

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be some revisiting of it.

Petroleum News: The argument that prices are up sodon’t worry about it, do you see it as this is what got youin this situation in the first place?

Josephson: Yes, it’s exactly what got us into this posi-

tion. The Cook Inlet outlay was more expected.

Petroleum News: What was achieved that you sup-port?

Josephson: There is some new transparency language

that allows legislators to peak behind the curtain to see

which credits have efficacy and which credits that do not

have efficacy. There is some GVR language that is

frankly somewhat remarkable given that it is a change to

SB 21. There is a ramp down, albeit not as fast as I would

have liked, of the credit regime in Cook Inlet and even an

end of the net operating loss in Cook Inlet. So those are

the things that come to mind.

Petroleum News: Now that transparency issue, manylawmakers said they wanted clarity on what the state isreceiving for the credits. Do you think you’ll start gettingthat clarity moving forward?

Josephson: Yeah, I think so. You know I was asked

toward the end of a 90-day session to join a working

group that we kiddingly called a non-working group. We

were trying to fashion some sort of compromise on HB

247. The net result was a lot of discussion on Cook Inlet

and not much discussion at all on the North Slope. It’s

interesting that was sort of the result of HB 247 in the

final analysis as well.

So with the transparency, we had discussion with the

industry executives that were very candid and very

insightful, and they really gave us a sense of which types

of credit — be it a qualified capital expenditure or a well

lease expenditure — were useful, how much longer they

needed them, which were not useful, which could be

rolled back. So we had these candid and compelling con-

versations with industry executives about what was work-

ing.

One member said we can never go back. Meaning,

once you’ve seen — as I’ve said — what’s behind that

curtain, it makes you a better legislator. It may even make

you a better legislator in a way that it’s in the corporate

interest so you’re steering state investment and dollars

that’s best used.

This was the working group that became know

through a series of stories and was formed in the late

April timeframe. It was made up of Resource and Finance

members — a bipartisan group — that met with some

staff and tried to fashion a deal that could then make its

way through the House. Ultimately a bill was drafted by

the Rules Committee chairman (Craig Johnson). That bill

did not have sufficient support, but on the heels of that

bill, the Seaton-Wilson plan emerged.

Petroleum News: If it didn’t advance a bill, did it getyou closer?

Josephson: Rep. Seaton was on that working group, so

I think the Seaton-Wilson draft was a logical outcome of

what some of us saw as insufficient reform of the credits

that came out of the original working group of late April.

Petroleum News: What will it take for the state to havea stable regime at low oil prices, moderate oil prices andhigh oil prices?

Josephson: I’m reminded that if we can live off the

earnings reserve of the Permanent Fund, it will be less

important what revenue we receive from the oil industry.

That’s good and bad. It’s good that we can look after our

own interest in a direct way. Frankly that should be some-

thing the industry welcomes. I’ve been surprised, howev-

er, that the industry, just like a new chick that is going to

leave the nest and fly away for the first time, the industry

has mixed feelings about our economic separation from

it.

I think it should welcome our use of the earnings

reserve to sustain our own budgets in our own way, but at

the same time it wants to remind us that yet the industry

is vital to us and remains vital to us. It’s an interesting

paradoxical dance we are going through.

The reason I think this answers your question is that I

think if the focus comes off the industry a little bit, one

might think that would result in a more sustainable ulti-

mate bill on tax credits and tax rates as well. Once they

are set, they are sort of going to be set. They will not be

relied upon as the end all, be all.

I will say the one thing the industry might watch for is

the debate between SB 21 and ACES, which is mostly

engaged in not by freshmen and sophomores — I’m in

my second term — but by the old guard that really has

entrenched interests relative to that debate. That debate

whether SB 21 is the better bill or ACES was the better

bill never really reached a full climax in this legislative

session.

The reason is those who supported SB 21 made the

argument, I think convincingly, that at low prices we

actually received a little bit more revenue. The industry

should be watchful, however, when we get to higher

prices, then that debate could return because you might

see some dialogue what does this mean now at a higher

rate.

Are we taxing some other industry? Are we imposing

an income tax? Or is there some other part of the revenue

package that’s going on because we are not getting the

windfall we would have gotten under ACES. For the

record, I look at some of the ACES tax credits as overly

generous so I’m not overly beholden one way or another.

Petroleum News: OK, switching topics to AKLNG,how much do the low oil prices concern you as it relatesto the prospect of the AKLNG project? I realize there has-n’t been a lot of discussion on it.

Josephson: Well, I think broadly speaking, the afford-

ability and the economics improve when oil prices are

somewhat higher. In that respect I have concerns about

AKLNG because the prices are low. The sad part for me

about AKLNG, as a booster and backer of SB 138, has

been that I think the hope that came with that bill has

seriously waned. So you don’t hear much discussion

about it. You don’t hear much belief that this could really

happen. I still saw as late as a week ago something from

the AKLNG team that said yes, it’s summer time, we’ve

got people in the field, we are doing everything we

intended to do. I’m guilty of falling into the same cyni-

cism, some of it earned at this point that others have

about the future of AKLNG.

Petroleum News: Now they just hired Dan Fauske’sreplacement and at quite a price — more than $500,000— that’s a hearty paycheck. Does that concern you at allduring austere times?

Josephson: Not particularly. We have these sorts of

salaries for our Permanent Fund team as well. Not quite

this high. This is what the market bears. If I was forming

a major league baseball team, I would expect that my top

pitcher would earn a good salary.

That’s what top pitchers get paid. Similarly the direc-

tor of the Alaska Gasline Development Corp. should

receive a generous compensation package. That is the

nature of the work. So I’m not especially troubled by that.

I guess it does raise the question of how long are we

going to do this if we are not going to have a gas line. If

the gas line really doesn’t prove viable, then we need to

admit that to ourselves.

Petroleum News: Does it give you any confidence thatsomeone is willing to walk into a situation with the eco-nomic backdrop the way it is?

Josephson: I haven’t met with the individual that’s

been hired by the board. I don’t know quite yet what we

are going to get. It’s a job and I just hope the new director

has confidence and intelligence and he will do everything

possible.

Petroleum News: Pre-FEED is due for completion inthe fall. Is there anything you would like to hear from thepartners once pre-FEED is completed?

Josephson: Well, I’m not that anxious about that. The

reason is we are not going to go into FEED and be

responsible for billions of dollars unless they are, so I

don’t think there will be great exposure for the state. The

reason I’m less hopeful and less sanguine about it is that

the industry indicated during the January-February time-

frame that there would be some reconsideration essential-

ly, some re-visitation over the viability of all of this. After

that happened, frankly, most legislators, as I did, went to

work on the fiscal crisis. l

continued from page 5

JOSEPHSON Q&A

building and classing vessels intended to operate inpolar waters, including ABS A1 standards, SOLAS andgreen passport. She includes a Caterpillar C280-8 mainengine, which complies with the highest federal envi-ronmental standards; a Nautican propulsion system; andReintjes reduction gears. Markey Machinery supplied thetow winch. The tug has a bollard pull of 221,000pounds.

Editor’s note: Some of these news will appear inthe next Arctic Oil & Gas Directory, a full color maga-zine that serves as a marketing tool for PetroleumNews’ contracted advertisers. The next edition will bereleased in September.

continued from page 16

OIL PATCH BITS

“The sad part for me about AKLNG, as abooster and backer of SB 138, has been that I

think the hope that came with that bill hasseriously waned.”

—Rep. Andy Josephson, D-Anchorage

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early 2018 and start up “in 2018 or

later.” The company had initially fore-

cast starting up Nuna by late 2017.

Recent activityOver each of the three previous

plan-of-development cycles, Caelus

and its predecessor Pioneer Natural

Resources drilled five new develop-

ment wells at the Oooguruk unit.

While never as large a development

as the Prudhoe Bay, Kuparuk River or

Colville River units, the Oooguruk unit

has been a consistent site of develop-

ment drilling activities since produc-

tion began eight summers ago.

Between September 2015 and this

summer, Caelus drilled three new hori-

zontal wells and sidetracked an exist-

ing well at the unit, fracture stimulated

five existing wells and performed

workover operations on another three

wells.

All three wells and the sidetrack

were drilled into the Oooguruk Nuiqsut

participating area. The wells were

injectors (ODSN-06i, ODSN-07i and

ODSN-10i) to support existing produc-

ers, although an extended pre-produc-

tion period was planned for ODSN-06i

and ODSN-10i to assess reservoir per-

formance in specific corners of the par-

ticipating area. The sidetrack (ODSN-

01A) was drilled after a workover

failed to repair casing at the original

well. All four wells were hydraulically

fracture stimulated in the past year.

Toward the end of 2015, Caelus

requested a third expansion of the

Oooguruk Nuiqsut participating area,

which also proposed additional devel-

opment drilling. The company initially

met with state officials from the

Division of Oil and Gas in February

2016 to discuss the plan and met with

officials again in April to review the

plan again after announcing plans to

suspend drilling operations at

Oooguruk until oil prices increase.

The proposed expansion has yet to

be released for public comment. l

continued from page 1

CAELUS DRILLING

GOVERNMENTMore legacy well funds proposed

U.S. Sen. Lisa Murkowski, R-Alaska, has included money in the appropria-

tions bill for the Department of the Interior and related agencies for increased

funding for the Bureau of Land

Management to clean up legacy wells in

the National Petroleum Reserve-Alaska

drilled by the federal government between

1944 and 1982.

Murkowski secured significant funding

for legacy well cleanup in the Helium

Stewardship Act of 2013, but said in a

statement that nearly 30 wells will still

need remediation once that funding is

exhausted.

The new proposal would nearly double the requested amount for legacy well

cleanup, and would also compel BLM to craft a long-term strategy to complete

the effort.

Alaska House Majority Leader Charisse Millett, R-Anchorage, a proponent of

legacy well cleanup, applauded Murkowski’s efforts.

Millett said the Alaska Legislature has repeatedly asked through resolutions for

BLM to clean up and shut in the wells properly. She said the commitment of funds

in the bill for planning and repairs would make strides toward getting the money

and workers to address the problem.

—PETROLEUM NEWS

The new proposal would nearlydouble the requested amountfor legacy well cleanup, andwould also compel BLM to

craft a long-term strategy tocomplete the effort.

statement. He said they are now awaiting

a license to get the project up and running.

“We’ve gotten good marks, so to say, to

make sure that we’re building this project

properly,” Mitchell said.

The company has been working on

plans for about seven years to dam

Sweetheart Lake southeast of Juneau to

begin building the hydroelectric plant,

according to KTOO-FM

(http://bit.ly/25Q2lhZ).

The plant would power a heating sys-

tem designed to remove heat from the

Gastineau Channel and transfer it to

Juneau homes and businesses. Juneau

Hydropower would also be able to sell

power to large industries.

The company was required to look into

the project’s impact on marine life and

water quality. Mitchell said the environ-

mental impact statement was drafted with

input from state and federal agencies,

including the U.S. Forest Service and the

Alaska Department of Fish and Game.

—ASSOCIATED PRESS

continued from page 15

DAM PROJECT

l G O V E R N M E N T

Committee unsureabout PFD billLegislation would roughly halve Alaska’s more than $3 billiondeficit by drawing 5.25% of the Alaska Permanent Fund annually

ASSOCIATED PRESS

Members of an Alaska House com-

mittee have expressed uncertainty

about legislation that would allow the

state to draw from the Alaska Permanent

Fund to address its multibillion-dollar

deficit.

The House Finance Committee met

June 14 to consider the bill, which was

approved by the Senate earlier this month,

The Juneau Empire reported

(http://bit.ly/1UbB9bj).

The legislation would roughly halve

Alaska’s more than $3 billion deficit by

drawing 5.25 percent of the Alaska

Permanent Fund annually. Under the

fund’s current market value, that would

mean $1.92 billion from the Permanent

Fund’s earnings reserve would go to state

government.

Committee members cited concerns

from the public in their hesitancy to sup-

port the measure, which would reduce

annual dividend payments to $1,000.

“From what I can perceive, the public

isn’t fully accepting it,” said Rep. Bryce

Edgmon, D-Dillingham, who explained

that he’s received a “visceral” response to

the bill. “It seems to me that we don’t have

the consent of the public.”

By cutting the dividend in half over the

next three years, the bill would ultimately

save about $700 million per year, but Rep.

Lance Pruitt, R-Anchorage, questioned

where that money should end up.

“We are deciding who to give this $700

million to: Do we give it to the public, or

do we give it to those who are associated

with the government?” Pruitt said.

Hoffbeck: Action needed this yearRevenue Commissioner Randall

Hoffbeck said he understood the lawmak-

ers’ concerns, but he warned them that

action on the state budget is needed this

year. He said the state is at risk of exhaust-

ing the remains of its Constitutional

Budget Reserve and would be forced to

begin spending from the Permanent Fund

earnings reserve, the same account that

pays dividends.

“In another two years (that) would be

exhausted. At that time, the projection is

Permanent Fund dividends would go

away. That’s in about 2023,” said David

Teal, director of the Legislative Finance

Division, which assists the Legislature on

financial matters.

Several legislators the June 14 hearing

asked what would happen if the House

opted not to vote on the bill.

“I would expect that we might visit

again,” Hoffbeck said, implying that Gov.

Bill Walker would call legislators into

another special session.

Rep. Steve Thompson, R-Fairbanks

and co-chairman of the finance commit-

tee, responded, “Calling us back isn’t

going to change our constituents’ attitudes

or the way we’re going to vote.”

The bill still needs approval from the

House committee before heading to the

full House for a vote. Walker has indicated

he would sign off on the legislation if it

reaches his desk in its present form. l

Revenue Commissioner RandallHoffbeck said he understood the

lawmakers’ concerns, but hewarned them that action on thestate budget is needed this year.

He said the state is at risk ofexhausting the remains of its

Constitutional Budget Reserve andwould be forced to begin spending

from the Permanent Fundearnings reserve, the same

account that pays dividends.

He said that having escorts operate

from the gateway to the Port of

Vancouver to a point 10 miles west of

Vancouver Island would mean that tug

assistance would be immediately avail-

able to any vessel that lost power.

In addition, pilots would be disem-

barked by helicopter.

Christianne Wilhelmson, executive

director of the Georgia Strait Alliance, a

watchdog organization, welcomed “any

efforts to reduce the possibility of an acci-

dent,” but said Kinder Morgan’s latest

offer “does not deal with the myriad of

other problems” linked to the company’s

increase in tanker traffic to 34 a month

from the current five.

Government clashesHowever, that gesture by Kinder

Morgan was quickly swallowed by inten-

sified clashes between governments,

sparked largely by Vancouver Mayor

Gregor Robertson and three regional First

Nations leaders who traveled to Ottawa to

lobby against the C$6.8 billion pipeline

project.

In particular, Robertson warned of the

dangers inherent in increasing the volume

of tankers, urging Prime Minister Justin

Trudeau and his cabinet to reject the

National Energy Board’s recommenda-

tion for government approval.

He said there is overwhelming opposi-

tion from First Nations and Metro

Vancouver communities to a project that

could put “hundreds of thousands of jobs

at risk” and cost up to C$3 billion in dam-

age in the event of a spill, while primarily

benefitting a “Texas oil empire.”

Calgary Mayor Naheed Nenshi retali-

ated that it was “not helpful (of

Robertson) to scare people using numbers

completely out of context or based on no

facts at all. Let the regulator do its job.

This kind of political interference is not in

fact helpful.”

Robertson stepped up the spat by

telling Trudeau he would “absolutely”

pay a political price if the federal cabinet,

under pressure from Alberta to help that

province’s struggling economy, gave

Kinder Morgan the go-ahead.

He said Nenshi’s comments were not

“helpful ... we need a dialogue across

Canada on these energy issues.”

Saskatchewan viewAlso joining the fray was

Saskatchewan Premier Brad Wall, mock-

ing Hollywood celebrities who object to

oil sands development and the federal

New Democratic Party which wants

Canada to phase our fossil fuels within a

generation.

It all amounts to an “existential threat

to the (petroleum) industry” and its con-

tributions to financing health care and

education.

Wall said the industry spends billions

of dollars meeting environmental regula-

tions and reducing greenhouse gas emis-

sions, while being characterized as “heed-

lessly plundering and despoiling the envi-

ronment,” conveying a message that

resource-dependent provinces have been

a “bit flat-footed” in defending the oil

sector.

He carried that message to Quebec

Premier Philippe Couillard, who is direct-

ing some of the strongest opposition to

TransCanada’s C$15.7 billion Energy

East pipeline to an export point in New

Brunswick.

Wall said that pipeline is expected to

generate C$55 billion in economic bene-

fits for Canada, including C$9.3 billion

for Quebec.

Alberta Premier Rachel Notley said

advocating for Trans Mountain will be

one of her top priorities this summer, as

she highlights Alberta’s aggressive cli-

mate change initiatives, including a cap of

100 million metric tons on oil sands emis-

sions, Kinder Morgan’s safety record and

the economic benefits for Alberta and

British Columbia.

“I’m simply going to say the merits (of

Trans Mountain) outweigh the arguments

against it,” she said.

—GARY PARK

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There remain 77 federal Beaufort Sea

leases on the outer continental shelf.

Three of these leases are associated with

the Northstar oil field, owned and operat-

ed by Hilcorp Alaska and straddling state

and federal waters. Two leases contain the

undeveloped Liberty oil field, owned by

Hilcorp and BP. Hilcorp, the operator, has

plans to develop this field.

Shell, the sole owner of 42 of the

remaining Beaufort Sea leases, all of

them scheduled to expire at the end of

2017, has said that it has no plans to

explore in the Arctic offshore in the fore-

seeable future.

That leaves 30 leases owned by vari-

ous combinations of Eni Petroleum U.S.,

Repsol E&P USA and Shell — all of

these leases are also slated to terminate in

December 2017. Eni has been discussing

plans with federal regulators for the

potential drilling of extended reach wells

into federal leases north of the existing

Nikaitchuq oil field, in state waters off the

central North Slope. Repsol is engaged

with Armstrong Oil and Gas in a potential

major oil development onshore the North

Slope but, otherwise, has stepped back

from its earlier interest in Arctic Alaska

exploration.

NPR-AFederal land onshore shows a more

nuanced situation.

There is considerable interest in the oil

and gas potential of the northeastern cor-

ner of the federally administered National

Petroleum Reserve-Alaska, where

ConocoPhillips, partnered by Anadarko

Petroleum, is executing a multiyear

exploration and development campaign,

extending west from the Colville River

Delta area and involving the CD-5 drill

site, development in the Greater Mooses

Tooth unit, and new exploration drilling.

Repsol, 70 & 148 LLC and GMT

Exploration Co. also have leases in this

area, along the boundary with state leases

to the east.

Elsewhere in NPR-A previous lease

positions have shrunk considerably in

recent years, especially following a series

of lease relinquishments and expiries in

the late 2000s. In the Umiat area, in the

southeast of the reserve, Renaissance

Alaska holds two leases over the undevel-

oped Umiat oil field, while groups of pri-

vate investors hold three leases to the

immediate north. Renaissance is wholly

owned by Linc Energy, the company

which has been trying to develop Umiat.

There are a few other leases in three

widely separated areas across NPR-A. A

set of leases to the southwest of Smith

Bay is owned by Nordaq, with blocks of

leases elsewhere owned by Golden Eagle

Petroleum. l

—A copyrighted oil and gas lease mapfrom Mapmakers Alaska was a researchtool used in preparing this story.

continued from page 1

FEDERAL ACREAGE

continued from page 1

PIPELINE FEUDING

merly with Schlumberger.

Other partners, with backgrounds in

industry or advanced computer analytics,

are in Houston, London and Trondheim,

Norway.

Philip Wade, based in Houston is for-

merly with Halliburton; Pablo Maestro is

in Norway, Thibault Doulas is in Norway,

Tom Mundheim is in Houston. Adrian

King and Frode Sormo are in London and

have significant background in analytics.

Pilot testingThe technology the company has devel-

oped is now being pilot-tested on a drill rig

working for Hess Corp. in North Dakota.

Hess is interested because rigs tend to burn

through mud motors and other equipment

quickly in the tough conditions in the

Bakken, Larkin said.

Larkin and Kallestad are now in discus-

sions with potential commercial customers

in Alaska.

DataCloud’s technology doesn’t replace

rig operators’ existing systems but is a sup-

plement, Larkin said. “We’ve also

designed it as a plug-in, so it doesn’t dis-

rupt what the operators are now using. Our

system just shows up as a new item on the

drillers’ control panel,” Larkin said.

Company managers in corporate offices

who monitor the rigs will also have access.

Drilling rigs are one potential customer

for DataCloud; operators of oil and gas

process plants are another. Larkin is also in

contact with trucking fleet operators.

On its current testing program with

Hess Corp. in the Bakken, DataCloud has

been receiving streamed data from a rig

since January and analyzing it in real time.

DataCloud writes algorithms that monitor

the streaming data to predict future drilling

problems. “The algorithms are able to ‘see’

problems before humans see them. It could

be a bit wearing out or a vibration,” Larkin

said.

The data shows the problems and the

conditions that led up to them. “We can

apply our algorithms to historic drilling

mechanics data from legacy wells to show

potential clients that our software would

have spotted drilling tool failures before

they occurred.” Kallestad said.

The partnershipDataCloud’s partners came together in

an unusual way. Larkin became interested

in potential applications of algorithm-

based analyses in the energy industry based

on his experience using advanced analytics

in political polling to predict voter behav-

ior.

Dittman Research was engaged in the

“No on 1” campaign in 2013, an industry-

supported effort to defeat an Alaska ballot

proposition that would have been harmful

to oil and gas development.

This was where Larkin first saw the

effectiveness of using algorithm-based

analysis to make predictions, and it was

very successful. But applying it to mechan-

ical systems, and Larkin’s first idea was in

truck fleets, was an intuitive leap.

“The underlying technology was suc-

cessful in showing up how voters will

behave, but applying this to when a

machine might break was an ‘aha’ moment

for us,” Larkin said.

Potential applicationsAfter local entrepreneur John

Wannamaker introduced Larkin and

Kallestad, the potential applications in the

energy industry took priority.

Advanced analytics is widely used in

financial markets, risk-analysis, health care

and even parts of the energy, but applying

it to machinery seems like a new idea.

It’s also a puzzle why oil and gas opera-

tors aren’t already doing this, but Kallestad

puts this down, at least partly, to the conser-

vative nature of the industry and its healthy

skepticism of new ideas where there are

perceived risks.

Kallestad said the risks are low, howev-

er. “This is really only a support tool.

Humans are still in charge. The drilling per-

sonnel at the rig site ultimately decide

whether or not to act on our recommenda-

tions,” he said.

Microsoft interestedMicrosoft, meanwhile, has became

interested in what DataCloud is doing, see-

ing potential for broadening that compa-

ny’s reach into the energy industry. Larkin

met with Microsoft officials and technical

teams in Seattle and Houston, and a rela-

tionship developed.

In Houston the two discovered that oth-

ers, some who are now the Texas and

European partners of DataCloud, were pur-

suing the same idea and had developed a

basic application, also persuading Hess to

give it a try, which led to the pilot testing

now underway.

“They (the other partners) brought what

they had done and the relationship with

Hess to the table. We brought the relation-

ship with Microsoft and our contacts in

Alaska,” Larkin said.

With Alaska’s industry buffeted by low

oil prices it would not appear to be the best

time to roll out new technology applica-

tions but these conditions also make opera-

tors acutely sensitive to costs and ways of

reducing maintenance by better monitor-

ing, Larkin said.

Also, seasoned industry managers know

that prices will improve and industry activ-

ity will up again. However, in the mean-

time layoffs and workforce reductions have

cut into the pool of experienced workers.

When activity picks up there will be

fewer experienced people on the rigs,

which is a concern to companies and

drilling contractors.

Larkin sees the analytic tools being

developed by DataCloud as a way of stor-

ing accumulated knowledge that will be

“guide rails” for new-hires. l

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continued from page 1

COMPUTER SYSTEM

evidence for an active oil and gas system.

Natural gas, if found, could presumably

be used to fuel a power station on the

nearby Alaska electricity grid or could

perhaps be shipped by pipeline to

Fairbanks. Oil could presumably be

shipped to a convenient point on the

trans-Alaska pipeline.

“We are beyond pleased to be partner-

ing with CIRI in our exploration efforts,”

said Aaron Schutt, president and CEO of

Doyon. “CIRI’s commitment speaks to

the potential of a commercial-sized oil or

gas find in the Nenana basin and their

confidence in our efforts so far.”

“We are excited about this new part-

nership with a fellow Alaska Native cor-

poration,” said Sophie Minich, president

and CEO of CIRI. “The Nenana basin

offers a promising opportunity to meet

the energy needs of interior Alaska and

provide additional benefits to our share-

holders.”

Doyon owns about 400,000 acres of

state oil and gas leases in the basin, as

well as owning subsurface mineral rights

to an additional 42,000 acres.

—ALAN BAILEY

Contact Tim Bradner at timbradner@gmail.com

continued from page 1

NENANA PARTNERSHIP