this month's mining news inside state wants gas say-so · commission got a frosty response...

State wants gas say-soBP objects to Prudhoe amendments; Heinze wants 1.25 bcf a day for AGIA bid

BY KRISTEN NELSONPetroleum News

he Alaska Oil and Gas Conservation

Commission got a frosty response

from Prudhoe Bay owners to a pro-

posal to amend the field’s oil pool

rules. What the commission wants is the

final say-so on a depletion plan before

the owners take any significant amount

of natural gas from Prudhoe, which is

what would happen if a gas pipeline from the

North Slope gets built.

Prudhoe Bay operator BP, speaking for the

working interest owners, said it operates the field

under commission pool rules and development

plans approved by the Alaska Department of

Natural Resources and does not see a need for an

amendment to the existing rule before a

significant gas offtake occurs.

The commission is considering requir-

ing a depletion plan and near-term strate-

gies to prepare for gas offtake — includ-

ing methods to increase the capture of oil

prior to gas offtake and to ensure that

facility and well downtime are mini-

mized. The commission also said it

would require detailed, periodic updates

on the progress of depletion planning

efforts.

What’s in a depletion plan?In response to a question from commission

Chair John Norman, commission reservoir engi-

Sands top enviro hit listInternational environmentalists, think tanks put Alberta oil sands in cross-hairs

BY GARY PARKFor Petroleum News

t the same time the Alberta oil sands are gain-

ing attention from global investors they are

also becoming a target for international envi-

ronmental groups troubled by the conse-

quences of developing what is called “bottom-of-

the-barrel” energy.

The latest to join the clamor against Public

Enemy No. 1 on Canada’s list of greenhouse gas

producers is the Natural Resources Defense

Council, one of the most influential environmental

groups in the United States, which is urging

Washington to pass laws discouraging the use of

subsidies and other incentives to exploit oil sands,

oil shale and liquid coal — all of them generating

disproportionate quantities of GHGs.

Compounding the uncertainty for the oil sands

are memorandums of understanding signed earlier

in June by California Gov. Arnold Schwarzenegger

and the governments of Ontario and British

Columbia, in which the two Canadian provinces

agreed to adopt California’s low carbon fuel stan-

dards for transportation fuels.

page9

North Slope oil production andTAPS: 30 years and going strong

Vol. 12, No. 25 • www.PetroleumNews.com Published weekly by Petroleum Newspapers of Alaska (PNA) Week of June 24, 2007 • $1.50

● N A T U R A L G A S

● S A F E T Y & E N V I R O N M E N T

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

B R E A K I N G N E W S

4 Danny turns peacemaker: Newfoundland premier pays

tribute to industry he scorned, hoping to revive abandoned project

7 EPA issues Beaufort permits: Shell gets air quality permits foroffshore Alaska exploration program

13 Trusts, juniors in a bind: Pending final legislation on taxstatus, trusts struggling to attract investment

This month's Mining News inside

A

see SANDS page 19

Prank involving Reggie’s‘remains’ inflames GO-Expoorganizers; Ehm named presi-dent of Fowler Oil & Gas(Alaska), moving ahead withcoalbed methane in Mat-Su

IT WAS THE OIL AND GAS

SHOW of the year in Canada.

More than 600 exhibitors and 21,000

visitors from 54 countries registered for

the three-day Gas and Oil Exposition

2007 (GO-Expo) in Calgary.

Fertile ground for deal-making and

apparently for pranksters.

S.K. Wolff and Florian Osenberg, aka

Andy Bichlbaum and Mike Bonanno,

aka (and apparently these are their real

names) Jacques Servin and Igor Vamos,

somehow sold themselves as genuine to organizers.

see INSIDER page 18

‘Gorilla’ project unveiledU.S. oil refinery would be first in three decades; cost ranges from $8-to $10B

BY RAY TYSONFor Petroleum News

fter months of speculating among farmers

and community leaders near Elk Point, S.D.,

the so-called “Gorilla” project has finally

been unmasked: a huge 400,000 barrel per

day “green” oil refinery and related energy facili-

ties that could take a decade to fully develop and

cost upward of $10 billion.

Gorilla, so named because of the project’s

immense size, also could be the first oil refinery to

be constructed in the United States in more than 30

years.

So secret was the project that South Dakota

Gov. Mike Rounds kept Gorilla under wraps for

competitive reasons until its formal announcement

on June 13 by project sponsor Hyperion

Resources, a little known private oil and gas com-

pany based in Dallas, Texas.

“This is not your grandfather’s oil refinery,”

Rounds said in a prepared statement. “This is a

major technological breakthrough that will set an

example for all future energy development cen-

ters.”

Hyperion project executive J.L. “Corky” Frank,

former president of Marathon Ashland Petroleum,

said Hyperion intends to build “the most environ-

mentally sound energy center in the United

States.”

“Gas prices are the highest in U.S. history, and

the U.S. refining infrastructure hasn’t seen a sig-

nificant change since 1976,” he said. “The fact is

refining capacity in this country has not kept pace

A

see GORILLA page 8

TAOGCC Chair JohnNorman

see GAS page 14

contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska

2 PETROLEUM NEWS • WEEK OF JUNE 24, 2007

ON THE COVERState wants gas say-so

BP objects to Prudhoe amendments; Heinzewants 1.25 bcf a day for AGIA bid

Sands top enviro hit list

International environmentalists, think tanks put Alberta oil sands in cross-hairs

‘Gorilla’ project unveiled

U.S. oil refinery would be first in three decades; cost ranges from $8-to $10B

1 Prank involving Reggie’s “remains” inflames Go-Expo organizers

OIL PATCH INSIDER

18 Ehm named president of Fowler Oil & Gas (Alaska),moving ahead with coalbed methane in Mat-Su

3 BP’s statistical review shows slow down in energy growth

Eni’s review shows 1.9 percent growth in world oil reserves last year, while natural gas reserves hold steady; Russia leads in gasreserves; Qatar world’s leading LNG exporter

EXPLORATION & PRODUCTION

7 Shell gets EPA air permits for Beaufort

17 Alberta's oil sands refuse to wilt

Latest news involves Kuwait Oil’s scouting trip, Western Oil Sands takeover rumors, Teck Cominco’s oil sands output projections

FINANCE & ECONOMY6 CH2M Hill agrees to acquire VECO

13 Canada’s trusts, juniors in a bind

Pending final legislation on their tax status,Canada’s income trusts struggling to attractinvestment ; fallout impacting smaller firms

GOVERNMENT4 Danny turns peacemaker

Newfoundland premier pays tributeto industry he scorned, hopingformal talks will soon restart on abandoned project

6 Alberta premier promises royalty balance

Wants fair share for residents without overturning internationally competitive regime; will also recognize shifting priorities

8 Murphy named new BLM resources chief for Alaska

17 Kohring resigns to focus on defense

LAND & LEASING4 Good news for Bristol Bay leasing

PIPELINES & DOWNSTREAM9 TAPS: 30 years and going strong

15 Lawsuits allege ‘hot fuel’ is costing motorists

BY KRISTEN NELSONPetroleum News

hile economic growth remained

strong last year, high energy prices

slowed the increase in global ener-

gy consumption, BP said in its

Statistical Review of World Energy,

released in mid-June.

“Last year showed markets at work.

Primary energy consumption growth has

decelerated — particularly for fuels which

have seen the highest increase in price,”

said BP’s chief economist-designate,

Christof Rühl.

Eni concurred, attributing a drop of

more than 400,000 barrels per day of con-

sumption in industrialized countries to

“high crude oil prices and very mild

weather in the last months of the year.”

In a release accompanying the review,

its 56th, BP said this is the second year in

a row that world energy growth slowed.

BP’s review said world primary energy

consumption grew 2.4 percent in 2006,

just above the 10-year average, but down

from 3.2 percent growth in 2005, with

growth slowing in all fuels except nuclear.

Eni’s seventh World Oil and Gas

Review, released June 20, noted that the

worldwide oil production growth rate, up

700,000 barrels per day, was the lowest

growth rate since 2002.

“Production in non-OPEC areas did

not increase as expected,” Eni said,

“mostly because of technical-geological

and environmental factors.” While pro-

duction from Organization of Petroleum

Exporting Countries increased due to an

increase in natural gas liquids, OPEC’s

crude oil production was unchanged, Eni

said.

Crude consumption grew only 0.7 percent

BP said North American energy con-

sumption growth fell by 0.5 percent, while

Asia Pacific had the highest rate of

growth, up 4.9 percent. China, which

“continued to account for the majority of

global energy consumption growth,” had

an increase in energy consumption last

year of 8.4 percent.

While consumption in energy import-

ing countries slowed, there was “contin-

ued strong consumption growth among

energy exporters.”

The continuation of high energy prices

produced “slower consumption growth

amongst the main energy importers,” BP

said June 12, particularly in the United

States, where primary energy consump-

tion fell by 1 percent compared to 2005,

“despite economic growth.”

The growth in crude oil consumption

was only 0.7 percent last year, “the weak-

est growth since 2001 and half the 10-year

average,” the review said, with crude oil

consumption growing at less than 650,000

barrels per day to reach 83.7 million bpd.

Chinese consumption, growing at 6.7 per-

cent, was close to the 10-year average,

while oil exporters — the Middle East and

the Former Soviet Union — had above-

average growth in consumption.

Consumption declined by some

400,000 bpd in OECD countries, the

largest decline in Organization for

Economic Cooperation and Development

consumption since 1983, the review said.

Thirty developed-world capitalist coun-

tries are OECD members.

There was a new round of production

cuts in late 2006 by Organization of

Petroleum Exporting Countries, the

review said, with OPEC output rising by

130,000 bpd for the year. Non-OPEC pro-

duction rose by almost 300,000 bpd. The

review said this 2006 rise was stronger

than in 2005, but less than half the 10-year

average.

Natural gas consumption roseWorld consumption of natural gas rose

by 2.5 percent in 2006, a rate which the

review said was below the 3.4 percent

2005 growth level but close to the 10-year

average, BP said. Consumption in the

United States and the European Union

declined, but was offset by growth in

Russia and China.

BP said U.S. natural gas consumption

declined for the second year in a row, even

though there was an increase in gas used

for power generation. The drop in EU

consumption was attributed to high prices

and warmer-than-normal temperatures.

BP said the increase in Russian gas con-

sumption accounted for nearly 40 percent

of the global increase, while Chinese con-

sumption grew by more than 20 percent.

“Gas production was up more strongly

than it has been for many years, by some

3 percent, led by Russia,” BP said.

Eni said Qatar, with a 15 percent share

of global liquefied natural gas exports,

overtook Malaysia and Indonesia in 2006

as the world’s leading LNG exporter.

“Qatar is investing heavily in LNG and its

global market share is set to increase fur-

ther,” Eni said.

Natural gas reserves, up 0.6 percent,

remained essentially stable in 2006, Eni

said, while oil reserves, up 1.9 percent,

increased slightly.

Russia confirmed its leading role in

natural gas, with 26.3 percent of global

reserves, Eni said.

The BP Statistical Review of World

Energy is available online at

www.bp.com/statisticalreview; Eni’s

World Oil and Gas Review is available at

www.eni.it. ●

PETROLEUM NEWS • WEEK OF JUNE 24, 2007 3

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

BP’s statistical review shows slowdown in energy growthEni’s review shows 1.9 percent growth in world oil reserves last year, while natural gasreserves hold steady; Russia leads in gas reserves; Qatar world’ s leading LNG exporter

Qatar, with a 15 percent share ofglobal liquefied natural gas

exports, overtook Malaysia andIndonesia in 2006 as the world’sleading LNG exporter. “Qatar isinvesting heavily in LNG and its

global market share is set toincrease further,” Eni said.

W


move to establish “peace in our

times” is coming from the unlikeliest

source — Danny Williams, premier

of the Canadian province of

Newfoundland.

Acknowledging the contributions of

companies who make Newfoundland’s off-

shore oil industry “tick” — the same com-

panies whose leases he has threatened to

seize unless they started developing their

finds by a set deadline and accused of nego-

tiating in bad faith — Williams has under-

gone a change of heart.

Speaking to the annual conference of the

Newfoundland Ocean Industries

Association or NOIA

— relabeled “Annoy-

a” by Williams last

year — he said efforts

are under way to

revive the Hebron-

Ben Nevis project, 15

months after negotia-

tions on fiscal and

regulatory terms col-

lapsed.

It was a more con-

ciliatory Williams

who took to the podium on June 19.

“I want to say, with all sincerity, that I

am very, very, very optimistic about the

future of our province’s oil and gas industry

and I do appreciate the contributions of the

companies who make the industry tick,” he

said.

“And though there have been issues of

concern on both sides, there are ways to

work through them and I believe that we are

all sincerely committed to do just that.”

Williams optimistic negotiations will resume

As proof of the thaw in chilly relations,

he said there is a “true cause for optimism”

that formal negotiations on Hebron-Ben

Nevis can resume now that the two sides

have exchanged information following a

“brief but necessary hiatus.

“The companies are sharing concerns

over costs, which are increasing around the

world,” Williams said.

“They are also updating us on possible

scheduling opportunities … and at the same

time we are continuing to share our

thoughts on such issues and equity and roy-

alties.”

He did not make specific reference to

recent statements he and Natural Resources

Minister Kathy Dunderdale have made,

demanding an equity stake of “more than 5

percent” in all future offshore ventures.

Chevron: no formal negotiationsThe immediate response from the

Hebron-Ben Nevis consortium was meas-

ured.

Dave Pommer, a spokesman for the

operator, Chevron Canada Resources, told

Petroleum News that “no formal negotia-

tions are taking place” and would not spec-

ulate on what might be in store.

However, he said the “lines of commu-

nication are open,” adding “we would like

to proceed with the project at some future

date.”

The partners are Chevron Canada 28

percent, ExxonMobil 37.9 percent, Petro-

Canada 23.9 percent and Norsk Hydro 10.2

percent.

Petro-Canada Executive Vice President

Peter Kallos told a Calgary conference June

18 that the consortium is “in the middle of

restarting discussions,” although it is too

early to say what impact the province’s new

energy plan might have on the outcome.

But “we’re hoping Hebron will go for-

ward,” he said.

Hebron-Ben Nevis pegged at C$11BWhen negotiations broke down last

spring and the project team was disbanded,

Hebron-Ben Nevis was a possible C$11 bil-

lion development to bring 100,000 barrels

per day on stream about 2012 by tapping a

731 million barrel reservoir.

At the time, the Newfoundland govern-

ment made an 11th-hour demand for a 4.9

percent ownership position and has since

said that, when a new energy plan is

released this summer, it will raise that bar

above 5 percent.

Dunderdale even suggested it would be

in the best interests of the Hebron-Ben

Nevis partners to return to bargaining

before the new energy plan is unveiled.

For now, the biggest development is the

change of attitude by Williams which NOIA

President Ted Howell said signaled a return

of “optimism and confidence” to the indus-

try.

He said Williams shares some ideas

with NOIA “that will go a long way

towards achieving” the conference goal

of “building a strong, competitive indus-

try” — an objective that industry leaders

had warned was in danger of going into

reverse following the collapse of Hebron-

Ben Nevis negotiations. ●


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● G O V E R N M E N T

Danny turns peacemakerNewfoundland premier pays tribute to industry he scorned,hoping formal talks will soon restart on abandoned project

NewfoundlandPremier DannyWilliams

AWhen negotiations broke downlast spring and the project team

was disbanded, Hebron-Ben Neviswas a possible C$11 billion

development to bring 100,000barrels per day on stream about2012 by tapping a 731 million

barrel reservoir.

He did not make specific referenceto recent statements he and

Natural Resources Minister KathyDunderdale have made,

demanding an equity stake of"more than 5 percent" in all

future offshore ventures.

BY ROSE RAGSDALEFor Petroleum News

hough a Democratic congressman

has succeeded in getting language

calling for more study of oil and gas

development in Bristol Bay into an

energy bill in Congress, leasing propo-

nents are breathing sighs of relief. They

say the amendment offered by Rep.

Maurice Hinchey, D-N.Y., is a “positive

step toward responsible development of

Alaska’s oil and gas resources.”

In a memo to members June 12, the

Alaska Support Industry Alliance focused

on what Hinchey “did not” do rather than

what he actually did June 7 in winning

approval of his amendment.

“Last Thursday, during the House

Appropriations Committee markup for

the Interior appropriations bill, (Hinchey)

did not offer an amendment to reinstate

the North Aleutian (basin) moratorium.

Rather, he offered report language asking

the Minerals Management Service to per-

form environmental and economic stud-

ies on the impacts of offshore drilling and

oil spills, the Alliance said.

Whether the Hinchey amendment is

good news or bad news is a matter of per-

ception, says Paul Laird, the Alliance’s

executive director.

“I think the perception is that an alter-

native to what actually happened is a re-

imposition of the moratorium on oil and

gas exploration and development in

Bristol Bay,” Laird said. “This was a bet-

ter outcome than that.”

Hinchey, along with U.S. Reps. Jay

Inslee, D-Wash., and Wayne T. Gilchrest,

R-Md., are sponsors of the Bristol Bay

Protection Act, which would reinstate the

moratorium on oil and gas drilling in the

North Aleutian Basin. But so far, the trio

has made little headway in gaining sup-

port for the measure.

Alliance members joined others across

the nation earlier by expressing their con-

cern to the congressmen about reimpos-

ing a moratorium on leasing in the off-

shore area. President Bush lifted the

moratorium in January, and the MMS has

included a lease sale in Bristol Bay in its

Five-Year Plan.

“At this point, there are no apparent

efforts under way to reinstate the morato-

rium through the appropriations process,”

the Alliance said June 12.

Several energy bills in CongressSeveral energy bills, meanwhile, are

winding their way

through both houses

of Congress.

The U.S. Senate

spent most of the

weeks of June 11

and June 18 debat-

ing House

Resolution 6, a

package of bills on

renewable fuels, gas

mileage, price-

gouging and energy

efficiency.

H. R. 2641, the report accompanying

the House Interior Appropriations bill for

fiscal 2008, is the legislation that includes

Hinchey’s call for multiple scientific,

environmental and meteorological stud-

ies of the impact of oil and gas drilling on

Bristol Bay.

The language requires extensive stud-

ies and coordination with the U.S. Fish

and Wildlife Service and the National

Marine Fisheries Service to study the

impact drilling would have on whales and

fisheries in Bristol Bay. Hinchey’s lan-

guage also directs the Government

Accountability Office to conduct an eco-

nomic analysis of how much drilling in

Bristol Bay would cost American taxpay-

ers in lost user fee payments from energy

companies under provisions of a separate

law.

Calling the studies “absolutely critical

before Congress even thinks about allow-

ing the Department of Interior to lease

away Bristol Bay,” Hinchey said Bristol

Bay’s world class fishery brings in $2.1

billion a year, compared to the MMS’

estimates of $7.5 billion in oil revenue

that would come from the region over a

span of 25-40 years.

“Additionally, we need to get a better

grasp of the impact oil spills would have

on Bristol Bay, which is located in an area

that experiences some of the worst weath-

er in the country,” he said in a statement

June 7.

“When the Interior Department is say-

ing that a spill is inevitable, that definite-

ly warrants a thorough examination,” he

added. ●


● L A N D & L E A S I N G

Good news for Bristol Bay leasingPro-drilling forces see Congressman’s call for more studies as move toward responsible oil and gas development in sensitive area

REP. MAURICEHINCHEY, D-N.Y.

TWhether the Hinchey amendment

is good news or bad news is amatter of perception, says PaulLaird, the Alliance’s executive

director.


● G O V E R N M E N T

Alberta premier promises royalty balanceWants fair share for residents without overturning internationally competitive regime; will also recognize shifting priorities


lberta Premier Ed Stelmach offered

some soothing words to one of the

year’s largest industry gatherings

June 19: His government will keep

its balance on the razor-thin edge

between ensuring Albertans get a fair

return from their oil and gas resources

without endangering the province’s com-

petitiveness.

Making his first major appearance

before industry decision-makers since

getting elected six months ago, Stelmach

pledged to “ensure Albertans continue to

receive a fair share from (resource devel-

opment) … and preserve an internation-

ally competitive oil and gas system,

which is critical to our continued pros-

perity.”

But Stelmach would not “speculate”

on whether the current royalty review

will recommend royalty adjustments.

He said the government will “recog-

nize changes in the industry, such as the

shift to unconventional resources,

increasing cost pressures and the impact

of a much stronger Canadian dollar.”

That echoed remarks made in May by

Finance Minister Lyle Oberg, who said

the changed climate this year, including a

dramatic downturn in drilling, could

undermine provincial revenues if royal-

ties and taxes were increased.

Pierre Alvarez, president of the

Canadian Association of Petroleum

Producers, said Stelmach provided a

“high-level message about competitive-

ness … about governments not playing

with the marketplace.”

Stelmach told reporters that his gov-

ernment’s objective is to find a balance

between Albertans, who own their natu-

ral resources, and “the security and cer-

tainty of an investment climate that is

investing millions of dollars in a very

volatile marketplace.”

Industry groups make final caseIn the concluding stages of the royal-

ty review, leading industry groups —

CAPP, Small Explorers and Producers

Association of Canada and the Petroleum

Services Association of Canada — made

a final case against interfering with what

they see as a fair and competitive royalty

regime.

A joint submission by CAPP and

SEPAC said the pressure for royalty

increases has neglected to take into

account the escalating costs of drilling

that have outpaced the rise in commodity

prices.

“It is important to look at both costs

and prices together as it is revenues less

costs that drive economic development,”

the report said.

It also noted that a change last year in

Alberta hiked royalties by C$300 million

a year, significantly lowering Alberta in

“the international ranking of competi-

tiveness.”

Despite the heavy focus on the oil

sands, conventional oil and gas invest-

ments across Canada are forecast to

reach C$28 billion this year, compared

with C$17 billion for the oil sands, the

report noted.

While the conventional sector pro-

vides greater benefits and opportunities

to the economies of Alberta and Canada,

those returns become “increasingly chal-

lenging to maintain as the basin matures

with pools that are smaller, more costly,

less productive and more remote.”

New gas development at C$7-$8 per thousand cubic feet

By combining costs and commodity

prices, new spending on natural gas and

conventional oil are now on the econom-

ic margin, the submission said, estimat-

ing that at current cost levels the thresh-

old for new gas development in Alberta

is C$7-$8 per thousand cubic feet.

“This year’s current and significant

slowdown in the natural gas industry

clearly demonstrates this principle in

action,” CAPP and SEPAC said — a sen-

timent echoed by PSAC, which warned

that even without a

hike in royalties, the

drilling and service

sector could see the

workforce of about

100,000 cut by 10

percent.

“The more the

government collects

in royalties, the less

that remains for

field activity,”

PSAC told the

review panel.

The CAPP-

SEPAC report said

the latest statistics

show the average

output from con-

ventional gas wells

has declined by a

factor of three over

the past 12 years,

while the total number of gas wells

drilled has risen four-fold.

For conventional oil, total production

at the end of 2005 was 15 billion barrels,

or 75 percent of the ultimate potential,

but productivity is in sharp decline.

Alberta has more than 20,000 oil

wells pumping an average of just six bar-

rels per day, compared with 600 bpd in

Alaska and 6,000 bpd in Norway.

Conventional oil royalties range up to

40 percent of production and gas royal-

ties are up to 35 percent.

“At these maximum rates, the

absolute royalties collected continue to

rise at higher prices,” the study said,

arguing that the essential part of the roy-

alty regime in a maturing basin where

well productivity continues to fall is an

adjustment for lower productivity to

encourage continued production as long

as possible from fields near the end of

their economic life.

The joint report said the challenge

today is “to ensure the royalty structure

maximizes delivery (from older wells)

through support for both continued

extraction from existing wells and incre-

mental investment in new low-rate

wells.” ●

A

Alberta Premier EdStelmach toldreporters that hisgovernment’s objective is to finda balance betweenAlbertans, who owntheir naturalresources, and “thesecurity and certain-ty of an investmentclimate that isinvesting millions ofdollars in a veryvolatile market-place.”

Alberta has more than 20,000 oilwells pumping an average of just

six barrels per day, compared with600 bpd in Alaska and 6,000 bpd

in Norway.

FINANCE & ECONOMYCH2M Hill agrees to acquire VECO

Denver-based CH2M Hill said June 16 it has agreed to acquire VECO Corp.,

the oil field services company whose founder pleaded guilty to federal charges of

bribing Alaska legislators.

CH2M Hill, a management, design and construction firm, agreed to acquire

core VECO assets and staff valued at $365 million, CH2M Hill spokesman John

Corsi said.

Details of the agreement were not released, but the companies said the deal

valued VECO at $463 million, which includes assets that will not be part of the

proposed acquisition.

In a written statement, CH2M Hill Chairman and CEO Ralph Peterson said the

combined companies would be able to offer a unique range of services.

Meanwhile VECO Chairwoman Tammy Kerrigan praised CH2M Hill’s financial

and global industry position.

The companies had signed a letter of intent for exclusive negotiations May 15.

They said they expected to finalize details of the acquisition, along with a tran-

sition and integration plan, by the end of August.

VECO’s former executives have been embroiled in a corruption scandal impli-

cating Alaska lawmakers.

Founder and former CEO Bill Allen pleaded guilty in May to bribing state law-

makers in exchange for votes favoring industry on oil legislation. Rick Smith, for-

mer vice president of community and government affairs, also pleaded guilty to

federal charges. Both resigned.

The scandal was not a concern for CH2M Hill, Corsi said.

“We feel that issue is an isolated issue focused on a few folks at the top,” he

said. CH2M Hill was attracted to VECO’s reputation in the oil and gas industry,

its focus on client services, its skilled work force and location, Corsi said.

CH2M Hill has 19,000 employees worldwide and $4.5 billion in annual rev-

enue.

VECO has more than 4,000 employees and has said annual revenue in its best

years was $1 billion.

—THE ASSOCIATED PRESS


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Shell gets EPA airpermits for Beaufort

BY ALAN BAILEYPetroleum News

he U.S. Environmental Protection

Agency has issued air quality control

minor permits for Shell’s planned

drilling program in the Beaufort Sea.

There are separate permits for operations

by the Kulluk drilling platform and for the

Frontier Discoverer drilling vessel. The

permits also encompass a support fleet that

includes 18 other vessels.

Initially Shell plans to use the Beaufort

Sea fleet for exploratory drilling at its

Sivulliq prospect, formerly Hammerhead,

on the western side of Camden Bay in the

summer of 2007.

During the public review period for the

draft permits, EPA received comments both

in favor of and against issuing the permits.

“After thorough review and careful con-

sideration of the comments requesting that

the permits be denied, EPA has decided to

issue the permits allowing Shell to conduct

exploratory drilling in the Beaufort Sea,”

EPA said. “… The final permits that EPA is

issuing for Shell are designed to meet the

requirements of the Clean Air Act and to

protect the members and natural resources

of the Alaska Native villages.”

In its permit applications Shell provided

data supporting limits on total NOX and

sulfur dioxide limits below the levels that

would trigger what EPA terms a “preven-

tion of significant deterioration.” By volun-

tarily keeping emissions below the preven-

tion of significant deterioration level Shell

may not be able to complete some drilling

operations, especially under heavy ice con-

ditions, EPA said in response to one com-

ment on draft versions of the permits.

Particulate concernsIn response to the draft permits, the

Alaska Department of Environmental

Conservation had expressed concerns

about the particulate emissions at “worst-

case operating conditions.” EPA deter-

mined that the particulate issue relates to

the Kulluk. The agency now requires that

Shell test a Kulluk engine at all required

load conditions and then use the resulting

test data to ensure compliance with partic-

ulate limits during Beaufort operations.

ADEC also questioned possible uncer-

tainties in the calculated NOX emissions.

However, EPA upheld those estimates.

Some organizations questioned the use

in the permits of baseline air quality data

gathered in 1999 in the area of the onshore

Badami oil field.

“Collecting site specific air quality data

is unnecessary for Shell’s proposed proj-

ect,” EPA responded. “The ADEC and EPA

determined that the air quality data at

Badami met EPA’s quality assurance

requirements and are adequately represen-

tative of background air quality levels in

the impact area of the proposed sources.”

And in response to several questions

regarding the adequacy of the emissions

estimates for the Shell operations, EPA said

that the modeling of the anticipated emis-

sions was sufficient to assess the maximum

emissions.

Community impacts?EPA rejected a claim by the North Slope

Borough that, by staying under the preven-

tion of significant deterioration limit, Shell

was avoiding an assessment of the potential

impact of air pollution on subsistence

wildlife resources. The agency also

responded to concerns from the North

Slope Borough and the village of Nuiqsut

about potential impacts of air emissions on

the health of North Slope residents, by say-

ing that permitted emissions will meet the

requirements of the Clean Air Act.

And some commenters questioned the

issuing of separate permits for the two

drilling vessels, rather than aggregating

the air quality requirements into a single

permit — EPA has taken a view that the

drillship operations can be permitted sep-

arately, provided that drilling operations

are separated by a distance of at least 500

meters.

People who commented on the draft

permits may petition the EPA decision

before July 16, at which time the permits

will become effective. ●

T

with demand. We believe there’s a grow-

ing belief among people in this country

that North American oil should stay in

North America.”

Elk Point, S.D., on short listElk Point, a farming community locat-

ed in Union County, S.D., is said to be on

a short list of areas being considered for

the Hyperion energy center. Other possi-

ble locations were not disclosed.

“The Union County site is sufficiently

attractive that we’ve taken several

options on land there, and we may take a

few more,” Frank said. The company

said it hoped to decide on a location

within the next 12 months.

Concerned local resident Kim Quam,

who posted a Web site (www.elkpointgo-

rilla.com) to track the project and pro-

vide updated information, said Gorilla

representatives are trying to acquire

options on mainly farm land in an area

that encompasses 20 square miles.

Approximately 2,000 acres would be

covered by the facility and the remainder

would be considered a “buffer zone,” he

added.

“The project had been shrouded in

mystery and there was very little actually

known about the project,” Quam says on

his Web site. “Although the name

Hyperion and the nature of the project

are now known, there are still many

questions that remain unanswered.”

In announcing the refinery plan,

Hyperion left out details including finan-

cial sources for the estimated $8 billion

to $10 billion refinery project.

Bloggers weighing in on Quam’s Elk

Point Gorilla Web site appear to be divid-

ed over having a large refinery in their

community, with the pros often citing the

importance of new jobs and the cons

largely worried about pollution and foul-

smelling air from the refinery.

“How about a little regard for the peo-

ple who own land near the prospective

refinery,” one blogger commented.

“While the people within the optioned

land will get paid, the people nearby will

see their land values plummet. So much

for caring about your neighbors.”

Oil refinery would be central component

The central component of Hyperion’s

energy center would be the oil refinery,

which Hyperion said would process

roughly 400,000 barrels of oil per day

“into clean, green transportation fuels,”

including ultra-low sulfur gasoline and

ultra-low sulfur diesel.

“The refinery will use only the best

available environmental technologies

and will go the extra mile to protect the

environment, particularly air and water

quality,” the company promised.

Construction of the refinery would

employ an average of 4,500 workers over

a four-year period, with a peak of about

10,000. When operational, the refinery

would provide about 1,800 full-time,

“good-paying jobs, complete with bene-

fits,” the company said, adding that the

refinery would process heavy crude oil

from Canada and ship it to markets in the

United States.

Additionally, the company said the

integrated refinery would incorporate a

power plant with the latest technology,

consuming petroleum coke byproduct

from the refinery to supply hydrogen,

steam and electricity to the refinery

itself.

Leveraging integrated gasification

combined cycle technology, the state-of-

the art in power production, emissions

would be substantially lower than con-

ventional power generation plants, Frank

said.

In addition to Hyperion’s refinery, the

energy center is being designed to incor-

porate a broad range of other facilities,

depending on the markets and what’s

most appropriate for the region.

Hyperion said it would demand that any

other companies siting facilities at the

center must also meet the company’s

highest standards for environmental pro-

tection.

“Our proposal addresses all those

issues and does it in a way that has never

been done in this country,” Frank said.

“Hyperion is ready to step in to fill this

need for additional refining capacity.”

The Gorilla project, near the Missouri

and Big Sioux rivers, would also use 12

million gallons of river water per day for

cooling purposes, Union County com-

missioners have been told.

No third-party pipeline in immediate area

Though Hyperion says the company

plans to use Canadian oil for feedstock,

it’s unclear just how Hyperion would

actually tap into the resource, with no

third-party pipeline system in the imme-

diate area of Elk Point to transport the

product to market. Reportedly, a

Hyperion representative said the project

is of sufficient size to build and operate

its own pipeline.

He also said that if needed, undis-

closed pipeline operators told Hyperion

that a bullet line could be constructed

from Alberta, Canada, to the Gorilla

refinery.

However, Hyperion spokesman Eric

Williams reportedly said that neither

Marathon nor TransCanada has any

involvement in the refinery plan. But he

said that in addition to Frank, the

Hyperion refinery team includes two

other former Marathon executives: Carl

Clay, a former president of Marathon

Pipe Line Co.; and Dick White, a former

senior vice president of marketing for

Marathon.

Hyperion describes itself as an oil and

gas company that has “made its mark by

achieving maximum value from chal-

lenging properties including mature ener-

gy fields.” The company is said to be

headed by Albert Huddleston, an oil

patch veteran. ●


continued from page 1

GORILLA“This is not your grandfather’s oil

refinery. This is a majortechnological breakthrough thatwill set an example for all futureenergy development centers.” —South Dakota Gov. Mike Rounds

GOVERNMENTMurphy namednew BLMresources chief

Tom Lonnie, director of the Bureau

of Land Management for Alaska, said

June 13 that Ted Murphy has been

selected as the deputy state director for

the Division of Resources, which over-

sees minerals and resource programs at

BLM’s Alaska headquarters in

Anchorage. He will report to the

agency’s Anchorage office in late

August and be responsible for land use

planning, solid and fluid minerals,

wildlife and fisheries, subsistence,

recreation, cultural resources, paleon-

tology, environmental coordination and

hazardous materials programs on 83.5

million acres of BLM-managed land in

the state.

“Ted has an outstanding record of

demonstrated accomplishments at all

levels of the BLM organization,” said

Lonnie. “He has a full appreciation of

the agency’s multiple-use mission,

developed through years of experience

as a leader and manager, most recently

in our Washington, D.C., office. He

will bring valuable expertise to our

BLM Alaska team.”

Since 2004, Murphy has served as

the chief of the Division of Solid

Minerals in BLM’s Washington, D.C.,

office, overseeing policy development

for energy and nonenergy solid miner-

al leasing and development, as well as

mining law programs. During his

tenure he coordinated the implementa-

tion of the 2005 Energy Policy Act,

with a focus on oil shale and coal pro-

grams.

Prior to his time in D.C., Murphy

spent 23 years in Wyoming where he

began his career as a mining engineer.

He was also an assistant field manager

for minerals and lands in the Rock

Springs field office as well as acting

field manager.

Murphy received his bachelor’s

degree in Mining Engineering in 1981

from the Montana College of Mineral

Science and Technology, in Butte,

Mont.

—PETROLEUM NEWS


TAPS: 30 years and going strongHostler gives upbeat assessment of current status of trans-Alaska oil pipeline, Alyeska’s ability to deal with evolving challenges

BY ALAN BAILEYPetroleum News

t’s been 30 years since the first oil

entered the trans-Alaska oil pipeline

system on June 20, 1977. And, with

15 billion barrels of North Slope

crude already under its belt, the pipeline

is entering a new era. Alyeska Pipeline

Service Co. President and CEO Kevin

Hostler talked to Petroleum News about

how the pipeline is faring and how his

company plans to address the challenges

that the pipeline will face in the future.

Alyeska operates the trans-Alaska oil

pipeline on behalf of the pipeline owners,

which include BP, ConocoPhillips,

ExxonMobil, Chevron and Koch Alaska

Pipeline.

In the 1970s, as the world’s largest

ever privately funded construction proj-

ect, the trans-Alaska pipeline system

proved to be a massive engineering

achievement. In today’s dollars, about

$30 billion dollars have been put into the

system, including continuing investment

and the initial $24 billion that the system

cost, Hostler said.

Oil throughput peaked at 2.1 million

barrels per day in the 1980s. But with the

subsequent decline in production from

the Kuparuk and Prudhoe Bay fields,

throughput has dropped to about 800,000

barrels per day. At its peak, the oil pass-

ing through the pipeline constituted a

major component of the total U.S. and

West Coast oil supply.

“We’re still 16 percent of the domestic

production. … We’re still 7 to 8 percent

of the total U.S. demand,” Hostler said.

“We’re still a significant proportion of the

West Coast supply.”

In good shapeDespite its 30-year age the pipeline is

in pretty good shape, Hostler said. A cor-

rosion-related oil spill has never occurred

in the trans-Alaska oil pipeline system, he

said.

And, because dry oil passes through

the pipeline, internal corrosion isn’t as

much of a concern as external corrosion.

“If you look at our history over the

past 30 years, as we do our inline surveil-

lance and our inline pigging runs … what

we always have seen and continue to look

for is the impact of external corrosion,

primarily as a result of water getting

underneath the insulation,” Hostler said.

Alyeska’s corrosion program began in

the late 1980s and resulted in the replace-

ment of about nine miles of corroded

pipeline in the Atigun floodplain in the

early 1990s. The Atigun pipeline replace-

ment triggered an ongoing “pig and dig”

program, Hostler said.

“We would run inline pigs,”

Hostler said. “We would look for these

anomalies. Where we saw anomalies we

would go in and dig it up and repair if

necessary.”

Alyeska requires pipeline repair or

replacement in any area where surveil-

lance discovers a corrosion anomaly

impacting more than 40 percent of the

pipeline wall, Hostler said. That standard

applies to the whole length of the

pipeline, despite the fact that only about

one-third of the pipeline lies in “high-

consequence” areas where the U.S.

Department of Transportation would

mandate that 40 percent limit, Hostler

said. In less critical areas DOT mandates

repair or replacement when corrosion

anomalies impact 80 percent of the

pipeline wall thickness, he said.

Alyeska does worry that the aging

infrastructure issues that have surfaced on

the North Slope might also apply to the

pump stations. So, the company is run-

ning a continuous monitoring program in

the pump stations, using inline investiga-

tion tools. For example, an analysis of

monitoring data collected since the sum-

mer of 2006

has indicated that the infrastructure in

pump stations 1 to 4 is in good condition,

Hostler said.

Strategic reconfigurationAs well as monitoring the mechanical

condition of the pipeline system, Alyeska

has been engaged in a major upgrade of

the pump stations and the Valdez Marine

Terminal. Known as strategic reconfigu-

ration, the upgrade is replacing 1970s-era

turbine-powered pumps and pump sta-

tion-based control systems with state-of-

the-art electric powered pumps.

“The technology that built the pump

stations was the same technology that

was in my Mercury Comet and now

we’re dealing with technology and capa-

bility that’s more like … one of these

electrical hybrids

that we’re all look-

ing at,” Hostler said.

“… The infrastruc-

ture itself is being

modified to deal

with the future

throughput, along

with the future com-

positional issues.”

In February

Pump Station 9, the

first pump station to convert to the new

technology, switched over to the electri-

cal pumps (see “TAPS switches to 21st

century” in the March 4 edition of

Petroleum News).

Day-to-day control of the original

pump systems resides in the individual

pump stations, with the Valdez control

room providing general operational over-

sight. But after strategic configuration,

control and monitoring of all operations

will take place from a single control

room, thus enabling greatly enhanced

efficiency in the pipeline operations and

maintenance.

And the company is moving the

pipeline control room from Valdez to

Anchorage, into the Government Hill

offices of AT&T, Alyeska’s communica-

tions service provider, Hostler said.

The new electrical pumping systems

will run more efficiently than the old sys-

tems over a wide range of pipeline

throughputs.

In fact Alyeska will be able to adjust

the operation of new pump systems to

any oil throughput up to 1.1 million bar-

rels per day, using just four pump sta-

tions, plus a relief station on the south

side of the Brooks Range. The addition of

more pumps at each of those pump sta-

tions could up the throughput to 1.5 mil-

lion bpd. In the event of a large new oil

find, the reinstatement of old pump sta-

tions using new equipment could increase

throughput to 2 million bpd.

At the Valdez Marine Terminal,

Alyeska is reducing the number of oil

storage tanks from 18 to 14 or 15. The


Pipeline and civil maintenance coordinator Gary Dillon at milepost zero, the northern

end of the trans-Alaska oil pipeline. Dillon has worked for Alyeska Pipeline Service Co.

for the past 30 years and worked as a laborer during pipeline construction in the 1970s.

Dillon relishes his current role. “This is the best job on the pipeline,” he said.

ALA

N B

AIL

EY

KEVIN HOSTLER

I

see TAPS page 10

company is also redesigning and reconfig-

uring the ballast water treatment facility, to

significantly reduce the ballast and storm

water capacity, Hostler said.

And the heightened pump station effi-

ciency, together with size reductions at the

marine terminal, will all result in reduced

emissions, Hostler said.

More waxWhile Alyeska upgrades the pipeline

architecture, the company is also having to

deal with a new technical issue: the

increasing amount of wax that is precipi-

tating from the oil in the line. Some of that

wax passes through the system and even-

tually dissolves back into the oil when the

oil is later warmed up. However, some

wax requires collection and separate ship-

ment.

The wax started appearing in 1989, pri-

marily because, as the oil movement

through the pipeline slowed with decreas-

ing throughput, the oil became cooler. The

changing mix of crude in the pipeline, as

production from the mature North Slope

oil field declines and new fields come on

stream, is also resulting in more wax for-

mation, Hostler said.

“We’re pigging more often. We’re

monitoring it,” Hostler said. “… We con-

tinue to look for opportunities to deal with

it.”

The reconfigured pump stations also

have the capability of cycling and warm-

ing the oil, to dissolve some of the wax, he

said.

Regulatory environmentThe regulatory environment for Alaska

pipelines in general is changing with, for

example, the formation of the state’s

Petroleum Systems Integrity Office and a

joint agreement between DOT and the

Alaska Department of Natural Resources,

Hostler said.

“It all plays to a desire on the part of the

regulators and a desire on our part, work-

ing in a collaborative way, for increased

monitoring and oversight of our opera-

tions,” Hostler said. “… There’s more

scrutiny on our repair and prevention

methods, as it relates to corrosion or any

other integrity issue.”

Hostler said that Alyeska welcomes the

opportunity to work with all stakeholders

on environmental issues. And the compa-

ny understands the desire of regulators to

make their own assessments of the chal-

lenges and risks that the company faces.

“The message that I hear from all of the

agencies is that they want to work with

us,” Hostler said. “They want to do their

own analysis and their own thinking about

the challenges and risks that we face. And

that’s fine — we’re happy to work with

them as they do that. … I think the gover-

nor’s order for PSIO is exactly the right

thing to do from their perspective.”

“Tremendous staff”Alyeska’s other major focus point,

beyond the mechanical pipeline infra-

structure and the changing regulatory

environment, is personnel and staffing.

“We have a tremendous staff, really tal-

ented,” Hostler said.



TAPS

ALA

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AIL

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Thirty-year Alyeska

Pipeline Service Co.

employee and current

OSCP Coordinator

Steve Hampton at

milepost zero of thetrans-Alaska oil

pipeline.

Out in the tundra, a sculptureof the old Atlantic Richfieldlogo marks the wellhead ofthe Prudhoe Bay discoverywell which first penetratedthe massive Prudhoe Bay oilpool in 1968.

ALA

N B

AIL

EY

see TAPS page 12

Despite its 30-year age thepipeline is in pretty good shape,Hostler said. A corrosion-relatedoil spill has never occurred in thetrans-Alaska pipeline system, he

said.

The confirmation well that provided the evidence for thehuge size of the Prudhoe Bay field.


Alyeska Pipeline Service Co. Vice President Jim Johnson explains the working of one of

the Pump Station 1 meters where custody of crude oil passes from the field operators to

the trans-Alaska oil pipeline. More than 15 billion barrels of oil have passed through

meters like this since the pipeline went into operation.

Operations center specialist Ann Cook in the modern control center for the eastern side of Prudhoe Bay

(there is a similar center for the west side of the field). “We can tell everything that’s going on in the

field,” Cook said. “… We’re like the conductor of the orchestra.” Cook started with ARCO in 1976 and

moved to the slope in 1978.

ALA

N B

AIL

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ALA

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AIL

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Oilfield operator David Totemoff was working at Prudhoe BayGathering Center 1 when the facility first delivered oil to thetrans-Alaska oil pipeline in 1977. Totemoff is village chief inTatitlek, on the eastern side of Prince William Sound.

ALA

N B

AIL

EY

ALA

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AIL

EY

And, with a successful Native hire pro-

gram, 20 percent of the Alyeska staff con-

sists of Alaska Natives, he said.

But, along with declining oil through-

put, Alyeska staff numbers have declined

from around 1,300 in the early 1990s to

about 800 today. And, as in most parts of

the Alaska oil industry, that workforce is

aging.

“The issue with staffing is more to do

with the aging workforce,” Hostler said.

“Fifty percent of my workforce is retire-

ment eligible.”

Hostler isn’t so much concerned with

replacing an individual employee who

might leave the company as he is with the

looming need to renew substantial num-

bers of the workforce.

“We do know that on a competitive

basis we can go out and replace like for

like a number of our staff,” Hostler said.

“… But now we’re starting to look at

renewing our workforce by targeting criti-

cal skills and bringing in people early in

their career developments.”

But the institutional knowledge that

comes with the years of experience of the

current staff becomes a significant issue as

people start to retire.

“We’ve got people who’ve been here

almost 30 years and know a lot about how

to operate the pipeline,” Hostler said.

Alyeska is also taking a close look at its

contracting strategy and is reevaluating the

question of what work to do inside the

company and what work to contract out.

“Finding the right level of internal

capability and third-party capability is a

real challenge,” Hostler said. “… We’ve

looked at our contracting strategy and

thought through where we want to bring

some of these skills back in house. And we

have done that. And where we want to rely

on the external market we’re going to con-

tinue to do that.”

High reliabilityOver the past 10 years Alyeska has

achieved a mechanical reliability rate of

99.5 percent, Hostler said.

“That is terrific,” Hostler said. “… As

we’ve seen declining throughput and

we’ve seen some of the challenges associ-

ated with that, we’ve been able to maintain

a high degree of operations confidence.”

But operating an 800-mile, 48-inch

pipeline that passes over mountain ranges

and crosses 34 major rivers and streams,

plus a number of creeks and creek beds,

will continue to require careful manage-

ment.

And the pipeline needs to operate cost

effectively, to maintain the viability of

North Slope oil production. So, as the

company builds its budget each year, the

management seeks areas for increased

operational efficiency, while at the same

time managing risk mitigation.

“We see the challenge, but at the same

time our process is intended to provide a

stopgap against taking undue risk,”

Hostler said. “And that’s what you’d

expect of us, that we’d put that priority on

the security of supply, maintaining safety

and protecting the environment.”

And “no oil to ground” is a company

mantra, Hostler said. ●



TAPSAlyeska does worry that the aging

infrastructure issues that havesurfaced on the North Slope might

also apply to the pump stations.So, the company is running a

continuous monitoring program inthe pump stations, using inline

investigation tools.


Advertise in

Contact Susan Crane at Mining News for details.Phone: 907 770-5592 Email: [email protected]

● F I N A N C E & E C O N O M Y

Canada’s trusts,juniors in a bind Pending final legislation on their tax status, Canada’s income trustsstruggling to attract investment ; fallout impacting smaller firms


ncome trusts are stuck in a holding

pattern in Canada, with a spillover to

the junior sector.

Pending final legislation on their

tax status, trusts are both struggling to

attract investment and attempting to stay

flexible to react to whatever the Canadian

government imposes, said Enterra Energy

Trust Chief Executive Officer Keith

Conrad. As a result, the “farm system” of

junior E&P companies is partly frozen —

unable to convert to trust ranks or be

acquired by trusts.

In its latest quarterly survey, Bryan

Mills Iradesso, a communications compa-

ny, found that share values of 85 junior

firms — generally seen as those produc-

ing less than 15,000 barrels of oil equiva-

lent per day — have tumbled by 12 per-

cent this year.

That follows a 32 percent decline in

2006 when the juniors took a pounding

from the fall in natural gas prices.

These and other elements are taking a

toll on upstream activity, contributing to

the quietest drilling spring in many years

and expectations of more to come in the

summer, with hopes now pinned on a

recovery in the fall as gas supplies start to

tighten.

Conrad said Enterra is waiting for

details of the tax changes before deciding

whether to rejoin the conventional corpo-

rations.

“Until such time as we know what the

rules are, it’s pretty hard to take that next

step,” he said, reflecting the mood across

the trust spectrum.

The uncertainty along with the slump

in gas prices, higher production costs and

rising administrative and interest costs

pushed Enterra into the red, posting a first

quarter loss of C$62.8 million, forcing it

to cut its monthly cash payouts to unit

holders in half.

Trust financing now takes longerMenal Patel, an oil and gas analyst with

National Bank Financial, said that since

Canada’s Finance Minister Jim Flaherty

made his bombshell announcement on the

future of trusts last October, trusts find that

financing deals they once arranged in 30

minutes can now take four weeks.

He said the time needed to raise capital

is likely to become a key factor for trusts in

deciding whether they should return to the

corporate world, especially for those trusts

that find they are simply unable to raise the

equity for acquisitions.

In addition, Patel noted that the corpo-

rate tax rate is lower in Alberta than the

expected new trust tax rate. “So why stay a

trust?” he asked.

Despite the uncertain outlook, some

trust leaders intend to stay the course until

2011, when the new tax rules take effect.

At that time, they will weigh several

options, such as converting back to a cor-

poration or adopting the U.S.-style master

limited partnership, said Gordon Kerr,

chief executive officer of Enerplus

Resources Fund.

Bill Andrew, chief executive officer of

Penn West Energy Trust, said his trust’s tax

pools allow it to continue unchanged until

2014.

Michael Culbert, chief executive officer

of Progress Energy Trust, said there is

enough value for Progress unit holders to

stick with the current structure until the

11th-hour “when we will look at all sorts of

different structures that might make sense.”

Notwithstanding some recovery in gas

prices, junior E&Ps producing less than

5,000 barrels of oil equivalent per day are

having a tough time attracting enough

attention to raise money for exploration.

Andrew Boland, an analyst with invest-

ment bank Peters & Co., said many of the

small companies are “completely out of

favor” because of the strong Canadian dol-

lar, rising upstream costs and low levels of

growth.

He expects the end result will be a flur-

ry of mergers and acquisitions this summer.

The only slight positive to emerge from

under the pile of negatives is that the

drilling downturn has helped drag down rig

costs by as much as C$4,000 per day, but

that break is expected to be short-lived

once activity rebounds.

Finding the cash a challengeDuncan Robertson, a principal with

market consultants SBM, told an invest-

ment symposium June 19 that borrowing or

selling shares to raise cash is difficulty

I

see TRUSTS page 14

neer Dave Roby said elements in a deple-

tion plan would include a description of

the process to be used to transition from

“the field being an oil field to a gas field.”

Another element would be the steps to

maximize oil recovery prior to a gas sale,

reducing the liquids at risk in a gas sale,

along with a description of facility modi-

fications for the change from an oil field

to a gas field.

Commission consultant Frank

Blaskovich said the commission would

need to know how much gas is going to

be extracted and when; how potential

risks would be mitigated, possibly includ-

ing changes to the way the field is operat-

ed; plans to accelerate oil production if

that is the way to reduce any potential

loses; and how to mitigate “any problems

that might come up once the gas sale

starts.”

Norman said the commission would

put forward a specific proposal for any

amendment and allow 30 days for public

comments.

BP worried about uncertaintyBP reservoir engineer David Lenig,

speaking for BP as Prudhoe Bay operator

and the other working interest owners,

read a long statement objecting to the pro-

posed amendment. He began by noting

that the term depletion plan does not

appear in the commission’s regulations.

“We are concerned that the proposed

order would have uncertain meaning.”

Unless there is a clear definition of the

term, it “could create disparate expecta-

tions among various persons and agen-

cies,” he said.

Lenig said Prudhoe Bay has been

operated under approved plans of devel-

opment and pool rules for 30 years and

said the annual plan of development for

the field — approved by DNR — is pro-

vided to the commission. The commis-

sion is also invited to the annual field

review.

He said the Prudhoe Bay owners

believe it is most efficient for state agen-

cies and owners “to continue to meet col-

lectively and review updated plans for

field operation and development.” Near-

term changes in operations are not neces-

sary, Lenig said: “The potential for major

gas sales has been part of planning since

field start-up.”

Proposal grew out of reservoir studyThe amendment proposal grew out of

work done by Blaskovich and commis-

sion staff with the Prudhoe Bay owners

last year on the impact of a major gas sale

on total energy recovery, using the own-

ers’ reservoir simulation model and data.

(See story in March 4, 2007, issue of

Petroleum News.)

Blaskovich said the owners have mod-

eled many ways to reduce energy loss due

to a gas sale, and got the most encourag-

ing results when oil production was accel-

erated prior to gas sales. “This seemed to

improve model results regardless of the

gas sale target rate or startup time.”

He described a major gas sale as the

largest North Slope energy recovery proj-

ect since the original Prudhoe Bay devel-

opment in the 1970s and he said the proj-

ect “might be irreversible, and as such is

much riskier than the typical energy

recovery project.”

With delivery contracts signed and a

gas pipeline in place, “it will be extreme-

ly difficult to reduce or shut in a gas sale

at Prudhoe if energy recovery problems

occur unless other gas reserves are devel-

oped quickly.”

And other gas reserves, Blaskovich

said, “are not well defined at this time.”

What commission might doCommissioner Cathy Foerster said

when gas sales start and how much gas is

sold are “variables that are not set neces-

sarily by this commission, but would be

coming to us from the company or com-

panies that put the project forward.” The

commission’s control over that would be

limited to how much gas comes from

Prudhoe Bay and how much from other

fields, she said.

Blaskovich said he envisioned the

commission would review whatever plan

for gas sales is developed, but said any

plan should have all four components:

volume, date, acceleration of oil produc-

tion before gas sales and mitigation meas-

ures.

Foerster said things the commission

can address “might be what is being done

to accelerate oil production and what is

being planned to mitigate a gas sale.”

While BP is doing a lot right now to

accelerate oil production, Foerster said

the risk she sees is competition from the

satellites: “Prudhoe’s not the only game

on the slope and there’s a limited resource

of infrastructure … rigs and people to do

those projects.” She suggested the com-

mission could work with BP to optimize

the amount of work done at Prudhoe vs.

other places.

ANGDA, Port Authority, ask for minimum offtake

The Alaska Natural Gas Development

Authority and the Alaska Gasline Port

Authority wanted something else entirely

from the commission: approval of a min-

imum gas offtake rate.

Harold Heinze, chief executive officer

of the Alaska Natural Gas Development

Authority, asked for approval of a 1.25

billion cubic-feet-a-day rate by the begin-

ning of October in time for a submission

under the Alaska Gasline Inducement

Act. Heinze said ANGDA’s contacts with

major financial institutions, potential

investors and pipeline companies indi-

cates that regulatory authority for gas off-

take is a requirement for financial com-

mitment to a project.

Bill Walker, general counsel and proj-

ect manager for the Alaska Gasline Port

Authority, said 2 bcf a day would be the

minimum for that project and noted that

the port authority request was well within

the 2.7 bcf a day in the existing offtake

rule. ●


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given the shaky outlook for gas prices over

the next six months.

Although many smaller companies are

living in hopes of a rebound in the upcom-

ing heating season, nothing is certain and

they could in fact be faced with further

price softening this summer “based on the

fundamentals,” he said.

Hot weather and hurricanes could affect

prices, but there is also the risk of record

storage inventories by September,

Robertson said.

For now, he said there is evidence of

“little guys chewing up their balance sheets

by taking on a lot of debt,” adding that

because drilling costs haven’t fallen as

much as gas prices over recent months

“margins are getting squeezed.”

Even so, industry veterans are reaching

for the panic button.

Cinch Energy President George

Ongyerth conceded “it can get scary at

times, (but) our focus has never varied.

We’re focused on growth through explo-

ration.” ●


TRUSTS


GAS“The potential for major gassales (from Prudhoe Bay) has

been part of planning since fieldstart-up.” —BP reservoir

engineer David Lenig

PUBLIC OPINIONCanadians fret over energy supplies

A new poll shows that 82 percent of all Canadians are concerned — 44 percent

of them “very concerned” — about their nation’s future energy supplies.

Conducted by Ipsos-Reid in late May, the poll found the highest levels of con-

cern in Ontario and Atlantic Canada, where 48 percent were very concerned,

dropping to 40 percent in Saskatchewan and Manitoba and 37 percent in Quebec.

Half of those polled strongly agreed the federal, provincial and territorial gov-

ernments should create a common set of rules to standardize how energy

resources are developed, transported and sold, while 82 percent favored such

action.

The support for regulatory harmonization ranged from a high of 56 percent in

Quebec, which produces no oil or natural gas, to 46 percent in Alberta and 45 per-

cent in British Columbia, two of the leading producing regions.

—GARY PARK


Lawsuits allege ‘hot fuel’ is costing motorists Congress debating 60-degree gasoline standard, which costs motorists in warm months; retrofitting pumps would be expensive

BY GREG BLUESTEINAssociated Press Writer

t’s not just increased demand that

sends summertime gasoline prices

soaring. It’s also the increased tem-

perature.

As the temperature rises, liquid gaso-

line expands and the amount of energy in

each gallon drops. Since gas is priced at a

60-degree standard and gas pumps don’t

adjust for any temperature changes,

motorists often get less bang for their

buck in warmer weather.

Consumer watchdog groups warn that

the temperature hike could end up costing

consumers between 3 and 9 cents a gallon

at the pump.

The effect could cost U.S. drivers

more than $1.5 billion in the summer-

time, including $228 million to drivers in

California alone, according to the House

Subcommittee on Domestic Policy,

which recently addressed it in hearings.

The committee’s chair, Rep. Dennis

Kucinich, D-Ohio, has long been an

advocate on the issue and has new clout

as a member of the congressional majori-

ty.

Gas retailers say forcing stations to

adjust their pumps would be too costly,

and they asked Kucinich to call off the

hearings and wait for more studies.

The issue has driven trial lawyers to

fire off as many as 20 federal lawsuits

accusing retailers of using simple physics

to take advantage of consumers.

Challenges have been filed in Alabama,

Arkansas, California, Florida, Kansas,

Missouri and New Jersey, among other

states and some are seeking class-action

status.

The latest lawsuit, filed in mid-June in

federal district court in Georgia, claims

that distributors have been “unjustly

enriched” by tens of millions of dollars.

They did so by paying taxes on the fuel

based on the colder industry standard but

pocketing the taxes collected from cus-

tomers when the temperature soars, it

alleged.

“I don’t believe gas retailers should

collect more in purported taxes than they

pay the government,” said Bryan Vroon,

one of the attorneys in the Georgia suit.

“Gas prices are high enough without the

over-collection of taxes.”

Gallon defined at 60 degreesThe “hot fuel” effect is a matter of

simple physics.

Almost a century ago, the industry and

regulators agreed to define a gallon of

gasoline as 231 cubic inches at 60

degrees. But as the mercury rises and

gasoline expands, it takes more than a

gallon of gas to produce the same amount

of energy. The opposite is true when

gasoline contracts in colder weather.

U.S. gas retailers ignore the tempera-

ture swings and always dispense fuel as if

it’s 60 degrees. As a result, gas is an aver-

age of about 5 degrees warmer than the

federal standard, according to a study

analyzed by Dick Suiter of the National

Institute of Standards and Technology.

According to the National Oceanic

and Atmospheric Administration, the

average U.S. temperature in May was 63

degrees; average for all of 2006 was 55

degrees. But drivers fare worst in south-

ern and western states where the temper-

atures are the most consistently warm.

Increased demand also sends gas

prices higher during the peak summer

travel season, so the effect of paying

more for less in the warmer months is

more pronounced.

The impact isn’t lost upon Carl

Rittenhouse, a carpet worker from the

north Georgia town of Chatsworth.

“You can tell the difference between

the time you fill up in the morning or

night, or if you fill up in the middle of the

day,” said Rittenhouse, who joined one of

the lawsuits. “All you have to do is look

at the fumes.”

The debate is now reaching

Washington.

Sen. Barbara Boxer, D-Calif., recently

urged California lawmakers to take

action. And Rep. Kucinich earlier in June

called a hearing on the issue, calling it

“Big Oil’s double standard.”

“People are paying for gasoline

they’re not getting,” said Kucinich, who

is running for president.

Hawaii has 80-degree standardLawmakers don’t have to look very far

for possible solutions.

In frigid Canada, where cold tempera-

tures were giving consumers an edge,

many gas stations voluntarily backed a pro-

gram to add pumps that automatically

adjust volumes based on temperature.

During the energy crisis in the 1970s,

tropical Hawaii decided to set a base fuel

temperature of 80 degrees, meaning that

consumers there get more bang for their

buck because retailers now dispense 234

cubic inches of gas per gallon rather than

231.

The federal government is considering a

similar change as well. The National

Conference on Weights and Measures is to

vote in July on whether to allow tempera-

ture regulation by retailers.

The upcoming decision is worrying

some fuel distributors, who say the new

equipment could force some independent

dealers out of business. NATSO, a trade

group representing truck stop owners, esti-

mates that each retrofitted pump could cost

$1,500 to $3,800.

“The average truck stop has 20 pumps,”

said Mindy Long, a spokeswoman for the

group. “The burden on them would be phe-

nomenal.”

NATSO and other gas retailers have

formed a group called PUMP — the

Partnership for Uniform Marketing

Practices — which is calling for more stud-

ies on the issue before taking any action.

They have a powerful ally in Rep. Bart

Gordon, the Tennessee Democrat who

chairs the House Committee on Science

and Technology. In a May letter to the

National Academy of Sciences, he suggest-

ed the idea of retrofitting pumps may be

“premature.”

The trucking companies and motorists

behind the lawsuits hope they could force

politicians to act quicker.

“You’re not getting as much as what

you’re paying for, really,” said Rittenhouse,

the north Georgia motorist. “Most folks

don’t have a clue. But it’s costing them.” ●


In frigid Canada, where coldtemperatures were giving

consumers an edge, many gasstations voluntarily backed aprogram to add pumps that

automatically adjust volumesbased on temperature.

I


Companies involved in Alaska and northernCanada’s oil and gas industry

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

J.D. Cox, GeophysicistConsultant, PRA

PRAAs a geophysicist with more than 20years in the industry, J.D. Cox says heworked his way from the grounddown, starting as a clerk on a seismiccrew, and eventually moving intoseismic processing, then training,sales and finally interpretation. Hiswork has recently focused on AVOinterpretation and processing inefforts to develop mature or played-out areas using special “G-14 classi-fied” processing techniques thatidentify anomalies previously unseenby standard processing methods.Above ground, J.D. indulges inextreme dogsled racing (you needreally fast dogs), dodge-golf (helmetrequired) and music (helmet alsorequired). He’s married toSchlumberger DCS Manager Jan Cox;their daughter Aimie is a senior atSouth Anchorage High.

FOR

RES

T C

RA

NE


egardless of how much they come

under attack, the Alberta oil sands

show no signs of taking a time out.

In the latest flurry of develop-

ments:

• Kuwait Oil Co. made a scouting trip

to Canada, looking for expertise to devel-

op the heavy oil reserves held by the

Persian Gulf country.

• Shares of Western Oil Sands made a

spurt amid rumors that Total, Royal

Dutch Shell, Chevron or Korea National

Oil Corp. could enter a bidding war to

take control of the junior partner in

Shell’s Athabasca project.

• Canadian zinc and copper mining

giant Teck Cominco served notice it

hopes to produce 140,000 barrels per day

from the oil sands within a decade.

Kuwait looking for expertiseThe state-owned Kuwaiti company

left no doubt that it sees term contracts

with Canadian oil service companies as

the key to unlocking its northern heavy

oil reserves and reaching a goal of

900,000 bpd by 2020.

“We are on a learning curve and are in

Calgary to get a better grip on the heavy

oil industry,” KOC deputy managing

director for finance Ali al-Shammary told

the Calgary Herald.

“Unless we seek the experience of the

industry here, we will not be able to reach

our target.”

Once deals are in place to deploy new

drilling technologies, as well as provide

rigs, compressors and submersible

pumps, along with skilled workers, KOC

said it will be open to linking up with

international companies to develop its

reserves.

Al-Shimmary said Kuwait has the

potential to match output from Saudi

Arabia’s offshore Manifa project, the

largest single heavy-oil venture in the

world.

He said a pilot project could be pump-

ing 50,000 bpd by 2011, expanding to

250,000 bpd by 2015 and 900,000 bpd

within 13 years.

KOC has budgeted spending of

US$27.8 billion for upstream oil develop-

ment to meet its 2020 production target.

Total named as possible buyer forWestern Oil Sands

Having already said that outright sale

is one of its options, Western grabbed the

spotlight June 15 when a brief item in a

French business newsletter said France’s

Total was ready to bid for the junior pro-

ducer and had hired Merrill Lynch as its

advisor — a claim the U.S.-based invest-

ment bank would not comment on.

Having set a goal of producing

500,000 bpd from the oil sands by invest-

ing US$15 billion, Total has been accu-

mulating assets, taking over as operator

of the proposed C$9 billion Joslyn project

and teaming up with ConocoPhillips in

the Surmont project.

But acquiring Western’s 20 percent

stake in Athabasca would put Total in the

usual position of being the junior partner

to operator Royal Dutch Shell, which

owns 60 percent of the project, with

Chevron Canada holding the balance.

Most analysts believe it makes more

sense for Total to either take full control

of projects or at least be the operator.

However, what Total brings to the

table is experience in Venezuela’s heavy

oil plays and a possible answer to

Western’s search for access to upgrading

facilities as Athabasca embarks on sub-

stantial expansion from its initial 155,000

bpd to somewhere in the range of 770,000

bpd to 1 million bpd.

The speculation propelled Western’s

shares to a 7 percent gain on June 15

pushing its market capitalization to about

C$6 billion, just two days after Western

Chief Executive Officer James Houck

said the efforts to “maximize value” from

the company’s assets have generated a

number of quality opportunities.

He said current expansion work at

Athabasca will add 100,000 bpd of out-

put, work is proceeding on an upgrader

near Edmonton and construction has

started on a 456,000 bpd pipeline from

the Athabasca site to Edmonton.

Teck Cominco acquires landTeck Chief Executive Officer Don

Lindsay said recent land acquisitions

should see his firm grow beyond its 15

percent stake in the proposed Fort Hills

project led by Petro-Canada.

“We think we can develop an oil sands

business that could give Teck a (net)

140,000 bpd in a 10-year period,” he said.

Since joining Fort Hills in 2005

“we’ve picked up other land positions,

which we are very excited about,”

Lindsay said. ●


KOC has budgeted spending ofUS$27.8 billion for upstream oil

development to meet its 2020production target.R

GOVERNMENTKohring resigns to focus on defense

An Alaska lawmaker accused of selling his vote to oil businessmen said June

19 he would give up his House seat to focus on his defense against federal bribery

and extortion charges. “Resigning by no means suggests guilt,” Rep. Vic Kohring,

R-Wasilla told the Associated Press.

Kohring and two former state lawmakers were indicted May 4 on charges relat-

ed to alleged dealings with oil field services company VECO Corp. Prosecutors

accused the lawmakers of selling their votes to VECO officials while the

Legislature was working on a revamp of the state’s petroleum production tax.

Two VECO executives pled guilty to federal charges of bribery and conspira-

cy and have since resigned but have not yet been scheduled for sentencing.

Kohring and former Republican Reps. Pete Kott and Bruce Weyhrauch all pled

not guilty. Their trial dates are in the fall.


Alberta's oil sands refuse to wilt Latest news involves Kuwait Oil’s scouting trip, Western Oil Sands takeover rumors, Teck Cominco’s oil sands output projections

They landed a spot on the GO-Expo

program to make a presentation to an

audience of about 250 who had paid C$45

each in expectation of hearing major pol-

icy announcements from representatives

of ExxonMobil and the U.S. National

Petroleum Council on oil sands develop-

ment and biofuels.

As the Yes Men, the pair has previous-

ly pulled stunts on the World Trade

Organization, the British Broadcasting

Corp. and various conferences, ridiculing

the actions of corporations and govern-

ments.

GO-Expo “was a great opportunity for

us, like the holy grail really,” said Servin.

“We’ve never had an audience like this.

“These people are wrecking the Earth

and they’re quite conscious of it,” he said,

after he and his sidekick were bundled off

the stage by security guards once GO-

Expo organizers realized they’d been

duped.

The police were called and, although

no charges were laid, the Yes Men were

ordered to pay a C$287 fine for trespass-

ing.

Later they promoted their book and

showed a documentary of their hoaxes at

a theater in downtown Calgary.

Red-faced representatives of GO-Expo

organizers DMG World Media issued a

profuse apology, saying they made “every

attempt to verify the legitimacy and cred-

ibility of (conference) speakers …”

Servin said the Yes Men were invited to

GO-Expo after organizers checked out a

Web site (http://www.vivoleum.com/event/)

the pair had developed, including a

PowerPoint presentation by Servin outlining

how the remains of human beings who died

as a result of climate-change disasters could

be converted into an alternative fuel called

“vivoleum” that would eventually replace

oil.

Using volunteers, they distributed can-

dles supposedly made of vivoleum to the

audience.

They encouraged those attending to

light the candles, affirming they were

made from the remains of ExxonMobil

maintenance worker “Reggie Watts,” who

was said to have bequeathed his body to

be used by the company for fuel.

In case there were any lingering

doubts, DMG said in a statement that the

“environmental and corporate ethics

activists” were not representatives of

either ExxonMobil or the NPC.

—GARY PARK

Arlen Ehm named presi-dent of Fowler Oil &Gas (Alaska); companymoving ahead withcoalbed methane wellin Mat-Su area

BOB FOWLER, CEO AND

CHAIRMAN of Fowler Oil and Gas

Corp., has appointed longtime Alaska

explorationist Arlen Ehm as president of

the company’s Alaska subsidiary, which

is based in Palmer and gearing up for

coalbed methane exploration.

A petroleum geologist with bachelor‘s

and master’s

degrees from

Wichita State

University, Ehm

began his career in

the oil and gas

industry when he

got out of the U.S.

Army, working as a

roughneck on

drilling rigs in the

Mid-Continent.

“I didn’t want to go to school right

away, but after seeing how good the geol-

ogists had it — sitting in the dog house

and getting paid more, while I was out on

the rig floor getting cold and wet — I

went to school. By the time I went to

work as a geologist, the roughnecks were

making more than the geologists,” Ehm

said in a June 20 interview with

Petroleum News.

Ehm’s career in Alaska began in 1965

when he went to work for Shell and was

on the first well drilled from the first

platform in Cook Inlet. Since then he has

been on wells in various parts of the

state, conducted geological field parties

and created numerous proprietary reports

alone and with partners. One of these is a

study of the surface geology of the 1002

area of the Arctic National Wildlife

Refuge.

Ehm was recently vice president,

Alaska for Pelican Hill Oil and Gas, a

California company that drilled two

wells in the Cook Inlet basin in search for

natural gas. When the company left the

state, Ehm went back to consulting,

which he has been doing in Alaska for 31

years.

Fowler Oil and Gas is preparing to

drill a vertical trunk well and then lateral

wellbores off the trunk. The well will be

drilled this summer in the Kircher block,

which consists of 840 acres of forest and

farmland at the corner of Bogard Road

and Trunk Road between Wasilla and

Palmer. The land at that intersection is

owned by four families who have agreed

to Fowler’s plan. The pilot drill will be in

the 580-acre Kircher farm.

The production well will have no sur-

face impact, no noise and no water to the

surface making it completely environ-

mentally friendly and in conformance

with all the regulations of the

Matanuska-Susitna Borough, the compa-

ny said.

Fowler’s development plan will be

introduced at the borough’s planning

commission meeting on Aug. 6, and a

public hearing will be held on Aug. 20.

Fowler, a graduate of Palmer High

School and a longtime Alaskan, told

Petroleum News May 2 that he fully

understands the concerns of the residents

of the Mat-Su area regarding coalbed

methane development. (See original

story on this company in the May 6 issue

of Petroleum News at http://www.petro-

leumnews.com/pnads/611801213.shtml.)

“Our family has been in the valley for

over 50 years and so I’m very familiar

with the issues up in the valley and how

people would like to see economic devel-

opment but also coupled with environ-

mental protection,” Fowler said May 2.

Fowler Oil & Gas (Alaska) LLC is a

wholly owned subsidiary of Fowler Oil

& Gas Corp., headquartered in Las

Vegas, Nev. The parent company is

majority-controlled by Fowler Family

Trusts.

—KAY CASHMAN


As the Yes Men, the pair haspreviously pulled stunts on theWorld Trade Organization, theBritish Broadcasting Corp. and

various conferences, ridiculing theactions of corporations and

governments.


INSIDER

ARLEN EHM

LAND & LEASINGAlaska Peninsula, Foothills info wanted

The Alaska Division of Oil and Gas issued a call on June 20 for new informa-

tion for the 2008 Alaska Peninsula areawide and North Slope Foothills areawide

oil and gas lease sales. (Those regions of the state are also referred to as the

Bristol Bay and Brooks Range Foothills, respectively.)

The proposed date for both the sales is Feb. 27.

The call for new information closes Aug. 31, and a supplement to the best

interest findings or a decision of no substantial new information will be issued in

November.

The final finding for the Foothills sale was issued in 2001 and supplemented

in 2002; the final finding for the Alaska Peninsula areawide was issued in 2005.

Both documents are available on the division’s Web site:

www.dog.dnr.state.ak.us.

—PETROLEUM NEWS

That will require Ontario refiners,

importers and blenders of passenger vehi-

cle fuels to reduce carbon emissions from

their fuels by 10 percent by 2020.

For Ontario, the first step will be to

open negotiations with the Canadian

Association of Petroleum Producers and

the companies that operate refineries in

Ontario — Imperial Oil, Shell, Suncor

Energy and Nova Chemicals — to devel-

op a strategy to meet the goals.

Ontario imports about one-third of its

crude — which totals about 370,000 bar-

rels per day — from eastern Canada, the

British North Sea or Norway and the rest

from Western Canada and the U.S.

British Columbia has two small

refineries — a 52,000 bpd plant operated

by Chevron in the Greater Vancouver area

and a 12,000 bpd facility owned by

Husky Energy at Prince George in the

province’s northeast.

In the meantime, industry leaders are

trying to get a fix on the implications of

the memorandums, but a preliminary

assessment suggests that crude from the

oil sands could be ruled out altogether

because they generate triple the GHGs of

conventional oil.

However, a spokesman for Ontario

Premier Dalton McGuinty said that is far

from certain, given the difficulties of link-

ing GHGs to the oil sands and the

advances that are possible in lowering the

carbon content of oil sands production.

Oil sands target of environmentalistsEven so, the giant oil sands resource

has moved to the forefront of worldwide

targeting by environmentalists.

Greenpeace, the World Wildlife Fund

and the Sierra Legal Defense Fund are all

either in the process of, or planning to set

up offices in the Alberta capital of

Edmonton to intensify their lobbying

against the rapid expansion taking place

in the province’s northern region.

Adding to the mix, Deutsche Bank and

the United Kingdom-based Tyndall

Center for Climate Change Research have

scorned the Canadian government’s cli-

mate change plan that will allow emis-

sions to grow for at least another 40 years.

The Sierra group, which provides

backing for those taking their environ-

mental battles to court, has just filed a

legal challenge against Imperial’s possi-

ble C$10 billion Kearl project.

It candidly places the oil sands at the

top of its list of its “major fights” for the

next five years.

Reinforcing the fast-changing tone of

the opposition from local crusaders stag-

ing protests and waving banners to organ-

izations that can draw on money, expert-

ise and experience, the WWF has just

released its own report taking issue with

the oil sands impact on GHGs, water con-

sumption, the destruction of forest habitat

and the dangers to the health of residents

near oil sands operations.

The WWF also intends to put the spot-

light on the proposed Mackenzie Gas

Project, seen as posing a threat to a frag-

ile eco-system.

NRDC report targets oil substitutesThe NRDC, a non-profit organization

of scientists, lawyers and environmental

specialists committed to protecting public

health and the environment, teamed up

with Western Resources Advocates (an

active opponent of oil shale development

in the western U.S.) and the Pembina

Institute (an Alberta-based energy and cli-

mate change research organization) to

produce its report raising concerns about

the development of “oil substitutes.”

Report author Deron Lovaas said

“industry and political leaders are push-

ing us blindly down a dangerous and

expensive energy path.”

“The vast amounts of energy needed to

make these fuels means that overall emis-

sions from every gallon could double or

even triple. Mining fuels to put it in our

gas tanks would have devastating impacts

on the local communities and the land-

scape.”

The report issued a blunt warning to

potential investors that they could face

heavy liabilities and high financial risks if

unconventional oil developers continue to

ignore the likelihood of new emission

rules and other environmental safeguards.

The NRDC estimated that oil sands

operators are already using enough natu-

ral gas in their extraction and processing

of the resource to heat 4 million homes

last year.

In addition, the report says a mix of

roads, pipelines, pits and heavy equip-

ment used in mining operations is causing

irreparable damage to an area that is

home to more than 40 percent of North

America’s waterfowl.

It calls for the establishment of a low

carbon fuel standard for all new oil alter-

natives, along the lines of California’s

attempts to reduce its dependence on fos-

sil fuels, and to toughen fuel economy

performance standards for vehicles and

increase the use of biofuels to achieve a

“future energy supply that is both clean

and sustainable.”

C.D. Howe Institute: carbon tax orabsolute cap needed

On top of this growing threat to the oil

sands, the C.D. Howe Institute, an inde-

pendent, highly respected Canadian think

tank, said the Canadian government can

only meet its intended GHG reduction

targets by imposing measures such as a

carbon tax or absolute emission caps.

The institute said current policies will

fall short of the goals set for 2020 and

2050, while incurring costs to the Gross

Domestic Product that are “comparable to

those of more effective policies that

would actually achieve its targets.”

“Costs imposed by an economy-wide

greenhouse gas tax, or economy-wide

emissions cap, would not be substantially

different,” it said.

But it suggested that Canada’s law-

makers have “largely opted for politically

painless policies (over the last 15 years)

that were also ineffective” and for that

reason the latest policies would fall short

of the 2020 target of cutting emissions by

20 percent from current levels, thus mak-

ing the 65 percent reduction goal by 2050

even less achievable.

The institute said leading independent

research indicates “that the principal rea-

son for policy failure — in Canada espe-

cially, but elsewhere as well — is the

unwillingness of government to place a

value on the atmosphere.”

The only hope of meeting planned tar-

gets is for the federal government to con-

sider tougher measures, it said. ●


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SANDS… leading independent research

indicates “that the principalreason for policy failure — in

Canada especially, but elsewhereas well — is the unwillingness ofgovernment to place a value onthe atmosphere.” —C.D. Howe

Institute report

The report issued a blunt warningto potential investors that theycould face heavy liabilities and

high financial risks ifunconventional oil developers

continue to ignore the likelihood ofnew emission rules and other

environmental safeguards.

PHOTO COURTESY USIBELLI COAL MINE/CHRIS AREND

A special supplement to Petroleum NewsWEEK OF

June 24, 2007

3 Rock Creek wins round in legal battleJudge: Mine construction could improve condition of surrounding area

7 High prices excite B.C. moly investors Across province projects race to starting line or gear up for expansion

10 Hemis launches hunt for offshore goldSwiss bring hi-tech marine exploration to Alaska's Cook Inlet

2NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JUNE 24, 2007

● A L A S K A

Red Dog mine faces new challengeNew discharge permit heads to EPA internal review board, while DEC prepares to certify it under state water quality standards

By ROSE RAGSDALEFor Mining News

he Red Dog Mine, 17 years after start-

up, is unquestionably the economic

and human resources success story of

the Northwest Arctic Borough. Zinc

and lead prices are strong, and production

is up at the mine, which is operated by

Teck Cominco Alaska on lands owned by

the Alaska Native regional corporation,

NANA Regional Corp.

But the world’s largest producer of zinc

concentrate continues to be plagued by

issues surrounding its discharge of waste-

water.

Treated water from the mine is released

into tributaries of the Wulik River, which provides drink-

ing water for Kivalina, a Northwest Alaska village 66

miles downstream from the mine.

The U.S. Environmental Protection Agency issued a

new five-year wastewater discharge permit for the mine

in March, but it was soon challenged under the Clean

Water Act by a San Francisco environmental group on

behalf of some residents of Kivalina.

The appeal marked the second time the Center for

Race, Poverty and the Environment has challenged Red

Dog’s wastewater discharge permit. The group initiated

a citizen’s suit against Teck Cominco Alaska in March

2004. NANA and the Northwest Arctic Borough subse-

quently joined the suit as defendants in support of Teck

Cominco.

An Anchorage court recently found that Teck

Cominco did not meet the total dissolved solids, or

“TDS,” requirements of its 1998 discharge permit at Red

Dog even though the TDS amount discharged was with-

in the limit authorized by the EPA. Further, the amount

of TDS discharged by Red Dog meets water quality stan-

dards for TDS adopted by the State of Alaska and

approved by EPA since 1998.

New TDS standards have been incorporated into per-

mits issued for Red Dog by EPA since the ruling.

Red Dog operations go onThe latest appeal does not prevent Teck Cominco

from operating Red Dog. Instead, the mining company

can continue to treat discharges under an older, modified

permit until the EPA rules on the appeal.

The EPA Region 10 administrator is currently exam-

ining the new permit to determine which of its condi-

tions were challenged in the appeal.

Once that determination is complete, the issue will go

before an EPA internal review board in Washington,

D.C. Permit conditions not included in the appeal can

become effective immediately.

The Alaska Department of Environmental

Conservation also has begun the process of certifying the

new permit under state water quality stan-

dards.

Operations at Red Dog, meanwhile,

must go on.

“We would rather have the new permit,

but we’ll still be able to treat and dis-

charge water under the old one,” Jim

Kulas, environmental superintendent at

Red Dog, said June 14.

Wulik River cleaner than everTeck Cominco has repeatedly assured

Kivalina residents that continuous monitor-

ing of the village’s drinking water, conduct-

ed by federal and state agencies including

the Alaska Division of Public Health, since

2002 have found no unacceptable results.

“The quality of the drinking water downstream of the

mine is being protected,” Kulas said. “Each of the tests has

shown the water is safe to drink, and there are no problems

with TDS.”

Ironically, the water downstream from Red Dog is actu-

ally cleaner today then it was before the mine started pro-

duction 17 years ago, said Tom Crafford, acting director of

the Division of Mining, Land and Water in the Alaska

Department of Natural Resources.

“There is nothing about Red Dog that is simple. There

are fish living in places where they didn’t live before. The

natural runoff from the undeveloped Red Dog zinc and

lead deposit put more pollution into the water before than

the wastewater treatment process does now,” Crafford

explained. “But at the same time, the mine has to treat and

discharge water. The treatment process uses chemicals

such as calcium and magnesium, which result in a higher

amount of total dissolved solids in the water, which have

issues of their own.” ●

T

The Red Dog Mine in Northwest Alaska

CO

URT

ESY

TEC

K C

OM

INC

O

3NORTH OF 60 MINING

North of 60 Mining News is a monthly supplement of the weeklynewspaper, Petroleum News. It will be published in the fourth orfifth week of every month.

Kay Cashman PUBLISHER

Mary Mack CHIEF FINANCIAL OFFICER

Kristen Nelson EDITOR-IN-CHIEF

Sarah Hurst EDITOR (Contractor)

Susan Crane ADVERTISING DIRECTOR

Amy Spittler ASSOCIATE PUBLISHER

Heather Yates OFFICE MANAGER

Shane Lasley CIRCULATION DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

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Gary Park CONTRIBUTING WRITER (CANADA)

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ADDRESSP.O. Box 231651Anchorage, AK 99523-1651

EDITORIAL Anchorage907.522.9469

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NORTH OF 60 MINING NEWS is a monthly supplement of Petroleum News,a weekly newspaper. To subscribe to Petroleum News and receive the monthly

mining supplement, call (907) 522-9469 or sign-up online atwww.PetroleumNews.com. The price in the U.S. is $78 per year, which includesonline access to past stories and early access to Petroleum News every week.(Canada/Mexico subscriptions are $165.95; overseas subscriptions are $200)

Or, just purchase the online edition of Petroleum News, which also includes themining supplement and online access to past stories, for $49 per year.

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Contact North of 60 Mining News:Editor: Sarah Hurst [email protected]

Phone: 907.248.1150 • Fax: 907.522.9583Address: P.O. Box 231651, Anchorage, AK 99523

PETROLEUM NEWS • WEEK OF JUNE 24, 2007

● A L A S K A

Alaska mine wins around in legal battleRock Creek project construction could improve the condition ofsurrounding area, which suffered from historic mining, judge rules

By SARAH HURSTFor Mining News

n Anchorage judge gave little cre-

dence to arguments by a Nome citi-

zens’ group that construction of Rock

Creek gold mine should be halted,

decisively ruling in favor of developer

NovaGold Resources. After a hearing in

Alaska District Court June 7, Judge Ralph

Beistline made his decision the following

day. Bering Strait Citizens For Responsible

Resource Development had requested an

injunction to protect

the area’s wetlands.

The plaintiffs

argued that the U.S.

Army Corps of

Engineers’ 404 permit

authorizing some of

Rock Creek’s con-

struction activities

was issued in viola-

tion of the Clean

Water Act and the National Environmental

Policy Act. Vancouver-based NovaGold’s

subsidiary at Rock Creek, Alaska Gold,

intervened in the case as a defendant.

Considering the request for an injunction,

Judge Beistline had to decide whether the

plaintiffs’ case was likely to succeed on its

merits, and to balance potential hardships to

the plaintiffs, defendants and the public.

The parties agreed that Rock Creek is

located in “mining country”, a part of Alaska

that has a rich history of mining, Judge

Beistline noted in his ruling. Much of the

land on which the mining is proposed to take

place was previously mined and left

“scarred” by mining activity, he added. In

addition, the wetlands that are the subject of

the dispute are surrounded by vast areas of

pristine wetland that will not be impacted by

the Rock Creek project, the judge wrote.

Before starting construction, Alaska Gold

“went to great lengths to publicize its inten-

tions and to obtain the support of the local

community, two Native organizations, as

well as state and federal agencies,” Judge

Beistline wrote. “As a result, there is consid-

erable public support for this project and a

realistic hope for an economic boon to the

community. This is not, therefore, a situation

where a mining operation is proposed in an

otherwise pristine wilderness amongst an

unsuspecting public,” he added.

The defendants have complied with the

law and proceeded in a manner that is sensi-

tive to the environment, Judge Beistline

wrote. The Corps’ issuance of a 404 permit

was not “arbitrary and capricious, an abuse

of discretion, or otherwise not in accordance

with law,” he decided. “Considerable time,

effort and expense was incurred by AGC

(Alaska Gold) to minimize the environmen-

tal impact of its mining operation.

Additionally, reasonable alternatives were

considered by both the Corps and AGC,” the

judge noted. “Moreover, if the project pro-

ceeds as planned, it is likely that much of the

land involved will be left in a far better con-

dition than it was when the project began.”

One of the plaintiffs’ objections was that

the Corps relied on an Environmental

Assessment rather than an Environmental

Impact Statement, which would have been

lengthier and more detailed. The plaintiffs

also argued that the draft EA was not wide-

ly distributed. The judge found that the EA

took a “hard look” at the potential environ-

mental impact of the project and that the

draft EA was distributed to the agencies

involved and publicized on the web. The

plaintiffs responded to it and it was the sub-

ject of considerable discussion, the judge

added.

Judge: no secrets or efforts to conceal plans

Nome residents heard about the EA via

public meetings, newspaper articles, radio

interviews and mailings. “There were no

secrets and certainly no effort to conceal

AGC’s plans for mining or the methods

intended to be used,” the judge wrote.

“Furthermore, it is very unlikely that any

more study, time or discussion would have

changed the parties’ views with regard to

this project or the decision to issue the per-

mit.” The text highlighting was in the

judge’s ruling.

Another reason why the lawsuit had little

merit was because it was filed after much of

the construction had already taken place, the

judge wrote. It was already too late to pre-

vent most of the harm to wetlands that was

going to occur. “An injunction at this time

would therefore result in much greater harm

to AGC and the citizenry supporting the

mining project than to any remaining wet-

lands or environmental concerns,” Judge

Beistline decided.

“We continue to assemble ouroperations team and are working

diligently to achieve ourproduction target of Q3-2007,

with full commercial production byyear end.” —Doug Nicholson, Alaska

Gold’s general manager

A

DOUG NICHOLSON

see ROCK CREEK page 5


● B R I T I S H C O L U M B I A

British Columbia producing faster than everOutlook for mining industry in the province is positive, with commodity prices high, but new discoveries are needed, survey says


he mining industry in British Columbia surpassed

itself in 2006, with revenues at an all-time high,

according to the annual survey by

PricewaterhouseCoopers. Net income for companies

active in the province totaled C$2.3 billion, by far the high-

est amount since the survey was first published in 1968, and

an increase of C$507 million on the previous year’s figure.

The average number of people employed in British

Columbia’s mining sector increased from 7,071 in 2005 to

7,345 in 2006.

The latest survey covered 17 operating metal and coal

mines, one smelting operation, six operations in the permit-

ted or active permitting stage, eight mines in the reclama-

tion stage and 10 advanced exploration-stage properties, a

total of 42 participants compared to 43 in 2005. Four oper-

ating and exploration-stage companies that contributed

C$19.1 million to exploration and development in 2005 did

not participate in the survey in 2006.

“The recent resurgence in the global mining industry

exceeded the expectations of even the most optimistic ana-

lysts and continues to do so. The mining industry in British

Columbia has mirrored the global resurgence,” the survey

says. “The province should celebrate the successful devel-

opment or advances towards development of a significant

number of projects. But in almost all cases, these are previ-

ously known deposits, which are now economic as a result

of significant improvements in commodity prices. The

province needs new discoveries, and it needs them now.”

At the end of 2005 the survey reported that 18 projects

were in the permitting stage. Of these projects, only three

progressed to operational status during 2006. At the end of

2006 there were 25 mines awaiting permitting, with only

six of these expected to go into operation in 2007.

Shipments of metallurgical coal downShipments of metallurgical coal from British Columbia

decreased by 5 percent from 24 million metric tons in 2005

to 22.9 million tons in 2006. Net mining revenues for met-

allurgical coal remained virtually unchanged at C$1.94 bil-

lion (compared to C$1.95 billion in 2005), due to coal price

increases. Net mining revenues from copper concentrate

increased by 76 percent from C$1.13 billion in 2005 to C$2

billion in 2006. Copper saw a rise in its average price dur-

ing the period from US$1.67 per pound to US$3.05 per

pound, and shipments of copper concentrate from British

Columbia were up 5 percent in 2006.

Molybdenum was the only mineral covered in the sur-

vey that saw a decrease in its average price from 2005 to

2006, dropping 21 percent from US$31.05 per pound to

US$24.38 per pound. This contributed to a 30 percent

decrease in net molybdenum mining revenues from C$592

million in 2005 to C$412 million in 2006. The price of

molybdenum remains strong compared to historical prices,

the survey noted.

Net revenues from zinc and zinc concentrate increased

from C$528 million in 2005 to C1.29 billion in 2006, due

to a 137 percent rise in the average price of zinc from US63

cents per pound to US$1.49 per pound, accompanied by an

increase of 19 percent in shipments from British Columbia

in 2006. There was also a 32 percent rise in the average

price of lead during the period, from US44 cents per pound

to US58 cents per pound, and a 28 percent increase in ship-

ments of lead from British Columbia. As a result, net min-

ing revenues went up from C$87 million in 2005 to C$137

million in 2006.

Shipments of gold from British Columbia were down 4

percent in 2006, while the average price of gold increased

from US$444.88 per ounce to US$604.34 per ounce, result-

ing in an increase of 35 percent in gold net revenues from

C$255 million in 2005 to C$343 million in 2006. Net silver

revenue increased by 74 percent from C$213 million in

2005 to C$371 million in 2006, mainly due to a rise in the

average price of silver from US$7.31 per ounce to

US$11.57 per ounce, as well as a 12 percent increase in sil-

ver shipments, from 28.8 million ounces in 2005 to 32.2

million ounces in 2006.

Cost increases somewhat offset revenues Revenue increases were somewhat offset by parallel

increases in the cost of essential supplies such as steel, fuel

and tires, and other production costs, according to the sur-

vey. These costs were up from C$1.6 billion in 2005 to

C$2.3 billion in 2006, and included increases in the costs

associated with hiring and retaining experienced mining

personnel. Capital expenditures increased by C$168 million

during the year to C$513 million. The largest contributors

to the increase were expenditures on machinery, other

equipment and surface construction.

Outward transportation — comprised of rail costs, ship-

ping costs and wharfage fees — is the largest individual

component of industry costs, the survey says. Nevertheless,

total transportation costs decreased by 1 percent to C$1.01

billion in 2006 compared to C$1.02 billion in 2005. The

decrease was mainly due to reduced coal tonnages shipped

during the year.

Direct tax payments made by British Columbia’s mining

industry increased from C$445 million in 2005 to C$648

million in 2006, reflecting improved profitability.

Expenditures at the eight participating mines that are in the

reclamation stage amounted to C$63 million in 2006, down

10 percent on the C$70 million spent in 2005. ●

Revenue increases were somewhat offset byparallel increases in the cost of essential

supplies such as steel, fuel and tires, and otherproduction costs, according to the survey.T

By CURT FREEMANFor Mining News

recent piece in the Fairbanks Daily

News-Miner newspaper indicated

that the U.S. Department of Labor

has determined that mining employ-

ment has hit a 4-year low in Alaska. I’m

not sure who the Department of Labor was

talking to but the world I live in happens to

be drastically short of qualified manpower

with no immediate relief anywhere in sight

that might affect this demand surplus and

supply shortfall. When you ask mining

companies what they are up to, the most

common response is “the drills have just

started turning on ...” and this trend will

result in new results being released in the

next month. Here is a summary of where

those drills are turning.

Western AlaskaNOVAGOLD RESOURCES INC. said

JV partner Barrick Gold Corp. has budget-

ed $87 million for the 80,000 meter Donlin

Creek project drill campaign for 2007. The

focus of this work will be on converting

Inferred Resources to the Measured and

Indicated category. Project operator

Barrick Gold continues to work toward

completion of a pre-feasibility and first

feasibility study for the project and has

indicated it will not submit the draft appli-

cations to begin the permitting and envi-

ronmental approval process until 2008.

NovaGold Resources also said that con-

struction activities at it Rock Creek project

near Nome are on schedule. Construction

of the tailings facilities and mill site con-

tinue. The company anticipated a third-

quarter 2007 mine startup.

Eastern InteriorFREEGOLD VENTURES announced

additional results from a rotary air blast

drilling program on its Golden Summit

project in the Fairbanks district. Highlights

from the two additional drill fences in the

Cleary Hill mine prospect include 15 feet

averaging 5.03 grams of gold per tonne in

hole 177; six feet averaging 20.5 grams of

gold per tonne in hole 191; two feet aver-

aging 22.18 grams of gold per tonne in

hole 194; six feet averaging 13.42 grams

of gold per tonne in hole 211; 12 feet aver-

aging 11.22 grams of gold per tonne in

hole 279; and 12 feet averaging 12.17

grams of gold per tonne in hole 273.

Additional drilling was conducted 2,300

feet away on the Tolovana mine prospect

and returned high grade-results including

three feet averaging 23.01 grams of gold

per tonne in hole 303; three feet averaging

23.01 grams of gold per tonne in hole 303;

21 feet averaging 4.26 grams of gold per

tonne in hole 312; and three feet averaging

18.1 grams of gold per tonne in hole 325.

Additional drilling work is planned for

2007.

RIMFIRE MINERALS CORP.

announced that drilling had begun on its

Goodpaster project joint venture with

RUBICON MINERALS CORP. in the

Goodpaster district. The partners plan to

spend $1 million in exploration to test high

priority targets on the Cal-Surf prospect

where previous work by Rimfire identified

well developed gold and/or bismuth soil

geochemical anomalies.

Rubicon Minerals Corp. reported that

crews have been mobilized to commence a

$2 million first-phase exploration program

on its Goodpaster district land holdings

acquired earlier this year. First pass surface

exploration conducted in 2006 identified

several promising areas for follow up. One

of these is associated with a 10 kilometer

by seven kilometer arsenic stream silt-and-

pan concentrate anomaly within which

samples of quartz veins interpreted as

bedrock or rubble-crop returned values

ranging from a trace up to 12 grams of

gold per tonne.

This anomaly will be followed up by

additional detailed mapping, hand trench-

ing and auger-soil sampling prior to carry-

ing out up to 7,000 feet of diamond

drilling which is expected to be carried out

during July.

INTERNATIONAL TOWER HILL

MINES announced new drilling results

from its Livengood project north of

Fairbanks. Results from the first five holes

(1,291 meters) of its 8,000 meter 2007

drilling program returned significant inter-

vals of gold mineralization. To date the

company and previous operators have

completed 21 drill holes in the core target

area, which covers a zone of mineraliza-

tion more than two kilometers long by at

least 0.5 kilometers wide.

The overall average thickness of the

mineralization encountered in these holes

is approximately 70 meters, with an overall

grade of 0.9 grams of gold per tonne.

Within this stratigraphically controlled,

low-grade body, the company has defined

a number of higher-grade structurally con-

trolled zones which appear to be acting as

higher-grade feeders. Highlights of drilling

within two areas of higher grade mineral-

ization include the Lillian zone which

returned 140.99 meters grading 1.30 grams

of gold per tonne in hole MK07-15;

127.14 meters grading 1.44 grams of gold

per tonne in hole MK06-07; and 41.89

meters grading 1.07 grams of gold per

tonne in hole MK07-12.

Mineralization at Lillian is hosted in

two volcanic units that contain disseminat-

ed pyrite and arsenopyrite which has been

overprinted by northwest and northeast

striking quartz-carbonate-arsenopyrite

veins which appear to increase overall gold

5NORTH OF 60 MINING

TheauthorThe author

Curt Freeman,CPG #6901, is awell-known geol-ogist who lives inFairbanks. He pre-pared this column CURT FREEMANJune 18. Freeman can be reached bymail at P.O. Box 80268, Fairbanks, AK99708. His work phone number atAvalon Development is (907) 457-5159and his fax is (907) 455-8069. His emailis [email protected] and his web site iswww.avalonalaska.com.


“We are pleased to have this issue behind

us,” said Doug Nicholson, Alaska Gold’s

general manager. “As acknowledged by the

court, this project will bring significant eco-

nomic benefits to the community of Nome.

Construction at Rock Creek is progressing

well. The truck shop, reagent building, leach

train and steel superstructure on the mill

building are up. Work is continuing on pip-

ing and electrical inside the buildings. We

continue to assemble our operations team

and are working diligently to achieve our

production target of Q3-2007, with full

commercial production by year end.”

The case may not be over yet, though, as

it is “more than likely” that the plaintiffs will

appeal to the 9th Circuit Court, attorney

Victoria Clark with Trustees for Alaska told

Mining News. The 9th Circuit is the same

court that overturned the district court’s rul-

ing that upheld the Corps’ 404 permit for

Kensington mine in Southeast Alaska.

Trustees for Alaska is a non-profit organi-

zation that provides its services pro bono

to the Nome residents it represents. ●


ROCK CREEK

● G U E S T C O L U M N

Mining news summary: Drills turningall over Alaska

A

see FREEMAN page 6

grades. Drill results from the Radio target

include 190.2 meters grading 0.96 grams

of gold per tonne in hole BAF-7 and 65.8

meters grading 0.80 grams of gold per

tonne in hole BAF-8.

Mineralization at Radio is hosted in silt-

stone-sandstone units and appears to be of

similar age as that at Lillian. However

mineralization at Radio appears to be asso-

ciated with a nearby intrusive body.

International Tower Hill Mines also

announced that drilling had begun on its

West Tanana project under option from

Doyon Ltd. The company believes that this

high-grade gold anomaly is related to a

stacked, low-angle vein system. The 2007

work program calls for an initial phase of 7

drill holes to test a number of gold vein

related targets.

Alaska RangeINTERNATIONAL TOWER HILL

MINES also said that drilling had begun on

its Terra gold project under option from

ANGLO GOLD ASHANTI. The current

two-drill program will follow-up on

encouraging drill results from 2006, focus-

ing on developing an initial resource in the

Ben Zone, one of four vein systems dis-

covered to date. The company expects to

complete approximately 15 drill holes in

order to assess approximately 500 meters

of strike length and 300 meters down dip

in the vein system.

Southern AlaskaAlaska newcomer HEMIS CORP.

announced that it had acquired ASPEN

EXPLORATION CORP.’S Anchor Point

submarine alluvial gold project in the Cook

Inlet. Under the terms of the agreement,

Aspen was paid $50,000 at signing and

will be paid this amount on each anniver-

sary of the agreement. Aspen also is enti-

tled to a 5 percent production royalty.

Hemis also announced that a prelimi-

nary oceanographic survey was begun in

early June. On board instrumentation

included a high-precision cesium magne-

tometer, a fathometer, side-scan sonar and

a StrataBox. The StrataBox is an instru-

ment capable of imaging through sedi-

ments up to 40 meters thick. This survey

was intended to both confirm previous

results and to provide baseline information

for a drilling program planned for later in

2007. Welcome to Alaska Hemis Corp.!

Northern AlaskaNOVAGOLD RESOURCES’ 3,000

meter drilling program is under way on its

Ambler volcanogenic massive sulfide proj-

ect in the Brooks Range. The 2007 compa-

ny said its exploration program includes

the goal of releasing a new mineral

resource summary and further drill testing

of both the Arctic deposit and nearby tar-

gets. NovaGold has initiated a preliminary

economic assessment for the Ambler proj-

ect.

Southeast AlaskaBRAVO VENTURE GROUP INC.

reported commencement of the 2007 min-

eral exploration program on its Woewodski

Island project in Southeast Alaska. The

company said final permits have been

issued, exploration crews are on site and

diamond drill equipment is en route for a

planned 2,400 meter drill program.

Initial exploration targets include the

Red Quartz, Miami Beach and Matt’s

Trench gold prospects as well as at the

East Lake volcanogenic massive sulfide

prospect. Follow-up rock sampling at Red

Quartz in 2007 has identified a new

epithermal gold-vein occurrence located

approximately 500 meters to the south of

the Red Quartz trend. The initial four rock

chip samples have returned values from

0.9 to 5.6 grams of gold per tonne.

Gold mineralization at Red Quartz has a

strong association with elevated silver,

arsenic and antimony, which is in sharp

contrast to the relatively low values of sil-

ver and pathfinder elements typically asso-

ciated with gold mineralization in other

parts of the project. The recent identifica-

tion of bladed quartz-after-calcite along

with drusy and banded quartz provide tex-

tural evidence of boiling within an epither-

mal environment.

Up to 600 meters of drilling is anticipat-

ed on this target as part of the 2007 explo-

ration program. Surface sampling and

mapping will continue in order to refine

additional drill targets and determine the

full strike extent of mineralization. At the

East Lake prospect surface gravity and

three-dimensional induced polarization

geophysical surveys are planned.

Previous exploration on the prospect

has identified well-preserved Late Triassic

volcanic and sedimentary stratigraphy and

a series of strong east west-trending elec-

tromagnetic conductors. Argillites hosting

broad intervals of base-metal and pre-

cious-metal enriched iron sulfides occur

both on surface and in historic drill inter-

cepts with grades up to 3.3 meters grading

4.2 grams of gold per tonne and 4.68 per-

cent zinc. Up to 800 meters of drilling is

anticipated as follow-up to the geophysical

targeting. ●

6NORTH OF 60 MINING



FREEMAN

● A L A S K A

Petition calls for Cook Inlet coal mining banAlaska DNR commissioner to decide if reclamation is possible in salmon-rich region; developer continuing with baseline studies


rustees for Alaska, the non-profit law firm that repre-

sented the Nome plaintiffs in the case against Rock

Creek mine, has teamed up with another citizens’

group to oppose coal mining in the Cook Inlet area.

The new group is called the Chuitna Citizens NO-

COALition, and together with Trustees for Alaska it has

petitioned the Department of Natural Resources to declare

the Chuitna watershed unsuitable for surface coal mining.

Last summer the U.S. Environmental Protection

Agency held a series of scoping meetings about the

Chuitna project, and the public responses received at the

meetings will be used to prepare a supplemental environ-

mental impact statement. Meanwhile, PacRim has been

conducting a baseline study program, including wetlands

and vegetation mapping, soil surveys and research into the

aquatic and terrestrial biology of the site. There has also

been some geotechnical drilling in the areas where facili-

ties would be placed, Bruce Buzby, who is responsible for

coal at DNR, told Mining News.

The project “threatens to destroy over 30 square miles

of intact fish and game habitat, including tributaries of the

salmon-rich Chuitna River. Additional adjacent leases in

the area could bring the total disturbed area to over 55

square miles,” the Chuitna Citizens NO-COALition said in

a release June 14. The organization believes that the com-

plex wetlands and salmon stream hydrology in the region

make reclamation “virtually impossible,” which is one of

the criteria required under the coal regulations in order for

an area to be designated unsuitable for mining.

First step is determination of completeness The petition itself is 58 pages long and it was accompa-

nied by 350 pages of supporting documents, Buzby said, so

DNR hasn’t yet fully reviewed the materials. Under feder-

al law, all states must make regulatory provisions to con-

sider such petitions with regard to surface coal mining.

Alaska’s regulations, which are almost identical to those in

other states, stipulate that the DNR commissioner must

decide within 30 days whether the petition is complete or

if more information is required. If the petition is complete,

a public hearing must be held within several months, and

after that the commissioner will decide the issue.

The Chuitna Citizens group notes that it has been

unable to access closed-door meetings between state and

federal regulatory agencies and PacRim Coal and its con-

sultants, and that it has asked Gov. Sarah Palin for an

“open-door permitting process.” The Beluga field, which

the Chuitna project would mine, contains about 1 billion

metric tons of subbituminous coal and the life of the mine

could be at least 25 years, according to PacRim Coal.

Another Alaska coal project was blocked recently when

residents of Chickaloon, north of Anchorage, protested a

planned exploration program by Vancouver-based Full

Metal Minerals. The company relinquished its leases. ●

T

By ROSE RAGSDALEFor Mining News

olybdenum prices have gained

altitude and performed a “loop

the loop” in recent years that aer-

obatic pilots would envy.

Skyrocketing from a low of $2 a

pound in 2002 to a peak of $50 a pound

in 2005, before dipping to the $20-a-

pound range last year and climbing back

to $33.75 a pound in mid-June, moly

prices are having a heck of wild ride.

Mining companies, in response, have

been scrambling to expand and start up

molybdenum projects. The trend is partic-

ularly evident in mineral-rich British

Columbia, where 1,350 molybdenum-

bearing occurrences have been identified.

Moly’s spectacular comeback stems

from unprecedented demand.

Consumption is up in manufacturing

hardened and anti-corrosive steel for use

in pipelines, oil and gas drilling, ships,

bridges and skyscrapers. The worldwide

trend towards cleaner air, despite an ever-

increasing number of motor vehicles, is

also adding to demand for the gray metal

as a catalyst, especially in newer applica-

tions such as converting coal to hydrocar-

bon liquids and making vital components

in nuclear power plants.

The robust global market for moly also

may be changing the nature of molybde-

num mining. Currently, 62 percent of the

world’s moly production is a by-product

of copper mining.

But moly is in such short supply that

numerous investors have launched stand-

alone moly projects in recent years.

In British Columbia, geologists list

430 mineral deposits in the province with

molybdenum as the primary commodity.

Nearly all of these moly-bearing occur-

rences were explored and identified up

until the 1980s when prices plummeted in

an earlier downward spiral from about

$30 a pound to less than $3 a pound.

Molybdenum production from 100

deposits in British Columbia between

1915 and 2004 totaled 320,300 tonnes,

and total resources in some 60 major

deposits exceed 1.9 million tonnes,

according to the B.C. Ministry of Energy

and Mines.

Enterprising companies are busy

reviving the most promising of these dis-

coveries.

Led by Thompson Creek Metals Co.,

formerly known as Blue Pearl Mining

Ltd., the pack is comprised of mostly jun-

ior mining companies.

This group is moving rapidly toward

expansion of existing production at

places like Thompson Creek’s Endako

Mine near Fraser Lake, B.C., but also

toward first production at several new

projects across the province.

Some B.C. deposits with high-grade

cores have the potential for facility pro-

duction to proceed relatively quickly, the

ministry said. These include Thompson

Creek’s Davidson project near Smithers,

B.C., and Roca Mines’ Max deposit, near

the southeastern corner of the province.

Adanac Moly Corp.’s Ruby Creek

deposit in northwestern B.C. and New

Cantech’s Lucky Ship project in the west-

central area also hold considerable prom-

ise, their developers say.

Endako updates outlook Thompson Creek Metals changed its

name from Blue Pearl Mining Ltd. after

acquiring the Thompson Creek mine in

Idaho, along with Endako and a metallur-

gical roasting facility in Pennsylvania in

October.

Now the world’s fifth-largest moly

producer, Toronto-based Thompson

Creek is also developing the Davidson

underground molybdenum project near

Smithers, B.C.

The Endako operation, which includes

an open-pit mine, concentrator and roast-

er, came into production in the mid-

1960s. Sojitz Corp., a Japanese-based

molybdenum trading company, owns 25

percent interest in the mine.

Annual output at Endako averages

about 9.44 million pounds, though pro-

duction this year is expected to exceed

the average by about 3 million pounds.

Endako has an estimated mine life of

seven years based on about 103 million

pounds of proven and probable molybde-

num reserves. In April, Thompson Creek

announced an updated measured and

indicated molybdenum resource estimate

of 463 million pounds of molybdenum

for Endako, calculated by the Vancouver

office of Wardrop Engineering Inc. The

analysis is part of a new mine plan for

Endako, incorporating updated operating

costs and a long-term molybdenum price

assumption of US$10 per pound.

Previous reserves estimates and existing

mine plan extending to 2013 assumed a

long-term molybdenum price of US$3.50

per pound, the company said.

As part of its review, Wardrop is

examining the feasibility of constructing

a super-pit, unifying Endako’s three exist-

ing pits into a large single pit, and of

increasing mine production to 50,000

tonnes per day from about 30,000 tonnes

per day, with a proportionate increase in

roasting capacity.

Startup looms at Max project Another company that scented oppor-

tunity in the wind in 2003 is Roca Mines

Inc., developer of the Max Molybdenum

Project near Revelstoke, B.C.

Since acquiring the deposit in August

7NORTH OF 60 MINING


● B R I T I S H C O L U M B I A

High prices excite B.C. moly investors Projects across the Canadian province race to starting line, while others gear up for expansion, additional studies

M

see MOLYBDENUM page 8’

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ENER

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8NORTH OF 60 MINING


2004, Vancouver, B.C.-based Roca has

galloped toward startup within three

years. In April, the company predicted it

would achieve first moly production by

mid-2007, making Max the first new pri-

mary molybdenum producer in Canada.

The initial phase of mining is expected

to produce about 1.5 million pounds of

contained molybdenum from each pro-

duction run of 72,000 tonnes. Roca said it

aimed to complete back-to-back produc-

tion runs in 2007, resulting in the produc-

tion of some 3 million pounds of con-

tained molybdenum.

Total annual operating costs (mine,

mill and overhead) are estimated to total

$7.2 million, or about $100 per tonne,

with capital costs of about $14 million

and payback of start-up capital within 10

months of construction startup, or four

months from mill startup.

Using a campaigned mining-milling

approach, Roca plans to recover much of

Max’s estimated 280,000 tonnes of high-

grade molybdenum within the first few

years of production.

Earlier this year, Roca decided to

accelerate phase 2 of its plan for develop-

ing the Max deposit with additional

exploration and underground construction

to increase access to the deposit.

Roca said the global measured and

indicated resource at the Max project is

nearly 43 million tonnes, grading 0.20

percent molybdenum at a 0.10 percent

molybdenite cutoff, meaning more than

$3 billion in contained metal value is at

stake with moly selling for at least $30 a

pound. This estimate does not include

inferred resources and the Max deposit

remains open at depth.

Roca is also advancing plans to

explore the property for tungsten, at both

underground and surface tungsten targets.

The surface strike length of known tung-

sten mineralization on the property now

totals 1,450 meters in length and extends

over a vertical range of 600 meters.

Future exploration will focus on

expanding the resource both at depth and

in areas surrounding the main deposit.

Roca said it has formed an advisory board

of porphyry molybdenum experts to

guide the company with further explo-

ration plans at Max.

Several molybdenum deposit experts

have observed that the Max deposit has

similarities to the URAD deposit (the

uppermost deposit associated with the

famous 700 million-plus tonne

Henderson deposit). Henderson has oper-

ated since 1976 as a primary molybde-

num underground mine and is projected

to remain an economic producer for

another 20 years, Roca officials say.

Originally prized for the relatively

small (about 13.7 million tons of .35 per-

cent MoS2) URAD ore body, subsequent

drilling in 1965 revealed what is now the

Henderson deposit within Red Mountain.

The Henderson mine 40 years later is

operating at more than 30,000 tonnes per

day, making it one of the largest under-

ground mines in the world.

At this point, Roca is wondering if the

43-million-tonne Max deposit could be an

upper offshoot of something much bigger

lurking under Trout Mountain.

Ruby Creek races to be firstAdanac’s Ruby Creek Molybdenum

Deposit is a low-grade bulk-type occur-

rence estimated to contain a measured

and indicated resource of 220 million

pounds of molybdenum ore. Located 124

kilometers southeast of Whitehorse and

22 kilometers northeast of Atlin, B.C.,

Ruby Creek was staked for Adanac

Mining and Exploration Co. Ltd. in 1967.

Extensive exploration of the property

ensued until the early 1980s, but the own-

ers then dropped the minerals claims.

In 2001, Adanac Gold Corp (formerly

Stirrup Creek Gold Corp) purchased and

staked extensive mineral claims in the

Atlin Mining Division, including the

10,000-acre Ruby Creek molybdenum

deposit.

So far, the company has invested $11

million in the project, bringing total

investment in Ruby Creek to $35 million.

Recognizing the current moly trend in

late 2003, Adanac implemented a plan to

produce molybdenum from the Ruby

Creek deposit by early 2009, ahead of all

other competing projects.

Adanac, which also owns three molyb-

denum and/or copper-molybdenum

deposits in Nevada, is developing a

20,000 tonne-per-day open pit mine at

Ruby Creek. The company estimates total

production of about 164 million pounds

of molybdenum over the mine’s life of 21

years.

The junior aims to develop a high-

grade (0.84 percent) starter pit during the

first five years of production, while con-

tinuing to explore the deposit. Ruby

Creek’s resource is open to depth to the

west and south.

Preproduction capital, including oper-

ating costs, is estimated at C$434 million,

with average operating costs of $5.87 per

pound during the first five years.

Adanac says it has a 12- to 18-month

lead over competing greenfield projects,

and Ruby Creek is positioned to become

the first major primary molybdenum mine

brought into production in decades.

Davidson offers future promiseMolybdenum was discovered at the

Davidson Project, formerly known as the

Yorke-Hardy deposit, under Hudson Bay

Mountain in 1944. Extensive exploration

since revealed a high-grade deposit with

excellent potential for selective bulk

underground mining.

With a measured and indicated

resource of nearly 300 million pounds of

molybdenum at Davidson, Thompson

Creek is envisioning first production in

2008, assuming a plan to process the ore

at Endako, which is 200 kilometers away,

proves to be economic. A feasibility study

is under way.

Lucky Ship could set sailNew Cantech Ventures Inc. of White

Rock, B.C., is pursuing development of

the Lucky Ship Molybdenum Project near

Morice Lake south of Smithers, B.C.

The company announced in May com-

pletion of a preliminary economic assess-

ment of the project that demonstrates pos-

itive economics as a 10,000 tonnes-per-

day open pit mine. The independent study

shows the mine could operate continuous-

ly for 16 years using conventional open

pit equipment. Powered by hydropower,

the mining process would produce a

molybdenite concentrate for direct sale.

A recent estimate of the indicated and

inferred resource at Lucky Ship is 62 mil-

lion tons, grading at 0.70 percent of

MoS2.

New Cantech is continuing to explore

the property. ●


MOLYBDENUM

Molybdenum core sample at Ruby Creek

Molybdenum ore at Ruby Creek

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eology isn’t always a fast-moving

business, especially when you con-

sider that minerals lie around for bil-

lions of years before they’re discov-

ered and eventually mined. So the fact that

Toronto-based Starfield Resources has

recently sprung into action after almost a

decade of relative quiescence shouldn’t

mean too much in the grand scheme of

things. What matters is that the company is

now taking serious steps towards develop-

ment of its sole project, the Ferguson Lake

polymetallic deposit in Nunavut.

Starfield appointed a new president and

CEO, André Douchane, in February, and in

April the company began trading on the

TSX. It also initiated a scoping study for

Ferguson Lake that is due to be completed

by the end of the year. In May Starfield

filed a new 43-101 that showed an indicat-

ed mineral resource estimate for the proper-

ty’s Main West Zone of 15.2 million metric

tons grading 0.71 percent nickel, 1.04 per-

cent copper, 0.08 percent cobalt, 1.64

grams-per-ton palladium and 0.28 grams

per-ton-platinum. The previous year’s 43-

101 showed an indicated resource of 8.7

million tons.

The Ferguson Lake property was dis-

covered by Inco in the 1940s and held by

that company until the mid-1990s, when

Inco dropped it and it was picked up by a

couple of prospectors, Douchane explained

in a presentation at the RBC Capital

Markets Mining and Metals Conference in

Toronto June 13.

“Starfield was an entrepreneurial com-

pany at that point in time and got involved

with the prospectors,” Douchane said.

“They raised about $71 million over a peri-

od of time and discovered the large sulfide

deposit. From there, like any entrepreneur-

ial company, they needed to change. The

board changed and they went looking for

professional management to take this com-

pany into the development stage, which

they did. I joined the company in February,

took a good look at it, just loved the asset

and liked the challenge.”

West Zone holds most of mineralization

Most of the mineralization at Ferguson

Lake is located in the West Zone, which is

about 4 kilometers long. In 2006 Starfield

put in 116 diamond drill holes and 20 geot-

echnical holes in the West Zone to try and

upgrade it from an inferred resource to an

indicated resource. All of the geotechnical

holes hit sulfide. The deposit occurred in

the Archean period, 3.8 billion to 2.5 billion

years ago, when life first appeared on

Earth, and when most of the world’s major

mineral deposits were formed. “If you’re in

Archean greenstones, you’re on the

Serengeti looking for lions, it’s the same as

you’re looking for gold in the greenstones,”

Douchane said. “If you’re in the Archean

period you’re in the right place and time.”

The deposit is a multi-layer ultra-mafic

intrusive, about 15 kilometers long and 6

kilometers wide at one end, 1.5 kilometers

wide at the other end. Some of the ore

comes to the surface, so the deposit could

become both an open pit and an under-

ground mine, according to Douchane.

Based on mining a million tons of ore,

potential revenue from Ferguson Lake

could be between $365 million and $500

million, depending on operating costs and

metals prices, Douchane estimates.

Demand for platinum, palladium and

other platinum group metals that are pres-

ent at Ferguson Lake will soar in the com-

ing years, Douchane believes. This is main-

ly due to the vast numbers of cars that peo-

ple in China and India are purchasing.

“Every catalytic converter needs a little

rhodium. That’s what takes care of the

nitrous oxides. Every catalytic converter

needs a small amount of platinum to stabi-

lize that rhodium,” Douchane said.

Gasoline engines are also likely to require

some palladium, he added.

For this year’s field program Starfield

has a budget of about $11 million, which

will be used to investigate a high-grade

footwall platinum-group-metals zone at

Ferguson Lake. “There’s a narrow thick-

ness that seems to go through it. It’s about a

foot in thickness, 0.35 meters, runs 1 ounce

of platinum, 3 ounces of palladium and

one-tenth of an ounce of rhodium,”

Douchane said. “It’s extremely rich. ...

That’s what we’re going to spend some

time on this summer to see if that’s real.”

If the permitting process goes according

to plan, construction of a mine could begin

in three years. Metallurgical test work for

Ferguson Lake is being conducted by SGS

Lakefield. Starfield is also working in con-

junction with Montreal’s McGill University

to develop an energy-efficient metals

recovery method. The research is focused

on the critical process step of iron precip-

itation and regeneration of the hydrochlo-

ric acid needed for the leaching step.●

9NORTH OF 60 MINING


● N U N A V U T

Starfield Resources sees shine in PGMsFerguson Lake property in Nunavut could supply metals for booming auto markets in India, China if junior company makes good

The deposit occurred in theArchean period, 3.8 billion to 2.5billion years ago, when life firstappeared on Earth, and when

most of the world’s major mineraldeposits were formed.

G

Starfield will be investigating a high-grade footwall PGM zone at Ferguson Lake this summer

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ortunately for Alaska, there are rela-

tively few abandoned mine sites in the

state that pose a hazard to the public.

Historically, placer mining was wide-

spread in Alaska, which means there aren’t

too many deep adits where necks can be

broken. But there is still reclamation work

to be done, and when there is no new owner

to take responsibility on federal lands, the

Bureau of Land Management steps in. Over

the past few years staff from BLM’s

Fairbanks office have been working at two

sites on Harrison Creek and Nome Creek in

Interior Alaska.

Nome Creek is in the White Mountains

National Recreation Area and Harrison

Creek is in the Steese National

Conservation Area, and both creeks drain

into national wild rivers that flow into the

Yukon Flats National Wildlife Refuge,

BLM’s Linda Musitano explained May 16

at the Northern Latitudes Mining

Reclamation Workshop in Juneau. Both the

Recreation Area and the Conservation Area

are closed to further mineral entry, but there

are still a handful of active mining claims in

the Harrison Creek drainage, she added.

The scale of the Harrison Creek project

was much larger than that of the Nome

Creek project. “The Nome Creek area was

mined historically by dredge and dragline,

while Harrison Creek was mined primarily

by heavy earth-moving equipment, and the

access to the sites differs as well,” Musitano

said. Nome Creek is about 30 miles north of

Fairbanks and a state-maintained road goes

there, while Harrison Creek is only accessi-

ble via a seasonal mining road.

Nome Creek a popular recreation areaBLM’s concern about Nome Creek was

heightened because it is a popular recreation

area for activities that include camping,

fishing and gold panning. The upper middle

reaches of Nome Creek were dredged and

extensively placer mined from the late

1800s to about 1980. Evidence of mining,

such as old dredge buckets, still remains

there today. “Most of Nome Creek’s stream

channel and associated floodplain were dis-

turbed by dredges and the earth-moving

equipment and much was left in an unre-

claimed state,” Musitano said. “It had been

diverted and its banks totally reworked until

it was almost unrecognizable as a stream in

some parts. By 1980, when it became part

of the White Mountains Recreation Area,

over seven miles of the stream were dis-

turbed by mining.”

The overall project goal at Nome Creek

was to reduce the erosion problem by stabi-

lizing the channel and creating a function-

ing floodplain. BLM began a streamflow

monitoring project at Nome Creek in 1989

and the information was used to help design

a new stream channel and a suitable flood-

plain for the upper reaches of the drainage.

Peak flow gauges were installed at two sites

on Nome Creek and one site on Moose

Creek in 1989, and 10 years later an auto-

mated water level recorder was installed.

Reclamation work began with filling in

the settling pond by using the material from

the surrounding tailing piles and then grad-

ing the area as flat as possible with the grade

not to exceed 3:1. A pilot channel was then

dug, avoiding the filled-in ponds. For

revegetation work, BLM worked with the

Plant Materials Center in Palmer, testing

various grass species and willow planting

techniques.

“We had good results with the grass seed

mixture that was spread on the tailing

piles,” Musitano said. “At the beginning of

the project the seeding rates were at about

55 pounds per acre. This was continued for

about three years and then it was observed

that the grasses were probably interfering

with the natural revegetation of the willows,

so the rates were reduced to 36 pounds per

acre, and they were only put on the areas

that were highly erodable. Fertilizer was

also applied annually to the newly con-

structed floodplains ... at rates ranging from

330 pounds per acre to 400 pounds per acre.

The sites treated annually with the fertilizer

exhibited faster rates of return for natural

revegetation of willows than the sites that

were not treated with the fertilizer.”

Results from the project showed that site

selection, planting techniques and summer

weather routines all factor into plant sur-


● A L A S K A

Hemis launches hunt for offshore goldSwiss junior brings hi-tech world of marine exploration to Alaska’s Cook Inlet, plans drill program after oceanographic survey


geologist who worked in Alaska decades ago is

following a long-harbored ambition to find out if

there is gold on the seabed in Cook Inlet. Doug

Oliver helped to build the trans-Alaska oil pipeline

and returned to the state in the early 1980s with Tenneco

Minerals, which had several exploration projects at the

time. Tenneco was approached by Aspen Exploration to

look for the offshore gold, but a deal couldn’t be

reached. Oliver was always interested in the idea and is

now pursuing it with Zurich, Switzerland-based Hemis

Corp.

Aspen did do some preliminary work — remote sens-

ing and geophysical surveys — but it didn’t get as far as

drilling, Oliver told Mining News. The surveys identi-

fied a number of magnetic anomalies which were

encouraging, taken in conjunction with the gold that can

be found on Cook Inlet’s beaches, he said. Hemis, a

recently formed junior, is conducting an oceanographic

survey this summer, collecting data about the sea floor,

with the goal of starting a month-long drilling program

when the fishing season ends in September.

The project is known as Anchor Gold and it is based

out of Anchor Point, near Homer on the Kenai Peninsula.

Currently two geophysicists go out on a 20-foot boat

using on-board instrumentation including a high-preci-

sion cesium magnometer, a fathometer, side-scan sonar

and a StrataBox. The StrataBox is an instrument capable

of imaging through sediments up to 40 meters thick. So

far the survey has indicated that the water depth in the

area of interest is often less than 10 meters, which would

be ideal for drilling, according to Hemis.

About $1 million will be spent this yearThe company has hired two consultants with Entrix to

deal with permitting and equipment for the drill pro-

gram. Hemis will have to obtain a boat that is at least 60

feet long and possibly up to 100 feet long, Oliver said.

The consultants have been talking to several companies

that have experience drilling in Cook Inlet for civil engi-

neering projects and bridge foundations, and the drillers

insist that the boat must have a moon pool in the center

— not at one end — through which to load the drill rods,

because that setup is the most stable. About 14 people

will be involved in the drill program.

Cook Inlet is a tricky place to work because of its cur-

rents and tides, Oliver said. The drillers will need to

make sure that parts of the sample don’t wash away

when they are being brought to the surface, he added.

Hemis plans to spend about $1 million on the offshore

project this year, and a large component of that will be

the cost of running the anchors and winches, which are

“enormous,” according to Oliver.

Offshore mining has a very limited history, and Oliver

is aware that the obstacles may be too great. “We need to

figure out a way to do it in an environmentally sound

manner — it might not be possible to do that, or it might

be uneconomic,” he said. De Beers has successfully

mined diamonds off the coasts of South Africa and

Namibia, and Vancouver-based Nautilus Minerals plans

to start mining gold and copper off the coast of Papua

New Guinea in 2009. ●

A

● A L A S K A

BLM reclaims historic mining propertiesEnvironmental conditions at Nome Creek and Harrison Creek watersheds in Interior Alaska have been significantly improved

F

see RECLAMATION page 15

11NORTH OF 60 MININGPETROLEUM NEWS • WEEK OF JUNE 24, 2007

● A L A S K A

‘The Birdman of Treadwell’Diary of a Treadwell Gold Miner 1903-1904, by Edwin Warren, presented by Barry Kibler, AuthorHouse, $8.30


f Edwin Warren’s diary is anything to go by, most min-

ers in Alaska in the early 20th century were more inter-

ested in spending their paychecks on booze and

debauchery than writing eloquent accounts of their

daily lives and natural surroundings. But Warren was dif-

ferent. An avid ornithologist and devout Christian, he ago-

nized over whether to work on a Sunday and wished that

the local Indians could be kept away from the worst influ-

ences of white people.

Warren’s grandson, Barry Kibler,

has published his diary of the years

1903-04, when he worked at the

Treadwell gold mines in Douglas,

near Juneau. The book is illustrated

with several photos from the era and

a few taken more recently by Kibler

himself. Warren set out for Alaska in

April 1903 from Pacific Grove,

Calif., on his “wheel” — his trusty

bicycle — and rode to Sacramento.

He took the train to Portland, Ore.,

and from there traveled via Seattle

and Cloverdale, British Columbia, to

Vancouver. A steamer took him to

Ketchikan, where he boarded another ship to Douglas,

arriving in mid-June.

Warren bothered by gas, smoke in mineWarren was immediately hired for night shifts at the

mine, and after just one week of work he was already hav-

ing difficulties. “The gas and smoke have bothered me a

good deal, making my head ache,” he wrote on June 24.

“Last night, the boss put me in a different part of the mine

and I got along better.” Not all that much better, apparent-

ly, as on July 29 Warren reported that he had fainted

recently from the effects of the gas, and that it was the

only time in his life he had fainted.

On Aug. 1 Warren received his first paycheck, amount-

ing to $50.30. He sent most of it home to save for his

tuition at Stanford University, preferring not to go down-

town to celebrate with “lots of the boys.” Four days later

three men were killed in the mine and others were badly

injured when a cable broke, causing a skip loaded with ore

to drop to the bottom of the shaft. On Aug. 6, Warren him-

self narrowly escaped an underground collision that would

have been fatal.

By the time they closed down in 1917, approximately

200 men had been killed at the Treadwell mines. But

despite the harshness of the working conditions, Warren

was always able to appreciate the beauty of Southeast

Alaska. “The mountains across the channel cast their dark

shadows into the still water, and over their tops to the

northward was a soft, mellow, light,” he wrote on Aug. 22.

“It seems as if one could see wonderful things from those

summits on a night like this.”

In September the miners were disturbed by a ghost that

“appeared in hip-boots and slicker” and “finally disap-

peared through a raise, climbing up hand over hand on an

invisible rope,” as Warren was told. A few days later he

discovered the explanation: “It now appears that the ghost

which appeared to Dick was especially prepared for the

occasion by some of the boys, and let down by a string

into the pit where he was working. Dick was fired for cir-

culating his ghost yarn, as the bosses were afraid it would

cause some of the men to quit.”

Treadwell mine complex produced 3 million ouncesWarren’s diary is thoughtful and often entertaining, and

serves as a fascinating snapshot of the life of an ordinary

miner in the Gold Rush years. Kibler has also included a

brief portrait of John Treadwell, a carpenter and builder

who mined in California and Nevada before coming to

Alaska and purchasing claims in 1881. The Treadwell

mine complex became the largest gold mine in the world,

eventually producing 3 million ounces. Treadwell sold his

interest in the mines for $1,500,000 and returned to

California, where he filed for bankruptcy in 1914 after

starting a failed business.

The book’s only shortcomings are minor errors that

should have been caught by a proofreader, for example

referring to this newspaper as “Mining News SE Alaska”

in one instance and then as “Miner North” in another.

Some of the problems are due to the careless use of an

automatic spelling-checker, which resulted in Nansen

(author of “Farthest North,” which Warren was reading)

being referred to as Nauseas on page 19 and Mansen on

page 28. Similarly, LeConte, author of “Elements of

Geology,” is called LeLeontis on page 28 and LeCeonte

on page 32.

One other point that requires further clarification is the

date of the diary entry on page 45, which is given as May

5, 1903, when Warren puts his “wheel” into storage in

Seattle. This entry concludes the first year of the diary and

occurs directly after the entry for Nov. 24, 1903. So either

the May 5 entry is in the wrong place, or the date should

perhaps be November or December 1903. It cannot refer

to 1904, as by that time Warren was back in Alaska.

More information about Edwin Warren and his diary

can be found on Barry Kibler’s web site:

http://www.pagebypagedesigns.com/journals. ●

I

Edwin Warrenworked at theTreadwell mines tosave money for histuition at StanfordUniversity, which helater attended.

The last remaining stamp mill at the Treadwell mines near Juneau.

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12NORTH OF 60 MINING


● Y U K O N

Yukon government comes to Minto’s aidSherwood Copper revises its power purchase agreement that will hook mine to the grid, and produces first copper-gold concentrates


he open pit Minto mine in the Yukon produced its

first copper-gold concentrates in late May as part of

the equipment commissioning process. Production

is forecast to ramp up to full capacity during the

third quarter of 2007, Vancouver-based Sherwood

Copper announced May 31.

“This is an exciting day for Sherwood and everyone

involved in the rapid transformation of the company to

producer status,” said Sherwood’s president and CEO,

Stephen Quin. “In less than two years we acquired the

partially constructed but dormant Minto project, re-

drilled the resources to reserve standards, completed a

bankable feasibility study, arranged project financing,

built a brand new mine and staffed it for production.”

At almost the same time as the concentrates were pro-

duced, Sherwood received another dose of good news

from the Yukon Utilities Board, which approved an

amended power purchase agreement which could enable

Minto to have access to grid power by the end of 2008,

replacing diesel and significantly reducing mine operat-

ing costs.

Yukon stepped in on power purchase agreementThe Yukon government earlier stepped in to help rewrite

the power purchase agreement after the Yukon Utilities

Board expressed some doubts about it. Minto Explorations,

a subsidiary of Sherwood, signed the agreement with

Yukon Energy Corp., but the Yukon Utilities Board raised

a number of unexpected concerns.

“Sherwood is appreciative of Yukon Government’s pro-

gressive approach to the power purchase agreement,”

Stephen Quin said May 15. “The result of the amendment

to the PPA is that Sherwood obtains the certainty with

respect to capital and operating costs that it needs, allowing

its shareholders to benefit from reduced energy costs at an

acceptable level of risk, while Yukon stakeholders gain sig-

nificant benefits from incremental energy sales, infrastruc-

ture development and taxes, while at the same time reduc-

ing the generation of greenhouse gases in the Yukon.”

One of the issues raised by the Yukon Utilities Board

about the power plan was that Minto Explorations’ pro-

posed $7.2 million contribution to the construction of a 138

kilovolt transmission line extension and $3.8 million pay-

ment for the construction of a transmission spur line to the

mine site should not be fixed amounts, but instead should

be based on a percentage of the project costs. “The board is

concerned about the level of risk associated with this

financing,” it said in its decision.

The board also questioned Yukon Energy’s plan to pur-

chase Minto’s four 1.6 megawatt diesel generators for

$2.24 million. “YEC has not demonstrated a need for the

units nor provided an adequate business case supporting

this option,” the board said. This is particularly true in light

of the Yukon government’s decision to provide funding for

the Aishihik hydroelectric power station’s third turbine, a 7

megawatt generator that could be in service by 2009, the

board noted.

Key modifications to the original PPA are a fixed rate to

the end of 2012 of 10 cents per kilowatt hour, a rate that

would escalate on an annual basis in accordance with an

inflation measure; and a guarantee by the Yukon

Development Corp. of the financing risks related to the

Minto capital contribution payments, including responsi-

bility for any risk that the amount of Minto’s contribution

for the main line may increase beyond $7.2 million.

Phase 2 mill expansion to be acceleratedIn other developments at Minto, Sherwood announced

April 11 that it would accelerate the Phase 2 mill expansion

using funds from a recently completed convertible deben-

ture financing. “We will be able to maintain our current

construction momentum by rolling straight from Phase 1

mine construction into Phase 2 mill expansion utilizing our

existing contractors,” Quin said.

Minto’s feasibility study assumed that the Phase 2 mill

expansion from 1,563 metric tons per day to 2,400 tons per

day would take place during the first year of operations and

would be funded from cash flow, once available. Sherwood

now aims to complete the Phase 2 expansion by the end of

2007, six to nine months ahead of previous forecasts. The

layout and design of the mill expansion will be adjusted to

allow for future increases, beyond 2,400 tons per day.

The construction managers at Minto are JDS Energy &

Mining; engineering and procurement for the mine is being

done by Hatch Ltd.; and construction by Clark Builders. All

major equipment has already been installed and the remain-

ing work principally consists of piping, electrical and

instrumentation tie-ins. High grade copper-gold ore is a few

meters from being exposed, with pre-stripping more than

85 percent complete.

On April 24 Sherwood announced that the Yukon gov-

ernment’s Department of Economic Development had

awarded Minto Explorations up to $200,000 in funding to

support the advancement of the Area 2 discovery towards a

production decision. “The discovery of the adjacent Area 2

deposit provides an opportunity to extend the mine life

and/or increase production to the benefit of all stakeholders

in the project,” Quin said. “I am appreciative of the proac-

tive and supportive role of Yukon government in assist-

ing in the development of the mining industry in Yukon,”

he added. ●

“The discovery of the adjacent Area 2 depositprovides an opportunity to extend the mine lifeand/or increase production to the benefit of all

stakeholders in the project.” —Stephen Quin,Sherwood Copper president, CEO

T

Construction at Minto is now complete and the first copper-gold concentrates were produced in late May.

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Mining Companies

Fairbanks Gold Mining/Fort Knox Gold MineFairbanks, AK 99707Contact: Lorna Shaw, community affairs directorPhone: (907) 488-4653 • Fax: (907) 490-2250Email: [email protected] • Web site: www.kinross.comLocated 25 miles northeast of Fairbanks, Fort Knox isAlaska’s largest operating gold mine, producing340,000 ounces of gold in 2004.

Niblack Mining Corp.Suite 615-800 W. Pender St.Vancouver, BC V6C 2V6Contact person: Paddy NicolPhone: (604) 682-0301 ext. 106Fax: (604) 682-0307E-mail: [email protected]: www.niblackmining.com

NovaGold Resources Inc.2300 – 200 Granville Street Vancouver, BC V6C 1S4Contact person: Ariadna PeretzPhone: 1 (866) 669-6227Fax: (604) 669-6272E-mail: [email protected] office: Alaska Gold Company P.O. Box 640 115 6th Avenue West Nome, AK 99762-0640Website: www.novagold.netNovaGold Resources Inc. is a gold and copper companyengaged in the exploration and development of min-eral properties in Alaska and Western Canada.

Rimfire Minerals Corp.Vancover, BC V6C 1G8 Canada

Contact: Ahnna Pildysh, Mkt. CoordinatorPhone: (604) 669-6660Fax: (604) 669-0898Email: [email protected] • Web site:www.rimfire.bc.caGold and silver projects in Alaska, Yukon, BC andNevada. Preferred partner of senior mining firms.Partnered with the world’s three largest gold produc-ers.

Usibelli Coal MineFairbanks, AK 99701Contact: Bill Brophy, vp cust. relationsPhone: (907) 452-2625 • Fax: (907) 451-6543Email: [email protected] • Web site: www.usibelli.comOther OfficeP. O. Box 1000 • Healy, AK 99743Phone: (907) 683-2226Usibelli Coal Mine is headquartered in Healy, Alaskaand has 200 million tons of proven coal reserves.Usibelli produced one million tons of sub-bituminouscoal this year.

Service, Supply & Equipment

3M Alaska11151 Calaska CircleAnchorage, AK 99515Contact: Paul Sander, managerPhone: (907) 522-5200Fax: (907) 522-1645Email: [email protected]: www.3m.comServing Alaska for over 34 years, 3M Alaska offers totalsolutions from the wellhead to the retail pump with abroad range of products and services – designed toimprove safety, productivity and profitability.

Ace TransportAnchorage, AK 99502Contact: Henry Minich, ownerPhone: (907) 243-2852 • Phone: (907) 229-9647 (cell)Fax: (907) 245-8930 • Email: [email protected] in heavy hauling. Equipment includes 85-ton lowboy.

Aeromed InternationalAnchorage, AK 99503Contact: Brooks Wall, directorPhone: (907) 677-7501 • Fax: (907) 677-7502Email: [email protected] • Web site: www.ykhc.orgAeromed International is an all jet critical care airambulance fleet based in Anchorage. Medical crewsare certified Flight Nurses and certified FlightParamedics.

Air LiquideAnchorage, AK 99518Contact: Brian BensonPhone: (907) 273-9762 • Fax: (907) 561-8364Email: [email protected] Liquide sells, rents, and is the warranty station forLincoln, Miller, Milwaukee, Victor and most otherwelding equipment and tool manufacturers.

Alaska Cover-All 6740 Jollipan Crt.Anchorage, AK 99507Contact: Paul Nelson, mgr.Phone: (907) 346-1319 • Fax: (907) 346-4400E-mail: [email protected]: Scott Coon Phone: (907) 646-1219 • Fax: (907) 646-1253Email: [email protected] Call Center: 1-800-268-3768

Companies involved in Alaska andnorthwestern Canada’s mining industry

D I R E C T O R Y

see next page

The Red Dog mine in northwest Alaska.


We are the Alaska dealers for Cover-All BuildingSystems. Steel framed, fully engineered, LDPE fabriccovered, portable buildings in 18 to 270 foot widthsand any length.

Alaska Earth SciencesAnchorage, AK 99515Contact: Bill Ellis, Rob Retherford or Dave Lappi, own-ersPhone: (907) 522-4664 • Fax: (907) 349-3557Email: [email protected] full service exploration group that applies earth sci-ences for the mining and petroleum industries provid-ing prospect generation, evaluation and valuation,exploration concepts, project management, geographicinformation systems and data management. We alsoprovide camp support and logistics, geologic, geo-chemical and geophysical surveys.

Alaska Frontier ConstructorsP.O. Box 224889Anchorage, AK 99522-4889Contact: John Ellsworth, PresidentPhone: (907) 562-5303Fax: (907) 562-5309Email: [email protected] heavy civil construction company specializingin Arctic and remote site development with the experi-ence, equipment and personnel to safely and efficient-ly complete your project.

Alaska Steel Co.1200 W. DowlingAnchorage, AK 99518Contact: Joe Lombardo, vice presidentPhone: (907) 561-1188 • Toll free: (800) 770-0969 (AKonly)Fax: (907) 561-2935Email: [email protected] Fairbanks Office:2800 South CushmanContact: Dan Socha, branch mgr.Phone: (907) 456-2719 • Fax: (907) 451-0449Kenai Office:205 Trading Bay Rd.Contact: Will Bolz, branch mgr.Phone: (907) 283-3880 • Fax: (907) 283-3759Full-line steel and aluminum distributor. Complete pro-cessing capabilities, statewide service. Specializing inlow temperature steel and wear plate.

Arctic ControlsAnchorage, AK 99501Contact: Scott Stewart, presidentPhone: (907) 277-7555 • Fax: (907) 277-9295Email: [email protected]: www.arcticcontrols.comAn Alaskan owned and operated company since,1985,Arctic Controls has been highly successful as manufac-turer representatives for the state of Alaska in theProcess Control and Instrumentation field.

Arctic FoundationsAnchorage, AK 99518-1667Contact: Ed YarmakPhone: (907) 562-2741 • Fax: (907) 562-0153Email: [email protected]: www.arcticfoundations.comSoil stabilization – frozen barrier and frozen core damsto control hazardous waste and water movement.Foundations – maintain permafrost for durable highcapacity foundations.

Chiulista Camp Services/Mayflower Catering6613 Brayton Dr., Ste. CAnchorage, AK 99507Contact: Joe Obrochta, pres.Contact: Monique Henriksen,vp.Phone: (907) 278-2208 • Fax: (907) 677-7261Email: [email protected] 100 percent Alaska Native owned and operatedcatering company on the North Slope, catering andhousekeeping to your tastes, not ours.

CN AquatrainAnchorage, AKContact: Laurie A. Gray, agentPhone: (907) 279-3131Toll Free: (800) 999-0541 • Fax: (907) 272-3963CN Aquatrain has provided Alaska with dependableaccess to Canadian and Lower 48 markets for 38 years.

Construction Machinery5400 Homer Dr.Anchorage, AK 99518Contact: Ron Allen, Sales ManagerPhone: (907) 563-3822 • Fax: (907) 563-1381Email: [email protected] • Web site: www.cmiak.comOther Offices: Fairbanks officePhone: 907-455-9600 • Fax: 907-455-9700Juneau officePhone: 907-780-4030 • Fax: 907-780-4800Ketchican officePhone: 907-247-2228 • Fax: 907-247-2228

Wasilla OfficePhone: 907-376-7991 • Fax: 907-376-7971

Dowland-Bach Corp.6130 Tuttle Pl.P.O. Box 230126Anchorage, AK 99523Contact: Lynn Johnson, presidentPhone: (907) 562-5818 • Fax: (907) 563-4721E-mail: [email protected]: www.dowlandbach.com

Egli Air HaulP.O. Box 169King Salmon, AK 99613.Contact: Sam EgliPhone: (907) 246-3554 • Fax: (907) 246-3654Email: [email protected] • Web site:www.egliair.comServing Alaska since 1982, we perform a wide varietyof flight operations, including airplane and helicoptercharter, aerial survey, and specialized operations suchas external load work, powerline maintenance, aerialfilming and videography.

Foundex Pacific2261 Cinnabar LoopAnchorage, AK 99507Contact: Howard Grey, managerPhone: (907) 522-8263 • Fax: (907) 522-8262E-mail: [email protected] • Website:www.foundex.comOther offices:Surrey, BC CanadaContact: Dave WardPhone: 604-594-8333Email: [email protected] services relating to exploration, geotechnicalinvestigations and wells.

GPS EnvironmentalIndustrial Water/Wastewater & Mining Equipment3340 Arctic Blvd., Suite 102Anchorage, AK 99503Contact: Paul SchuittPhone: (907) 245-6606 • Cell: (907) 227-6605Fax: (928) 222-9204Email: [email protected]: www.pgsenvironmental.comGPS Environmental, LLC is a manufacturers representa-tive company representing companies that manufac-turer water treatment, wastewater treatment, miningequipment and modular camps.

Jackovich Industrial & Construction SupplyFairbanks, AK 99707Contact: Buz JackovichPhone: (907) 456-4414 • Fax: (907) 452-4846Anchorage officePhone: (907) 277-1406 • Fax: (907) 258-170024- hour emergency service. With 30 years of experi-ence, we’re experts on arctic conditions and extreme

weather.

Judy Patrick PhotographyAnchorage, AK 99501Contact: Judy PatrickPhone: (907) 258-4704 • Fax: (907) 258-4706Email: [email protected]: JudyPatrickPhotography.comCreative images for the resource development industry.

LyndenAlaska Marine Lines • Alaska Railbelt MarineAlaska West Express • Lynden Air CargoLynden Air Freight • Lynden InternationalLynden Logistics • Lynden TransportAnchorage, AK 99502Contact: Jeanine St. JohnPhone: (907) 245-1544 • Fax: (907) 245-1744Email: [email protected] combined scope of the Lynden companies includestruckload and less-than-truckload highway connec-tions, scheduled barges, intermodal bulk chemicalhauls, scheduled and chartered air freighters, domesticand international air forwarding and international seaforwarding services.

MRO SalesAnchorage, AK 99518Contact: Don PowellPhone: (907) 248-8808 • Fax: (907) 248-8878Email: [email protected]: www.mrosalesinc.comMRO Sales offers products and services that can helpsolve the time problem on hard to find items.

Northern Air Cargo3900 W. International Airport Rd. Anchorage, AK 99502Contact: Mark Liland, acct. mgr. Anch./Prudhoe BayPhone: (907) 249-5149 • Fax: (907) 249-5194Email: [email protected] • Website: www.nac.aeroServing the aviation needs of rural Alaska for almost50 years, NAC is the states largest all cargo carrier mov-ing nearly 100 million pounds of cargo on scheduledflights to 17 of Alaska’s busiest airports. NAC’s fleet ofDC-6, B-727, and ATR-42 aircraft are available for char-ters to remote sites and flag stops to 44 additionalcommunities.

Pacific Rim Geological ConsultingFairbanks, AK 99708Contact: Thomas Bundtzen, presidentPhone: (907) 458-8951 • Fax: (907) 458-8511Email: [email protected] mapping, metallic minerals exploration andindustrial minerals analysis or assessment.

PTI GroupEdmonton, AB, Canada T6N 1C8Phone: (800) 314-2695 • Fax: (780) 463-1015Email: [email protected]: www.ptigroup.comPTI Group Inc. is the premium supplier of integratedremote site services. Offering full turnkey packages orindividual services such as construction, catering andwastewater treatment, PTI delivers above and beyondclient expectations.

Shaw Alaska2000 W. International Airport Rd, C-1Anchorage, AK 99502Contact: Jane Whitsett, office directorE-mail: [email protected] Phone: 907-243-6300Fax: 907-243-6301Website: www.shawgrp.com Shaw Alaska is a subsidiary of The Shaw Group, one ofthe World’s largest providers of engineering, design,construction, environmental, infrastructure, fabricationand manufacturing services.

U.S. Bearings & DrivesAnchorage, AK 99518Contact: Dena Kelley, branch mgr.Phone: (907) 563-3000 • Fax: (907) 563-1003Email: [email protected] • Web site: www.bear-ings.comU.S. Bearings & Drives has been providing solutions toit customers for over 25 years. We offer quality compo-nents, name brands and highly trained personnel.

VECO949 E. 36th Ave., Ste. 500Anchorage, AK 99508Contact: Emily CrossPhone: (907) 762-1510 • Fax: (907) 762-1001Email: [email protected] • Web site:www.VECO.comVECO is a multi-national corporation that providesservices, project management, engineering, procure-ment, construction, operations and maintenance – tothe energy, resource and process industries and thepublic sector.

Advertiser Index3M Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Ace Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Aeromed InternationalAir LiquideAlaska Cover-All . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Alaska DreamsAlaska Earth Sciences . . . . . . . . . . . . . . . . . . . . . . . 10Alaska Frontier ConstructorsAlaska RailroadAlaska Steel Co.Arctic ControlsArctic Foundations. . . . . . . . . . . . . . . . . . . . . . . . . . . 8Bombay Deluxe RestaurantChiulista Camp Services/Mayflower CateringCN AquatrainConstruction Machinery . . . . . . . . . . . . . . . . . . . . . 16Dowland-BachEgli Air Haul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Fairbanks Gold Mining/Fort Knox Gold Mine . . . 11Foundex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11GPS Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . 6Jackovich Industrial & Construction Supply. . . . . 10Judy Patrick Photography. . . . . . . . . . . . . . . . . . . . . 4LyndenMRO SalesNature Conservancy, TheNiblack. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Northern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . 7Pacific Rim Geological Consulting . . . . . . . . . . . . . 15PanalpinaPTI GroupRimfire MineralsSalt+Lite CreativeUsibelli Coal Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . 6U.S. Bearings & DrivesVeco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

vival. Dormant cuttings had higher survival

rates than the willows that were cut on site.

Another challenge was large overflowing

ice that occurred when the stream froze

down to the bed. This kind of ice filled the

valley in the springs of 1996 and 1997. “Not

only does it cause problems to the flood-

plain that was recently constructed, but it

also delays revegetation of the reclaimed

areas,” Musitano said.

During several summers there were also

severe storms that caused extensive flood-

ing in Nome Creek. “The pilot channel that

was put in place remained largely intact, but

other areas suffered from lateral erosion and

braiding,” Musitano said. “While overesti-

mating channel dimensions may increase

construction costs and possibly cause braid-

ed channels, the results of underestimating

can be channel failure and catastrophic

floodplain damage,” she added.

Harrison Creek projectlasted only a few weeks

The Harrison Creek reclamation pro-

gram was much more short-term than the

one at Nome Creek, lasting only for two

weeks in July and August 2006. It did

require a few years of planning, though,

after BLM received funding for the project

from the federal Abandoned Mine Lands

program in 2001. BLM then contracted with

the United States Geological Survey to col-

lect hydrologic information about the

watershed so that the reclamation program

could be designed. Engineering firm USKH

provided a literature review for BLM, cov-

ering what had already been written about

the area.

As at Nome Creek, BLM wanted to cre-

ate a functional floodplain to reduce the ero-

sion problem at Harrison Creek and to

encourage native species to grow there.

“Some specific objectives were to design

river reaches that mimicked the undisturbed

areas both upstream and downstream of the

reclamation project. To reduce the environ-

mental degradation by getting rid of the

spoil piles, and to rehabilitate the riparian

habitat,” Musitano said.

Reclamation activities included pushing

over and flattening tailings piles, excavating

floodplains along channel margins, filling in

braided channels, cutting back stream banks

to lower the angle of the bank, and redis-

tributing topsoil and organic material where

possible. A bulldozer operated for about 20

hours a day for 14 days. About 80,000 cubic

yards of tailings material was moved and

4.3 acres of topsoil was salvaged and spread

on the new floodplain. In 2008 and beyond

BLM will look at reclaiming some other

stretches of Harrison Creek.

In-house work reduced Nome Creek cost

In total, 2,400 operator hours were spent

at Nome Creek over a period of almost 20

years. At Harrison Creek 353 operator hours

were spent in two weeks. Nevertheless, the

cost of the Harrison Creek project was

about $680,000 (with 1.46 stream miles

reclaimed), compared to $344,000 at Nome

Creek (with five stream miles reclaimed).

The biggest difference was that Nome

Creek was done in-house and Harrison

Creek required outside help, including

$50,000 to create a topographic contour

map; this kind of map was already available

for Nome Creek.

“Based on our experience at Nome

Creek we found that what appears to pro-

duce the most labor- and cost-effective

results in terms of revegetation is to apply

fertilizer for several years after reclamation

to encourage native species coming in, but

not conducting additional willow plantings.

If you are going to do willow plantings, the

dormant cuttings were pretty time-consum-

ing,” Musitano said.

The use of a single bulldozer at Nome

Creek was effective because only a small

portion of the valley was being reclaimed

each year, according to Musitano. “At

Harrison Creek our idea was to get a larger

area reclaimed in a very short period of time

and so the use of two bulldozers was not

nearly as effective, probably because the

pushing distance was pretty far, and to bal-

ance the cut-and-fill it was taking a lot of

time, so they recommended that we use an

excavator and dump trucks for future proj-

ects there,” she said. ●

15NORTH OF 60 MININGPETROLEUM NEWS • WEEK OF JUNE 24, 2007


RECLAMATION

The Nome Creek watershed was reclaimed over a period of almost two decades, in an effort to reduce erosion and create a functioning floodplain.

CO

URT

ESY

BLM

CO

URT

ESY

BLM

BLM’s reclamation work at Harrison Creek last summer helped return the area to its natural state.


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