Munoz says budget first, restfollows; gas line progress a must

page3

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Borough hikes Red Dog tax; Teck,NANA urge officials to negotiate

NEWS NUGGETSCompiled by Shane Lasley

Ketchikan-based Orca Holdings nabsa 10% stake in Ucore Rare MetalsUcore Rare Metals Inc. Jan 15 said two U. S.-based

investors have exercised their right to convert their investments

in a royalty related to the processing of rare earth elements and

other specialty metals into common shares of the company. The

royalty would have been paid on sales and income associated

with the Ucore’s first installation utilizing molecular recogni-

tion technology. The US$5.3 million the investors paid for the

royalties will be converted at a rate of C25 cents per Ucore

share, resulting in a total of 30,470,760 shares being issued.

The majority of those shares (81 percent) are owned by Orca

Holdings LLC, a Ketchikan, Alaska-based enterprise controlled

by Ucore advisory board member Randy Johnson. The transac-

tion resulted in Orca becoming a 10 percent shareholder of

Ucore, and Johnson is now a reporting insider of the company.

Johnson believes the best way for Orca and its shareholders to

benefit coming from the upside of Ucore, especially at current

U. S.-Canadian dollar exchange rates, is to convert its royalties

into company shares. “Orca has elected to convert its royalty

into shares for many reasons, all of which have to do with our

very strong belief in Ucore as an emerging leader in the global

rare metals business,” explained Johnson. "”Orca is going long

on Ucore, and we believe that the most effective way to obtain

appreciation in our investment is via equity as opposed to a

debt (royalty-based) position.” Johnson said Orca is committed

to retaining its position in Ucore over a number of years.

“We’re extremely pleased to welcome Mr. Johnson as a report-

ing insider of Ucore,” Ucore President and CEO Jim McKenzie

said. “Randy has built an impressive industrial resume in

Alaska and beyond, and his experience in company-building

will be a significant asset and resource to us as Ucore enters its

early production phase.”

Usibelli employees end 2015 unscathedUsibelli Coal Mine Inc. Jan. 15 commended its 115 employ-

ees for reaching the important milestone of no lost-time injuries

during 2015. “The employees of UCM have dedicated them-

selves to safety awareness and communication. Every employ-

ee practices it every day, resulting in achieving a year and a half

without any lost-time accidents. It’s a true team effort and a

milestone we’re all proud of,” UCM President Joe Usibelli Jr.

said. This milestone sits in the midst of a run of more than 550

consecutive days without a lost-time injury. “To reach this goal

requires an enormous amount of time and energy to implement.

We have established a safety culture in the workplace and

encourage the same awareness on the home front,” explained

UCM General Manager Alan Renshaw. While proud of the cur-

rent safety milestone, UCM Safety Director Matt Nelson has

loftier targets for employees of the Usibelli Coal Mine in Healy,

Alaska – break the 797-day record set by the company in 2006.

Usibelli Coal Mine, a fourth generation, family-owned, all-

Alaskan business, said it will produce 1.3 million short tons of

ultra-low sulfur, subbituminous coal in 2016.

IG finds no evidencePebble says EPA watchdog’s findings belie record of bias, predetermination

By SHANE LASLEYMining News

After 17 months of investigation, the U.S.

Environmental Protection Agency Office of

Inspector General said it could find no evidence

that the federal agency was unfair while conduct-

ing an assessment of the Bristol Bay Watershed.

The conclusion, however, runs counter to those of

others who have reviewed the case.

The EPA’s Bristol Bay Watershed Assessment is

a study of the potential risks large-scale mining

might pose to the abundant fish resources in the

Bristol Bay region of Southwest Alaska.

“Based on available information, we found no

evidence of bias in how the EPA conducted its

assessment of the Bristol Bay watershed, or that

the EPA predetermined the

assessment outcome,” the IG

office penned in the 30-page

report.

Pebble Partnership CEO

Tom Collier said the findings

sharply contrast with the

reams of evidence that the

State of Alaska, his company

and others provided to the

watchdog.

“I have never seen an IG report that I thought

was as poorly done as this one,” the longtime

Washington D.C. insider told Mining News Jan.

18.

The publication of the brief report by the EPA’s

internal investigative body sets the stage for argu-

ments in an ongoing federal trial as well as contin-

ued U.S. Congressional committee probes into the

EPA’s potentially illegal activities.

No bias found?Though EPA IG office said it found “no evi-

dence of bias or predetermination” in the EPA’s

conduct, a number of documents uncovered by the

U.S. House Oversight and Government Reform

Committee and turned over to the inspector gener-

al prior to its investigation appeared to show that at

least some upper level officials in the EPA had

decided as early as 2010 that development of a

mine at Pebble needed to be stopped and was look-

ing for the best avenue to achieve this goal.

One such document brought to light by the

House watchdog is a December 2010 request for

funds to “initiate the process and publish a CWA

404(c) ‘veto’ action for the proposed permit for the

Pebble gold mine in Bristol Bay.”

In making the request for 2011 funds, the EPA

Office of Water budget wrote: “While resorting to

exercising EPA’s 404(c) authority is rare (only 12

actions since 1981), the Bristol Bay case repre-

sents a clear and important need to do so given the

nature and extent of the adverse impacts coupled

with the immense quality and vulnerability of the

fisheries resource.”

Of the thousands of pages of documents handed

over to the EPA Inspector General Office, this is

one of only a handful referred to in the report. The

watchdog, however, said this is evidence that

though EPA staff were discussing the potential of

initiating a Section 404(c) review of Pebble, it

does not demonstrate that a conclusion to this

process had yet been determined.

“There were EPA staff and managers who were

considering a CWA Section 404(c) process prior to

the EPA’s official announcement to conduct the

assessment, but we did not uncover any evidence

of a predetermined outcome in any of the docu-

ments or emails we reviewed or interviews we

conducted,” according to the report.

An internal EPA worksheet listing the pros and

cons of a pre-emptive CWA Section 404(c) review

of Pebble versus letting the project go into permit-

ting, however, seems to show that upper level EPA

officials were discussing the best way to stop

development of the enormous copper project using

this process.

The top drawback listed in the con column of

this 2010 “discussion matrix” was that a proactive

404(c) determination had “never been done before

in the history of the CWA.”

The agency listed political backlash and litiga-

tion risks as other potential negative outcomes of

attempting to use 404(c) to stop Pebble prior to

permitting. The document suggests that some form

of public process would help deflect some of this

backlash, which is the route the agency ultimately

took in the form of the Bristol Bay Watershed

Assessment.

The document also said that a pre-emptive

404(c) decision at Pebble could serve “as a model

of proactive watershed planning for sustainabili-

ty.”

Pebble CEO Collier said this statement sheds

some light into EPA’s motivation.

“They want to zone watersheds,” he explained.

North acted alone?One thing that the Pebble Partnership and the

EPA Inspector General agree on is the activities of

Phil North, a former Alaska-based EPA biologist,

who worked inappropriately closely with parties

opposed to developing a mine at the Pebble

deposit.

“We did find that an EPA Region 10 employee

used personal non-governmental email to provide

comments on a draft Clean Water Act Section

404(c) petition from tribes before the tribes sub-

mitted it to the EPA,” the EPA Inspector General

wrote.

The investigative body said it could find no evi-

dence that North’s involvement in editing the peti-

tion was known by his superiors.

“The report concludes that no one at EPA knew

that Phil North was engaging in this improper con-

duct with environmental activists; we have emails

that show almost a dozen people did,” Collier said.

This evidence indicates that EPA management

as high as Dennis McLerran, the administrator for

region 10, which includes Alaska, was aware of the

close relationship between North and Pebble

antagonists.

A January 2010 briefing for then EPA

Administrator Lisa Jackson shows that during the

same time that North was helping Pebble antago-

nists draft the petition, officials in EPA’s

see PEBBLE REVIEW page 12

TOM COLLIER

Ketchikan, Alaska-based Orca Holdings now owns 10 percent ofUcore Rare Metals, the company hoping to develop a mine at theBokan Mountain rare earth project located about 40 miles south-west of Ketchikan on Prince of Wales Island.

UC

OR

E R

AR

E M

ETA

LS I

NC

.

This week’s Mining News

The Pebble Partnership reacts to the EPA’s Inspector General reporton the contentious Bristol Bay Watershed assessment. Page 9.

Celebrating 20 years: 1996-2016

Tax changes upGovernor proposes 5% base, tax credit changes, AIDEA development lending

By KRISTEN NELSONPetroleum News

The Alaska Legislature, which gaveled

in Jan. 19, is tackling the state’s budg-

et problems, beginning with a review of

Gov. Bill Walker’s proposed budget. As

part of tackling budget problems caused by

the dramatic drop in crude oil prices and

the continuing decline in crude oil produc-

tion in the state, the governor has proposed

changes in the state’s oil and gas tax system designed

to save the state money.

And in an effort to replace some of the support to

small- and medium-sized oil and gas companies

presently using the state’s oil and gas cred-

its, Walker is also proposing that the

Alaska Industrial Development and

Export Authority be authorized to support

oil and gas development in the state.

In a transmittal letter to the Legislature

for the tax change bill, Senate Bill 130 and

House Bill 247, the governor said the four

elements in the bill would protect the

state’s fiscal future “while instituting cau-

tious reforms in the oil and gas tax credit

system.”

Elements of the bill include simplifying the oil

and gas tax system by repealing “numerous narrowly

Smith Bay plan gets OKDOG OKs Caelus plan for second exploration well in the Tulimaniq leases

By ALAN BAILEYPetroleum News

Alaska’s Division of Oil and Gas has approved

Caelus Energy’s plan of operations for the sec-

ond of two exploration wells that the company plans

to drill in the shallow waters of Smith Bay this winter.

The drilling location is near the mouth of the

Ikpikpuk River, about 59 miles southeast of Barrow.

Both wells form part of what is referred to as the

Tulimaniq exploration project. The first well, the CT-

1 well, is being permitted under an amendment to an

existing plan of operations, while the newly approved

plan of operations relates to the second well, the CT-

2 well.

Caelus became operator of the Tulimaniq project

in June after acquiring a 75 percent interest in the

Tulimaniq leases from NordAq Energy. NordAq, pre-

viously the sole lease owner, had originally planned

to drill a single Tulimaniq well in the winter of 2014-

15 but deferred the drilling plan.

The wells will primarily be stratigraphic test

wells, designed for the collection of rock cores and

the conducting of vertical seismic profiling. Well test-

ing may be conducted if oil is encountered.

A few years ago FEX, a subsidiary of Talisman

Energy Inc., commissioned a seismic survey in Smith

Bay as part of an exploration project in the region.

The geology of the Smith Bay area, although remote,

appears very prospective for oil. There are known oil

Applying the brakesAlberta to slow royalty plan release among tumbling crude, currency values

By GARY PARKFor Petroleum News

New realities are starting to penetrate the

Alberta government’s inner circle which is

drafting its 2016-17 budget while pondering how

far to go in implementing royalty changes.

In December, Premier Rachel Notley disclosed

there would be a “relatively small” delay in the

planned release of a report from a review panel

from Dec. 31 to “early January.”

“People are looking for the outcome sooner

rather than later,” she said, adding her government

did not want to “kick something out the door that’s

not ready.”

“Later” has now become the operative word as

the roiling of crude markets shows no signs of end-

ing and a rapidly weakening Canadian dollar heads

into unknown territory.

The clearest shift has been away from commit-

ments during last spring’s election campaign that

Albertans would receive the “full and fair value”

from their natural resources to hints that the royal-

ty regime will remain unchanged until at least the

Miller Energy, SEC work towardsettlement of enforcement action

Miller Energy Resources Inc. is trying to finalize an enforce-

ment settlement with the U.S. Securities and Exchange

Commission.

The matter is bound up in Miller’s Chapter 11 bankruptcy

reorganization now pending in Anchorage.

The SEC issued a Jan. 12 order making certain findings and

imposing a $5 million civil penalty against Miller as part of a

settlement.

“This case involves financial accounting and reporting fraud,

as well as audit failures, related to the valuation of certain oil and

gas assets acquired by Miller Energy,” the order says.

Those assets, along the west side of Alaska’s Cook Inlet,

A cost question for the Railbelt;debate continues over grid reform

The question of how best to manage the Alaska Railbelt’s

power transmission grid has long been a subject of debate.

And, with the Regulatory Commission of Alaska having this

summer recommended the use of an independent transmission

company to manage the grid, and with the Railbelt electric

utilities engaged in a voluntary project aimed at grid manage-

ment reform, matters seem to be coming to a head.

The primary purpose of grid reform is to reduce the cost of

electricity for Railbelt consumers through the optimum use of

available power generation facilities, while also ensuring that

acceptable levels of power supply reliability are sustained. As

it currently stands, the grid infrastructure is aging and has sin-

gle points of failure. Because of limited transmission capabil-

ities, the grid tends to become congested, thus limiting the

see MILLER ENERGY page 18

see GRID DEBATE page 18see ROYALTY PLAN page 20

see SMITH BAY page 19

see TAX CHANGES page 15

GOV. BILL WALKER

“We’re sitting at historic lows for drillingactivities ... and for employment

opportunities. This is not a time foruncertainty.” —Mark Scholz, president,Canadian Association of Oilwell Drilling

Contractors

2 PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

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

Alaska’sOil and GasConsultants

GeoscienceEngineeringProject ManagementSeismic and Well Data

3601 C Street, Suite 1424Anchorage, AK 99503

(907) 272-1232(907) 272-1344

www.petroak.cominfo@petroak.com

ENVIRONMENT & SAFETY

EXPLORATION & PRODUCTION

FINANCE & ECONOMY

GOVERNMENT

7 Hilcorp requests changes at Deep Creek

Requests 400-acre expansion of Happy ValleyBeluga/Tyonek gas pool, also vertical extension;hearing tentatively set for Feb. 24

3 Munoz: Budget first, the rest follows

House Finance Committee member says new fiscal planis a legislative priority, but gas line progress still a must

14 Coast Guard publishes icebreaker specs

Hopes for funding in 2017 federal budget to addressshortfall in U.S. strategic heavy icebreaker capabilities in polar regions

14 China sets trade rules

Canada told free-trade pact hinges on pipelinesto Pacific Coast, removal of ban on Chinese oil asset ownership; Trudeau plans trip

13 State OKs Doyon Nenana seismic survey

Native corporation plans to infill some previousreconnaissance surveying as part of a search for oil and gas in the basin

INTERNATIONAL

8 Houston Willow license comments sought

Oil and gas exploration license proposal from 2007again out for public comment; this part of bestinterest finding procedure

LAND & LEASING

PIPELINES & DOWNSTREAM

5 Interior Energy Project reports progress

Moving toward decision on LNG supply for Fairbanksfrom either the North Slope or Cook Inlet; prototype LNG trailer being tested

4 Gateway in a mess

BC Supreme Court delivers setback to Enbridge, rulesprovincial government failed to meet obligationsto consult with First Nations

6 BC rejects Trans Mountain

Provincial government says Kinder Morgan has failedto meet its safety conditions, but company insists pipeline plan isn’t dead

NATURAL GAS

15 Go ahead on Barents offshore fields

15 No substantial new information for lease sales

14 Conoco plans Kuparuk drilling annex pad

14 Suncor lands COS deal

4 Earthquake forces fracking shutdown

8 State approves Pikka unit plan

Miller Energy, SEC work towardsettlement of enforcement action

A cost question for the Railbelt;debate continues over grid reform

Tax changes up

Governor proposes 5% base, tax credit changes, AIDEA development lending

Smith Bay plan gets OK

DOG approves Caelus plan for second exploration well in the Tulimaniq leases

Applying the brakes

Alberta to slow royalty plan release among tumbling crude, currency values

ON THE COVER

By STEVE QUINNFor Petroleum News

House Rep. Cathy Munoz may rep-

resent a Juneau district nowhere

near the path of the projected natural gas

pipeline that would deliver gas from the

North Slope to tidewater in Nikiski, but

she and others on the House Finance

Committee keep a watchful eye on the

state’s prospects of a gas line project

coming to fruition.

Fresh off a special session to sever

ties with TransCanada, the Juneau

Republican says while the budget

remains a priority, the gas line remains

vital to the state’s future. In a recent

interview, immediately before the

Legislature gaveled in, Munoz offered

her thoughts on prospective develop-

ments with the gas line and possible

changes to the oil tax credit system.

Petroleum News: You’re fresh off spe-cial session, and even some develop-ments since then. Before discussingwhat’s ahead, what is your take on thespecial session and what transpiredsince then?

Munoz: I think the special session

was very well executed. The committees

on both sides — the Senate Finance

Committee and the House Finance

Committee — asked thorough questions.

We got a very full record of discussion

and support around the TransCanada

buyout.

Petroleum News: What about con-cerns among some members over a per-ceived lack of communication and trans-parency, or a sense that not everyonewithin the administration was on thesame page?

Munoz: When Gov. Walker came into

office there were some changes immedi-

ately with the direction of the gas line,

particularly in the membership at the

AGDC board. When the summer unfold-

ed, there were other changes, potential

changes and the discussion of changes

that caused a great deal of concern

among many legislators. One was the

route of the pipeline. The second was the

possibility of implementing a gas

reserves tax. The third was looking at

expanding the pipeline from 42 to 48

inches, which is currently under study.

Before starting the special session,

there was a great deal of concern as to

whether or not the governor and the

administration supported the direction

outlined in SB 138. The takeaway of the

special session, for me anyway, is that

the governor is on board with this inte-

grated model where you have the hold-

ers of the gas, the three majors in the

state of Alaska all working together in

cooperation on an integrated project

from the extraction of the gas all the

way down to the shipment of the gas to

the orient. The partners are involved

with each other in all levels of the value

chain. That is a concept that continues to

move forward.

Petroleum News: You noted changeson the AGDC board, more changes tookplace after the special session, includingtwo whom lawmakers have long respect-ed: (President) Dan Fauske and (boardchair) John Burns. What were yourthoughts on that? Is it too much or is it amatter of the governor still getting set-

tled in? Munoz: Well cer-

tainly the governor

has the authority to

choose board mem-

bers. I was con-

cerned with the loss

of experience. Dan

Fauske is highly

regarded. He brings

a great deal of expe-

rience to be able to get a large-scale

project completed. He’s well liked, so I

think he is going to be very difficult to

replace. In answer to your question, I

would have preferred to at least see Dan

Fauske stay on board.

Petroleum News: Moving forwardstill with the gas line project, why is itimportant for someone from Southeast topay attention to a project just as muchas someone from Anchorage, the NorthSlope Borough or someone on the KenaiPeninsula?

Munoz: If the project gets built, it

will probably be one of the largest infra-

structure projects in the history of our

country. The potential for revenue to the

state is significant. Of course all regions

in the state will benefit from direct rev-

enue to the general fund as well as eco-

nomic opportunities. People in Southeast

Alaska will benefit in numerous ways

with the construction of the project and

the revenue that comes with the project.

In previous discussions, the Legislature

set into place with the direction of Sen.

(Lyman) Hoffman and other coastal leg-

islatures, a mechanism whereby some of

the revenue from the gas line can go to

help build up alternative energy outside

the Railbelt. I think that was a very

important inclusion in the gas line.

Ultimately all regions in the state benefit

from this project whether you live in the

Railbelt or not.

Petroleum News: Speaking of alterna-tive energy. Some people see that in dif-ferent ways. Some see alternative aswind, hydro or solar. Others see it asanother option in the form of natural

gas. Southeast seems to have both work-ing for you, whether it’s hydro or withAvista proposing an LNG project to beanchored in Juneau. How do you viewit?

Munoz. There is always going to be a

need to develop infrastructure outside of

the Railbelt, not just in Southeast,

Alaska, but in many of our rural commu-

nities. Juneau is fortunate that we have

access to hydro power resources. We

also have a company with a great deal of

experience that is considering bringing

natural gas to our community.

But we also have to look out for the

communities outside of

Juneau. Even the commu-

nities in our region face

some of the highest energy

costs in our state. So hav-

ing a mechanism — a

fund — to provide the opportunity to

build alternative energy projects in

coastal Alaska is very important. Those

projects could include tidal generation,

hydro or wind.

There are a number of opportunities

so we need to continue to keep an eye

on the communities that pay the highest

cost in the state and look for ways to

bring those costs down.

Petroleum News: So what’s your out-look at the prospects of Avista bringingnatural gas to the state?

Munoz: They are the in the due dili-

gence phase. They are meeting with

municipal government leaders, business

owners and legislators, educating them

about the opportunity. The benefit is

long experience. It’s a company with

100 years of business experience.

They have knowledge in other com-

munities and other regions of the coun-

try delivering natural gas successfully.

They are looking at getting a legislative

extension on the infrastructure tax

exemption opportunity for municipali-

ties.

Currently a municipality can opt to

allow a tax exemption for a property

over a certain number of

years if a project brings a

new form of energy to the

community. So I think

Avista is looking at extend-

ing that out 10 or 20 years.

First of all they are working with the

city of Juneau to find out if they would

support extending it.

Petroleum News: I know Avista hasspent most of its time with the JuneauAssembly, but have you met with them?

Munoz: I have. I met with the execu-

tives from Avista (Jan. 14). They have

the capital. They are a company with a

great deal of experience, and knowledge

and the commitment to make it happen,

particularly in the natural gas market.

l G O V E R N M E N T

Munoz: Budget first, the rest followsJuneau Republican, House Finance Committee member says new fiscal plan is a legislative priority, but gas line progress still a must

PETROLEUM NEWS • WEEK OF JANUARY 24, 2016 3

ARCTIC REGULATORY COMPLIANCE& TECHNICAL OILFIELD SERVICES, LLC

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see MUNOZ Q&A page 17

4 PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

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ENVIRONMENT & SAFETYEarthquake forces fracking shutdown

The Canadian unit of Spain’s Repsol has been ordered to shut down a hydraulic

fracturing operation in west-central Alberta after an earthquake hit the area on Jan. 11.

A spokeswoman for the Alberta Energy Regulator said the company has “ceased

operations ... and they will not be allowed to resume operations until we have

approved their plans.”

Repsol said it is working with the AER to ensure all environmental and safety rules

are followed.

The company confirmed that a seismic event had occurred and that it was conduct-

ing fracturing operations at the time the 4.8 quake occurred. The AER automatically

shuts down a fracking site when a quake of 4.0 or greater is recorded.

Repsol said it will review and analyze “available geological and geophysical data,

as well as onsite seismic monitoring data.”

A seismologist with Natural Resources Canada said it was too soon to tell whether

Repsol’s activities triggered the quake, which she said was “quite large for the area,

larger than normal.”

Jeffrey Gu, a professor of geophysics at the University of Alberta, said 366 seismic

events, many in the range of 2.4 to 4.4, have been recorded over the past year in the

area surrounding the community of Fox Creek.

He said that if it is shown that fracturing induced the quake it would be the largest

such event on record in Canada.

Alberta Premier Rachel Notley said she will ask the AER to speed up a review of

fracturing events and make recommendations “we can consider sooner rather than

later.”

For now, the AER is applying new rules imposed last February in the Duvernay

formation, one of the largest shale oil and gas deposits in that covers a large span of

western Alberta.

—GARY PARK

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

Gateway in a messBC Supreme Court delivers setback to Enbridge, rules provincialgovernment failed to meet obligations to consult with First Nations

By GARY PARKFor Petroleum News

From the time it was launched early

this century, Northern Gateway has

faced premature and often exaggerated

reports of its demise. Now they have to be

taken seriously.

A British Columbia Supreme Court

ruling has brought the C$7.9 billion proj-

ect by Enbridge to a halt in a verdict that

has implications far beyond the twin-

pipeline system into the realm of any

activities that affect First Nations

lifestyles and their land, notably Kinder

Morgan’s proposed expansion of its rival

Trans Mountain pipeline.

Justice Marvyn Koenigsberg said the

British Columbia government abdicated

its statutory duties and breached its duty

to consult First Nations when it signed

and failed to terminate an “equivalency

agreement” that handed Canada’s

National Energy Board sole jurisdiction

over the environmental assessment deci-

sion making on Northern Gateway.

He said the provincial government

cannot rely on the NEB for environmen-

tal approval.

Joseph Arvay, the lead attorney for the

petitioners — the Great Bear Initiative

Society and Gitga’at First Nation (collec-

tively the Coastal First Nations) — said

the ruling now “makes it clear that the

province has jurisdiction over this

pipeline so long as the conditions reflect

its competence over the environment.”

He said provincial government handed

its powers over Northern Gateway to the

Canadian government when it entered

into a so-called equivalency agreement

with the NEB.

But that abdication was invalid now

that the court has established that the

province has failed to use its “legal back-

bone,” he said.

Koenigsberg ruled that the province is

required to consult with the Gitga’at

about the potential impacts of the project

on areas of provincial jurisdiction and

how they might affect the Gitga’at abo-

riginal rights.

BC environmental assessmentThe ruling means that until the British

Columbia government makes a decision

on the pipeline and issues an environmen-

tal assessment certificate, none of the 60

permits, licenses and authorizations nec-

essary for the project to proceed can be

issued.

To many legal and aboriginal experts

that means rolling the project back sever-

al years to restart the environmental hear-

ings.

However, a Northern Gateway

spokesman said Enbridge still intends to

proceed with the pipeline based on the

209 conditions issued 18 months ago by

the NEB and the federal government.

He insisted approval of the project

“falls within federal jurisdiction and (the

court decision) does not change that

approval or the project’s environmental

assessment.”

The spokesman said the future of

Northern Gateway now comes down to a

“jurisdictional matter between the federal

and provincial governments.”

BC’s initial interpretationBritish Columbia Justice Minister

Suzanne Anton said her initial interpreta-

tion of the court decision is that the

province will not have to duplicate the

entire review process and, pending an

evaluation of the judgment, her govern-

ment does not know whether to appeal.

“What the court has said is we can rely

on the process that was in front of the

National Energy Board, but we do need to

make our own independent provincial

decision based on our own provincial leg-

islation,” she said.

At the time the “equivalency agree-

ment” was negotiated to streamline the

regulatory process, the province trumpet-

ed the pact as something that would

reduce “byzantine bureaucratic practices”

and help create jobs.

Opponents celebrateThat assessment has rebounded, with

Northern Gateway opponents celebrating

Koenigsberg ruled that theprovince is required to consult

with the Gitga’at about thepotential impacts of the project onareas of provincial jurisdiction andhow they might affect the Gitga’at

aboriginal rights.

see GATEWAY page 6

By ALAN BAILEYPetroleum News

The Alaska Industrial Development

and Export Authority’s Interior

Energy Project has submitted its latest

quarterly report to the Alaska Legislature,

describing progress in making a major

boost to gas supplies for the city of

Fairbanks and the surrounding region of

Interior Alaska. The idea is to reduce fuel

costs in the Interior by making natural gas

readily available to residents and busi-

nesses, while also improving air quality

in Fairbanks by lowering the incentive to

use pollution causing, wood burning

stoves.

Two conceptsHaving received several responses to a

request for proposal for the gas supply

arrangements, the team has narrowed the

supply options to two concepts, both

involving the manufacture of liquefied

natural gas and the transportation of LNG

to Fairbanks. One option involves the

construction of an LNG plant in the Cook

Inlet region, while the other involves the

construction of an LNG plant on the

North Slope. In both cases the LNG

would probably be trucked to Fairbanks

by road, although shipment by railroad is

also a possibility for LNG from Cook

Inlet.

Robert Shefchik, Interior Energy

Project team leader, told the AIDEA

board during the board’s Jan. 13 meeting

that the evaluation committee for the

LNG proposals anticipates meeting on

Jan. 22, with a view to putting a recom-

mendation for a preferred LNG option to

the board ahead of a special board meet-

ing in the latter half of February, or by the

board’s scheduled meeting on March 3, at

the latest. The board can then formally

decide which option to adopt.

This timeframe is consistent with the

project development schedule that each

of the two short-listed proposers have put

forward, Shefchik said.

Progress on gas supplyProgress has also been made in estab-

lishing a gas supply for either LNG

option, the Interior Energy Project quar-

terly report says.

If the North Slope option is picked,

Golden Valley Electric Association, the

Fairbanks electric utility, has formed a

joint venture called Northern Lights Gas

with engineering firm MWH to market

gas using an existing North Slope gas

supply contract between Golden Valley

and BP, the report says. AIDEA has been

holding talks with Northern Lights Gas to

determine the terms and conditions for

the sale of gas to the partners in the

Interior Energy Project. The project is

also evaluating potential gas supply

options from other North Slope produc-

ers, the report says.

In the Cook Inlet region, the Interior

Energy Project team has been evaluating

responses to a request for interest in pro-

viding an appropriate gas supply. And the

identification of a selected gas supply

arrangement, with costs and expected

terms, forms part of the process for

selecting an LNG option from the request

for proposal, the report says.

The two finalists being considered for

an LNG supply are Spectrum, a western

U.S. regional LNG producer, and Salix, a

subsidiary of northwestern U.S. electric

and gas utility Avista Corp. Spectrum

proposes the North Slope option while

Salix favors a Cook Inlet supply. The

Spectrum North Slope plant would have

an initial gas processing capacity of 6 bil-

lion cubic feet per year, while the Salix

plant would have an initial capacity of 3

bcf per year, the report says.

Oil price challengeThe falling cost of fuel oil in

Fairbanks, as world crude oil prices drop,

is presenting some challenges for the

project, as oil becomes more cost com-

petitive with gas. In mid-December the

Golden Valley Electric board authorized a

long-term oil supply for use in the utili-

ty’s North Pole dual-fuel power plant.

That will have the effect of limiting

Golden Valley’s purchase of Fairbanks

LNG to the summer. This summer pur-

chase of LNG will compensate for an oth-

erwise low seasonal gas load at that time,

although the overall lower annual gas

demand for power generation may cause

higher space heating costs in Fairbanks,

the report says.

And the low oil prices have triggered a

re-work of projections of the anticipated

rate at which Fairbanks residents may

convert their home heating systems to gas

rather than oil. The team now expects

conversions to drop by about one-third

from earlier projections. First conver-

sions should take place in 2017, as new

gas supplies start to come available, with

the number of conversions increasing

from some 1,600 in that first year to a

cumulative total of some 10,800 by 2023,

the report says. The team is investigating

means whereby people could obtain

financial assistance with gas conversion.

Possibilities include commercial loans;

and funding from state and federal gov-

ernment energy efficiency, clean energy,

air quality and clean water programs.

Road tests for trailerFrom the perspective of shipping LNG

to Fairbanks, a prototype, large capacity

LNG trailer is undergoing Alaska road

tests. Tests will be conducted on both the

Parks Highway and the Dalton Highway,

the two highways to Fairbanks from the

south and the north, the report says. And,

having approved the carriage of LNG on

the Alaska Railroad for a small scale test,

the Federal Railroad Commission has

now increased the volume of LNG that

the railroad can carry and extended the

time period for the LNG carriage

approval, thus opening the possibility of

shipping LNG from the Cook Inlet region

by rail. Salix is working closely with the

Alaska Railroad on this possibility, the

report says.

In anticipation of a much expanded

gas supply, the build out of the gas distri-

bution pipeline system in the Fairbanks

area by utilities Fairbanks Natural Gas

and the Interior Gas Utility continued

throughout the summer of 2015, the

report says. Fairbanks Natural Gas has

now added more than 60 miles of new

pipeline to its system in central

Fairbanks. The Interior Gas Utility

installed 73 miles of pipeline in the North

Pole area.

Pentex purchaseOn Sept. 30 AIDEA completed its pur-

chase of Pentex Natural Gas Co. LLC, the

owner of Fairbanks Natural Gas, a small

LNG plant near Point MacKenzie on

Cook Inlet and a transportation business

that trucks LNG from Point MacKenzie

to Fairbanks. As a consequence of

AIDEA’s ownership, Fairbanks Natural

Gas has proposed reducing the gas rates

for its residential customers by 13.5 per-

cent.

The eventual objective is to combine

Fairbanks Natural Gas and the Interior

Gas Utility into a single operation that

would be spun off to a local control enti-

ty. Based on discussions with several

entities, AIDEA has begun discussions

with the Interior Gas Utility over that util-

ity’s potential purchase of Fairbanks

Natural Gas, and possibly also of the

associated Point MacKenzie LNG plant

and LNG trucking operation. The objec-

tive is to complete negotiations by March

31, with a target of closing transactions

by June 30, the report says.

And on Dec. 4 utility representatives

met with personnel from AIDEA and the

Alaska Energy Authority in the

Anchorage offices of Enstar Natural Gas

Co. to discuss LNG storage and distribu-

tion system design options for an inte-

grated Fairbanks gas distribution net-

work. Following further meetings, final

system build out models are expected by

the end of June, the report says.

$14.3 million spentSo far AIDEA has spent $14.3 million

of a $57.5 million capital appropriation

by the state Legislature on the Interior

Energy Project, the report says. $14.1

million of that expenditure went into an

initiative to build an LNG plant on the

l N A T U R A L G A S

Interior Energy Project reports progressMoving toward decision on LNG supply for Fairbanks from either the North Slope or Cook Inlet; prototype LNG trailer being tested

PETROLEUM NEWS • WEEK OF JANUARY 24, 2016 5

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see INTERIOR ENERGY page 6

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North Slope, including $6 million for the

construction of a gravel pad on the Slope

for the proposed plant. The current initia-

tive, involving the request for proposal

for a Fairbanks LNG supply, came about

after engineering work and associated

cost estimating had shown the original

initiative to be uneconomic.

So far AIDEA has issued $53.7 mil-

lion in loans under Sustainable Energy

Transmission and Supply, or SETS, fund-

ing to the Fairbanks utilities for the build

out of the storage and gas distribution

system in Fairbanks. Total available

SETS funding for the project is $125 mil-

lion. The legislature has also authorized

the issue of $150 million in bonds for the

project, but no bonds have yet been

issued, the report says. l

continued from page 5

INTERIOR ENERGY

the court ruling.

“We’re running out of coffin nails

now,” said Gitga’at spokesman Art

Sterritt.

“The reality is that if Northern

Gateway wants to try going ahead after

all of this, you’re looking at a whole new

process whereby British Columbia is

going to have hearings and sit down with

First Nations ... and meet the conditions

that they put in place,” he said.

Sterritt said the British Columbia gov-

ernment was “playing a bit of politics” by

handing over its power at the environ-

mental assessment stage, then opposing

the project.

Now, he said, British Columbia must

accept that it must listen to First Nations

and work with them “even when they

don’t like a project.”

“You’re talking about a whole new

review process here,” he said. “I’m not

sure that Northern Gateway or anyone

else would have the appetite for that.” l

continued from page 4

GATEWAY

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

BC rejects Trans MountainProvincial government says Kinder Morgan has failed to meet its safety conditions, but company insists pipeline plan isn’t dead

By GARY PARKFor Petroleum News

R elations between Canada’s two most western

provinces threaten to turn sour with the British

Columbia government stunning its Alberta neighbor by

calling on the National Energy Board to reject Kinder

Morgan’s bid to triple capacity on its 60-year Trans

Mountain pipeline to 890,000 barrels per day.

Just weeks before the NEB is scheduled to deliver its

verdict on the project in March, British Columbia, in a

final submission, said Kinder Morgan has not provided

an adequate plan to prevent or respond to an oil spill on

land or in the ocean.

B.C. Environment Minister Mary Polak said the com-

pany has failed to meet her government’s standards, but

added the door has not completely closed on the compa-

ny “to meet our test potentially in the future.”

Ian Anderson, president of Kinder Morgan Canada,

said his company still hopes to satisfy the province’s

demands by August, in hopes of obtaining a go-ahead

from the federal cabinet this fall for the C$6.8 billion

plan — one of four designed to open offshore markets

for Canadian crude.

“I’m optimistic we will satisfy the conditions” for a

“world-class” system to handle oil spills, he said.

“Clearly we have more work to do, (but) it’s not over

until I’ve got the NEB decision. We continue to make

progress.”

Anderson asked the province to specify gaps in his

company’s response plan, while pressuring the federal

government to step up its participation by increasing the

number of Coast Guard stations along with Transport

Canada’s role.

Other conditions British Columbia listed as unre-

solved require Kinder Morgan to obtain First Nations

support and to provide the government with a fair share

of economic benefits.

“This is about the test that would allow this pipeline

to move forward,” Polak said. “The company has been

vocal in saying they believe they can meet the condi-

tions. They are welcome to work toward that.”

In the meantime, she said her government is develop-

ing marine- and land-based standards to prevent and/or

respond to spills.

Polak said legislation will be introduced this spring

on a land-based emergency response system, while the

province works with the Canadian government on the

marine element.

“These are real conditions, they are not a straw man

put up to make sure no one can ever meet them,” she

said.

Refusal praisedHowever, the government’s refusal to endorse the

“The NEB does not look at provincial orterritorial interests. It looks at Canada’snational interests” and the related social,

environmental and economic factors. —Gaetan Caron, a former chairman

of the NEB

see TRANS MOUNTAIN page 7

PETROLEUM NEWS • WEEK OF JANUARY 24, 2016 7

pipeline expansion was hailed by environmental and

municipal officials in the Metro Vancouver area.

Vancouver Mayor Gregor Robertson said the

province’s stance “reflects the strong opposition to this

project throughout Metro Vancouver and British

Columbia.”

“A seven-fold increase in oil tanker traffic through

Vancouver’s local waters is simply not worth the

immense risks posed to our economy and environment in

the event of a major oil spill,” he said.

Burnaby city councillor Sav Dhaliwal said the

province should not have waited until the 11th hour to

make its submission.

“I’ve always believed they weren’t doing their part”

by joining others in taking court action against Trans

Mountain.

Alberta: nothing newAlberta Premier Rachel Notley said that “fundamen-

tally there is nothing new” in the British Columbia filing.

She told reporters she believes there is “still a path

forward” to get the project approved.

“We will not get pipelines built by picking fights with

other provinces through the media,” Notley said, adding

that will only happen when Alberta demonstrates “clear-

ly and calmly why pipelines help every economy in

Canada (and) by taking real action on climate change.”

But so far Alberta’s strategy to gather support for

diversifying Canada’s oil markets has fallen flat, with

every proposal — Trans Mountain, Northern Gateway,

Keystone XL and Energy East — stalled by government,

regulatory, environmental and First Nations resistance.

What frustrates Alberta and its petroleum industry is

that the province’s efforts to trade approval for access to

offshore markets by introducing a sweeping climate

change policy late last year appears to have backfired

and is now unravelling.

The best Notley could offer was a pledge to “keep

talking (to pipeline proponents and other governments)

until the door is closed.”

BC support not criticalGaetan Caron, a former chairman of the NEB, said

support or the lack of it from British Columbia is not

critical in determining whether Trans Mountain should

be approved.

“The NEB does not look at provincial or territorial

interests. It looks at Canada’s national interests” and the

related social, environmental and economic factors, he

said.

The Alberta government submission on Trans

Mountain to the NEB quoted the Conference Board of

Canada’s latest impact estimates that the expansion

would generate C$46.7 billion in government revenues

and 820,000 person years of employment over more than

20 years, with British Columbia enjoying 12 percent of

the fiscal returns and 24 percent of the jobs.

“The economic benefits from dividend payments, oil

and gas investment and tanker traffic, can be added to the

impacts previously estimated by the board from the con-

struction and operations of the pipeline, as well as higher

netbacks (for oil sands crude),” the group said.

It said the additional 348 Aframax size tankers would

support 1,300 jobs a year and bring in C$2.5 billion in

spending over the first 20 years of operation.

Economics vs. risksGlen Hodgson, the board’s chief economist, said the

economic benefits of the pipeline expansion outweigh

the environmental risks of a system that has operated

almost trouble free on a reduced scale from the planned

890,000 bpd.

“If this project does not proceed, we’re leaving a lot

of money on the table, foolishly,” he told a Calgary ener-

gy conference.

Brian Jean, leader of the opposition Wildrose Party in

the Alberta legislature, said Notley has until now failed

to advocate strongly for pipelines.

“This premier is building a habit of making the case

for pipelines either after they’ve been rejected, or once

they face strong opposition,” he said.

Liberal Party leader David Swann said it is possible to

build industrial projects that benefit all of Canada while

being environmentally responsible and maintaining good

relationships with First Nations and affected communi-

ties.

“This project carries the least risk of all the pipelines

by following an existing route. If it can’t be built, it is

unlikely that any other will be,” he said. l

continued from page 6

TRANS MOUNTAIN

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

Hilcorp requests changes at Deep CreekRequests 400-acre expansion of Happy Valley Beluga/Tyonek gas pool, also vertical extension; hearing tentatively set for Feb. 24

By KRISTEN NELSONPetroleum News

Hilcorp Alaska LLC has asked the Alaska Oil and

Gas Conservation Commission to expand the areal

extent and vertical limits of the Happy Valley

Beluga/Tyonek gas pool in the Deep Creek unit as

described in the commission’s Conservation Order 533.

Hilcorp is the operator and sole working interest

owner in the unit, which is on state and Cook Inlet

Region Inc. leases on the southern Kenai Peninsula.

In a Jan. 12 letter, Hilcorp told the commission the

expansion of the pool’s boundary would encompass

“recently discovered and anticipated productive zones”

of the gas pool. The expansion includes some 400 acres.

Hilcorp asked for administrative action from the com-

mission because the proposed modifications do not

require changes to any substantive pool rules, but simply

seek to modify the legal description of the pool “to

match the latest geologic interpretation of the pool’s

location.”

In a Jan. 15 supplement to the original proposal

Hilcorp also asked for a change in the vertical description

of the Happy Valley Beluga/Tyonek gas pool. The current

vertical description is the interval between measured

depths of 2,997 feet and 10,046 feet in the Superior

Happy Valley No. 31-22 well. The proposed definition

would include gas-bearing intervals correlating with the

interval between measured depths of 2,246 feet and

10,046 feet of the Superior Happy Valley No. 31-22 well.

“Data supporting this request was obtained through

the drilling of the recent HBV-17 well, as correlated to

the HV 31-22 well,” the company said.

The participating areaHilcorp said the Deep Creek unit is jointly managed

by the Alaska Department of Natural Resources and

CIRI. Maps accompanying the application appear to

show that approximately half of the Deep Creek unit is

on state leases and half on CIRI leases. The Happy

Valley participating area, the portion of the unit currently

producing, includes one state tract, some 155 acres, and

three CIRI tracts, almost 1,085 acres.

Hilcorp said it has provided pre-application briefing

material to DNR and CIRI. “As a result of this consulta-

tion, Hilcorp will initially test and produce HBV-17 on a

tract basis until such time as it is appropriate to expand

The Happy Valley participating area, theportion of the unit currently producing,

includes one state tract, some 155 acres, andthree CIRI tracts, almost 1,085 acres.

see DEEP CREEK page 8

8 PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

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the Happy Valley Participating Area,”

the company said. “Doing so will expe-

dite production (and thus prevent

waste) and adequately protect the

respective correlative rights of both

CIRI and the state.”

Producing since 2004Standard Oil Company of California

explored at Deep Creek in 1958 and

Union Oil Company of California, fol-

lowing up on that exploration work,

brought the Deep Creek unit online in

2004. Between 2003 and 2009 13 wells

were drilled.

Since Hilcorp took over it has

drilled three development wells and

acquired some 50 square miles of 3-D

seismic over the unit.

The commission has tentatively set

a public hearing for Feb. 24 at 9 a.m.

and said written requests for the hear-

ing must be filed no later than Feb. 5. If

there are no timely requests filed for

the hearing, the commission said it

would consider issuance of an order

without a hearing.

The commission also said written

comments on the petition may be sub-

mitted to the commission and must be

received no later than Feb. 22, or, if a

hearing is held, by the end of the Feb.

24 hearing. l

continued from page 7

DEEP CREEK

EXPLORATION & PRODUCTIONState approves Pikka unit plan

The state has approved a year of studies at the Pikka unit.

In early November 2015, the Division of Oil and Gas approved a plan of explo-

ration for the North Slope unit calling for seismic licensing and analyzing recent

drilling results.

When former operator Repsol E&P USA Inc. handed over control of the unit

to its minority partner Armstrong Oil & Gas Inc. in mid-October 2015, immediate

exploration and development plans for the unit became cloudy. The companies

announced the decision just as Repsol was preparing to submit an updated plan of

exploration.

With the transfer of the unit came the possibility of Armstrong revising the

plan of exploration. Instead, Armstrong appears to be using the existing plan of

exploration.

The new plan calls for licensing and reprocessing the existing North Island 3-

D seismic survey, conducting rock physics studies and performing stratigraphic

analysis and special core analysis on the three exploration wells that Repsol

drilled at the unit in early 2015.

—ERIC LIDJI

Since Hilcorp took over it hasdrilled three development wellsand acquired some 50 squaremiles of 3-D seismic over the

unit.

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

Houston Willowexploration licensecomments soughtOil and gas exploration license proposal from 2007 again outfor public comment; this part of best interest finding procedure

By KRISTEN NELSONPetroleum News

A 2007 exploration license proposal

for the Houston Willow area is out

for public comment for the third time. The

Alaska Department of Natural Resources

Division of Oil and Gas said Jan. 19 that

the division solicited competing bids and

gave public notice of its intent to evaluate

the Houston Willow exploration license

proposal in late 2007 and solicited public

comments again in 2008.

The current request for comments

closes Feb. 26.

The 2007 proposal came from Samuel

H. Cade of Dallas, Texas, Daniel K.

Donkel of Daytona Beach, Florida, and

LAPP Resources Inc. of Anchorage.

David Lappi, president of LAPP

Resources, died in 2011. He had been

working to develop natural gas in the

Matanuska-Susitna area since the 1990s.

The application has recently been shown

as pending on the division’s website

under the names of Cade and Donkel.

Exploration licenses are issued for

areas where the state does not hold areaw-

ide oil and gas lease sales. Instead of bid-

ding money upfront for acreage, appli-

cants for exploration licenses commit to

spend an amount of money working on

the acreage. Once work commitments are

met, a license holder has the option to

convert acreage to regular oil and gas

leases.

Before the state accepts an application

for an exploration license it provides an

opportunity for other bidders on the

acreage and prepares a finding that the

exploration license is in the state’s best

interest.

In the April 2007 application, from

LAPP Resources, the applicants request-

ed a 10-year exploration license “cover-

ing approximately 21,240 acres near the

town of Houston, Alaska” and said the

area is “prospective for natural gas as

demonstrated by gas shows in various

wells drilled in the area by prior opera-

tors.”

A map accompanying the division’s

new request for comments shows the

acreage to be a block largely east of the

George Parks Highway beginning just

north of Houston.

In a supplement to the 2007 applica-

tion Lappi told the division, “The appli-

cants plan to explore for conventional nat-

ural gas, although if shallow natural gas is

discovered it will be evaluated.”

When the 2007 application was filed

Lappi had been trying to develop coalbed

methane and shallow gas in the state for a

number of years, working initially to pro-

duce coalbed methane near Houston

where he acquired state leases in the early

1990s and then drilled exploration wells

between 1998 and 2000.

He said initial work under the explo-

ration license would include community

relations work “since local landowners

are in one sense involuntary participants

in whatever we do”; satellite and airborne

remote sensing; geological studies includ-

ing a literature review and new fieldwork

on outcropping bedrock; geochemical

studies “seeking evidence of new hydro-

carbon accumulations”; geophysical stud-

ies — literature review and new data

acquisition; drilling, “including explo-

ration drilling (and if successful), apprais-

al and production drilling” and, also with

the “if successful” caveat, facilities engi-

neering and construction.

Cade and Donkel do not hold any

exploration licenses, but do hold conven-

tion state oil and gas leases. Cade holds

more than 38,000 acres according to the

division’s latest reports; Donkel holds

more than 53,000 acres. In both cases the

bulk of the acreage is North Slope and

Beaufort Sea. l

page11

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of January 24, 2016

l P E R M I T T I N G

Borough hikes Red Dog tax; Teck,NANA urge officials to negotiate

NEWS NUGGETSCompiled by Shane Lasley

Ketchikan-based Orca Holdings nabsa 10% stake in Ucore Rare Metals

Ucore Rare Metals Inc. Jan 15 said two U. S.-based

investors have exercised their right to convert their investments

in a royalty related to the processing of rare earth elements and

other specialty metals into common shares of the company. The

royalty would have been paid on sales and income associated

with the Ucore’s first installation utilizing molecular recogni-

tion technology. The US$5.3 million the investors paid for the

royalties will be converted at a rate of C25 cents per Ucore

share, resulting in a total of 30,470,760 shares being issued.

The majority of those shares (81 percent) are owned by Orca

Holdings LLC, a Ketchikan, Alaska-based enterprise controlled

by Ucore advisory board member Randy Johnson. The transac-

tion resulted in Orca becoming a 10 percent shareholder of

Ucore, and Johnson is now a reporting insider of the company.

Johnson believes the best way for Orca and its shareholders to

benefit coming from the upside of Ucore, especially at current

U. S.-Canadian dollar exchange rates, is to convert its royalties

into company shares. “Orca has elected to convert its royalty

into shares for many reasons, all of which have to do with our

very strong belief in Ucore as an emerging leader in the global

rare metals business,” explained Johnson. "”Orca is going long

on Ucore, and we believe that the most effective way to obtain

appreciation in our investment is via equity as opposed to a

debt (royalty-based) position.” Johnson said Orca is committed

to retaining its position in Ucore over a number of years.

“We’re extremely pleased to welcome Mr. Johnson as a report-

ing insider of Ucore,” Ucore President and CEO Jim McKenzie

said. “Randy has built an impressive industrial resume in

Alaska and beyond, and his experience in company-building

will be a significant asset and resource to us as Ucore enters its

early production phase.”

Usibelli employees end 2015 unscathedUsibelli Coal Mine Inc. Jan. 15 commended its 115 employ-

ees for reaching the important milestone of no lost-time injuries

during 2015. “The employees of UCM have dedicated them-

selves to safety awareness and communication. Every employ-

ee practices it every day, resulting in achieving a year and a half

without any lost-time accidents. It’s a true team effort and a

milestone we’re all proud of,” UCM President Joe Usibelli Jr.

said. This milestone sits in the midst of a run of more than 550

consecutive days without a lost-time injury. “To reach this goal

requires an enormous amount of time and energy to implement.

We have established a safety culture in the workplace and

encourage the same awareness on the home front,” explained

UCM General Manager Alan Renshaw. While proud of the cur-

rent safety milestone, UCM Safety Director Matt Nelson has

loftier targets for employees of the Usibelli Coal Mine in Healy,

Alaska – break the 797-day record set by the company in 2006.

Usibelli Coal Mine, a fourth generation, family-owned, all-

Alaskan business, said it will produce 1.3 million short tons of

ultra-low sulfur, subbituminous coal in 2016.

IG finds no evidencePebble says EPA watchdog’s findings belie record of bias, predetermination

By SHANE LASLEYMining News

After 17 months of investigation, the U.S.

Environmental Protection Agency Office of

Inspector General said it could find no evidence

that the federal agency was unfair while conduct-

ing an assessment of the Bristol Bay Watershed.

The conclusion, however, runs counter to those of

others who have reviewed the case.

The EPA’s Bristol Bay Watershed Assessment is

a study of the potential risks large-scale mining

might pose to the abundant fish resources in the

Bristol Bay region of Southwest Alaska.

“Based on available information, we found no

evidence of bias in how the EPA conducted its

assessment of the Bristol Bay watershed, or that

the EPA predetermined the

assessment outcome,” the IG

office penned in the 30-page

report.

Pebble Partnership CEO

Tom Collier said the findings

sharply contrast with the

reams of evidence that the

State of Alaska, his company

and others provided to the

watchdog.

“I have never seen an IG report that I thought

was as poorly done as this one,” the longtime

Washington D.C. insider told Mining News Jan.

18.

The publication of the brief report by the EPA’s

internal investigative body sets the stage for argu-

ments in an ongoing federal trial as well as contin-

ued U.S. Congressional committee probes into the

EPA’s potentially illegal activities.

No bias found?Though EPA IG office said it found “no evi-

dence of bias or predetermination” in the EPA’s

conduct, a number of documents uncovered by the

U.S. House Oversight and Government Reform

Committee and turned over to the inspector gener-

al prior to its investigation appeared to show that at

least some upper level officials in the EPA had

decided as early as 2010 that development of a

mine at Pebble needed to be stopped and was look-

ing for the best avenue to achieve this goal.

One such document brought to light by the

House watchdog is a December 2010 request for

funds to “initiate the process and publish a CWA

404(c) ‘veto’ action for the proposed permit for the

Pebble gold mine in Bristol Bay.”

In making the request for 2011 funds, the EPA

Office of Water budget wrote: “While resorting to

exercising EPA’s 404(c) authority is rare (only 12

actions since 1981), the Bristol Bay case repre-

sents a clear and important need to do so given the

nature and extent of the adverse impacts coupled

with the immense quality and vulnerability of the

fisheries resource.”

Of the thousands of pages of documents handed

over to the EPA Inspector General Office, this is

one of only a handful referred to in the report. The

watchdog, however, said this is evidence that

though EPA staff were discussing the potential of

initiating a Section 404(c) review of Pebble, it

does not demonstrate that a conclusion to this

process had yet been determined.

“There were EPA staff and managers who were

considering a CWA Section 404(c) process prior to

the EPA’s official announcement to conduct the

assessment, but we did not uncover any evidence

of a predetermined outcome in any of the docu-

ments or emails we reviewed or interviews we

conducted,” according to the report.

An internal EPA worksheet listing the pros and

cons of a pre-emptive CWA Section 404(c) review

of Pebble versus letting the project go into permit-

ting, however, seems to show that upper level EPA

officials were discussing the best way to stop

development of the enormous copper project using

this process.

The top drawback listed in the con column of

this 2010 “discussion matrix” was that a proactive

404(c) determination had “never been done before

in the history of the CWA.”

The agency listed political backlash and litiga-

tion risks as other potential negative outcomes of

attempting to use 404(c) to stop Pebble prior to

permitting. The document suggests that some form

of public process would help deflect some of this

backlash, which is the route the agency ultimately

took in the form of the Bristol Bay Watershed

Assessment.

The document also said that a pre-emptive

404(c) decision at Pebble could serve “as a model

of proactive watershed planning for sustainabili-

ty.”

Pebble CEO Collier said this statement sheds

some light into EPA’s motivation.

“They want to zone watersheds,” he explained.

North acted alone?One thing that the Pebble Partnership and the

EPA Inspector General agree on is that Phil North,

a former Alaska-based EPA biologist, worked

inappropriately closely with parties opposed to

developing a mine at the Pebble deposit.

“We did find that an EPA Region 10 employee

used personal non-governmental email to provide

comments on a draft Clean Water Act Section

404(c) petition from tribes before the tribes sub-

mitted it to the EPA,” the EPA Inspector General

wrote.

The investigative body said it could find no evi-

dence that North’s involvement in editing the peti-

tion was known by his superiors.

“The report concludes that no one at EPA knew

that Phil North was engaging in this improper con-

duct with environmental activists; we have emails

that show almost a dozen people did,” Collier said.

This evidence indicates that EPA management

as high as Dennis McLerran, the administrator for

region 10, which includes Alaska, was aware of the

close relationship between North and Pebble

antagonists.

A January 2010 briefing for then EPA

Administrator Lisa Jackson shows that during the

same time that North was helping Pebble antago-

nists draft the petition, officials in EPA’s

Washington D.C. office were already discussing

see PEBBLE REVIEW page 12

TOM COLLIER

Ketchikan, Alaska-based Orca Holdings now owns 10 percent ofUcore Rare Metals, the company hoping to develop a mine at theBokan Mountain rare earth project located about 40 miles south-west of Ketchikan on Prince of Wales Island.

UC

OR

E R

AR

E M

ETA

LS I

NC

.

10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 24, 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

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Renee Garbutt CIRCULATION MANAGER

Mapmakers Alaska CARTOGRAPHY

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

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FAX FOR ALL DEPARTMENTS907.522.9583

NORTH OF 60 MINING NEWS is a weekly supplement of Petroleum News, a weekly newspaper.To subscribe to North of 60 Mining News,

call (907) 522-9469 or sign-up online at www.miningnewsnorth.com.

Several of the individualslisted above are

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

Contact North of 60 Mining News:Publisher: Shane Lasley • e-mail: publisher@MiningNewsNorth.com

Phone: 907.229.6289 • Fax: 907.522.9583

NORTHERN NEIGHBORSCompiled by Shane Lasley

Yukon's only operating lode mine set to close;re-opening dependent on copper market outlook

Capstone Mining Corp. Jan. 18 said it plans to temporarily halt operations at

its Minto copper mine in Yukon Territory in 2017. The planned closure is part

of an overall cost-cutting initiative by the company. “In light of the current

commodity price environment our 2016 guidance and five-year outlook focuses

on financial flexibility, while maximizing the cost efficiency of our existing

operations,” explained Capstone President and CEO Darren Pylot. For 2016,

the Minto Mine is expected to produce 27,000 metric tons of copper at an all-in

cost of US$1.30-US$1.40 per pound. Capstone said the low 2016 production

and operating costs at Minto reflect a significant contribution from the high-

grade Minto North open pit. Head grade is expected to average 1.3 percent in

the first quarter, ramping up to over 2.6 percent in the second half of the year,

resulting in significantly lower costs. Surface mining of the Minto North pit is

expected to be completed in August, with the mill continuing to process Minto

North material until the end of the first quarter of 2017. The company said

underground mining will be stopped by the end of March and the rest of the

operation will be temporarily closed once all the ore from Minto North and the

remaining stockpiles are processed by mid-2017. Future decisions will depend

on a number of factors, most notably an improvement in the copper market out-

look. Capstone is not planning any exploration at Minto in 2016 and limited

sustaining capital expenditures are budgeted for the mine due to the expected

closure. Minto is the only currently operating hard rock mine in the Yukon

Territory.

TMAC forms C$325 million tactical plan aimedat increased gold for coming Hope Bay Mine

TMAC Resources Inc. Jan. 14 plans to invest C$325 million on a tactical

plan budget that aims to have its Hope Bay gold project in Nunavut ready to

ramp to an operation that averages 1,000 metric tons per day in 2017. This new

plan, which involves a C$35 million increase over a previous “path to produc-

tion” budget, includes the accumulation of an ore stockpile sufficient to support

ramp up to 2,000 metric tons per day by 2018. The tactical mine development

plan, which runs for the period from the beginning of 2016 to the end of 2018,

contains several changes in scope from a 2015 pre-feasibility study, including:

increased underground development in 2016; larger low-grade stockpile for mill

commissioning; 55,600 ounces of gold (at 15.2 grams per metric ton) in high-

grade stockpile for mill start up, 30,200 ounces greater than the PFS; de-risking

production ramp up; increased in gold production in 2017; and drilling to

potentially extend Doris deposit below current reserves. “We are pleased with

our progress in moving the Hope Bay Project to production, and delighted that

the project remains on schedule for first production in late 2016,” said TMAC

CEO Catharine Farrow. The exploration and geoscience budget for 2016 totals

C$10.8 million. The 2016 exploration drilling program comprises surface and

underground diamond drilling targeting both near-term (one- to three-year) pro-

duction areas and longer-term expansion of resources at Doris. The main objec-

tives are to facilitate detailed stope design within certain areas of the current

see NORTHERN NEIGHBORS page 12

l O P I N I O N

For miners, tomorrowis another dayThe economy is crashing, commodities are down, the White Househates us; but other than that, how do you feel about the future?

I wanted the gold and I sought it,I scrabbled and mucked like a slave;Be it famine or scurvy, I fought it;I hurled my youth into the grave…

“The Spell of the Yukon,”by Robert Service

By J. P. TANGENSpecial to Mining News

Ido love metaphors and aphorisms;

there’s one for every occasion. For

instance, it is often noted that, on the one

hand, it is always darkest before the dawn

and, on the other, that the light at the end

of the tunnel is another train. It would be

folly to believe that in today’s environ-

ment, things will be better, economically,

in Alaska, any time soon; however, experi-

ence teaches that the current disaster will,

like all others, one day pass.

Here’s the scenario: Alaska is a

resource state heavily dependent upon its

resources, primarily oil, but also to some

degree mining, for its well-being. The

President, in his wisdom, chose to elimi-

nate sanctions against Iran. The Saudis

don’t like Iran, so they have caused the

price of oil to drop, ensuring that Iran does

not make as much money as it might hope

selling oil into the open market. That also

stifled the global price of other commodi-

ties, such as gold.

Some supporters of the President intu-

itively feel that mining is a bad thing, so

they have burdened the mining industry

with burdensome sanctions. The President

is supportive of exotic sources of energy,

but they also contribute to the energy glut.

China, in an ambitious quest to foster its

own unique brand of capitalism, has

repeatedly devalued its currency and has

halted trading in its newly re-organized

stock exchange.

There is a tremendous influx of people

in the world, not just in North Africa and

the Levant, but also in North America,

who are moving north. While certain ele-

ments of the receiving communities are

resisting such migrations, “opposition is

futile.” Most of the countries targeted by

refugees are either below zero population

growth or are close to it. Migrants stereo-

typically are seeking opportunity, whether

in the form of resource development or

other forms of productivity, and the current

influx is no different.

Obviously, that’s not just one train com-

ing at us, it’s several.

No matter how long the current politi-

co-economic siege lasts, there is good

news for us Alaskans and for those of us

who support resource development around

the world. The good news is that those

who come after us, whether our progeny or

newly-minted citizens from foreign lands,

will want the benefits of life in an emer-

gent world.

Pause long enough to contemplate how

the world changed in the 20th Century

from beginning to end, and then extrapo-

late that over the years past and yet to be

in the current century. Notwithstanding the

social hiccoughs that we are currently

enduring, it is an odds-on certainty that the

world before us will be extraordinarily dif-

ferent from the world we know, and every

detail of that new world will require the

resources we, in Alaska, produce.

It has always been a given premise that

the minerals with which Alaska is

endowed, whether metallic or hydrocar-

bons, will be demanded for the balance of

the 21st Century and by the ensuing gener-

ations which, whether by birth or by

migration, want not just a safe haven to

live in peace, but also electricity and run-

ning water.

Alaskans are currently in a tight corner,

and many will not be able to withstand the

challenges; but, to paraphrase Robert

Service: “It’s hell, but [we]’ve been there

before.”

I take heart from the changed vision of

the visitors to Alaska whom I encounter

share. Gone are the heady days of crap-

shooters who came to Alaska with a

dream, borne of an echo of the gold rush

days that rarely “pans out.” Instead, I, at

least, am seeing among the newcomers a

sense of reality and an awareness that min-

ing and other forms of resource develop-

ment can be conducted in ways that feed

the needs of our civilization without pol-

luting our world.

Service was right: “When I am skinned

to a finish, I’ll pike to [Alaska] once

more.” 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.

By SHANE LASLEYMining News

The Red Dog Mine in Northwest Alaska is highly

regarded as an example of a mining company and

local aboriginal interests sitting down at the negotiating

table and working out a deal that serves the economic

and social interests of both.

A steep tax hike, however, threatens to shorten the life

of the world-class zinc mine and thereby the partnership

forged between Teck Resources Ltd. and NANA

Regional Corp. The tax increase was introduced recently

by the Northwest Arctic Borough, the regional govern-

ment that blankets the area where Red Dog is located.

“This tax increase could impact the longevity of Red

Dog and put the jobs, revenues and economic opportuni-

ty it creates in the region at risk,” said Red Dog General

Manager Henri Letient.

The hefty tax burden for Red Dog comes alongside

zinc prices that are at lows not seen since the market col-

lapse of 2009.

“This massive tax hike could not come at a worse

time, as the mining industry is in the midst of the biggest

downturn in decades,” the mine manager added.

In a move aimed at getting Northwest Arctic Borough

officials to the negotiating table, Teck Alaska has filed a

complaint over the tax hike in Alaska Superior court.

“All we are asking is for the borough to come to the

table and negotiate a reasonable payment that supports

the region and the continued operation of Red Dog,” said

Letient.

Economic generatorSince 1989, the Red Dog Mine has been an important

economic engine in Northwest Alaska – providing rev-

enue for NANA, the Alaska Native regional corporation

and the local government as well as providing jobs for

many of the residents of the remote region.

“For more than 25 years Red Dog Mine and the

Northwest Arctic Borough have cooperated in a unique

way, working together to ensure that the benefits of min-

ing reach borough residents and communities and allow

for our continued operation,” Teck explained in a Jan. 11

letter to Red Dog employees, of which 64 percent are

NANA shareholders.

Prior to Red Dog going into production, Teck and

NANA reached a mutually beneficial agreement that

allowed the Vancouver, B.C.-based miner to mine one of

the richest zinc deposits on the planet and provided the

Alaska Native corporation an opportunity to establish a

strong economic base for its more than 13,800 Iñupiat

shareholders whose ancestors settled the northwest cor-

ner of Alaska thousands of years ago.

Over the ensuing 26 years, NANA and its sharehold-

ers have enjoyed more than US$1.7 billion in royalties,

wages and tax payments from the Red Dog Mine.

“To us, Red Dog is an example of how Arctic devel-

opment can work to the benefit of Arctic communities,”

NANA CEO Wayne Westlake said during a November

presentation at the Resource Development Council

Convention in Anchorage.

Beyond the progressive partnership forged between

NANA and Teck, a local government was established to

“improve the quality of life for all residents” living with-

in the more than 40,000 square miles of Northwest

Alaska that the borough covers.

Over the past 26 years, the Red Dog Mine has paid

more than US$140 million to the borough, accounting

for more than 70 percent of the local government general

fund revenue. This revenue has come in the form of pay-

ments in lieu of taxes.

Traditionally, these “PILT” payments are the result of

agreements negotiated between the Red Dog Mine and

Northwest Arctic Borough every five years.

Over the past five years, these negotiated payments to

the borough have averaged nearly US$11.5 million per

year, a total of US$57.5 million for that span.

The Northwest Arctic Borough, however, decided not

to renegotiate the PILT payments prior to them expiring

at the end of 2015. Instead, the assembly opted to imple-

ment a severance tax that would be assessed on the ore

extracted in the borough and is expected to more than

triple the payments Red Dog pays to the regional gov-

ernment.

Discriminatory, opportunisticTeck contends that the US$30 million to US$40 mil-

lion per year that it will pay to Northwest Arctic Borough

under the new tax scheme will be roughly seven times as

much as the sum its nearest peer in the state, Kinross

Gold Corp.’s Fort Knox Mine, pays out in comparable

taxes.

Fort Knox paid the Fairbanks North Star Borough

US$5.24 million in taxes during 2014.

Teck said that under that borough’s taxing system, the

Red Dog Mine would only pay about US$3.67 million in

taxes, or about 10 percent of what Northwest Arctic

Borough is levying against the mine.

The mining company characterizes the tripling of an

already healthy tax structure as unreasonable, unconsti-

tutional and unfair.

The only business that is currently subject to the sev-

erance tax is Red Dog, which is already, by far, the

biggest taxpayer in the Northwest Arctic Borough,

accounting for 70-80 percent of the municipal govern-

ment’s general funds. Teck argues that this targeted tax

hike is discriminatory.

The company also contends that the steep tax increase

is opportunistic, taking advantage of the fact that Red

Dog can’t be moved to a jurisdiction with a more favor-

able tax structure, which would be anywhere else in

Alaska.

While Teck officials say they have a strong legal

argument, they do not want the courts to decide what is

best for Red Dog and the region.

“It is our hope that, rather than continue the legal

process, the NAB will agree to come to the table and

work cooperatively to achieve a reasonable new agree-

ment,” company officials wrote in a paper laying out

their position.

Providing a bridgeNANA, which has strong business and personal ties

to both Teck and Northwest Arctic Borough, is doing its

best to get both sides of this taxing issue back to the

table.

“We understand the perspectives of both parties, and

we believe we can help provide a bridge to reach a long-

term, or interim, agreement. We want to come together,

in the spirit of cooperation, and resolve this issue

through structured mediation,” the Native corporation

commented when questioned about the tax hike.

NANA owns the Red Dog deposit and is 30 percent

owner of the operation.

On the flipside, the Northwest Arctic Borough covers

exactly the same area as the NANA region and the vast

majority of the some 8,000 residents of the region are

NANA shareholders, as well as beneficiaries of any tax

the borough takes in.

Despite the overlapping interests, NANA says the

financial benefits the mine already provides to the area

outweighs by far the added revenue the borough hopes to

get through the steep tax increase.

Since mining began, NANA has received roughly

US$1.3 billion in net proceeds payments from Red Dog,

of which it has distributed about US$820 million to other

regions and at-large shareholders via the 7(i) sharing

provisions of the Alaska Native Claims Settlement Act.

Of the US$480 million that NANA has kept, some

US$221 million has been paid in dividends to sharehold-

ers.

This is on top of the more than US$469 million in

wages Red Dog has paid to NANA shareholders working

at the mine over the past 26 years, including the US$39.3

million paid to 604 NANA shareholders that either

worked full- or part-time at Red Dog in 2015.

“We are concerned about jobs. A reduced operating

budget for the mine will mean fewer jobs for NANA

shareholders,” the Native corporation said in a state-

ment. l

l F I S C A L P O L I C Y

A taxing dilemma for Red DogNorthwest Arctic Borough levies steep tax hike that threatens longevity of world-class zinc mine; Teck pressures for negotiations

11NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

“This massive tax hike could not come at aworse time, as the mining industry is in themidst of the biggest downturn in decades.”

–Henri Letient, general manager, Red Dog Mine

SHA

NE

LASL

EY

Over the past 26 years, the Red Dog Mine has been an economic generator in Northwest Alaska, providing revenue for NANA Corp., supporting the municipal government and providingjobs to many of the residents of this remote region.

the possibility of a pre-emptive 404(c)

veto of Pebble. While it is unclear

whether or not EPA’s highest office was

considering this plan separately from

what was going on in Alaska, this briefing

comes several months prior to requests

for such actions by Bristol Bay Native

groups, which EPA said was its impetus

to consider using the unprecedented

method of stopping a project ahead of

permitting.

The stage is setThe EPA Inspector General Office’s

findings are in sharp contrast to conclu-

sions to the recently completed investiga-

tion by former U.S. Secretary of Defense

William Cohen, who was hired by the

Pebble Partnership to complete a review

of EPA’s actions surrounding the Bristol

Bay Watershed.

Cohen said his investigation turned up

evidence of questionable activities by

EPA and urged federal watchdog groups

such as the EPA Inspector General and

U.S. House Oversight Committee to

probe further into EPA’s actions at

Pebble.

“After an analysis of thousands of doc-

uments and discussions with more than

60 stakeholders, I conclude that EPA’s

actions were not fair to all stakeholders,”

Cohen wrote in a 346-page report outlin-

ing his findings. “The statements and

actions of EPA personnel … raise serious

concerns as to whether EPA orchestrated

the process to reach a pre-determined out-

come.”

Collier was somewhat surprised at the

large chasm between the thoroughness of

the inspector general and Cohen reports,

considering they were tasked to investi-

gate the same topic and had access to the

same evidence.

“I think it is the single most embarrass-

ing piece of work by an inspector general

that I have seen in my 40 years of work-

ing with inspector generals,” the Pebble

CEO told Mining News.

The Pebble Partnership, however, was

not caught off-guard by the findings.

“One of the reasons we initiated the

Cohen report is there was a great concern

that there might be a whitewash in the

inspector general investigation,” Collier

said.

The contrasting conclusions also has

set the stage for the continuation of a law-

suit in which the Pebble Partnership

alleges EPA worked secretly with anti-

Pebble groups in pursuit of the goal of

banning or restricting development of

Pebble prior to the permitting process.

“We are by no means through making

our case that EPA acted inappropriately

and perhaps illegally with respect to

Alaska’s Pebble project,” Collier said.

“We will have the opportunity to depose

as many as 35 senior EPA officials, insid-

ers and others in the environmental com-

munity as part of our FACA discovery,

and we continue to gain new information

and fresh insights through the investiga-

tive efforts of Congress.”

Supported by the growing piles of

email conversations and other incriminat-

ing evidence, Collier said he expects the

trial “questioning will be dramatically

more intense than what the IG did.”

Depositions are expected to be sched-

uled within the next month, setting up the

next stage of the trial.

Collier said the findings of the inspec-

tor general report parallels the arguments

made by EPA in the case, but this stance

is not enough for the agency to prevail

considering the massive amount of evi-

dence to contrary.

Federal Judge H. Russel Holland, who

is presiding over the case, has already

found Pebble’s allegations credible

enough to issue a preliminary injunction

ordering the regulator to halt efforts to use

Section 404 (c) of the federal Clean Water

Act to pre-emptively block or restrict

Pebble permits.

A number of U.S. Congressional com-

mittees – including House Science, Space

and Technology and House Oversight and

Government Reform – have been critical

of EPA’s attempt to use the 404(c) process

to pre-emptively restrict the Pebble mine

project.

Science, Space, and Technology

Committee Chairman Lamar Smith, R-

Texas, said his committee will continue

its probe into EPA’s actions

“The Inspector General’s report on

EPA’s actions to block the Pebble Mine

draws misleading conclusions without

having all the facts,” Lamar responded to

the report. “It also appears that the IG

failed to review a significant body of pub-

lically available information brought to

light by the Science Committee that

demonstrates clear instances of bias and

predetermination on the part of the EPA.”

Collier expects that the EPA Inspector

General Arthur Elkins, Jr. will be called

before these committees to testify on the

quality and content of the report.

“This issue is just too important to be

swept under the rug – not only for us and

for the State of Alaska, but for the integri-

ty of objective, science-based decision-

making in this country,” the Pebble CEO

said. l

12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

continued from page 9

PEBBLE REVIEW

Doris mine plan and to potentially add

significant high-grade gold ounces to the

Doris Mineral Resource base. A total of

12,000 meters of underground diamond

drilling are budgeted for 2016, with

6,000 meters focused on infill drilling

and 6,000 meters focused on resource

expansion. A planned 8,000 meters of

surface drilling will be focused on

resource expansion and exploration in

the southern portion of the Doris trend.

GJ resource updated; Spectrum estimate next

Skeena Resources Ltd. Jan. 14

released an updated resource estimate for

the Donnelly and North Donnelly cop-

per-gold deposits at its recently acquired

GJ property in the Golden Triangle of

northwestern British Columbia. The

Donnelly and North Donnelly deposits

now host 133.67 million metric tons of

measured and indicated resource, using a

0.2 percent copper cut-off, grading 0.32

percent (940.23 million pounds) copper

and 0.36 grams per metric ton (1.56 mil-

lion ounces) gold. In addition, 53.69 mil-

lion metric tons of inferred resource

grading 0.26 percent (312.53 million

lbs.) copper and 0.33 g/t (570,000 oz.)

gold has been estimated for the deposits.

Contained pounds of copper and ounces

of gold in the measured and indicated

categories have increased by 12 percent

each, in comparison to the previous esti-

mate calculated in 2007. Inferred pounds

of copper and ounces of gold have

increased by 200 percent and 280 per-

cent respectively. The Donnelly and

North Donnelly zones are meters wide,

1,600 meters long and an average of 200

meters deep. Skeena says there is good

potential for resource expansion to the

west and at depth on the Donnelly

deposits. It is recommended that drill tar-

gets be selected following a detailed

review of available geological, geophysi-

cal and geochemical data. The report

authors also recommend resource model-

ing the nearby GJ deposit which is not

included in the current resource estimate,

and completing a property-wide target

review to evaluate exploration potential

of other porphyry and high-grade vein

prospects. The GJ property, which was

acquired by Skeena in October, is locat-

ed adjacent to the company’s Spectrum

gold project where 17,350 meters of

drilling in 61 holes was completed in

2015. A resource estimated that will

include that drilling is expected to be

released by the end of the first quarter.

Walter Coles, President and CEO of

Skeena commented, “The deposits at GJ

in conjunction with the Spectrum

deposit, all of which are open for expan-

sion, form the foundation of a district-

scale development project, located close

to electrical power and roads in a mining

friendly jurisdiction,” explained Skeena

President and CEO Walter Coles.

“Although metal prices are not favorable

for development of the GJ property at

this current time, we view the deposits at

GJ as an inexpensive long term call

option on copper and gold prices, with

very low holding costs.” l

continued from page 10

NORTHERN NEIGHBORS

TMA

C R

ESO

UR

CES

IN

C.

TMAC Resources' Hope Bay gold mine project in Nunavut is on track to begin production thisyear. The plant is scheduled to process 1,000 metric tons of ore per day in 2017, much ofwhich will come from a high-grade stockpile averaging 15.2 grams of gold per metric ton.

By ALAN BAILEYPetroleum News

A laska’s Division of Oil and Gas has

issued a permit allowing Doyon

Ltd. to conduct a seismic survey on state

land in the northern part of the Nenana

basin in the Alaska Interior. The 2-D sur-

vey, which will extend about 172 line

miles across a broad area of the basin, to

the northwest of the city of Nenana, is

planned for the 2016 winter season. The

permit covers the period Jan. 1 to April

30.

In addition to state land, the survey

area includes Native land and Mental

Health Trust land. Doyon holds both

state and Mental Health Trust oil and gas

leases within the area, the DOG decision

document says.

Access to the project area will mainly

be by helicopter and fixed wing aircraft,

with equipment and crews mobilized

from Nenana Airport and field staging

areas on private land or one of the local

roads, the decision document says.

Charges used as seismic sound sources

will be placed at 330-foot intervals in

holes drilled by a heli-portable drilling

rig. Wireless, nodal data receivers placed

55 feet apart will be used for recording

the seismic signals — the cutting of seis-

mic lines through the surface vegetation

will not be required.

Exploration programDoyon has been exploring for oil and

gas in the Nenana basin for several year

and conducted 2-D seismic surveys

across wide areas of the basin in 2005

and 2012. The corporation drilled the

Nunivak No. 1 exploration well in the

central part of the basin in 2009 and the

Nunivak No. 2 well, also in that central

area, in 2013. While not encountering

viable oil or gas pools, the wells provided

tantalizing evidence for an active petrole-

um system, with indications that the

basin may contain oil as well as gas.

In the winter of 2014-15 Doyon con-

ducted a 3-D seismic survey in the cen-

tral part of the basin to add detail to the

results of previous 2-D surveys. And the

corporation has announced a plan to drill

a third well, the Toghotthele No. 1, dur-

ing the summer of 2016 at a location

about two miles north of the previous

wells.

James Mery, Doyon vice president for

lands and natural resources, has previ-

ously told Petroleum News that the new

2-D seismic survey will fill in gaps in the

previous reconnaissance surveys in the

area. The corporation anticipates follow-

ing up with a 3-D survey in a subsequent

season, to upgrade promising leads into

prospects, Mery said. l

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

State approves Doyon Nenana seismic surveyNative corporation plans to infill some previous reconnaissance surveying as part of a search for oil and gas in the basin

PETROLEUM NEWS • WEEK OF JANUARY 24, 2016 13

(907) 562-5303 | akfrontier.com

Safety Health Environment Quality

THE TEAM THAT

DELIVERSD

OYO

N L

TD.

In addition to state land, thesurvey area includes Native landand Mental Health Trust land.

Doyon holds both state andMental Health Trust oil and gas

leases within the area...

LAND & LEASINGNo substantialnew informationfor lease sales

The Alaska Division of Oil and

Gas has issued a decision of no sub-

stantial new information for the

upcoming Cook Inlet and Alaska

Peninsula areawide oil and gas lease

sales.

The best interest finding for the

Cook Inlet areawide oil and gas lease

sales was issued in 2009 and the find-

ing for the Alaska Peninsula sales was

issued in 2014.

State statute requires supplement-

ing the most recent finding if the

director of the division determines

that substantial new information has

become available. The Cook Inlet best

interest finding was supplemented in

2010 and 2011; the Alaska Peninsula

finding has not been supplemented.

A call for new information was

issued Sept. 30, with the submission

period ending Nov. 6.

The division said it received three

timely comments and requests and

one comment submitted after the

deadline.

—PETROLEUM NEWS

A call for new information wasissued Sept. 30, with thesubmission period ending

Nov. 6.

14 PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

EXPLORATION & PRODUCTIONConoco plans Kuparuk drilling annex pad

ConocoPhillips Alaska has applied to the U.S. Army Corps of Engineers to

build a drilling annex pad and access road to support continued development at

the Kuparuk River unit.

The proposed support pad is close to the western edge of the Kuparuk River

unit, near the 2L pad, and southwest of the Mustang Pad, according to a map

included in the application.

The pad would require placement of 129,500 cubic yards of fill material on

16.5 acres of wetlands for construction of a pad and access road. The pad, 1,040

feet by 628 feet, would require 122,911 cubic yards of fill and would have space

for three rig camps, vehicle parking, bullrails, a tanker truck loading area with fuel

tank, bulk storage tanks, equipment staging and a safety station. The access road,

500 feet long and 35 feet wide, would require placement of 6,589 cubic yards of

material in 1.27 acres of wetlands. The project map shows the access road coming

off the existing Tarn Road southwest of the 2L pad.

The corps said there would be no new drill sites, cross country pipelines or

overhead power lines. Electricity would be supplied to the camps from existing

infrastructure and power cables would be buried. Existing Kuparuk road infra-

structure would be used for access to the project site and material source.

If permits are received work would begin in April and be completed in August.

The corps said no tundra disturbing activities would take place during the bird

nesting season from June 1 through July 31.

The corps is taking comments on the proposal through Feb. 16.

—KRISTEN NELSON

Suncor lands COS deal Peace has broken out in the Canadian oil patch, with Suncor Energy and

Canadian Oil Sands coming to terms on a C$4.2 billion shareholder deal plus

C$2.4 billion of debt ending a nasty public battle between the two oil sands giants.

If the deal announced Jan. 18 gets approval from shareholders, regulators and

courts, Suncor will control close to half of Syncrude Canada or about 175,000

barrels per day of capacity at the consortium’s bitumen mine, on top of the

400,000-425,000 bpd targeted by Suncor for 2016.

The latest bid will give COS shareholders 0.28 of a Suncor share for each of

their shares, a 12 percent bump from the early October offer of 0.25-for-one, but

lagging behind Suncor’s offer last April of 0.33.

With no hope of making money at current oil prices, and the prospect of further

weakness, COS had more than ample reason to agree to friendly terms.

AltaCorp Capital analyst Nick Lupick said the freshened offer is “effectively

the same” as the October bid when Suncor offered C$4.3 billion for COS equity

and estimated debt at C$2.3 billion.

COS Chairman Don Lowry said his board has been able to “remain steadfast”

in its commitment to maximize value for its shareholders despite a 37 percent

decline in spot oil prices over the past three months.

Suncor Chief Executive Officer Steve Williams said he was pleased to have the

support of the COS board of directors and major COS shareholder Seymour

Schulich, who owns 5 percent of the six-company consortium, who took out full-

page ads in two national Canadian newspapers to oppose what he called Suncor’s

“giveaway price.”

—GARY PARK

FINANCE & ECONOMY

l I N T E R N A T I O N A L

China sets trade rulesCanada told free-trade pact hinges on pipelines to Pacific Coast, removal of ban on Chinese oil asset ownership; Trudeau plans trip

By GARY PARKFor Petroleum News

Opening energy pipelines to the Pacific Coast is sud-

denly emerging as vital to Canada’s hopes of nego-

tiating the first bilateral free trade deal between China

and any North American country.

And that would likely need to be accompanied by an

end to Canada’s restrictions on Chinese state-owned

investments in the oil and gas sector, Han Jun, Beijing’s

vice minister of Financial and Economic Affairs, told a

briefing earlier in January at an Ottawa law firm.

He set those conditions about two months before

Prime Minister Justin Trudeau is due in China and India

to explore trade opportunities and the chances of free

trade pacts beyond the proposed Trans Pacific

Partnership.

That would follow Trudeau’s expected bilateral meet-

ings with President Barack Obama as Canada seeks to

re-establish cordial and working relationships with the

United States in the wake of Obama’s rejection of the

Keystone XL pipeline.

At stake for Canada is an estimated incremental rise

in exports to China of C$7.7 billion a year on top of the

current C$17 billion, still leaving a huge trade imbalance

compared with C$49 billion in Chinese imports in 2015.

Sinopec purchases US crudeThe need for urgency by Canada, especially if it gives

priority to the shipment of crude bitumen from the oil

sands, got a sharp jolt with reports that China’s state-

owned refiner Sinopec has purchased its first batch of

U.S. crude oil since sporadic shipments in the late 1990s

from Alaska.

Traders say a cargo is due to leave the U.S. Gulf

Coast in March and could set the stage for a sustained

flow from the U.S.

Although the Gulf has shipping limitations, Unipec,

China’s trading arm, has leased oil storage tanks in the

Caribbean, which would allow it to blend U.S. shale oil

with heavy Latin American crudes, which would suit the

refining facilities in China.

If there was any need for a further prod to action by

Canada it has come with the lifting of sanctions on Iran

and the certain prospect of resumed oil exports from that

country.

Han, who held discussions with senior officials in the

Canadian government, said that any free-trade agree-

ment with Canada could open the door to a “flood” of

energy products as well as fertilizers and agricultural

products, as well as offering an outlet for green technol-

ogy to reduce carbon emissions.

Concern with banBut he emphasized that China is “highly concerned”

about Canada’s ban on outright ownership of oil sands

producers by foreign state-owned enterprises, which he

said is seen as discrimination against China.

The tightened rules were imposed in 2012 after the

federal government approved the US$15 billion takeover

of Nexen by China National Offshore Oil Corp.

Colin Robertson, with the Canadian Global Affairs

Institute, said the Chinese want a re-examination of

those rules.

Han said his government also wants to extend talks

begun with the government of former Prime Minister

Stephen Harper on establishing a maritime energy corri-

see TRADE RULES page 15

l G O V E R N M E N T

Coast Guard publishes

icebreaker specificationHopes for funding in 2017 federal budget to address shortfallin U.S. strategic heavy icebreaker capabilities in polar regions

By ALAN BAILEYPetroleum News

In the latest development in a lengthy

debate over the inadequacies of the

U.S. icebreaker fleet, on Jan. 13 Adm.

Paul Zukunft, U.S. Coast Guard comman-

dant, announced that the Coast Guard was

posting a polar heavy icebreaker specifi-

cation on the FedBizOpps website, to

give industry a head start on a potential

opportunity to bid on icebreaker con-

struction, should Congress appropriate

the necessary funding. Speaking during

an event organized by the Center for

Strategic and International Studies,

Zukunft commented that the Coast Guard

hopes that the 2017 federal budget will

include funding to move forward with an

icebreaker project but that, at this point,

there is no federal appropriation for ice-

breaker acquisition.

Sen. Lisa Murkowski, chair of the

Senate Committee on Energy and Natural

Resources and member of the Committee

on Appropriations, who spoke at the same

event, commented on President Obama’s

statement during his recent visit to

Alaska, in which the president mentioned

an intention to accelerate the replacement

of the country’s only operational heavy

icebreaker, the Polar Star.

“An announcement is good, but what

you really need is money to go behind the

announcement,” Murkowski said. “You

need to make sure that it’s more than just

words.”

While the 40-year-old Polar Star is

reaching the end of its operational life, its

sister ship, the Polar Sea, is laid up in

port. The only other U.S. icebreaker, the

Coast Guard Cutter Healy, is a medium

duty icebreaker, unsuitable for year-round

operations. And the Polar Star is currently

operating in the Antarctic, supporting

strategic infrastructure there, Zukunft

said, referencing U.S. staffed Antarctic

research stations.

Murkowski commented that the

Russians are currently in the process of

constructing 14 new icebreakers of vari-

ous designs.

Consultation with stakeholdersZukunft said that, in preparing its new

polar icebreaker specification, the Coast

Guard had consulted a wide variety of

stakeholders in the Arctic region to devel-

op a set of operational requirements that

would drive the icebreaker design.

“I want to make sure I have stable

requirements, so that I can then turn to

industry and say ‘this is what we need,

and we’re not going to change our mind

halfway into this process,’” he said.

The specification requires the ice-

breaker to be capable of breaking through

8-foot-thick ice at a continuous speed of 3

knots and through 21-foot ridged ice. The

vessel must be able to leave in its wake a

channel at least 83 feet wide. And the ves-

sel, which needs cargo handling and heli-

copter operation capabilities, must have a

minimum range of 21,500 nautical miles

at 12 knots in ice-free waters, with the

capability of a sustained speed of 15

knots.

Zukunft commented that, while the

U.S. Navy sees a strategic need to recap-

italize its fleet of ballistic missile sub-

marines, each of which costs some $8 bil-

lion, the Coast Guard sees a strategic

need for polar icebreakers. It will be nec-

essary in the short term to decide whether

to restore the Polar Sea, or whether to

mothball that vessel as a source of spare

see ICEBREAKER SPECS page 15

PETROLEUM NEWS • WEEK OF JANUARY 24, 2016 15

dor in Canada.

Robertson said China, Japan and India

are eager to buy Canadian oil and gas, but

they can’t access the resources without

pipelines.

Survey sees positive resultsA survey released earlier in January by

the Canada-China Business

Council/Canadian Council of Chief

Executives explored whether a free trade

deal with China would make sense.

The answer was a resounding “yes,”

with up to 25,000 new jobs being created

over the next 15 years, reinforcing pre-

liminary results from a 2012 study that

concluded there was “untapped potential

for further growth” in a wide range of

sectors.

Sarah Kutulakos, executive director of

the Canada China Business Council, said

Canada is suddenly at the “back of the

(trade) bus” following the completion of

a free trade pact that was 10 years in the

making between China and Australia.

She said that deal gives Australian

resource companies and banks — two of

the underpinnings of Canada’s economy

— tariff-free access to the Chinese mar-

ket for 95 percent of its exports.

But critics of free trade with China

note that the World Bank governance

indices rate China as a medium-range risk

for corruption, regulatory quality and rule

of law. l

continued from page 14

TRADE RULES

parts for the Polar Star, to ensure the con-

tinuing operation of at least one heavy

U.S. icebreaker until a new icebreaker

can be constructed, Zukunft said.

The Coast Guard’s roleAs the United States currently chairs

the Arctic Council of the eight Arctic

nations, the Coast Guard has a crucial role

to play in enabling diplomatic maneuver-

ing room in the Arctic, in a way that big

navies cannot, Zukunft said. The Arctic

nations have formed an Arctic coast guard

forum, in which the U.S. Coast Guard

commandant sits next to the equivalent

Russian four-star general for a strategic

dialogue, setting aside disputes elsewhere

in the world to focus on the Arctic.

“We do not want the Arctic to be the

next military front, but if we stay

entrenched in our isolated mindsets that is

exactly what we will have,” Zukunft said.

Currently, the U.S. Coast Guard only

sends its vessels into the Arctic seas dur-

ing the summer ice-free season. And, with

32 vessels traversing the Northern Sea

Route last year around the northern coast

of Russia, does the United States need to

send an icebreaker around that route, to

exert freedom of navigation, Zukunft

wondered.

Meanwhile, the Healy has been map-

ping the waters of the U.S. extended

Arctic continental shelf, a region that is

more than twice the size of the state of

California and which holds major oil, nat-

ural gas and mineral resources.

“These are technically sovereign

waters of the United States,” Zukunft said.

Arctic safety concernsMoreover, with the recession of Arctic

sea ice, the increasing frequency of ship-

ping transits of the region is raising the

stakes on the possibility of an Arctic

marine accident. This year, 1,000 passen-

gers have booked on a marine tour in

August and September, on a vessel with a

crew of 600, scheduled to go north

through the Bering Strait, pass around the

north of Alaska and transit the Northwest

Passage before returning to port in New

York City, Zukunft said. This voyage will

entail sailing through semi-charted

waters. The ability of the Coast Guard to

launch a rescue operation in the high

Arctic is limited to non-existent, Zukunft

commented.

“People look to the United States as a

global leader, but where are we in the

Arctic?” he asked. l

continued from page 14

ICEBREAKER SPECS

INTERNATIONALGo ahead on Barents offshore fields

Despite the oil industry gloom over the

low price of oil, two new Arctic offshore

oil fields are moving ahead. Norway’s

Petroleum Safety Authority has approved

the imminent startup of Eni SpA’s Goliat

field in the Barents Sea. And Statoil has

announced that is going to proceed with

development of the Johan Castberg field,

also in the Norwegian Barents.

According to a report in the Wall Street

Journal, following multiple delays in field

startup oil could start flowing from the

Goliat field as early as February. The investment of about $6 billion that the part-

ners in the field have put into the project represents a 52 percent cost overrun rel-

ative to the original development plan — analysts have assessed that the

breakeven oil price for the field is more than $100 per barrel, the Wall Street

Journal says.

Reuters has reported that Statoil’s decision to develop Johan Castberg follows

a rework of the design for the field. The company had previously deferred a final

investment decision but according to Statoil CEO Eldar Saetre now has a devel-

opment plan that cuts development costs by half. With a design concept involving

a floating production, storage and offloading concept, production could start in

2022, Reuters said. Apparently a Norwegian consultancy firm has estimated the

breakeven oil price for Castberg to be $56 per barrel.

—ALAN BAILEY

Norway’s Petroleum SafetyAuthority has approved the

imminent startup of Eni SpA’sGoliat field in the Barents Sea.And Statoil has announced that

is going to proceed withdevelopment of the JohanCastberg field, also in the

Norwegian Barents.

targeted credits”; strengthening the mini-

mum tax for North Slope oil and gas;

focusing the state’s purchase of oil and gas

tax credits on small companies hiring

Alaska residents; and making changes “to

promote good governance in tax adminis-

tration.”

The second bill, Senate Bill 129 and

House Bill 246, would, the governor said,

“establish a new oil and gas infrastructure

program and fund” for AIDEA, a “tool for

AIDEA to use in assisting the oil and gas

industry in the state by proposing an oil and

gas infrastructure development program to

allow AIDEA to assist in supporting small

or medium-sized oil and gas producers that

are dependent on outside financing.”

Tax change specificsA fiscal note for the tax change bill pre-

pared by Ken Alper, director of the

Department of Revenue’s Tax Division,

says the bill is described as “a comprehen-

sive attempt to reform and reduce the cost

of Alaska’s current program of providing

direct tax credit rebates and other advan-

tages to oil and gas companies.”

Alper said that through the end of fiscal

year 2015 companies received some $7.4

billion in tax credits, including credits used

against tax liability and credits repurchased

by the state.

Goals of the legislation include reduc-

tion of the state’s annual cash outlay; pro-

tecting net operating loss credits “especial-

ly for exploration activity”; limiting repur-

chases to companies who need the support;

strengthening the minimum tax and pre-

venting abuses to the system; being more

open and transparent; and honoring and

paying credits earned to date and through

any transition period.

Fiscal impactAlper said the Department of Revenue

estimates the legislation would have an ini-

tial impact of $500 million per year, with

$400 million “saved through reduced oper-

ating budget expenditures” and $100 mil-

lion from increased revenues.

Of the savings, about $200 million

would come from tax credit certificates

which would no longer be earned and

about $200 million from some tax credit

certificates that would continue to be

earned but, in most cases, would have to be

held until the companies had tax liability.

The $100 million earned would come

about half from hardening the minimum

tax floor, reducing the ability of companies

to offset the 4 percent payment, and about

half from increasing the minimum tax rate

to 5 percent.

Alper said the department’s oil price

forecast indicates that by fiscal year 2019

oil prices will likely have recovered

enough that “it would be unlikely that one

or more of the major oil producers would

have a net operating loss.”

It would cost about $1.5 million to

implement the changes in the bill as the Tax

Revenue Management System and

Revenue Online tax portal would require

“substantial reprogramming,” but no addi-

tional costs are estimated to administer the

tax program.

AIDEA John Springsteen, AIDEA director, said

in a fiscal note that establishment of the Oil

and Gas Infrastructure Development pro-

gram and fund would provide AIDEA

continued from page 1

TAX CHANGES

see TAX CHANGES page 20

16 PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

Oil Patch Bits

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TOTE Maritime successfully performs first LNG bunkeringTOTE Maritime Puerto Rico success-

fully loaded LNG bunkers aboard theworld’s first LNG powered container-ship, MV Isla Bella. Approximately100,000 LNG gallons transported by 12TOTE-owned LNG ISO containers wereloaded on schedule. The bunkering wasconducted under strict U.S. CoastGuard oversight while Isla Bella wasalso undergoing cargo operations.

The LNG was transferred from theISO tank containers using a speciallydeveloped transfer skid developed byTOTE’s partner Applied CryogenicsTechnologies of Houston, Texas. Thetransfer skid is designed to allow fourISO tanks to be transferred to Isla Bellaat once, dramatically reducing transfertime.

The LNG was sourced by TOTE’spartner, JAX LNG, LLC, from AGLResources’ LNG production facility inMacon, Georgia. Genox Transportation,a specialized LNG trucking partner of TOTE, transported the fuel to Jacksonville. PivotalLNG, a subsidiary of AGL Resources, also provided transfer expertise to TOTE Maritime withits highly trained LNG experts, ensured the operation was conducted safely and in accor-

dance with best industry practices.Oversight of the operation both at shipside and on shore was provided by TOTE

Services Inc., TOTE Maritime’s sister company that manages the vessels.

Fluor named 2016 best company for leaders Fluor Corp. announced that it was named to the 2016 list of best companies for leaders

by Chief Executive Magazine. Fluor was No. 13 on the list and the only publicly tradedengineering-construction company recognized.

“Fluor is proud to be recognized as a Best Company for Leaders and especially as theonly publicly traded engineering-construction company on this year’s list,” said DavidSeaton, Fluor’s chairman and chief executive officer. “People who are familiar with Fluorknow we have a 100-year history and culture that values employees. We understand thepower of people and know that our positive culture, combined with leadership processesand systems, ensure we have talented, engaged and aligned professionals serving ourclients across the globe. That differentiator enables us to have a competitive advantage inthe marketplace.”

Chief Executive seeks to identify companies that excel in leadership development, can-vassing world-class companies through a questionnaire and interviews to learn what theyare doing to identify and nurture people three or more levels down the chain from thechief executive officer. Rankings are determined by a number of factors including the com-pany’s reputation among its peers as a source for well-rounded talent and the percent ofinternally recruited senior management.

Editor’s note: All of these news items — some in expanded form — will appear inthe next Arctic Oil & Gas Directory, a full color magazine that serves as a marketingtool for Petroleum News’ contracted advertisers. The next edition will be released inMarch.

CO

URT

ESY

TOTE

MA

RIT

IME

They would like to have some things in

place before they move forward. We

talked about the municipal tax exemp-

tion and an extension. They are working

with the city of Juneau now to see if the

city would support the tax exemption to

their project if the Legislature were able

to extend the number of years that the

opportunity would happen.

Petroleum News: Did he say wherethe gas would come from? BritishColumbia perhaps?

Munoz: We didn’t get into the details

of where the gas would come from. I

would assume it could come from

Canada. It could come from the Lower

48 but they are committed to bringing

natural gas to Juneau and they need to

see certain statutory modifications to

make the project possible or successful.

Petroleum News: So are they lookingat this as a regional investment withJuneau being the hub?

Munoz: My understanding is that

Juneau would be the hub and once

Juneau is built out then the opportunity

would be extended to other communities.

Petroleum News: Back to the Alaska,the gas line, what would you like to seeaccomplished next for the gas line?What piece of the puzzle is next in yourmind?

Munoz: Well the next big issue is of

course fiscal certainly. Before we move

to the FEED process, the producers have

indicated that they need fiscal certainty

before they move forward to construc-

tion. That would require the Legislature

passing a resolution to put the language

on the November ballot.

I believe that is going to be a signifi-

cant undertaking to get public buy-in to

create fiscal certainty at a time when we

are talking about reduced dividends and

possibly implementing broad-based

taxes.

I believe we need to be looking at

concessions or opportunities for compa-

nies to cover more of the state’s upfront

costs, the pre-construction costs, in

exchange for having that fiscal certainty.

The public is going to want to see some-

thing in exchange for locking in the

long-term tax rate, especially at this time

of budget concerns.

Petroleum News: So is there anythingparticular you need to learn from thegovernor on this issue?

Munoz: OK, I understand the impor-

tance of fiscal certainty and the impor-

tance it has for the success of the project,

getting to the construction phase. What

I’m concerned about is getting the pub-

lic’s buy-in. Recognizing that what can

the companies offer that makes that pub-

lic support possible. That’s what I will

be focusing on. I will be focusing on

whether or not to get the companies to

commit more of the upfront cost, then

when we get to the point where we know

construction is happening, then possibly

we could work out a deal where those

costs are covered through our portion of

the construction costs. What we’ve seen

happen over and over again is that we’ve

seen the state of Alaska has initiated a

number of gas line projects or ideas, put

up a lot of money up front then never

seen a project come to fruition. Taking

that experience under our belt, I think

it’s really important to see whether we

are able to reduce the state’s risk at this

point before we get to the certainty of

the construction of the project.

Petroleum News: So would the advo-cating of a constitutional amendmentcome from the people in this building, beit the administration or Legislature, orthe industry because some people mayjust see this as a perk for the industry.

Munoz: That’s my concern. The pub-

lic, especially at a time when we are

talking about broad-based taxes and talk-

ing about reducing the permanent fund

dividend, will be very circumspect on

whether or not the oil companies deserve

fiscal certainty for the project. Of course

there is enormous benefit if the project

goes to construction. But I think we want

to be looking very closely at the risk-

reward. Expending those upfront costs

will determine our success to get support

for a constitutional amendment. Can’t

the state reduce its risk in this stage of

the game and in the process get public

support for a constitutional amendment

that would provide fiscal certainty and

more of a likelihood for a project in the

future.

Petroleum News: There is still a lot ofskepticism over whether the state canreally get a gas line at all. Various planshave been set aside for re-written plans.What makes you think the state is headedon the right path this time?

Munoz: The fact that this project is

integrated, that the four aspects of the

project — the gas, the treatment plant,

the pipeline, the export facility — they

are all integrated as one project. It’s still

going to be difficult. There is no doubt

about that because there are so many

international factors that will affect

whether or not we move forward. What I

was talking about earlier was the impor-

tance that we reduce our risk until we get

to construction phase because of the his-

tory the state has of unsuccessful gas line

projects. I think we need to look at histo-

ry and protect the state moving forward.

Petroleum News: Do you see yourselfas bullish on the project or is that a bittoo optimistic?

Munoz: I don’t know about bullish.

I’m more optimistic though because the

partners — the holders of the gas — are

all at the table together working on a

project from the extraction of the gas all

the way down to the shipment of the gas.

This is the first time in the history of our

state that it’s happened. So I think from

that standpoint it’s the most well thought

out, the most well developed. Whether or

not it goes forward depends on interna-

tional commodity prices, cost of financ-

ing, construction costs and many other

factors. I think the fact that we are work-

ing at the table with all the partners on

the project, on all aspects of the project

gives this project the greatest chance

we’ve had so far.

Petroleum News: Do you see that as apriority for the 90 days?

Munoz: I understand the governor is

looking at the possibility of a special ses-

sion just on this topic and it may happen

right after this session.

Petroleum News: Do you think youwould get more accomplished during theregular session if you can focus on oneor two items during a special session?

Munoz: This session is going to be

primarily about the budget and putting

into place a long-range sustainable plan

for the state of Alaska. That is going to

be the elephant in the room if you will. It

is going to take precedence over all the

other issues. So to that degree yes, it

would be nice to have an opportunity to

dig into just this issue.

Petroleum News: So as this session isgoing to largely be about budget, oil taxcredits will be part of that debate. Whatis your take on all of that?

Munoz: My constituents are telling

me that the oil and gas credits are where

we need to look for revisions. My feel-

ing is if we reduce or revise the current

credit program, it should be going for-

ward, not going back. In other words, I

don’t think we should take away credits

to projects that have already been com-

mitted, that are already in the develop-

ment phase. The governor has an innova-

tive idea — the idea of putting together a

loan fund is I think worthy of discussion.

Again, I’m looking at credits going for-

ward not retroactively taking them away.

Petroleum News: What questions thendo you have for the administration onthe oil tax?

Munoz: Well, we know that many of

the credits are going to small companies,

$700 million on the books last year. The

governor reduced that to $500 million.

My concern is these credits are paid to

companies that do not have a tax liabili-

ty. So at a time when we are struggling

to close our budget deficit, I think it’s

logical that we look at that. It needs our

focus. Having said that, I don’t want to

harm projects that already depend on the

availability of those credits, so it’s going

be a fine balance, and I look forward to

the discussion.

Petroleum News: These tax creditsare drawn from several tax regimes, be itACES or SB 21, but as SB 21 is the mostrecent change, is there anything youwould like to see revisited in SB 21?

Munoz: One issue was on the new oil,

getting the more favorable rate for new

oil. We looked at a seven-year sunset. I

think that is one area that could be

looked at. I like the idea of looking at

the floor and making sure that’s solid at

4 percent, maybe even 5 percent. That’s

logical. I think we need to look at the

qualified credits. Maybe 35 percent isn’t

an appropriate rate.

Petroleum News: So as you look atthese features — oil tax credits, the taxesthemselves, gas line — what is your pri-ority?

Munoz: My priority is to balance the

budget and implement sustainability in

our budget planning, spending versus

what we bring in. It’s going to take

reductions in the price of state govern-

ment. All the departments will be taking

reductions. We are going to be looking at

the oil and gas credit area. We’ll be look-

ing at whether we can afford to inflation

proof the corpus of the Permanent Fund

account. We will be looking at the possi-

bility of using excess earnings of the

Permanent Fund. There are a number of

ideas and models that are sustainable

that will be on the table. The governor’s

sovereign wealth will be the focus of a

great deal of discussion; the ISER model

will be on the table as well as the percent

of market value model, so we have a

number of good ideas to work with.

Time is of the essence for us to put a

sustainable plan forward.

Petroleum News: One of the otheritems that could come up for review isthe state’s payment in lieu of taxes(PILT) plan.

Munoz: I know the governor and his

representatives are working diligently

around this issue. There is a lot of work

with the mayors throughout that region.

We have not seen a specific proposal on

PILT yet but I’m encouraged that

progress is being made and the adminis-

tration is committed to completing their

end of the work. l

PETROLEUM NEWS • WEEK OF JANUARY 24, 2016 17

continued from page 3

MUNOZ Q&A“Whether or not it goes forward

depends on internationalcommodity prices, cost of

financing, construction costs andmany other factors. I think thefact that we are working at the

table with all the partners on theproject, on all aspects of theproject gives this project the

greatest chance we’ve had so far.”—Rep. Cathy Munoz, R-Juneau

18 PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

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possibility of shipping relatively cheap

hydropower from the southern Kenai

Peninsula, for example, or gas-fired

power from Southcentral Alaska, to wher-

ever it may be needed.

General agreementThere seems to be general agreement

that appropriate grid upgrades could sig-

nificantly decongest the system, while

system wide economic dispatch, to make

use of the cheapest available power source

at any moment in time, could significantly

reduce overall power costs.

Different portions of the grid are cur-

rently owned and operated by five inde-

pendent utilities and the state of Alaska.

The concept behind grid reform is to facil-

itate necessary investments in grid

upgrades and enable economic dispatch

through some form of grid unification.

Grid unification could also eliminate the

“pancaking” of transmission rates, a

mechanism whereby each utility adds its

transmission fees to the cost of shipping

power across multiple sections of the grid.

During the Alaska Energy Authority

board meeting on Jan. 13 David Gillespie,

CEO of the Alaska Railbelt Transmission

and Electric Company, talked to the board

about the potential benefits of having a

transmission company, or transco, manage

the grid, while also having a unified sys-

tem operator, or USO, set the rules under

which the transco operates. ARCTEC is

an entity formed by some of the Railbelt

utilities to pursue the USO concept.

Complex issuesGillespie and Tony Izzo, general man-

ager of Matanuska Electric Association,

discussed with AEA board members

some of the questions that the complex

issue of grid reform faces. MEA, while

actively engaged with the other utilities

in the grid reform efforts, is questioning

assumptions that the transco is necessari-

ly the optimum solution for the Railbelt

grid and wants to see a thorough

cost/benefit analysis completed and

assessed before any final decisions are

made.

A transco is typically a private for-

profit company, operating as a govern-

ment regulated utility. The company

makes money by investing capital in the

transmission grid infrastructure and then

earning a return on that capital invest-

ment. The return on investment would

come from the fees that the transco

charges for shipping power over its trans-

mission network. Provided that the bene-

fits in power cost savings that come from

transmission system upgrades exceed the

return on the investment in those

upgrades, electricity consumers should

see a net reduction in their electricity

rates.

The cost of financeGillespie said that, typically, a transco

would finance grid upgrades using

around 80 percent debt and 20 percent

equity, with an expectation of a 10 per-

cent rate of return on equity. He likened

the formation of a transco to the creation

of a toolkit, with the possibility of vari-

ous forms of financing, including private

equity and state-backed bonds. However,

because the cost of energy dominates the

overall cost of electricity in the Railbelt,

differences in the rates of return on capi-

tal for transmission upgrades would have

minimal impacts on electricity rates, he

suggested.

However, there was a lengthy discus-

sion on potential financing costs. The

current utilities are non-profit, member-

owned cooperatives with relatively mod-

est requirements for return on capital.

And Alaska state loans may be available

through the Alaska Industrial

Development and Export Authority, with

a rate close to 4 percent being a possibil-

ity.

Izzo expressed caution that, by com-

parison, current rates of return on the pri-

vately owned gas pipelines in the Cook

Inlet region are 12.5 percent. And, if

applied to transmission costs, “12.5 per-

cent is a big, thick pancake,” he com-

mented.

There is also a debate over how much

money actually needs to be invested in

the grid, to achieve the required reduc-

tions in grid congestion. Based on a 2013

Alaska Energy Authority analysis into

desirable grid upgrades, people have

been using a figure of about $900 mil-

lion. That level of investment would

encompass major improvements to the

southern section of the grid, enabling the

flexible transmission of power off the

Kenai Peninsula, and improved capacity

and reliability for the transmission sys-

tem in the northern part of the grid,

between Southcentral and the Fairbanks

region, in the Interior.

MEA has suggested that a substantial

portion of the anticipated transmission

benefits could be achieved at a much

lower cost, perhaps for as little as $200

million.

Changing the business modelA primary justification that has been

put forward in the past for grid unifica-

tion is the apparent inability of the elec-

tric utilities to invest in the grid, given

the balkanized nature of the grid owner-

ship and management. And Gillespie

commented that the current Railbelt busi-

ness model does not support interregion-

al planning or investment. It is very diffi-

cult for the utilities to plan inter-regional-

ly when costs that appear in one utility’s

territory generate benefits for one of the

other utilities, he said.

The utilities have in the past also com-

mented that they are stretched financial-

ly, given their recent major investments

in new power generation facilities.

Izzo has commented to Petroleum

News that while $900 million in trans-

mission system upgrades is probably

beyond the borrowing capabilities of the

utilities, a question remains over whether

significant benefits could be achieved a

step at a time at a lower and more afford-

able cost. And issues will arise over the

relative merits of specific transmission

upgrades for different utilities, regardless

of whether or not a transco is implement-

ed, Izzo said.

Izzo emphasized that MEA is fully

committed to the USO and transco effort

that the utilities are pursuing but, without

discounting the transco arrangement, the

utility wants to make sure that all options

for the grid are fully considered.

Gillespie told the AEA board that at

the highest level all of the utilities are

trying to accomplish the same thing,

making the best use of assets that cus-

tomers have paid for. He said that he was

hopeful that over the coming months the

utilities would narrow down those areas

where there are differences of viewpoint.

—ALAN BAILEY

continued from page 1

GRID DEBATE

included the West McArthur River oil field and the off-

shore Redoubt unit. The SEC, and some of the compa-

ny’s shareholders, alleged Miller grossly overstated the

value of the assets, which it obtained in late 2009 out of

the bankruptcy of the prior operator.

Penalty treatmentMiller disclosed back in August 2015 that a settlement

with the SEC was coming.

Miller isn’t “admitting or denying the findings” in the

order, the document says.

The SEC appears unlikely to collect the full $5 million

penalty. The order says the penalty would be placed in a

class of general, unsecured claims in Miller’s bankruptcy

plan of reorganization. The plan estimates a 10 percent

recovery on those claims.

A hearing is set for Jan. 27 in the bankruptcy court to

consider confirmation of Miller’s reorganization plan,

which lays out how the company aims to deal with its

heavy debt and other matters and continue as an Alaska

oil and gas producer.

Ultimately, holders of claims and equity interests will

vote on whether to accept the plan.

After consummation of the plan, Miller would be a

private company, no longer publicly traded as it is now.

ComplicationsMiller has asked the court to approve the SEC settle-

ment.

But the company is encountering some problems in

pushing its reorganization plan through.

The Internal Revenue Service on Jan. 20 filed an

objection to confirmation of the plan.

And one of Miller’s creditors, All American Oilfield

LLC, has filed a side suit known as an “adversary pro-

ceeding.” The complaint seeks payment for drilling done

in the North Fork natural gas field on the Kenai

Peninsula.

Miller’s subsidiary, Cook Inlet Energy LLC, operates

North Fork and other properties in Alaska.

“Even though Cook Inlet has failed to pay All

American’s invoices, it used All American’s invoices …

as the basis for receiving tax credits from the State of

Alaska,” the adversary complaint alleges.

—WESLEY LOY

continued from page 1

MILLER ENERGYMiller’s subsidiary, Cook Inlet Energy LLC,operates North Fork and other properties in

Alaska.

seeps nearby. Caelus has commented that,

at Smith Bay, it is seeking oil in Brookian

turbidites. Turbidites are rocks consisting of

sandstone layers and channels, laid down as

a consequence of periodic submarine sand

flows in ancient marine basins. The

Brookian refers to the youngest and shal-

lowest of the major rock sequences under

the North Slope.

Caelus has already mobilized the equip-

ment it needs to spud the first well. The

equipment, including the Doyon Arctic Fox

drilling rig, has been transported by barge to

a staging area at Point Lonely, to the east of

Smith Bay. The company has also planned

a snow road from the central North Slope to

a staging area and camp near the southern

shore of Smith Bay. The staging area and

camp will be on an ice pad adjacent to a

frozen lake with an ice airstrip. An ice road

will run 6 miles from the staging area to the

CT-1 well location and then another 5 miles

to CT-2.

The camp will be able to accommodate

approximately 213 workers during the

drilling season, according to the operations

plan.

Drilling will take place from circular ice

pads, with maximum diameters of 500 feet,

in an area where water depths are 4 to 6 feet.

If an assessment of a well indicates value in

conducting a vertical seismic profile, vibro-

seis will be used as a seismic sound source,

the operations plan says. Vibroseis equip-

ment imparts controlled vibrations into the

ground or ice surface.

Drilling scheduleIn November Casey Sullivan, Caelus

director of public affairs, told the Resource

Development Council’s annual conference

that his company hopes to start drilling the

CT-1 well in early February. The newly

approved operations plan says that Caelus

expects to drill the CT-2 well between

March 7 and March 28.

Off-road tundra travel on state land

opened about three weeks later than was

envisaged in Caelus’ Smith Bay schedule,

but it is not clear whether that delay will

impact the drilling program. The state says

that, regardless of any changes to the sched-

ule early in the winter, the target timeframe

for finishing drilling and demobilization

will remain fixed. Overland demobilization

and site cleanup is scheduled to take place

between the end of March and May 11.

The plan of operations says that the

drilling operations will use water-based

drilling fluids, and that the fluids will either

be injected or transported to a disposal facil-

ity at Prudhoe Bay. Well cuttings will be

transported to Prudhoe Bay for disposal in a

grind and inject facility.

To be commercially viable, an oil dis-

covery in an area as far from existing infra-

structure as Smith Bay would presumably

need to be very large. Sullivan characterized

Smith Bay as a 1 billion barrel opportunity

for his company. l

PETROLEUM NEWS • WEEK OF JANUARY 24, 2016 19

O U R P A S S I O N I S

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continued from page 1

SMITH BAY

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CT-2

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Content may not reflect National Geographic's current map policy. Sources: National Geographic, Esri, DeLorme, HERE, UNEP-WCMC, USGS, NASA, ESA,

METI, NRCAN, GEBCO, NOAA, increment P Corp.

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Anchorage

¯ Overview Map

2015 - 2016 Tulimaniq Exploration Program

Figure 1

0 6 12 18 243

Miles

Legend

Proposed Well Locations

!A Thermistor Position

$+ Camps and Cabins

2P to Lake M0654 Overland Snow Route

Point Lonely Overland Snow Route

Smith Bay Ice Road

Alternative Routes

Existing Gravel Roads

Caelus Oil and Gas Leases

NPRA Boundary

Native Allotments

Existing Facilities

start of 2017.

A spokesman for Energy Minister

Margaret McCuaig-Boyd said the review

and the government’s assessment of roy-

alties has been slowed indefinitely, while

the administration addresses “disincen-

tives” facing Alberta’s faltering petrole-

um sector.

Pumping although losingThat coincided with the startling dis-

closure by analyst Martin King of

Calgary-based investment dealer

FirstEnergy Capital, who told a

Conference Board of Canada summit that

oil sands operators have little choice but

to keep pumping regardless of losing

money on every barrel they produce.

Although West Texas Intermediate

prices have been dipping under US$30 a

barrel and Alberta’s benchmark Western

Canada Select, a heavy blended crude

consisting mostly of bitumen, has tested

sub-US$16 levels, he said the prospect of

oil sands shut-ins is “extremely limited.”

For one thing, hitting the shut-off

switch in a thermal-recovery project

could damage the reservoir, King said.

He also noted that the billions of dol-

lars invested in facilities that usually have

a projected lifespan of 40 years or more

keeps the pressure on operators to ride out

low prices.

“I know it sounds contradictory, but

given the long time span over which these

projects are supposed to operate, they

have to keep them running,” King told

reporters.

Some production curtailedEven so, some heavy oil producers

have already curtailed production —

10,000 barrels per day by Canadian

Natural Resources, 3,000 bpd by

Connacher Oil and Gas, 2,400 bpd by

Baytex Energy and 500 bpd by Gear

Energy, which had earlier targeted gains

of 6 percent this year.

“We essentially put our drilling plans

on hold and, ultimately, it’s batten down

the hatches. It’s survival mode for us,”

said Gear Chief Executive Officer Ingram

Gillmore.

He said lenders have already lowered

his company’s borrowing limit to C$60

million from C$90 million.

Mark Oberstoetter, an analyst with

consultant Wood Mackenzie, adopted a

hard line, suggesting “less well-capital-

ized companies will eventually start to

take the longer-term, riskier look at shut-

ins.”

No increase in costsCaught in this bind, Notley conceded

that “no one is going to see a royalty

review that increases anyone’s costs in

the near future.”

Without directly answering a question

on whether the industry might need

incentives, rather than royalty hikes, she

told a news conference that her govern-

ment is aware of the industry’s plight.

“Certainly, disincentives to growth

will hopefully be minimized to some

extend in the new process that we look at

bringing forward,” Notley said.

“We’re very, very conscious of the sit-

uation that we (face) in Alberta, both in

the oil sands and well as in more conven-

tional and tight oil situations.

“What we are going to do is bring for-

ward a process that is predictable, more

transparent and that will give developers

a good understanding of what they can

expect.”

Greg Clark, leader of the Alberta Party

and the only member of his party elected

to the provincial legislature, has repeated-

ly called on Notley to implement policies

to bolster the energy industry rather than

contemplating a bigger share of oil and

gas revenues.

He said the risk for Alberta is that

higher royalties could drive investment

out of the province.

Drillers: historic lowsMark Scholz, president of the

Canadian Association of Oilwell Drilling

Contractors, said he was unclear what

Notley meant by “disincentives,” but

hoped that implied the government will

be “incredibly sensitive” to the industry’s

plight.

“We’re sitting at historic lows for

drilling activities ... and for employment

opportunities,” he said. “This is not a time

for uncertainty.”

The Canadian Association of

Petroleum Producers said the government

“has an opportunity to adjust royalties to

offset increasing costs in other areas,

which would encourage more activity in

these economically uncertain times.”

As late as December, Peter Tertzakian,

chief energy economist at ARC Financial,

warned that given the magnitude of

change being contemplated by the review

panel “there’s always elements in the

industry that cannot be competitive.”

That thinking underlies many of the

130 submissions made to the panel from

oil and gas producers and lobby groups.

But the bluntest came from citizens,

under subject lines demanding to know

“Why Now?” and “Stop the Madness”

and essentially telling Notley to postpone

the review until “the global economy

turns and settles to normal again.”

CAPP, in its 200-page submission,

covered the full spectrum of royalties for

horizontal wells, deep oil and gas, shale

gas, enhanced recovery waterfloods, re-

stimulating wells and mature high water-

to-oil ratios.

“CAPP urges the royalty review panel,

and the government to re-establish

Alberta as a place that attracts capital

investment, to pursue market access, to

recognize that cumulative costs work

against competitiveness and to support

innovative technology,” the organization

said. “It is critical that province undertake

budget, climate and royalty policy

reforms that not just maintain, but

enhance competitiveness and grow the

economy.” l

20 PETROLEUM NEWS • WEEK OF JANUARY 24, 2016

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“with new tools to support the develop-

ment of the oil and gas sector of the econ-

omy,” providing the agency the authority

“to finance oil and gas infrastructure devel-

opment through project financing, issuing

bonds, bond guarantees, and other benefi-

cial financial mechanisms.”

In his transmittal letter the governor

said “the bill would require that AIDEA

make sure the participants in an AIDEA oil

and gas infrastructure development pro-

gram do not take, apply for, or accept a gas

exploration and development credit or a

production tax credit from the State.”

Walker also said projects eligible for

AIDEA financing would be those already

explored and with “established proven

reserves.” He said the agency “would

establish processes for financing and con-

firmation of proven reserves. Speculative

developments that are still in the explo-

ration stage would not be eligible under the

program.” l

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ROYALTY PLAN

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