tion & production economics crucial rctic
TRANSCRIPT
ELKO buys chunk 88 Energy shares; divers prepare for Arctic threats
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l E X P L O R A T I O N & P R O D U C T I O N
l E X P L O R A T I O N & P R O D U C T I O N
Vol. 26, No. 13 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of March 28, 2021 • $2.50
l F I N A N C E & E C O N O M Y
see LOW-CARBON ENERGY page 10
Canada, Germany, pursuing net-zero carbon emissions, team on hydrogen
Canada and Germany have formed a partnership to enter the
global race to produce and sell hydrogen in the market for low-
carbon energy, with Germany already strongly placed in the
world’s largest markets for alternative fuels.
Energy ministers for the two countries signed a memorandum
of understanding earlier in March to cooperate on energy policy
and research as they strive to achieve net-zero greenhouse gas
emissions by 2050.
But what they have not yet agreed to is what type of hydrogen
Economics crucial Sourdough uneconomic with 40% Alaska NPSL tax; Dunleavy bills update law
By KAY CASHMAN Petroleum News
P lanning and permitting for Jade
Energy’s 2022 winter drilling in the
eastern North Slope Sourdough prospect
is “on track and expected to accelerate”
as ELKO International team members
complete Emerald House’s (88 Energy)
drilling operations at the Merlin 1 explo-
ration well, says Erik Opstad who is
100% owner of Jade parent ELKO.
That said, one of the project’s remaining major
hurdles is the fact that Sourdough development is
not economic while burdened with a 40% state net
profit share lease tax, a 12.5% royalty, “plus other
commercial limitations currently associ-
ated with ADL 343112,” Opstad told
Petroleum News March 19.
Jade is working with Sourdough
stakeholders, he said, and making
progress toward the mitigation of these
limiting commercial issues, but there is
still “some way to go.”
A net profit share lease, or NPSL,
requires the lessee to pay the state a share
of net profits — in addition to a tradition-
al royalty percentage, the Alaska Department of
Natural Resources’ Division of Oil and Gas said in
a February presentation to the Alaska Senate
Ship blocks Suez Canal Prices jump after container ship lodges sideways in narrow entry from Red Sea
By STEVE SUTHERLIN Petroleum News
Alaska North Slope crude rocketed upward
March 24 by $3.22, closing at $64.38 per bar-
rel. West Texas Intermediate added $4.12 on the
day to close at $61, while Brent closed at $64.41
for a gain of $3.62.
The gains largely erased losses from the previ-
ous day, when prices closed sharply lower in a
continuation of a price correction that struck after
strong gains in early March capped a rally of over
30% since the beginning of the year.
ANS fell $3.60 March 23 to $61, Brent fell
$3.83 to $60.79 and WTI fell $3.79 to $57.76.
The rally March 24 was sparked after the
Panama-flagged MV Ever Given — one of the
world’s largest container ships — lodged sideways
in the Suez Canal March 23, blocking all ship traf-
fic from traversing the waterway.
Taiwan-based Evergreen Marine Corp., the
ship’s operator, said in a statement that the Ever
Targeting oil sands US lawmakers propose taxing Canadian crude; critics warn impact on pump prices
By GARY PARK For Petroleum News
In the less than three months since he occupied
the White House, President Joe Biden has found
himself at the center of more energy showdowns
between the U.S. and Canada than either of his
predecessors over the previous decade.
To date, the cross-border feuding has involved
Keystone XL, and Enbridge’s projects to spend
billions of dollars upgrading Line 5 and Line 3,
which deliver a combined 1.2 million barrels per
day of Western Canadian crude to the U.S.
Midwest and Ontario.
The stir the pot even more, two Democratic
lawmakers have floated a bill that would slap an
excise tax on oil sands crude being shipped into the
northern U.S. to build a fund for cleaning up any
spills of crude.
The proposed law is being spearheaded by Earl
Blumenauer (an Oregon member of the House of
Representatives) and Ed Markey (a Massachusetts
senator), both close allies of Biden, who has made
see SOURDOUGH PROSPECT page 8
see OIL PRICES page 11
see EXCISE TAX page 11
Vol. 26, No. 1 March 2021
ArcticArcticCovering Arctic oil and gas operations and the logistics,
construction and service firms that support them
Oil & Gas Directory
Latest Arctic Directory released
see MERLIN 1 page 12
Surface casing installed at 88 Energy’s Merlin 1 Nanushuk well
88 Energy’s Merlin 1 exploration well in the National
Petroleum Reserve-Alaska has reached a depth of 1,512 feet,
the company announced March 22. Surface casing has been
cemented in place and the blowout preventer system has been
tested. Following a successful formation integrity test, All
American Oilfield’s Rig 111 is now continuing to drill
towards targets in the Nanushuk formation. The planned total
depth for the well is 6,000 feet.
see PROFIT SHARE BILL page 10
Amended version of net profit share bill clears House Resources
A bill sponsored by Gov. Mike Dunleavy to provide the
commissioner of the Department of Natural Resources author-
ity to modify the profit share percentage in net profit share
leases was amended and passed out of the House Resources
Committee March 22. The companion bill in the Senate has
been heard twice and is still in Senate Resources.
Both bills have referrals to Finance. House Bill 81 had not
been scheduled for a hearing in House Finance when this issue
of Petroleum News went to press; no additional hearings had
ERIK OPSTAD
Vortexa said the approximate rate of backlog is approximately 50 vessels per
day and any delays leading to re-routings add 15 days to a Middle East to Europe
voyage.
Canadian energy lawyers and industry observers estimate the cost could run to 5.5 cents a barrel raising the total tax
burden on every barrel of diluted bitumen sold into the U.S. to 9 cents.
2 PETROLEUM NEWS • WEEK OF MARCH 28, 2021
Petroleum News Alaska’s source for oil and gas newscontents
4 US drilling rig count gains 9, now 411
EXPLORATION & PRODUCTION2 Reduced Colville River drilling in 2020
Conoco drilled only 6 of 21 planned CRU wells last year due to COVID shutdown; proposed pad CD8 won’t produce until ’28
5 Division OKs Whiskey Gulch exploration
Hilcorp plans April gravel work, road improvement at prospect north of Anchor Point, first well in May, second in July
7 Alaska joins multi-state o&g leasing suit
7 Agency reverses Trump-era oil ruling
7 Mexico says oil for home use, claims find
9 ND bumps budget on faith in oil outlook
3 ELKO buys chunk of 88 Energy shares; Navy divers prepare for Arctic theater
GOVERNMENT
INTERNATIONAL
OIL PATCH INSIDER
Alaska’sOil and GasConsultants
GeoscienceEngineeringProject ManagementSeismic and Well Data
3601 C Street, Suite 1424Anchorage, AK 99503
(907) 272-1232(907) 272-1344
l E X P L O R A T I O N & P R O D U C T I O N
Reduced Colville River drilling in 2020 Conoco drilled only 6 of 21 planned CRU wells last year due to COVID shutdown; proposed pad CD8 won’t produce until 2028
By KRISTEN NELSON Petroleum News
ConocoPhillips Alaska’s annual status update for the
Colville River unit plan, submitted to state, federal and
Arctic Slope Regional Corp. officials March 16, is a stark
reminder of the impacts of the COVID-19 pandemic.
Of 21 wells planned for the CRU in 2020, which would
have been drilled by multiple rigs including Doyon 26, the
new extended reach drilling rig, only six were drilled prior
to the company’s suspension of all drilling operations in
April 2020.
While drilling operations resumed in December, only
up to seven wells are planned at CRU during 2021 and the
first quarter of 2022, the company said.
On the facilities side, the new pad proposed for the
unit’s fifth expansion area, CD8, targeting the Narwhal
reservoir, will continue to be evaluated, but sustained pro-
duction from CD8, which the company said last year
could be as early as 2025, has been rolled back by three
years and is now targeted for as early as 2028.
Drilling to date ConocoPhillips broke out the wells completed to date
in the various pools, excluding sidetracks and redrills.
The Alpine pool, Alpine participating area, has 157
wells (83 producers, 72 injectors and two disposal wells)
and 13 in the Nanuq Kuparuk PA, six producers and seven
injectors.
The Fiord pool, recently combined with Alpine by the
Alaska Oil and Gas Conservation Commission, but listed
here separately for convenience, has six Fiord Kuparuk
PA wells, three producers and three injectors, and 23 Fiord
Nechelik PA wells, 13 producers and 10 injectors.
In the Nanuq PA at the Nanuq pool there are 10 wells,
six producers and four injectors and at the Qannik pool,
the Qannik PA has nine wells, six producers and three
injectors.
The majority of CRU production is from the Alpine
pool, an average of 38,000 barrels per day in 2020,
ConocoPhillips said. Fiord produced an average of 4,800
bpd, Nanuq average 900 bpd and Qannik averaged 1,500
bpd, for a unit average of 45,200 bpd in 2020.
In 2020 two wells, CD5-96, a multilateral Alpine pro-
ducer, and CD5-23A, a coiled tubing drilling multilateral
injector, were drilled in the Alpine PA; no wells were
drilled in the Nanuq Kuparuk PA at the Alpine pool.
No wells were drilled in either the Fiord pool Kuparuk
PA or the Fiord Nechelik PA in 2020.
see COLVILLE DRILLING page 4
Economics crucial Sourdough uneconomic with 40% NPSL tax; Gov. bills update law
Ship blocks Suez Canal Prices jump after ship lodges sideways in entry from Red Sea
Targeting oil sands US proposal to tax Canadian crude; critics warn impact on prices
ON THE COVER
Surface casing installed at 88 Energy’s Merlin 1 Nanushuk well
Amended version of net profit share bill clears House ResourcesCanada, Germany, pursuing net-zero carbon emissions, team on hydrogen
To advertise in Petroleum News,
call Susan at 907-250-9769.
To subscribe, call Renee at 981-278-2771
PETROLEUM NEWS • WEEK OF MARCH 28, 2021 3
l O I L P A T C H I N S I D E R
ELKO buys chunk of 88 Energy shares; Navy divers prepare for Arctic theater
88 ENERGY SAID MARCH 22 it has
entered into a share subscription agree-
ment with ELKO International LLC in
which ELKO will be issued 360 million
shares at a share price of 1.8 cents. The
deal will make ELKO one of the largest
shareholders in the ASX and AIM listed
Australian firm, per 88
Energy’s website.
The lead contractor
on site at the Merlin 1
exploration well on the
North Slope in the
National Petroleum
Reserve-Alaska, ELKO
is 100% owned by
Alaska geologist and
resident Erik Opstad.
“The market appears to be anticipat-
ing a win for 88 Energy … with punters
running its share price up from a close of
$0.017 yesterday to an intraday high of
$0.023 today on big volumes. Only a
week ago it was trading at around a
cent,” Matt Birney reported March 22 in
The West Australian.
The Merlin well in 88 Energy’s
Project Peregrine is targeting the prolific
Nanushuk oil reservoir, in which Oil
Search, Bill Armstrong and
ConocoPhillips have announced major
discoveries in the last few years.
—KAY CASHMAN
Navy divers prepare for Arctic battlefront
AS THE U.S. MILITARY prepares for
a future conventional war after decades
of asymmetrical conflict, the Navy’s div-
ing community is giving increased focus
to what it takes to operate in the frigid
waters that Arctic missions may require
in the not-too-distant future, The Navy
Times reported on March 19 in an article
written by Geoff Ziezulewicz , a senior
staff reporter for Military Times, who
focuses on the Navy. He covered Iraq
and Afghanistan extensively and was
most recently a reporter at the Chicago
Tribune.
Divers with the Virginia-based
Mobile Diving and Salvage Unit 2 took
part in a third cycle of ice dive training
in February at Camp Ripley, Minnesota,
Ziezulewicz reported.
The course is conducted by a combi-
nation of experienced Navy divers and
civilian instructors and aims to get the
dive community ready should they be
asked to head beneath the ice in an
Arctic climate, he wrote.
Diving beneath 18 inches of ice pres-
ents its own hazards and challenges,
according to the command and senior
divers in the unit.
It’s an environment a world away
from the bathtub-temperature waters of
Virginia and Florida where much of the
unit’s dive training takes place,
Ziezulewicz wrote.
“Divers usually have direct access to
the surface,” Chief Warrant Officer 2
Joshua Slack told Ziezulewicz for The
Navy Times. “Knowing we’ll be diving
under the thickness of ice we try to pre-
pare them mentally for the rigors.”
Top: Jason Myers, assigned to Mobile Diving and Salvage Unit 2, supervises ice diving oper-ations, part of annual training to build a more capable Arctic naval force. Bottom: Navy divers assigned to Mobile Diving and Salvage Unit 2 prepare to enter the water during ice dive training at Camp Ripley in Little Falls, Minnesota, on Feb. 18.
see INSIDER page 5
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4 PETROLEUM NEWS • WEEK OF MARCH 28, 2021
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EXPLORATION & PRODUCTIONUS drilling rig count gains 9, now 411
The Baker Hughes U.S. rotary drilling rig count, 411 for the week ending March
19, was up by nine from the week ending March 12 and down 361 from a count of
772 a year ago.
When the count bottomed out at 244 in mid-August last year, it was not just the
low for 2020, but the lowest the count has been since the Houston based oilfield serv-
ices company began issuing weekly U.S. numbers in 1944.
Prior to 2020, the low was 404 rigs in May 2016. The count peaked at 4,530 in
1981.
The count was in the low 790s at the beginning of 2020, where it remained through
mid-March, when it began to fall, dropping below what had been the historic low in
early May with a count of 374 and continuing to drop through the third week of
August when it gained back 10 rigs.
The March 19 count includes 318 rigs targeting oil, up nine from the previous week
and down 346 from 664 a year ago, 92 rigs targeting gas, unchanged from the previous
week but down 14 from 106 a year ago, and one miscellaneous rig, unchanged from
the previous week and down one from a year ago.
Fourteen of the holes reported March 19 were directional, 372 were horizontal and
25 were vertical.
Alaska unchanged from previous week New Mexico (67) was up by seven rigs from the previous week.
Louisiana (47) was up by two rigs and North Dakota (13) was up by one rig.
Texas (202), which has the most active rigs in the country, was down by one rig
from the previous week.
Rig counts in the remaining states were unchanged from the previous week: Alaska
(3), California (7), Colorado (8), Ohio (9), Oklahoma (16), Pennsylvania (18), Utah
(3), West Virginia (12) and Wyoming (5).
Baker Hughes shows Alaska with three rigs active March 19, unchanged from the
previous week and down by seven from a year ago, when the state’s count stood at 10.
The rig count in the Permian, the most active basin in the country, was up by four
from the previous week at 216, but down by 189 from a count of 405 a year ago.
—KRISTEN NELSON
In the Nanuq PA two wells were drilled
in 2020: CD4-214L1, a CTD lateral injec-
tor and CD4-215L1, a CTD lateral produc-
er.
In the Qannik PA a single well, CD4-
499, a producer, was drilled last year, and
in the Fiord West Kuparuk PA a single
well, Rhea-1, a slant Fiord West Kuparuk
pilot well, was drilled.
ConocoPhillips said CD4-499, drilled
in late 2019 and early 2020, represents a
step-out from existing development “away
from existing well control, and will help
better characterize the eastern portion of
the reservoir.”
Locations of this year’s proposed wells
was not included in the public version of
the report, although ConocoPhillips did
say that at the Alpine pool, CRU’s largest,
up to three injectors will be drilled starting
in the fourth quarter of 2020 and continu-
ing through the second quarter of 2021.
ConocoPhillips said all participating
areas at the CRU are primarily developed
with horizontal well technology, with
Qannik and Nanuq primarily waterflooded
while Alpine, Fiord Nechelik, Fiord
Kuparuk and Nanuq Kuparuk primarily
employ MWAG for enhanced oil recovery.
In this unit plan, “MWAG refers to a gas-
alternating-water flood using either a mis-
cible gas or sub-miscible enriched gas” the
company said.
Exploration ConocoPhillips has been drilling in the
fifth expansion area at the CRU, and said
two recent wells, CD4-594 and CD4-595
“have stretched the limits of drilling
extended reach, serviceable wells at shal-
low depths, and have confirmed that a new
pad will be required to reach the full extent
of the Narwhal resource in the 5th
Expansion Area,” a pad currently referred
to as CD8. The company said studies to
determine the location of CD8 have begun.
The fifth expansion area is on the
southeastern edge of the unit, south of and
adjacent to Oil Search’s Pikka unit and
other Oil Search acreage. This is the area
where ConocoPhillips drilled the Putu 2
and Putu 2A wells in completing its 2018
and 2020 well commitments for the fifth
expansion area.
Although not required by the
Department of Natural Resources decision
approving the expansion, ConocoPhillips
said it drilled the CD4-595PH1, CD4-595,
CD4-594PH1 and CD4-594 2018 and
2018 appraisal wells “to better understand
the reservoir and to test the technical feasi-
bility of extended reach drilling at shallow
depth.”
ConocoPhillips said it re-entered the
CD4-595 well in April 2019 to finish
drilling of the lateral section. The horizon-
tal well is highly deviated, and LWD, log-
ging while drilling, data was acquired only
in the lateral section.
“The horizontal was completed and
fracture stimulated prior to execution of an
extended production test through the CD4
facilities,” the company said, and was
shut-in early in August 2019 following the
production test “to enable monitoring of
pressure build-up via permanent downhole
gauges.”
Both the CD4-594PH1 pilot hole and
the CD4-594 horizontal injector were
drilled in the fourth quarter of 2019. The
company said “both are Brookian
Nanushuk sand (Narwhal) wells. The pilot
hole was drilled from the CD4 pad to TD
in the Brookian Nanushuk sand, and was
evaluated, then plugged back in order to
enable open-hole kickoff of the CD4-594
well.”
ConocoPhillips said the CD4-594 hori-
zontal is intended as an injector to be
paired with the CD4-595 horizontal pro-
ducer.
CD4-594 was brought on injection in
the first quarter of 2020 “as part of an
injection interference test covered under a
plot injection order approved by the
AOGCC in late Q4 2019” and the compa-
ny said it injected water into the CD4-594
and monitored pressures in CD4-595 “to
better evaluate reservoir connectivity.”
Further production and injection testing
was done in the fourth quarter 2020 “by
simultaneous injection and production in
the CD4-594 and CD4-595 horizontals.”
Both wells were shut-in last November
following testing “to enable monitoring of
bottom hole pressures via permanent
downhole gauges.”
ConocoPhillips said it plans to drill a
second injector west of CD4-595 in the
first quarter of 2022, “so that a fully sup-
ported producer/injector pattern can be
tested long term.”
Long-range fifth expansion plan ConocoPhillips said the current design
basis for the CD8 pad is a gravel pad con-
nected back to CD4, with production and
injection piping to the Alpine Central
Facility.
Studies of potential pad locations and
alternate road routs were begun in 2019
and are ongoing, with additional facility
engineering studies which may begin in
late 2021 “to identify a single develop-
ment concept for approval.”
The company said the intent of the CD8
study “is to progress the design and loca-
tion options with the goal of arriving at a
robust single development concept after
appropriate engagement with interested
stakeholders,” including the Arctic Slope
Regional Corp., Kuukpik Corp., the City
of Nuiqsut, the Native Village of Nuiqsut,
the federal Bureau of Land Management,
the State of Alaska and the North Slope
Borough.
ConocoPhillips said it has licensed data
from the 2020 Narwhal 3D seismic survey
which is being processed to better under-
stand the extent of the reservoir in the fifth
expansion area.
Current thinking, the company said,
calls for 20 to 40 wells from CD8 to fully
develop the area “dependent upon ongoing
reservoir studies and learnings from 2020-
2022 Narwhal pilot production to deter-
mine final spacing.”
On the 2028 date for sustained produc-
tion, the company said: “Note this concep-
tual first oil date has been deferred by
three years from that described in the 2020
CRU POD Update in response to the
COVID-19 pandemic inspired downturn
experienced in 2020 and resulting chang-
continued from page 2
COLVILLE DRILLING
see COLVILLE DRILLING page 6
By KRISTEN NELSON Petroleum News
The Alaska Division of Oil and Gas
has approved Hilcorp Alaska’s lease
plan of operations for its Whiskey Gulch
exploration prospect on the Kenai
Peninsula north of Anchor Point, filed
Jan. 6 (see story in Feb. 7 issue of
Petroleum News).
In a March 19 approval decision, the
division said exploration phase work at
Whiskey Gulch is for state leases ADL
392664 and 392666. Hilcorp’s plan is for
a 300 foot by 400 foot 2.75-acre gravel
exploration pad and two exploration
wells.
The company’s proposed schedule
calls for construction of the gravel pad
and improvement of the access road in
April, followed by drilling the first well
in May, testing of that well in June, fol-
lowed by suspension, drilling of the sec-
ond well in July, followed by testing in
August and suspension of the well in
September.
Temporary facilities will be removed
after exploration activities are complete
and the wells will be plugged and aban-
doned, or suspended, according to Alaska
Oil and Gas Conservation Commission
regulations. The gravel access road and
pad will remain for use of the private
landowner, the division said.
The first well, Whiskey Gulch 1, is a
gas/oil exploration well; the second well,
Whiskey Gulch 14, is a gas-only explo-
ration well.
The division said WG No. 1 will be
drilled to a bottomhole some 10,000 feet
to the southeast of the Whiskey Gulch
pad, and WG No. 14 will extend some
10,000 feet to the northeast of the pad.
Southern Kenai Whiskey Gulch is Hilcorp’s second
prospect on the southern end of the Kenai
Peninsula. (See map in print version of
this story and in pdf of online version.)
Hilcorp’s Seaview gas field, south of
Anchor Point, is a confirmed gas discov-
ery, with a unit and participating area
already approved by the division and a
discovery well, Seaview 8, ready for pro-
duction.
Hilcorp acquired an aerial gravity and
magnetics survey in the Seaview area in
2015, shot 20.54 miles of 2D seismic in
2016, drilled seven shallow stratigraphic
test holes in 2017 and the Seaview 8
exploration well in 2018, which resulted
in a Tyonek formation natural gas discov-
ery.
The company had planned to bring
Seaview online in November, but there
were construction delays in the 2-mile
pipeline required to get the gas to market
and production startup is now slated for
this summer (see story in Feb. 28 issue of
Petroleum News).
Seaview will be Hilcorp’s 16th pro-
ducing Cook Inlet field.
Facilities The pad at Whiskey Gulch will be “as
close to the eastern extent of the parcel as
is practicable, while avoiding wetlands
and environmentally sensitive areas, to
maximize the distance between the explo-
ration pad and adjacent landowners to the
west,” the division said, with as much
natural foliage as possible kept in place to
“minimize potential visual and acoustic
impacts on neighboring landowners and
residential areas.”
Lights on the drilling rig and mobile
light plants will be pointed down toward
activities on the pad, as much as safety
concerns will allow.
Proposed access road improvements
and the gravel pad will be on uplands, uti-
lizing previously disturbed roadways and
gravel extraction wherever possible.
Because Whiskey Gulch is on private
land it is not expected to impact subsis-
tence or other fish and wildlife uses, the
division said.
In its March 19 approval the division
said it had amended the company’s plan
to protect the state’s interest, to include
Cook Inlet areawide mitigation measures,
and also is requiring status reports on
activities under the plan on May 1 and
Nov. 1 each year until a final completion
plan was filed. l
l E X P L O R A T I O N & P R O D U C T I O N
Division OKs Whiskey Gulch exploration Hilcorp plans April gravel work, road improvement at exploration prospect north of Anchor Point, first well in May, second in July
PETROLEUM NEWS • WEEK OF MARCH 28, 2021 5
SUPERIOR PUMPING & WELL TESTING SERVICES
littleredservices.com
KENAI
NIKISKI
SOLDOTNA
STERLING
HOMER
ANCHOR POINT
NINILCHIK
Proposed Whiskey Gulch Pad CentroidLAT: 59.812599LON:-151.804027NAD 1983
Alaska
One facet of the training involves
switching out a diver’s breathing
apparatus while underwater, Slack
said, but in cold environments, the
body reflexively tries to inhale when
one’s face is suddenly struck by icy
water.
Thus, divers must train to make
sure they are expelling their breath
when a cold blast of water hits them.
“Obviously, aspirating water under
the ice is largely problematic,” Slack
said.
In addition to the cold, it’s
extremely dark when diving under ice,
so during the training divers are aided
by patches of ice above them that
have been cleared of snow to allow
sunlight in and assist with orientation,
Master Chief Jason Mette told
Ziezulewicz.
Emergency procedures take on a
more urgent tone under the ice as
well, since divers can’t simply surface
if things go wrong, Slack said.
In case of an underwater problem,
divers are instructed to stick a screw
into the ice above and standby while
rescue divers deploy lines and do 360-
degree sweeps in the murky depths,
Slack told Ziezulewicz.
The water was between 36 and 38
degrees during February’s training,
and everyone dove with a partner.
And while diving in such an envi-
ronment can be daunting, Mette said
he emphasizes the same principles as
any other dive scenario.
“I like to stress to the guys three
things: trust topside personnel; trust in
your dive buddies, and trust in your
equipment,” he said.
Navy divers conduct a variety of
missions for the fleet, from salvage
and recovery to ship and submarine
repairs, as well as “saturation diving,”
which can involve “working and liv-
ing at extreme depths for days or
weeks at a time.” l
continued from page 3
INSIDER
6 PETROLEUM NEWS • WEEK OF MARCH 28, 2021
ing in business plans.”
In addition to Narwhal development in
the fifth expansion area, there are plans for
up to five additional wells from slots at
CD4 and potential expansion of that pad to
accommodate drilling both Narwhal and
Qannik targets.
Also targets to west While CD8 would develop CRU far-
ther to the southeast, there are also oppor-
tunities on the west, the company said.
Construction at CRU’s newest pad,
CD5 on the western edge, was completed
— and production began — in 2015.
“Drilling results from each CD5 well
supported the next westward target,” the
company said, and with the latest well,
CD5-316, “results suggest another target
exists to the west,” and while it cannot be
reached with Doyon 25, “with the arrival
of the extended reach drilling (ERD) rig
expected in 2021 it is accessible,” and is a
future possibility “depending on drilling
performance and project competitive-
ness.”
Doyon 26, the new ERD rig, is expect-
ed to begin drilling in the second quarter,
the company said.
In the National Petroleum Reserve-
Alaska, drilling is complete at Greater
Moose’s Tooth Unit No. 1, the Lookout oil
pool, with production through the Alpine
Central Facility.
Drilling at Greater Mooses Tooth unit
No. 2, the Rendezvous reservoir, is
planned to begin in the second quarter of
the year, with first oil expected in the
fourth quarter.
Facilities expansion In addition to planning for the CD8
pad, the company has other facilities
expansions underway or in the planning
stage.
Construction activities began in
February of 2020 for the Alpine Gas
Expansion project which will debottle-
neck gas handling capacity at the Alpine
Central Facility, increasing gas capacity
by some 30 million standard cubic feet per
day, depending on the season, resulting in
annual average gas throughput capacity of
180 million to 220 million standard cubic
feet, as well as addressing other facility
gas handling bottlenecks associated with
the increase in gas throughput.
Funding was approved for the Alpine
Power Expansion in 2020 with detailed
engineering and design completed. The
power expansion will add infrastructure
to the ACF to meet future power demand.
Construction began in 2020 and the tar-
geted startup date is the third quarter of
this year.
Funding was also approved in 2020 for
the Alpine Slug Catcher project, with
detailed engineering and design complet-
ed for the project which will “add system
surge capacity by installing a large three
phase slug catcher vessel upstream of the
plant to absorb liquid slugs and maintain
optimized flow of oil and water to the inlet
separator,” adding some 1,400 barrels of
system surge capacity. ConocoPhillips
said the new vessel was fabricated last
year, barged to Oliktok Point in August
and will be transported across the sea ice
in the first quarter of this year, followed by
construction at ACF with a target startup
in the third quarter.
An engineering and design study and per-
mit applications for the next CD4 drillsite
expansion will continue this year, with the
proposed expansion “targeting the Narwhal
reservoir, and potentially additional Qannik
targets,” the company said. l
continued from page 4
COLVILLE DRILLING
PETROLEUM NEWS • WEEK OF MARCH 28, 2021 7
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GOVERNMENTAlaska joins multi-state o&g leasing suit
On March 24, Gov. Mike Dunleavy said the State of Alaska joined a lawsuit in
the U.S. District Court for the Western District of Louisiana challenging President
Biden’s “unlawful moratorium” on the federal oil and gas leasing program. At
issue is a Jan. 27 Biden executive order halting all new leas-
ing, “pending completion of a comprehensive review and
reconsideration of federal oil and gas permitting and leasing
practices.”
The lawsuit was filed by a group of GOP attorneys gener-
al representing 13 states. Wyoming’s attorney general filed a
similar lawsuit in a Wyoming court.
“We fear that President Biden’s attack on federal oil and
gas leasing has only begun, and the state must be involved to
protect the interests of all Alaskans in the responsible devel-
opment of the bountiful natural resources contained within
Alaska,” said Dunleavy.
“This overreaching executive order has delayed a long-planned federal oil and
gas lease sale in Alaska’s Cook Inlet,” said Alaska Attorney General Treg Taylor.
Alaska prohibits waste and restricts the circumstances under which flaring and
venting may occur. Less than 0.3% of the total volume of produced gas is flared
or vented in Alaska and a very small fraction of that is waste.
Several other state and federal regulatory bodies ensure that from start to finish
environmental impacts are scrutinized and mitigated to the greatest extent practi-
cable, Dunleavy’s release said.
—KAY CASHMAN
GOV. MIKE DUNLEAVY
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INTERNATIONALMexico says oil for home use, claims find
Mexican officials said March 18 they have found an oil field with possible reserves
of 500 million to 600 million barrels, but President Andres Manuel Lopez Obrador
vowed not to pump more than 2 million barrels per day nationwide, the amount he
says is needed to supply domestic demand.
“This new policy means not pumping more oil than is needed to cover domestic
demand for fuels,” Lopez Obrador said. “In quantitative terms, this means that dur-
ing our administration we will not pump out of the ground more than 2 million bar-
rels per day.”
In part, that is wishful thinking. The state-owned oil company Petroleos
Mexicanos, or Pemex, currently produces only about 1.75 million barrels per day.
But Pemex Director Octavio Romero said the newly identified onshore Dzimpona
1 deposit, located in the Gulf coast state of Tabasco, should help the company boost
daily production to 2 million barrels by the end of this year.
He said Mexico’s proven total reserves, which had fallen from 16 billion barrels in
2006 to 7 billion when Lopez Obrador took office Dec. 1, 2018, have slowly recov-
ered to about 7.4 billion barrels and should reach 7.8 billion by the end of 2021.
Romero also revealed Pemex has been widely delaying payments to its suppliers
and contractors. He acknowledged the problem has become so bad that some suppli-
ers have turned to bribing officials or turning to hiring middlemen to try to get paid
for work they have done.
He said that with the coronavirus pandemic and drop in demand, “Pemex’s
finances were highly affected.”
Romero urged business owners to have confidence that Pemex will eventually pay
its debts, and announced a public website of payments, to stem a flood of public infor-
mation requests from people waiting to get paid.
“Businessmen, have absolute confidence that Pemex will fully honor its commit-
ment and pay all its debts,” Romero said.
—ASSOCIATED PRESS
l G O V E R N M E N T
Agency reverses Trump-era oil ruling
By DAVE KOLPACK Associated Press
The Biden administration has
scrapped a Department of Interior
opinion under former President Donald
Trump that attempted to strip mineral
rights under the original Missouri River
riverbed from a North Dakota tribal
nation.
The memorandum posted March 19 by
the U.S. Department of Interior with-
draws a May 2020 opinion concluding
that the state is legal owner of submerged
lands beneath the river where it flows
through the Fort Berthold Reservation.
That memo rolled back an Obama admin-
istration favoring the Mandan, Hidatsa
and Arikara Nation, which then filed two
federal lawsuits opposing the decision.
Interior officials said in a March 22
statement that the Trump administration
ruling overturned decades of existing
precedent and the reversal will allow the
agency to review the matter and ensure it
is upholding its “trust and treaty obliga-
tions in accordance with the law.”
Three Affiliated Tribes Chairman
Mark Fox said in a statement that the pre-
vious ruling was a “false” opinion and
called on state officials to “stand down on
their efforts to take for themselves that
which has for centuries belonged to our
people.”
“Rest assured, the MHA Nation will
continue to fight to protect our land, our
property rights, our sovereignty and our
way of life,” Fox said.
Royalties at stake At stake is an estimated $100 million
in unpaid royalties and future payments
certain to come from oil drilling beneath
the river, which was dammed by the fed-
eral government in the 1950s. That flood-
ed more than a tenth of the 1,500-square-
mile reservation to create Lake
Sakakawea.
The state has argued it assumed own-
ership of the riverbed when North Dakota
became a state in 1889, citing cases
where the U.S. Supreme Court has held
that submerged lands were not reserved
by the federal government. The Three
Affiliated Tribes base their premise on
three previous federal opinions dating
back to 1936 that confirm their ownership
of the Missouri River riverbed.
North Dakota Attorney General Wayne
Stenehjem, who wrote a letter to the
Interior Department in October 2017 ask-
ing to withdraw or suspend the Obama
administration opinion, referred all ques-
tions to a state land board. Gov. Doug
Burgum, a member of the land board,
declined to talk about the new memo
because he doesn’t comment on issues
where there’s pending litigation.
U.S. District Judge Amy Berman
Jackson indicated in an order March 22
that the Three Affiliated Tribes’ lawsuit
will be declared moot unless the tribes
and Interior Department file valid objec-
tions by April 2. The second suit is a civil
complaint seeking damages.
Attorneys representing the tribes in
federal court did not immediately respond
to email requests for comments on
whether they planned to move forward
with the suits. l
Interior officials said in a March 22 statement that the Trump
administration ruling overturned decades of existing precedent and the reversal will allow the agency to review the matter and ensure
it is upholding its “trust and treaty obligations in accordance
with the law.”
Resources Committee.
Royalty payments begin with commer-
cial production and are assessed on gross
revenue, while net profit share revenue pay-
ments begin when the NPSL reaches payout
stage — after exploration and development
costs, with interest, are recouped.
Dunleavy’s remedy DNR has authority to modify royalties to
allow for continued or incremental produc-
tion. New legislation proposed by Gov.
Mike Dunleavy would extend that ability to
NPSLs, potentially extending the life of a
field as well as promoting the development
of new fields such as Sourdough, which
would result in additional royalties, net
profit share, taxes, etc. that the state would
not receive without the NPSL modification.
Currently, DNR thoroughly reviews and
negotiates a modification package for
NPSLs and then must submit a proposal to
the Legislature, with legislation required for
the modification to take effect — a lengthy
and ponderous process.
NPSL and royalty modification applica-
tions to DNR are “reviewed by a multidis-
ciplinary group of professionals within sev-
eral sections inside the Division of Oil and
Gas, mainly by the Commercial and
Resource Evaluation sections, with collabo-
ration from Leasing, Units, Royalty Audit,
and Royalty Accounting,” DNR communi-
cations director Dan Saddler told Petroleum
News in a March 19 email. “Current
statutes also give DNR the option of procur-
ing consulting services, at the applicant’s
expense, on issues in which we don’t have
in-house expertise.”
Dunleavy’s solution will allow DNR’s
commissioner to have the final say, not the
Legislature.
Net profit share leases were issued by the
State of Alaska between the late 1970s and
the early 1980s. There are currently 26
active NPSLs on the North Slope, with rates
ranging from 30% to 79.59%, DNR said.
The bills and supporting information can
be found here:
• HB 81:
http://www.akleg.gov/basis/Bill/Detail/3
2?Root=hb%2081
• SB 61:
http://www.akleg.gov/basis/Bill/Detail/3
2?Root=sb%2061
Latest plan of development Jade is moving ahead with its first
Sourdough appraisal well, Jade 1, shooting
for a Feb. 15, 2022, spud date.
Activities the independent anticipated in
its 2021 Sourdough plan of development
(approved Dec. 14 by the Division of Oil
and Gas), include the following, along with
the current status of the work, per Opstad.
1. Equipment and materials mobilization
by snow trail to Point Thomson in first quar-
ter. This has been delayed, as the necessary
equipment is tied up on Merlin 1 in 88
Energy’s Peregrine Project in the National
Petroleum Reserve-Alaska.
2. Permitting for 2022 winter drilling.
This is on track.
3. Mobilization planning to Point
Thomson. This is on track.
4. Third bathymetric survey of the serv-
ice pier. This is on track and expected to
occur in mid-July during the open water
season.
5. Service pier approach dredging. This
is dependent on bathymetric survey results.
Jade has a U.S. Corps of Army Engineers
dredging permit in hand.
6. Rig mobilization by barge to Point
Thomson. It is still expected to occur in
September.
The main challenge to appraise and
develop this mid-1990s BP Sourdough oil
discovery, Opstad said, is that the develop-
ment must be “shown to be commercial,”
otherwise “no one will fund it! Economics
101!”
Slice of Point Thomson Jade filed its third plan of development
in coordination with ExxonMobil, operator
of the Point Thomson unit, and other PTU
lease owners, on Nov. 1. The Sourdough
project is on ADL 343112’s Area F, Tract
32, which contains BP’s Sourdough oil dis-
covery.
Area F was created by the terms of the
Point Thomson Unit Settlement Agreement
between ExxonMobil and the other owners.
It consists of 7,647 non-adjacent acres in the
northeastern and southeastern corners of the
PTU.
Jade became majority owner and opera-
tor of PTU Tract 32, ADL 343112, in the
southeastern portion of Area F, by agree-
ment with ExxonMobil mid-2018.
In 1997 BP estimated the Sourdough
prospect held 100 million barrels of recov-
erable oil, based on the results of its
Sourdough 2 and 3 wells.
If developed, will be the farthest east of
all North Slope producing fields.
Some of the work in the second POD
was to focus on selecting additional delin-
eation and development well locations par-
ticularly in any “expansion” areas that may
be added to ADL 343112 resources through
negotiations with the other PTU working
interest owners.
Various 3D seismic surveys have been
acquired and interpreted over Area F.
One of these was new compressive sens-
ing imaging, or CSI, seismic 3D data from
the area during the 2017-18 winter season
with parameters optimized to characterize
Brookian strata. The CSI 3D survey was the
first of three field studies.
“On the basis of CSI 3D seismic data, we
have evaluated a location for Jade 2 sited
considerably to the west of Jade 1 and adja-
cent to the PTU airport to prove up addi-
tional resources in ADL 343112,” Opstad
said Oct. 27.
“We also have focused on working up
additional delineation/development well
locations in ‘expansion’ areas that may be
added to ADL 343112 resources.”
Opstad, who oversees Jade’s operations
in Alaska and is a 50% owner in the compa-
ny, is a State of Alaska certified professional
geologist who has worked the North Slope
for 35 years, including a stint with BP in
various roles and as a principal and general
manager of Savant Alaska. He currently
heads up operating subsidiaries of 88
Energy in Alaska, including oversight of
drilling the Merlin 1 well in Project
Peregrine. l
8 PETROLEUM NEWS • WEEK OF MARCH 28, 2021
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SOURDOUGH PROSPECTThe main challenge to appraise and develop this mid-1990s BP Sourdough oil discovery, Opstad
said, is that the development must be “shown to be commercial,” otherwise “no one will fund it!
Economics 101!”
Jade filed its third plan of development in coordination with ExxonMobil, operator of the Point
Thomson unit, and other PTU lease owners, on Nov. 1. The Sourdough project is on ADL 343112’s Area F,
Tract 32, which contains BP’s Sourdough oil discovery.
PETROLEUM NEWS • WEEK OF MARCH 28, 2021 9
Oil Patch Bits
ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS
Companies involved in Alaska’s oil and gas industry
A Acuren AES Electric Supply, Inc Afognak Leasing LLC Ahtna, Inc. Airport Equipment Rentals Alaska Dreams Alaska Frontier Constructors (AFC) Alaska Fuel Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Alaska Marine Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Alaska Materials Alaska Railroad Alaska Steel Co. Alaska Textiles Alaska West Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Arctic Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 ARCTOS Alaska, Division of NORTECH . . . . . . . . . . . . . . . .11 Armstrong ASTAC (Arctic Slope Telephone Assn. Coop, Inc) AT&T Avalon Development
B-F Bombay Deluxe BrandSafway Services Brooks Range Supply C & R Pipe and Steel Calista Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Caltagirone Legal, LLC ChampionX Colville Inc. Computing Alternatives CONAM Construction
Cruz Construction Denali Universal Services (DUS) . . . . . . . . . . . . . . . . . . . . . .4 Doyon Anvil Doyon Associated Doyon Drilling Doyon, Limited EEIS Consulting Engineers, Inc. EXP Energy Services F. R. Bell & Associates, Inc. Flowline Alaska Frost Engineering Service Co. – NW Fugro
G-M GCI GMW Fire Protection Greer Tank & Welding Guess & Rudd, PC HDR Engineering, Inc. ICE Services, Inc. Inlet Energy Inspirations Judy Patrick Photography Little Red Services, Inc. (LRS) . . . . . . . . . . . . . . . . . . . . . . . . .5 Lounsbury & Associates Lynden Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Lynden Air Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Lynden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Lynden International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Lynden Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Lynden Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Maritime Helicopters
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Q-Z
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All of the companies listed above advertise on a regular basis with Petroleum News
Board members elected at Doyon annual meeting Doyon Limited said March 19 that at its annual meeting of shareholders, four individuals were elected to
Doyon’s 13-member board of directors. Elected with three-year terms ending in 2024 were Christopher Simon, Charleen C. Fisher, Walter “Wally” Carlo and Jennifer Fate.
The newly elected and re-elected board members will join existing board members Cheryl Cadzow, Shirley Cleaver, Sonta Hamilton-Roach, Betty Huntington, Jerry Isaac, Georgianna Lincoln, Marvin Roberts, Orie Williams and Miranda Wright.
Items of business included the elections of four board members, report on the companies FY20 financial per-formance and shareholder of the year awards.
The pre-recorded keynote address was given by early Doyon leadership, Melvin Charlie, Sam Demientieff, Pat Frank, Michael Harper, Georgianna Lincoln, Emil Notti, Tim Wallis and Jules Wright, who talked about the forma-tion of Alaska Federation of Natives, Fairbanks Native Association, incorporating Doyon, early investments and the importance of education.
Headquartered in Fairbanks, Doyon Limited has more than 20,100 shareholders and was established under the 1971 Alaska Native Claims Settlement Act. Doyon has subsidiaries in oilfield services, government contracting and tourism, is also the largest private landowner in Alaska and one of the largest in North America. For more information visit www.doyon.com.
From left: Walter “Wally” Carlo, Charleen C. Fisher, Jennifer Fate and Christopher Simon.
CO
URT
ESY
DO
YON
l G O V E R N M E N T
ND bumps budget on faith in oil outlook By JAMES MACPHERSON
Associated Press
North Dakota’s Legislature on March 22 bumped tax
collection expectations for the next two-year
spending cycle, with budget writers banking on stable oil
prices and production.
House and Senate appropriation committees predict-
ed general fund tax collections at $4.04 billion, or $95
million more than the Republican-led Legislature’s
budgetary starting point in January.
Senate Appropriations Chairman Ray Holmberg
called the Legislature’s numbers “very reasonable.”
Lawmakers will rely on them to finish their work on the
state’s 2021-2023 spending plan.
“This is the one we hang our hat on,” Holmberg told
the appropriations committee. “It’s the best guess we
have at this point.”
Lawmakers based their numbers on a pair of compet-
ing revenue forecasts presented the week of March 15.
Lawmakers essentially split the difference between esti-
mates done by state budget analysts and Moody’s
Analytics, and their own economic consultancy, IHS
Markit.
While oil prices are a key contributor to the state’s
wealth, oil revenues actually are a relatively small part
of the state’s general fund, which finances state govern-
ment and a variety of programs.
The general fund can take in no more than $400 mil-
lion in oil tax revenues per two-year budget cycle, a
setup designed to protect the budget from price swings.
Beyond that level the money goes to other state funds.
The state’s general fund is financed mostly by taxes on
sales, income, corporations, tobacco and gambling.
New estimate is $60 oil Lawmakers assumed oil prices at $40 a barrel when
crafting their budgetary starting point in January, though
prices have hovered at around $60 a barrel since then,
including on Monday.
The Legislature’s appropriations committees on
March 22 adopted an estimated price of $60 a barrel, and
predicted production would decline from about 1.1 mil-
lion barrels daily to 1 million barrels in the second year
of the budget cycle.
House Appropriations Chairman Jeff Delzer told the
committee that state regulators and oil companies “think
they can do 1 million barrels with no problem.”
State budget officials estimate that every dollar that a
barrel of oil either increases or decreases has a more than
$40 million impact on the state treasury annually.
The state’s current two-year budget, including federal
aid, is $14.7 billion. The budget represents about $4.9
billion in state general fund spending for the 2019-21
budget cycle that ends June 30. l
The state’s current two-year budget, including federal aid, is $14.7 billion. The budget
represents about $4.9 billion in state general fund spending for the 2019-21 budget cycle
that ends June 30.
10 PETROLEUM NEWS • WEEK OF MARCH 28, 2021
been scheduled for Senate Bill 61.
There are 26 net profit share leases in
existence, Division of Oil and Gas
Commercial Manager Jhonny Mesa told
House Resources in testimony March 5,
all of which are in existing units and all
issued in the late 1970s and early 1980s.
Northstar previously had net profit
share leases but those were modified to
sliding scale royalty in 1996, a modifica-
tion ratified by the Legislature and upheld
by the Alaska Supreme Court in 1998.
Without the statutory authority pro-
posed in HB 81 and SB 61, any modifica-
tions to net profit share leases requires an
act of the Legislature.
Summary of HB 81 In a summary of HB 81 for House
Resources, DNR said it “would insert
NPSLs into DNR’s existing statutory
authority to modify royalty rates,” allow-
ing DNR to modify net profit share leases
“under the same circumstances in which
DNR may modify royalty rates for exist-
ing leases.”
The department said NPSL modifica-
tions may assist in extending the life of
fields that otherwise would become
uneconomic or require additional capital
investment to remain in production and
would allow DNR “flexibility to choose
between NPSL or royalty modifications
when it may be advantageous to preserve
royalties over net profit shares, or to
increase net profit shares to craft ‘pay-
back’ scenarios.”
Royalty modifications The DNR commissioner has statutory
authority modify oil and gas lease royal-
ties to make new production economic,
extend production in existing fields or
return suspended fields to production.
Applicants are required to demonstrate
that a proposal would not be economic
without royalty relief.
There have been eight applications for
royalty modification since 1995. Three
applications were withdrawn; two were
denied; and three were granted, although
the modification of one of those three was
rescinded as the applicant did not go
ahead with the project.
DNR evaluates the proposal and the
commissioner must make a finding that
the decision to modify royalty is in the
best interest of the state.
There is a required public comment
period on the preliminary finding and DNR
is required to offer to appear before the
Legislative Budget and Audit Committee to
provide that committee an opportunity to
review the commissioner’s finding.
Bill as proposed The bill inserts net profit share modi-
fication into the existing statutes govern-
ing royalty modification and adds a new
reason for such a change to be consid-
ered.
By statute royalty modification is
allowed for production from an oil or gas
field which “has been sufficiently delin-
eated to the satisfaction of the commis-
sioner” but has not been in production
and would not otherwise be economical-
ly feasible.
(This section is modified in the bills to
insert the word commercial before pro-
duction, ensuring that testing of a field
would not preclude it from consideration
for modification.)
Alternatively, modification could be
allowed to prolong the economic life of a
field or pool as production costs increase
or the price of oil or gas decreases, mak-
ing production no longer feasible.
The third existing reason is “to
reestablish production of shut-in oil or
gas that would not otherwise be econom-
ically feasible.”
In addition to adding net profit share
lease modifications, the bill also adds a
fourth reason — prolonging the econom-
ic life of an oil or gas field “which, with-
out additional capital expenditures”
would not continue to be economic.
HB 81 was amended in House
Resources, disallowing royalty modifica-
tion under this new category extending
the economic life of a field and requiring,
for a net share profit modification to
extend field life that the lessee or lessees
must “make the capital expenditures nec-
essary for production to be economically
feasible” and that the commissioner
determine that those capital expenditures
“are sufficient to maximize production
from the field or pool.”
Subsurface leasing issue A second DNR-related governor’s bill,
SB 62 and HB 82, would allow DNR’s
Division of Oil and Gas to offer gas-only
subsurface leases, with no surface access,
in a restricted area offshore Cook Inlet
adjacent to onshore natural gas develop-
ment by Hilcorp Alaska at Seaview.
The bill was heard in Senate Resources
March 10 (see story in March 14 issue of
Petroleum News). It also has a referral to
Senate Finance.
The companion bill, House Bill 82, has
referrals to the House Special Committee
on Fisheries and to House Resources. It
has not yet been scheduled in Fisheries.
—KRISTEN NELSON
they prefer — “blue,” which is produced from natural gas
and carbon capture and storage, CCS, or “green,”, which
is produced by water electrolysis using intermittent zero
carbon electricity generated by wind and solar facilities.
Canada’s Natural Resources Minister Seamus
O’Regan leans heavily to “blue,” especially coming on
the heels of Canada’s recent decision to focus on “blue”
by making it more politically viable and palatable in
Western Canada, which has abundant reserves of natural
gas and other fossil fuels.
When challenged over Canada’s continuing financial
support for the fossil fuel industry, O’Regan left no doubt
he is counting heavily on a new federal policy to promote
hydrogen through the investment of C$30 billion over the
next 10 years to capture and store greenhouse gas emis-
sions from the exploitation of oil and gas.
German view German Economic Affairs and Energy Minister Peter
Altmaier agreed with O’Regan that the transition to fuels
such as hydrogen “could be messy,” but stopped short of
taking a definitive stand, even though the German gov-
ernment has demonstrated its preference for “green” in a
report it commissioned and released in mid-March.
“How the focus on blue hydrogen will be aligned with
Canada’s goal of reaching climate neutrality by 2050 is
not spelled out in detail,” said an executive summary of
the report by the Berlin-based consultant Adelphi.
“As a result, the (Canadian strategy) seems to be more
of a vision for the future of those provinces (primarily
Alberta, British Columbia, Saskatchewan and
Newfoundland) with large fossil fuel resources.”
But the summary was bullish on Canada’s green-
hydrogen potential, especially in Quebec and the Atlantic
region, where it said the conditions are “optimal for a
rapid market uptake of green hydrogen, possibly among
the best in the world.”
Canadian advantage Raffaele Piria, one of the report’s authors, told the
Globe and Mail that Canada has the advantage over some
of its likely rivals for hydrogen exports, such as Saudi
Arabia or Morocco, because of its “geopolitical stabili-
ty.”
He also noted Canada’s proximity to European ports,
especially from Newfoundland, which he said has great
potential to produce green hydrogen.
Piria doubts Germany will direct significant public
funds to advance blue hydrogen because of the
entrenched environmental opposition to advancing car-
bon-capture technology, although he conceded “blue”
might have a limited chance to gain support as a transi-
tional fuel.
Sabine Sparwasser, Germany’s ambassador to
Canada, said her country obviously believes that green
hydrogen will be the best hope of reversing climate
change trends, but suggested there is a chance for “blue”
if Canada moves quickly to get those supplies to market,
while the “green” technology is being developed.
The Adelphi report said blue hydrogen produced in
Canada might find receptive markets in Asia and the
United States.
The Canadian government has estimated returns from
its hydrogen exports could total C$50 billion and create
350,000 jobs by 2050.
LNG as ‘bridge fuel’ O’Regan is also making a case for LNG to serve as a
“bridge fuel” into green-energy territory, noting that
Germany is aiming to integrate LNG imports as well as
hydrogen production into its own energy strategy.
Senior officials from several G20 countries joined
Canada and Germany at a virtual international energy
forum in mid-March to promote hydrogen as a key tool
to lower worldwide carbon emissions.
President Joe Biden’s special climate envoy John
Kerry told the forum he supports O’Regan’s push for cre-
ative and collaborative solutions, including the expansion
of hydrogen as a way for governments and the private
sector to combine in reducing the reliance on fossil fuels.
“I think hydrogen is perhaps one of our greatest
chances (to develop a renewable energy industry). Whole
economies can be built on it,” he said.
—GARY PARK
continued from page 1
PROFIT SHARE BILL
continued from page 1
LOW-CARBON ENERGY
To advertise in Petroleum News, contact Susan Crane at 907.250.9769
Senior officials from several G20 countries joined Canada and Germany at a virtual
international energy forum in mid-March to promote hydrogen as a key tool to lower
worldwide carbon emissions.
no secret of his opposition to the oil
sands.
Estimated cost Canadian energy lawyers and industry
observers estimate the cost could run to
5.5 cents a barrel raising the total tax bur-
den on every barrel of diluted bitumen
sold into the U.S. to 9 cents.
If adopted, the bill would “further
erode the economics of selling oil from
Canada to the U.S., said Vivek Warrier, a
partner in the energy team at the Calgary-
based law firm of Bennett Jones.
The U.S. Internal Revenue Service
said in a 2011 ruling that oil sands crude
is not technically crude oil and should not
be the target of an excise tax.
But Blumenauer’s legislation proposes
rewriting language in the tax code to once
again label oil sands products as crude oil.
He said in a statement that the “facts
are clear: we are in a climate emergency
and must take action. It is past the time
when we should hold fossil fuel polluters
accountable for the impact they have on
the environment.”
Estimated revenue Blumenauer estimated the tax would
generate US$665 million in additional
revenue for the U.S. government over 10
years.
The Tar Sands Loophole Elimination
Act has already won the endorsement of
influential members of Congress includ-
ing Senators Bernie Sanders and
Elizabeth Warren and the House’s natural
resources chairman Raul Grijalva.
Canada currently supplies about 49%
of oil imports by the U.S., currently
accounting for 3.63 million barrels per
day of petroleum products, according to
the U.S. Department of Energy.
An official in the office of Alberta
Energy Minister Sonya Savage said the
bill’s progress through Congress is being
closely monitored by her government,
adding that the millions of Americans
who depend on Canadian oil “should
know that such a move will ultimately
result” in higher gasoline prices at the
pumps.
Canada’s Natural Resources Minister
Seamus O’Regan declined to comment.
Ben Brunnen, vice president of fiscal
and economic policy at the Canadian
Association of Petroleum Producers, said
his organization wants to head off any
U.S. tax policy that discriminates against
the Canadian energy industry.
“We’ll continue to support efforts to
open the door for collaboration with
President Biden and his administration,”
he told the Financial Post. l
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Given was overcome by strong winds as it
entered the Suez Canal from the Red Sea.
Weather reports from Egypt said high
winds and a sandstorm had buffeted the
area, with winds gusting to 31 mph.
Energy intelligence firm Vortexa identi-
fied 10 tankers carrying 13 million barrels
of Middle East crude that appeared be way-
laid by the blockage of the canal.
More oil flows could be at risk unless
the interruption is quickly resolved,
Vortexa said in March 24 situation updates.
“Charterers and shipowners will be
faced with the tough decision of staying put
until traffic resumes, potentially incurring
demurrage, or sailing around the Cape of
Good Hope,” Vortexa said. “If it clears
quickly the risk of impact may be minimal,
but every passing hour will support oil
prices as well as freight rates.”
If tankers divert to the Cape, “the
increase in tonne-miles will increase tanker
utilization and support rising freight rates
in the short-term,” said Arthur Richier,
Vortexa senior freight analyst.
50 vessels a day Vortexa said the approximate rate of
backlog is approximately 50 vessels per
day and any delays leading to re-routings
add 15 days to a Middle East to Europe
voyage.
“A short-term disruption of a day or two
will not seriously impact oil markets,” said
Clay Seigle, Vortexa Houston managing
director, citing ample crude inventories and
general weakness in European oil markets
caused by new pandemic lockdowns.
If delays persist, some refineries could
be caught short, especially of high-sulfur
“sour crude” from sources like Saudi
Arabia and Iraq, he said.
Most crude flows from the Mideast Gulf
are to eastern destinations or to western
ones reached by sailing all the way around
Africa — therefore not directly affected by
a Suez disruption, but if the disruption per-
sists secondary effects could spread world-
wide.
“Oil can bypass the Suez Canal by
pipeline, but it still needs tankers to reach
the refineries,” Seigle said. “If there aren’t
enough available tankers in the
Mediterranean, then some oil might not be
delivered on time.”
Rolling delays Seigle said tankers could be late to their
next assignments, comparing the situation
to airline flight delays at one airport spread-
ing across a wider area.
“If today’s loaded tankers are signifi-
cantly late in making deliveries, then
they’re also going to be late for their next
mission,” he said. “That could be a sched-
uled delivery in Asia, which today seems
safe from Suez Canal problems.”
As of Petroleum News press time early
March 25, tugs and dredges had so far
failed to dislodge the Ever Given.
According to a Seeking Alpha report,
the best chance for freeing the ship may not
come until March 28 or March 29, when
the tide will reach a peak, said Nick Sloane,
the salvage master who refloated cruise
ship Costa Concordia in 2012 when it cap-
sized off the coast of Italy.
The blockage is costing about $400 mil-
lion an hour, based on initial calculations
from Lloyd’s List.
Other factors Price strength March 24 may have been
assisted by signs of higher gasoline
demand in the United States, as the U.S.
Energy Information Administration report-
ed that gasoline stockpiles fell by 200,000
barrels.
U.S. air passenger traffic levels contin-
ued to show improvement as well.
Transportation Security Administration
checkpoint counts hit a new post-coron-
avirus high of 1,543,115 passengers March
21, versus 548,132 passengers passing
checkpoints on the same day of 2020. On
March 21, 2019, 2,227,181 passengers
passed through TSA checkpoints.
But on March 23, the American
Petroleum Institute reported a 2.9 million
barrel increase in crude supplies, adding to
demand fears raised by fresh pandemic
lockdowns in Europe due to the prolifera-
tion of new strains of the COVID-19 virus.
Those demand fears, along with weak-
ening oil prices in late March and rising
stockpiles could spur the Organization of
the Petroleum Exporting Countries and its
allied producing countries to extend current
production cuts. The group will hold its
15th OPEC and non-OPEC Ministerial
Meeting April 1 to discuss May production
levels.
Saudi Arabia is expected to announce at
the April meeting whether it will extend its
three-month voluntary unilateral 1 million
barrel per day cut into May.
If OPEC+ holds steady on production,
fears that the market correction will worsen
may be overblown. In fact, an analyst quot-
ed in a March 24 Bloomberg article thinks
the correction is history.
“The market was due for a correction, but
we’ve had it and now it’s over,” said Bill
O’Grady, executive vice president at
Confluence Investment Management in St.
Louis. “The short-run outlook is looking
better. More vaccines in arms and more peo-
ple able to get around is all good news.” l
continued from page 1
OIL PRICES
continued from page 1
EXCISE TAX
Contact Steve Sutherlin at [email protected]
VO
RTEX
A
Drilling target evaluation When the well penetrates its explo-
ration targets 88 Energy anticipates eval-
uating the targets over a three to five day
period using a combination of logging
while drilling and mud logging. That will
be followed by the collection of sidewall
cores and downhole samples, and three to
five days of wireline logging. If the wire-
line logging proves encouraging, the well
will be completed and a flow test carried
out.
In its March 22 announcement 88
Energy also said that it is selling 360 mil-
lion shares at a share price of $0.018 to
ELKO International LLC, a well mainte-
nance company based in Anchorage.
ELKO is a major contractor in the drilling
operation, 88 Energy said. Apparently the
share price has more than doubled since
mid-February.
“The endorsement of the project by
ELKO as we enter the critical phase of
the drilling is encouraging and will serve
to fund the company’s share of the recent-
ly announced cost overruns,” said David
Wall, outgoing managing director of 88
Energy.
The Peregrine project The Nanushuk target for the Merlin 1
well forms part of 88 Energy’s Peregrine
exploration project, with the Merlin
prospect potentially holding a gross mean
oil resource of 645 million barrels. The
prospect is on trend with the
ConocoPhillips’ Willow Nanushuk oil
discovery to the north. And the Peregrine
project region lies southeast of the
Harpoon Nanushuk prospect, being
explored by ConocoPhillips. The Umiat
oil field to the south of the Merlin 1
prospect has long been known to hold a
substantial oil resource in the Nanushuk.
88 Energy plans future exploratory
drilling in the Harrier prospect, to the
north of the Merlin project, in the
Peregrine project area. Harrier, interpret-
ed as lying in the same rock sequence
boundaries as ConocoPhillips’ Harpoon
prospect, has potential oil resources in the
Nanushuk formation and in the deeper
Torok formation.
88 Energy obtained its Peregrine lease
acreage in 2020 as a consequence of an
off-market takeover of XCD Energy.
Alaska Peregrine Development LLC has
farmed in for a 50% ownership of the
Peregrine acreage by contributing $11.3
million of the anticipated $12.6 million
cost of the Merlin 1 well.
Drilling delay Following the drilling of the Merlin 1
well, 88 Energy had planned to drill a
Harrier 1 well into the Harrier Nanushuk
target this winter. However, the drilling of
the Harrier well this winter now seems
unlikely, following drilling delays as a
consequence of a President Biden execu-
tive order, the company has said.
—ALAN BAILEY
12 PETROLEUM NEWS • WEEK OF MARCH 28, 2021
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continued from page 1
MERLIN 1
Merlin 1 spud crew
88 E
NER
GY
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981.278.2771
Following a successful formation integrity test, All American
Oilfield’s Rig 111 is now continuing to drill towards targets in the Nanushuk formation. The
planned total depth for the well is 6,000 feet.