The Explorers, an annual publication from Petroleum News

ExplorersThe

Oil & gas companies

investing in Alaska’s future

ExplorersOil & gas

companies investing in

Alaska’s future

Pantheon discovers oil at Alkaid;London firm merges with Great Bear

page5

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

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

l G O V E R N M E N T

Vol. 24, No. 18 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 5, 2019 • $2.50

see BEAUFORT LEASE SALE page 12

Hilcorp plans new Milne Point RPad; just developed Moose Pad

Following on the heels of the Moose Pad, which began pro-

duction at Milne Point in April, Hilcorp Alaska is planning to

add another new pad at the unit, R Pad, as well as expand

existing pads.

The new pad and extensions of existing pads are mentioned

by the U.S. Army Corps of Engineers in its description of an

application from Hilcorp Alaska to expand gravel mining at

the field. The application — under Section 404 of the Clean

Water Act for work in waters of the United States — was pub-

lic noticed April 24; the comment period closes May 24.

Hilcorp became operator at Milne Point in 2014 when it

acquired several North Slope properties from BP, including a

see MILNE POINT PAD page 12

see WELL BONDING page 10

see RCA REVIEW page 10

Interior suspends Beaufort Sealease sale after court decision

According to an April 25 report in the Wall Street Journal,

the Department of the Interior has indefinitely suspended

plans for a Beaufort Sea lease sale. The suspension follows a

March 29 ruling by the federal District Court in Alaska that

President Trump’s cancellation of President Obama’s with-

drawal of Beaufort and Chukchi sea lands from oil and gas

leasing was illegal. Interior Secretary David Bernhardt told

the Wall Street Journal that the prospect of a lengthy appeal

process over the District Court decision is disrupting the lease

sale plans.

BOEM had been preparing an environmental impact state-

ment for a lease sale this year, potentially spanning much of

the Beaufort Sea planning area. The Department of the

RCA reviews grid unification,considers letter to Legislature

In one of a series of Regulatory Commission of Alaska public

meetings that will lead to a letter to the Alaska Legislature on the

status of unification efforts for the Alaska Railbelt electrical sys-

tem, on April 24 the RCA commissioners reviewed some of the

steps taken by the utilities in those endeavors. The commissioners

also reviewed comments they have received on potential statuto-

ry language, designed to clarify the commission’s legal authority

over changes to the operation of the electrical system: The com-

ments and the commissioners’ responses highlighted some of the

complex issues involved in grid unification.

Big area, small systemThe interconnected electrical system, which extends from the

southern Kenai Peninsula north through Southcentral Alaska to

AOGCC well bonding amounts goup significantly effective May 18

Following a lengthy hearing into proposals for changing the

surety bonding of oil and gas wells in Alaska, the Alaska Oil and

Gas Conservation Commission has issued new bonding regula-

tions, requiring major increases to the bonding levels. The new

regulations go into effect on May 18, having been signed by the

lieutenant governor on April 18.

State statutes require bonding of not less than $100,000 for a

single well and not less than $200,000 for blanket coverage of all

an operator’s wells in the state. Traditionally the commission has

only required bonding at these minimum levels, other than in sit-

uations where there have been regulatory violations.

A production increaseConocoPhillips reports an uptick in its rate of Alaska oil production in Q1

By ALAN BAILEYPetroleum News

In its Securities and Exchange Commission fil-

ing for the first quarter of 2019, ConocoPhillips

reported an increase in its Alaska oil production, a

reflection presumably of the company’s active

development program in the state. According to

the SEC filing, the company produced an average

of 210,000 barrels per day in the first quarter, com-

pared with an average daily rate of 171,000 barrels

for the whole of 2018. Production in the first quar-

ter of 2018 was 174,000 bpd.

By comparison, the company’s production in

the Lower 48 was 229,000 bpd in 2018 and

245,000 bpd in the first quarter of this year

The company’s adjusted earnings in Alaska in

Q1 2019 were $384 million, compared with $445

million in Q1 2018 — quarterly earnings in 2018

ranged from $347 million to $445 million.

Curiously, full year earnings in Alaska for 2018

came in almost identical to those in the Lower 48,

at around $1.6 billion. North Slope crude tends to

Alberta counterattackKenney strategy to ‘use every means at our disposal’ against foreign-funded groups

By GARY PARKFor Petroleum News

The new Alberta government under

Premier Jason Kenney and petrole-

um industry leaders have been putting

the final touches on a full-blown strategy

to retaliate against foreign-funded

activist groups that have been working to

undermine plans for upstream develop-

ment of the oil sands and pipelines to off-

shore markets.

The Kenney administration has earmarked an

initial C$30 million for a “war room” to counter

what the freshly installed premier said are the “lies

and myths” about his province’s energy sector that

have been spread globally over the past

decade.

Kenney told supporters at his election

night victory on April 16 that he will use

every means at his disposal, including

legal action, as well as launching a “pub-

lic inquiry into the foreign source of

funds behind the campaign to landlock

Alberta energy.”

He listed the Rockefeller Brothers

Fund (which made billions from oil and

gas), the Tides Foundation, Lead Now and the

David Suzuki Foundation for special attention.

(Others expected to face counter-attacks include

see CONOCO UPTICK page 8

see KENNEY STRATEGY page 9

Company spokeswoman Natalie Lowmantold Petroleum News that the company

has drilled eight wells, including two re-entries of previously drilled wells, during

this winter’s exploration season.

Oil Search evolvesTalk of third partner dropped for now, Repsol says Alaska ‘game-changing’

By KAY CASHMANPetroleum News

What Oil Search didn’t say about its

Alaska operations in an April 30

update was almost as interesting as what

it did say.

For more than a year the ASX-listed

oil and gas company has expressed inter-

est in bringing in a third working-interest

partner in coordination with exercising

its June 30 option to purchase the balance of

Armstrong Energy’s interest in the North Slope

Pikka/Horseshoe area assets, where a major oil

find in the Brookian Nanushuk formation was

announced in 2016.

But the timing of allowing a third

partner to enjoy the rewards of develop-

ing the largest North Slope oil field dis-

covery in decades has changed.

Expectations were that Oil Search,

which just celebrated its 90th anniver-

sary, and partner Repsol would name a

winner in the next few weeks.

But there was no mention of a poten-

tial third partner in the April 30 update;

instead Oil Search indicated it could

“easily” fund capital expenses from its cash and

cash flow, inviting speculation that perhaps both

Oil Search and Repsol might be interested in keep-

see OIL SEARCH page 11

KEIRAN WULFF

JASON KENNEY

2 PETROLEUM NEWS • WEEK OF MAY 5, 2019

GOVERNMENT

EXPLORATION & PRODUCTION

PIPELINES & DOWNSTREAM

8 US drilling rig count drops 21 to 991

8 Off-road winter tundra travel closes

4 BLM seeks nominations for councils

6 French appeals AOGCC decision to court

8 DEC publishing Fairbanks air quality plan

5 Pantheon discovers oil at Alkaid 1 well

2 BC Premier Horgan tangled in knots

Calls for new refinery to offset surging gasoline prices, turningblind eye to taxes, industry’s lack of enthusiasm for refineries

4 From export to import at Kenai LNG plant?

New owner, Trans-Foreland Pipeline, would modify existingfacility to allow importation of LNG to provide gas for refinery

ENVIRONMENT & SAFETY

EXPLORERS PREVIEW

Oil Search evolvesTalk of third partner dropped, Repsol says Alaska ‘game-changing

A production increase Conoco reports an uptick in its rate of Alaska oil production in Q1

Alberta counterattackKenney to ‘use every means’ against foreign-funded groups

ON THE COVER

Interior suspends Beaufort Sealease sale after court decision

Hilcorp plans new Milne Point RPad; just developed Moose PadAOGCC well bonding amounts goup significantly effective May 18RCA reviews grid unification,considers letter to Legislature

Petroleum News Alaska’s source for oil and gas newscontents

l G O V E R N M E N T

BC Premier Horgan tangled in knotsCalls for new refinery to offset surging gasoline prices, turning blind eye to taxes, industry’s lack of enthusiasm for refineries

By GARY PARKFor Petroleum News

B ritish Columbia Premier John Horgan has now

found himself wrestling with his own shadow as he

opposes shipments of Alberta oil sands bitumen across

British Columbia, while urging oil producers to build

more refineries in Western Canada to help curb soaring

gasoline prices at the pumps.

Faced with growing public anger over North

America’s highest gasoline costs — C$1.60 per liter (the

equivalent of US$4.50 per U.S. gallon) in the

Metropolitan Vancouver area that include his govern-

ment’s own tax grab of 35 cents a liter — he called for

the petroleum industry to spend more on refining capac-

ity in B.C.

Ignoring the well-established fact that industry

majors, well aware of the high risks that accompany

refineries, have spurned pleas to invest an estimated

C$15 billion over five years for a

refinery to process 100,000 barrels

per day of raw crude, Horgan said

he plans to talk to “gas (refined

petroleum) companies about why

they are not refining more prod-

uct.”

If those discussions occur,

Horgan will likely be told in blunt

terms that the few refineries that

have been built over the last 20

years are close to large population areas grappling with

shortages of supply, whereas Vancouver has only one

refinery and another five in Washington state that are

operating at full stretch to meet their own domestic

demand.

New legislation an issueHe will also likely get an earful from the industry

about his new legislation introduced a month ago for

moving to zero-emission light-duty vehicle sales by Jan.

1, 2040. Any dealers who fail to meet target will face a

fine of C$500,000 or six months in jail.

As Vancouver Sun columnist Vaughn Palmer

observed, “At the same time (Horgan) is proposing that

within 21 years it would be illegal to sell new vehicles

that would be prime consumers” of the output from

refineries he wants built.

“To put it another way, on the one hand the premier

thinks the oil and gas companies are greedy gougers and

on the other, he thinks they are stupid,” Palmer wrote.

Complicating Horgan’s grand scheme is the Canadian

government’s Bill C-69 — endorsed by the B.C. govern-

ment — which will require all major resource projects to

negotiate a complicated environmental review process

that industry sources warn will drive billions of dollars

JOHN HORGAN

see BC PREMIER page 10

PETROLEUM NEWS • WEEK OF MAY 5, 2019 3

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

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Milne Point, MPU M-14 Hilcorp Dreco 1000 UE 16 (SCR/TD) Standby Dreco D2000 Uebd 19 (SCR/TD) GMTU 2M-39 ConocoPhillipsAC Mobile 25 Alpine CD5-24 ConocoPhillipsOIME 2000 141 (SCR/TD) Colville River unit CD4-595 ConocoPhillips 142 (SCR/TD) Kuparuk 3G-27 ConocoPhillips TSM 700 Arctic Fox #1 Standby Oil Search

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

Kuukpik Drilling 5 Deadhorse Available

Nabors Alaska DrillingAC Coil Hybrid CDR-2 (CTD) Deadhorse 15-36C BPAC Coil CDR-3 (CTD) Kuparuk 2E-17 ConocoPhillipsDreco 1000 UE 7-ES (SCR-TD) Kuparuk 1R-26 ConocoPhillipsMid-Continental U36A 3-S Stacked AvailableOilwell 700 E 4-ES (SCR) Stacked AvailableDreco 1000 UE 9-ES (SCR/TD) Stacked ConocoPhillipsOilwell 2000 Hercules 14-E (SCR) Deadhorse AvailableOilwell 2000 Hercules 16-E (SCR/TD) Stacked Brooks Range Petroleum Oilwell 2000 Canrig 1050E 27-E (SCR-TD) Stacked Glacier Oil & Gas Oilwell 2000 33-E Deadhorse AvailableAcademy AC Electric CANRIG 99AC (AC-TD) Stacked RepsolOIME 2000 245-E (SCR-ACTD) Stacked ENIAcademy AC electric CANRIG 105AC (AC-TD) Stacked Oil Search Academy AC electric Heli-Rig 106AC (AC-TD) Stacked Great Bear Petroleum

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Kuparuk ConocoPhillipsSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay AvailableIdeco 900 3 (SCR/TD) Prudhoe Bay AvailableRig Master 1500AC 4 (AC/TD) Oliktok Point ENI

Parker Drilling Arctic Operating LLC NOV ADS-10SD 272 Prudhoe Bay L5-03 BPNOV ADS-10SD 273 Stacked in Deadhorse Available

North Slope - Offshore

BPTop Drive, supersized Liberty rig Inactive BP

Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Spy Island SP12-SE3 ENI

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

Cook Inlet Basin – Onshore

BlueCrest Alaska Operating LLCLand Rig BlueCrest Rig #1 Anchor Point, BlueCrest Alaska Operating LLC drilling production section of H14

Glacier Oil & Gas Rig 37 West McArthur River Unit Workover Glacier Oil & Gas

All American Oilfield LLCIDECO H-37 AAO 111 North Slope stacked Available

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

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

Cook Inlet Basin – Offshore

Hilcorp Alaska LLCNational 110 C (TD) Platform C, Stacked Hilcorp Alaska LLC Rig 51 Steelhead Platform, Stacked Hilcorp Alaska LLC Rig 51 Monopod A-13, stacked Hilcorp Alaska LLC Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151, Moored in Kenai

Furie Operating AlaskaRandolf Yost jack-up Nikiski, OSK dock Available

Glacier Oil & GasNational 1320 35 Osprey Platform, activated Glacier Oil & Gas

Mackenzie Rig Status

Canadian Beaufort Sea

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

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

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of May 1, 2019.

Active drilling companies only listed.

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

This rig report was prepared by Marti Reeve

Baker Hughes North America rotary rig counts* April 26 April 18 Year AgoUnited States 991 1,012 1,021Canada 63 66 85Gulf of Mexico 21 23 18

Highest/LowestUS/Highest 4530 December 1981US/Lowest 404 May 2016 *Issued by Baker Hughes since 1944

The Alaska - Mackenzie Rig Report is sponsored by:

JUDY

PAT

RICK

By KRISTEN NELSONPetroleum News

In the late 1960s the Kenai liquefied natu-

ral gas facility became the first in the

nation to export liquefied natural gas, mak-

ing use of abundant Cook Inlet gas discov-

eries for which there was insufficient use

locally.

Its current owner is now proposing alter-

ations at the facility to allow for import of

LNG to supply fuel gas to the adjacent refin-

ery.

Export from the Kenai LNG facility

ceased in 2015 as Cook Inlet natural gas

supplies declined and the international LNG

industry grew.

In 2018, ConocoPhillips, then the sole

owner (the facility was built jointly by

Phillips and Marathon), sold the Nikiski

facility to Andeavor, formerly called Tesoro,

operator of the nearby Nikiski oil refinery.

The LNG plant was ConocoPhillips’s

last Cook Inlet asset.

Andeavor said at the time that acquisition

of the facility “further strengthens our inte-

grated value chain by optimizing our opera-

tions in Kenai and providing low-cost fuel

for our refinery to produce the fuels that con-

sumers in Alaska need to keep their lives

moving.” Andeavor already owned the

Kenai refinery next door to the LNG facility.

Last year, Andeavor and the larger

Marathon Petroleum Corp., MPC, merged.

Marathon, formerly a major Cook Inlet

E&P player, split into upstream and down-

stream companies in 2011, with MPC oper-

ating an integrated refining, marketing and

transportation system concentrated primari-

ly in the U.S. Midwest, Northeast, East

Coast, Southeast and Gulf Coast.

The exploration and production portion

of the company, under the Marathon Oil

name, became an independent E&P compa-

ny.

Marathon sold most of its Cook Inlet oil

production in 1996 and focused on natural

gas. It sold its 30% interest in the LNG facil-

ity to ConocoPhillips in 2011 and in 2012

sold its remaining Cook Inlet properties to

Hilcorp.

Trans-Foreland Pipeline Co.The name on the current proposal is

Trans-Foreland Pipeline Co., which, accord-

ing to its filings with the Federal Energy

Regulatory Commission, owns a 100%

interest in Kenai LNG LLC, the company

which owns the Nikiski LNG facility and

export terminal. Trans-Foreland is a wholly

owned subsidiary of Tesoro Alaska Co.

Trans-Foreland has applied to FERC for

authorization to construct, install, own and

operate modifications to the Kenai LNG

Plant, under Section 3 of the Natural Gas

Act.

The company has applied to make facili-

ty modifications to “bring parts of the Kenai

LNG Plant out of current warm idle status

by importing LNG and using the LNG to

cool existing LNG storage tanks and associ-

ated LNG facilities,” as well as minor mod-

ifications to prevent environmental and eco-

nomic waste from boil-off gas, BOG.

The modifications are collectively

referred to as the “Kenai LNG Cool Down

Project.”

The Kenai LNG Plant is adjacent to the

Kenai Refinery in Nikiski, which is owned

and operated by Tesoro Alaska, a Trans-

Foreland affiliate, the company told FERC.

The LNG plant has been operated by

Tesoro Logistics GP, an affiliate of Trans-

Foreland, since the plant was acquired in

2018, “but it has been continuously main-

tained in a warm idle state and has not

exported an LNG cargo since 2015,” Trans-

Foreland said in its FERC filing.

The company said it wishes to return por-

tions of the LNG plant to active status,

“namely the storage tanks and related LNG

transfer piping and BOG compression and

ancillary facilities.”

The liquefaction portion of the plant,

however, “will continue to be maintained in

a warm idle state and not returned to active

status.”

Work neededTrans-Foreland said boil-off gas, or

BOG, is continuously produced while

unloading and storing LNG; the Kenai LNG

facility is designed to vent or flare BOG in

excess of the plant’s fuel demand, but that

totals only about 5% of the BOG produced

when the liquefaction facilities are in a

warm idle state.

The proposed work includes providing

4 PETROLEUM NEWS • WEEK OF MAY 5, 2019

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publisher@petroleumnews.com

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scrane@petroleumnews.com

OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 24, No. 17 • Week of May 5, 2019

Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518(Please mail ALL correspondence to:

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owned by Petroleum Newspapers ofAlaska LLC. The newspaper is pub-

lished weekly. Several of the individ-uals listed above work for inde-

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Kay Cashman PUBLISHER & FOUNDER

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+1.907.868.1185

GOVERNMENTBLM seeks nominations for councils

The federal Bureau of Land Management said April 30 that it is seeking public nom-

inations for positions on 31 Resource Advisory Councils nationwide, including five

vacancies in Alaska. BLM said the citizen-

based committees assist in the development

of recommendations addressing public land

management issues.

“It’s a significant tool for BLM leader-

ship that helps us gain insight from a broad

range of stakeholders and users of BLM-

managed public lands in Alaska,” said

BLM Alaska State Director Chad Padgett.

BLM said individuals may nominate themselves or others to serve on the councils.

The Alaska open positions are:

•Category one — representatives of organizations associated with energy/mineral

development; federal grazing permit holders; the timber industry; transportation or

rights of way; off-highway vehicles users; and commercial and developed outdoor

recreation.

•Category two — representatives of archeological and historic organizations; dis-

persed recreation users; wild horse and burro organizations; and nationally or region-

ally recognized environmental organizations.

•Category three — representatives of state, county or local elected office; Indian

tribes located within or adjacent to the area for which the council is organized; acade-

micians employed in natural resource management or natural sciences; employees of a

state agency responsible for management of natural resources; and the public at large.

Nominations will be considered until June 14. For more information contact Jim

Hart at 907-271-3130 or jehart@blm.gov.

—PETROLEUM NEWS

BLM said the citizen-basedcommittees assist in the

development of recommendationsaddressing public landmanagement issues.

see KENAI LNG page 8

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

From export to importat Kenai LNG plant?New owner, Trans-Foreland Pipeline, would modify existing LNGfacility to allow importation of LNG to provide gas for refinery

By KAY CASHMANPetroleum News

On April 2, 2019, Pantheon Resources

Plc said flow testing in the Alkaid No.

1 well has confirmed a new Brookian light

oil discovery just

west of the Dalton

Highway and south of

the Prudhoe Bay unit

on Alaska’s North

Slope. The company

is applying to the state

for permission to sus-

pend and freeze-pro-

tect the well for future

use in a field develop-

ment.

Moreover, Pantheon now views the

nearby Phecda prospect as an appraisal well

for the Alkaid discovery, rather than a stand-

alone exploration well.

London-based Pantheon Resources, said

Jan. 21, 2019, that it closed on its acquisi-

tion of two wholly owned subsidiaries of

Great Bear Petroleum Operating LLC —

Great Bear Petroleum Ventures I and Great

Bear Petroleum Ventures II. The 250,000-

plus acres of state of Alaska leases, 1,000

square miles of 3-D seismic and two dis-

covery wells that are part of the deal will be

operated by the company’s newly formed

Alaska subsidiary, Pantheon Alaska

Petroleum Operating LLC.

Pantheon Resources also has a sub-

sidiary in Texas, where it has operations in

Tyler and Polk counties.

Pantheon Resources launched a share

issue to raise $16 million, plus expenses,

largely to help fund the acquisition and

related exploration activities in Alaska.

Exploration, appraisal aheadIn a presentation at a Jan. 14, 2019, annu-

al general meeting in which the 51/49%

Pantheon/Great Bear merger was approved,

Pantheon unveiled additional exploration

plans for 2020-21 and beyond, saying its

strategy in Alaska was “to prove up acreage

… and sell at a significant premium to a

larger company.”

Pantheon said 2019-20 drilling will

include the Talitha well, which is a re-drill of

the 1986 ARCO Alaska

discovery well, Pipeline

State No. 1. Pantheon

holds a 90% working

interest in that lease.

The new well will

appraise oil sands seen

in the adjoining plugged

and abandoned ARCO

well and “test a topset

exploration play analogous to recent major

discoveries in the area,” Pantheon said.

Extraction techniques “now far surpass

what was available in the 1980s,” the com-

pany noted, saying some 900 million bar-

rels of oil in place had been discovered in

three zones plus there was a 1.7 billion

exploratory upside.

In 2020-21 and beyond Pantheon would

like to drill exploration wells in leases

where it now has between 75 and 90%

working interest, including a well called

Theta, which will test Kuparuk and

Brookian (Nanushuk) zones.

Also listed for this time period are the

Megrez, Tania and Alula wells.

The Alkaid No. 1 and these other

prospects are either on 10 contiguous leases

west of the Dalton Highway or five nearby

leases straddling the highway.

The Phecda prospect was also men-

tioned for this time period in the general

meeting presentation, but that drilling

appears to have been moved up with the

Alkaid No. 1 test results.

Alkaid No. 1 drilled in 2015Great Bear drilled the Alkaid well in

l E X P L O R E R S P R E V I E W

Pantheon discovers oil at Alkaid 1 wellLondon firm merges with Great Bear, says Alkaid success in Brookian bodes well for nearby Phecda prospect, looking for partners

PETROLEUM NEWS • WEEK OF MAY 5, 2019 5

(907) 562-5303 | akfrontier.com

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Coming

The Explorers, an annual publication from Petroleum News

ExplorersThe

Oil & gas companies investing in

Alaska’s future

ExplorersOil & gas

companies investing in

Alaska’s future

May 26, 2019

MP400

MP405

MP390

MP395

MP385

MERAK 1

ALCOR 1

PHECDA 1

ALKAID 1

TALITHA 1

Copyright 2014MAPMAKERS ALASKA

GBP Proposed Well

GBP Previous Well

Other Well

Mile Post

Dalton Highway

Trans Alaska Pipeline

GREAT BEAR PETROLEUM

2014-2015 Proposed Wells

Many of the wells and prospects on this map are still of interest to Pantheon/Great Bear in2019. The Alkaid No. 1 well was drilled in 2015 but not tested until the first quarter of 2019.

PAT GALVIN

see EXPLORERS PREVIEW page 6

6 PETROLEUM NEWS • WEEK OF MAY 5, 2019

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We know pipes.Inside and out.

2015 as a vertical test well but was unable to conduct flow

testing in the well because the drilling program was cut

short by flooding on the Dalton Highway. The Alkaid well

was suspended in to avoid equipment being stranded at

location. All zones had been logged and sidewall cores had

been taken at the deepest zones, confirming indications of

oil in three major zones, from some 4,000 feet to 8,100 feet.

Great Bear had previously carried out an extensive pro-

gram of 3-D seismic surveying on its acreage and had iden-

tified several oil prospects, including the Alkaid. The subse-

quent suspension of payments of state exploration tax cred-

its under the administration of former Gov. Bill Walker —

an action that hit small independents such as Great Bear

particularly hard — resulted in a pause in the company’s

exploration program.

Meanwhile the Alkaid well was suspended until such

time as testing could be done.

Alkaid, Phecda single developmentThe 2019 re-entry of Alkaid No. 1 resulted in a better-

than-expected well test, with a flow of 80 to 100 barrels of

40 degree API oil per day from a vertical perforated interval

through the reservoir. Horizontal wells will be used in field

development, enabling much higher flow rates, Pantheon

said.

The main zone of interest in the Brookian was estimated

to have 240 feet of net pay within 400 feet of reservoir rock.

“Such flow rates are considered to be an excellent result

and indicate the potential for materially higher flow rates

when wells are drilled in the typical manner for Brookian

wells in Alaska — horizontally, stimulated and with larger

intervals perforated,” Pantheon said in a March 24, 2019,

statement.

Testing of two secondary targets in Alkaid No. 1 at shal-

lower depths proved less successful, with brackish water

being found in the West Sak and also inferred to be present

in the Ugnu.

“These two projects (Alkaid and Phecda) will now likely

be part of a single development plan, favorably located

adjacent to the Dalton Highway and TAPS pipeline,”

Pantheon said. “The better than expected results in the zone

of interest will also impact the pre-drill P50 technically

recoverable resource estimates which will be assessed in the

near future.”

Looking for partnersBased in Texas, Pantheon Resources Chief Executive

Officer Jay Cheatham said April 2, 2019, “Alkaid has been

a great success for Pantheon, exceeding our expectations in

the primary target, and upgrading the adjoining Phecda

prospect which appears analogous on seismic. … The com-

pany will immediately set about reworking and analyzing

all key data from our Alaskan program which will include

reviewing the pre-drill conceptual development plans on

Alkaid as well as formulating plans for future farm out dis-

cussions.”

Pantheon holds a 100% interest in the production testing

operations at Alkaid No. 1. Joint venture partner

Halliburton will kick in with a 25% share in the event of a

plug and abandon operation, with Halliburton also having

the right to buy pack into a 25% working interest in the

prospect.

Winx well a disappointmentFour of the Great Bear leases acquired in the merger by

Pantheon lie in a block to the west of the central North

Slope, south of the Colville River unit and the village of

Nuiqsut, and line up with the trend of recent major oil dis-

coveries by ConocoPhillips and Armstrong/Repsol to the

north. The area is underlain by the prolific Nanushuk sand-

stones.

In addition to the successful testing of the Alkaid well,

the 2018-19 winter exploration season also included the

drilling of the Winx 1 exploration well on the western block

in which Great Bear cut a deal with three independents —

88 Energy, Otto Energy and Red Emperor Resources — to

cover the cost of the drilling, retaining a 10% interest.

Because Great Bear was the operator of record on the

leases, the permits were issued in its name, but the Winx

program was actually operated by 88 Energy subsidiary

Captivate Energy Alaska.

The Winx 1 was drilled into ADL 391720, the primary

target was the Nanushuk with the Torok as a secondary

objective.

88 Energy said provisional results of the wireline pro-

gram indicated “low oil saturations in the Nanushuk

Topsets not conducive to successfully flowing the forma-

tion. … Reservoir properties appear to be compromised by

dispersed clay in the matrix at Winx-1,” the company said,

noting that clay is often present in successful Nanushuk

wells “but in discrete laminations with decent quality, high

resistivity, oil saturated sandstones in between.”

The clay binds much of the fluid in place so it cannot

flow, 88 Energy said, and also occupies pore space within

the formation. “This means that, whilst oil is present in the

reservoir, there is less of it and it is not mobile.”

The Torok channel sequence had better reservoir per-

formance than the Nanushuk in Winx 1, but wireline log-

ging showed oil saturation in the Torok zone of interest was

also low and not conducive to flow.

Data acquired in Winx 1 will be further evaluated and

integrated with the Nanuq 3-D seismic to evaluate remain-

ing prospectivity on the western lease block.

The well will be plugged and abandoned.

Galvin staysTechnically, Cheatham is manager of the company’s

Alaska subsidiary per Alaska Department of Commerce

records.

At the January 2019 annual general meeting, in which a

resolution to move forward with the Great Bear deal was

approved, Phillip Gobe, a Pantheon executive director, was

advanced to chairman.

Gobe has more than 40 years’ experience in the U.S. and

international oil and gas industry, including several senior

positions with ARCO, such as operations manager of

ARCO Alaska Prudhoe Bay. Currently Gobe is a non-exec-

utive director of former Alaska operator Pioneer Natural

Resources and Scientific Drilling International, a provider

of directional drilling and measurement equipment and

operational services.

Anchorage-based Patrick Galvin, former commissioner

of the Alaska Department of Revenue and Great Bear’s

chief commercial officer and general counsel, has assumed

a similar title and duties for Pantheon Alaska Petroleum

Operating, effectively running the company.

Founded in 2005, Pantheon is listed on the AIM Stock

Exchange, a sub-market of the London Stock Exchange

that allows smaller, less-viable companies to float shares

with a more flexible regulatory system than that of the

main market. l

continued from page 5

EXPLORERS PREVIEW

l G O V E R N M E N T

French appeals AOGCC decision to courtBy KRISTEN NELSON

Petroleum News

Hollis French has appealed a decision of the Alaska Oil

and Gas Conservation Commission in Alaska

Superior Court.

His appeal, dated April 22, cites failure of the commis-

sion “to calendar a hearing on waste from a North Slope

well.”

French was formerly a commissioner and chair of

AOGCC. When he was on the commission, he disagreed

with the other two commissioners on the scope of the com-

mission’s authority.

He was removed by Gov. Mike Dunleavy for cause —

but not for disagreeing with the other commissioners — on

Feb. 26 (see story in March 3 issue of Petroleum News).

On Feb. 28, French requested hearings on two separate

complaints of waste, both from events which occurred in

2017, one concerning a fuel gas leak in Cook Inlet and the

other concerning a gas leak from a North Slope well.

On March 20 the commission denied both requests.

French appealed those decisions to the commission

April 8. The commission had 10 days from French’s appeal

to grant or refuse the application for reconsideration, with

failure to act a denial.

On April 22, French appealed the commission’s decision

on the North Slope well to the Alaska Superior Court for the

Third Judicial District.

He told the court the commission erred by: “Failing to

calendar a hearing on waste from a North Slope well.”

In denying French’s petition for a hearing on a complaint

of waste from the DS02-03B well, which occurred in April

2017, Dan Seamount and Jessie Chmielowski, the current

AOGCC commissioners, said:

“The circumstances surrounding the release of gas from

the DS02-03B well are the subject of an on-going AOGCC

investigation. A hearing prior to the conclusion of that

investigation would be premature.”

French had said in his request for a hearing that “the well

leaked gas to the atmosphere at a very high rate for several

days beginning April 14, 2017.” He wanted the hearing to

urge AOGCC to take action on his complaint. l

PETROLEUM NEWS • WEEK OF MAY 5, 2019 7

Hats off to Hilcorp!

ABR Inc.AcurenAfognak Leasing LLCAirgas, an Air Liquide companyAK LoftsAK Supply, Inc.Alaska DreamsAlaska Frac Consulting LLCAlaska Frontier Constructors (AFC)Alaska Marine LinesAlaska MaterialsAlaska RailroadAlaska Rubber & Rigging Supply Inc.Alaska Steel Co.Alaska TextilesAlaska West ExpressAlpha Seismic CompressorsAmerican MarineArctic ControlsARCTOS Alaska, Division of NORTECHArmstrongAspen Hotels of AlaskaASTAC Broadband, LLCAT&TAvalon DevelopmentAviator HotelBombay DeluxeBPBrandSafway ServicesBrooks Range SupplyCalista Corp.Carlile TransportationChosen ConstructionCMS, Inc./Hepworth Agency

Colville Inc.Computing AlternativesCONAM ConstructionCook Inlet Tug & BargeCruz ConstructionDenali Universal Services (DUS)Doyon AnvilDoyon AssociatedDoyon DrillingDoyon, LimitedDril-Quip Inc.EEIS Consulting Engineersexp Energy ServicesF. R. Bell & Associates, Inc.FairweatherFlowline AlaskaFluorFoss Maritime Co.Frost Engineering Service Co. - NWFugroGMW Fire ProtectionGolderGreer Tank & WeldingGuess & Rudd, PCICE Services, Inc.InspirationsJudy Patrick PhotographyLittle Red Services, Inc. (LRS)Lounsbury & AssociatesLynden Air CargoLynden Air FreightLynden Inc.Lynden InternationalLynden Logistics

Lynden TransportMapmakers of AlaskaMaritime HelicoptersMotion & Flow Control ProductsNabors Alaska DrillingNalco ChampionNANA WorleyParsonsNEI Fluid TechnologyNordic CalistaNorth Slope TelecomNorthern Air CargoNorthern SolutionsNRC AlaskaOil Search

PENCOPetroleum Equipment & Services, Inc.PND Engineers, Inc.PRA (Petrotechnical Resources of Alaska)Price Gregory InternationalRaven Alaska – Jon AdlerResource Development CouncilSecurity AviationSolar Turbines IncorporatedSourdough ExpressStrategic Action AssociatesSummit ESP, A Halliburton ServiceTanks-A-LotThe Local PagesTOTE – Totem Ocean Trailer ExpressWeston Solutions

Dave Wilkins and team, we congratulate you and your team on bringing the new Moose Pad at Milne Point online — the first new pad built at Milne since 2002, with initial production at 3,000 barrels of oil per day and peak output expected to be 22,000 bopd. We appreciate the $400 million Hilcorp Alaska will ultimately invest to fully develop Moose Pad and its facilities.

David Wilkins, senior vice president , Hilcorp Alaska

Congratulations on bringing Moose Pad online!

8 PETROLEUM NEWS • WEEK OF MAY 5, 2019

Learn more about the Bachelor of Applied Management

program at the UAF School of Management.

Visit www.uaf.edu/som or

call (907) 474-7461

Bachelor of Applied Management

UA is an AA/EO employer and educational institution and prohibits illegal discrimination against any individual: www.alaska.edu/nondiscrimination

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ENVIRONMENT & SAFETYDEC publishing Fairbanks air quality plan

The Alaska Department of Environmental Conservation has announced that in

mid-May it anticipates releasing a draft air quality plan for the Fairbanks North Star

Borough. The plan, termed a serious state implementation plan, or SIP, has been man-

dated by the Environmental Protection Agency to address major problems with fine

particulates in the Fairbanks air, primarily resulting from the use of wood burning

stoves to heat buildings during the winter. Winter thermal inversions tend exacerbate

the problem.

The particulate pollution infringes the federal Clean Air Act — hence the man-

dated SIP.

DEC and the borough have been designing the SIP and plan to hold public outreach

meetings during the week of May 13 to present the draft plan and answer questions.

The department is also reviewing suggestions from a local stakeholder group. The

agency plans formal public hearings in the borough on June 25 and 26.

“Local solutions are critical to improving air quality and we look forward to engag-

ing with the community on the draft plan and associated regulations in the coming

months,” said DEC Commissioner Jason Brune. “It is our goal to address this public

health concern and meet the federal Clean Air Act requirements while developing a

final plan that can best address the local air pollution problem.”

The federal deadline for attaining the required air quality standard is the end of this

year. However, the agencies have realized that this deadline cannot be met and are

designing a SIP for a longer timeframe. Although the agencies had previously made a

formal application for a five-year extension to the deadline, they have now moved to

developing a plan aimed at reducing pollution emissions by 5% per year.

“The air monitoring data has shown significant improvements over the past few

years, but there is more work to be done to bring the area into compliance with the

health standards,” said borough Mayor Bryce Ward. “The proposed approach will pro-

vide for steady progress and allow time for air quality programs to work and for the

community to succeed.”

—ALAN BAILEY

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EXPLORATION & PRODUCTIONUS drilling rig count drops 21 to 991

The number of rigs drilling for oil and natural gas in the U.S. dropped by 21 the

week ending April 26 to 991.

A year ago the count was 1,021 active rigs.

Houston oilfield services company Baker Hughes reported that 805 rigs targeted

oil (down 20 from the previous week) and 186 targeted natural gas (down one).

The company said 71 of the U.S. holes were directional, 873 were horizontal and

47 were vertical.

The Colorado rig count was up one from the previous week — the only state with

a week-over-week increase in active rigs.

Rig counts in Ohio, Oklahoma and West Virginia were unchanged from the previ-

ous week.

Alaska, California, Louisiana, New Mexico and Pennsylvania were each down by

one rig.

Wyoming was down by two rigs and North Dakota was down by three.

Texas, the most active state, with 491 active rigs, was down nine rigs from the pre-

vious week.

Baker Hughes shows Alaska with six active rigs, compared to five a year ago.

The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May 2016 at 404.

—PETROLEUM NEWS

Off-road winter tundra travel closesOn April 30 the Alaska Department of Natural Resources announced the clo-

sure of the eastern and western coastal areas of state land on the North Slope for

off-road tundra travel. Since the other two tundra travel areas, the lower and upper

foothills, did not open this year, all off-road travel areas are now closed.

In the coastal areas snow pack deterioration is widespread, with large swaths

of visible vegetation. And, although the quality of the snow cover may still be

adequate for tundra travel in some areas, the snow cover is very variable across

the region, DNR said. Moreover, temperatures in the region continue to rise and

clear skies are enabling the sun to further melt the snow, the agency said.

Given that the snow cover may still be adequate for off-road travel in some

areas, DNR will consider approving travel extensions on a case-by-case basis —

travel exceptions of this type require prior approval from DNR’s Division of

Mining, Land and Water.

Summer off-road travel may begin on or after July 15 for holders of valid per-

mits who obtain specific project approval. DMLW only allows summer off-road

travel using appropriately approved vehicles designed for tundra operations.

—ALAN BAILEY

“additional electric powered BOG booster

compression so that BOG can be delivered

for use at the Refinery,” the company said.

Among the work proposed would be

valve changes necessary “to facilitate the

reversal of flow necessary to fill the Kenai

LNG Plant storage tanks with imported

LNG.” A new 1,000-horsepower electric-

power BOG booster compressor unit will be

added along with a skid-mounted heater to

facilitate operation of an existing BOG com-

pressor. Once the needed work is done,

“Trans-Foreland will be able to receive car-

gos of LNG by LNG carrier and load the

LNG into the Kenai LNG Plant LNG stor-

age tanks while retaining and using the

BOG created by storing the LNG.”

Trans-Foreland said the changes would

allow Kenai LNG to deliver up to 7 million

standard cubic feet per day of natural gas to

the Kenai Refinery. l

continued from page 4

KENAI LNG

obtain a price similar to Brent crude,

which is normally higher that the West

Texas Intermediate benchmark that typi-

fies Lower 48 oil pricing.

Alaska exploration and appraisalAnd ConocoPhillips is moving ahead

with further oil exploration and appraisal

on the North Slope. Company spokes-

woman Natalie Lowman told Petroleum

News that the company has drilled eight

wells, including two re-entries of previ-

ously drilled wells, during this winter’s

exploration season.

According to the company’s plan for

the season, the expectation was to drill

and test two exploration wells from exist-

ing drilling pads to the east of the Colville

River, and to conduct appraisal drilling in

the company’s Willow prospect in the

National Petroleum Reserve-Alaska. One

of the exploration wells was to test a

prospect in the Narwhal trend, the trend

that includes the major Nanushuk discov-

ery that Oil Search and partners are

developing. The Willow appraisal drilling

was to include the drilling and testing of

four new wells, including two horizontal

wells, and the re-completion and testing

of two existing wells.

ConocoPhillips has previously indicat-

ed that Willow could be brought into pro-

duction in the mid-2020s, with produc-

tion peaking at around 100,000 barrels

per day.

During the winter the company also

laid gravel for the drilling pad for the

Greater Mooses Tooth 2 development in

the NPR-A, Lowman said.

A continuing strategyDuring an earnings call on April 30 for

the company’s Q1 2019 results, Ryan

Lance, ConocoPhillips chairman and

CEO, commented that the company is

continuing a strategy that it established in

2015, to maintain profitability at relative-

ly low oil price levels while using cash

earned during periods of high prices as a

buffer against the impact of price down-

turns. The company has seen annual cap-

ital expenditure average just under $7 bil-

lion, to fund exploration and develop-

ment projects such as those in Alaska.

Matthew Fox, the company’s chief oper-

ating officer, said that the company antic-

continued from page 1

CONOCO UPTICK

see CONOCO UPTICK page 9

PETROLEUM NEWS • WEEK OF MAY 5, 2019 9

Oil Patch Bits

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS

Companies involved in Alaska’s oil and gas industry

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

Foss Maritime announces new general counselFoss Maritime Co. announced April 8 that seasoned corporate executive

Sloane Perras has joined the company as vice president, general counsel andchief ethics officer. Perras will lead the company’s legal and risk managementgroup where she will provide legal counsel, advise on business strategies andbest practices, and direct ethics and compliance programs.

Prior to joining Foss, Perras served as chief administrative and legal officerfor The Krystal Co., a privately held retail brand. Perras regularly reviewed thecompany’s enterprise risk strategies, financial controls and flows of revenue.She managed the risk management functions and provided enterprise strategyfor innovation, regulatory compliance and HR risk mitigation. In addition, Perras

worked closely with the leadership team on corporate governance, includingreporting directly to the audit committee on cyber and privacy issues.

“We are very pleased to have Sloane join Foss Maritime,” said John Parrott,president and CEO of Foss Maritime. “She has impressive experience and is anexcellent fit on our team.”

“I’m proud to join a company with such a rich history of safety and innova-tion in waterway commerce,” said Perras, “I’ve worked in a variety of complexbusiness and regulatory environments and look forward to putting my years ofexperience into safeguarding the values and reputation of Foss — and in beinga part of its continued growth.”

Perras has a degree in finance from University of Florida and earned her lawdegree, cum laude, from University of Georgia School of Law.

AABR Inc.AcurenAfognak Leasing LLCAirgas, an Air Liquide companyAK LoftsAlaska DreamsAlaska Frac Consulting LLCAlaska Frontier Constructors (AFC) . . . . . . . . . . . . . . . . . . . .5Alaska Marine LinesAlaska MaterialsAlaska RailroadAlaska Rubber & Rigging Supply Inc.Alaska Steel Co.Alaska Textiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Alaska West ExpressAlpha Seismic CompressorsAmerican MarineArctic ControlsARCTOS Alaska, Division of NORTECHArmstrongAT&TAvalon DevelopmentAviator Hotel

B-FBombay DeluxeBPBrandSafway Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Brooks Range SupplyCalista Corp.CarlileChosen Construction

Colville Inc.Computing Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5CONAM ConstructionCruz ConstructionDenali Universal Services (DUS)Doyon AnvilDoyon AssociatedDoyon DrillingDoyon, Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11exp Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4F. R. Bell & Associates, Inc.FairweatherFlowline Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6FluorFugro

G-MGMW Fire ProtectionGreer Tank & WeldingGuess & Rudd, PCICE Services, Inc.InspirationsJudy Patrick PhotographyLittle Red Services, Inc. (LRS)Lounsbury & AssociatesLynden Air CargoLynden Air FreightLynden Inc.Lynden InternationalLynden LogisticsLynden TransportMapmakers of AlaskaMaritime Helicopters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Motion & Flow Control Products

N-PNabors Alaska DrillingNalco ChampionNANA WorleyParsonsNature Conservancy, TheNEI Fluid TechnologyNordic CalistaNorth Slope TelecomNorthern Air CargoNorthern SolutionsNRC Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Oil Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Pacific Power GroupPENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Petroleum Equipment & Services, Inc.PRA (Petrotechnical Resources of Alaska)Price Gregory International

Q-ZRaven Alaska – Jon AdlerResource Development CouncilSecurity AviationSourdough ExpressStrategic Action AssociatesSummit ESP, A Halliburton ServiceTanks-A-LotThe Local PagesTOTE – Totem Ocean Trailer ExpressWeston Solutions

SLOANE PERRAS

the Hewlett Foundation, the David and Lucille Packard

Foundation, Ecojustice, Greenpeace, the Sierra Club, the

Natural Resources Defense Council and Forest Ethics).

In a message to “foreign-funded special interests who

have been leading a campaign of economic sabotage

against (Alberta), your days of pushing around Albertans

with impunity just ended,” he said.

“We have had enough of your campaign of defama-

tion and double standards,” Kenney said. “From this

point forward, when you lie about how we produce ener-

gy, we will tell the truth assertively and we will use every

means at our disposal to hold you to account.”

National party on boardAndrew Scheer, leader of the federal Conservative

Party, which poses a threat to the Liberal administration

of Prime Minister Justin Trudeau in a national election

this October, told a closed-door strategy session in

Alberta on April 11 he was committed to ending “foreign-

funded interference” in pipeline regulatory hearings.

However, he did not disclose whether his tactics

would include audits or litigation.

But a spokesman for Scheer said a Conservative gov-

ernment would “actively work” to keep foreign-financed

intervenors out of Canada’s regulatory process.

Tim McMillan, president of the Canadian Association

of Petroleum Producers, told the Globe and Mail his

lobby organization will be more active in the coming fed-

eral election campaign than it was in the Alberta vote.

He praised Kenney’s commitment to tackle environ-

mental groups, which industry leaders target for taking

money from U.S.-based foundations while working

against pipelines and oil sands expansion.

Vancouver researcherVivian Krause, a Vancouver researcher and writer who

has spent more than a decade investigating how foreign-

based anti-oil activists have helped fund the work of non-

profit organizations in Canada, disclosed in a Financial

Post article in April, using U.S. tax returns to show how

thousands of dollars of U.S. funds were being directed

into the campaign to defeat Kenney and his United

Conservative Party.

She said tax documents filed with the IRS in the

United States show Tides Foundation paid at least

US$270,000 to the Tsleil-Wauteuth First Nation in British

Columbia specifically “to stop and oppose (the Trans

Mountain) pipeline and tanker project.”

Her work has been hailed by Gwyn Morgan, former

chief executive officer of Encana, as providing

“irrefutable evidence that tens of millions of dollars have

been transferred from Tides US to its Tides Canada affil-

iate.”

In addition, according to a Morgan article in the

Financial Post, Krause obtained 70 covering letters show-

ing how recipients used the donations, including mobiliz-

ing First Nations against the fear of oil spills and pay-

ments to help build “indigenous solidarity resistance to

pipeline routes,” maintain “opposition to oil tankers” and

“provide legal support for actions constraining tar sands

development.” l

continued from page 1

KENNEY STRATEGY

ipates continued capital expenditure at around the same

level, to fund projects such as the Willow project in

Alaska.

“We can certainly do all of that within the average of

less than $7 billion, and we can do that comfortably,”

Fox said.

Adequate cash flowLance said that his company’s plan anticipates free

cash flow at a West Texas Intermediate oil price less than

$40 per barrel. And, in generating strong cash flow, the

company is following a strategy of attracting investors

back to the energy industry. ConocoPhillips has a 16 bil-

lion barrel resource base with an average cost of supply

below $30 per barrel, he said.

“Our strategy works across a range of prices and

through cycles,” Lance said. l

continued from page 8

CONOCO UPTICK

of investment away from Canada.

Palmer also noted that Horgan has failed

to even suggest where a new refinery could

be built in his province without even

acknowledging the certain opposition from

First Nations, environmentalists and other

activists.

As well, the premier made no reference

to the protracted efforts by B.C. entrepre-

neur David Black to raise financing for his

proposed C$22 billion plan to ship bitumen

from Alberta to his proposed refinery north

of Kitimat.

The plan involves turning oil sands

crude into solid pellets for shipping by rail

to the refinery on the northern B.C. coast

where it would be processed into 400,000

barrels per day of gasoline, diesel and other

petroleum products for delivery to global

markets.

In addition, Eagle Spirit Energy, backed

by First Nations, and Pacific Future Energy

have rolled out plans to develop and/or ship

refined products from the northern B.C.

coast, regardless of federal commitments to

ban crude-related tankers in that region that

have also been endorsed by Horgan’s gov-

ernment.

After seven years of attracting a luke-

warm response, Black believes his plan has

gained a second wind with the election of

Jason Kenney as Alberta’s new premier.

Having met with Kenney last August,

Black said Kenney is interested in any plan

that can move Alberta crude “safely and

cheaply to the coast.”

Horgan agreed Black has presented one

option, adding “I look forward to him enter-

ing the regulatory process to see if he has

the wherewithal, in terms of capital, in

terms of expertise, to pull that off.” l

10 PETROLEUM NEWS • WEEK OF MAY 5, 2019

Substantial increaseBut the AOGCC bonding requirements

are now increasing significantly. The new

regulations set a minimum bond level of

$400,000 per well for one to 10 wells; a $6

million bond for 11 to 40 wells; a $10 mil-

lion bond for 41 to 100 wells; a $20 million

bond for 101 to 1,000 wells; and a $30 mil-

lion bond for more than 1,000 wells. The

well counts apply to well heads, with any

subsurface laterals drilled from an existing

bonded well covered by the bonding for

that well.

The new bonding levels represent the

default, expected level of bonding. An

operator can request a variance from the

specified bonding level, or the commission

may increase or decrease the required

bonding, based on engineering, geotechni-

cal, environmental or locational evidence.

An operator with an existing well surety

bond that falls short of the amount required

under the revised regulations can increase

the bond amount to the new level in four

annual installments.

Well plugging and abandonmentThe purpose of the bonding, which has

to be obtained by a well operator, is to

ensure the availability of adequate funding

for the plugging and abandonment of obso-

lete wells — a well that has not been appro-

priately plugged can become an environ-

mental and safety hazard. For some time

the commission has been concerned that

current bonding levels in Alaska are inade-

quate and fall far short of the realistic cost

of plugging and abandonment operations.

Should a well operator fail to have the

financial wherewithal to seal off its wells,

the plugging and abandonment costs would

revert to the landowner, in many cases the

state of Alaska.

Impact on small producersSmall oil and gas producers in the state

are particularly worried about the bonding

increases: Obtaining a large bond may

prove difficult or impossible for a compa-

ny with relatively small financial

resources. The Alaska Oil and Gas

Association has expressed concern about

the potential for the higher bonding levels

discouraging investment in the Alaska oil

and gas industry.

Supporters of AOGCC’s bond increas-

es, on the other hand, argue for the impor-

tance of ensuring that a company drilling a

well has the financial wherewithal to even-

tually close the well down in an adequate

manner.

The AOGCC bonding applies specifi-

cally to the subsurface aspects of a well,

when a well is abandoned. The Alaska

Department of Natural Resources has sepa-

rate bonding regulations for the remedia-

tion of the surface land at and around an

abandoned well head.

—ALAN BAILEY

continued from page 1

WELL BONDING

the Fairbanks region of the Interior, is owned and operated

by six independent utilities and the state. Although covering

a large geographic area, the entire system is tiny, in terms of

the number of consumers and the electrical load, when

compared with load balancing areas elsewhere in North

America.

In 2015, following a directive from the Legislature to

investigate the case for electrical system unification, the

commission issued a series of recommendations for more

unified arrangements. Since then the commission has been

facilitating voluntary efforts by the utilities to satisfy the

commission’s requirements. But these efforts, while mak-

ing progress, have been taking significantly longer than the

commission had hoped and are still some distance from the

eventual goal.

The overall objective is to minimize the cost of electric-

ity for consumers within the constraints of acceptable sup-

ply reliability. There are also issues relating to the ease of

access to the system for independent power producers,

including renewable energy facilities.

But pulling together a system that has grown over the

years as a series of independent entities is far from simple.

Components of unificationOne aspect of unification is the interchange of power

generation capacity through an arrangement referred to as

merit order economic dispatch, in which the cheapest avail-

able power generation would continuously be used across

the grid. Another aspect is the formation of a single trans-

mission company to operate the transmission network that

connects the service areas of the various utilities. Through a

consistent transmission fee structure and open access to the

system, a transmission company could facilitate the sharing

of power across the grid and access for independent power

producers. A transmission company could also become a

vehicle for investment in any necessary grid upgrades,

thereby overcoming investment constraints that result from

grid balkanization.

Particularly critical to the unification efforts is the

enforcement of a uniform set of reliability standards for the

transmission network and other high-voltage components

of the electrical system.

Underpinning all of this there needs to be what is

referred to as an electric reliability organization, or ERO, an

entity that would provide management and policy oversight

of the entire system, with the authority to enforce policies

and reliability standards.

Progress on reliability standardsMost progress has been made in the formation of an

ERO and moves towards the enforcement of a uniform set

of reliability standards. In April 2018 the utilities filed a uni-

fied set of standards for the entire Railbelt. And in the fall

of the same year the utilities announced that they had signed

a memorandum of understanding for the formation of an

entity called the Railbelt Reliability Council, or RRC, a

form of ERO, to enforce reliability standards for the system;

enforce system-wide interconnection protocols for the grid;

conduct system-wide integrated resource planning; and

evaluate the economic dispatch of power generation in the

system.

Since then, the utilities have been working to fill in some

significant gaps in the reliability standards, especially in the

area of standards for cybersecurity. And the commission has

been considering issues relating to its statutory authority

over the proposed RRC — hence the potential statutory lan-

guage discussed during the April 24 meeting.

A transmission companyIn February of this year four of the Railbelt utilities told

the commission that they and the American Transmission

Co. had formed the Alaska Railbelt Transmission LLC, or

ART, for operating the transmission system. ART filed an

application for a certificate from the RRC. But two utilities,

Chugach Electric Association and Matanuska Electric

Association, both of which own sectors of the transmission

grid, have not joined ART. And there is uncertainty regard-

ing ART’s potential jurisdiction over power transmitted

from the state-owned Bradley Lake hydropower facility in

the southern Kenai Peninsula.

Interchanging energyIn terms of making use of least-cost power generation,

the utilities have been supporting each other through the fre-

quent use of what are termed economy energy sales, the sale

of power generated by one utility to another utility.

However, the commission views this type of arrangement

as falling short of economic dispatch. In 2017 the three

Southcentral Alaska utilities — Chugach Electric

Association, Municipal Light & Power and Matanuska

Electric Association — announced an agreement to imple-

ment economic dispatch across their service areas. The util-

ities developed protocols for the implementation and con-

ducted some testing of the arrangements. However, all of

this came to a halt in 2018 after Chugach Electric embarked

on a project involving the purchase of ML&P. Chugach

Electric said it was not realistic to try to proceed with the

economic dispatch initiative in parallel with dealing with

the complications of the ML&P purchase. MEA has

expressed a willingness to revamp the economic dispatch

initiative, as soon as it becomes possible to do so.

The commissioners have expressed their extreme frus-

tration that so far the efforts towards economic dispatch

have come to naught.

Statutory authorityThe commission’s worries over its statutory authority

particularly relate to the RRC proposal. The implementa-

tion of the RRC, regulated by the commission, would

diverge from the commission’s traditional role of regulating

individual utilities and would involve the delegation of

some oversight authority from the commission to the RRC.

During the April 24 RCA meeting, Commissioner

Antony Scott reflected on comments received on the com-

mission’s statutory language. One particularly contentious

issue is the question of the governance of an ERO and the

composition of an ERO board of directors. While some

stakeholders in the electrical system are anxious that the

board should be fully independent from the utilities, the util-

ities argue that they have the technical expertise necessary

for making practical policy decisions. The RRC proposal

involves a board with six utility members and six non-util-

ity members. Scott said that the proposed statutory lan-

guage leaves the governance question somewhat open, with

an expectation of clarification during the development of

regulations that would apply to the ERO. Commissioner

Robert Pickett commented that the exact meaning of the

independence of the ERO does still require definition.

Delegation of authorityAnother issue emerging from the comments revolves

around the extent to which the RCA would delegate its

authority to an ERO, and the extent to which the ERO could

assess penalties against individual utilities. The emerging

concept is that the ERO would maintain and enforce a set of

reliability standards, while the commission would have ulti-

mate authority over those standards and their enforcement.

The standards would be part of the ERO’s tariff, which

would require commission approval.

And, while the ERO could impose penalties against util-

ities for infringing the ERO’s rules, an aggrieved party

would be able to appeal to the commission in the event of a

dispute over ERO actions. The intent is to have an efficient

process, with the commission acting as a backstop, having

ultimate statutory authority over the system, Scott

explained.

Integrated resource planningDuring the meeting there was discussion about integrat-

ed resource planning, involving the advance planning of

future transmission and generation developments. While

the ERO would conduct integrated resource planning, the

commission’s suggested statutory language gives the com-

mission approval authority over the ERO’s plans. The com-

mission also seeks authority over the pre-approval of the

construction of major new generation and transmission

assets.

Some commenters on the proposed language questioned

whether the purpose of the planning, defined in statute,

should be least-cost planning: What, in fact, does the term

“least cost” mean, and is the term too constrictive? Scott

continued from page 2

BC PREMIER

continued from page 1

RCA REVIEW

see RCA REVIEW page 11

ing the prolific Nanushuk oil field for

themselves.

That speculation was partly confirmed

on May 1, when Oil Search’s top execu-

tive in Alaska, Keiran Wulff, told

Petroleum News, “We’ve had strong

interest from several companies … but

the timing isn’t quite right for us to take

on a third partner. We are one year old in

Alaska and just seeing what we can do …

realizing what we have. You don’t see this

great of an asset very often.”

Nonetheless, Wulff said bringing in a

third partner is still very possible, just

“not now, not yet.”

‘Company-sized bet’Undoubtedly contributing to this deci-

sion was the resounding success of this

winter’s Pikka B well and its sidetrack

where Oil Search “intersected the thickest

Nanushuk reservoir seen in the field” to

date, some 350 feet of pay as compared to

average thickness farther north in the

Pikka unit of some 200 feet and 40 to 70

feet further west at Willow.

Per Oil Search, the well results also

“materially upgraded prospectivity” in

the southern part of the Pikka unit and in

the adjacent Horseshoe block.

The Pikka B/Pikka B ST1 flowed at a

stabilized rate of 2,410 barrels of light,

sweet oil per day, its flow restricted by the

capacity of the testing equipment, the

company reported. Based on the produc-

tivity index calculated during the final

flow test (one stage stimulation), the well

flow rate potential was estimated at 3,800

bpd at a flowing well head pressure of 50

psi.

The objective of the Pikka B well,

spud Jan. 23, was to assist defining poten-

tial resource volumes and reservoir deliv-

erability in the unit.

Oil Search Managing Director Peter

Botten described the well results as

“excellent,” having “exceeded expecta-

tions.”

Oil Search’s partner Repsol has

expressed continued satisfaction with its

Pikka/Horseshoe area assets, including

recently. In March at CERAWeek in

Houston, Repsol executives told Alaska

Gov. Mike Dunleavy and his team that

Repsol was, “willing to make a company-

sized bet in Alaska.”

Repsol’s Upstream Executive

Managing Director Tomás García Blanco

was quoted as saying Alaska was a

“game-changing opportunity” for the

Madrid-based major, noting “Alaska is a

key growth area for our global upstream

business.”

In 2016, when Armstrong and Repsol

began announcing their drilling success at

Pikka, then-Alaska Department of

Natural Resources Commissioner Mark

Myers first described the significance of

the Brookian Nanushuk discovery, saying

that at that time “the proven contingent

oil reserve number makes the discovery

the largest since the Alpine field, the

probable contingent reserve number the

largest since the Kuparuk field, and the

possible contingent number makes the

discovery the largest since Prudhoe.”

Reviewing secondary targetInformation released by Oil Search on

April 30 includes the following, much of

which was a confirmation of earlier state-

ments:

•Following the completion of Oil

Search’s inaugural drilling campaign,

material upgrade in Pikka’s 2C oil

resource was expected (the first develop-

ment, a 120,000-plus bpd production

facility, expected to come online in the

second half of 2023, was based on

approximately 750 million barrels of

recoverable oil);

•Reviewing Alpine reservoir targets in

the Pikka unit to determine appraisal

strategy;

•Sufficient data gathered on reservoir

deliverability to support plans to move

into FEED in the second quarter;

•Evaluating opportunities to optimize

development such as the possible sharing

of production facilities, especially in the

north;

•Early production opportunities being

“progressed;”

•Pikka C ST1 horizontal sidetrack, six

stage stimulation, flowed at stabilized

rate of 860 bpd — restricted by mechani-

cal issues/downhole blockages … model-

ling indicated potential for higher flow

rates;

•Planning underway for follow-up

drilling in 2019-20 drill season of two to

three exploration/appraisal wells in the

southern field area, some road supported;

•Further testing program possible with

other JVs;

•Appraisal of expansion opportunities

and satellite fields, including nearby

Grizzly prospect;

•New seismic acquisition planned for

2019-20 season. l

PETROLEUM NEWS • WEEK OF MAY 5, 2019 11

www.doyon.com

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said that, in his view, the idea is to plan

for least-cost solutions, within the con-

straints of acceptable reliability.

Pickett commented that the cheapest

option may not necessarily be the best

option. Scott agreed, saying that he antic-

ipates the RCA developing a rule spelling

out the characteristics of an integrated

resource plan.

Scott and Pickett also discussed

another issue that has been raised,

regarding the relative timing of ERO and

transmission company formation. Do

both organizations have to be formed

concurrently, to ensure appropriate gov-

ernance for the transmission company

while also establishing a business struc-

ture that enables the ERO’s plans to be

carried out?

—ALAN BAILEY

continued from page 10

RCA REVIEW

continued from page 1

OIL SEARCH

DS 1

DS 2

DS 3

Approximate extent of Nanushuk reservoir

HorseshoeBlock

Putu 2

Stony Hill

NuiqsutVillage

Pikka C

Pikka B

CO

URT

ESY

OIL

SEA

RC

H

12 PETROLEUM NEWS • WEEK OF MAY 5, 2019

Interior has not published a statement

regarding the lease sale situation follow-

ing the District Court decision and has not

responded to a request from Petroleum

News for information.

President Obama announced the land

withdrawal in December 2016. President

Trump announced that he was cancelling

the order in April 2017. A group of envi-

ronmental organizations appealed

Trump’s order in District Court.

2.8 million acres not withdrawnObama did not withdraw a 2.8 million

acre strip of the Beaufort Sea with rela-

tively high oil and gas potential, immedi-

ately north of the coastline, between

Smith Bay and the western side of

Camden Bay. This area that can still be

leased includes the location of Hilcorp

Alaska’s Liberty oil field development,

the Nikaitchuq North leases operated by

Eni US Operating Co. Inc., and prospects

on the western side of Camden Bay,

where Arctic Slope Regional Corp.

Exploration operates some leases. And

the land withdrawal only applied to the

federal outer continental shelf, and not to

state land under the nearshore waters of

the Beaufort.

Shortly before making the Arctic off-

shore land withdrawal, Obama had with-

drawn some lands in the northern Bering

Sea. However, there were no land with-

drawals in federal waters of Cook Inlet.

Obama carried out his withdrawal

order under the terms of section 12(a) of

the Outer Continental Shelf Lands Act,

the act that provides the statutory frame-

work for resource development on the

outer continental shelf. Section 12(a) of

the act states that “the president of the

United States may, from time to time,

withdraw from disposition any of the

unleased lands of the outer continental

shelf.”

No explicit statement on reversalThe wording of the act makes no

explicit statement regarding the circum-

stances, if any, under which a land with-

drawal may be reversed. However,

District Court Judge Sharon Gleason

ruled that the structure of the act supports

a view that section 12(a) does not give a

president the authority to revoke or modi-

fy a previous land withdrawal. In addi-

tion, Gleason ruled, if Congress had

intended to allow a president to revoke a

withdrawal, the act would have specifi-

cally stated this.

Thus, only an act of Congress can

overturn Obama’s order, Gleason ruled.

—ALAN BAILEY

50% interest in Milne and operatorship

of that field. Since then Hilcorp has

been working to increase Milne pro-

duction. In early April it brought the

Moose Pad online on the far western

side of the field.

Moose Pad is the first new pad at

Milne since 2002, David Wilkins,

Hilcorp’s senior vice president for

Alaska, told the Resource

Development Council in November.

Hilcorp currently has production

from 12 pads at Milne, including the

new Moose Pad.

Two to three padsHilcorp told the Corps it required

“enough gravel for 2 to 3 pads initial-

ly.”

The R Pad development would be

south of F Pad, the company told the

Corps, noting that additional pad

expansions would be required for new

wells to increase Milne Point unit pro-

duction.

F Pad is the most northerly of the

Milne Point pads, near the Beaufort

Sea coast and northeast of L Pad.

The Corps notice did not provide a

timeline for any pad construction but

did say the new mining was estimated

to occur from 2019 to 2024.

Expansion of existing material siteThe proposed work in the Corps

notice is an expansion of the existing

material site, Mine Site E, with the

addition of a 27-acre cell at the mine

named Cell 6 and rehabilitation of the

project site after completion of material

extraction.

The Corps said the area to be mined

is 900 feet long and 850 feet wide, a

total of 16 acres; the additional 11 acres

would include overburden storage and

construction of a thermal barrier and an

access road.

In its description of mining and

rehabilitation planned for Ugnu Mine

Site E at Milne Point, Hilcorp said the

mine site is some 2 miles east of the

Oliktok Road, some 5 miles southeast

of Oliktok Point and 2 miles southeast

of Simpson Lagoon, with the

Ugnuravik River some one-half mile

east of the mine site.

Gravel mining began at the site in

the early 1980s. The existing Ugnu

Mine Site E permitted area is some 157

acres. Hilcorp is proposing an expan-

sion of some 50.5 acres in one cell,

with final site configuration dependent

on gravel requirements. The proposed

expansion, Cell 6, is east of Cell 1, with

some 27 acres of be impacted by gravel

mining activities in Phase 1.

Hilcorp said Cell 6 is the shortest

distance between development projects

at Milne and the Ugnu Mine Site E

expansion area.

Cell 6 would produce an estimated 1

million cubic yards of gravel.

“Mining will only be done in the

winter from an ice road constructed

across the Ugnuravik River,” Hilcorp

said.

—KRISTEN NELSON

continued from page 1

MILNE POINT PAD

continued from page 1

BEAUFORT LEASE SALE

President Obama’s withdrawal of Arctic offshore lands from oil and gas leasing encom-passed most of the Beaufort and Chukchi seas, but did not include a fairway of prospectiveland immediately north of the Beaufort Sea coastline.

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