l pipelines & downstream new vessels arriveterminal marine services from crowley marine corp....

12
Walker drops $10 million for ANWR seismic in favor of statewide 9-1-1 page 3 l EXPLORATION & PRODUCTION l PIPELINES & DOWNSTREAM l PIPELINES & DOWNSTREAM Vol. 23, No. 14 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of April 8, 2018 • $2.50 New vessels arrive First two new tugs and one of the spill response barges are now in Valdez By ALAN BAILEY Petroleum News T he first three vessels that will form part of Edison Chouest Offshore’s new fleet support- ing the Valdez Marine Terminal have arrived in Valdez and are undergoing sea trials and demon- strations, in preparation for the transition of the terminal marine services from Crowley Marine Corp. The transition results from a decision by Alyeska Pipeline Service Co., operator of the trans-Alaska pipeline and the marine terminal, to put the contract for the marine services to compet- itive bid — in August 2016 Alyeska announced that it was awarding the contract to Edison Chouest. The switchover is officially scheduled for July 1. But new Edison Chouest vessels are arriving during the months leading up to the handover and, as they gain regulatory approval, will progressive- ly move into the terminal’s marine operations, Each barge will have a radar system and infrared cameras that can detect oil on water, to help steer the barge through an oil slick. And the barge command module is perched high above one end of the deck, for maximum visibility. Oil Search moves forward Alaska’s newest explorer, developer hiring, expanding office, reprocessing seismic By KAY CASHMAN Petroleum News T he state’s newest oil and gas player, Oil Search, officially took over Armstrong Energy’s Alaska headquar- ters in Anchorage on April 1, per Keiran Wulff, the company’s top Alaska execu- tive, and has leased additional space in preparation for hiring 110 people versus its original plan to bring on 50 new employees. The ASX-listed publicly traded Oil Search with offices in Sydney, Australia, and Port Moresby, Papua New Guinea, still hopes to drill next winter on the North Slope leases it now operates, Wulff told Petroleum News, providing the company can obtain all the necessary permits and approvals. Oil Search continues to conduct inter- views in Anchorage, looking for engi- neers, geologists and other professionals with North Slope experience. The company secured Armstrong and its minority partner’s interests at and near the Pikka unit, including adjacent Horseshoe leases, in late October. Per the March 25 issue of Petroleum News, Oil Search received its final regulatory approval con- nected to acquiring a controlling interest in the leases on March 15, the final step in assuming operatorship. In addition to taking over Armstrong’s Suite KEIRAN WULFF see NEW VESSELS page 11 see OIL SEARCH page 10 Alberta hails ‘victory’ Canada’s appeal court rejects suit against Trans Mountain; other verdicts pending By GARY PARK For Petroleum News A Canadian court has provided a “definitive victory” and cleared the way for the Trans Mountain pipeline across British Columbia, said Alberta Premier Rachel Notley. Her assertion of a clear-cut triumph for the proj- ect followed a Federal Court of Appeal verdict rejecting the arguments of six First Nations, sever- al environmental organizations and the cities of Vancouver and Burnaby. The case centered around a National Energy Board hearing process and consultations held by the project proponent Kinder Morgan with groups potentially affected by the project to triple capacity on the Trans Mountain system to 890,000 barrels per day of diluted bitumen. Based on an NEB recommendation, the Canadian government approved the C$7.4 billion plan in 2016, triggering widespread opposition in B.C., where almost 200 people have been charged with breaching the terms of a court injunction While the legal battles continue, the oil sands industry in Alberta is struggling with pipeline bottlenecks and a shortage of rail capacity at a time when Canada’s oil output is forecast to grow by 290,000 bpd this year to 4.95 million bpd. see SUIT REJECTED page 9 BP has strong year in Alaska, with $830M profit, $543M in state taxes BP Exploration (Alaska) had a good year in 2017, with a profit of $830 million, the company said in a March 29 email. Taxes and royalties paid to the state of Alaska totaled some $543 million. The 2017 profit was the result of an improvement in the price of crude oil, a third year of no production decline at Prudhoe Bay and the revision in the U.S. federal corporate income tax rate. “On the financial front, I am very proud of the progress that BP Alaska, and indeed the entire Alaska industry, has made in adapting to the lower for longer oil price environment,” said BP Alaska Region President Janet Weiss. Prudhoe Bay production has averaged more than 280,000 barrels per day for three years and the crude oil price improved in fiscal year 2017 to $54.49 per barrel compared to $43.27 per barrel in FY 2016. Setback for BC LNG opponents Environmentalists and the green movement got slapped down in a joint British Columbia government-First Nations report for their constant claim that indigenous communities are opposed to fossil fuel projects. “There have been many positive impacts to First Nations com- munities related to LNG development, prior to any construction,” said the report. “Much capacity has been created due to these proj- ects. However, expectations have also been raised. Now, First Nations leaders are trying to deal with their constituents’ frustra- tion because of the delays or cancellation of these projects.” The report’s findings were based on a consensus view from meetings held last fall with aboriginal groups, who believe that LNG projects “will be the most safe, environmentally rigorous, and human-rights compliant projects in the world.” The authors urged the B.C. government to partner with First Nations to improve communication, information sharing and ongoing engagement on the LNG industry, while proposing that the government should do more to improve investor confidence in the sector. Karen Ogen-Toews, president of the First Nations LNG Alliance, formed by six First Nations at the forefront of LNG Conoco completes exploration well; Tinmiaq 7 drilled to 4,035 ft TVD Alaska Oil and Gas Conservation Commission data is showing the first record of a completed winter exploration well this year, ConocoPhillips’ Tinmiaq No. 7. AOGCC records show the well was completed Feb. 22 at a total depth of 4,036 feet, and a true vertical depth of 4,075 feet. The well is one of four the company has permitted for drilling this winter at the company’s Willow discovery on the western side of Greater Mooses Tooth in the National Petroleum Reserve-Alaska: Tinmiaq 7, Tinmiaq 8, Tinmiaq 9 and West Willow 1. The company, which planned to use three rigs for explo- ration drilling this winter, has also permitted two penetrations, Putu 2 and Putu 2A, in the southern Colville River unit and two penetrations, Stony Hill 1 and Stony Hill 1A, south of CD5. ConocoPhillips drilled the Tinmiaq 2 and Tinmiaq 6 on the western side of Greater Mooses Tooth in 2016, with a 12-hour test at Tinmiaq 2 producing 3,200 barrels per day of 44 degree API well. see BP FINANCIALS page 12 see LNG OPPONENTS page 12 see TINMIAQ WELL page 11 JANET WEISS JUDY PATRICK

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Page 1: l PIPELINES & DOWNSTREAM New vessels arriveterminal marine services from Crowley Marine Corp. The transition results from a decision by Alyeska Pipeline Service Co., operator of the

Walker drops $10 million for ANWRseismic in favor of statewide 9-1-1

page3

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

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

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

Vol. 23, No. 14 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of April 8, 2018 • $2.50

New vessels arriveFirst two new tugs and one of the spill response barges are now in Valdez

By ALAN BAILEYPetroleum News

The first three vessels that will form part ofEdison Chouest Offshore’s new fleet support-

ing the Valdez Marine Terminal have arrived inValdez and are undergoing sea trials and demon-strations, in preparation for the transition of theterminal marine services from Crowley MarineCorp. The transition results from a decision byAlyeska Pipeline Service Co., operator of thetrans-Alaska pipeline and the marine terminal, toput the contract for the marine services to compet-itive bid — in August 2016 Alyeska announcedthat it was awarding the contract to EdisonChouest.

The switchover is officially scheduled for July1. But new Edison Chouest vessels are arrivingduring the months leading up to the handover and,as they gain regulatory approval, will progressive-ly move into the terminal’s marine operations,

Each barge will have a radar system andinfrared cameras that can detect oil on

water, to help steer the barge through anoil slick. And the barge command moduleis perched high above one end of the deck,

for maximum visibility.

Oil Search moves forwardAlaska’s newest explorer, developer hiring, expanding office, reprocessing seismic

By KAY CASHMANPetroleum News

The state’s newest oil and gas player,Oil Search, officially took over

Armstrong Energy’s Alaska headquar-ters in Anchorage on April 1, per KeiranWulff, the company’s top Alaska execu-tive, and has leased additional space inpreparation for hiring 110 people versusits original plan to bring on 50 newemployees.

The ASX-listed publicly traded Oil Search withoffices in Sydney, Australia, and Port Moresby,Papua New Guinea, still hopes to drill next winteron the North Slope leases it now operates, Wulfftold Petroleum News, providing the company can

obtain all the necessary permits andapprovals.

Oil Search continues to conduct inter-views in Anchorage, looking for engi-neers, geologists and other professionalswith North Slope experience.

The company secured Armstrong andits minority partner’s interests at and nearthe Pikka unit, including adjacentHorseshoe leases, in late October. Per theMarch 25 issue of Petroleum News, Oil

Search received its final regulatory approval con-nected to acquiring a controlling interest in theleases on March 15, the final step in assumingoperatorship.

In addition to taking over Armstrong’s Suite

KEIRAN WULFF

see NEW VESSELS page 11

see OIL SEARCH page 10

Alberta hails ‘victory’Canada’s appeal court rejects suit against Trans Mountain; other verdicts pending

By GARY PARKFor Petroleum News

ACanadian court has provided a “definitivevictory” and cleared the way for the Trans

Mountain pipeline across British Columbia, saidAlberta Premier Rachel Notley.

Her assertion of a clear-cut triumph for the proj-ect followed a Federal Court of Appeal verdictrejecting the arguments of six First Nations, sever-al environmental organizations and the cities ofVancouver and Burnaby.

The case centered around a National EnergyBoard hearing process and consultations held bythe project proponent Kinder Morgan with groupspotentially affected by the project to triple capacityon the Trans Mountain system to 890,000 barrels

per day of diluted bitumen.Based on an NEB recommendation, the

Canadian government approved the C$7.4 billionplan in 2016, triggering widespread opposition inB.C., where almost 200 people have been chargedwith breaching the terms of a court injunction

While the legal battles continue, the oilsands industry in Alberta is struggling

with pipeline bottlenecks and a shortageof rail capacity at a time when Canada’soil output is forecast to grow by 290,000

bpd this year to 4.95 million bpd.

see SUIT REJECTED page 9

BP has strong year in Alaska, with$830M profit, $543M in state taxes

BP Exploration (Alaska) had a good year in 2017, with aprofit of $830 million, the company said in a March 29 email.

Taxes and royalties paid to the state of Alaska totaled some$543 million.

The 2017 profit was the result of animprovement in the price of crude oil, athird year of no production decline atPrudhoe Bay and the revision in the U.S.federal corporate income tax rate.

“On the financial front, I am veryproud of the progress that BP Alaska, andindeed the entire Alaska industry, hasmade in adapting to the lower for longeroil price environment,” said BP AlaskaRegion President Janet Weiss.

Prudhoe Bay production has averaged more than 280,000barrels per day for three years and the crude oil priceimproved in fiscal year 2017 to $54.49 per barrel compared to$43.27 per barrel in FY 2016.

Setback for BC LNG opponentsEnvironmentalists and the green movement got slapped down

in a joint British Columbia government-First Nations report fortheir constant claim that indigenous communities are opposed tofossil fuel projects.

“There have been many positive impacts to First Nations com-munities related to LNG development, prior to any construction,”said the report. “Much capacity has been created due to these proj-ects. However, expectations have also been raised. Now, FirstNations leaders are trying to deal with their constituents’ frustra-tion because of the delays or cancellation of these projects.”

The report’s findings were based on a consensus view frommeetings held last fall with aboriginal groups, who believe thatLNG projects “will be the most safe, environmentally rigorous,and human-rights compliant projects in the world.”

The authors urged the B.C. government to partner with FirstNations to improve communication, information sharing andongoing engagement on the LNG industry, while proposing thatthe government should do more to improve investor confidencein the sector.

Karen Ogen-Toews, president of the First Nations LNGAlliance, formed by six First Nations at the forefront of LNG

Conoco completes exploration well;Tinmiaq 7 drilled to 4,035 ft TVD

Alaska Oil and Gas Conservation Commission data isshowing the first record of a completed winter explorationwell this year, ConocoPhillips’ Tinmiaq No. 7. AOGCCrecords show the well was completed Feb. 22 at a total depthof 4,036 feet, and a true vertical depth of 4,075 feet.

The well is one of four the company has permitted fordrilling this winter at the company’s Willow discovery on thewestern side of Greater Mooses Tooth in the NationalPetroleum Reserve-Alaska: Tinmiaq 7, Tinmiaq 8, Tinmiaq 9and West Willow 1.

The company, which planned to use three rigs for explo-ration drilling this winter, has also permitted two penetrations,Putu 2 and Putu 2A, in the southern Colville River unit andtwo penetrations, Stony Hill 1 and Stony Hill 1A, south ofCD5.

ConocoPhillips drilled the Tinmiaq 2 and Tinmiaq 6 on thewestern side of Greater Mooses Tooth in 2016, with a 12-hourtest at Tinmiaq 2 producing 3,200 barrels per day of 44 degreeAPI well.

see BP FINANCIALS page 12

see LNG OPPONENTS page 12

see TINMIAQ WELL page 11

JANET WEISS

JUD

Y P

ATR

ICK

Page 2: l PIPELINES & DOWNSTREAM New vessels arriveterminal marine services from Crowley Marine Corp. The transition results from a decision by Alyeska Pipeline Service Co., operator of the

2 PETROLEUM NEWS • WEEK OF APRIL 8, 2018

Petroleum News Alaska’s source for oil and gas newscontents

Alaska’sOil and GasConsultants

GeoscienceEngineeringProject ManagementSeismic and Well Data

3601 C Street, Suite 1424Anchorage, AK 99503

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

[email protected]

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

ANS February production down 3 percentNorth Slope crude averaged 513,836 bpd in February, down from 529,420 bpd in January; Cook Inlet up 2.7% at 16,423 bpd for February

By KRISTEN NELSONPetroleum News

Alaska North Slope crude oil production averaged513,836 barrels per day in February, down 2.9 per-

cent from a January average of 529,420 bpd, and down2.5 percent from a February 2017 average of 526,760bpd.

Production data is from the Alaska Oil and GasConservation Commission, which provides volumes bywell on a month-delay basis.

The largest month-over-month per-barrel decline wasat the BP Exploration (Alaska)-operated Prudhoe Bayfield, the Slope’s largest. Prudhoe averaged 260,990 bpdin February, down 13,493 bpd (4.9 percent) from aJanuary average of 274,483 bpd, and down 8.9 percentfrom a February 2017 average of 280,681 bpd.

The largest month-over-month percentage drop wasat Caelus Alaska’s Oooguruk field, which averaged10,624 bpd in February, down 7.4 percent (844 bpd)from a January average of 11,468, and down 25.7 per-

cent from a February 2017 average of 14,297 bpd.

Some year-over-year increasesNorthstar, operated by Hilcorp Alaska, averaged

8,985 bpd in February, down 5.4 percent, 511 bpd, froma January average of 9,496, but up 56 percent from a5,753 bpd average in February 2017.

The ConocoPhillips Alaska-operated Colville Riverfield averaged 64,488 bpd in February, down 3.9 per-cent, 2,601 bpd, from a January average of 67,089 bpd,but up 3.1 percent from 62,550 bpd in February 2017.ConocoPhillips added a pad, CD5, at Colville River in2015 and based on results from the original 15 wellsexpanded the development to 23 wells with another 10wells planned.

The Kuparuk River field, also operated byConocoPhillips, averaged 120,843 bpd in February,down 0.3 percent, 413 bpd, from a January average of121,256, but was up 7.42 percent from a February 2017average of 112,498 bpd.

Two other fields with month-over-month declines

also had year-over-year declines. Badami, operated by Savant Alaska, a Glacier Oil

company, averaged 665 bpd in February, down 5.4 per-cent from an average of 703 bpd in January, and down25.1 percent from a February 2017 average of 888.

Endicott, operated by Hilcorp, averaged 6,791 bpd inFebruary, down 2.3 percent, 163 bpd, from a Januaryaverage of 6,954, and down 12.4 percent from aFebruary 2017 average of 7,755 bpd.

Month-over-month increasesThe ExxonMobil Production-operated Point

Thomson field, with one well in production, averaged5,592 bpd in February, up 68 percent, 2,266 bpd, from aJanuary average of 3,326 bpd, and down 19.2 percentfrom a February 2017 average of 6,919 bpd.

Milne Point, operated by Hilcorp, averaged 20,868bpd in February, up 1 percent, 207 bpd, from a Januaryaverage of 20,661 bpd, and up 3.2 percent from aFebruary 2017 average of 20,227 bpd.

see FEBRUARY OUTPUT page 4

ENVIRONMENT & SAFETY

New vessels arriveFirst two new tugs, one of spill response barges are now in Valdez

Oil Search moves forwardAlaska’s newest explorer, developer hiring, expanding office

Alberta hails ‘victory’Canada’s appeal court rejects suit against Trans Mountain

ON THE COVER

BP has strong year in Alaska, with$830M profit, $543M in state taxesSetback for BC LNG opponentsConoco completes exploration well;Tinmiaq 7 drilled to 4,035 ft TVD

3 HF radar provides valuable ocean data

Technology can map ocean currents, wave heights and vessels over wide area, to help with spill response and SAR activities

7 EPA to ease back emissions standards

EXPLORATION & PRODUCTION2 ANS February production down 3 percent

North Slope crude averaged 513,836 bpd in February,down from 529,420 bpd in January; Cook Inlet up 2.7% at 16,423 bpd for February

6 Bill proposes Railbelt grid operator

HB 382 would establish a state authority for overseeingmanagement and operation of electric generation and transmission system

8 Conoco agrees to reduced road width

8 A change of name for Aurora Exploration

9 US drilling rig count down by 2 to 993

3 Walker drops seismic for statewide 9-1-1

4 Various oil, gas bills in play in Juneau

8 88 Energy reports death of Paul Basinski

GOVERNMENT

OBITUARY

UTILITIES

Page 3: l PIPELINES & DOWNSTREAM New vessels arriveterminal marine services from Crowley Marine Corp. The transition results from a decision by Alyeska Pipeline Service Co., operator of the

By ALAN BAILEYPetroleum News

R adar systems that use high frequencyradio waves have established a crucial

role in monitoring ocean surface conditionsand are now considered a key component inthe toolkit for responding to an offshore oilspill response, Hank Stascewich from theUniversity of Alaska Fairbanks told theAlaska Oil Spill Technology Symposium onMarch 29. The technology can also be ofsignificant help in an offshore search andrescue operation, Stascewich said.

Offshore monitoringHF coastal radar, commonly referred to

as CODAR, or Coastal Oceanic DynamicsApplications Radar, uses radio frequenciessomewhere between the frequencies of FMand AM radio and is positioned at a coastalsite, from where it can monitor huge areasof the offshore. The distance from the radarsite that can be monitored depends on theradio frequency used but can go out to morethan 180 kilometers. Essentially the saltwater of the ocean causes what is referred toas Bragg scattering from the transmitted sig-nal, a phenomenon that results in a signal athalf the wavelength of the transmitted signalbeing returned to the radar receiver. Thereturned signal enables a measurement ofthe rate of movement of ocean waves: Anydifference between the wave velocity andthe theoretical velocity of the waves thenrepresents the speed of the ocean current.By triangulating the data from two differentradar stations, it is possible to determineboth the speed and direction of the currentsacross a wide area, Stascewich explained.

Extraction of part of the incoming dataalso enables accurate determinations ofwave heights, and the monitoring of thelocations of vessels operating in the area ofthe radar coverage.

Oil spill responseThe prime value of the radar in support

of an oil spill response is in predicting thetrajectory of an oil slick. In conjunction withmeteorological wind data, the ocean currentdata can enable an estimation of the speedand direction for the spread and movementof a slick. In fact, HF radar sites around theU.S., including Alaska sites, feed data into

the National Oceanic and AtmosphericAdministration’s oil spill response comput-er system, Stascewich said.

In the event of an offshore search andrescue operation, the radar data can enablepredictions of the drift movement of, say, aperson overboard, thus enabling a signifi-cant reduction of the required search area.

HF radar data for Alaska’s Beaufort andChukchi seas are gathered hourly, with sta-tistical techniques then used to analyze themeaning of the vast amount of data collect-ed. The data provides insights into phenom-ena such as the influence of winds on oceanmixing patterns, and the relative influenceof water from the Arctic and Pacific oceans.

Vessel monitoringIn an era when steadily increasing vessel

traffic in the Arctic is a cause for concern,the HF radar data can be used to spot thepresence of any vessels that are not trans-mitting marine identification information.For example, in 2014 an Alaska HF radar

system picked up on the presence of anunidentified Russian naval vessel inside theU.S. exclusive economic zone, Stascewichsaid.

Although there are many HF radarinstallations around the coastline of theLower 48, there are just three stations cur-rently operating around the northwest coastof Alaska, Stascewich said. One challengein Alaska is the general lack of a power sup-ply at remote coastal locations — an HFradar system uses a lot of power and has to

run continuously. Researchers at UAFdeveloped a power module that uses renew-able energy and has been powering an HFradar system at Point Barrow for eightyears. The plan now is to design a morecompact module that can be shipped by hel-icopter and can be operational within sixhours, ready for deployment in the event ofan oil spill, Stascewich said. l

PETROLEUM NEWS • WEEK OF APRIL 8, 2018 3

By KRISTEN NELSONPetroleum News

Gov. Bill Walker said April 2 that he isrequesting re-allocation of a fiscal year

2019 budget request for monies allowing theAlaska Department of Natural Resources to par-ticipate in acquiring seismic data in the 1002 areaof the Arctic National Wildlife Refuge.

The $10 million was in the supplementalbudget and the funds request said the monieswould allow the state to work with other interested partiesto acquire seismic in advance of a proposed federal leasesale.

In a statement on the re-allocation request the governorsaid: “One in four Alaskans lacks conventional access to 9-1-1 as an emergency number.” In some parts of the state, hesaid, callers must dial a 1-800 number to reach help and thenumber varies by region.

“Ensuring Alaskans have the same level of access toemergency services provided to the rest of the country is

foundational to building a Safer Alaska,” Walkersaid.

In a letter to co-chairs of the House andSenate Finance committees, Office ofManagement and Budget Director Pat Pitneysaid the Department of Public Safety acceleratedwork on the 9-1-1 project and “has developed asolid plan that can be implemented in the next 20months.”

The capital budget request for the enhanced 9-1-1 system would total $9.5 million and come

from a re-appropriation and redirection of existing fiscalyear 2019 budget requests, including $1.059 million of anexisting appropriation to the Department of Public SafetyAcademy, a one-time $150,000 request for a feasibilitystudy of the central 9-1-1 center and redirection of $8.327million of the $10 million request for 1002 area seismicdata acquisition.

“These funds are not needed for seismic work at thistime,” Pitney said.

She said the governor requests redirecting $1.5 million

of the $10 million be redirected to the Department ofRevenue and the Department of Natural Resources “tospeed legal and financial due diligence as it relates to theState’s best interest in the Alaska LNG project.”

Specifically, those monies would support agency work“required to finalize negotiations and inform decisions thatensure the maximum benefits to the state” from the LNGproject, including evaluation of royalty elections, gas dispo-sition, lease modifications “and other decisions relating toNorth Slope natural gas commercialization. The fundingwill support the evaluations, negotiations, analysis, andfindings surrounding these issues; overall benefits analysisof the project to the state, and opportunities for state partic-ipation for Legislative consideration.”

Pitney said DNR Commissioner Andy Mack, RevenueCommissioner Sheldon Fisher and Attorney General JahnaLindemuth would be providing additional information on“the necessity of the modest due diligence funding.” l

l G O V E R N M E N T

Walker drops seismic for statewide 9-1-1

GOV. BILL WALKER

l E N V I R O N M E N T & S A F E T Y

HF radar provides valuable ocean dataTechnology can map ocean currents, wave heights and vessels over wide area, to help with spill response and SAR activities

Page 4: l PIPELINES & DOWNSTREAM New vessels arriveterminal marine services from Crowley Marine Corp. The transition results from a decision by Alyeska Pipeline Service Co., operator of the

By KRISTEN NELSONPetroleum News

As this legislative session moves towardits 90-day statutory limit at mid-

month, various oil and gas related bills arebeing heard, with Senate Bill 125, extend-ing bond authority for the Alaska IndustrialDevelopment and Export Authority for anInterior LNG production and natural gasdistribution system, already in the House,showing strong bipartisan support.

SB 125 was sponsored by SenatePresident Pete Kelly, R-Fairbanks, Sen.Click Bishop, R-Fairbanks, Sen. DonnyOlson, D-Golovin, and Rep. ScottKawasaki, D-Fairbanks. It passed theSenate 19-0 in February and is in HouseLabor and Commerce, along with the com-panion House Bill 261, sponsored by Rep.Steve Thompson, R-Fairbanks, andKawasaki.

AIDEA’s bonding authority for theInterior LNG project and distribution sys-tem expires June 30; the bills extend thatexpiration date by five years to June 30,2023.

Bonding SB 176 and HB 331, administration

bills to bond for payment of oil and gastax credits, would pay companies whichagree to accept funds from the bonding ata discount to cover the state’s costs. SB176 was passed out of Senate Resourcesin late March and is now in SenateFinance. A hearing in that committee hadnot yet been scheduled when this issue ofPetroleum News went to press.

HB 331 had a first hearing March 30in House Resources; a second hearing isscheduled in that committee April 6.

Industry has expressed concern overthe discount rates the state is proposingbut supports the idea of paying off thecredits sooner rather than later.

Revenue said in the fiscal note accom-panying the bill that some $800 million in

tax credits awaited state repurchase at theend of calendar year 2017 and saidalthough most cashable tax credits wererepealed by the Legislature in 2017, itwill take time for the remaining credits towork their way through the system. Thebill allows the state to bond for as muchas $1 billion to pay credits, with thatamount to be determined by the numberof companies that commit to the dis-counted purchase by the state.

Updated spill finesRep. Andy Josephson, D-Anchorage,

co-chair of House Resources, told HouseFinance March 29 that HB 322 is funda-mentally an update of spill fees andpenalties and said it grew out of naturalgas spills in Cook Inlet last year.

Josephson said he asked Kristin Ryan,director of the Department ofEnvironmental Conservation’s Divisionof Spill Prevention and Response, if therewas any authority the division needed,and was told they had what they neededfor the gas spills incident, but that spillpenalties legislation hadn’t changed sincethe 1970s and 1980s.

Josephson said SPAR has had penal-ties for decades but those haven’t beenupdated and inflation has severely under-

cut those penalties. The result is thatSPAR doesn’t have a very big stick, hesaid.

Spills have continued, but the state’sability to penalize responsible parties hasdiminished very significantly, Josephsonsaid.

He characterized the bill as mostly anadjustment of fines to 2018 dollar values,but said it also sharply increases penaltiesfor continuing spills to motivate parties todeal with them. Penalties are tied to theconsumer price index, so they increasewithout a requirement for SPAR to comeback to the Legislature on that issue, hesaid.

The bill gives SPAR the ability to leveladministrative penalties, which means thedepartment wouldn’t have to go to courtto get those penalties. It also requirestrucking companies transporting crude oilto submit contingency plans they preparefor the federal government to DEC.

Asked about the derivation of the bill,Josephson said when he was told penal-ties could use some updating he and hisstaff began working on the issue with theassistance of leg legal and a state assistantattorney general. The bill moved out of

l G O V E R N M E N T

Various oil, gas bills in play in Juneau

4 PETROLEUM NEWS • WEEK OF APRIL 8, 2018

Kay Cashman EXECUTIVE PUBLISHER & FOUNDER

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Mapmakers Alaska CARTOGRAPHY

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Eni’s Nikaitchuq averaged 13,990 bpdin February, up marginally, 6 bpd, from aJanuary average of 13,984 bpd, but down7.9 percent from a February 2017 averageof 15,192 bpd.

Cook InletCook Inlet crude oil production aver-

aged 16,423 bpd in February, up 2.7 per-cent, 436 bpd, from a January average of15,987 bpd, and up 13.2 percent from aFebruary 2017 average of 14,514 bpd.

Hilcorp’s Beaver Creek averaged 107bpd, up 20.2 percent from a January aver-age of 89 bpd, but down 94.2 percentfrom a February 2017 average of 185bpd.

Hilcorp’s Granite Point averaged2,844 bpd in February, down 7 percent,214 bpd, from a January average of3,058, but up 15.7 percent from aFebruary 2017 average of 2,458 bpd.

BlueCrest’s Hansen field, theCosmopolitan project, averaged 827 bpdin February, up 140 percent, 482 bpd,from a January average of 345 bpd, goingfrom one to two producing wells, and up451.3 percent from a February 2017 aver-age of 150 bpd.

Hilcorp’s McArthur River, CookInlet’s largest, averaged 5,108 bpd inFebruary, down 3 percent, 158 bpd, froma January average of 5,266 bpd, but up 28

percent from a February 2017 average of3,991 bpd.

Hilcorp’s Middle Ground Shoal aver-aged 1,539 bpd in February, down 1.9percent, 29 bpd, from a January averageof 1,568, and down 12 percent from aFebruary 2017 average of 1,750 bpd.

The Redoubt Shoal field, operated byGlacier Oil’s Cook Inlet Energy, averaged1,467 bpd in February, up 15.3 percent,195 bpd, from a January average of1,272, and up 73.2 percent from aFebruary 2017 average of 847 bpd.

Hilcorp’s Swanson River field aver-aged 1,574 bpd, down 3.1 percent, 50bpd, from a January average of 1,624bpd, and down 21.9 percent from aFebruary 2017 average of 2,014 bpd.

Hilcorp’s Trading Bay averaged 1,833bpd in February, up 3 percent, 54 bpd,from a January average of 1,779 bpd, andup 10.4 percent from a February 2017average of 1,661 bpd.

West McArthur River, operated byGlacier Oil’s Cook Inlet Energy, averaged1,124 bpd in February, up 14 percent, 138bpd, from a January average of 986 bpd,but down 22.9 percent from a February2017 average of 1,458 bpd.

ANS crude oil production peaked in1988 at 2.1 million bpd; Cook Inlet crudeoil production peaked in 1970 at morethan 227,000 bpd. l

continued from page 2

FEBRUARY OUTPUT

HB 331 had a first hearing March30 in House Resources; a second

hearing is scheduled in thatcommittee April 6.

see OIL BILLS page 8

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PETROLEUM NEWS • WEEK OF APRIL 8, 2018 5

Hats off to Oil Search!

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Page 6: l PIPELINES & DOWNSTREAM New vessels arriveterminal marine services from Crowley Marine Corp. The transition results from a decision by Alyeska Pipeline Service Co., operator of the

By ALAN BAILEYPetroleum News

On March 29 the House SpecialCommittee on Energy listened to

testimony regarding House Bill 382, abill that would establish a new stateauthority for overseeing the managementand operation of the Alaska Railbelt elec-tricity generation and transmission sys-tem. The bill, introduced by the commit-tee’s chair, Rep. Adam Wool, D-Fairbanks, would require the RegulatoryCommission of Alaska to form the newauthority, overseen by a board of direc-tors representing the Railbelt electric util-ities, independent power producers, elec-tricity consumers and Railbelt municipal-ities. The commission and the AlaskaEnergy Authority would have non-votingmembership of the board.

The authority would establish rules forthe management of a unified transmissionsystem that would optimize at lowest costthe use of power generation facilities con-nected to the electrical grid. Otherresponsibilities would include the estab-lishment of a transparent and universaltransmission tariff; nondiscriminatoryopen access to the transmission system;enforced interconnection standards andprotocols; regional transmission and gen-eration planning criteria and protocols;and enforced reliability standards.

The authority would also be responsi-ble for the authorization of developmentprojects for the transmission system, andfor the development of long-range

regional plans for electrical generationand transmission.

A long historyThe question of whether and how to

unify the management and operation ofthe Railbelt electrical system has been thesubject of debate for many years.Currently six independent utilities and thestate of Alaska own and operate differentsectors of the system, a system that intotal supports fewer electricity consumersthan most utilities in the Lower 48. Thisfragmented ownership leads to a numberof issues, including the less-than-opti-mum usage of the most efficient powergeneration units, and the pancaking orstacking of power transmission fees forbusinesses wanting to transmit poweracross multiple transmission sectors.

The fragmented transmission systemownership renders it difficult to approveinvestments in projects that benefit multi-ple utilities. There have been many ques-tions raised over decisions by individualutilities to independently build new gen-eration facilities. And the balkanizationof the system makes it challenging to

achieve economic dispatch, the optimumdispatch of the cheapest power on thegrid.

Ultimately, the desire is to minimizethe cost of electricity for consumers with-out sacrificing the reliability of supply.There are also questions over how muchof the power should be generated fromrenewable energy sources.

RCA opinionIn 2015 the RCA issued an opinion

stating that unification of the electricalgrid management and operation shouldproceed. Since then the commission hasbeen encouraging the utilities to proceedtoward unification on a voluntary basis.The utilities have been making movestowards economic dispatch, with threeutilities, Chugach Electric Association,Municipal Light & Power and MatanuskaElectric Association forming an agree-ment for the tight pooling of their gener-ation and transmission resources. Theutilities have also been working on a planto form a transmission company to takeresponsibility for the operation of thewhole of the transmission system.

A difficult issue is the formation of aunified or independent system operator tooversee the operation of the entire gener-ation and transmission system. Difficultyarises from questions over the composi-tion of the operator entity’s board, and theextent to which the entity should be inde-pendent from the utilities. The utilitieshave argued that, because they have thenecessary technical expertise in how theelectrical system works, they needinvolvement in the governing entity.Independent power producers that wantto sell power to the system argue for gov-ernance that is more independent fromthe utilities, to ensure a level playing fieldfor all.

HB 382 is obviously an effort to man-date by law a unified operator for the sys-tem.

ARCTECSeveral years ago the utilities formed

the Alaska Railbelt CooperativeTransmission and Electric Co., orARCTEC, to advance the concept of asystem operator for the Railbelt grid.Currently four of the six Railbelt utilitiesare ARCTEC members. ARCTEC hasproposed the formation of what it refersto as a Railbelt Reliability Council, an

organization that would be an alternativeto the system operator envisaged in HB382. Early this year ARCTEC selectedconsultancy firm GDS Associates Inc. toact as facilitator for the formation of theRailbelt Reliability Council.

During the March 29 House Energymeeting Seth Brown from GDSAssociates reviewed the status of theARCTEC Railbelt Reliability Councilproject. Brown said that his company hasconsulted with a wide range of stakehold-ers and would complete a report and amemorandum of understanding by theend of April. The RRC, as envisaged,would have a role in enforcing reliabilitystandards, in ensuring an open-accesstransmission service, and in planninggeneration and transmission expansion.The organization would not, as it stands,have a role in administering economicdispatch across the Railbelt grid.However, GDS does recommend that theRRC should study the economic dispatchissue, in particular to pin down the poten-tial costs and benefits of this type ofpower pooling arrangement, Brown said.

The recommended board wouldinclude four transmission system ownerrepresentatives, a representative from thestate attorney general’s office, two renew-able energy representatives and an unaf-filiated director position. The RRC staffwould have opportunities to assess thepracticalities of board decisions, and goto the commission with any concerns,Brown said. He told the committee thathe thinks that there is a good chance thatmost of the utilities will agree to the RRCproposal.

AEA involvementJanet Reiser, executive director of the

Alaska Energy Authority, told the com-mittee that in AEA’s view economic dis-patch by an independent entity is a key tothe reform of the way in which theRailbelt grid operates. Over the yearsthere have been several attempts atRailbelt grid unification, but no voluntaryeffort has yet succeeded, she said.

Reiser compared AEA’s concept for aunified system operator with the RRCmodel that GDS is proposing, and withthe operator concept in HB 382. Both theAEA and HB 382 concepts involve eco-nomic dispatch, while the GDS conceptdoes not. And AEA proposes that the sys-

l U T I L I T I E S

Bill proposes Railbelt grid operatorHB 382 would establish a state authority for overseeing management and operation of electric generation and transmission system

6 PETROLEUM NEWS • WEEK OF APRIL 8, 2018

Several years ago the utilitiesformed the Alaska Railbelt

Cooperative Transmission andElectric Co., or ARCTEC, to

advance the concept of a systemoperator for the Railbelt grid.

see GRID OPERATOR page 7

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tem operator organization be housedwith the AEA, with AEA providingback-office support. The GDS proposalcontains many good ideas and hasmuch alignment with AEA’s views, butit is not clear that all of the utilities willvoluntarily agree with the GDS con-cept, Reiser said

Reiser said that AEA, with its insti-tutional knowledge of Alaska energyissues, is anxious to have an active rolein the Railbelt system operator issue.And the state and the AEA board havedirected the agency to participate.However, the agency does not see itselfas having any kind of enforcement roleand wants to help the various stake-holders arrive at a satisfactory arrange-ment. Reiser pointed out that severalyears ago AEA had conducted an eco-nomic dispatch study for the Railbelt.

Utilities opposeFour of the Railbelt electric utilities

sent a letter to House Energy opposingHB 382 on the grounds that, while theutilities are making significant volun-tary progress towards economic dis-patch, a common set of reliability stan-dards, the formation of a transmissionscompany and a Railbelt-wide organiza-tional model, HB 382 represents theviews of one, small stakeholder group.MEA, ML&P and Chugach Electric arein the testing phase of their economic

dispatch arrangements, the utilitieshave signed a memorandum of under-standing for a transmission companyand the utilities have commissionedGDS to recommend an organizationalmodel, the utilities wrote.

REAP supportsThe Renewable Energy Alaska

Project, on other hand, has asked thatHB 382 be passed, saying that althoughREAP appreciates the efforts that theutilities have been making through theGDS project, REAP does not believethat voluntary efforts by the utilitieswill ultimately succeed in meeting gridunification goals. And the omission ofeconomic dispatch from the RRC pro-posal is a serious flaw, REAP believes.

REAP sees unified operation of thegrid, with non-discriminatory access tothe system, as a key to successfulrenewable energy development in theRailbelt.

REAP Executive Director ChrisRose told House Energy that the uni-fied management of the Railbelt grid isa consumer issue that should have beendealt with 10 or 15 years ago. Therehave been multiple efforts over theyears to solve this problem, but nonehas succeeded, he said. Ultimately suc-cess will rest with the Legislatureestablishing something such as theauthority proposed in HB 382, Rosesaid. l

PETROLEUM NEWS • WEEK OF APRIL 8, 2018 7

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continued from page 6

GRID OPERATOR

l E N V I R O N M E N T & S A F E T Y

EPA to ease backemissions standards

THE ASSOCIATED PRESS

Environmental regulators announcedApril 2 they will ease emissions stan-

dards for cars and trucks, saying that a time-line put in place by President BarackObama was not appropriate and set stan-dards “too high.”

The Environmental Protection Agencysaid it completed a review that will affectvehicles for model years 2022-25 but it didnot specify details on new standards, whichit said would be forthcoming. Current regu-lations from the EPA require the fleet ofnew vehicles to get 36 miles per gallon inreal-world driving by 2025. That’s about 10mpg over the existing standard.

The agency said in its decision that theregulation set under the Obama administra-tion “presents challenges for auto manufac-turers due to feasibility and practicability,raises potential concerns related to automo-bile safety, and results in significant addi-tional costs on consumers, especially low-income consumers.”

The EPA, in partnership with theNational Highway Traffic SafetyAdministration, will work to come up withnew standards.

Automakers applauded the decision,arguing that the current requirements wouldhave cost the industry billions of dollars andraised vehicle prices due to the cost ofdeveloping the necessary technology.

“This was the right decision, and wesupport the Administration for pursuing adata-driven effort and a single national pro-gram as it works to finalize future stan-dards,” said Gloria Bergquist, vice presi-dent, communications and public affairs forthe Alliance of Automobile Manufacturers,in a statement. “We appreciate that theAdministration is working to find a way toboth increase fuel economy standards andkeep new vehicles affordable to moreAmericans.”

Environmentalists, meanwhile, warnedthe proposed rollbacks will make U.S. carsmore expensive to fill up.

“No one in America is eager to buy a carthat gets worse gas mileage and spews morepollution from its tailpipe,” said FredKrupp, president of the EnvironmentalDefense Fund. “Designing and buildingcleaner, more cost-efficient cars is whathelped automakers bounce back from thedepths of the recession and will be key toAmerica’s global competitiveness in theyears ahead.”

Any change is likely to set up a lengthy

legal showdown with California, which hasthe power to set its own pollution and gasmileage standards and doesn’t want them tochange. About a dozen other states followCalifornia’s rules, and together they accountfor more than one-third of the vehicles soldin the U.S. Currently the federal andCalifornia standards are the same.

Some conservative groups are pressingEPA Administrator Scott Pruitt to get rid ofthe waiver that allows California to set itsown rules. Pruitt said in a statement April 2that the agency will work with all states,including California, to finalize new stan-dards.

“Cooperative federalism doesn’t meanthat one state can dictate standards for therest of the country,” he said. “EPA will set anational standard for greenhouse gas emis-sions that allows auto manufacturers tomake cars that people both want and canafford — while still expanding environ-mental and safety benefits of newer cars.”

California Attorney General XavierBecerra said his team is reviewing theEPA’s determination.

“We’re ready to file suit if needed to pro-tect these critical standards and to fight theAdministration’s war on our environment,”Becerra said in a statement. “California did-n’t become the sixth-largest economy in theworld by spectating.”

A joint statement by the governors ofCalifornia, Oregon, and Washington, aswell as the mayors of Los Angeles,Oakland, San Francisco, Portland andSeattle, also decried the EPA’s decision.

“This move sets us back from years ofadvancements by the automotive industryput in motion by states that took the lead insetting emission standards,” the statementsaid. “These standards have cleared thehaze and smog from our cities and reverseddecades of chronic air pollution problems,while putting more money in consumers’pockets.”

Sen. Edward J. Markey said the existingstandards are “technically feasible and eco-nomically achievable,” and added that hewould use every legislative tool to block themoves.

“Slashing these standards would amountto turning the keys to our energy policy overto Big Oil and the auto industry,” said theMassachusetts Democrat, who is a memberof the Environment and Public WorksCommittee and chair of the Senate ClimateTask Force. l

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8 PETROLEUM NEWS • WEEK OF APRIL 8, 2018

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

EXPLORATION

OBITUARY88 Energy reports death of Paul Basinski

88 Energy said April 5 that Paul Basinski has died due to unexpected compli-cations resulting from a heart transplant operation.

Basinski was founder and CEO of Burgundy Xploration LLC. He was, 88Energy said, “the concept generator for the HRZ unconventional play that 88Eand Burgundy continue to pursue at Project Icewine.”

Basinski began acquiring North Slope acreage in 2012 and in late 2014 88Energy struck a deal with Burgundy to acquire a majority interest in Burgundy’slarge acreage position.

In releases on its Icewine exploration well 88 Energy saidinternal analysis and modeling indicated Icewine is in a highliquids vapor phase sweet spot “analogous to those encoun-tered in other Tier 1 shale plays e.g. the Eagle Ford” inTexas.

Basinski told Petroleum News after the state’s 2015 leasesale that he had been with Burlington Resources and thenwith ConocoPhillips after that company acquired Burlingtonin 2005. He said he’d been working on shale since the mid-1980s and saw there might be a resource in Texas. The issuewas to find a sweet spot and get it out of the ground, he said, with the idea that ifyou could drill into the kitchen, the source of the oil, it could be possible to puttogether a play.

Basinski said the situation is similar in Alaska where there is the largest fieldcomplex in North America — Prudhoe Bay — and none of the source rocks haveever been effectively drilled and stimulated with a horizontal well.

He said Burgundy, in partnership with 88 Energy, is chasing a vapor phase,where “you get a little bit deeper and where the oil is no longer oil in the reservoir,it’s actually a gas. But when you get it to the surface it becomes rich in liquids.”He compared the Icewine target to Eagle Ford but said a play on Alaska’s NorthSlope would have to be “significantly better” because it has “to be able to supportthe costs associated with it.”

—KRISTEN NELSON

House Resources in mid-February on aparty-line vote.

Ryan told the committee that the legis-lation would add the ability to includedeterrents when considering penalties,something the division can’t currently do.Existing language in statute says “but notpunitive” which is removed in the bill.She said punitive is allowed in other envi-ronmental areas such as air or water vio-lations — only for oil spill penalties ispunitive not allowed.

Increase in penaltiesThe minimum civil penalty for illegal

discharges of less than 18,000 gallonswas established in 1976 and never raised.For an initial violation the minimum is$500 ($2,118 in 2018 equivalent) with$1,000 proposed; the maximum was set at$100,000 ($423,581 would be the equiv-

alent) with $200,000 proposed. The real increase in this example, as in

other areas of the bill, is for each day afterthe violation: The original was $5,000($21,179 in 2018 dollars); $25,000 is pro-posed.

Civil penalties for crude oil spills ofmore than 18,000 gallons were set at aminimum for 420,000 or fewer gallons of$8 per gallon in 1989 ($15.64), with $16proposed; the maximum, for more than420,000 gallons, was $12.50 ($24.44 in2018 dollars), with $25 proposed.

The bill also includes produced wateras crude oil in calculating civil penalties. l

PAUL BASINSKI

STEV

E SU

THER

LIN

To advertise in Petroleum News, contact Susan Crane

at 907.770.5592petroleumnews.com

continued from page 4

OIL BILLS

EXPLORATION & PRODUCTIONConoco agrees to reduced road width

In response to local concerns on the North Slope, ConocoPhillips has agreedto change the design basis for its road upgrade in the Kuparuk River unit from a35-foot road width to a 32-foot width, ConocoPhillips spokeswoman NatalieLowman has told Petroleum News.

As previously reported in Petroleum News, the company wants to upgradeabout 26 miles of roadway over a five-year period, primarily by increasing theroad widths. The upgrades would apply to both main roads and drill site accessroads. The width of the total road gravel footprint would be greater than the widthof the road itself.

—ALAN BAILEY

A change of name for Aurora ExplorationAurora Exploration LLC, the Cook Inlet gas producer, has changed its name to

Amaroq Resources LLC, the company has announced.The company was in the news a few months ago because of its purchase of the

Nicolai Creek gas field, onshore the west side of Cook Inlet, from Aurora Gas, aspart of the fallout from the Aurora Gas bankruptcy. Although having similarnames, the companies are completely separate, with different management anddifferent ownership.

Towards the end of 2017 there was a contentious Alaska Oil and GasConservation Commission case, in which the commission wanted to hike thesurety bonding for the wells in the Nicolai Creek field. At that time, AuroraExploration said that it intended to change its name, because of confusion andpotential misunderstandings about any relationship with Aurora Gas.

“We are excited about the name change; there has been considerable confusionwith regard to the Aurora name and the owners of Aurora Exploration felt it wastime to rebrand the company,” said Aurora Exploration President and ChiefExecutive Scott Pfoff on April 4 when announcing the name change. “An Amaroqis a gigantic wolf in Inuit mythology and we respectfully use the name based uponour company’s focus on Alaska resources.”

Pfoff said that Amaroq Resources is continuing a coiled tubing program toboost gas production by cleaning out three wells in the Nicolai Creek field. Thecompany is also trying to raise funds for drilling exploration wells in its ChedatnaLakes and North Alexander prospects on the west side of the Cook Inlet, he said.

—ALAN BAILEY

The minimum civil penalty forillegal discharges of less than

18,000 gallons was established in1976 and never raised.

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PETROLEUM NEWS • WEEK OF APRIL 8, 2018 9

against protesters at the construction site.The federal court also ordered British

Columbia to pay the legal costs of theappeal.

Notley said the verdict was “anothervictory for our economy, another victoryfor our climate plan, (and) another victo-ry for the pipeline.”

Opposition viewAlberta opposition leader Jason

Kenney, of the United ConservativeParty, said Notley was too hasty to claimoutright victory.

“I think her expectation that one courtdecision will result in oil flowing is a tri-umph of hope over experience,” he said.

The B.C. government wasted no timeeffectively endorsing Kenney’s view,with Environment Minister GeorgeHeyman declaring his New DemocraticParty administration will “continue toexplore other legal ways to defend the(environmental and First Nations) inter-ests of British Columbia against thisunnecessary project.”

B.C. Premier John Horgan had askedfor a legal ruling that would affirm hisprovince’s right to restrict increased vol-umes of crude from crossing theprovince and being shipped from theB.C. coast to Asia.

The City of Burnaby announced itwill attempt to take its case to theSupreme Court of Canada, a tacticNotley said was “showboating” byMayor Derek Corrigan.

“If I were a taxpayer in Burnaby,regardless of my position on thepipeline, I would be very irritated to seemy mayor throwing good money afterbad,” Notley said, speculating thatCorrigan has likely been told by lawyershe has no hope of success.

There are a number of pending legaldecisions on the pipeline, including areview by the Federal Court of Appeal ofthe federal cabinet decision to approvethe pipeline and a review by the BritishColumbia court of appeal of the decisionby the province’s former government toendorse the pipeline.

BottlenecksWhile the legal battles continue, the

oil sands industry in Alberta is strug-gling with pipeline bottlenecks and ashortage of rail capacity at a time whenCanada’s oil output is forecast to growby 290,000 bpd this year to 4.95 millionbpd.

Cenovus Energy, one of the leadingproducers, said it cut February output by6 percent from January’s 378,000 bpd,while Syncrude Canada has trimmed itsvolumes and Canadian NaturalResources has delayed the ramp up ofsome heavy oil wells.

Cenovus Chief Executive OfficerAlex Pourbaix said his company was“taking steps to respond to a criticalshortage of export pipeline capacity inWestern Canada that is beyond our con-trol and is having a negative impact onour industry and the broader Canadianeconomy.”

Several analysts say the pipeline con-straints and rail backlogs could also fur-ther weaken prices for Canada’s heavycrudes, which are expected to trail WestTexas Intermediate prices by US$21.75per barrel this year and US$19 in 2019.

However, relief is on the horizon,starting with Enbridge’s plan to replaceits aging Line 3 pipeline from Alberta toSuperior, Wisconsin, at a cost of C$8.2billion and doubling capacity to 760,000bpd. The project has a scheduled in-ser-

vice date of late 2019.Also plodding along after more than a

decade of legal and political battles isTransCanada’s Keystone XL system todeliver 830,000 bpd of diluted bitumento the U.S. Gulf Coast refinery hub. Thecompany said it now has 500,000 bpd ofshipping commitments, allowing it tostart construction in 2019.

Despite the transportation and pricesetbacks, the Paris-based InternationalEnergy Agency said Canadian oil produc-tion has risen faster than most countriesover the last three years, mostly from thecommissioning of oil sands projects, set-ting Canada up to overhaul Iraq as theworld’s fourth largest producer after theUnited States, Russia and Saudi Arabia. l

continued from page 1

SUIT REJECTED EXPLORATION & PRODUCTIONUS drilling rig count down by 2 to 993

The number of rigs drilling for oil and natural gas in the U.S. decreased by twothe week ending March 30 to 993.

That exceeds the 824 rigs that were active this time a year ago. Houston oilfield services company Baker Hughes reported that 797 rigs drilled

for oil (down seven from the previous week) and 194 for gas (up four). Two werelisted as miscellaneous (up one).

Among major oil- and gas-producing states, Pennsylvania increased by tworigs and Louisiana and Oklahoma each gained one.

Texas lost three rigs and New Mexico, Ohio and West Virginia each decreasedby one.

Alaska, Arkansas, California, Colorado, North Dakota, Utah and Wyomingwere unchanged.

The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May of 2016 at404.

—ASSOCIATED PRESS

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10 PETROLEUM NEWS • WEEK OF APRIL 8, 2018

Oil Patch Bits

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

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

Lynden Air Cargo recognized for humanitarian effortsAs reported in the Plane Talk Newsletter Spring 2018 edition Lynden Air Cargo received

the Governor’s North Star Award for its long history of assisting in humanitarian relief andenvironmental disasters worldwide.

“We are honored to receive this prestigious award which we share with our employeesand the Lynden family of companies,” said Rick Zerkel, Lynden Air Cargo president. “All of

our employees in the air and on the ground pride themselves on providing safe and reli-able service while opening new international markets and opportunities to Alaska. We arealso proud of our service in assisting victims of natural disasters and our environmentalcleanup response. Wherever Lynden Air Cargo flies, it proudly represents Lynden, but alsoits home state of Alaska.”

Lynden pioneered service to Alaska in 1954 and today serves customers in every sectorof the Alaska economy, including energy, mining, seafood, retail, military, and government.

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301 in Peterson Towers, Oil Search leased an adjoiningsuite and per Wulff, “may also take some space on thesecond floor.”

When asked about planned seismic activities on theacreage the company now operates, Wulff said, “We aren’tundertaking seismic acquisition activities. We are compil-ing our data base at the current time and will undertakesome reprocessing to get a consistent data platform. Wemay undertake activity next season but this will require con-firmation with our partners.”

Where they will drill the questionInitially Armstrong and Oil Search planned to drill two

appraisal wells, the Pikka 2 and Pikka 2A sidetrack, at thesouthern end of the Pikka unit in the winter drilling seasonthat is wrapping up now, tying in their giant Nanushuk oildiscoveries to the north with those in the south at theHorseshoe wildcat drilled in 2017 by then-operatorArmstrong.

Pikka 2 and 2A drilling was to be conducted east of thevillage of Nuiqsut from surface acreage owned by KuukpikCorp., the village corporation for Nuiqsut.

But those plans were cancelled because, among otherthings, Armstrong and Oil Search secured an informationsharing agreement with ConocoPhillips on its Putu 2 welland sidetrack, drilled this winter a short distance from Pikka2 and 2A.

So even though Wulff, whose official title in Alaska isexecutive general manager, told PN the company plannedto drill next winter it is possible Oil Search will not drill theplanned Pikka 2 wells, but rather decide to drill at some or

all of the following locations:1. North of Putu; depending on those well results.2. In the Qugruk No. 7 Pikka unit well area, a well

drilled in 2014 that has been the hole Armstrong and Repsol(former operator of the acreage) was most concerned aboutkeeping confidential.

3. North of ConocoPhillips’ Stony Hill well, which PNsources say is being production tested now. A Willowlookalike that reportedly holds at least 300 million barrelsof recoverable oil in the Nanushuk formation, Stony Hill isalmost directly across the Colville River in NPR-A fromArmstrong’s successful 2017 wildcat, Horseshoe.

There are many other possibilities, but those are PN’sguesses with the information currently available.

Development plansArmstrong expected the first development in the Pikka

unit to be online no later than 2022 and to produce about120,000 barrels of oil per day.

The plan under Armstrong had been to develop the proj-ect, a multibillion-dollar investment, through the drilling ofabout 146 wells from three drill sites on the east side of theColville River.

The major components of the project would include theconstruction of about 35 miles of pipeline, 25 miles of roadand a central processing facility.

The development would primarily target the Nanushukformation but was also expected to result in productionfrom a reservoir found in Alpine C sands.

Second option exercisable until June 2019Oil Search told analysts Nov. 1 that it paid $400 million

for a 25.5 percent interest in the Pikka unit and adjacentexploration acreage and 37.5 percent interest in the

Horseshoe block and the Hue shale. The company has the option, exercisable until June 30,

2019, to purchase all of Armstrong and its minority part-ner’s remaining interest in the Pikka unit and the Horseshoeblock (another 25.5 percent and 37.5 percent respectively)as well as an additional 25.5 percent interest in adjacentexploration acreage and 37.5 percent in the Hue shale.

Repsol continues to hold as much as a 49 percent interestin Pikka and Horseshoe acreage, depending on the lease.

Armstrong’s success with revolutionizing exploration innorthern Alaska has opened up more possibilities in previ-ously unexplored or barely explored parts of Arctic Alaska,essentially launching a rethink of the potential for findingoil and gas in the Brookian sequence, the youngest of themajor petroleum bearing rock sequences.

In a presentation at the Alaska Geological Society’sannual technical conference in 2016, U.S. GeologicalSurvey geologist Dave Houseknecht, an established experton Arctic Alaska petroleum systems, presented compellingevidence for looking into this new play, which the agency isnow doing with a reassessment of the oil reserves in theNational Petroleum Reserve-Alaska.

Essentially, while rocks of middle Cretaceous age,including the Nanushuk formation, along the Beaufort Seacoast west of the central North Slope, have tended to playsecond fiddle to plays involving some of the older rocks ofthe region, the new discovery has revealed the possibility ofmajor undiscovered oil resources along a fairway extendingperhaps 100 miles west from that recent discovery, he sug-gested.

Houseknecht characterized the Armstrong/Repsol dis-covery, with up to 150 feet of net pay sandstone in a 650-foot oil column, as “pretty astounding.” l

continued from page 1

OIL SEARCH

Page 11: l PIPELINES & DOWNSTREAM New vessels arriveterminal marine services from Crowley Marine Corp. The transition results from a decision by Alyeska Pipeline Service Co., operator of the

Mike Day, SERVS manager of the marinetransition, said during a media tour of thethree newly arrived vessels.

Two tugs and response bargeThe vessels that are now in Valdez con-

sist of the Commander, a large, very pow-erful tug designed for escorting oil tankersto and from the terminal; the Elrington, asmaller general purpose tug; and theOSRB-1, a 400-foot oil spill responsebarge. Edison Chouest has built these ves-sels specifically for the Valdez terminalmarine services. In total the company isbuilding five new tugs, purpose designedfor escorting tankers; four smaller generalpurpose tugs; and four new barges, pur-pose built for oil spill response. The com-pany is also going to bring one of its exist-ing general purpose tugs to Valdez and istaking over an existing response barge,equipped to support nearshore spillresponse operations. Another existingbarge is being converted for lighteringuse.

Day said that two more of the new tugsare on their way and should arrive in abouta couple of weeks time. All of the vesselsare expected to arrive by the middle ofJune — everything is on schedule, he said.

The marine servicesAlyeska’s Ship Escort/Response Vessel

System, known as SERVS, manages themarine services, which provide tug assis-tance for tankers berthing at the ValdezMarine Terminal, while supporting oilspill prevention and contingency plans forthe terminal and the tanker operations.The marine services form a vital compo-nent of the transportation arrangementsfor shipping crude oil from Alaska.

Powerful escort tugs are tethered to thesterns of laden tankers departing theValdez terminal and crossing the morenearshore area of the neighboring PrinceWilliam Sound. In the event of a problema tug can stop a tanker from moving orotherwise assist the vessel. And two tugsalways escort tankers across PrinceWilliam Sound.

Andres Morales, SERVS director,explained that a powerful tug also standssentinel at the Hinchinbrook Entrance toPrince William Sound until a tanker issafely 70 miles out into the Gulf ofAlaska. And SERVS stages some tugs,response barges and spill response equip-ment throughout Prince William Sound, asa precaution against the possibility of atanker running into difficulties.Equipment staged includes a lighteringbarge, for offloading oil from a tanker, ifnecessary. SERVS also has more than 400local fishing vessels under contract, asvessels of opportunity to assist with oilskimming activities, should need arise.And response arrangements must be capa-ble of recovering up to 300,000 barrels ofoil in the first 72 hours of a response,Morales said.

Exercises and trainingTo date the new Commander escort tug

has participated in 28 tanker tether exer-cises, all of which were completed suc-cessfully, Day said. Six of the 10 escorttug captains have been involved in theseexercises. Two tanker towing exerciseshave also been successfully completed.The Elrington general purpose tug hasconducted four barge deployment exercis-es, towing the response barge, he said.

Day emphasized that the EdisonChouest crew members are very experi-enced mariners, with extensive towingexperience. However, since July of lastyear SERVS has been conducting crew

training and education specific to spillprevention and response activities in thePrince William Sound area, and to thecharacteristics and history of the region.Training includes the specific proceduresinvolved in escorting tankers using themarine terminal. An Edison Chouest tugbridge simulator allows crews to practicevarious tug operations.

Moreover, every Edison Chouest cap-tain has now spent at least a week inValdez on board a Crowley escort tug,experiencing tanker escort operations inrough winter weather, Day said.

Custom designsThe new escort tugs have been specifi-

cally designed for SERVS. They havetwin engines with a total power of 12,300horsepower, together with an azimuthaldrive system that can swivel around 360degrees, hence enabling a high maneuver-ability along with high power output. Thetug design involves a skeg, a form of keel,at the front, that can provide a resistive

force if the tug is turned away from thedirection of travel of the tanker that thetug is hitched to, Morales said.

The new tugs are more powerful thanthe existing tugs and are maneuverableover a wider range of speeds. Day alsocommented that the new escort tugs havewinch systems at both bow and stern, thusenabling the tugs to perform towing dutiesas well as acting as tanker escorts. Thewinches are of a constant tension designand can be adjusted to the required tensionlevel.

Response bargeThe new oil spill response barge,

specifically designed for the Valdez andPrince William Sound arena, has a long,flat deck, with boom reels at one end, toenable twin lengths of oil containmentboom to be inflated on deck, before beingslid out into the water. A fishing vesselattaches to the far end of the boom andpulls the boom through the water along-side the barge, to bend the boom into a Vshape, with the open end towards thebarge’s direction of travel. One of the twinlengths of boom can go alongside eachside of the barge. Then as a tug tows thebarge though an oil slick, oil will beencapsulated by the boom. The boom is ofa type that will continue to trap the oil,without spillage, while the barge is inmotion, Day said.

Cranes on either side of the barge willlower an oil skimmer into the apex of eachboom V, to remove oil from the water andtransfer it into tanks inside the barge. Oilcan subsequently be offloaded through apipe system towards the rear of the barge.

More efficient skimmersThe Crucial Inc. skimmers on the new

barges use rotating disks of oil attractingmaterial and are much more efficient thanthe old skimmers on the existing barges,

PETROLEUM NEWS • WEEK OF APRIL 8, 2018 11

continued from page 1

NEW VESSELS

In 2017 the company announced adiscovery of some 300 million barrelsof recoverable oil at Willow.

The company has facilities underconstruction at the Greater Mooses

Tooth 1 pad in NPR-A and plans firstoil at the end of the year. Permitting isunderway for the Greater MoosesTooth 2 pad.

—KRISTEN NELSON

continued from page 1

TINMIAQ WELL

see NEW VESSELS page 12

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Edison Chouest Offshore’s new Challenger tanker escort tug in Port Valdez.

The Elrington general purpose tug moored alongside the OSRB-1 response barge at the SERVS dock in Valdez.

The high-tech bridge of the Commander escort tug has electronic controls that enable thehuge vessel to be precisely maneuvered, together with display screens that show maps andother information.

Page 12: l PIPELINES & DOWNSTREAM New vessels arriveterminal marine services from Crowley Marine Corp. The transition results from a decision by Alyeska Pipeline Service Co., operator of the

Day said. The result will be a higher pro-portion of oil relative to water transferredfrom the skimmers into barge tanks, andhence a higher level of recovered oil stor-age efficiency. Moreover, the new bargeshave systems that, subject to appropriatepermitting, allow water to be decantedfrom under the oil in the tanks and dis-charged back in front of the boom at thesides of the vessel.

Each barge will have a radar systemand infrared cameras that can detect oil onwater, to help steer the barge through anoil slick. And the barge command moduleis perched high above one end of the deck,for maximum visibility.

The barges also have systems for run-ning salt water across their massive decks,to clear any buildup of snow in winterweather. And the vessels have beendesigned to have decks almost clear ofequipment and piping, with most equip-ment fitted internally in the hull, anarrangement that maximizes personnelsafety. The barges and tugs have standard-ized designs, for maximum efficiency.

By comparison, the existing barges are

converted transportation barges, as muchas 40 years old, with much equipment fit-ted on the decks and little standardizationbetween the vessels.

Given that some escort tugs and bargeswill need to be stationed at remote loca-tions for extended periods of time, thenew vessels have comfortable crew quar-ters, with fully equipped galleys andrefrigerated food storage.

Day emphasized that the takeover ofthe marine services by Edison Chouest isnot a reflection of the service thatCrowley has been providing. Crowley hasbeen conducting excellent, professionaloperations for many years, he said. l

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The company said its Alaska business is broken out asa requirement of the Prudhoe Bay Royalty Trust, whichis traded on the New York Stock Exchange. The BPXAnumbers, however, do not take into account the compa-ny’s costs for the trans-Alaska oil pipeline, the marineshipping business and the development of Alaska LNG.

“All in all, our entire Alaska regional businesses didmake a profit of $118 million in 2017, which is lowerthan the 20-F reports for the BPXA business by itself,”Weiss said. “We also had positive cash flow for the yearat about $619 million following two straight years oflosses.”

Alaska activitiesBP had four vessels supporting operations in Alaska

in 2017 at year end, the BP said in its Annual Report andForm 20-F 2017.

In a summary of company activities included in itsfiling the company said that for the past three years it has“successfully combatted decline at Prudhoe Bay throughwellwork and improved operating field efficiencies, withproduction being largely maintained.”

On the facilities side, BP said that at the nine fields itoperates in the Greater Prudhoe Bay area, 2017 infra-

structure renewal activities “included compressorreplacements, fire and gas system upgrades, safety sys-tem upgrades, pipeline renewal, facility piping upgradesand facility-siting projects.”

The company also owns significant interests in eightadditional North Slope producing fields operated by oth-ers, and an interest in the non-operating Libertyprospect.

BP Alaska LNG LLC executed a cooperation agree-ment with the Alaska Gasline Development Corp. inJanuary 2017 “detailing BPAL’s commitment to helpingthe state further develop Alaska LNG. This agreementhas been extended to 30 June 2018,” the company said.

Prudhoe, TAPS sharesBP holds a 26 percent working interest share and is

the operator at Prudhoe Bay. The company said thatsince production began at Prudhoe in 1977, 12.5 billionbarrels of oil have been recovered, compared to an orig-inal recovery estimate of 9.6 billion barrels. BP said anestimated 3 billion additional barrels produced so farhave been through “innovations in oilfield technology.”Prudhoe remains the third largest oil field in the UnitedStates on a proved reserved basis, the company said.

BP Pipelines (Alaska) Inc. owns a 49 percent interestin the trans-Alaska pipeline system, which transportscrude oil from the North Slope to Valdez.

Unocal, with a 1.37 percent ownership in TAPS, gave

notice in April 2012 that it intended to withdraw as anowner. “The remaining owners and Unocal have not yetreached agreement regarding the terms for the transfer ofUnocal’s interest in TAPS,” BP said.

BP said the parties involved in TAPS tariff matters atthe Federal Energy Regulatory Commission and theRegulatory Commission of Alaska reached an agreementto settle challenges involving TAPS interstate rates for2009-15 and to establish a mechanism for calculatinginterstate rate ceilings for TAPS from 2016 through2021, “as well as subsequent years unless otherwise ter-minated.”

BP said the agreement resolves all challenges at theRCA for intrastate rates from 2008 to the present andestablishes intrastate rate ceilings through 30 June 2019.

RCA approval was granted in January 2018 andFERC approval in February, BP said.

“Once all appeal periods have run, if the agreementsare approved, the parties will proceed with implement-ing the settlement agreements, including issuing tariffrefunds. Implementation will result in production taxand royalty payments to the State of Alaska while releas-ing some previously accrued liability provisions withinBP Alaska,” the company said.

—KRISTEN NELSON

projects, said many aboriginal communitiesview LNG as an opportunity to improvesocio-economic conditions in aboriginalcommunities through jobs and training.

“Too many people have been told thatFirst Nations oppose LNG development,”she said. “That’s not true.”

One example of what First Nationsmight be bypassing in the form of economicbenefits came in late March when theCanadian government provided C$1.6 bil-lion for a project to bring reliable power to16 remote communities in northwesternOntario in what is billed as Ontario’s largestindigenous-led infrastructure project.

Federal Minister of Indigenous ServicesJane Philpott said the hydro transmissionproject will bring dual benefits to 14,000people: reliable power supplies and thechance to showcase a First Nations-ledbusiness.

—GARY PARK

continued from page 1

LNG OPPONENTS

continued from page 1

BP FINANCIALS

continued from page 11

NEW VESSELS

The deck of the new OSRB-1 response barge is long enough to allow the inflation of com-plete twin lengths of boom, before sliding the boom into the water.

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Each barge will have a radarsystem and infrared cameras that

can detect oil on water, to helpsteer the barge through an oilslick. And the barge command

module is perched high above oneend of the deck, for maximum

visibility.