2014 Fairbanks Industry Update Forum by Morris Media Network

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

2014 Fairbanks Industry Update Forum

TOAST to

OPPORTUNITY

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TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

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TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Fairbanks Industry Update Forum

Westmark Fairbanks Hotel & Convention Center 301 Arctic Slope Ave. Ste. 350 Anchorage, AK 99518 P: 907-561-4772 F: 907-563-4744 www.alaskajournal.com

Managing Editor Andrew Jensen (907) 275-2165 editor@alaskajournal.com

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Production Manager Maree Shogren (907) 275-2162 maree.shogren@morris.com Graphic Designer Nadya Gilmore (907) 275-2163 nadya.gilmore@morris.com Reporter Tim Bradner (907) 275-2159 tim.bradner@alaskajournal.com Reporter Elwood Brehmer (907) 275-2161 elwood.brehmer@alaskajournal.com Reporter Molly Dischner (907) 275-2158 molly.dischner@alaskajournal.com Advertising Director Tom Wardhaugh (907) 275-2114 tom.wardhaugh@morris.com Account Executive Ken Hanni (907) 275-2155 ken.hanni@morris.com Account Executive Jada Nowling (907) 275-2154 jada.nowling@morris.com Account Executive Joy Bunde (907) 275-2153 joy.bunde@morris.com

WITH OIL TAX VOTE OVER, WHAT SHOULD ALASKANS WATCH FOR? ...............................PAGE 5 Hilcorp spends $1.25B for bp north slope assets ..............PAGE 8 NordAq secures $90M investment to develop Alaska leases.......................... PAGE 8 Shell now hopes to use two drill rigs for Chukchi exploration in 2015 .........................................PAGE 10 Shell, Slope Native corps. sign royalty deal for Chukchi leases.......................PAGE 11 Repsol plans more exploration after defeat of Ballot Measure 1..................................PAGE 13

Financing plan approved for Interior Energy Project gas plant..................................PAGE 16 Exploration, expansion at Pogo will extend mine life.....................................PAGE 18 Fort Knox gold output to dip, but will still be stateâ&#x20AC;&#x2122;s top producer...................................PAGE 19 Livengood owners focused on costs, optimizing production......PAGE 19 State seeks federal judgment in push for ANWR exploration.............................PAGE 21

New UAF Power Plant approved; engineering building still needs $31M to finish..........................PAGE 13

Judge accepts Corps plan to justify CD-5 permit, refuses to halt work.................................PAGE 22

FERC filing another important step for Alaska LNG Project.............PAGE 14

Kuskokwim Corp. inks deal with Donlin Gold.............................PAGE 24

Balash heads to Japan with BP to market LNG.......PAGE 15

Doyon resumes exploration in Nenana Basin....................PAGE 26

Interior working group aims to simplify gas conversions............................PAGE 16

C-P signs five-year deal with Doyon Drilling for new Slope rig.................PAGE 27

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

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TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

The Alaska Support Industry Alliance 3301 C Street Suite 205 Anchorage, AK 99503

Phone: (907) 563-2226

Website: www.alaskaalliance.com

General E-mail: info@alaskaalliance.com

General Manager Rebecca Logan rlogan@alaskaalliance.com

Director of Operations Ann Northcutt anorthcutt@alaskaalliance.com

Director of Communications Renee Limoge rlimoge@alaskaalliance.com

Welcome to the 4th Annual Fairbanks Industry Update Forum! I absolutely have to start by saying “THANK YOU.” To each and every one of you who dedicated your summer to working with us and many other organizations to defeat Ballot Measure One and maintain a competitive oil tax structure in Alaska — thank you a million times over! Now that we have overcome that critical barrier — the Alliance is looking to the future and what we can do to continue to promote responsible resource development in this great state. The threat of the EPA and their attempts to circumvent law, the threat of handing the legislature final approval of a project that has already successfully completed the permitting process, the threat to a future, safe Alaskan workforce and the threat of a new strategy for Alaska LNG that delays the project are just a few of the issues we are working on for our members. More importantly, we are listening to our members about the issues they face on a daily basis that impact their business. In a recent survey conducted by the state — business retention and expansion survey — you provided detailed information that will allow us to strategically plan for the coming year, tailoring our efforts to your needs. The responses also provided the state with information about their efforts to assist Alaska businesses. The results of the survey, as well as the Alliance and state responses to the survey will be debuted at Meet Alaska on Jan. 9. I hope you enjoy the day and find the presentations informative. Again, thank you for being part of the “A” team that worked so hard this summer. Respectfully,

Rebecca Logan General Manager Alaska Support Industry Alliance

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

, R E V O E T O V X A T WITH OI L ? R O F H C T A W S N SKA A L A D L U O H S T A WH

Photo/Courtesy/BP

An employee of Parker Drilling works at Prudhoe Bay for BP Exploration Alaska during winter 2014. North Slope jobs reached an all-time high of 15,000 this year.

By Tim Bradner Alaska Journal of Commerce

With the divisive debate over oil taxes behind us, for now at least, what should Alaskans watch for? Getting new oil into the Trans-Alaska Pipeline System is the most important thing. Alaskans should also closely watch how the new tax performs in terms of revenue. A recent decline in oil prices has raised some concern for revenues although this would have affected revenues under either the former ACES tax or the new tax law passed as Senate Bill 21. Alaska North Slope oil prices have been

trending down, closing at $100 per barrel on Aug. 26, down from $111 per barrel in early July. On production, oil producers have said that retaining oil tax reform, enacted in 2013 and which took effect Jan. 1, would lead to new investment and more oil into the pipeline to offset the production decline. New investment and some new production, over what was forecast, is already happening, but what additional milestones are there? Mainly, those would be the several new oil projects announced in the last year. Alaskans should watch to see if they are actually built. An important milestone will be later this year

when the ConocoPhillips board of directors meets to approval the companyâ&#x20AC;&#x2122;s capital investment budget for next year. There are three new North Slope products up for approval. These include two on the Kuparuk River field, Drill Site 2S, a new production pad in the south part of the Kuparuk field, and the North East West Sak, or NEWS, a project to expand the existing West Sak viscous oil project in the Kuparuk field. Assuming the NEWS project is given a goahead, it is expected to produce 9,000 barrels See WATCH, Page 6

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Photo/Courtesy/EXXONMOBIL

A fleet of cranes hoist the Point Thomson pipeline into place during construction this past winter, eventually making the connection to the TransAlaska Pipeline System. Point Thomson is the first piece of a large Alaska LNG export project, which now enjoys more certainty after the state’s new oil production tax was upheld by Alaska voters in the Aug. 19 primary.

WATCH

Continued from Page 5

Photo/MICHAEL DINNEEN/AJOC FILE

Dustin Cook, a welder for NANA Development Corp., works on a new gas processing module on April 14 at the NANA fabrication shop in Big Lake. The module was built for BP’s North Slope Gathering Center 2 to increase gas handling capabilities as part of a longer-term $3 billion project BP is studying in the western Prudhoe Bay field.

per day with a startup in 2017. ConocoPhillips did preliminary gravel placement for the DS 2S project last winter but final development must be approved by the company’s board. It is expected to begin production in 2016, with a peak of 8,000 barrels per day. The third project is Greater Moose’s Tooth 1, or GMT-1, ConocoPhillips’ planned new oil project in the National Petroleum Reserve–Alaska. A federal supplemental environmental impact statement being prepared by the U.S. Bureau of Land Management is due to be finalized later this year. GMT-1 is expected to produce 30,000 barrels per day. With new production from these three projects laid over the existing fields’ output, and accounting for some decline in the existing fields, ConocoPhillips said that it expects to add 40,000 barrels per day of new production to its North Slope production by 2018. BP is also working on its Prudhoe Bay west end development, although

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Photo/Courtesy/BP

A Doyon Ltd. rig works on the North Slope during the 2014 season. An all-time high of 17 rigs worked on the Slope during the week of Feb. 28 according to data compiled by Baker Hughes Inc.

formal approvals from the board must also be given for that project. If it proceeds, it will add 40,000 barrels of new production beginning in 2018, the company has said. There are two other, smaller projects to keep an eye on. One is Brooks Range Petroleum’s small Mustang field development, which is to begin producing at an initial rate of 9,000 barrels per day in 2016 and increasing to 12,000 barrels per day in 2017. It is likely that other small oil deposits near Mustang will be developed once the field infrastructure is in place. The oil processing facility being built for Mustang will have a capacity of 15,000 barrels per day. Another project is Caelus Energy’s Nuna development near the Oooguruk field, which Caelus purchased from Pioneer Natural Resources earlier this year. Nuna is expected to produce about 15,000 barrels per day. The company has not released

a timetable for development but some preliminary gravel work is expected this winter. Meanwhile, two other large projects were underway before the vote on the production tax are ConocoPhillips’ CD-5 project and the Point Thomson gas and condensate project east of Prudhoe Bay. These will be producing by 2016. CD-5 is to begin production in late 2015 with a peak production of 15,000 barrels per day. Meanwhile, Point Thomson will begin producing 10,000 barrels per day of liquid condensates in 2016. Not including BP’s west Prudhoe project, which will produce after 2018, the projects listed above total to about 100,000 barrels per day of new oil by 2018. However, there will also be continued decline in the existing fields, although that may be mitigated by “workovers” of older producing wells and the drilling of

new wells in the older fields. Based on these announced projects, state officials are cautiously optimistic that the production from the North Slope can be held level and perhaps increased by a small amount. The decline was actually halted last year due to increased activity on the slope. Production averaged 531,000 barrels per day in fiscal year 2014, the state financial year ending June 30, which was about the same as it averaged the previous year. Historically production has been declining at rates of about 6 percent yearly. On the revenue impacts of the new tax, the important milestone is the Department of Revenue’s next revenue forecast due out in late November or early December. That will be the department’s first estimate under the new tax after it has been in effect for nearly a full year. It will forecast revenues for the

current fiscal year and the 2016 fiscal year. Revenues will be most affected by three factors that are very dynamic: oil prices, the estimated per-barrel production cost and the number of barrels expected to be produced. If oil prices are lower, and production costs higher, the per-barrel net value of the oil will be reduced, resulting in lower revenues. This would happen under the new and old oil tax as both are based on the net value per barrel. However, this would be offset by more barrels being produced than what was previously estimated. More barrels means not only more production tax revenue but also higher royalty payments to the state. How these would balance out would be displayed in the revenue department’s forecast later this year. Tim Bradner can be reached at tim.bradner@alaskajournal.com.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Hilcorp spends $1.25B for smaller BP North Slope assets By Tim Bradner Alaska Journal of Commerce

BP announced April 22 that it will sell four of its North Slope assets to Houston-based independent Hilcorp Energy. The agreement includes all of BP’s interests in the Endicott and Northstar fields and 50 percent of BP’s interests in the Milne Point field and Liberty, an offshore field still under development planning. The sale will net BP $1.25 billion and an additional $250 million in a payment for the company’s future development costs of Liberty. The assets included in the sale represent about 19,700 barrels per day of barrels of oil equivalent, or the value of the combined oil and gas produced. That is about 15 percent of BP’s net production on the Slope. Hilcorp entered Alaska in 2012 when it purchased aging Cook Inlet oil fields owned by Chevron Corp., and expanded its position in the Inlet in 2013 with the purchase of Marathon Oil Co. assets in the region, which were mainly in natural gas. Hilcorp began an aggressive redevelopment program, bringing in new drill rigs and equipment and stepping up well renovation work.

Cook Inlet oil production has almost doubled since 2010, to about 16,000 barrels per day, since Hilcorp took over the Inlet assets of Chevron Corp. and Marathon Oil Co. It has also increased gas production from the former Marathon properties, helping to secure local utilities’ gas needs into 2018. BP will be reducing its Alaska North Slope workforce by 475 as a part of the company’s sale of North Slope producing assets to Houston-based Hilcorp Energy and a restructuring of BP’s operations. About 200 of the 475 are expected to go to work for Hilcorp, however, so the overall reduction to the North Slope industry workforce would be 275. That must be viewed in context of record levels of industry employment on the Slope, however, as much as 15,000 in recent months according to data from the state Department of Labor and Workforce Development. Among its proposed new North Slope acquisitions the Endicott field fits the category of a once-robust field that has now declined and Northstar is also declining, although it began production only in 2001. Milne Point, where Hilcorp

would only own 50 percent, is still robust. The London-based company will retain its ownership position in the large Prudhoe Bay field, and BP will remain as operator. Hilcorp will become operator of Endicott and Northstar, which it will own, and also the Milne Point field, where it will be 50 percent owner with BP. Other North Slope assets owned by BP such as its interest in the Kuparuk River field and the large Point Thomson gas and condensate field are not affected by the sale. “This agreement will help bring a more competitive and sustainable business for BP in Alaska,” said Lamar McKay, BP’s upstream chief executive. “It will allow us to play to two of our great strengths, managing giant oil fields and gas value trains. We will now concentrate on continuing development and production from the giant Prudhoe Bay field and working to advance the future opportunity of Alaska (liquefied natural gas),” McKay said, a reference to the gas pipeline and liquefied natural gas, or LNG, export project BP is working on with other North Slope producers ConocoPhillips and ExxonMobil, and the State of Alaska.

NordAq secures $90M investment to develop Alaska leases By Tim Bradner Alaska Journal of Commerce

A Chinese investment group has taken an investment position in NordAq Energy, an Anchorage-based independent oil and gas company working to develop gas discoveries in Cook Inlet and oil discoveries on the North Slope. NordAq and Chinanx Investment Group, of Beijing, made the announcement Sept. 9. This is the first equity investment by a Chinese company in a special oil and gas project although companies with links to China have bid recently in state oil and gas lease sales, according to the Alaska Department of Natural Resources. Chinese companies also have holdings in some Alaska mining projects. A favorable investment climate in the state created by recent changes in state oil and gas tax laws helped Chinanx make its final investment decision, both NordAq and Chinanx said. “These tax and credit policies were recently ratified by the people of Alaska (in the Aug. 19 vote against a repeal of the tax law) signaling to the financial markets that Alaskans are committed to a stable tax regime,” NordAq and Chinanx said. Under the deal, Chinanx will provide up to

$90 million to fund the development of NordAq’s Alaska portfolio of assets, NordAq said in a press release. The first part of this, $20 million, was made available Sept. 9, according to the announcement. Chinanx will also provide a debt facility for up to $150 million in further financing. NordAq holds state and federal oil and gas leases in Alaska along with leases on private lands, particularly those of Cook Inlet Region Inc., or CIRI, the Southcentral Alaska Native regional corporation. The press release cited an estimated 1.2 billion barrels of potential recoverable oil and 115 billion cubic feet of natural gas on leases held by NordAq. “We are delighted that Chinanx has chosen to make a significant investment not only in NordAq but in Alaska,” NordAq’s chairman, John Kidd, said in a statement. “The resource potential of Alaska is tremendous and this transaction highlights the prospectivity of the state.” Chinanx’s investment will also put its representatives on NordAq’s board. Doris Cheng, honorary chairman of Chinanx will become Vice Chairman of NordAq. “We are pleased to launch this partnership and to be joining NordAq for the next stage of its development. The first of its kind,

this deal will help forge a closer union between China and Alaska, a region that is not only politically stable and close to Asia but is also highly prospective,” Cheng said in a statement. NordAq is working to develop a gas discovery on the Kenai Peninsula south of Anchorage but the development planning and permitting is taking a long time because the project is within the Kenai National Wildlife Refuge. The subsurface mineral rights are owned by CIRI, but the surface lands are owned by the U.S. Fish and Wildlife Service. Because of that the project must adhere to an extensive rules to protect the refuge. The agency cannot prevent production but it can impose stipulations that guide development, U.S. Fish and Wildlife officials have said. On the North Slope, NordAq holds federal leases in the National Petroleum ReserveAlaska where a previous company, FEX Alaska, made discoveries in exploration drilling. NordAq is still engaged in evaluating the acreage and in exploring other leases in the petroleum reserve and on state leases in state submerged lands north of NPR-A. Tim Bradner can be reached at tim. bradner@alaskajournal.com.

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Shell now hopes to use two drill rigs for Chukchi exploration in 2015

By Tim Bradner Alaska Journal of Commerce

Shell is now planning to bring the TransOcean Ltd. semi-submersible drill rig Polar Pioneer to the Chukchi Sea in 2015 to explore along with the drillship Noble Discoverer. The company had previously planned to have only the Noble Discoverer exploring in the Arctic. A revised plan of exploration was filed Thursday with the U.S. Bureau of Ocean Energy Management that proposes to have the semisubmersible drilling along with the Discoverer, Shell spokeswoman Meg Baldino said. In a statement, Shell said, “Today we submitted revisions to our previously approved Chukchi Sea exploration plan to the Bureau of Ocean Energy Management; this step is necessary to keep our 2015 exploration options viable. The plan details our exploration plan for the Chukchi Sea.” The new plan supersedes a previous Chukchi Sea exploration plan filed by Shell, Baldino said. Previously the company planned to have the Polar Pioneer kept on standby at Dutch Harbor. Having both rigs in the Chukchi Sea would allow either to respond faster to each other in an emergency, Baldino said. The Polar Pioneer is designed for Arctic conditions, according to information about the rig on TransOcean’s website. The rig was built in 1985 and has worked off the coast of northern Norway. “We have not yet made any formal decisions,” Baldino said. “We submitted the

revised exploration plan to have options open to us. Our final decision will depend on a lot of things, such as successful permitting and a resolution to litigation,” she said. Shell’s plans are currently bogged down in a lawsuit brought by Native tribal and environmental groups that argued the Interior Department’s assumption of oil spill risks are unrealistic based on its estimate of what would constitute an economically developable discovery in the Chukchi Sea. BOEM is now revising the assumptions and will publish a draft supplemental environmental impact statement this fall, the agency has said. Meanwhile, Shell is also waiting on new Arctic OCS drilling rules to be put in place by the Interior Department. A draft set of rules has been developed and submitted to the Office of Management and Budget for review but are not yet public, an Interior spokesman said. Shell’s 2012 drilling program was only partly successful. The company was able to drill one partly-completed exploration well in both the Chukchi and Beaufort Sea, where Shell also holds leases. Shell could only drill “top holes” because

its spill recovery barge was never cleared to leave its Washington port and the company was not allowed to drill to oil-bearing depths. After its Beaufort rig the Kulluk lost its tow and grounded off Kodiak in late 2012, the company did not return to the Arctic in 2013 and 2014 and hopes now to resume drilling in the Chukchi Sea only in 2015, Baldino said. The Burger prospect in the Chukchi Sea remains Shell’s top priority, she said. Under the revised plan filed with BOEM the two rigs would be operating in proximity to each other but Baldino did not have details of how close. One rig will certainly focus on Burger. Details of other prospects targeted are described in the exploration plan, which would be released by the BOEM, she said. Tim Bradner can be reached at tim.bradner@alaskajournal.com.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Photo/Courtesy/US coast guard

The 514-foot Noble Discoverer drill ship is seen in this U.S. Coast Guard photo. In a revised 2015 exploration plan filed with the federal government, Shell will drill in the Chukchi Sea with the Noble Discoverer and the Arctic semi-submersible drill rig the Polar Pioneer. Whether Shell can drill in 2015 depends on parallel actions by the federal government to finalize regulations and a court case that involves a court-ordered supplemental EIS for the 2008 Chukchi lease sale.

By Tim Bradner Alaska Journal of Commerce

Shell has negotiated an option for seven Alaska Native corporations in the Arctic to purchase a royalty interest in its offshore leases in the Chukchi Sea. The percent of royalty and the financial terms not disclosed. The deal was announced July 31. Rex Rock, Sr., president of Arctic Slope Regional Corp. will be president of the Arctic Inupiat Offshore LLC, a joint-venture company formed by ASRC and six Native village corporations. The agreement applies to all of Shell’s 275 federal Outer Continental Shelf leases in the Chukchi Sea but does not include Shell’s leases in the Alaskan Beaufort Sea. Rock said the deal could create a sustainable economy for communities in the region. “This does three things: It creates align-

Shell, Slope Native corps. sign royalty deal for Chukchi leases

ment with the offshore development; it gives us a seat at the table in decisions on offshore development, and it can create an economic base,” he said. However, an oil and gas royalty owner normally plays a passive role in the management of an oil producing asset. The royalty owner has no direct role in a project, unlike a working interest partner. Inupiat people on the Arctic have supported onshore oil and gas development because of the industrial tax base it creates for the North Slope Borough, the regional municipality, and the local jobs it creates. Also, ASRC is a royalty owner in the producing Alpine oil field and will have a royalty interest in future production from certain lands in the National Petroleum Reserve-Alaska. There is opposition in the region to offshore development because of the threat pose by oil spills to subsistence resources, mainly migrating bowhead whales. One Inupiat tribal group, the Native Village of Point Hope, is still the lead plaintiff in a coalition with environmental groups suing the U.S. Department of the Interior over the Chukchi Sea lease sale, which was held by 2008. The U.S. Bureau of Ocean Energy Management is now redoing part of the environmental impact statement for the 2008 sale in response to a judge’s order in the lawsuit, and until that is completed Shell cannot resume its exploration in the Chukchi Sea.

The company hopes to do exploration drilling in 2015 if the EIS issues are cleared up and if the Interior Department completes work on new Arctic drilling regulations. “This is important for our Alaskan venture. A regional alliance with so many respected Alaska Native corporations provides Shell the opportunity to collaborate with savvy and experienced North Slope business partners going forward,” said Pete Slaiby, head of Shell’s Alaska operations. “It also underscores our commitment to provide opportunities for North Slope communities to directly benefit from Shell’s activities offshore Alaska.” U.S. Sen. Lisa Murkowski said she was pleased at the deal in a statement. “Shell’s decision to invest in the future of the region and its people should be applauded,” she said. “This announcement ensures that the people of the North Slope Borough share directly in the oil and gas bounty off their coast. It also gives locals a say in what happens near their communities. I think that’s a wise decision on Shell’s part.” The lack of a direct financial link between offshore development and coastal communities, which bear the risk on an oil spill, has long been a point of contention in Alaskan OCS leasing. In the U.S. Gulf of Mexico, coastal states share in federal OCS royalties but the same provision does not apply to Alaska. Joe Balash, Alaska’s Commissioner of Natural Resources, said the state and the North Slope Borough, the Arctic regional municipality, are pushing for revenue-sharing of federal OCS royalties with the state and coastal communities, but Congress must pass legislation for that. The royalty agreement between Shell and the communities will not change that, he said. Shell has spent almost $6 billion in exploration and leasing in the Chukchi and Beaufort Sea. Tim Bradner can be reached at tim.bradner@alaskajournal.com.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

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Repsol plans more exploration after defeat of Ballot Measure 1 By Tim Bradner Alaska Journal of Commerce

Repsol hopes to be drilling North Slope exploration wells again this winter. The operation could employ 400 to 500 people and the defeat of Ballot Proposition 1 in the state’s Aug. 19 primary election was a very positive for Repsol. “The tax vote was big for us,” said Bill Hardham, Repsol’s Alaska manager. The company made discoveries in three exploration wells drilled in 2013 and is now evaluating whether they can be economically developed. “We’re confident we can handle the technical issues and we’re still evaluating what we’ve found, so we’re not quite ready to make a decision on development,” Hardham said. “We are confident in the project and if the tax structure is right it certainly strengthens the case to develop it.” If the current tax had been repealed and the former tax, known as ACES, become law again, developing what Repsol has found would have been more problematic. For this coming winter Repsol plans a drilling program with three rigs

and a seismic program, an effort similar to its drilling during the last two years. Repsol drilled its Q-5 and Q-7 wells this spring to evaluate oil discoveries at three wells, Q-1, Q-3 and Q-6 drilled in early 2013. Another well, Tuttu, was drilled last spring at a location further inland. Hardham could not comment on results of the 2014 drilling. The quality of the oil found so far is good but some of the reservoir rock has presented challenges, although Repsol believes these can be overcome. Well stimulation technologies were included in production tests conducted this spring, Hardham said. The exploration area is between the producing Kuparuk River and Alpine fields. The area has many known petroleum accumulations and other companies have made new discoveries near where Repsol is exploring. The location in an environmentally sensitive area presents challenges along with the high costs of all North Slope projects. No decisions have been made on whether

to link with existing field infrastructure or to build stand-alone oil processing facilities. “All options are still on the table,” Hardham said. If the planned three-rig drilling program is done this winter Repsol will be employing some 400 to 500 people in drilling, seismic and support work. One seismic crew will be employed this winter if the plan goes ahead. This level of employment is similar to previous years except for last winter when about 600 were at work because two seismic crews were working. Repsol is doing three-dimensional seismic, which is more intensive than the older twodimensional seismic and gives a more detailed picture of underground geologic formations. “Last winter was an excellent operating season for us,” Hardham said, with no major weather delays or other difficulties. After four winter seasons, “we feel we’re really perfecting our winter operations,” he said. There’s always a post-season review session to review what went right, what went wrong, and the lessons learned, Hardham said.

New UAF power plant approved; engineering building needs $31M By Elwood Brehmer Alaska Journal of Commerce

During the most recent Legislative session, $195 million was added to 2015 fiscal year capital budget to fully fund an overhaul of the combined heat and power plant at the University of Alaska Fairbanks. The 17-megawatt plant has a $245 million price tag, but fuel savings from new high-efficiency boilers will allow the UAF to finance the remaining $50 million, according to the Board of Regents. General fund money makes up $37.5 million of the $195 million approval, with much of the rest being bonded. While funding the power plant in one lump sum was unexpected, university system leaders for years have emphasized the need to overhaul the 50-year old, coal-fired plant at Fairbanks and prioritized that project over the funds needed to finish their own engineering building now under construction. Parnell had appropriated $10 million to the UAA engineering building, but the Senate’s total $45.6 million appropriation should finish the $123.2 million, 75,000-square foot building and 500-space parking garage, the latter of which

is required by Municipality of Anchorage zoning laws because of the parking eliminated by the building construction. A $10 million appropriation for the UAF engineering building in Parnell’s budget stayed in the Senate version. UAF spokeswoman Marmian Grimes said the money would allow the university to enclose the structure and finish it when the power plant is done. Finishing the 119,000-square foot engineering building will mean putting $31.3 million towards it in future years. Grimes said in an interview that the university is ready to get to work on the power plant so it can be up and running for the winter of 2018-19. The new boilers would decrease most particulate and gas emissions by more than 50 percent, according to UAF. A plan to meet a broad legislative directive to the board of regents to add a fee or increase tuition to generate $2 million annually for servicing the plant’s bond debt was recently approved by UA President Gamble. An Aug. 7 memo from Gamble to the Coalition of Student Leaders, a system-wide student government group, details a facilities fee that

will be phased in over three semesters to ultimately generate more than $3.6 million per year for the UA system. “After careful consideration, and following legislative intent put forward in the (fiscal year 2015) budget, I have endorsed a proposal from the three chancellors to implement a $2 per credit UA Facilities Fee starting in spring 2015. In fall 2015 this fee will increase to $4 per credit, and in spring 2016 the fee will increase to $6 per credit,” Gamble wrote. An average full-time student taking 15 credits would pay a $90 fee per semester at $6 per credit. Revenue generated from the fee will stay at the university where it was collected, according to Gamble. “For UAF, this revenue will be used to assist with bond payments for the new heat and power plant, per the intent language specified by the 2014 Alaska Legislature. For UAS and UAA, the fee revenue will assist in reinvestments for classrooms, laboratories, residence halls and other buildings and academic equipment specific to those main campuses and their associated community campuses,” he wrote.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

FERC filing another important step for Alaska LNG Project

Photo/michael dinneen/ajoc file

From left to right, Ted Westerman of ConocoPhillips, Steve Butt of ExxonMobil and Dale Burnworth of BP enjoy a light moment during a photo shoot Jan. 8 at the Petroleum Club in Anchorage. The three are the lead actors from the major owners and producers for the proposed large-diameter gas pipeline from the North Slope to Southcentral Alaska. Butt of ExxonMobil is the project manager, Westerman of ConocoPhillips is the downstream team lead and Burnworth of BP is the commercial advisor.

By Tim Bradner Alaska Journal of Commerce

Step by step, the Alaska LNG Project is moving forward. The project made a big advance Sept. 5 with its application to the Federal Energy Regulatory Commission to begin a prefiling process for the project. Earlier this summer an application was submitted to the U.S. Department of Energy for a license to export liquefied natural gas, or LNG. Pre-Front End Engineering and Design work, or pre-FEED, which will cost about half a billion dollars, also got underway this summer. BP, ConocoPhillips, ExxonMobil, TransCanada Corp. and the Alaska Gasline Development Corp., who are partners in the project, announced the latest application with FERC on Sept. 8. The project includes an 800-mile pipeline, the LNG plant at Nikiski and a major gas processing plant that will be required on the North Slope. A smaller 60-mile gas pipeline connecting the Point Thomson gas and condensate field with Prudhoe Bay is also part of the project. The FERC pre-file sets the stage for environmental and technical reviews associated with siting, design and permitting for the project, Preliminary costs are estimated at $45 billion

to $65 billion. About 16 million to 18 million tons of LNG would be exported yearly if the project is built, although the application to the Energy Department for an LNG export license asks permission to export up to 20 million tons per year. “We look forward to leveraging the extensive strengths of all the parties involved in the FERC pre-file process,” said Steve Butt of ExxonMobil, who is the Alaska LNG senior project manager. This is certainly one of the largest LNG export projects in the world, Butt said. There are some projects in the Middle East on par with what is planned in Alaska. Whether those are larger or smaller depends on how the measurement is done, he said, but what makes Alaska different is the complex integration of all parts including the large-diameter pipeline and the two large plants at either end, each component a megaproject in itself. The filing included a proposed schedule for an environmental impact statement that would be completed in 2018 as well as two firms being recommended by the sponsor group to FERC to do the EIS. The federal agency will make the selection of an EIS contractor and will supervise the

preparation of the document. Butt said he could not identify the two firms proposed to FERC for reasons of confidentiality. The pre-filing also sets out the proposed timeline for major regulatory filings for the project, including an application in September 2016 for the Natural Gas Act authorization from FERC. In the filing, FERC was also requested to issue the authorization by July 2018. The proposed schedule calls for the release of a draft EIS by October 2017, and the final document by March 2018. By that time the project sponsors will have completed the detailed Front-End Engineering and Design, or FEED, as well as updated cost estimates. The process with FERC provides for 13 resource reports to be filed with the agency describing different parts of the project. Drafts of those are to be filed and will be shared with other federal and state agencies and the public. Meanwhile, the pre-FEED, a preliminary step on the project engineering, is now underway following the state Legislature’s enactment See FERC, Page 23

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Balash heads to Japan with BP to market LNG By Tim Bradner Alaska Journal of Commerce

Marketing efforts for the Alaska LNG Project have formally started, passing another major milestone. State Natural Resources Commissioner Joe Balash accompanied BP officials to Asia in September on the first formal sales trip for the giant project. “These were BP’s meetings. They set them up and handled the invitations, and we were invited to come along,” Balash said. For the state, the trip’s purpose was to demonstrate the alignment between Alaska and the producer companies, Balash said in an interview before he departed. “There is a lot of confusion in Asia about Alaska and the opportunities here, so we felt it was important to do this with BP and for us to be seen standing alongside each other. It’s an important way of demonstrating alignment,” Balash said. Meetings were also to be held in Seoul with KOGAS, Korea’s natural gas company. KOGAS is the world’s largest LNG buyer as a single company but Japan imports more LNG overall, Balash said. BP’s meetings were just informational but state officials held separate meetings in Tokyo that produced a Memorandum of Cooperation between the state and METI, Japan’s Ministry of Economy, Trade and Industry. The memorandum sets out a framework for discussions between the state and the Japanese agency intended to facilitate negotiations between private buyers in Japan and the North Slope producers. It builds on an existing agreement the state signed last January with the Japan Bank for International Cooperation. JBIC is a public financial institution in Japan that plays an important role in financing Japanese foreign investments, and in this case helping secure LNG imports to Japan. The memorandum itself, signed by METI and Balash, representing the state, notes that, “The Alaska LNG Project has some comparative

advantages to other potential suppliers of LNG including proximity, lack of security risks and avoidance of strategic shipping choke points.” The document also Photo/Michael Dinneen/AJOC File recognizes that Alaska Alaska Department of Natural Resources Commissioner Joe Balash has one of the world’s was in Japan Sept. 8 to sign a cooperation agreement between the State largest portfolios of undeof Alaska and the Japanese Ministry of Economy, Trade and Industry, buildveloped oil, gas, minerals ing on an agreement signed earlier this year with the Japan Bank for Interand renewable resources, national Cooperation. Balash traveled to Japan with BP to begin marketing Alaska’s 25-percent share of a proposed North Slope LNG export project. and that Alaska has historic status as a “foundation LNG supplier to Japan” through the ConocoPhillips Kenai LNG plant that provided, in 1969, the first shipments of LNG to Japan. The plant conBalash said that under the Heads of Agreetinues to ship LNG to Japan made from Cook ment signed by the state, producing companies Inlet natural gas. In the large project marketing, Balash said and TransCanada Corp. each of the three proeach of the producers will be making their own ducers are obliged to negotiate the sale of the marketing trips for their share of LNG produced state’s 25 percent share of LNG along with their by the project. The companies cannot make joint own, and under the same contract terms. This isn’t for certain, but it’s what the protrips because of anti-trust reasons, he said. The state also came to BP’s meeting be- ducers have agreed to do if the state prefers. “We have some big decision to make, cause the company may be marketing the state’s gas, as LNG, along with its own. It is too whether to ride along on their contracts or early to say whether the state will accompany strike out on our own,” Balash said. That would require the state to set up its the other producers, ConocoPhillips and Exxonown LNG marketing group, and the marketing Mobil, when they make marketing trips. It’s not yet certain the big project will actu- would be done without the benefit of the proally be built. That decision will be made in 2018 ducers’ experience in selling LNG worldwide. “We’re in a position to be flexible, but we or 2019 after further cost estimates, engineerhave to be careful about anti-trust issues,” the ing and if permits are acquired. “It’s still early but we need to open a dia- commissioner said, meaning that if the state asks the three producers to sell its LNG the logue with the buyers,” he said. “There are a lot of reasons why this project information obtained on each company’s marshould be attractive to them (buyers), among keting will have to be kept confidential from the them the geopolitical factors,” such as obtaining LNG from a secure sources that is also relatively close. See MARKET, Page 23

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Interior working group aims to simplify gas conversions By Elwood Brehmer Alaska Journal of Commerce

Fairbanks utilities are investigating ways to simplify and incentivize conversion to natural gas when it becomes available. Interior Gas Utility board chairman Bob Shefchik told the Alaska Industrial Development and Export Authority board of directors Aug. 25 that the goal of a conversion working group is to provide a “one-stop shop” for natural gas service, a boiler or furnace and financing residential conversion. IGU was formed by the Fairbanks North Star Borough to distribute gas through the state-sponsored Interior Energy Project. Converting a home heating system from fuel oil to natural gas could cost Interior residents up to $10,000 for a new boiler and gas hookup. If AIDEA is able to hit its target of supplying

gas to the region at about $15 per thousand cubic feet, or mcf, the fuel savings would be substantial. At $15 per mcf, natural gas would be about half the price of fuel oil at $4 per gallon. The working group — which includes representatives from Fairbanks Natural Gas, IGU, the Fairbanks North Star Borough, Cold Climate Housing Research Center, Alaska Housing Finance Corp. and mechanical contractors that would perform the conversions — is looking closely at a system where the service area utility would work as a passthrough for conversion costs. Under that proposal, a conversion surcharge would be added to a customer’s monthly gas bill until the boiler is paid off. Shefchik said such a system is good in theory, but must allow for cash-strapped customers to realize the benefit of conversion right away.

“There needs to be immediate savings to customers,” Shefchik said. “If you can’t afford $4 (fuel) oil right now, to say, ‘Well, if you pay for your furnace it will pay off in five years and then you’ll get the savings in year six’ won’t do.” Financial institutions have also participated in the working group discussions. They are providing input on what they would be willing to offer for private financing, which could be best utilized if it is backstopped by the borough or state, he said. Depending on what protection public money can give against defaults, Shefchik said 10-year loans in the 3 percent range are possible for conversion. He said pushing conversion early is key beSee CONVERSIONS, Page 30

Financing plan approved for Interior Energy Project gas plant By Elwood Brehmer Alaska Journal of Commerce

The Alaska Industrial Development and Export Authority board of directors unanimously approved a key deal with its Interior Energy Project partner at its Aug. 25 meeting in Anchorage. The North Slope LNG Concession Agreement, as it is known, between AIDEA and Northern Lights Energy LLC, a subsidiary of MWH Global Inc., puts a legal framework in place as the AIDEA-MWH team works towards a financing plan for the North Slope liquefied natural gas plant — the foundation of the plan to truck LNG down the Dalton Highway to customers in and around Fairbanks. The Interior Energy Project is the state’s solution to alleviate the burden of high fuel oil prices and poor winter air quality on Fairbanks-area residents by making lower cost natural gas available. AIDEA’s retail price target of about $15 per thousand cubic feet, or mcf, of gas would be about half the cost of fuel oil at $4 per gallon.

MWH officials have said financial close should come sometime in late October or early November. “Once you go to financial close then the concession agreement becomes a way for them to operate the plant as a concession for AIDEA,” said Mark Davis, authority deputy director. Under the terms of the agreement MWH would operate the plant for up to 30 years as Northern Lights Energy. It allows for a maximum nominal return on investment of 12.5 percent for MWH’s investors in the plant. Northleaf Capital Partners, a Torontobased firm, is the project’s silent private investor. Exactly how much Northleaf and subsequently AIDEA contribute to the up to $200 million plant remains unclear. MWH has agreed to put up at least $20 million and up to $85 million towards the LNG plant, meaning AIDEA could be on the hook for between $75 million to $180 million depending on the cost of the plant and the final private investment amount. Board member and former Fairbanks state

Sen. Gary Wilken has expressed concern at recent board meetings about whether or not MWH will ultimately come through on claims it made when AIDEA chose the engineering consultants as a partner in January. A North Slope plant financing term sheet sent to AIDEA by MWH in November outlines private investment of $50 million to $85 million, with the range accounting for variations in plant cost. Based on those conditions, AIDEA would contribute the $125 million Sustainable Energy Transmission and Supply fund, or SETS loan approved by the Legislature for the Interior Energy Project. The more private investment the LNG plant receives, the more of the $332.5 million of state financing devoted to the project AIDEA can put towards distribution infrastructure in the Fairbanks area. Wilken said Aug. 25 that each party’s final contribution “is still very much up in the air.” MWH has said Northleaf wants to invest See GAS

PLANT, Page 29

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Exploration, expansion at Pogo will extend mine life By Tim Bradner Alaska Journal of Commerce

The Pogo gold mine, near Delta east of Fairbanks, keeps growing. More gold is being found, and it’s sufficient to replace what is being produced each year. “Our strategy is based on steady production and sustainability,” said Lorna Shaw, spokeswoman for owner and operator Sumitomo Metal Mining Pogo. So far there seems no limit to how far goldbearing quartz veins might extend around the present mine. The company keeps finding more gold. “The current mine life is planned through the first quarter of 2019 but we are confident that will be extended,” she said. The company is a venture of two Japanese companies, Sumitomo Metal Mining Co., at 85 percent, and Sumitomo Corp., at 15 percent. The mine is about 85 miles east of Fairbanks and is northeast of Delta, with 50-mile private road connecting Pogo with the Alaska Highway. Sumitomo Metal Mining operates and maintains the road. Pogo produced 337,393 troy ounces of gold in 2012. Production in 2014 is expected to be about the same, Shaw said. In 2012, the mine reserves were listed at 13.6 million short tons of ore with an average gold grade of 0.366 ounces per short ton, with an estimated gold content of 4.97 million ounces. The mine began producing from the Leise zone, the first ore zone developed, in 2008, and from a second nearby deposit, East Deep, in 2013. This year another ore deposit, North Zone, is being explored although it is not yet producing. Two exploration “drifts” or tunnels, have been built into the North Zone to allow its deeper sections to be explored, and also to explore for gold mineralization between East Deep and North Zone. The drifts provide access and serve as a platform for exploration drilling done underground. Additional gold veins are being discovered, and explored, at North Zone and it is possible that this gold, now classed as “resources” could become “reserves,” a more strictly-defined category, by the end of the year, according to information provided by the company. Pogo is spending $17 million on exploration this year although $5 million of that is for the two underground drifts for North Zone and the

Photo/Judy patrick/sumitomo metal mining co.

Production remains steady at the Pogo Mine east of Fairbanks, with new discoveries sufficient to replace what is being mined each year.

North Zone-East Deep connection, Shaw said. The company’s overall 2014 capital budget is more than $30 million, including improvements to surface facilities as well as the exploration. Pogo is also exploring “South Pogo,” a mineralized area south of the ore zones now producing. A drift, or tunnel, has been built to South Pogo to support the underground exploration drilling there and two helicopter-supported drill rigs are conducting surface drilling this year. Gold resources at South Pogo are likely to be converted to reserves by the end of 2014, just as at North Zone, the company said. Another nearby deposit of gold mineralization, the “4021 area” has also been identified although it is some distance from the areas now being produced. The company not doing exploration this year so as to focus efforts on targets nearer the existing production, but the presence of 4021 indicates that the mineralization extends at least that far. “Eventually we will get there as we expand in that direction,” Shaw said. Pogo has an active construction program this year including an expansion of the mine water treatment plant and construction of a new underground adit, the “2150” that will provide additional ventilation to the underground mining areas as well as an alternative for vehicle access.

The “portal” or entrance has been completed and work on the adit has been advanced 2,200 feet to date, Shaw said. “It is not yet connected to the existing tunnels, but it is getting close,” she said. On the water treatment plant, the excavation is completed and contractors have done the back-fill. “Currently we have permits that allow us to process up to 600 gallons per minute but our existing plants don’t allow us to treat more than 540 gallons per minute,” Shaw said. The expansion, which will span two years, will provide additional capacity. Rainy weather in Interior Alaska this summer has slowed some of the surface construction work, Shaw said. The general contractor on the project is M2C1 of Delta with several subcontractors including T&D, of Fairbanks. The company currently employs 314 with about 100 seasonal contractors. Although Pogo is not within a municipality it regularly makes donations to the nearby City of Delta, including $360,000 volunteered in June to help the city purchase new fire-fighting equipment, Shaw said. Fifteen of Pogo’s employees live in Deta and four live in Tok. Two hundred and twenty seven of Pogo’s 314 employees live in 24 Alaska communities, Shaw said.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Fort Knox gold output to dip, but will still be state’s top producer By Tim Bradner Alaska Journal of Commerce

The Fort Knox gold mine near Fairbanks is likely to keep its place as the state’s No. 1 gold producer in 2014. The mine, northeast of Fairbanks, is expected to produce 390,271 ounces of gold in 2014, including 245,286 ounces from the mill at the mine and 144,985 ounces from a heap leach processing facility also at the mine. Gold production in 2013 was 421,641 ounces. In comparison, the state’s No. 2 gold producer, the Pogo underground gold mine east of Fairbanks, produced 337,000 ounces of gold in 2013 and will produce a similar amount in 2014. Fort Knox employs about 630 people, the vast majority who live in Fairbanks and commute daily to the mine. Fort Knox mines a gold ore that is low grade, so large volumes of ore must be mined and taken to the process facilities to extract the gold. In 2013 about 63 million tons of rock were

mined, a daily average of 173,000 tons. The figures are from the mining company’s presentation last March at the Alaska Miners Association annual Fairbanks conference. Of the ore that was mined, 14 million tons were processed in the mill at the mine, a facility that uses a mechanical equipment to crush ore that is supplemented with a chemical process to extract gold. An additional 33 million tons of ore were placed on the heap leach, a facility that involves a controlled circulation of a cyanide solution to extract gold. Fort Knox began producing in 1996 with its first gold “pour” in December that year. Last December the mine reached the 6 millionounce mark in gold production. Fort Knox is proud of its safety record, with 1.8 million hours worked with no lost-time incident at the time of the March presentation. Operating the mine take a vast fleet of equipment, including three 35 cubic-yard “shovels” and one 24-cubic yard shovel; three 24-cubic

yard Caterpillar 994 loaders and one 16-cubic yard Caterpillar loader; 19 240-ton haul trucks; 9 190-ton haul trucks; 10 150-ton haul trucks; seven specialized drllls for drilling blast holes, and miscellaneous equipment including tracked bulldozers, rubber-tired “dozers,” graders, water trucks, excavators and loaders. Running the operation and providing fuel and power requires a large budget, with $54 million spent in 2013 for fuel, for about 40,000 gallons used per day; $43 million spend for electricity, and about $120,000 per day purchased from Golden Valley Electric Assoc., the Interior power cooperative. The mine also uses about 33 tons of explosives per day to break up rock for mining, 21 tons per day of grinding balls to crush ore (the balls wear out), and 31 tons of lime per day as part of the gold-extraction process. Fort Knox paid $5.2 million in property tax to the Fairbanks North Star Borough in 2013 and about $18 million in state taxes and fees, according to the March presentation.

Livengood owners focused on costs, optimizing production By Tim Bradner Alaska Journal of Commerce

International Tower Hills Ltd. is continuing its work on the proposed large Livengood gold project about 70 miles north of Fairbanks. The focus now is on reducing costs and optimizing the production process, ITH spokesman Rick Solie said. Gold in the Livengood district has long been known. Early-day placer miners were active in the area. The deposit that has now been outlined is large and low-grade, and would be mined with a large surface mine similar to the way gold is mined at Fort Knox, another large mine near Fairbanks. The project is on the Elliot Highway north of Fairbanks, and having year-around road access is a key advantage if a mine is developed, Solie said. Livengood is one of the world’s largest undeveloped gold deposits with about 20 million ounces of gold identified through drilling, 16 million ounces in the “measured and indicated” category and 4 million as “inferred” resources, Solie said.

Measured and indicated refers to gold estimated through closely-space drill holes while inferred resources are those estimated by drill holes that are more widely-spaced. About 800 test holes have been drilled at Livengood so far, enough that the amount of gold can be estimated with reasonable certainty. There is likely more gold present, Solie said. The deposit is still “open” at its sides and bottom, meaning that the limit of the gold-bearing geologic formation has not yet been determined and there are exploration prospects close to the existing resource. There’s clearly enough gold for a mine, he said. The challenge now is to find a way to mine it economically. ITH completed a mine feasibility study in 2012 based on a 100,000 ton-per day mine but the study results showed that costs were higher than expected. Also, gold prices had declined to the point that a mine could not be developed at the scale assumed in the study. Gold prices have recovered somewhat but are still not robust, so the focus of the current effort is on cost reduction and a possible re-

scoping of the mine. “A big area of our work is on scale. The feasibility study was done on the basis of a 100,000 ton-per-day mine. That’s about twice the size of Fort Knox (another gold mine near Fairbanks), so we are considering whether that is still the best size,” Solie said. It’s a tradeoff, though. “If we lower the mill size and throughput we lower our capital costs but, our per unit costs go up and we also have less gold production. So, we’re still working to find that sweet spot,” where costs and revenues are optimal, he said. A lot of other work is being done including continued work on metallurgy. The ore at Livengood is more complex than at Fort Knox, so the mill process is an area of interest, he said. A lot of work is being done on the reagents, or chemicals, used in the extraction of gold, and ITH now also thinks it may improve the gold recovery compared with what was estimated in the feasibility study. See livengood, Page 32

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State seeks federal judgment in push for ANWR exploration By Tim Bradner Alaska Journal of Commerce

The State of Alaska has asked a U.S. Alaska District Court to issue a summary judgment in its lawsuit against the U.S. Department of the Interior over the federal agency’s rejection of a state plan to explore a part of the Arctic National Wildlife Refuge. The action was filed Sept. 8 in Anchorage. Judge Sharon Gleason will decide the issue. Gleason must allow the federal government and the intervenors in the case time to respond to the state’s petition and for the state to respond to those filings. The current court schedule calls for this to take about six weeks. After that Gleason would be in a position to rule on the state’s petition. In July 2013, the state submitted a plan to Interior to conduct a winter-only, three-dimensional seismic exploration program in the coastal plain of ANWR. Federal law allows exploration in parts of the refuge not classed as wilderness, although Congress must approve any development of an oil and gas discovery. In September, after an initial rejection of the petition, the director of the U.S. Fish and Wildlife denied the state’s application, relying on a 2001 opinion of the Interior Department’s solicitor issued in the waning days of the Clinton Administration declaring the authority to allow exploration had expired. The state contested this, arguing that the plain reading of the 1980 Alaska National Interest Lands and Conservation Act, under which ANWR was created, allowed exploration, and further that the federal law says the department “shall” issue a permit if an application conformed to the Fish and Wildlife Service rules. The state had proposed a one-season winter seismic program in a part of ANWR’s coastal plain that is considered to have high potential. A limited 2-D, or two-dimensional, seismic program sponsored by industry was done in the coastal plain during the 1980s but the 3-D, or three-dimensional, seismic program proposed

by the state would be of higher quality. It would allow the geologic evaluations of ANWR’s coastal plain done by the U.S. Geological Survey in the 1980s, and which used data from the 2-D survey, to be updated with the newer 3-D seismic technology now available. Modern 3-D seismic imaging and the advanced methods used to interpret the data also allows scientists to detect the actual presence of gas, and sometimes oil, fluids in underground reservoir rocks. That ability did not exist before. While drilling is still needed to confirm the presence of petroleum, and particularly whether it is a commercial-size deposit, the use of modern imaging technology has sharply increased the success rate of exploration drilling once that is undertaken No drilling is proposed in the state’s plan, at least so far, and any would require Congressional authorization. The proposal is also to fund the first year of 3-D seismic with state money and, if the results were encouraging, to seek partners for a second year. The motion filed by the state challenges the U.S. Fish and Wildlife Service’s refusal to consider the state’s proposal. In the motion, the state says, “Exploration of this area was mandated by the Alaska National Interest Lands and Conservation Act and is authorized by the plain language of law today. Conversely, the (President Barack) Obama administration has claimed that the Fish and Wildlife Service has no authority to review the state’s plan, and has therefore refused to consider it.” The key issue Gleason must decide is

Photo/File/AP

The coastal plain of the Arctic National Wildlife Refuge is seen in this file photo. The State of Alaska is asking a federal judge to rule that the Department of Interior must approve the state’s proposed plan for three-dimensional exploration in the area under the language of the Alaska National Interests Conservation Act.

whether an agency solicitor’s opinion written more than 13 years ago overrides the federal statute as passed by Congress in 1980. In a statement, Gov. Sean Parnell said, “The state must pursue litigation with Washington to explore ANWR because the information that will be gained (by the seismic exploration) is invaluable to both Alaska and the United States as a whole. “Our legal position is strong, and the national interest is best served by understanding what hydrocarbon resources underlie the coastal plain, and how they could support our economic and energy security. We will not give the federal government a free pass to choke Alaska’s economic development.” Joining the case defending the Interior Department are Gwich’in Steering Committee, Resisting Environmental Destruction on Indigenous Lands, Alaska Wilderness League, Center for Biological Diversity, Defenders of Wildlife, Natural Resources Defense Council, Northern Alaska Environmental Center, Sierra Club and The Wilderness Society. Tim Bradner can be reached at tim.bradner@alaskajournal.com.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Judge accepts Corps plan to justify CD-5 Judge accepts Corps plan to work justify CD-5 permit, refuses to halt

permit, refuses to halt work

Photo/courtesy/conocophillips

A CH2M Hill crane crew offloads a Nigliq Channel bridge girder on the ice pad at the CD-5 site in the National Petroleum Reserve-Alaska.

By Tim Bradner Alaska Journal of Commerce

An environmental lawsuit over the U.S. Army Corps of Engineers permit for a North Slope bridge and gravel road to ConocoPhillips’ CD-5 oil project has nearly been brought to closure. In an order issued July 22, U.S. Alaska District Court Judge Sharon Gleason accepted a proposal from the U.S. Army Corps of Engineers that it provide a written analysis of its decision to issue the permit and not prepare a supplemental environmental impact statement. Gleason ruled for the environmental plaintiffs May 27 that the Corps had not adequately justified its decision and asked the parties for proposed remedies. She has deferred ruling on the plaintiffs’

Clean Water Act claim until the Corps remedies its violation of the National Environmental Policy Act, which Gleason wrote could render the Clean Water Act claim moot. The Corps told Gleason in filings that the NEPA violation could be “readily corrected” and that “it will be able to provide a complete explanation of what it considered and how it reached its determination that the preparation of an SEIS for the CD-5 project was unnecessary.” Six Inupiats from the nearby village of Nuiqsut represented by Trustees for Alaska filed a lawsuit in early 2013 arguing the Corps had approved the bridge permit without justifying its decision that a bridge was environmentally preferable to an underground river crossing for the pipeline with no permanent gravel road. Nuiqsut’s village corporation, Kuukpik

Corp., along with Arctic Slope Regional Corp., the state of Alaska and ConocoPhillips intervened in the lawsuit on behalf of the Corps. The bridge and road, meanwhile, are largely completed and CD-5 is due to start production in late 2015. In her July 22 order, Gleason refused to grant plaintiffs’ request to vacate the permit and halt work at CD-5; she also scolded the plaintiffs for waiting so long to file the lawsuit. “For whatever reason, plaintiffs did not file this lawsuit until February 2013, over one year from the December 2011 permitting decision (by the Corps), which contributed to the cross-motions for summary judgment not becoming ripe until January 2014 — after construction was scheduled to begin,” Gleason wrote.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

MARKET

Continued from Page 15

others, who would also be selling the state’s LNG as a part of their contracts. Joint ventures like the Alaska LNG Project don’t have to do things this way, Balash said. “Joint ventures sometimes choose to market as a project, but in that case they set up a separate company staffed by people usually loaned from the owner companies who have to cut their links,” to the sponsor companies, at least as it relates to the marketing.

The main limitation to this is that the marketing group can only sell LNG from the jointlyowned project, so any advantages of negotiating for supply from several sources is lost. With the Alaska LNG Project, however, the decision was made to have each producer sell its own equity share of LNG, and to be responsible, if the state chooses, for the portion of their production that is the state’s royalty and tax share.

Balash will also accompany BP officials to China to tour an LNG project, 30 percent owned by BP, that is also the world’s largest LNG trucking operation. The commissioner expects to learn a lot from visiting the operation. “We’re involved in Alaska in our Interior Energy Project, which involves trucking of LNG from the North Slope to Fairbanks. We hope to see this expanded to other communities,” Balash said.

chase, and additional acreage is in the process of being acquired, the document stated. The goal is 250 acres for the plant. In an interview, Butt said the project group is still working to acquire access to more land for “lay-down” areas, where equipment and materials can be stored. “We’d like to have even more space and footprint, as a buffer,” around the large industrial plant construction, he said. “We’re working this as hard as we can.” The plant will be located in the Nikiski industrial area north of Kenai, near the Agrium Corp. fertilizer plant that is now closed. ConocoPhillips’ smaller LNG plant is in the same area, as is the Tesoro Corp. refinery. In terms of current activities, Steve Butt said the LNG project’s summer field season is winding down as the days grow shorter and cooler weather sets in. More than 250 people were employed this summer, mainly gathering data on the pipeline right-of-way from Livengood and Cook Inlet, Butt said. “We know quite a bit about Livengood north based on our previous work but we know less about Livengood south. We have put a lot of focus on the Talkeetna to Healy area,” Butt said. That is near Denali National Park. Butt said the project now plans to follow a route outside the park boundaries and east of the Nenana River. The pipe would be laid on high ground above and behind the hotels along the Parks Highway known as “glitter gulch,” he said. Alaska’s Congressional delegation did a lot of work toward securing a right-of-way for a gas pipeline through the eastern toe of the park but the Alaska LNG Project still sees enough complications with this that a route completely

outside the park is now considered preferable, Butt said. As for the Susitna River, there are still two routes under consideration on both sides of the river, the route on the north side avoiding a river crossing. This is one of the more complicated parts of the pipeline because it will also involve the Cook Inlet crossing to Nikiski. “One of the advantages of having done our ‘pre-filing’ with FERC is that we will be able to officially engage with the regulatory agencies on our planning for this area,” Butt said. A field season for 2015 is also planned that will be “a bit larger” than the 2014 season, he said. The planning for this will be done in October and November. Under the project organization, the three North Slope producing companies, BP, ConocoPhillips and ExxonMobil will own about 75 percent of the project. TransCanada, a pipeline company, will own 25 percent of the 800mile pipeline and large gas treatment plant on the Slope, with the producers owning the other 75 percent. Meanwhile, the state’s Alaska Gasline Development Corp. will own 25 percent of the LNG plant at Nikiski, with the producers again owning the remaining 75 percent. The state will be taking its royalty and taxes in the form of gas, about 25 percent of the North Slope gas production, and will contract with TransCanada to move the state’s gas through that company’s share of the pipeline. Similarly, the state’s AGDC will process the state-owned gas into LNG in its 25 percent share of the LNG plant at Nikiski.

FERC

Continued from Page 14

of Senate Bill 138 last April that authorized state involvement in the project. The pre-FEED is to be completed in early 2016 along with an updated cost estimate. If the results of those are favorable, the sponsors will consider authorizing the full FEED in 2016 that will result in advanced engineering and a final cost estimate by 2018. The cost of the pre-FEED work is estimated at about $500 million while the more detailed FEED is expected to require an additional investment of more than $2 billion. The final goal is a favorable decision on the project and a start of construction in 2018 or 2019, which would enable the first commercial production of gas and shipments of LNG to be done in 2024. In other developments, the pre-filing document also identified some of the major contractors that have been hired so far. They include names that are familiar, including Michael Baker for pipeline work and Fluor and Worley Parsons for the design and engineering of the major industrial plants. Fugro and Moffay and Nichol have been retained to work on design and engineering of the dock and LNG loading facilities and other marine-related segments of the project. Det Norske Veritas has also been retained for marine-related segments. URS Corp., another contractor long established in Alaska, is also part of the team.

Land acquired, right-of-way studied The filing also disclosed that the Alaska LNG Project has acquired 80 percent of the property needed for the LNG plant at Nikiski. More than 120 acres of fee land has been acquired, an additional 100 acres are under contract for pur-

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Kuskokwim Corp. inks deal with Donlin Gold By Molly Dischner Alaska Journal of Commerce

A proposed $6 billion gold mine in the Kuskokwim region is one step closer to construction with an agreement between the company interested in developing the project and the village native corporation that has surface rights in the area. The Kuskokwim Corp. announced a surface agreement June 8 with Donlin Gold LLC, enabling the mine to use its land to access gold if the company decides to proceed with the project. Donlin Gold LLC is owned by NovaGold Resources and Barrick Gold. TKC is the Alaska Native village corporation for 10 Kuskokwimarea villages with about 3,400 shareholders. “It’s a milestone for the project because we are on The Kuskokwim Corporation land,” said Donlin Gold spokesman Kurt Parkan. Subsurface mineral rights in the proposed mine area are held by Alaska Native regional corporation Calista Corp. and Donlin has already signed an agreement with that company. “Now we have agreements with Calista for subsurface and Kuskokwim for surface use. Without that agreement, there would be no project,” Parkan said. The Donlin Gold project is a proposed openpit mine in Western Alaska, near Donlin Creek in the Kuskokwim River region. Donlin has estimated that an average of 59,000 tons of ore would be processed daily, with an estimated 34 million ounces of gold estimated to be available at the site. If built, it would be the largest gold mine in the world. TKC CEO Maver Carey said the two entities have been negotiating the agreement for several years. “We wanted to make sure that we were also obtaining economic development for our village corporation,” she said. The agreement included $50,000 for shareholder scholarships, a signing agreement payment that was used in part for an elder dividend and in part to prepare TKC for future work on the project, and plans for annual compensation. The amount of the signing agreement and annual compensation are confidential. The agreement also gives TKC the right to certain contracts including construction and operation of a necessary port, and site reclamation. TKC has 11 subsidiary companies that operate in a variety of industries, Carey said. Now TKC is preparing them for the work. “We need to work on those companies or new companies,” she said. “We just need to de-

Photo/courtesy/kuskokwim corp.

Stan Foo presents a $50,000 scholarship fund check to Kuskokwim Corp. CEO Maver Carey as part of a June 8 agreement enabling land access to the mine site.

cide which entity these contracts are going to fall into.” Carey said the reclamation work will start immediately, not after the mine ceases operation. “We just believed that it was best that the entity and the shareholders that own the surface reclaim their surface back to the standards,” Carey said. Calista has rights to other parts of the projects, and Carey said the two Native corporations worked together to ensure that they weren’t competing with one another. Under the surface agreement, TKC will also have a role in ensuring subsistence harvest opportunity in the region throughout the project. “We’ve formed a technical subsistence oversight committee so that all the parties can get together and be on board with concerns and things that we hear from our shareholders, Calista, TKC and then even other residents that live in the region,” Carey said. “I think that’s another important piece, that we’re all going to work together.” Representatives from TKC, Calista and Donlin will form an advisory technical review and oversight committee, Carey said. That committee will produce a subsistence harvest plan, as well as work on the spill response plan and spill response training.

EIS, environmental work underway The surface agreement was not the only remaining hurdle. Before Donlin Gold decides

whether to build a mine, the environmental impact statement, or EIS, process must be completed and about 100 permits will be needed. Parkan estimated that the EIS process will be completed in about 2017. Then, Donlin will decide whether or not to proceed with the project and apply for permits as needed. Donlin has said the mine would be approximately two miles long and one-mile wide, with an initial operating life of 27 years. The mine proposal is for just a portion of the mineralized corridor, and it’s possible that further study will show additional mining opportunity in the area. The U.S. Army Corps of Engineers is the lead agency on the EIS, and selected the alternatives for analysis during the second quarter, according to a Donlin release. “Right now they’re doing the development of alternatives and the analysis of those alternatives,” Parkan said. The alternatives consider Donlin’s proposed port site, a pipeline to bring gas from Cook Inlet to the project site, other options for those, and other components of the project. The draft EIS is expected to be out in the middle of 2015, Parkan said. The final version will be used by various government entities to make permitting decisions. If Donlin proceeds with the mine and acquires the necessary permits, construction will take about four years, Parkan said. See DONLIN, Page 32

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Doyon resumes exploration in Nenana Basin By Tim Bradner Alaska Journal of Commerce

Doyon Ltd. has resumed exploration for oil and gas in the Nenana Basin in Interior Alaska. The Fairbanks-based Alaska Native regional corporation has initiated a 55-square mile 3-D seismic program near where Doyon previously drilled two exploration wells in 2009 and 2013. The work will be done in October and will help Doyon define prospective targets for a third well, Doyon vice president Jim Mery said. The earliest a third well could be drilled is in fall 2015 because it will take time to process and analyze the seismic data now being gathered. A primary objective is oil, Mery said, which Doyon believes is present in the 1,200-square mile basin, but natural gas is also likely to be found. “This new data will supplement findings from our previous exploration including two deep exploration wells drilled in 2009 and 2013 and two prior seismic programs,” Mery said. The area being explored is near Nenana, about 60 miles southwest of Fairbanks and the Trans-Alaska Pipeline System. If the venture is successful it could open a new oil-producing region of Alaska. Currently there is oil production only from the North Slope and Cook Inlet. Doyon’s first test well in 2009, which was drilled with three partners, was about 4 miles west of Nenana. The second test, which Doyon drilled on its own in 2013, was seven miles further west. “Our new target area is essentially between the two wells and extending to the north,” Mery said. “This is a geologic feature we had been before in our 2-D seismic but based on the drilling of the previous wells it now has risen in prominence,” in Doyon’s strategy, Mery said. “If we’re successful, we believe the trap could be several times the minimum economic size needed,” to support production, he said. A gravel road was built west from Nenana to the exploration well sites and that infrastructure, along with a bridge across the Nenana River now being built by the city of Nenana,

will greatly facilitate new exploration. The seismic now underway, contracted by Doyon to CGG Land (US) Inc. is helicopter-supported and will have little effects on the land surface, Mery said. This is also the first 3-D seismic being done in the Nenana Basin. Previously only 2-D seismic has been done, by Doyon and others. Three-dimensional seismic is done on a grid pattern and provides a more intensive view of subsurface geology than 2-D seismic, which is done in parallel lines. Because 3-D is more expensive than 2-D the technologies is typically used when an explorer has focused on an area of special interest. Doyon holds 43,000 acres of state oil and gas leases in the basin and also owns subsurface rights to an additional 43,000 acres in the area. The corporation has approximately 19,000 Athabascan shareholders who live mostly in Interior Alaska region. It is also one of the largest private landowners in the U.S. with surface and subsurface ownership of about 12.5 million acres in Alaska’s Interior. The lands were granted by Congress under the 1971 Alaska Native Claims Settlement Act. The Nenana/Minto Basin exploration is attracting attention because previously it was thought that the sedimentary basin was too shallow for the formation of oil, and would be more prone to gas. ARCO and Unocal drilled two shallow exploration wells in the 1980s at the southern edge of the basin that were unsuccessful. At the time it was not known that the basin extended farther north, and was deeper. Essentially, those two wells were drilled in the wrong place, Mery said. Doyon did its own geologic reconnaissance and in the late 1990s and, with partners, did seismic in 2005 and 2013. It was concluded the basin is much larger deeper than previously thought, possibly extending to 20,000 feet, Mery said. Alaska has several large Interior sedimentary basins long believed to be gas prone, but new work by the U.S. Geological Survey and Doyon has shown that some, like the Nenana Basin and the large Yukon Flats Basin north of Fairbanks, also have potential for oil.

Doyon is also exploring in the Yukon Flats where it also owns 1.48 million acres along with several local village corporations. Geochemistry has indicated the presence of oil as well as gas hydrocarbons, Mery said. Doyon has also done seismic in the Stevens Village area along the Yukon River, a region relatively close to TAPS. The State of Alaska has extended special exploration tax credit incentives to largely unexplored “frontier” basins in Interior and northwest Alaska. Besides its oil and gas exploration Doyon is also heavily engaged as an oil services contractor to North Slope producers. Its whollyowned Doyon Drilling is the state’s second largest drilling contractor. Doyon Associated, a pipeline subsidiary, recently completed a 22-mile, 12-inch liquids pipeline connecting the Point Thomson gas and condensate field on the North Slope with the existing Badami pipeline and the TAPS at Prudhoe Bay.

TOAST TO OPPORTUNITY: FAIRBANKS INDUSTRY UPDATE 2014

Photo/michael dinneen/ajoc file

Doyon Ltd. CEO Aaron Schutt smiles alongside Arctic Slope Regional Corp. CEO Rex Rock and Bristol Bay Native Corp. CEO Jason Metrokin at a July press conference opposing Ballot Measure 1, which was defeated in the Aug. 19 primary. Doyon, which signed a five-year deal with ConocoPhillips for a new North Slope drill rig, is also taking advantage of frontier exploration credits for oil and gas on its vast land holdings.

By Tim Bradner Alaska Journal of Commerce

ConocoPhillips has awarded a contract for a new rotary drill rig to Doyon Drilling, a subsidiary of Fairbanks-based Alaska Native regional corporation Doyon Ltd. Doyon Drilling now operates seven rigs and the new rig is scheduled to go into service in 2016. Six of Doyon’s rigs are now working in North Slope fields while the seventh is working in Cook Inlet. The new Doyon 142 is scheduled to begin work in February 2016, Doyon and ConocoPhillips officials said July 28. “The addition of Rig 142 to Doyon’s fleet is a testament to ConocoPhillips’ commitment to Alaska. The contract for the rig is long-term and is one example of how Senate Bill 21 (MAPA, or the More Alaska Production Act) is making a positive impact on Alaska’s economy,” said Doyon president and CEO Aaron Schutt.

C-P signs fiveyear deal with Doyon Drilling for new Slope rig

“This opportunity is good for Doyon, its shareholders and Alaska,” he said in a statement. ConocoPhillips Alaska President Trond-Erik Johansen said, “Contracting for a new rig is another step we are taking to increase production on the North Slope. “SB 21 has improved the business climate in Alaska, and we are investing in projects that add production, increase state revenues, increase contributions to the Permanent Fund and create jobs and business opportunities for Alaskans.” Since SB 21 was approved by the Legislature in April 2013, ConocoPhillips has laid on two additional drill rigs prior to the commitment to construct Doyon 142. One of the rigs employed earlier, Nabors Drilling rig 7ES, has resulted in the addition of 4,400 barrels per day of additional oil production since it began work in mid-2013, ConocoPhillips said in its statement.

The second rig, Nabors 9ES, began work in February and has so far resulted in the addition of 2,600 barrels per day of new production, the company said. BP, which also operates on the North Slope, has also contracted for new drill rigs. The company will employ one new rig in 2015 and one new rig in 2016. BP also contracted for two new rigs in 2012 but that was before the passage of SB 21. Putting new drill rigs to work is the quickest way to add new oil production because the work can be done in existing fields. Development of new fields, however, typically takes several years. Since SB 21 passed, ConocoPhillips has increased its drill fleet by 50 percent, from 4 rigs to 6 rigs. When Doyon 142 goes to work that will be 7 rigs. With additional rigs both ConocoPhillips and BP have stepped up “workovers” of older producing wells as well as the drilling of new wells in the producing fields in the last year. Additional oil production that has resulted has essentially ended, for this year at least, a longterm decline in North Slope oil production. Actual oil production in fiscal year 2014, which ended June 30, is about the same as actual oil production for the previous fiscal year of about 531,000 barrels per day. The fiscal year 2013 decline was 8 percent and the long-term decline has been 6 percent per year, according to the state Department of Revenue. Aside from workovers and new wells in the producing fields, ConocoPhillips has also announced new oil projects that represent $2 billion in new investment and which will add 40,000 barrels per day in new production in 2018. The projects include Greater Moose’s Tooth No. 1 in the National Petroleum Reserve-Alaska, new Drill Site 2S and an expansion of the West Sak viscous oil production in the IH NEWS project, both in the Kuparuk River field. Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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gas plant

Continued from Page 16 as much as possible while still achieving a reasonable return. AIDEA’s Davis said Kiewit Corp., chosen to construct the North Slope plant, is working to finalize construction cost in the coming weeks. In Fairbanks, work continues to build out a gas distribution network so residents can hook up to gas if it becomes available in early 2016 — AIDEA’s delivery goal. Interior Gas Utility chair Bob Shefchik told the board that his utility is using the $8.1 million loan AIDEA approved for it in April towards planning buildout of the 877 miles of distribution pipe it will need to serve North Pole and the outlying areas of Fairbanks. Shefchik said the miles of pipe IGU will likely install has grown from about 670 miles to 877 miles because individual service lines are now included in that figure. Adding service lines, which utilities often subsidize, to the network increased the estimated overall network cost by about $95

million, to a total of $251 million. However, partnering with Golden Valley Electric Association for gas storage cut those projected costs from $46 million to $30 million, he said. For IGU customers, distribution costs will make up about 25 percent of final, “burner tip” gas cost if AIDEA can finance the pipeline network construction with its Interior Energy Project-approved bonds or loans — the latter of which are capped at 3 percent interest. If private financing must be sought because AIDEA ends up using most of its funds for North Slope plant construction, distribution costs could end up being more than 40 percent of the burner tip price and push that price well beyond $15 per mcf, Shefchik said. Fairbanks Natural Gas has been adding to its gas pipeline network throughout the summer. FNG President and CEO Dan Britton said the company has hired about 35 seasonal construction workers to work on the expansion.

When combined with about 40 contracted workers, the FNG construction team had installed about 19 miles of pipe as of the Aug. 25 meeting, according to Britton. The company plans on installing 33 miles of pipe in the core of Fairbanks if the weather allows for work into October. About another 30 miles are planned for 2015 as well. This year’s work will add nearly 2,400 residential and 277 commercial customers to FNG’s network, he said. The work is being paid for with a $15 million AIDEA loan contingent on purchasing gas from the North Slope plant when it becomes available. “Ultimately our system requires about 100 miles of more expansion before it is fully built out,” Britton said. He added that FNG will be looking to AIDEA for future expansion financing. Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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CONVERSIONS

Continued from Page 16

cause the utilities, FNG and IGU are spending 100 percent of their capital in gas distribution and storage upfront and hoping for a 60 percent conversion rate after three to four years. “Anything we can do to push conversion will bring those lines closer together,” he said. A final conversion program should be ready by February, according to IGU. Fairbanks Rep. Dave Guttenberg has been pushing for AIDEA and the utilities to develop a pilot conversion program since early July. He said in an interview that conversion must happen in order to make the project viable. Guttenberg said he has been frustrated with the lack of incentive for conversion and would like the state to subsidize about 100 conversions around Fairbanks and North Pole essentially to advertise that lower cost natural gas is on the way. “It’s like the supermarket,” he said. “They sell you eggs for cost because they want you to come in and buy other things. This is basic marketing.” There are multiple ways to back broader conversions when gas becomes available and there is openness amongst the Fairbanks delegation to ask the Legislature for help with that, he said. “If I have to wait to get to Juneau that’s what I’ll do,” Guttenberg said. “It’s important that we break the egg here. It’s important that we break the cycle of not being able to make a decision.” Not knowing the final cost of Interior Energy Project gas, which should become clear in the coming weeks and months according to AIDEA, has slowed momentum for conversion, according to Guttenberg. Still, he said Interior residents come up to him on the street and ask how they can get involved in a gas pilot program. In the first full year gas is made available — currently 2017 under the Interior Energy Project — IGU is expecting to have 850 residential customers. Conversions should ramp up to about 2,000 per year by year three, according to Shefchik. IGU’s six-year distribution build out is starting in the heart of North Pole next summer, an area Shefchik said is referred to as the “trapezoid of death” in winter partially because of its poor air quality. “It’s the coldest; it’s the lowest; and there’s no air movement. There’s also a lot of wood burning,” he said.

Additionally, North Pole is the portion of IGU’s service area with the lowest socioeconomic status, meaning its residents could benefit the most from lower energy costs. Overall, Shefchik said the utilities are expecting about half of residents to finance conversion themselves, or simply write a check for a gas boiler system. The working group is also asking mechanical contractors to push sales of convertible boilers over the next two years for customers who need a new oil boiler in the interim. He said switching a convertible boiler from fuel oil to natural gas runs about $1,500, rather than buying a whole new gas system again in a few years. Fairbanks Natural Gas President and CEO Dan Britton said the private gas utility, which has operated a small but growing gas network in the center of Fairbanks since 1998, has tried to help mechanical contractors and boiler retailers learn about natural gas systems and their installation. “We had a decision to make: either work with the mechanical contractors or become a competitor,” Britton told the board Aug. 25. “We chose to help them and stay out of the boiler business.”

WesPac proposes Cook Inlet LNG A new plan to liquefy Cook Inlet natural gas could provide the Interior and other parts of Alaska with lower cost fuel if the Interior Energy Project falls through. In a presentation to the Matanuska-Susitna Borough Aug. 26, Irvine, Calif.-based WesPac Midstream LLC proposed a LNG facility, power plant and pipeline system valued at more than $600 million. The plant would churn out about 250,000 gallons of LNG per day, or about 7.5 billion cubic feet of gas per year, WesPac Senior Vice President Brad Barnds said. That is the same amount the Fairbanks utilities are estimating their demand will be after total build out of their gas distribution systems. Barnds said in an interview that Fairbanks would be a target market for the project. WesPac would lease 100 acres at Port MacKenzie for the plants, which is owned by the borough, according to the presentation. Unlike other LNG proposals, WesPac’s is not for export, according to Barnds. “This is our way of putting private money

and private investment into Alaska,” he said. “We want to provide Alaska gas to Alaskans first and foremost.” When the Legislature approved more than $330 million to finance the ground-up North Slope LNG project that is the Interior Energy Project in 2013, it did so in part because longterm gas contracts were not available from Cook Inlet producers. Supplies have grown since then, and the producers have said they would like to sell their gas to Fairbanks on contracts up to four years. Barnds said WesPac is in close talks with an Inlet producer about taking “a substantial position in the reserves themselves,” which would allow for a gas supply through at least 2035. WesPac LNG would be shipped via intermodal, or ISO, containers by rail to Fairbanks, he said. In December, Alaska Railroad CEO Bill O’Leary told the AIDEA board that the railroad could get transport LNG in ISO containers from Southcentral to Fairbanks for as little as about $1 per mcf, or about one-fifth of the cost AIDEA is projecting it will cost to truck LNG south from the Slope. An ISO container can hold roughly the same amount of LNG as a tanker trailer, but they can be doubled up on a rail car and then loaded on a flatbed trailer. “We think that the ISO container is the preferred route. They’re fungible; they can be redeployed; they act as rolling storage to some extent,” Barnds said. “They can be transported to remote locations.” The fact that Port MacKenzie is accessible by water, road and rail was key to the site selection, Barnds said. He declined to speculate on a final price for gas, but said it will be better known when demand is gauged and is something WesPac is working on. “We’re keenly interested in providing an alternative for Fairbanks and we’re working hard to secure all the components so that we can have a credible project for them to consider and we intend to provide that in the next 60 to 90 days to make sure that they have an alternative to look at before the final bell is rung on the other project,” Barnds said. Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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Continued from Page 19

The ongoing environmental baseline monitoring is another priority. “We’re now in the sixth year of monitoring,” to compile the large amount of data that will be needed to support state and federal permits for the project, Solie said. “The data shows that we can build this project environmentally soundly.” “Energy is another big focus of our work, because power will be 30 percent of our operating costs.” The company’s current plan is to purchase power from Golden Valley Electric Assoc., the Interior electric co-op, and to build a transmission line parallel to the Elliot Highway to bring power to the mine. With that in mind, ITH is closely monitoring the possibility of reduced electricity prices in

GVEA system if liquefied natural gas, or LNG, is trucked from the North Slope to Fairbanks for space heating and power generation. The company will also consider options of on-site power generation because the LNG trucks from the Slope will pass very near the mine, Solie said, but there are pluses and minuses to on-site power generation. It raises capital and operating costs compared with purchasing power from a utility, and it can also pose a risk of “stranded investment” in an onsite power plant, for example, during planned maintenance said. Solie said ITH has sufficient funds on hand to keep its team of about 12 people together and working on the project well into 2015.

“However, we’ll have to raise more funds to advance the project,” to development, he said. The company has a strong management team. Tom Irwin, a former state Natural Resources commissioner and a 40-year mining industry veteran who also led development of the Fort Knox mine, is the ITH Chief Executive Officer. Karl Hanneman is general manager of the project. Hanneman is a 30-year industry veteran who led development of the Pogo underground gold mine near Delta, east of Fairbanks, and who played a key role on the team resolving permit issues for an expansion of the Red Dog lead-zinc mine in Northwest Alaska. Tim Bradner can be reached at tim.bradner@alaskajournal.com.

Partners plan regional training

older members of the workforce who may already have some training, and the generation that will eventually join the workforce. “We’re also trying to focus on the younger generation,” Carey said. “Those kindergarteners who, by the time they graduate, are excited and ready and stay in school and work and are trained for all of these different employment opportunities that are going to be provided in our region.” Carey said that the focus on the youngest generation is what she sees as the most exciting part of the project. “I just believe that this is economically going to change our region for the positive,” Carey said. “And in working together with all of the partners, it’s going to benefit all of our shareholders and residents who are in the region. To me, it’s a great legacy that we’re going to leave for our children and grandchildren. I’ll be proud to be retired knowing that our shareholders are going to benefit for several generations.”

DONLIN

Continued from Page 24

In the meantime, Donlin is also working on collecting baseline environmental data to support the EIS process. Although the project has been in the works since the 1990s, and most of the data has already been collected, the Army Corps requested certain additional studies, which are underway now. Parkan said that the current studies primarily look at fish, including juvenile anadromous fish locations on the Kuskokwim River, as well as geotechnical work along the pipeline route. Most likely, more work will be done next summer, Parkan said. The EIS process will also include the opportunity for public comment on the proposal and the potential impacts to the area watershed and other resources. Carey said that being involved in the project has mitigated some of TKC’s concerns.

Donlin, Calista and TKC are also working on developing a training program to prepare area residents for the jobs that will be created by the mine development and operation. “We’re working closely with Kuskpuk school district and Donlin and Calista on implementing a training program,” Carey said. Parkan said the surface agreement includes both regional training and local hire provisions. According to a TKC press release, the project is expected to create up to 3,000 construction jobs and between 600 and 1,400 operational jobs throughout the life of the mine. Carey said that TKC will use some of the signing agreement payment for a training facility, but many of those details must still be worked out. The training program will try to target recent graduates of Kuskokwim-area schools, as well as

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