Walker: constitutional amendmenta must; differences smoothing out

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l N A T U R A L G A S

l G O V E R N M E N T

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

Vol. 21, No. 5 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of January 31, 2016 • $2.50

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www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of January 31, 2016

l P R O D U C T I O N

Freeman: Mining delivers morethan sector costs Alaska’s coffers

NEWS NUGGETSCompiled by Shane Lasley

NovaCopper geos nab ‘Excellence in Exploration’ award at RoundupThe Association for Mineral Exploration British Columbia

Jan. 27 awarded NovaCopper Inc. President and CEO Rick VanNieuwenhuyse and former NovaCopper Vice President ofExploration Joseph Piekenbrock the 2015 Colin Spence Awardfor Excellence in Global Mineral Exploration. Nieuwenhuyseand Piekenbrock are being recognized for their success indefining and significantly expanding the Donlin Gold deposit inwestern Alaska, the Arctic copper-zinc-silver massive sulfidedeposit in northwestern Alaska and for

exploration success at the Bornite copper

deposit about 16 miles south of Arctic.

“Colin Spence was a person with a superb

understanding of the science of ore

deposits; massive sulfides to porphyries,

precious and base metal deposits, and a

determination to unearth mineral deposits

using a combination of technical excel-

lence and systematic diligence in areas of

the world both accessible and remote. In

my view, there can be no better nomina-

tion to exemplify this talent and success

than that embodied in the exploration suc-

cess of Rick and Joe,” Alexco Resource

President and CEO Clynt Nauman

penned in a letter of support for

Nieuwenhuyse and Piekenbrock’s nomi-

nation. In a separate letter of support,

Pretium Resources President and CEO

Robert Quartermain wrote, “Rick and

Joe’s success in exploration has resulted

from recognizing opportunities, engaging

with the local communities early in the process and completingagreements that benefit all parties involved. By focusing ononly a few quality projects, their holistic approach of develop-ing coherent geological, geochemical and structural models tobuild truly predictive models of ore controls followed up withtargeted drilling to prove, disprove or further refine the model,has contributed to their success.” As part of the team atNovagold Resources Inc., Nieuwenhuyse and Piekenbrockreceived the Thayer Lindsley Award for the discovery of theDonlin Creek deposit from the Prospectors & DevelopersAssociation of Canada in 2009. AME BC has established sevenawards which are named in honor of eminent persons recog-nized for their distinguished service, leadership and contribu-tion to the mineral exploration industry. The Colin Spenceaward for excellence in global mineral exploration recognizesindividuals who have made a significant contribution toenhance mineral resources through the original application ofprospecting techniques or other geoscience technology. Theseven awards were handed out at the AME BC AwardsCelebration of Excellence Gala held on Jan. 27 during theMineral Exploration Roundup 2016 conference.

Redstar names new president, CEORedstar Gold Corp. Jan. 25 reported the appointment of

Peter Ball as president, CEO and director of the explorationcompany with gold properties in Alaska, Nevada and Ontario.Ball, who has more than 25 years of mining experience andleadership, is known to have an intense drive, passion and ener-gy required to deliver on the market's expectations. He is join-ing Redstar from Columbus Gold, where he served as seniorvice-president of business and corporate development.Columbus Gold controls the multimillion-ounce Paul Isnardgold project in French Guiana, and multiple projects in Nevada.

Pogo celebrates 10 yearsManager recounts a decade of travails and triumphs at Alaska gold mine

By SHANE LASLEYMining News

On Jan. 12, 2006, the first ore from high-gradeunderground gold reserves was fed into the

mill at the Pogo Mine located near the communityof Delta Junction in Alaska’s Interior region. Tenyears, four floods, two fires and some 3.1 millionounces of gold later, the oper-

ation is seen as an example of

mining done right.

Pogo General Manager

Chris Kennedy shared a

decade of travails and tri-

umphs, and the lessons

learned, during a presentation

at the Jan. 21 Resource

Development Council break-

fast in Anchorage.

“The main thing that we have learned is there area lot of challenges out there but they are nothing youcan’t overcome if you spend the time, do it the rightway, and do it safely,” the mine manager told busi-ness and community leaders at the gathering.

Kennedy attributes much of Pogo’s success tothe mine’s management team and encouraged thebusiness leaders assembled to find good people tofill leadership roles.

“That’s the key for all general managers to lookfor; good individuals that can help guide the peopleunder them,” he advised.

“Get good people, get them up front as soon asyou can,” Kennedy added.

Strong leadership and conscientious employeeshas helped elevate Pogo from a fledgling mine witha tumultuous start to an efficient operation thatboasts more than two years without a lost-timeinjury and that is looking ahead to a golden futurethat could span decades.

Tumultuous startAfter more than two decades of exploration and

permitting, the startup of operation in January 2006and the pouring of the first gold bar was welcomenews for then-owners of Pogo – Teck Cominco Ltd.,operator with 40 percent interest; Sumitomo MetalMining Co. Ltd., 51 percent interest; and SumitomoCorp., 9 percent.

The celebration, however, was short-lived for theowners of the up-start mine.

The troubles began when the Goodpaster Riverflooded, inundating the lower camp at Pogo thatsummer. While this presented a logistics problemfor owners and a blow to employee morale, it wasnot the biggest setback for the mine that year.

In October, a high-voltage cable was severedunderground, causing a fire in the main electricalroom that connects the mine to the electrical grid.

“Huge fire, it totally destroyed ER-1 (equipmentroom), we were without power for quite a while,”said Kennedy, who was the mine’s maintenancemanager at the time.

While temporary power allowed for resumptionof underground operations, it took several months torepair the damage and get the mill back into produc-tion.

The now general manager takes a pragmaticview of such setbacks.

“You never really lose the gold, you just lose theopportunity to make it at the time,” he said.

Considering that gold prices shot up fromUS$597 per ounce at the time of the fire to a high ofUS$1,895/oz. five years later, better opportunities tomake gold was in Pogo’s future.

After recovering from the electrical room fire,things began to smooth out for Pogo’s operations.

Two more river floods occurred in 2008 and2013. However, the mine was better prepared todeal with such intermittent natural occurrences.

Mother Nature’s unruly temperament, however,did shut down production again, this time with fire.

In 2009, the Gilles Creek fire swept through theGoodpaster District where Pogo is located. While

see NEWS NUGGETS page 11

see POGO MINE page 14

SUM

ITO

MO

MET

AL

MIN

ING

PO

GO

LLC

CHRIS KENNEDY

RICK VANNIEUWENHUYSE

JOSEPH PIEKENBROCK

Despite a rough start, the Pogo Mine has produced roughly 3.1 million ounces of gold and has developed a workculture that has resulted in more than two years without a lost-time incident.

This week’s Mining News

Ten years, four floods, two fires and some 3.1 million ounces ofgold later, the Pogo Mine celebrates a milestone. See page 7.

Celebrating 20 years: 1996-2016

Commercial difficultiesGov. Walker threatens other alternatives; owners say negotiations difficult

By KRISTEN NELSONPetroleum News

While technical work on the Alaska LNG

Project is moving along, progress on com-

mercial agreements is not moving at the same

pace. Those commercial difficulties were

addressed Jan. 27 when representatives of the par-

ticipants in the project updated the House and

Senate Resources committees.

It became public in those hearings that Gov. Bill

Walker sent a letter to the state’s partners Jan. 18,

demanding completion of commercial agreements

by the end of the 2016 regular session of the

Legislature. The governor listed major agreements

needed and said if agreement was not reached,

“then I will have no other choice but to consider

other options for commercializing Alaska’s gas.”

The administration believes that a constitutional

amendment will be required for the fiscal certainty

the producers require for investment in the project.

Constitutional amendments can only go on general

election ballots, and if a constitutional amendment

doesn’t meet deadlines for the November 2016

general election, the next opportunity wouldn’t be

Testing pain thresholdFacing credit downgrades, Canadian E&P companies step up production shut-ins

By GARY PARKFor Petroleum News

The thumbscrews in Canada’s upstream petrole-

um sector keep tightening as Moody’s

Investors Service eyes a sweeping downgrade of 19

exploration and production companies amid unre-

lenting market turmoil and the prospect of even

more cuts to capital budgets.

Having put several of Canada’s big oil players

under review in December, Moody’s is now target-

ing a broad range of mid-size producers after cutting

its outlook for crude “in light of continuing oversup-

ply in the global oil markets and demand growth

that remains tepid.”

“Iran is poised to add more than 500,000 barrels

per day of global supply while OPEC and many

non-OPEC producers continue to produce without

restraint as they battle for market share,” the agency

said.

“Lower oil prices will further weaken cash flows

for E&P companies and the upstream portion of

DOI proposes new ruleAgency would limit gas flared from federal land, restrict venting, require testing

By ALAN BAILEYPetroleum News

On Jan. 22 the U.S. Department of the Interior

released a proposed rule aimed at reducing the

wastage of methane from oil and gas operations on

federal land. The rule, developed by the Bureau of

Land Management, comes as part of a series of pro-

posals announced by the Obama administration in

January 2015, with the objective of cutting methane

emissions from the oil and gas sector by 40 to 45

percent of 2012 levels by 2025.

As part of the administration’s program, in the

summer of 2015 the Environmental Protection

Agency proposed a new rule limiting the emission

of methane from new and modified oil and gas facil-

ities in the United States. The agency is also in the

process of implementing a voluntary program for

reducing methane emissions from the oil industry.

The new proposed rule particularly addresses gas

flaring and venting.

Potent greenhouse gasMethane is a potent greenhouse gas with 25

times the heat-trapping potential of carbon dioxide

BP’s Sag River project continues;company reviewing activity level

BP continues to move ahead with its Sag River develop-

ment in the Prudhoe Bay field on Alaska’s North Slope, com-

pany spokeswoman Dawn Patience told Petroleum News in a

Jan. 27 email. However, the company is still evaluating the

situation on the North Slope in the light of the sharp fall in oil

prices. The company recently announced that it is going to cut

costs through a 13 percent reduction in Alaska jobs.

“We are evaluating our activity level at Prudhoe Bay and

adjusting the activity in response to the lower oil price envi-

ronment,” Patience said. “Improving the cost basis is critical

to maintaining our activity level at Prudhoe Bay and the long-

term viability of an Alaska LNG project.”

A couple of years ago BP announced a major development

ARRT approves dispersant plan;new policy for Alaska oil response

During its Jan. 27 meeting the Alaska Regional Response

Team approved the issue of a new plan for the use of dispersants

in an Alaska offshore oil spill response. The ARRT is the advisory

board to the U.S. Coast Guard oil spill response on-scene com-

mander and coordinates government policies for responding to

oil spills in Alaska.

A significant feature of the plan, which replaces an earlier plan

dating from 1989, is the inclusion of a zone where the use of dis-

persants would be pre-approved, offshore southern Alaska, the

Alaska Peninsula and the Aleutian Islands. A key concern that the

new plan addresses is the possibility of a marine accident involv-

ing a crude-carrying oil tanker in transit off the Alaska Coast,

Mark Everret, Coast Guard co-chair for the ARRT, told the

see SAG RIVER page 20

see DISPERSANT PLAN page 15

see COMMERCIAL ISSUES page 20

see CREDIT DOWNGRADES page 19

see METHANE EMISSIONS page 18

The governor listed major agreementsneeded and said if agreement was not

reached, “then I will have no other choicebut to consider other options forcommercializing Alaska’s gas.”

“We continue to take decisive action inthis period of persistent supply-demand

imbalance,” in line with Husky’scommitment to balance capital spending

with cash flow. —Husky CEO Asim Ghosh

“Every single month every operator has togive us a report of every puff of gas they

produced and what they did with it, and ithas to meet our standards.”

—AOGCC Chair Cathy Foerster

By STEVE QUINNFor Petroleum News

Gov. Bill Walker has been in office

about 14 months, and he’s made sev-

eral trips to Washington, D.C., one includ-

ing a return trip on Air Force One with

President Obama, and to Japan to promote

Alaska’s resource development potential.

He’s doing it at a time when oil prices

are chronically low and while he and the

Legislature are still getting to know one

another and iron out differences in work-

ing toward advancing a natural gas line

project for export to Asian markets.

Walker spoke to Petroleum News about

his priorities for 2016, most immediately

this session and the prospects of a special

session that would follow.

Petroleum News: Let’s start with thebigger picture. Overall where do you seethings with the AKLNG project?

Walker: Overall I’m very pleased with

the technical work that’s been done. The

design, the right of way, those kinds of

things. I’m very pleased with those kinds

of things. I’m very pleased with what the

team has put together on that. Steve Butt,

of ExxonMobil, has been the lead with

that. I’m very pleased with what he’s

done.

The second piece, or what I call the

second piece, is the commercial side of it,

the commercial contracts associated with

putting the deal together. That I’m not as

pleased with. I’m concerned about the

timing. My goal is we will see those con-

tracts in final form before the end of this

legislative session.

Petroleum News: Speaking of thosecontracts, I believe you have been in someof the negotiation meetings.

Walker: I have.

Petroleum News: Without revealinganything that’s proprietary, describe those.Characterize them. Did you expect to bein the room?

Walker: I think we have the right peo-

ple at the table. I’ll put it that way. It’s

important that we have people with deci-

sion-making authori-

ty at the table, and I

believe that we have

that.

Petroleum News:Right now you have(Deputy NaturalResourcesCommissioner)Marty Rutherfordback at the table. Correct?

Walker: Yes.

Petroleum News: You’ve kind of goneback and forth with that. You’ve hadMarty. You’ve had Audie (Setters), you’vehad Rigdon Boykin. Do you feel likethings are getting settled? I know that’smade lawmakers nervous.

Walker: It’s interesting. It’s sort of bro-

ken up between different divisions. There

are certain things that AGDC does. There

are certain things under statutory authori-

ty. There are certain things that DNR

does, that Department of Revenue does,

that the AG’s office does. So it’s sort of

divided up that way a bit. So some agen-

cies are lead on different areas of negotia-

tions just because by statute that’s the way

it’s set up. In other words, the Department

of Natural Resources can’t override the

statutory authority of the Department of

Revenue. It’s a little bit of a hybrid the

way it’s structured and set up. You would-

n’t see that normally in a private sector

negotiation. It doesn’t mean it’s wrong in

any way. It’s just that we are a bit differ-

ent. We are a government, we are a sover-

eign. We have certain statutes, certain

authority for each department, so it makes

it a little bit challenging.

We had three attorneys in the past

negotiating on our behalf of which Rigdon

was one. We had Ken Minesinger

(Greenberg Traurig LLP) and Manzer Ijaz

with (Milbank, Tweed, Hadley & McCloy

LLP). So there have been three. I thought

two were plenty. After a period of time, I

felt it was appropriate we don’t have to be

paying three people to do that role.

Minesinger is sort of working with

Department of Natural Resources as an

advisor on their behalf and the state’s

behalf in their shop. He’s been involved in

this at least since 2006 if not earlier.

Petroleum News: So you feel as thoughthings are settled. You’re not going tohave any movement?

Walker: I think it’s pretty much settled

as far as who is doing what and where.

We just had a full day retreat, if you will,

at the governor’s house last Saturday in

which we brought together the commis-

sioner of DNR (Mark Myers) and his key

staff, commissioner of Revenue (Randall

Hoffbeck) and his key staff, AGDC presi-

dent (Fritz Krusen) and his key staff, the

department of law and some of his

(Attorney General Craig Richards) key

people. We spent an entire day, 9 to 5:30,

going over who is doing what. We had a

facilitator as well. We set it out like a con-

struction chart and who has responsibility

for what. It was very help-

ful having the agencies

talking to each other.

Sometimes there is a poten-

tial for an overlap between

jurisdictions with

Department of Natural

Resources, and Department of Revenue or

Law.

So it’s good to have that discussion

about who is statutorily required to do

what and who needs to be involved in that

process, who needs to be consulted, who

needs to be informed, who is the responsi-

ble entity, who is the responsible person.

So that was pretty helpful. Some of that

will be coming out in the hearings.

Petroleum News: I know a lot of law-makers, including those who supportedyou in SB 3001, were concerned that theydidn’t understand the organizationalchart. Is this an effort to address that?

Walker: Exactly. I think that was a

valid concern. It’s in part we inherited an

organizational chart. So we said let’s put

our own together. So you’ll see that as far

as the organizational charts. It’s really a

series of organizational charts. Each

department has its own organizational

charts. In other words, DNR has an orga-

nizational chart on the gas line;

Department of Revenue has an organiza-

tional chart on the gas line and certainly

AGDC. And then there is a holistic one of

all of those. It’s a little bit of an unusual

structure. It’s certainly acceptable and it

can work. I’m optimistic that it can work

but we had to sort of walk through some

stuff in that process.

Petroleum News: Still on the topic ofstructure, AGDC has also had somemovement. Lawmakers have been givingyou the benefit of the doubt as it’s beenyour first year. It’s your prerogative thefirst year — and all four years — to makechanges. But I think they would like to seesome stability. Are you satisfied that thingsare pretty much done?

Walker: I am. The board is doing a

search for a new president. Fritz is the

interim. He’s doing a fine job as the inter-

im but they are looking for

somebody that comes with

the kind of project experi-

ence for a project of this

magnitude, of this size.

Because you know we are a

full partner now of the entire

project, not just the liquefaction piece in

Nikiski so it’s appropriate we have some-

body in that role who has done this as a

livelihood for years working with a proj-

ect of this size and magnitude.

Petroleum News: Now you did havesomebody like that but he was on theboard.

Walker: Right. Let me be real clear

about that. I believe the board provides

input on policy but expertise comes from

the paid staff. There are lots of different

boards around Alaska. I don’t think the

boards of the various banks we have give

individual expertise on investment advice.

So it was a little bit upside down.

My belief is your expertise should not

come from your citizen board. It should

come from the expertise you hired for that

day to day operation so we are in the

process of assembling that right now. The

other thing is I was concerned about those

on the board who were from out of state.

The problem is they were setting policy

such as how many offtakes, what’s the in-

state use of gas, those kinds of things.

Those should be Alaskans making those

decisions as far as on the policy side.

As far as expertise, we are doing some-

thing we’ve never done before. So are we

going to have to have some experts from

outside of the state. Yeah we are as com-

ing in to advise us. As sitting board mem-

bers, those board members should be

Alaskan folks.

Petroleum News: You talked about thecommercial agreements. Those are alwaysgoing to be tough. I don’t know that every-body likes the pace. One of the pieces thathave held up negotiation, even in the past,was linking the gas tax with the oil tax.What’s your position on bringing thosetwo together?

Walker: Yeah, I’ve never been support-

ive of that at all. That was dealt with in

the Stranded Gas Development Act, and

I’ve never been supportive of that. Right

now with so little oil revenue coming in ...

but I don’t think it’s always going to be

that way. That has been an issue in the

past. I’m not convinced that’s going to be

a problem this time.

l G O V E R N M E N T

Walker: Constitutional amendment a mustIndependent governor says differences between him, Legislature being smoothed out as AKLNG project advances, negotiations continue

2 PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

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see WALKER Q&A page 17

PETROLEUM NEWS • WEEK OF JANUARY 31, 2016 3

By ALAN BAILEYPetroleum News

While both reaping benefits and

facing challenges from energy

development, Arctic communities worry

about their energy security and about the

impact of development on their way of

life. In September 2015 400 participants

from 14 nations met in Fairbanks,

Alaska, for the Arctic Energy Summit, an

event held every two years to discuss

energy issues that impact people living in

Arctic regions. The Institute of the North

has recently published an executive sum-

mary report of the summit.

According to the report, Arctic energy

development must both respond to the

needs of local communities and consider

the global implications of activity in the

Arctic. Human security in the Arctic

depends on numerous factors, many of

which are impacted by resource develop-

ment. And, while companies and govern-

ment regulators need to carefully consid-

er development decisions, there should

be a focus on maximizing the benefits for

local communities while also eliminating

the risks to those communities, some of

which have traditional, subsistence-

based economies, the report says.

Sustainable developmentThe availability of energy, balanced

with environmental protections and

respect for traditional ways of living, is

crucial to sustainable human develop-

ment and economic development. And,

although there is a need for diversifica-

tion in the means of power generation in

the Arctic, the development of diesel and

end-user technology has more short-term

importance to rural communities than the

development of alternative energy

sources, the report says.

At the same time, a wide array of new

energy production, storage and transfer

technologies target improvements to the

current energy infrastructure. While

these new developments would enable

the introduction of a wide variety of

power sources, it is typically challenging

to know how to stabilize a power system

while integrating new technologies, with

systems being unique to remote commu-

nities, the report says.

Best practicesPresentations and discussions during

the summit identified a number of best

practices for energy development and

supply situations that impact Arctic com-

munities. These best practices include

support for the exchange of information

between and among communities and

government agencies, and the early solic-

itation of community input to decision

making and planning. Policy incentives

should be tailored to promote private

investment, with clear metrics for mak-

ing investment decisions, consistent with

the public interest. Traditional knowl-

edge should complement western sci-

ence, with the sharing of scientific results

with impacted residents and communi-

ties, the report says.

Effective communications strategies

can include the use of local languages

and the designation and training of com-

munity or regional energy planners. Pilot

energy projects can bring immediate ben-

efits to communities. Climate change

scenarios need to be incorporated into

management decision making. And the

establishment of sovereign wealth funds,

where possible, can signal long-term

confidence in a region and its inhabi-

tants, the report says.

Research gapsIn terms of gaps in current research

efforts, summit participants expressed

concern over how indigenous people can

find a place at the table in the regulatory

environment — questions were raised

over the need for more research into the

challenges and opportunities arising

from hybrid governance and governance

fragmentation when it comes to Arctic

cooperation and decision making. More

investigation is needed into the potential

benefits to communities from resource

development projects and the cultural

impact of project funding flowing into

communities. And what are the relative

roles of local, state and federal funding,

and of private capital, when it comes to

Arctic energy projects?

Further research is also needed into

the impacts of climate change on Arctic

ecosystems and communities, the report

says.

Potential projectsPotential projects that could usefully

be carried out include an assessment of

the economic impact on coastal commu-

nities and maritime economies of

increased offshore energy production;

the development of a network of commu-

nity project champions to share best

practices in the use of renewable energy

technologies and energy efficiency; the

development of a best practices guide for

access to energy education and literature;

and the identification of and investment

in regional hubs that have expertise and

infrastructure to address specialized

issues such as the use of micro-grids or

centralized heating systems, the report

says.

The final day of the summit focused

on two major issues: the use of renew-

able energy sources coupled with energy

efficiency, and the interaction between

the oil and gas industry and Arctic com-

munities. Discussions raised a large

number of points in terms of best prac-

tices, research gaps and potential proj-

ects.

Renewables and energy efficiencyWhen it comes to the implementation

of renewable energy sources and making

improvements in energy efficiency in

Arctic communities, findings from the

summit emphasize the need for effective

planning and the engagement of commu-

nities in projects. There needs to be an

emphasis on long-term sustainability,

with the training of local residents in the

maintenance of energy systems. It is also

important to address energy efficiency

before implementing larger scale proj-

ects, the report says.

Research gaps include a need for a

better understanding of the relative roles

of private and government investment in

renewable energy projects, and for a bet-

ter understanding of the impact of com-

munity energy projects on social, cultural

and health issues. Potential projects

include the formation of a forum to share

best practices and standardization for

off-grid utilities; a demonstration of

high-penetration hybrid systems involv-

ing a combination of wind, solar, diesel

and power storage in remote micro-grids;

and the mapping out of renewable energy

resources in the Arctic.

Oil and gas developmentFrom the perspective of Arctic oil and

gas development, the forum emphasized

the important of community consultation

and engagement in what is going on,

with early discussions to prevent con-

flict, the availability of “digestible” tech-

nical information and the incorporation

of indigenous knowledge into project

planning. There needs to be cooperation

among multiple stakeholders, including

corporations, indigenous communities

and local government in the development

of regulations, with an adaptive, integrat-

ed and ecosystem based approach,

informed by science, when it comes to

regulatory systems. Regulatory standards

should be performance based, rather than

prescriptive. And climate based scenarios

should be incorporated into planning, the

report says.

Further research is needed into oil

spills and occupational health, and into

Arctic incident response. Analysis is

needed into the costs and benefits of oil

and gas development for communities.

Further scientific investigation could be

conducted into the geoscience of Arctic

basins and into the mobility of sea ice.

There is also scope to assess the differ-

ence between different countries’

incomes from oil and gas lease sales and

those countries’ incomes from individual

taxes. And there could usefully be an

investigation into how regulatory

regimes can help improve the telecom-

munications infrastructure and deepwa-

ter ports in the Arctic, the report says.

Potential initiatives in the oil and gas

arena include the development of con-

flict avoidance agreements between the

oil industry and subsistence activities;

the identification of community projects

through which the oil industry can miti-

gate its community impacts; and

increased community-based monitoring

and information exchange. Further tech-

nical improvements could be made to

Arctic satellite coverage and Arctic

weather and ice forecasting.

In addition, the creation of an Arctic

Council forum for communication in the

Arctic, for the sharing of data and infor-

mation, and for training, including edu-

cation in the new Polar Code for Arctic

shipping, would prove beneficial, the

report says. l

l G O V E R N M E N T

Energy and the Arctic communitiesThe 2015 Arctic Energy Summit highlighted best practices, research needs and potential projects relating to energy in the north

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Regulatory standards should beperformance based, rather thanprescriptive. And climate based

scenarios should be incorporatedinto planning, the report says.

4 PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

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l N A T U R A L G A S

AKLNG technicalwork progressingProject manager Steve Butt tells legislators $376 million spent onpre-FEED through end of 2015, $293 million in that one year

By KRISTEN NELSONPetroleum News

Preliminary front end engineering and

design for the Alaska LNG Project is

proceeding according to schedule, Steve

Butt, senior project major, told Alaska leg-

islators in reports to the House and Senate

Resources committees Jan. 25.

Since the last quarterly project update

in September, the state has bought out

TransCanada’s role, becoming a full 25

percent participant in

the project, and Butt

said he was address-

ing legislators as the

board of directors for

one of the project’s

four owners. The

state is in partnership

with the North

Slope’s natural gas

owners, BP,

ConocoPhillips and

ExxonMobil, based on the state’s expected

ownership of 25 percent of the natural gas,

when the state’s production tax is translat-

ed into gas molecules and the state’s royal-

ties are taken as royalty in kind.

Butt said he wanted legislators, as rep-

resentatives of owners, to be comfortable

that they have enough information.

Design scopeButt said the initial design scope was

about 85 percent complete for the project

as of the end of 2015, with $376 million

spent through the end of 2015, $293 mil-

lion in 2015 alone. The initial design scope

has been updated to reflect optimization

work, he said.

For 2016 priorities include evaluation

of a proposal from the governor to expand

the pipeline from 42 inches to 48 inches,

additional geological and geophysical

work, contract strategy development and

market management — all designed to

provide the owners with the information

they will need to make a FEED decision.

The gas treatment plant is optimized by

handling natural gas from both Prudhoe

Bay and Point Thomson, Butt said,

because while Prudhoe Bay contains 12

percent carbon dioxide — more than any

other LNG project in the world and which

has to be removed before the gas can be

shipped — Point Thomson has only 4 per-

cent. With about three-quarters of the gas

coming from Prudhoe, that means the

same size plant can remove CO2 from

both fields as from just Prudhoe. The gas

treatment plant is a critical element of the

project, he said, with 25 percent of the cost

before the gas even goes into the pipeline.

Optimization studies focusing on GTP

cost reduction include reducing total mod-

ule weight and optimizing layout; meeting

the required electrical load with minimum

equipment; selecting machinery which

will provide the highest reliability at the

lowest cost; reviewing utilities for opti-

mization opportunities; and streamlining

the project execution plan to identify the

lowest cost.

Pipeline, LNG plant workInitial design scope work on the

pipeline is 91 percent complete. The proj-

ect is evaluating the cost and schedule

impacts of a 48-inch pipeline, with cost

estimates in the final stages, offshore

installation feasibility studies underway

and a decision for a 42-inch vs. a 48-inch

pipeline expected in April.

Optimization studies for the pipeline

include fine tuning the pipeline route and

reducing gravel requirements; logistics

and procurement opportunities for camps;

safety evaluation of aspects of pipeline

design; and cooperation on routing and

data sharing with the Alaska Stand Alone

Pipeline, the in-state line the state is also

considering.

For the LNG plant and marine terminal,

pre-FEED design is completed and opti-

mization studies have been initiated. Those

studies are focused on cost reduction and

include technical qualification of new gas

turbine drivers; use of current limiters to

eliminate electrical equipment; modular-

ization improvements through revised lay-

out and increased density; an evaluation of

alternative tank technology to reduce cost

and schedule; the potential to reduce total

LNG storage capacity; reducing the mate-

rial offloading facility size; and evaluating

alternative ice management options.

Logistics, contractingAn Alaska LNG logistics study for pre-

FEED has been completed, and optimiza-

tion, focused on cost reduction includes

optimizing project-wide logistics routes

and transport alternatives; evaluating iden-

tified opportunities for most efficient

methods to move materials and equip-

ment; identifying logistics infrastructure

synergies across the project; and incorpo-

rating logistics into project execution and

contracting strategies.

On contracting Butt said focus was on

combining global LNG and local Alaska

experience, combining the expertise of

Alaska businesses with the experience of

global prime contractors.

The 2016 summer field season will be

the last before Federal Environmental

Regulatory Agency filing planned for

October. Butt said the project was nearing

completion of the second draft resource

reports. l

STEVE BUTT

JUD

Y P

ATR

ICK

PETROLEUM NEWS • WEEK OF JANUARY 31, 2016 5

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alaska@amarinecorp.com

l N A T U R A L G A S

Two BC LNG plans gaining groundPetronas-led Pacific Northwest LNG closer to sanction decision; Shell-led LNG Canada making progress to win over First Nations

By GARY PARKFor Petroleum News

The Petronas-led Pacific NorthWest LNG consortium

has edged closer to a sanctioning decision, with fed-

eral scientists determining the project poses little envi-

ronmental risk.

Fisheries and Oceans Canada, dealing with one of the

most contentious points facing the project, said in a letter

to the Canadian Environmental Assessment Agency that

the impact on fish and fish habitat of a planned suspen-

sion bridge and pier at the liquefaction plant and tanker

terminal near Prince Rupert could have a “low potential

(to cause) significant adverse effects.”

The environmental agency is due to issue a final rec-

ommendation on Pacific NorthWest this spring, about

three years after drawn-out regulatory hearings that

involved frequent delays.

The partnership has encountered constant opposition

from environmentalists and the Lax Kw’alaams First

Nation of northwestern British Columbia, with lingering

threats of further court action if the project is authorized.

The scientists have outlined work they say is neces-

sary to protect marine life and habitat, including a long-

term monitoring program and steps to mitigate harm to

fish habitat in the area of Lelu Island, where the C$11.4

billion terminal will be built, plus other efforts to protect

the Skeena River estuary which is vital to salmon stocks.

In their letter the scientists acknowledged the “effort

and commitment of the proponent to undertake a robust

and science-based 3D modeling exercise to assist in pre-

dicting effects to habitat in and around the project.”

That followed a letter by Natural Resources Canada

earlier in January which described the consortium’s sci-

entific studies as rigorous, giving it “confidence in the

proponent’s conclusions.”

That federal department said the impact of the

planned dock-related facilities would be “localized,

resulting in a low risk to commercial, recreation and abo-

riginal fisheries.”

Greg Horne, energy coordinator with the Skeena

Watershed Conservation Coalition, said the federal find-

ings ignored peer-review science published by the Lax

Kw’alaams science team and was disrespectful to the

First Nation.

However, the Tsimshian Environmental Stewardship

Authority, formed last July by five aboriginal communi-

ties, said there could be an acceptable way to export

LNG from Lelu Island.

Shell makes progressSeparately, the Shell-led LNG Canada consortium has

made progress in efforts to win over First Nations to the

proposed Coastal GasLink pipeline project by

TransCanada which is planned to deliver feedstock gas

from northeastern British Columbia to the terminal site

at Kitimat.

TransCanada said it has signed long-term project

agreements with the Nadleh Whut’en First Nation and

West Moberly First Nations, increasing to 11 its pacts

with aboriginal communities along the pipeline route.

Coastal GasLink President Rick Gateman said “early

and consistent engagement with First Nations” estab-

lished trust and laid the groundwork for the benefits

agreements which cover job skills training, employment

and the use of aboriginal businesses in contracting work.

Coastal GasLink estimated that more than a quarter of

the more than 330,000 hours of fieldwork on the pipeline

so far has been conducted by aboriginal people.

It said about 32 percent of the C$4.8 billion of capital

work will be spent locally in British Columbia with eco-

nomic benefits including more than 2,000 jobs during

construction, leading to C$20 million in annual property

tax.

The 400-mile pipeline is designed to carry 4 billion

cubic feet per day of gas from the Montney and Horn

River regions, with Coastal GasLink a key element of its

overall C$13 billion capital growth plan for gas

pipelines. l

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

Canada: Rough time on home-frontTrans Mountain, Energy East pipelines mauled; opponents call for halt to review of BC project, mayors spurn chance to end imports

By GARY PARKFor Petroleum News

Another week, another round of pummeling for

Canada’s oil pipeline projects.

On the first day of National Energy Board hearings,

while protesters kicked up a fuss out on the street in

Vancouver, the federal regulator was told it didn’t have the

authority to adjudicate on Kinder Morgan’s Trans Mountain

expansion.

That was accompanied by First Nations and environ-

mentalists calling on Prime Minister Justin Trudeau to stop

the pipeline review process.

On the other side of the country, mayors of 82 munici-

palities representing 3.9 million people in the Metropolitan

Montreal region declared their opposition to TransCanada’s

Energy East project, arguing the environmental risks posed

by the 1.1 million barrels per day project far outweighed the

economic benefits.

Although the Trudeau government has expressed reluc-

tance to force Kinder Morgan back to square one, oppo-

nents of the US$5.4 billion plan to increase Trans Mountain

capacity to 890,000 bpd of oil sands bitumen from 390,000

bpd demanded an immediate halt to hearings.

“This is a fundamentally flawed process (in which) the

voices of Canadian citizens are not being respected or

heard,” said Carleen Thomas of North Vancouver’s Tsleil-

Waututh Nation.

Karen Campbell, a lawyer with Ecojustice, said the hear-

ing process was “incredibly broken” because it failed to

consider the potential impact of the pipeline on climate

change — an argument that played a leading part in

President Barack Obama’s decision to reject Keystone XL.

Kai Nagata, with the environmental group Dogwood

Initiative, said that if the Trudeau government fails to deliv-

er on its campaign promise to introduce a “new, open regu-

latory process” for pipeline hearings it would be ironic to let

the current phase “unfold while promising real change.”

Decommissioning demandedThe City of Surrey, within the Metropolitan Vancouver

region, wants the NEB to decommission and remove the

existing portion of Trans Mountain that runs through its

jurisdiction.

Surrey lawyer Anthony Capuccinello said the expansion

would increase the cost of building and maintaining infra-

structure, such as sewers and roads, in Metropolitan

Vancouver by C$93 million over 50 years, with no hope of

getting reimbursed.

Representatives from the Musqueam First Nation urged

the NEB to delay a recommendation until the Canadian

government has met its duty to consult with aboriginal

communities and justify Trans Mountain’s infringement on

their cultural fishing rights.

They warned that increased tanker traffic would affect a

fish habitat and annual catches, while the Musqueam would

receive no compensation for the loss of their economic

opportunities.

New reportA new report by the Raincoast Conservation Foundation

said environmental assessments required by the Canadian

and British Columbia governments for any projects that

would increase tanker traffic in southwestern British

Columbia waters are too narrow and fail to consider the

see ROUGH TIME page 15

By GARY PARKFor Petroleum News

The race to build an oil refinery on the

British Columbia coast is formally

underway, with one proponent filing a

124-page project description to provincial

and federal environmental agencies and

the other expecting to submit its plan to

the same regulators in February.

Shrugging off industry opinions that

such enterprises are uneconomic,

Vancouver-based Pacific Future Energy is

doggedly pursuing its dream of building a

plant to convert 200,000 barrels per day of

oil sands bitumen into such products as

diesel, gasoline, butane and liquefied

petroleum gas.

It entered the regulatory stream in late

January by submitting the main points of

its idea to the British Columbia

Environmental Assessment Office and the

Canadian Environmental Assessment

Agency, estimating it could take two years

for that phase of the approval process to

be completed.

Pacific Energy puts a current price tag

of US$9 billion-US$11 billion on the ven-

ture and said it has no plans to seek federal

or provincial financing.

The company, a unit of Mexico’s

Grupo Salinas, a multi-industry enter-

prise, has targeted 2021 to start opera-

tions.

It hopes to establish the refinery and a

tanker port on 1,600 acres of provincially

owned land near Kitimat.

Samer Salameh, the project executive

chairman, said along with the regulatory

phase Pacific Future is giving priority to

meeting environmental standards and

winning over First Nations.

He said the filings are the first step

towards “making this vision a reality.”

Eliminating petroleum cokeSalameh said his company is commit-

ted to eliminating from the refining

process a byproduct called petroleum

coke, which is a major source of carbon

emissions.

The refinery would receive its bitumen

by rail cars designed specially to hold and

heat the bitumen over a 600-mile journey,

mixing the feedstock with less than 2 per-

cent diluent compared with 30 percent

diluents used for delivery by pipeline.

Jacques Benoit, chief operating officer

with Pacific Future, said the rail mix is

known as neatbit, while the bitumen/dilu-

ent mix in pipelines is labelled dilbit.

Neatbit has a very low flammability

threshold and, in the event of an accident,

quickly becomes solid again once it hits

the air to 20 degrees Centigrade, similar to

lava out of a volcano, he said.

Benoit said about 15,000-20,000 bpd

of neatbit is already being shipped from

Saskatchewan to the Texas Gulf Coast.

He said refineries prefer neatbit

because it is easier and cheaper to handle.

The competitionPacific Future’s main rival is Kitimat

Clean, privately owned by newspaper

owner David Black, who has estimated

his proposal to process 400,000 bpd of

bitumen would cost US$22 billion to

build a pipeline, refinery and port along

with a fleet of tankers.

Black has commissioned engineering

firm Hatch to draft a project description

for environmental regulators, hoping to

make his written submission in February.

Judith Dwarkin, chief economist at RS

Energy Group in Calgary, told the Globe

and Mail it has yet to be shown whether

carrying bitumen by rail from Alberta to

British Columbia can be done economi-

cally.

“You have to heat the bitumen to load

and unload the rail cars. You need special

insulated rail cars. And there are weight

limitations on rail cars,” she said.

In addition, there is no certainty that

Asian customers would accept refined

petroleum products, preferring to keep the

value-added end of the business under

their control.

Also still a contender is Eagle Spirit

Energy, a First Nations enterprise which

hopes to convert 1 million bpd of bitumen

in Alberta for transportation to a British

Columbia tanker terminal.

It announced four months ago that it

has obtained the support of every First

Nations chief along the pipeline right of

way in return for a promise to “fairly com-

pensate” them through revenue, business,

employment, education and job training.

The aboriginal communities are also

being offered equity positions in the C$14

billion venture.

Eagle Spirit is currently working with

its stakeholders on setting the final

pipeline route to complete final binding

agreements.

In an indirect warning to Kitimat

Clean, the chiefs working with Eagle

Spirit said they would refuse to allow oil

shipments by rail through their traditional

territories.l

6 PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

MAPMAKERS ALASKA259 South Alaska Street, Palmer AK 99645 | (907) 745-3398

www.mapmakersalaska.com | info@mapmakersalaska.com

GOVERNMENTArctic Council to meet in Fairbanks

Adm. Robert Papp, U.S. special representative for the Arctic, has announced that

the next ministerial meeting of the Arctic Council will be held in the Alaska city of

Fairbanks in May 2017, according to a report in the Fairbanks Daily News-Miner.

The meeting will bring to the city senior government officials from the eight Arctic

nations and the permanent member nations of the council. The meeting will mark

the end of the two-year tenure of the United States as chair of the council, and will

involve the handing over of the chairmanship to the next country to take on that role.

Sen. Lisa Murkowski has praised the choice of Fairbanks as the venue for the

meeting, saying that she had been calling for the choice of an Alaska community as

a location for the event.

“I have long advocated that Alaska not only host the Arctic ministerial meeting,

but that it be held as close to the U.S. Arctic region as possible,” Murkowski said in

a Jan. 25 news release. “The University of Alaska Fairbanks is home to some of the

most current research and leading experts on a variety of Arctic issues, and I cannot

imagine a better place to host this event than the Golden Heart City, in the middle

of the state that makes America an Arctic nation. This will be an amazing opportu-

nity for the world’s leaders to see firsthand both the challenges and opportunities

facing the Arctic.”

—ALAN BAILEY

BOEM extends Liberty comment againThe Bureau of Ocean Energy Management is further extending the public com-

ment period for the scoping of an environmental impact statement for Hilcorp

Alaska’s proposed development of the Liberty oil field in federal waters of the

Beaufort Sea. In a notice issued on Jan. 26, the agency said that in response to a

request from Hilcorp the deadline is being extended an additional 60 days from Jan.

26 to March 28.

BOEM originally announced its intention to prepare an EIS for Liberty on Sept.

25, at which time it initiated a public comment period slated to end on Nov. 24.

However, the agency subsequently delayed the deadline for comments to Jan. 26

and has now further extended the period during which comments can be made. The

additional time will enable Hilcorp to continue important outreach to North Slope

stakeholders regarding the project, BOEM says.

Hilcorp proposes developing Liberty from an artificial gravel island in 19 feet of

water about 5 miles from the Beaufort Sea coast. BOEM says that it will not make

a decision over whether to approve the development until an EIS has been complet-

ed for the project.

In 2014 Hilcorp acquired a 50 percent interest in the field from BP, the previous

field operator. BP had originally planned a field development from a gravel island,

along the same lines as what Hilcorp is now proposing. However, in 2005 BP

switched to a different plan, involving ultra-extended-reach drilling from the satel-

lite drilling island for the Endicott field. BP pursued that plan to the point of expand-

ing the drilling island and installing a massive rig for the drilling of development

wells. However, amid safety concerns following the Deepwater Horizon disaster in

the Gulf of Mexico, in November 2010 BP cancelled the Liberty project.

As the new field operator, Hilcorp has revived the artificial island development

concept. The company has said the field is capable of producing between 80 million

and 150 million barrels of oil over a 15- to 20-year field life.

—ALAN BAILEY

EXPLORATION & PRODUCTION

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

British Columbiarefinery plans advanceProposal for plant on BC coast submitted to regulators, secondexpected to follow suit, third plan seeking First Nations agreements

In an indirect warning to KitimatClean, the chiefs working with

Eagle Spirit said they would refuseto allow oil shipments by rail

through their traditionalterritories.

Pacific Energy hopes to establishthe refinery and a tanker port on1,600 acres of provincially owned

land near Kitimat.

page8

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of January 31, 2016

l P R O D U C T I O N

Freeman: Mining delivers morethan sector costs Alaska’s coffers

NEWS NUGGETSCompiled by Shane Lasley

NovaCopper geos nab ‘Excellence in Exploration’ award at Roundup

The Association for Mineral Exploration British Columbia

Jan. 27 awarded NovaCopper Inc. President and CEO Rick Van

Nieuwenhuyse and former NovaCopper Vice President of

Exploration Joseph Piekenbrock the 2015 Colin Spence Award

for Excellence in Global Mineral Exploration. Nieuwenhuyse

and Piekenbrock are being recognized for their success in

defining and significantly expanding the Donlin Gold deposit in

western Alaska, the Arctic copper-zinc-silver massive sulfide

deposit in northwestern Alaska and for

exploration success at the Bornite copper

deposit about 16 miles south of Arctic.

“Colin Spence was a person with a superb

understanding of the science of ore

deposits; massive sulfides to porphyries,

precious and base metal deposits, and a

determination to unearth mineral deposits

using a combination of technical excel-

lence and systematic diligence in areas of

the world both accessible and remote. In

my view, there can be no better nomina-

tion to exemplify this talent and success

than that embodied in the exploration suc-

cess of Rick and Joe,” Alexco Resource

President and CEO Clynt Nauman

penned in a letter of support for

Nieuwenhuyse and Piekenbrock’s nomi-

nation. In a separate letter of support,

Pretium Resources President and CEO

Robert Quartermain wrote, “Rick and

Joe’s success in exploration has resulted

from recognizing opportunities, engaging

with the local communities early in the process and completing

agreements that benefit all parties involved. By focusing on

only a few quality projects, their holistic approach of develop-

ing coherent geological, geochemical and structural models to

build truly predictive models of ore controls followed up with

targeted drilling to prove, disprove or further refine the model,

has contributed to their success.” As part of the team at

Novagold Resources Inc., Nieuwenhuyse and Piekenbrock

received the Thayer Lindsley Award for the discovery of the

Donlin Creek deposit from the Prospectors & Developers

Association of Canada in 2009. AME BC has established seven

awards which are named in honor of eminent persons recog-

nized for their distinguished service, leadership and contribu-

tion to the mineral exploration industry. The Colin Spence

award for excellence in global mineral exploration recognizes

individuals who have made a significant contribution to

enhance mineral resources through the original application of

prospecting techniques or other geoscience technology. The

seven awards were handed out at the AME BC Awards

Celebration of Excellence Gala held on Jan. 27 during the

Mineral Exploration Roundup 2016 conference.

Redstar names new president, CEORedstar Gold Corp. Jan. 25 reported the appointment of

Peter Ball as president, CEO and director of the exploration

company with gold properties in Alaska, Nevada and Ontario.

Ball, who has more than 25 years of mining experience and

leadership, is known to have an intense drive, passion and ener-

gy required to deliver on the market's expectations. He is join-

ing Redstar from Columbus Gold, where he served as senior

vice-president of business and corporate development.

Columbus Gold controls the multimillion-ounce Paul Isnard

gold project in French Guiana, and multiple projects in Nevada.

Pogo celebrates 10 yearsManager recounts a decade of travails and triumphs at Alaska gold mine

By SHANE LASLEYMining News

On Jan. 12, 2006, the first ore from high-grade

underground gold reserves was fed into the

mill at the Pogo Mine located near the community

of Delta Junction in Alaska’s Interior region. Ten

years, four floods, two fires and some 3.1 million

ounces of gold later, the oper-

ation is seen as an example of

mining done right.

Pogo General Manager

Chris Kennedy shared a

decade of travails and tri-

umphs, and the lessons

learned, during a presentation

at the Jan. 21 Resource

Development Council break-

fast in Anchorage.

“The main thing that we have learned is there are

a lot of challenges out there but they are nothing you

can’t overcome if you spend the time, do it the right

way, and do it safely,” the mine manager told busi-

ness and community leaders at the gathering.

Kennedy attributes much of Pogo’s success to

the mine’s management team and encouraged the

business leaders assembled to find good people to

fill leadership roles.

“That’s the key for all general managers to look

for; good individuals that can help guide the people

under them,” he advised.

“Get good people, get them up front as soon as

you can,” Kennedy added.

Strong leadership and conscientious employees

has helped elevate Pogo from a fledgling mine with

a tumultuous start to an efficient operation that

boasts more than two years without a lost-time

injury and that is looking ahead to a golden future

that could span decades.

Tumultuous startAfter more than two decades of exploration and

permitting, the startup of operation in January 2006

and the pouring of the first gold bar was welcome

news for then-owners of Pogo – Teck Cominco Ltd.,

operator with 40 percent interest; Sumitomo Metal

Mining Co. Ltd., 51 percent interest; and Sumitomo

Corp., 9 percent.

The celebration, however, was short-lived for the

owners of the up-start mine.

The troubles began when the Goodpaster River

flooded, inundating the lower camp at Pogo that

summer. While this presented a logistics problem

for owners and a blow to employee morale, it was

not the biggest setback for the mine that year.

In October, a high-voltage cable was severed

underground, causing a fire in the main electrical

room that connects the mine to the electrical grid.

“Huge fire, it totally destroyed ER-1 (equipment

room), we were without power for quite a while,”

said Kennedy, who was the mine’s maintenance

manager at the time.

While temporary power allowed for resumption

of underground operations, it took several months to

repair the damage and get the mill back into produc-

tion.

The now general manager takes a pragmatic

view of such setbacks.

“You never really lose the gold, you just lose the

opportunity to make it at the time,” he said.

Considering that gold prices shot up from

US$597 per ounce at the time of the fire to a high of

US$1,895/oz. five years later, better opportunities to

make gold was in Pogo’s future.

After recovering from the electrical room fire,

things began to smooth out for Pogo’s operations.

Two more river floods occurred in 2008 and

2013. However, the mine was better prepared to

deal with such intermittent natural occurrences.

Mother Nature’s unruly temperament, however,

did shut down production again, this time with fire.

In 2009, the Gilles Creek fire swept through the

Goodpaster District where Pogo is located. While

see NEWS NUGGETS page 11

see POGO MINE page 14

SUM

ITO

MO

MET

AL

MIN

ING

PO

GO

LLC

CHRIS KENNEDY

RICK VANNIEUWENHUYSE

JOSEPH PIEKENBROCK

Despite a rough start, the Pogo Mine has produced roughly 3.1 million ounces of gold and has developed a workculture that has resulted in more than two years without a lost-time incident.

l C O L U M N

ISER report: Miningsector pays its wayAlaska loses longtime respected geologist Chuck Hawley; despiteflat price, gold finishes 2015 among year’s best investments

By CURT FREEMANFor Mining News

Although news from the mining indus-

try is generally limited this time of

year, several items of import over the past

month bear discussion. Alaska suffered a

tragedy with the recent passing of mineral

industry giant Chuck Hawley, one of

Alaska’s most talented and respected geol-

ogists.

Although Chuck loved the mineral

exploration game, he was far more than a

geologist to many of us and to the state.

His plus-50-year love affair with Alaska

spanned some of the state’s most tumul-

tuous years and his expertise, insight and

opinions were widely and often sought by

industry, government and academia. To

me, he was a mentor that, during a low

point in the mining industry in the early

1980s, counseled me not to take a job I

had been offered in the oil patch. His well-

reasoned advice helped me avoid working

for the “dark side”, a decision I have never

regretted.

On the more uplifting side, a recent

publication by University of Alaska

Anchorage’s Institute of Social and

Economic Research brought to light some

surprisingly bright news regarding the

costs and benefits of administering the

mining industry here in Alaska. Authored

by Bob Leoffler and Steve Colt and titled,

“Fiscal Effects of Commercial Fishing,

Mining and Tourism,” the research

reviewed the State of Alaska’s costs of

administering three economic engines as

well as the revenue generated for state cof-

fers by these industries. The mining indus-

try is the only one of the three industries

studied that generates more revenue to the

state than it costs to administer. Wait.

What? A profit center inside the State of

Alaska government? Yes, the mining

industry costs the state about $15 million

per year to administer, while it contributes

more than $96 million per year in revenue

to the state. Compare that with almost $97

million and $55 million in costs to admin-

ister the fishing and tourism industries,

respectively, versus revenue generation of

$70 million and $54 million, respectively,

for those same industries.

One last thing to get us cranked up for

2016: A recent article in the Fairbanks

Daily News-Miner compared returns from

various financial instruments over the

course of 2015 and the results surprised

me. If you invested $1,000 at the end of

2014, the only two investments that gave

you a positive return for calendar year

2015 were gold, which gave you $1,045

back, and investment grade bonds which

gave you $1,005 back. Everything else

returned less than the $1,000 you invested,

including utility stocks, health care stocks,

copper, S&P 500 stocks, Asian stocks, oil,

tech stocks, etc. So despite all the gassing

and posturing by the financial talking

heads and after more than 7,000 years

since it was first used as a store of value

by humankind, gold is still your best

investment!

Western AlaskaTECK ALASKA, operator of the Red

Dog mine, filed a complaint against the

Northwest Arctic Borough over a new sev-

erance tax that the latter recently tried to

impose. The company estimates the new

tax could more than triple the mine’s annu-

al payments as of 2016. The company had

already been operating under an negotiated

agreement to pay taxes, which averaged

payments to the Borough of about $11.5

million per year over the past five years, a

rate more than double the Borough tax rate

for any other Alaskan mine. If enacted, the

new tax would increase the payment to an

estimated $30-40 million per year over the

next five years. The complaint filed by

Teck requests an injunction against

enforcement of the severance tax and a

requirement for the Borough to meet with

Teck to negotiate a new payment agree-

ment.

Interior AlaskaFREEGOLD VENTURES LTD. is

pleased to announce positive results of its

preliminary economic assessment prepared

in accordance with National Instrument

43101 guidelines for its 100 percent-

owned Golden Summit project located 32

kilometers (20 miles) northeast of

Fairbanks.

The PEA evaluates a two-phase, 24-

year open pit mine generating two gold ore

streams, one from oxide ore, the other

from sulfide ore, each operating at 10,000

metric tons per day. Using a cutoff grade

of 0.3 grams per metric ton gold, the PEA

was based on in-pit indicated oxide

resources of 345,000 ounces grading 0.66

g/t gold, in-pit inferred oxide resources of

183,000 oz. grading 0.59 g/t gold, in-pit

indicated sulfide resources of 1,018,000

oz. grading 0.70 g/t gold and in-pit inferred

sulfide resources of 1,401,000 oz. grading

0.70 g/t gold. Processing operations for the

oxide and sulfide mineralized materials are

heap leach and bioxidation, respectively.

Based on a gold price of $1,300/oz., the

PEA concluded that the operation would

have a post-tax net present value, calculat-

ed at 5 percent, of $188 million and an

internal rate of return on investment of

19.6 percent. Over its 24-year mine life, it

would have average production of 96,000

oz. per year with peak annual gold produc-

tion of 158,000 oz., generating a total of

2,358,000 oz. of bullion over its operating

life. The project has a total cash operating

8NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

Work ing together to s t rengthen Alaska’s economy and bui ld a br ighter future for the nex t generat ion.

Cal istaCorporation (907) 275-2800

STG, Inc. - GCI TERRA Northwest ProjectWestern, Alaska

ADVERTISING

COMMUNICATIONS

CONSTRUCTION

ENERGY

ENGINEERING

ENVIRONMENTAL

EQUIPMENT

EXCAVATION

FEDERAL CONTRACTING

NATURAL RESOURCES

REAL ESTATE

TheauthorThe author

Curt Freeman,CPG #6901, is awell-known geol-ogist who lives inFairbanks. He pre-pared this column CURT FREEMANJan. 25. Freeman can be reached bymail at P.O. Box 80268, Fairbanks, AK99708. His work phone number atAvalon Development is (907) 457-5159and his fax is (907) 455-8069. His emailis avalon@alaska.net and his website iswww.avalonalaska.com.

see FREEMAN page 9

NORTHERN NEIGHBORSCompiled by Shane Lasley

Yukon to invest C$900,000 to attract more explorersThe Government of Yukon Jan. 25 said it will provide nearly C$1 million to

support a three-year mining attraction initiative spearheaded by the Yukon Mining

Alliance, a group of mining and mineral exploration companies focused on pro-

moting Yukon’s competitive advantages as a top mineral investment jurisdiction.

“In 2013, the Government of Yukon and the Yukon Mining Alliance launched

strategically planned investment attraction initiatives in a manner that is led by

industry and supported by Yukon government,” Economic Development Minister

Stacey Hassard said. “This cooperative effort has provided for strong collabora-

tion and valuable global investment attraction promotion projects and is a signifi-

cant component of the Yukon Mining Investment Attraction Strategy.” Building

on this partnership, the Yukon government has committed up to C$300,000 annu-

ally over the next three years towards this initiative. The Yukon Mining Alliance

will be contributing an additional C$33,500 per year annually over the same peri-

od, and in consultation with the Government of Yukon, will design, deliver and

manage the promotion and advertising of a series of events from 2016 to 2019.

The Yukon government said this funding allows the public-private partnership to

continue to shape the investment landscape in Yukon for the benefit of all

Yukoners and position the territory for the rebound of mineral commodities.

Yukon, First Nations join forces to streamline miningThe Government of Yukon and self-governing Yukon First Nations Jan. 26

reported the development of a government-to-government protocol, establish-

ment of a regular working group, and draft of a work plan to guide discussions

on mining-related matters and shared priorities. “This protocol can lead us to a

new and more productive way of engaging on mining-related initiatives,” said

Yukon Premier Darrell Pasloski. “Our governments are working together to

improve the clarity and management of mining activity in Yukon. We are also

ensuring that Yukon’s mining regime is consistent with the final and self-gov-

cost estimated at $842/oz., including royal-

ties, refining and transport. Initial and sus-

taining capital costs, including contin-

gency, were estimated at $88 million and

$348 million, respectively, with a payback

of 3.3 years post-tax. Gold recovery was

estimated at 80 percent for oxide ore

processed by heap leaching in years 1

through 14, and 90 percent for sulfide ore

treated by bioxidation followed by carbon

in leach cyanide recovery in years nine

through 24. The truck and shovel operation

has been scheduled to provide up to 3.5

million metric tons per year of each ore

type. Primary mine production is achieved

using 64-metric-ton payload rope shovels

along with 227-metric-ton payload haul

trucks. Gold mineralization on the project

occurs in three main forms, including 1)

intrusive-hosted sulfide-quartz stockwork

veinlets (such as the Dolphin gold

deposit), 2) auriferous sulfide-quartz veins

(exploited by historic underground mines),

and 3) shear-hosted gold-bearing veinlets.

All three types are considered to be part of

a large-scale intrusive-related gold system.

Freegold made the initial discovery of

widespread gold mineralization in the

Dolphin stock during the initial drilling

campaign on the prospect in 1995, howev-

er resource definition drilling did not com-

mence until 2011. A total of 87 holes,

totaling 24,156 meters, have been drilled

within the resource area since 2011.The

company indicated that it will begin

advancing the project to preliminary feasi-

bility-level, looking at several value-

enhancing opportunities, including oxide

resource expansion, leased mine equip-

ment, improved metallurgical performance

through additional testing, liquid natural

gas, local labor surveys, electrical power

generation equipment, and local power

contracts. Additional drilling, metallurgical

testing, and environmental/permitting

activities will be required to complete the

preliminary feasibility study.

On Jan. 12, 2016, SUMITOMOMETAL MINING’S Pogo gold mine cele-

brated its 10th anniversary since ore was

first processed at the mill. On Feb. 12, it

will celebrate the 10th anniversary of its

first gold pour. During that period, the

mine had poured well over 3 million oz. of

gold and taken its place as one of Alaska’s

largest mines and one of Alaska’s best cor-

porate citizens. Congratulations to every-

one that has helped Pogo reach this goal!

Alaska newcomer GOLD RESERVEINC. announced the signing of a sales and

purchase agreement on CORVUS GOLD’SLMS gold project in the Goodpaster

District. The property was sold for

$350,000 and is subject to a 3 percent net

smelter return production royalty on pre-

cious metals and a 1 percent net smelter

return production royalty on base metals,

both of which were retained by a sub-

sidiary of Corvus. Discovered in 2004, the

Camp zone at the project contains an

inferred resource, at a cut-off grade of 0.5

g/t gold, of 8.32 million metric tons of

material estimated to contain 267,000

ounces of gold at an average grade of 1.00

g/t gold. The main resource is developed

in stratiform siliceous breccias in schist

which contains abundant pyrite and minor

galena, arsenopyrite and graphite. These

mineralized low-angle zones are cut by a

series of later, extremely high-grade, possi-

bly mesothermal, stockwork vein systems

emplaced along a general east-west trend.

The discovery of the gold-bearing outcrop

which returned 6.2 g/t gold led to further

sampling and drilling in 2006 which delin-

eated a shallow-dipping planar zone of

mineralization that has been followed

down-dip for more than 300 meters. This

feature is situated at the southeast end of a

six-kilometer- (3.72 miles) long, north-

west-trending zone of aligned surface geo-

chemical samples containing anomalous

gold and arsenic and lesser silver and cop-

per. Welcome to Alaska Gold Reserve Inc.!

Southeast AlaskaHECLA MINING announced prelimi-

nary fourth quarter and annual production

results from its Greens Creek mine on

Admiralty Island. During the fourth quar-

ter, the mine produced 2,568,025 oz. of sil-

ver and 17,198 oz. of gold, constituting 4.4

percent and 12.5 percent increases, respec-

tively, over fourth-quarter 2014 production

levels. Annual production was 8,452,153

million oz. of silver and 60,566 oz. of

gold, representing 8 percent and 3.1 per-

cent year-on-year increases over 2014 lev-

els. The mill operated at an average rate

of 2,231 tons per day during 2015, almost

identical average throughput when com-

pared with 2014.

COEUR MINING presented fourth

quarter and annual production on its

Kensington gold mine north of Juneau.

The mine produced 126,266 oz. of gold in

2015 compared to 117,823 oz. of gold for

2014. The mined produced 33,714 oz. of

gold in the fourth quarter of 2015, up

slightly from the 33,533 oz. of gold in the

fourth quarter of 2014. The mine

processed 161,927 short tons of ore in the

fourth quarter at an average grade of 0.22

oz. per ton. Average recovery was 96 per-

cent. Record operating results were due to

a 16 percent increase in the average grade

as well as a higher recovery rate. The mine

is expected to produce 115,000-125,000

oz. of gold in 2016. Development of the

Jualin decline has advanced roughly 1,500

feet and remains on-schedule.

Underground drilling of the high-grade

Jualin deposit is expected to begin during

the first quarter of 2016.

UCORE RARE METALS INC.

announced that two high net-worth US-

based investors have exercised their right

to convert their investments in royalties on

the sale of products and services from the

Bokan-Dotson rare metal project to com-

mon shares of the company. The investors

paid a total of $5.3 million for the royal-

ties, and the conversion will result in a

total of 30,470,760 shares being issued. l

9NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF JANUARY 31, 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

NEWS • 907.229.6289publisher@miningnewsnorth.com

CIRCULATION • 907.522.9469 circulation@petroleumnews.com

ADVERTISING Susan Crane • 907.770.5592scrane@petroleumnews.comBonnie Yonker • 425.483.9705byonker@petroleumnews.com

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

independent contractors

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

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

Phone: 907.229.6289 • Fax: 907.522.9583

see NORTHERN NEIGHBORS page 10

continued from page 8

FREEMAN

KA

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M I N I N G N E W S N ORT H . CO M

SUBSCRIBESUBSCRIBE

S N OWM I N I N G N E

RINT & DP

AND SAVE

O MT H . CRS N O

ALGITTAIRINT & D

AND SAVE

Geologists examine outcrop at the Kaminak Gold’s Coffee gold project, a 2010 YukonTerritory gold discovery that is on-track to gain permits to develop a 181,000-ounceper year gold mine by 2018.

ernment agreements and respects

Aboriginal and treaty rights and inter-

ests.” The Yukon and First Nation gov-

ernments are working to modernize vari-

ous aspects of Yukon’s mining regime,

including matters related to mine licens-

ing and mining activity on settlement

land and within First Nation Traditional

Territories. “We haven’t had this kind of

focused engagement on management of

mining for a long time, so it’s a good

opportunity for First Nations and Yukon

to work together and find solutions to

issues that affect all Yukoners,” Council

of Yukon First Nations Grand Chief Ruth

Massie said. The working group has

been discussing potential improvements

to Yukon’s mine licensing and explo-

ration regime. The Yukon government

expects to consult industry on some of

the potential changes before the 2016

exploration season. “First Nations have

long supported responsible mining, and

this means having a strong regulatory

system that makes sure projects are car-

ried out in a responsible and respectful

way,” Tr’ondëk Hwëch’in Chief Roberta

Joseph said.

BCGold to acquireGorilla’s gold project

BCGold Corp. Jan. 25 said it has

entered into a definitive agreement to

purchase full ownership, subject to a 3

percent net smelter return royalty, of

Gorilla Minerals’ Wels gold property in

western Yukon Territory. A pre-condition

for this acquisition will be a corporate

restructuring and the completion of a

C$600,000 financing. Insiders and major

shareholders from BCGold and Gorilla

are expected to participate in this financ-

ing. To acquire the Wels property,

BCGold will pay C$60,000 in cash and

issue 8 million of its shares to Gorilla,

following a 5-1 consolidation of BCGold

shares. BCGold currently has 41.8 mil-

lion shares outstanding, which will be

reduced to 8.4 million shares subsequent

to the share rollback. At the closing of

the Wels property transaction, BCGold is

required to complete a private placement

of at least C$600,000 at a minimum

price of C5 cents per unit, with each unit

comprised of one share and one warrant.

BCGold also has agreed to add Gorilla

President and CEO Scott Sheldon and

Ranj Pillai, an independent director of

Gorilla, to the BCGold board of direc-

tors. This transaction requires two-thirds

approval from Gorilla shareholders.

Gorilla is a tightly held, unlisted report-

ing issuer with 80 percent of its 10.6

million-share float held by three direc-

tors and one major shareholder. BCGold

is in receipt of written shareholder vot-

ing approval from these four sharehold-

ers. The Wels gold property is located 50

kilometers (31 miles) east of the commu-

nity of Beaver Creek, located on the

Alaska-Yukon border. The property hosts

a newly discovered reduced intrusion-

related gold mineralizing system, similar

in age and style to Kinross Gold’s Fort

Knox deposit in Alaska (6 million

ounces gold production to date) and

Victoria Gold’s Eagle Gold project (2.3

million ounces gold reserve) in central

Yukon. Gorilla picked up the Wels prop-

erty in 2011 and since has been carrying

out early-stage exploration, including

mapping, soil and rock sampling, geo-

physics and trenching. This work has

identified a number of promising zones,

including North Ridge, Southwest Spur

and Saddle. Rock sampling results from

four trenches excavated over a portion of

the Saddle zone in 2014 averaged 2.63

grams per metric ton gold over 19

meters; 5.3 g/t gold over 18 meters; 0.56

g/t gold over 25.5 meters; and 1.27 g/t

gold over 25.5 meters. In 2015, Gorilla

completed five holes at the Saddle zone,

the first holes drilled at Wels. The best

intercept of this drilling cut 25.5 meters

averaging 2.41 g/t gold in the first hole

of the program. “This is a totally new,

very exciting discovery, on ground that

was first staked in 2011,” said BCGold

President and CEO Brian Fowler.

“BCGold is very excited to acquire the

Wels Property, and we look forward to

further defining and enlarging the known

limits of this intrusion-related gold sys-

tem through deliberate exploration

efforts.” BCGold plans to carry out a

program of geological mapping,

prospecting, and further trenching to

define the limits of the Saddle zone at

Wels in 2016, as well as develop drill

targets on the North Ridge and

Southwest Spur zones. The company is

seeking companies wishing to earn into

the property through a significant explo-

ration commitment.

Golden Predator postsencouraging recoveries

Golden Predator Mining Corp. Jan. 25

reported results from preliminary testing

in advance of a bulk sampling program

expected to begin later in the first quar-

ter at its 3 Aces gold project in southern

Yukon Territory. The company said a

conventional gravity facility has recov-

ered 90.8 percent of the gold from a 108-

kilogram (238 pounds) composite rock

sample from the property. A second sam-

ple consisting of 61.5 kilograms (135.6

pounds) of material composited from

rejects from rotary air blast drilling

returned a calculated gold recovery of

79.9 percent. The calculated head grades

of these samples are 82.03 grams per

metric ton gold and 40.49 g/t gold,

respectively. “We are encouraged by the

very high recoveries indicated in these

preliminary processing tests,” said

Golden Predator CEO Janet Lee-Sheriff.

“These tests have enabled us to source

an economical processing plant to be

used for the upcoming bulk sampling

program. We look forward to refining

our understanding of the mineralization,

its distribution and its potential for

recovery from the high-grade veins pres-

ent at 3 Aces.”

North Arrow sellsRedemption royalties

North Arrow Minerals Inc. Jan. 25

reported an agreement has been reached

to sell royalty interests in its Redemption

diamond project to Umgeni Holdings

International Ltd. for C$800,000.

Redemption is located in the Lac de

Gras region of the Northwest Territories,

roughly 32 kilometers (20 miles) south-

west of the Ekati diamond mine. “This

agreement with Umgeni represents a

non-dilutive hard-dollar financing that

strengthens North Arrow’s treasury and

allows North Arrow to immediately

move ahead with exploration drilling

programs at both the Redemption and

Pikoo diamond projects. We expect

drilling at the Pikoo project to com-

mence in mid-February and planning is

underway to conduct a drilling program

at Redemption starting in mid-March,”

said North Arrow President and CEO

Ken Armstrong. Under the terms of the

agreement, Umgeni has agreed to pay

North Arrow C$800,000 to acquire: a 1.5

percent gross overriding royalty on dia-

monds and a 1.5 percent net smelter

returns royalty on base and precious

metals for three Redemption mineral

claims owned by North Arrow; and a

1.25 percent GOR and 1.25 percent NSR

on 12 mineral claims and five mining

leases that make up the ADD claims,

currently under option from Arctic Star

Exploration Corp. The ADD royalties

will be payable from North Arrow's ulti-

mate interest in the claims. Under the

option agreement with Arctic Star, North

Arrow can earn a 55 percent interest in

the properties by spending C$5 million

on exploration by July 1, 2017. If North

Arrow decides not to proceed beyond

2016 with further exploration under the

option agreement with Arctic Star,

Umgeni has the right to acquire North

Arrow’s interest in the option. Arctic

Star has consented to the granting of

these 1.25 percent royalties on the ADD

claims and the possible future transfer to

Umgeni of North Arrow’s interest in the

option agreement. Under the agreement

with Umgeni, North Arrow must invest

at least C$800,000 on exploration at

Redemption before August 2016.

Umgeni is a private company of which

Christopher Jennings, a director of North

Arrow, is a beneficiary of the sole share-

holder.

Crystal readies NUdiamond projects

Crystal Exploration Inc. Jan. 25 said

it has submitted samples from the

Muskox kimberlite pipe in Nunavut to

the Saskatchewan Research Council dia-

mond laboratory for processing. The

samples – totaling roughly 12 metric

tons of whole core kimberlite represent-

ing five previously un-sampled drill

holes from Muskox – will be tested for

diamond content. “The pending results

and the data acquired during 2015 will

allow Crystal to re-evaluate the potential

at the Muskox project and focus efforts

on new and existing kimberlite targets

throughout the project areas,” said

Crystal President and CEO Jim Greig.

Following the results from this sampling,

expected during the second quarter of

this year, Crystal will select additional

material from 13 remaining unsampled

drill holes and begin a thorough evalua-

tion of the Muskox kimberlite pipe.

Future programs may include a mineral

10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

continued from page 9

NORTHERN NEIGHBORS

see NORTHERN NEIGHBORS page 11

GO

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LA M

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ALS

CO

RP.

Gorilla Minerals encountered 5.3 grams permetric ton gold over 18 meters of a trenchdug across the Saddle zone of the Welsproperty located near the Alaska border inwestern Yukon Territory.

resource estimate based on historical and

new results and drill testing of priority

kimberlite targets. This will include a

detailed plan and budget with respect to

further sampling and drilling at Muskox.

A technical report for Muskox is expect-

ed to be completed later in the first quar-

ter. In addition to Muskox, Crystal said

numerous unsourced diamond indicator

mineral trains have been identified at its

Contwoyto and Hood River projects,

located in the vicinity of Muskox. The

company said it is isolating additional

targets for drill testing derived from his-

torical work across the entire 1,150

square kilometers (444 square miles) of

prospective land that makes up the three

projects. A comprehensive exploration

program that includes: ground geophysi-

cal surveys; till sampling; prospecting

and drilling will be designed, budgeted

and completed for 2016 and beyond.

AME BC seeks fixfor dwindling access

The Association for Mineral

Exploration British Columbia Jan. 20

called on the provincial government to

take action in the wake of a new report

highlighting the shrinking land base

available for the exploration of hidden

and valuable minerals in British

Columbia as well as the increasingly

complex government policies that explo-

ration companies are forced to navigate.

Without ongoing exploration there can

be no new discoveries, and without new

discoveries, the future of the industry

will be limited. As a result, thousands of

jobs and hundreds of millions of dollars

in annual economic impact could be put

at risk. AME BC says the report,

“Framing the Future of Mineral

Exploration in British Columbia,” pre-

pared by environmental consultant firm,

Hemmera, paints a troubling picture

about a lack of clarity in land access and

use rules as well as the overlapping

nature of government regulations. It

finds land access for mineral exploration

has decreased in B.C., reaching a critical

threshold threatening the survival of the

industry and by extension, the jobs, fam-

ilies and communities that rely on it.

“Despite a perception that only a small

percentage of land is designated as off

limits to mineral exploration, the reality

is that more than half the province is

severely constrained to the industry due

to layers of restrictive and sometimes

redundant regulations,” said AME BC

President and CEO Gavin Dirom. “We

believe that it is possible to have both a

strong and active mineral exploration

and development industry and a sustain-

able, healthy environment.” If not

addressed, the mining organization wor-

ries that this situation could be devastat-

ing for the more than 30,000 British

Columbians employed by mineral explo-

ration and development and the many

communities around the province that

rely on it. This includes Metro

Vancouver, which has become a global

center for the industry and headquarters

to roughly 800 exploration and mining

companies as well as many others pro-

viding a range of technical, legal,

accounting and supply services. “Mineral

explorers and developers have a proud

history of finding critical metals, like

copper, and building British Columbia

over the past 150 years,” said Dirom.

“The innovative and always evolving

exploration industry forms an important

R&D (research and development) func-

tion, designing and using technologies

and developing expertise that results in

not only finding new mineral deposits,

but also expanding the world’s geologi-

cal knowledge base for everyone’s bene-

fit.” Since 2010, roughly C$2.2 billion

has been spent on mineral exploration in

British Columbia. AME BC says a cool-

ing of this industry would leave a large

hole in the provincial economy. The

mining association is calling on the

provincial government to address the sit-

uation, including streamlining and clari-

fying land use regulations and plans as

well as developing a modern decision-

making process. These changes need to

recognize the hidden nature and value of

mineral resources compared with surface

level natural resource activities and

ensure these different values are taken

fully into account in land use decisions.

“In order to thrive in B.C., the mineral

exploration and development industry

requires access to land to discover hid-

den and valuable mineral resources and

certainty to develop those resources

should a deposit be found,” said Greg

Dawson, vice president of exploration,

Colorado Resources. “These two princi-

ples of access and certainty should be

integrated into all government land plan-

ning processes.”

Evrim seeks GoldenTriangle partner

Evrim Resources Corp. Jan. 25 said

its exploration and targeting work has

identified a number of untested drill tar-

gets at its Ball Creek copper-gold project

in northwestern British Columbia. The

520-square-kilometer (200 square miles)

Ball Creek property hosts significant

economic high-grade epithermal gold-

silver, precious metal-enriched vol-

canogenic, and porphyry copper-gold

systems. Exploration of the property’s

Main zone has been explored with geo-

logical mapping, geochemical surveys,

airborne and ground geophysical surveys

and roughly 11,000 meters of drilling.

Drilling at Main zone by previous opera-

tors cut 231 meters grading 0.21 percent

copper and 0.54 grams per metric ton

gold, including 45.72 meters grading

0.31 percent copper and 0.69 g/t gold.

Evrim said its own exploration has better

defined the controls on mineralization.

“The controls on mineralization share

many key characteristics with other sig-

nificant porphyry copper-gold deposits in

the region and what we have learned in

the Main Zone can direct exploration of

other mineralized zones on the property,”

said Stewart Harris, vice president, tech-

nical services. These targets include

strike extensions of the Main zone; a

cluster of mineralized centers that lie

within a 5,000-meter by 2,000-meter

area that encompasses the Main zone;

and a number of early staged targets

across the property. Evrim said it is seek-

ing a partner to collaborate on advancing

the copper-gold targets identified at the

prospective property with British

Columbia’s Golden Triangle. “The new

targets at Ball Creek are drill-ready and

represent an excellent opportunity for the

company to add to the mineral endow-

ment of this productive region,” said

Harris. l

11NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

www.foss.com

Always Safe. Always Ready.

MORE THAN A CENTURY IN ALASKA AND COUNTING

continued from page 10

NORTHERN NEIGHBORS

Ball has held various senior management roles with international precious metals

mining companies in corporate finance, securities trading, mine engineering, busi-

ness development, corporate communications, public relations and marketing func-

tions throughout North and South America, Asia, and Europe. “We know and look

forward to Peter bringing the same energy, professionalism and diligence that he

contributed to Columbus Gold, which helped make it one of the best-performing

gold companies in the Canadian equity markets in 2014 and into 2015,” said

Redstar Executive Chairman Jacques Vaillancourt. “The Redstar portfolio of proj-

ects, including our district-scale Unga gold project, are very encouraging and require

the type of leadership that Peter is capable of offering. We believe that Unga, with

its dual trends of epithermal low to intermediate sulphidation mineralization and

gold showings … is currently amongst the most exciting and prospective gold proj-

ects in North America.” Ball succeeds Ken Booth, who has served as interim presi-

dent and CEO of Redstar since February 2015. Vaillancourt said Booth’s “contribu-

tion was very valuable and appreciated at a critical time for the company.” Booth is

to remain on Redstar’s board of directors.

Teck earns fourth top ranking for mining sustainabilityTeck Resources Ltd. has won recognition as one of the Global 100 Most

Sustainable Corporations for the fourth consecutive year by media and investment

research company Corporate Knights. Teck is the top-ranked company in the met-

als and mining category and the second-ranked Canadian company on this year’s

Global 100 list. “Our focus on sustainability is an important part of our overall

efforts to improve efficiency and reduce costs to ensure we emerge stronger from

current challenging market conditions,” said Teck President and CEO Don

Lindsay. “We are proud of the hard work of our employees whose commitment to

sustainability is directly responsible for Teck being included in the Global 100 for

the fourth consecutive year.” Teck’s environmental and social performance is

guided by a company-wide sustainability strategy that includes short and long-

term goals designed to enhance the company’s sustainability performance. After

completing its 2015 short-term sustainability goals, Teck recently updated its strat-

egy, including establishing new goals for 2020 and ensuring the strategy focuses

on the greatest risks and opportunities related to Teck’s sustainability performance.

This strategy centers on the health, safety and wellbeing of its people and includes

initiatives to improve biodiversity, water, air and the company’s carbon footprint.

All of these focus areas are encompassed in Teck’s vision of building strong rela-

tionships and creating lasting mutual benefits based on respect for the values of

the communities where the company works. Teck has also been named to the

Dow Jones Sustainability World Index for the last six years, which ranks the com-

pany’s sustainability practices in the top 10 percent of the world’s 2,500 largest

public companies. l

continued from page 7

NEWS NUGGETS

Mining Companies

Kinross Fort Knox/Fairbanks Gold Mining Inc.Fairbanks, AK 99707Contact: Anna Atchison, Manager, Community and Government RelationsPhone: (907) 490-2218 Fax: (907) 490-2290E-mail: anna.atchison@kinross.comWebsite: www.kinross.comLocated 25 miles northeast of Fairbanks, Fort Knox isAlaska’s largest producing gold mine; during 2011, FortKnox achieved 5 million ounces of gold produced, a mod-ern record in Alaska mining.

Usibelli Coal MineFairbanks, AK 99701Contact: Bill Brophy, VP Customer RelationsPhone: (907) 452-2625 • Fax: (907) 451-6543Email: info@usibelli.comWebsite: www.usibelli.comOther OfficePO Box 1000Healy, AK 99743Phone: (907) 683-2226Usibelli Coal Mine is headquartered in Healy, Alaska andhas 700 million tons of coal reserves. UCM produces anaverage of 2 million tons of sub-bituminous coal each year.

Service, Supply & Equipment

Alaska Analytical Laboratory1956 Richardson HighwayNorth Pole, AK 99705Phone: (907) 488-1266ax: (907) 488-077E-mail: jlovejoy@mappatestlab.comEnvironmental analytical soil testing for GRO, DRO, RRO,and UTEX. Field screening and phase 1 and 2 site assess-ments also available.

Alaska Rubber & Rigging Supply5811 Old Seward Hwy.Anchorage, AK 99518Contact: Mike Mortensen, General ManagerPhone: (907) 562-2200Fax: (907) 561-7600E-mail: info@alaskarubber.comWebsite: www.alaskarubber.com.Alaska’s largest supplier of hydraulic and industrial hosesold in bulk or assembled to spec. We also stock a large

selection or wire rope, crane rope, lifting and transporta-tion chain, sold in bulk or assembled to spec. We fabricatesynthetic lifting slings, and supply shackles & rigging hard-ware. We sell and perform field installs of conveyor belt-ing. We are Arctic Grade product specialists. We sell andservice a wide variety of hydraulic, lubrication, fueling andpressure washing equipment. We sell high pressure stain-less instrumentation fittings and tube, sheet rubber, v-belts, pumps, Enerpac equipment, Kamlocks, plumbing fit-tings, and much more. We perform hydro testing up tothirty thousand psi, & pull testing up to 350 thousandpounds. All testing comes standard with certification &RFID certification tracking capabilities.

Alaska Steel Co.6180 Electron DriveAnchorage, AK 99518Contact: Joe Pavlas, outside sales managerPhone: (907) 561-1188Toll free: (800) 770-0969 (AK only)Fax: (907) 561-2935E-mail: j.pavlas@alaskasteel.com Full-line steel and aluminum distributor. Complete process-ing capabilities, statewide service. Specializing in low tem-perature steel and wear plate.

Arctic Wire Rope & Supply6407 Arctic Spur Rd. Anchorage, AK 99518Contact: Mark LamoureuxPhone: (907) 562-0707Fax: (907) 562-2426Email: mark@arcticwirerope.comWebsite: www.arcticwirerope.comArctic Wire Rope & Supply is Alaska largest and most com-plete rigging supply source. Our fabrication facility is locat-ed in Anchorage with distribution Fairbanks. We specializein custom fabrication of slings in wire rope, synthetic web-bing/yarn , chain and rope. Radio-Frequency Identification(RFID) is available for all of our fabricated products. Inaddition, we offer on-site inspection and splicing services.We carry a large inventory of tire chains for trucks andheavy equipment.

Austin Powder CompanyP.O. Box 8236Ketchikan, AK 99901Contact: Tony Barajas, Alaska managerPhone: (907) 225-8236Fax: (907) 225-8237E-mail: tony.barajas@austinpowder.com

Web site: www.austinpowder.comIn business since 1833, Austin Powder provides statewideprepackaged and onsite manufactured explosives anddrilling supplies with a commitment to safety andunmatched customer service.

Calista Corporation5015 Business Park Blvd.Suite 3000Anchorage, AK 99503Phone: (907) 275-2800Fax: (907) 275-2919Website: www.calistacorp.comCalista is the parent company of more than 30 sub-sidiaries. In terms of land area and Shareholder base,Calista is the second largest of the Regional AlaskaNative corporations established under ANCSA in 1971.Like us on Facebook (http://www.facebook.com/calista-corporation) and follow us on Twitter(http://twitter.com/calistacorp).

Construction Machinery Industrial, LLC 5400 Homer Dr.Anchorage, AK 99518Phone: (907) 563-3822Fax: (907) 563-1381Website: www.cmiak.comFairbanks officePhone: 907-455-9600 Juneau officePhone: 907-780-4030 Ketchikan officePhone: 907-247-2228 Sales and service for heavy equipment for construction,logging, aggregate, mining, oilfield and agricultural indus-tries throughout Alaska. CMI represents more than 40 ven-dors, including Volvo, Hitachi, Atlas Copco, and Ingersoll-Rand.

GCI Industrial Telecom Anchorage:11260 Old Seward Highway Ste. 105Anchorage, AK 99515Phone: (907) 868-0400Fax: (907) 868-9528Toll free: (877) 411-1484Web site: www.gci.com/industrialtelecomRick Hansen, DirectorRichard.Hansen@gci.comMark Johnson, Business Development ManagerMark.Johnson@gci.comDeadhorse:

The Red Dog mine in northwest Alaska.

D I R E C T O R YCompanies involved in Alaska andnorthwestern Canada’s mining industry

13NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

Aurora Hotel #205Deadhorse, Alaska 99734Phone: (907) 771-1090Mike Stanford, Senior Manager North SlopeMike.Stanford@gci.comHouston, Texas:8588 Katy Freeway, Suite 226Houston, Texas 77024Phone: (713) 589-4456Hillary McIntosh, Account RepresentativeHillary.Mcintosh@gci.comGCI Industrial Telecom provides innovative solutions to themost complex communication issues facing industrial clien-tele. We deliver competitive services, reputable expertiseand safely operate under the most severe working condi-tions for the oil, gas and natural resource industries. GCI-your best choice for full life cycle, expert, proven, industrialcommunications.

Greer Tank and Welding Inc. 3140 Lakeview DrivePO Box 71193Fairbanks, AK 99707Contact: Mark Greer, General ManagerPhone: (907) 452-1711Fax: (907) 456-5808Email: mgreer@greerak.comOther offices: Anchorage, AK; Lakewood, WAWebsite: www.greertank.comGreer Tank & Welding are the premier tank and weldingspecialists of Alaska and Washington. In business for over57 years, they have a long history of providing an array ofproducts and services for all contracting and custom fabri-cation needs – all from their highly trained and experi-enced staff.

HDR Alaska Inc. 2525 C St., Ste 305Anchorage, AK 99503Contact: Jaci Mellott, Marketing CoordinatorPhone: (907) 644-2091Fax: (907) 644-2022Email: Jaci.Mellott@hdrinc.comWebsite: www.hdrinc.comHDR Alaska provides engineering, environmental, plan-ning, and consultation services for mining and mineralexploration clients. Services include: biological studies; cul-tural resources; project permitting; NEPA; stakeholder out-reach; agency consultation; and environmental, civil, trans-portation, energy, and heavy structural engineering.

Judy Patrick Photography511 W. 41st Ave, Suite 101Anchorage, AK 99503Contact: Judy PatrickPhone: (907) 258-4704Fax: (907) 258-4706E-mail: jpp@mtaonline.netWebsite: www.judypatrickphotography.comCreative images for the resource development industry.

Last Frontier Air Ventures1415 N Local 302 Rd., Ste CPalmer, AK 99645Contact: Dave King, ownerPhone: (907) 745-5701Fax: (907) 745-5711Email: helicopter@LFAV.comAnchorage Base (907) 272-8300Website: www.LFAV.comHelicopter support statewide for mineral exploration, sur-vey research and development, slung cargo, video/filmprojects, telecom support, tours, crew transport, heli skiing.Short and long term contracts.

LyndenAlaska Marine LinesAlaska West ExpressBering Marine CorporationLynden Air CargoLynden InternationalLynden LogisticsLynden TransportAnchorage, AK 99502Contact: Jeanine St. JohnPhone: (907) 245-1544Fax: (907) 245-1744Toll Free: 1-888-596-3361E-mail: information@lynden.comLynden is a family of transportation companies with thecombined capabilities of truckload and less-than-truckloadtransportation, scheduled and charter barges, rail barges,intermodal bulk chemical hauls, scheduled and charteredair freighters, domestic and international air forwarding,international ocean forwarding, customs brokerage, sani-tary bulk commodities hauling, and multi-modal logistics.

Pacific Rim Geological ConsultingFairbanks, AK 99708Contact: Thomas Bundtzen, presidentPhone: (907) 458-8951Fax: (907) 458-8511Email: bundtzen@mosquitonet.comGeologic mapping, metallic minerals exploration andindustrial minerals analysis or assessment.

STEELFAB2132 Railroad Ave. Anchorage, AK 99501

Contact: Ron Doshier – Business DevelopmentManagerPhone: (907) 264-2813Fax: (907) 276-3448E-mail: RDoshier@SteelfabAK.comSTEELFAB is the largest Alaskan-owned Steel Service

Center, Fabricator and Coating Facility in the state. Itprovides Stock Steel Products, Special Design ItemsFabricated, Coating (paint & metalizing) andRecoating.

TTT Environmental LLC 4201 “B” St.Anchorage, AK 99503Contact: Tom Tompkins, general managerPhone: 907-770-9041Fax: 907-770-9046Email: info@tttenviro.comWebsite: www.tttenviro.comAlaska’s preferred source for instrument rentals, sales, serv-ice and supplies. We supply equipment for air monitoring,water sampling, field screening, PPE and more.

Taiga Ventures2700 S. CushmanFairbanks, AK 99701Mike Tolbert - presidentPhone: 907-452-6631Fax: 907-451-8632Other offices:Airport Business Park2000 W. International Airport Rd, #D-2Anchorage, AK 99502Phone: 907-245-3123Email: mike@taigaventures.comWeb site: www.taigaventures.comRemote site logistics firm specializing in turnkey portableshelter camps – all seasons.

Usibelli Coal Mine100 Cushman St., Ste. 210Fairbanks, AK 99701Contact: Bill Brophy, VP Customer RelationsPhone: (907) 452-2625Fax: (907) 451-6543E-mail: info@usibelli.comWebsite: www.usibelli.comUsibelli Coal Mine is headquartered in Healy, Alaska andhas 700 million tons of coal reserves. UCM produces 1 to 2million tons of sub-bituminous coal each year.

Advertiser IndexAlaska Dreams

Alaska Steel Co.

Arctic Wire Rope

Austin Powder Co.

Calista Corp..................................................................8

Constantine Metal Resources

Construction Machinery

Fort Knox Gold Mine

GCI Industrial Telecom

Greer Tank Inc............................................................10

IFR Workwear Inc.

Judy Patrick Photography........................................14

Last Frontier Air Ventures

Lynden

Nature Conservancy, The

Pacific Rim Geological Consulting

Salt+Light Creative

STEELFAB

Sourdough Express Inc.

Taiga Ventures/PacWest Drilling Supply

Usibelli Coal Mine

14NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

WHATEVER

WHENEVER

WHEREVER

judypatrickphotography.comCreative photography for the oil & gas industry.

907. 258.4704

the wildfire did not threaten the mine itself, management

made the decision to de-energize the 50-mile line that sup-

plies the mine with its electricity.

“We were without power for nine days,” Kennedy

recalled.

He said the decision to shut down the power at the

expense of production was to ensure the safety of crews

fighting the fire.

Transitioning to normalcySince recovering from the 2006 electrical room fire,

Pogo had not entirely overcome all of its struggles, but the

young mine was beginning a transition to normalcy.

In each of the four ensuing years, the Interior Alaska

operation graduated to higher levels of competency that

was reflected in the “buzz word(s)” for the year – ‘sur-

vival’ for 2007, ‘credibility building’ for 2008, ‘continu-

ous improvement’ for 2009 and ‘being proactive’ for

2010, according to former general manager Larry Davey.

During this transitional period, Teck sold its 40 percent

operating interest in Pogo to its partners, resulting in the

current Sumitomo Metal Mining (85 percent) and

Sumitomo Corp. (15 percent) ownership of the high-grade

gold mine.

“2009, was a huge change for us because we were

operated prior to that by Teck Cominco,” Kennedy

explained.

Along with the ownership change, came a large shift in

management as many of the longtime Teck employees

were phased out to pursue other opportunities with the

Canada-based miner.

The vacuum at the top eventually led to Kennedy, who

had been at Pogo since 2005 and witnessed the ups and

downs of putting and keeping the mine in production,

being promoted to general manager.

“I became the general manager in 2011,” he told the

RDC breakfast attendees. “I am proud to be the manager

of Pogo and of the culture that we have developed.”

The culture fostered at Pogo resulted in two significant

milestones in 2015 – in July, the 320 mine employees sur-

passed two years without a lost-time incident and two

months later Pogo poured its three-millionth ounce of

gold.

“The journey to three million ounces has taken 10

years of planning and permitting and more than nine years

of operation. Producing 3 million ounces is a huge accom-

plishment, and I am proud of the team at Pogo,” Kennedy

has said. “Even more important is the strong safety culture

we’ve developed. All 320 employees on site are looking

out for their own safety and that of their fellow miner.”

Expanding to the futureNow a smooth operation producing 1 million ounces of

gold every three or so years, Pogo is focused on the next

10 years and beyond.

Ensuring a long and golden future for the mine falls on

the shoulders of the exploration team at Pogo.

“Our goal is to replace what we pull out of our reserve

every year,” Kennedy said.

The Pogo exploration team took a large leap towards

this goal with the 2010 discovery of the East Deep zone, a

deposit that is geologically and geochemically similar to

the ore-body on which Pogo was founded.

Development of East Deep began in 2012 and mining

of ore from this major Pogo extension began in 2013. It

was not until the completion of a 14 feet-wide ventilation

shaft in 2015, however, that infrastructure was established

to the point that the company considered development

complete.

In 2015, SMM Pogo invested roughly US$15 million

in discovering and delineating gold deposits at Pogo, mak-

ing it the largest exploration program in the state during

the year. It followed a US$17 million program in 2014.

The 2015 program included nine drills focused on the

discovery and expansion of targets surrounding the mill,

including the northern end of the East Deep deposit, North

Zone and Pogo South, three zones of high-grade gold min-

eralization adjacent to the current underground workings

at the mine.

The work included some 219,500 feet of exploration

drilling – 174,000 feet from surface and 45,500 feet

underground – and about 103,000 feet of definition

drilling.

“We continue to expand the mine. Our exploration

department is doing a great job – we are finding more

resource every day,” Kennedy said.

To continue this expansion, SMM Pogo has budgeted

another US$10 million for exploration at and around the

mine in 2016.

“So, we are going to be there for a while,” the Pogo

manager said.

An awesome placeWhile Pogo has come a long way from its tumultuous

beginnings, the second decade of operations will not be

without challenges.

The most persistent of the current challenges is keeping

the underground workings dry.

At one point last year, the mine held 48 million gallons

of water, or enough to fill 72 Olympic-sized swimming

pools.

“When we take a look at what we need to do, water

management is critical for us,” Kennedy said. “We chose

to go ahead and close some of the headings and store

water underground and treat it at a later time.”

The mine also has added to its water treatment capaci-

ty, providing the ability to treat larger quantities of the

accumulated water so that it can be discharged.

However, many of the challenges ahead are geared

towards increased efficiency, such as improving mill

recovery, making the camp a home for the mine’s 330

employees and continuing to set higher standards for safe-

ty.

“At the end of the day we have got the right group of

people out there doing that,” Kennedy said.

With those human resources, Alaska’s second-largest

gold producer moves into its second decade.

“Pogo is an awesome place,” Kennedy boasted. “We

have gone through a lot of struggles, learned a lot, and we

are going to continue to carry on.” l

continued from page 7

POGO MINEIn each of the four ensuing years, the InteriorAlaska operation graduated to higher levels of

competency that was reflected in the “buzzword(s)” for the year – ‘survival’ for 2007,‘credibility building’ for 2008, ‘continuous

improvement’ for 2009 and ‘being proactive’for 2010, according to former general manager

Larry Davey.

PETROLEUM NEWS • WEEK OF JANUARY 31, 2016 15

impacts of marine traffic on the ecological health of the

region.

Trans Mountain’s plan is expected to increase the num-

ber of tanker trips through the region by 70 percent to 400

a year, while a nearby LNG project by Woodfibre would

add dozens more.

The report examined the possible impact of an oil spill

on 4,500 miles of coastline that cater to tourism and recre-

ation and involve flood protection, climate regulation and

fish habitat worth tens of billions of dollars.

“A fuller, honest assessment would make most people

wonder whether a hydrocarbon export economy makes

sense for the region,” said lead author Misty MacDuffee.

Mayors objectOn Energy East, the Montreal-region mayors joined

Quebec Premier Philippe Couillard in delivering the back of

their hands to Alberta Premier Rachel Notley for her efforts

to gain backing for the pipeline in return for promising to

introduce some of Canada’s toughest climate change legis-

lation that would cost the industry C$3 billion a year.

Montreal Mayor Denis Coderre, who has close ties to

Trudeau, said the benefits of Energy East would be slim,

with only negligible job creation, generating about C$2.1

million a year on revenue for the Montreal area, while a

major oil spill cleanup could cost between C$1 billion and

C$10 billion.

He said a majority of 140 groups that consulted with

TransCanada last fall were opposed to the project.

A TransCanada spokesman said the company hoped to

continue its meetings with elected officials and other stake-

holders.

TransCanada has noted that Energy East could displace

most of the 634,000 bpd of crude that Canada imports from

countries such as Saudi Arabia, Iraq, Algeria and Angola to

supply refineries in Quebec and New Brunswick.

The NEB has estimated that Canada spends about C$26

billion a year on those imports because it does not have the

infrastructure in place to deliver crude from Western

Canada to Quebec and the Maritime region.

Alberta Economic Development Minister Deron Bilous

suggested Coderre was being “ungenerous and short-sight-

ed,” failing to give credit to the initiative Alberta was under-

taking to get its products to market.

Brian Jean, leader of the opposition Wildrose Party in

Alberta, was even blunter, noting that Montreal is buying

“millions of barrels of foreign oil from dictatorships, but is

rejecting oil from their friends in (The Canadian confedera-

tion). It’s ridiculous.”

The angriest response came from Saskatchewan Premier

Brad Wall who suggested Quebec should return the C$10

billion it will receive in 2016-17 from Canada’s equaliza-

tion program which transfers cash from wealthy to poorer

provinces.

For years, until oil prices started their downward slide,

by far the largest slice of that money came from Alberta’s

oil-derived budget surpluses. l

continued from page 5

ROUGH TIME

By GARY PARKFor Petroleum News

There are the first, faint stirrings within the new

Canadian government of regulatory and financial

changes to advance the prospects of building energy

pipelines to the Pacific and Atlantic coasts.

Finance Minister Bill Morneau, as part of his cross-

Canada consultations to prepare a 2016-17 budget, left no

doubt that he is exploring ways to reverse the loss of C$50

billion in annual government revenue from the decline in oil

and natural gas prices.

At the same time, Natural Resources Minister Jim Carr

acknowledged the urgent need to craft a new process to

consider and approve pipelines to export terminals.

But he cautioned that the Liberal administration of

Prime Minister Justin Trudeau will probably roll back

changes introduced by the previous government to stream-

line the regulatory process by limiting environmental

reviews and who can appear before National Energy Board

hearings.

Carr said only that the government hopes “within

weeks” to announce an interim environmental review

process while pledging that energy projects started under

the previous regime “will not have to restart from zero.”

Compounding the challenges is the prospect of a flood

of Iranian oil on to the international market after the United

States and the European Union lifted economic sanctions

against Iran.

That comes on top of unease within Canadian petroleum

circles as the United States draws closer to exporting crude

and LNG.

‘Biggest competitor’?Alberta Premier Rachel Notley noted earlier in January

that with the boom in shale oil and natural gas production

over recent years the United States no longer needs up to

two-thirds of Canadian output, suggesting that the U.S. has

“transformed from our best customer to our biggest com-

petitor.”

But the latest figures from the U.S. Energy Information

Administration painted a slightly different picture, estimat-

ing Canadian crude shipments to the U.S. at 3.4 million bar-

rels per day in the first week of January, their highest level

ever.

“That’s one piece of the puzzle you don’t hear too much

about ... the market share Canada is gaining in the U.S.,”

said Carl Evans, senior crude oil analyst at research firm

Genscape.

The surge comes as U.S. oil production was expected to

drop 80,000 bpd in December, which Martin King, vice

president of institutional research at FirstEnergy Capital,

said could allow Canada to capture a “bit more” of the U.S.

market.

Even so, given the cold shoulder the Obama administra-

tion delivered to TransCanada’s Keystone XL, the

Canadian petroleum industry has decided it can no longer

afford to delay finding ways to open markets beyond North

America and benefit from Brent crude prices now that the

Canadian dollar is at its lowest level since 2002.

“There’s clearly a worry among people in the sector that

they do need to get access to tidewater (coastal ports),”

Morneau said in Calgary.

He also agreed to take a second look at a Liberal govern-

ment policy promise to end subsidies for the fossil fuel

industry, some of which the industry considers to be merely

tax breaks which are available to other resource industries.

Stimulus package?After years of having very little or no contact with the

Canadian government, the petroleum industry is hopeful

the Trudeau government is about to release a stimulus pack-

age.

“I think our government really understands the crisis we

are in,” said Alex Ferguson, a vice president of the

Canadian Association of Petroleum Producers.

But there are few specific ideas on how the government

can facilitate the provision of new pipelines at a time when

it is under mounting pressure to force Kinder Morgan and

TransCanada to reapply for the Trans Mountain expansion

and Energy East, respectively, which would offer combined

incremental capacity of 2 million barrels per day, mostly for

markets in Asia and Europe.

One new study by the Federation of Canadian

Municipalities has suggested the government should pump

C$140 billion to C$400 billion into infrastructure projects

over the next 10 years.

While most of that spending would be directed at trans-

portation systems, from urban transit to roads and railways,

little would directly benefit the movement of crude unless a

decision was taken to bypass the controversial overland

pipelines in favor of using rail.

‘Getting projects built’Trudeau told reporters at a federal cabinet meeting that

the “focus on infrastructure money is actually on getting

projects built, getting people working on things that will

activate the job market in the short term and create growth

and productivity gains in the medium and long term.”

He was defensive when asked how much sympathy he

had for the 60,000 petroleum sector workers who have lost

their jobs in the past year, arguing that the government of

Prime Minister Stephen Harper had failed over 10 years to

recognize “that the way to support our resource industry is

to be stronger on environmental oversight and responsibili-

ty.”

He sidestepped questions on how large a budget deficit

he is willing to run to keep the economic engines turning

over beyond promising his first budget will be “fiscally

responsible.”

For now, optimism is being kept alive by word that

Trudeau has decided to focus initial stimulus efforts in

Alberta and Saskatchewan by allocating C$1 billion for

infrastructure work in the two provinces.

Alberta Infrastructure Minister Brian Mason said he

understands the decision will fast tracked, with money

being made available in April.

He said federal dollars will augment money Alberta is

borrowing to support a five-year, C$34 billion capital plan

to create about 10,000 jobs.

However, there is no indication that the infrastructure

spending will yield any direct benefits for the oil and gas

sector, prompting industry insiders to warn that unless the

Canadian government can find a way to expedite regulatory

approvals for pipelines the current slender hope of action

will be meaningless. l

l G O V E R N M E N T

Trying to turn the tideCanadian government about to roll out changes to pipeline regulatory reviews, prodded by loss of C$50B in oil and gas revenues

ARRT meeting. The implementation of

the pre-authorization zone requires indus-

try to stage dispersant and dispersant

application equipment at appropriate loca-

tions.

24 months to complyIndustry now has 24 months to comply

with the requirements of the pre-authoriza-

tion zone, while the terms of other aspects

of the plan go into immediate effect,

Everret said.

Dispersants accelerate the rate of bacte-

rial decomposition of oil in seawater by

breaking the oil into tiny droplets and dis-

tributing the droplets through the water

column, rather like the action of dish soap

on greasy plates. Dispersants were used

extensively in the response to the oil spill

following the Deepwater Horizon disaster

in the Gulf of Mexico.

Dispersants can be controversial, with

some people saying that the use of the

technique can cause irreparable environ-

mental damage while others say that dis-

persants can prevent the oiling of shore-

lines and other environmental impacts.

The U.S. Coast Guard has in the past

taken a position that, although the mechan-

ical recovery of oil is the preferred means

of responding to an oil slick, dispersants

provide another response tool that could be

used if necessary.

Two years of reviewEverret told the ARRT meeting that

publication of a final version of the Alaska

dispersant use plan follows two years of

review of a draft version of the plan,

involving significant public outreach as

well as consultations with tribal entities in

Alaska. More than 500 public comments

on the plan were submitted, and several

changes were made to the plan as a result

of points that were raised, he said.

Finally, the revised plan and the public

and tribal comments were reviewed twice

by all of the various state and federal agen-

cies involved in the ARRT, Everret said.

The new plan includes greater inclusiv-

ity in decision making over the planning

for and use of dispersants; is more compre-

hensive; and presents a more protective

dispersant use policy than the plan it

replaces, he said.

—ALAN BAILEY

continued from page 1

DISPERSANT PLAN

16 PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

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Check out Petroleum News’ Alaska booth at NAPE Petroleum News will have a booth at the annual NAPE Summit, Feb. 10-12, said pub-

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in the world for oil company landmen and executives who want to acquire, or sell, oil andgas properties or leases,” she said.

The three-day event, expected to have about 17,000attendees, will be held in Houston, Texas, at the GeorgeR. Brown Convention Center. Petroleum News’ booth isNo. 1665, which is in the northwest section of theexhibit hall, next to Wave Petroleum.

In addition to issues of Petroleum News, a weeklynewspaper based in Anchorage, the booth will displayannual magazines from Petroleum News and literatureand maps from the state of Alaska’s Division of Oil andGas, Cashman said.

Altogether, NAPE encompasses 14.66 acres of exhibition space for deal making, ven-dors and other attendees. The event, which will have about 1,000 product and service ven-dors, hosts two prospect theaters — one for domestic prospects and the second for inter-national prospects — that will concurrently run a full day of prospect presentations.

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Mike Brown joins Global in Gulf of MexicoGlobal Diving & Salvage Inc. announced the hiring of Mike

Brown as vice president of energy services, working from Global’sHouston office. In his position Brown will focus his efforts toincrease Global’s position in the domestic and international energymarket. He will be directly responsible for developing businessopportunities and providing oversight on operations for theseclients as well as overseeing Global’s saturation and deep divingoperations throughout the company.

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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.

MIKE BROWN

Altogether, NAPEencompasses 14.66 acres

of exhibition space fordeal making, vendorsand other attendees.

Petroleum News: You did get the with-drawal promises — well you got the twoletters at least, which enabled you to pullthe reserves tax off the special sessioncall.

Walker: Yeah, I’m sufficiently satisfied

that the companies’ commitment that gas

would be available for a project if they

didn’t participate. I’ve sort of re-read and

looked at what they provided to me — the

various letters and verbal communication

I’ve received from some of them — and

sort of put it all together and I said you

know what? I think the intention is there. I

don’t need to have it negotiated down to

the penny as far as what it will be sold for

at all.

So I don’t want to take up valuable

time on that. I’m comfortable with where

we are on that at this point. So I’ve moved

it to the back of the queue of issues to be

negotiated. I’m sufficiently satisfied. The

two most critical pieces of this project are

the gas and the market. Everything else in

between is infrastructure. It’s a piece of

pipe and it’s a big deal, but without gas

and without a market, there is no project.

Petroleum News: Speaking of the infra-structure, who builds the pipeline now?You don’t have TransCanada.

Walker: Well, I’m sure it will be a con-

sortium put together by the four partners.

TransCanada was not a builder. They were

there as our spokesperson at the table.

They could still be the builder; they could

come back in as the pipeline builder. That

(separation under SB 3001) doesn’t pre-

clude that from a possibility of happening.

But they just don’t represent us and take

our seat at the table. That change had

nothing to do with their qualifications as a

pipeline company.

For them the project — it’s another

project. I understand that. For us, it’s one

that I want to make sure happens if it’s

economic, if it’s financeable.

Petroleum News: Folks have describedthe separation as amicable. Could thatspeak to them coming back in and havinga role, though not a seat at the table?

Walker: It certainly could. Again, I said

many, many times and I spoke to the pres-

ident of TransCanada (Russ Girling) a

couple of times as well and explained this

is nothing other than the fact that I think

it’s appropriate that we have a seat at the

table. They are a fine pipeline company.

There is absolutely no issue with them at

all in that regard.

Petroleum News: Now every governorneeds to have his thumbprint on projectsno matter how big or small. Do you haveyour input now, your thumbprint on thisthe way you like? Have you struck yourbalance between what you want andwhat’s in SB 138.

Walker: I’m comfortable with where

we are. Many of my predecessors going

back have come in and started over again,

and said the last group, their process I did-

n’t like and started over again. My com-

mitment wasn’t to start over again. I’ve

been at this for the last 30 years in one

capacity or another so I had some con-

cerns, but most of those have been

addressed at this point.

I just didn’t want to take the time to

start over again. Some governors have

started over again twice. I’m not going to

do that. I want to finish something rather

than start something. I’m working within

SB 138. Whatever I’ve received from the

producers in the way of assurances with

gas, I’m comfortable with where we are

on a potential withdrawal.

What I don’t want to have is somebody

else precluding us from continuing on if

somebody withdraws. I think I’m comfort-

able with where we are on that. So I’m

OK with where we are. I’ve probably

made the least changes of any governor

who has come in on a project that was the

driving force for me to run for this office.

So many were surprised when I didn’t

come in and start over again like every-

body else. I said, no, I wouldn’t start over

again.

Petroleum News: On to the prospectsof a constitutional amendment, would youlike to see that on the ballot this year, ifeverything falls into place.

Walker: It has to be. I think that it is

critical for it to be on the ballot this year.

If we have slippage on that, boy, that is

way too much time associated with that. It

appears what they are asking in the way of

fiscal certainty is going to require a consti-

tutional amendment. That’s why I would

like to have the agreements in front of

them this regular session, so it’s all done

before making a decision of going to the

voters with a constitutional amendment.

A constitutional amendment is a very

big deal. We don’t do that very often and

we’ve never done that for a commercial

project so I want to make sure Alaskans

know, plus obviously the Legislature

knows, what the deal is. What are all the

pieces of the project and how is this going

to work. They are entitled to know that

before they go to the polls to vote.

Petroleum News: So who, at somepoint, would be promoting this? Would itbe the four partners?

Walker: I think it would be a little bit

of everyone. Probably more so myself as

the governor because it would be more

appropriate for the governor on the consti-

tutional amendment rather than a president

of one of the companies. It would be a

joint effort on our parts, but probably a lit-

tle more on my part.

Petroleum News: So is it possible tomeet these deadlines because you don’twant to be locked into these deadlines?

Walker: Yes, there is concern about

having deadlines. But I’m a big believer

that measured things get done. These are

negotiations. We are not trying to fast

track the engineering or fast track the pre-

FEED stuff. That’s all on a normal

sequence. The negotiations should be able

to be accomplished in time for the end of

the session.

Petroleum News: Talk about your tripto Japan. Folks in Japan have been get-ting Alaska’s gas for about four decadesnow. What were you able to tell them thatwas new?

Walker: Well a couple of things. What

was new was we were going to have a

seat at the table. At that point we did not. I

think what’s different now is that it is

good we have all three companies at the

table and involved in the project. I think

that’s good. Also I think they are aware

that with our financial situation, it’s time

to monetize that gas. In other words, it

was used in the past for decades to add

additional pressure to the (oil) fields and

we probably received more oil out and

that’s a good thing, but they realize that

axis is crossed and it’s time to monetize

the gas. It’s probably one of the largest, if

not the largest, untapped gas resources in

North America, if not beyond. Many of

who I met with, I already met before some

years ago. They recognized this is a new

me and know my background and that this

is a high priority for them.

PETROLEUM NEWS • WEEK OF JANUARY 31, 2016 17

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continued from page 2

WALKER Q&A

see WALKER Q&A page 19

18 PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

FACILITIESConoco applies for pad expansion

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

Kuparuk Construction Services gravel pad in the northern part of the Kuparuk River

unit on the North Slope. The company has said that the expansion is needed “to sup-

port the continued development and production of oil and gas resources within the

Kuparuk River unit.”

The expansion would increase the pad’s surface area by about 58.6 acres, with the

placement of 502,000 cubic yards of gravel. Pad construction would take place in

three phases in the winters of 2016, 2017 and 2018. Upon completion of the construc-

tion, existing power poles on the northern edge of the existing pad would be removed

and the associated cables buried.

According to a plan accompanying the permit application, the expanded pad would

accommodate a rig camp, support shops, tank storage and a vac truck staging area.

—ALAN BAILEY

DOT protects highway from floodingFollowing major disruption to vital freight transportation to Prudhoe Bay last

year because of the overflow of the Sagavanirktok River across a section of the

Dalton Highway, the Alaska Department of Transportation and Public Facilities is

implementing contingency plans for the protection of the road from a new over-

flow that is already emerging this year. The agency will construct a gravel berm

on the east side of the highway between miles 394 and 397, the agency announced

in a Jan. 26 press release.

According to information on the agency’s website, this year’s overflow of the

river continues to expand and is increasingly visible from the road, with condi-

tions now similar to those seen in March 2015. Flooding of the road in 2015 began

at the end of March.

To prevent a recurrence this year, work on the gravel berm should start in mid-

February at the latest. Meanwhile, crews are using snow, burlap and rebar to pre-

vent river overflow from reaching the road, the agency said.

A Dalton Highway reconstruction project to raise the grade 7 feet, replace cul-

verts and resurface began last year from miles 401 to 414 and was extended south

to mile 397 in 2015 due to flooding and repairs. Work this year and next will be

from mile 379 to 397.

—ALAN BAILEY

Cook Inlet facilities withstand quakeThe early hours of the morning of Sunday Jan. 24 saw one of the largest earth-

quakes experienced in Alaska’s Cook Inlet region. But while the violent trembler,

with a strength of 7.1, on the west side of the inlet resulted in some property damage

on the Kenai Peninsula and spilled merchandise displays in some Anchorage stores,

oil and gas production facilities in and around Cook Inlet survived unscathed.

Lori Nelson, spokeswoman for Hilcorp Alaska, told Petroleum News that there

had been no injuries and no damage to Hilcorp facilities in the Kenai Peninsula and

Cook Inlet areas as a result of the earthquake.

“We immediately initiated outside inspections of our facilities in the area and did

an aerial inspection as early as possible on Sunday morning of all pipelines and facil-

ities,” Nelson said. “The earthquake did trigger some precautionary alarms offshore

which were deemed all clear. Swanson River operations were without power tem-

porarily, only resulting in minor process upsets.”

Nelson said that there were also temporary outages of some gas compressors, but

that Hilcorp was able to continue to meet the demands of local utilities without sup-

ply interruptions.

ConocoPhillips spokeswoman Amy Burnett told Petroleum News that there had

been no damage to ConocoPhillips’ Cook Inlet facilities, no significant impacts to the

company’s Anchorage office complex, and no impact to operations.

—ALAN BAILEY

Conoco negotiating Inlet asset saleConocoPhillips is engaged in negotiations over the sale of its Cook Inlet assets,

company spokeswoman Amy Burnett told Petroleum News in a Jan. 26 email. At

this point the company cannot make any further statement about what is happen-

ing, she said.

In July the company announced its intention to sell off its Cook Inlet proper-

ties, other than the liquefied natural gas facility at Nikiski on the Kenai Peninsula.

Those properties include the offshore North Cook Inlet gas field and interests in

the Beluga gas field, which the company operates on the west side of the inlet.

The company said that it wants to focus on its North Slope operations, including

the Alaska LNG project.

In early October the Anchorage Municipal Assembly authorized the

Municipality of Anchorage to bid for some or all of the ConocoPhillips’ assets,

with a view to securing gas ownership for Municipal Light & Power, an electric

utility owned by the municipality and a user of natural gas as a fuel for power gen-

eration. ML&P already owns a one-third interest in the Beluga field, an arrange-

ment that has enabled the utility to assure a supply of gas at below-market prices.

In September Anchorage Mayor Ethan Berkowitz had proposed that the

municipality should bid for the ConocoPhillips properties. ConocoPhillips had set

a target of end December for closing the sale.

The mayor’s office has not responded to a request for information about any

bid by the municipality for the properties.

—ALAN BAILEY

FINANCE & ECONOMY

PIPELINES & DOWNSTREAMContinued delay in Unocal TAPS exit

A legal dispute continues to delay Unocal Pipeline Co.’s sale of its ownership

interest in the trans-Alaska oil pipeline. The company said in 2012 that it was

going to sell its stake in the pipeline to one or all of the other pipeline owners. But,

although the Regulatory Commission of Alaska responded by authorizing a tem-

porary suspension of the company’s pipeline transportation services, pending

completion of the sale, by October of 2012 it became clear that legal issues sur-

rounding the sale were delaying sale completion.

Since then Unocal has submitted reports at three-month intervals to the com-

mission, indicating that the pipeline owners have a dispute over matters relating

to the ownership transfer and that the companies are engaged in arbitration and

litigation. The exact nature of the dispute is unclear.

The commission has responded by issuing orders extending the deadline for

the transfer of operating authority for Unocal’s share of the pipeline — the com-

mission issued the most recent of these orders on Jan. 26, in response to a filing

from Unocal dated Jan. 21. In its filing Unocal told the commission that because

of the continuing dispute, the company is still not in a position to file an applica-

tion to transfer its operating authority. And litigation relating to the dispute “is

likely to continue for a significant period of time,” the filing says.

—ALAN BAILEY

over a 100-year period should it be

released into the atmosphere. Moreover,

gas lost through flaring, venting or leaks

represents a wastage of a resource that

could otherwise be used as fuel.

“I think most people would agree that

we should be using our nation’s natural

gas to power our economy — not wasting

it by venting and flaring it into the atmos-

phere,” said Interior Secretary Sally

Jewell, when announcing Interior’s pro-

posed rule. “We need to modernize

decades-old standards to reflect existing

technologies so that we can cut down on

harmful methane emissions and use this

captured gas to generate power and pro-

vide a return to taxpayers, tribes and states

for this public resource. We look forward

to hearing from the public on this propos-

al.”

Limit to flaringCurrently, BLM has no upper limit on

the volume of gas that can be flared in

conjunction with oil and gas operations on

federal land. The new rule would limit

flaring per development well, initially to

7.2 million cubic feet per month, with that

limit dropping to 1.8 million cubic feet

three years after the rule goes into effect.

The rule would apply to production wells

and not to exploration wells.

The rule would require operators to

evaluate opportunities for methane capture

and to prepare a methane waste manage-

ment plan prior to drilling a development

well. Operators would be required to insti-

gate an instrument-based leak detection

program to find and repair leaks — bienni-

al inspections would be required, but with

the inspection frequency becoming annual

if few leaks are found, while becoming

quarterly if more leaks are detected.

Venting prohibitedUnder the rule, there would be a com-

plete prohibition on the venting of

methane, except under some narrowly

specified circumstances such as emer-

gency situations or to meet equipment lim-

itations. Within six months of the rule

going into effect, operators of storage

tanks that vent more than six tons of

volatile organic compounds per year

would need to implement a means of cap-

turing or flaring gas emitted from the

tanks. Well operators would need to cap-

ture, flare, use or re-inject gas released

during well completions. However,

assuming that the Environmental

Protection Agency finalizes a similar rule

for hydraulically fractured well comple-

tions, BLM’s rule for well completion

would only apply to conventional comple-

tions.

BLM’s proposed rule also includes a

provision allowing a royalty rate above the

currently fixed rate of 12.5 percent for fed-

eral oil and gas leases.

Regulation in AlaskaThe new rule would apply to oil and

gas operations on federal land in Alaska, in

particular in the National Petroleum

Reserve-Alaska, where ConocoPhillips is

pursuing a program of oil development.

However, oil and gas wells in Alaska,

including those on federal lands, are

already subject to strict rules enforced by

the Alaska Oil and Gas Conservation

Commission and the Alaska Department

of Environmental Conservation, to prevent

the wastage of hydrocarbon resources and

avoid air pollution. Those rules include a

prohibition of methane flaring or venting,

other than in small volumes for specific

allowed purposes.

AOGCC Chair Cathy Foerster has told

Petroleum News that the commission reg-

ulates oil and gas wells in Alaska, while

ADEC has jurisdiction over air emissions

from surface facilities and pipelines. But

the commission requires, with few excep-

tions, all produced gas to be either deliv-

ered to market or re-injected into field

reservoirs, regardless of whether produc-

tion comes from federal or state land. Gas

can only be flared or vented for safety rea-

sons or for some hydrocarbon conserva-

tion purpose, Foerster said. However, the

large oil fields have small pilot gas flares

running continuously to enable gas to be

diverted to a flare stack should some emer-

gency arise.

The commission monitors gas volumes

passing through sales meters relative to

volumes metered from production wells

and will fine a company if gas is wasted,

Foerster said.

“Every single month every operator has

to give us a report of every puff of gas they

produced and what they did with it, and it

has to meet our standards,” she said.

AOGCC also requires wells to pass

stringent integrity tests, to ensure that flu-

ids do not leak. l

continued from page 1

METHANE EMISSIONSUnder the rule, there would be a

complete prohibition on theventing of methane, except under

some narrowly specifiedcircumstances such as emergencysituations or to meet equipment

limitations.

PETROLEUM NEWS • WEEK OF JANUARY 31, 2016 19

ENERGY INFRASTRUCTURE CONSTRUCTION SERVICES

www.pricegregory.com

Petroleum News: Quickly shifting toyour fiscal plan, and the oil tax credits.What drove this bill, this plan, to revampthe credits?

Walker: Well, the credits are just unsus-

tainable. It started off with a $10 million

cap when it was first initiated years and

years ago. Then it went to $25 million.

Then the cap came off. When I came into

office it was $700 million (requested pay-

out). If we had done nothing, it was on

track to go to $1.2 billion and it would

have been $1.8 billion next year. It just

was absolutely not in the cards; it was not

sustainable.

Petroleum News: Have you met withindustry on this?

Walker: Many times. Many times.

Petroleum News: Do you have a sensethey agree with you?

Walker: I wouldn’t say agree. I think

they recognize our challenge. I think

we’ve been working with them on what

would be the lesser impacts on them than

the other options that are out there. We’ve

made some changes as a result of that.

Commissioner Hoffbeck has met with

them multiple times. We’ve met with

AOGA (Alaska Oil and Gas Association)

board of directors a number of times.

We’ve met with each independent compa-

ny trying to find out how we deal with

companies currently underway in the

credit program. Of course we honor

everything that is due. There is no ques-

tion about that. As recently as yesterday

(Jan. 25), I met with someone. It’s a mat-

ter of doing it carefully so we don’t drive

anyone away and discourage investment.

Boy, an investment program that can pay

up to 65 percent of someone’s cost of

what they are doing is pretty heavy lift on

our part.

Petroleum News: You’ve made a lot oftrips to D.C. and even flew back to Alaskawith the President. The (Obama) adminis-tration has not made some favorable rul-ings for those looking to extract resources.Do you feel like you’re not being heard?

Walker: Not necessarily. The federal

government approved GMT1 and GMT2.

I went and sat down with the Secretary of

the Interior at ConocoPhillips’ request.

They asked if I could contact her and send

her a letter. I said I would do better than

that. I’ll hand her the letter. So we

received that approval. On the offshore,

Shell ultimately got their permit. They

didn’t find anything. They didn’t get their

lease extended. So have we gotten every-

thing that we wanted? No. Have we got-

ten some? Yes. Do we still have an open

relationship, you bet we do. Will there be

more ask? You bet there will be. So I

wouldn’t necessarily say we haven’t got-

ten everything we asked for. I’m still a

very strong advocate for access into the

1002 area. I spoke to the president about

that directly. I spoke to Secretary Jewell

about that a number of times on that. We

will continue to advance our case. l

continued from page 17

WALKER Q&A

integrated oil and gas companies,” it said.

“This will cause further deterioration in

financial ratios, including deeper negative

free cash flow. Most companies are unable

to internally fund sustaining levels of cap-

ital spending at currency market rates.”

Bank projects further cutsThe Bank of Canada said it expects

companies to slash spending by a further

25 percent this year — on top of the 20

percent reduction it had previously fore-

cast — while warning that producers are

running out of options after chopping

investment levels by 40 percent in 2015.

“Many firms indicate that neither they

nor their suppliers are able to generate

additional substantial cost savings or pro-

ductivity increases in the short term,” the

central bank said.

“Unlike conventional oil producers, oil

sands producers find it difficult and expen-

sive to scale back production, causing

some to operate temporarily at a loss. With

low oil prices persisting, firms anticipate

more painful wage and staff cuts ahead.”

Chris Cox, an analyst at Raymond

James in Calgary, said leading top-end

producers such as Cenovus Energy,

Canadian Natural Resources, Crescent

Point Energy and PrairieSky Royalty

could be part of a wave to cut payouts to

preserve cash.

He said each incremental dollar of cuts

in oil prices “makes a huge difference in

terms of the financial positions of these

companies and eventually forces much

more rash actions.”

Clobbering the oil sands sector reached

a new high in late January when heavy

crude traded at a discount of more than 50

percent against West Texas Intermediate,

when the Western Canada Select bench-

mark blended crude dropped below US$14

a barrel.

At the same time, a report said

Canadian oil sands producers needed an

average WTI price of US$39.37 a barrel

for thermal projects and US$35.34 for

mining projects to break even.

Protecting movesThat was accompanied by a series of

protecting moves, as Martin King, an ana-

lyst at FirstEnergy Capital, said global

economic concerns “suggest that supply

shut-ins are needed and that future capex

should be trimmed to the bone and

beyond.”

Brian Tuffs, head of the Canadian oper-

ations of China’s Sinopec, said his compa-

ny is faced with shut-ins after eliminating

jobs and lowering capital spending.

Husky Energy, controlled by Hong

Kong investors, said its capital budget was

being reduced by another 27 percent to a

range of C$2.1 billion to C$2.3 billion,

while its dividend was being suspended.

As a result, the company’s production

guidance has been dropped to 315,000-

345,000 barrels of oil equivalent per day,

down from its earlier goal of 330,000-

360,000 boe per day.

“We continue to take decisive action in

this period of persistent supply-demand

imbalance,” in line with Husky’s commit-

ment to balance capital spending with cash

flow, said Chief Executive Officer Asim

Ghosh.

Whitecap Resources, a mid-size E&P,

slashed its budget by more than half to

C$70 million and its monthly dividend by

40 percent, while shrinking its production

forecast to 37,000 boe per day from 40,000

boe.

Those looking for any hope got some

from the notoriously expensive oil sands

sector, with TD Securities estimating the

average breakeven point for mining opera-

tions is down 21 percent from a year ago,

while steam-powered plants are down 18

percent, although analysts note those

gains are more than offset by oil prices. l

continued from page 1

CREDIT DOWNGRADES GOVERNMENTColorado limits say of local governments

Colorado regulators approved new rules Jan. 25 intended to ease the conflicts

that arise when oil and gas rigs show up near homes and schools, but they came

under immediate fire from both the industry and its critics.

The regulations approved by the state Oil and Gas Conservation Commission

would allow local governments to consult with energy companies on the location

of multiple-well drilling sites, storage tanks and other big facilities in developed

areas.

However, the rules generally do not allow local governments to set their own

regulations, which many critics of the industry say is vital to protect property val-

ues, peace and quiet and public safety.

“What the commission has done today will only exacerbate these confronta-

tions,” said Matt Sura, an attorney who represents landowners and local govern-

ments in negotiations with energy companies. Sura served on a task force appointed

by Gov. John Hickenlooper to address the conflicts over energy development, and

some of its recommendations formed the basis for the regulations approved Jan. 25.

The commission’s action “doesn’t touch what the task force was meant to

accomplish,” he said.

Colorado Oil and Gas Association President Dan Haley said the rules go further

than the task force intended.

The definition of a large facility includes too many types of installations, he said.

Haley also said the rules give too many local governments the right to weigh in on

the locations, and that the time allowed to resolve the issues is too long.

Task force convened during boomHickenlooper convened the task force near the peak of Colorado’s energy boom,

as oil and gas fields were expanding and overlapping with growing suburbs, espe-

cially along the populous Front Range. The collapse in oil prices has put the brakes

on the industry.

Hydraulic fracturing, or fracking, intensified the conflicts. Some people argue

fracking is a health risk, but the industry says it’s safe.

Fracking involves injecting water, sand and chemicals under high pressure to

fracture underground formations and release oil and gas.

Battles over whether local governments should be able to regulate the industry

are also underway in the courts, and the issue could get onto the 2016 ballot.

The state Supreme Court is deciding whether Longmont and Fort Collins can

ban or suspend fracking. Some groups are hoping to get measures on the November

ballot that would allow communities to regulate the energy industry within their

boundaries.

—ASSOCIATED PRESS

until 2018.

The stage-gated AKLNG project is now

in the preliminary front-end engineering

and design phase. Advancing to the next

phase, from pre-FEED to FEED, would

occur at the end of this year and requires

agreement by all of the partners — the

state, BP, ConocoPhillips and ExxonMobil.

The state’s partners have said that one of

the requirements for consideration of a

move from the $500 million pre-FEED

phase to the plus-$1 billion FEED phase

would be fiscal certainty for the $45 billion

to $65 billion project.

Scheduling difficultiesMarty Rutherford, deputy commission-

er of the Department of Natural Resources,

told legislators that while the administra-

tion is pleased with progress on the techni-

cal side of the project it is not pleased with

progress on the commercial agreements.

She said the administration was committed

to the project but was very concerned at the

slow pace of the agreements and noted that

the governor had wanted a fall 2015 special

session for legislative approval of the

agreements and was now looking at a

spring 2016 special session.

There is a deadline in June for legisla-

tive approval of a constitutional amend-

ment to be on the November general elec-

tion ballot, and that won’t happen until the

Legislature has approved commercial

agreements for the project.

ExxonMobil’s viewBill McMahon, senior commercial advi-

sor for project lead ExxonMobil, said there

are teams dedicated to each agreement and

said a key is making sure there is a clear

understanding of each partner’s position

and then trying to find ways to bridge gaps.

These are very complicated, one-of-a-

kind agreements, he said, and it won’t be

possible to move them forward until all the

parties are ready.

When it comes to making a decision to

move to FEED, ExxonMobil will look at

the cost and execution schedule, the out-

look for Federal Energy Regulatory

Commission permits and other permits,

market confidence and the business envi-

ronment. He said fiscal and commercial

agreements would need to be in place, and

said ExxonMobil has a special interest in

mutually acceptable fiscal terms, because

projects must be extremely cost competi-

tive to survive market ups and downs.

BPDave Van Tuyl, regional manager for

BP in Alaska, said progress has been made

on commercial agreements, but there is still

much work to be done. He said BP under-

stands the governor’s statements on the

need to make progress and agrees, but, he

said these are agreements are complicated

and each party has its own needs and con-

cerns.

He said from BP’s perspective it is

essential that the agreements are done well

and said it will take time to make everyone

comfortable. Van Tuyl said he couldn’t tell

legislators when the agreements will be

done, but said they need to be done fairly

and done well and having all of them com-

plete in the given time period will be a chal-

lenge.

ConocoPhillipsLeo Ehrhard, vice president of commer-

cial assets for ConocoPhillips, said

ConocoPhillips continues to support the

project, but in light of weak oil and gas

prices the project faces stiff head winds. He

said the company has to be a careful stew-

ard of its cash, including investment in

AKLNG, and said ConocoPhillips will

work with project partners to find savings

in the 2016 spend for the project.

On the commercial agreements, Ehrhard

said they haven’t made the progress they’d

hoped and said it would be very difficult to

complete the complicated agreements

before a special session. The gas supply

agreement is foundational and very impor-

tant to ConocoPhillips, he said, as it gov-

erns the amount of gas to be supplied to the

project from Prudhoe Bay and Point

Thomson.

Ehrhard also said the commercialization

of Alaska North Slope gas is important and

in a situation of impasse ConocoPhillips

would not stand in the way of the project

going forward.

Oil tax issueAsked how a change in Alaska’s tax pol-

icy on oil tax credits and the minimum tax

would affect the gas project, Van Tuyl said

that from BP’s perspective a successful

AKLNG project will depend on a healthy

base oil business. He said BP is working on

doing what it can to improve its cost base at

Prudhoe Bay, but said an increase in oil tax

would be an additional challenge on top of

those the project already faces.

McMahon said he supported Van Tuyl’s

comments and also said an increase in oil

taxes would impact ExxonMobil’s decision

to enter the FEED phase and also its final

investment decision.

Ehrhard said ConocoPhillips agreed

with those comments. l

20 PETROLEUM NEWS • WEEK OF JANUARY 31, 2016

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program at Prudhoe Bay, involving the

use of additional drilling rigs, the drilling

of new wells and the debottlenecking of

some field facilities.

During 2015 Prudhoe Bay saw a high

level of work, with the completion of

nearly 450 well workovers and about 95

wells, Patience said.

The development of the Sag River for-

mation, a relatively thin and technically

challenging oil reservoir above the main

Prudhoe Bay reservoir, was slated to

involve a 16-well drilling program in

2015 and 2016, with the ultimate possi-

bility of 200 wells and perhaps 200 mil-

lion barrels of new oil. To date BP has

completed nine of the Sag River wells,

Patience said.

—ALAN BAILEY

continued from page 1

SAG RIVER

continued from page 1

COMMERCIAL ISSUES