The official magazine of the Alaska Support Industry Alliance
At Santos, we are proud to develop the world-class Pikka Project on the North Slope. Phase 1 will develop about 400 million barrels from a single drill site with first oil expected in 2026. And we are even prouder that our interest in Pikka will be net-zero on Scope 1 & 2 emissions!
Alliance Members and Friends: Let me be the first to welcome you, on a very special year, to our flagship conference and trade show: the 40th Meet Alaska! I overhead our CEO Rebecca Logan say something last week that really made me reflect: “Our organization is 45 years old, and we represent the service and support companies in the resource industry.” I thought about The Alliance — 45 years in existence, and four decades of Meet Alaska. I try to imagine Joe Mathis when he was Board President, in The Alliance’s second year. Those were hard times filled with tough people, who were building the industry we know and love today. They did things every day that had never been done before, all on their own. The oil companies had a Houston office to call for help, but most of the service companies did not. Joe was an ambitious young man with a great vision: Alaska’s support contractors needed to lock arms and take care of each other, and the resource development industry itself. And look at where we are! Decades of new energy and minerals production in the most remote places on earth, setting the world standard for responsible resource development for the benefit of all Alaskans. In 2024, our industry is still the key economic driver for the Alaskan economy, which enjoys the proceeds of a $77 billion sovereign wealth fund that we built. The Alliance is one of the most respected trade associations in Alaska’s industry, with publications and social media reaching tens of thousands of people. As I think about how we will navigate the next 40 years of the rapidly changing resource development landscape in our great state, I realize that I am about the same age that Joe was in those days … but I feel I am standing on the shoulders of giants. And we have much to be optimistic about. It sounds like the first Meet Alaska was a lot of fun, the kind of fun we aren’t allowed to have anymore! But don’t worry — we’ve got a great lineup for this year’s rendition of Alaska’s coolest resource development conference. We’re going to hear about projects, technologies, opportunities and challenges — all looking forward to the next 40 years of our industry. Our members and sponsors are going to put their capabilities on proud display, to remind us how Alaskans do resource development right. Most importantly, we’ll celebrate the unique flavor of the industry in our state. It wouldn’t be Meet Alaska if it weren’t fun, and unlike anywhere else. On another note, some of The Alliance board members and staff just returned from Juneau, reminding our legislators that a stable business environment is critical to investment in Alaskan industry. We hit especially hard on workforce development this year because we know our members are having a hard time hiring. We also pushed for common-sense solutions to the looming Cook Inlet gas crisis, which will surely affect us all if mishandled. Legislators were both welcoming and optimistic, but they don’t pretend to have all the answers. They need to hear from their constituents who understand the energy industry, and I encourage you to reach out to yours. Once again, welcome to Meet Alaska. Let’s toast the next 40 years of resource development, and build the future together, just like Joe Mathis did. Have an excellent day! Welcome to Meet Alaska, as we celebrate with all of you Message From Liam Zsolt, Board of Directors President Linking Alaska’s Resources to Alaska’s People 4 2024 Meet Alaska Conference & Trade Show
3601 C Street, Suite 1424 Anchorage, Alaska 99503 www.petroak.com info@petroak.com Alaska’s Oil and Gas Consultants Geoscience Engineering Operations Project Management 907.272.1232
Page 12 Santos continues Pikka progress Santos Ltd. is making plans for the second phase of work to bring the Pikka Project into production. Page 20 Gas shortage averted … for now Brutal cold this winter threatened to overwhelm Railbelt utilities dealing with a looming natural gas shortage from Cook Inlet. Crisis averted, but all eyes are focused on near- and long-term solutions. Page 28 AIDEA creates plan for wetlands Alaska’s development agency has created a template for organizations to traverse the newest and still confusing Federal regulations on wetlands and develop after the Sackett decision. Page 36 That happened fast! Looking back at the first 40 years of Meet Alaska as well as the visionaries and pioneers who set the course for the powerful force The Alliance is today. FEATURES The Link is published in partnership with the Alaska Support Industry Alliance by Fireweed Strategies LLC, 4849 Potter Crest Circle, Anchorage, AK 99516. We actively seek contributions from Alliance members and the oil and gas and mining industry. For advertising information and story inquiries, email Lee.Leschper@FireweedStrategies.com. Our magazine is mailed at no charge throughout Alaska to those interested in resource development and a healthy Alaska economy. To subscribe, email Admin@FireweedStrategies.com. Publisher: Lee Leschper | Editor: Tim Bradner | Production, Design: Will Leschper Contributing Photographer: Judy Patrick ON THE COVER Roughnecks work a drill rig on Alaska’s first producing oil field, Swanson River, in 1957. From this humble beginning, Alaska’s oil and gas industry has been a roller coaster of discoveries, booms, busts and challenges — still going forward today. Photo by Steve McCutcheon ON THIS PAGE In a world of roadblocks and anti-mining forces working against Alaska miners, Graphite One continues to march forward with plans for the first new graphite mine in America in this decade. Here Graphite One worker Jolene Okleasik signals success from another core sample. Photo Courtesy Graphite One Linking Alaska’s Resources to Alaska’s People
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Alliance Members and Friends: 40 years ago, on Saturday, January 14, 1984, The Alliance held its first “Meet Alaska — A conference on plans and needs of Alaska’s mining & petroleum industries.” The event was held at the Sheraton Anchorage Hotel from 10:30 a.m. to 5:30 p.m. Rumor has it that Bloody Mary fixings were on every table! Nearly 600 leaders of government and industry in Alaska participated in the event. It was pronounced “a smashing success by speakers and registrants alike.” Gov. Bill Sheffield was scheduled to be the first speaker but was late arriving. That propelled Harold Heinze, then President of ARCO Alaska, to first position for his keynote address. Heinze predicted a surge in North Slope oil activity in the near term “provided that we have no surprises,” but he also predicted a downturn in production toward the end of the 1980s due to reduced exploration activity in recent years. That reduction, he said, has been due to the unavailability of potentially developable tracts of land. “Land managers — state and federal — because of pressure from small public interest groups, seem to want to limit industry to certain areas or to a few exploratory wells per private and government sectors.” It’s like déjà vu all over again! Roger Herrera, the Manager of Exploration/Lands for Sohio Alaska Petroleum Company, declared, “We’ve virtually exhausted exploration prospects within 30 miles of Pump Station 1 of TAPS and we have to find larger and larger fields as we get further and further from Prudhoe to make them economical,” and, “Always keep the element of luck in mind, after all, Prudhoe Bay was luck.” Board President Milton Byrd ended the day on a positive note: “We found here today a happy sense of what we’re all about — a happy sense of what our possibilities are — a happy sense that we ought to have about ourselves and our accomplishments in the past and in our potential for the future. And with that, we’re all ready for a drink. This meeting stands adjourned, sine die.” Thank you so much for joining us today for the 40th anniversary of Meet Alaska. I hope you find a happy sense here about our accomplishments in the past and our potential for the future. Thank you for joining us for our 40th anniversary Message From CEO Rebecca Logan Stay connected with us We are working proactively to keep our members informed and connected via online platforms and events. Watch for our updates through email and social media. And if you’re not receiving our updates, email cchambers@alaskaalliance.com. Stay up to date at AlaskaAlliance.com. Linking Alaska’s Resources to Alaska’s People 8 2024 Meet Alaska Conference & Trade Show
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Linking Alaska’s Resources to Alaska’s People 10 2024 Meet Alaska Conference & Trade Show
www.AlaskaAlliance.com For 40 years, we have gathered each spring to learn, share, network and celebrate our resource development industries. Join us this year to celebrate, but also to look both ahead at the coming year’s opportunities and look back at the amazing history we’ve shared, advocating for our energy future, and building a stronger Alaska and America. The Alliance is composed of more than 500 members providing more than 35,000 Alaskan jobs related to the oil, gas and mining industries. Our mission is to advocate for safe, environmentally responsible development of Alaska’s oil, gas, and mineral resources for the benefit of all Alaskans.
Linking Alaska’s Resources to Alaska’s People 12 2024 Meet Alaska Conference & Trade Show Second phase would add more production pads Santos Ltd. is set to keep rolling with its North Slope development. As the initial development of the Pikka project’s phase one proceeds, no official decisions on phase two have been made, but the company has told contractors that a phase two investment decision on that is likely when phase one is complete in mid2026. Australia-based Santos is a 51 percent owner of Pikka and is operator. Repsol, based in Madrid, is 49 percent owner. Phase two involves two more production pads and related facilities, expanding the single pad and facilities in phase one. Following that will come further drilling and development work on two other important discoveries Santos has made. After Pikka, the company’s attention will shift to the Quokka Unit southeast of Pikka, where the “Mitquq” well discovered oil, and then further south to the discovery at the “Stirrup” well which led to the forming of the Horseshoe Unit southwest of Pikka. Another delineation well is planned at Quokka to better define the resource and allow permitting to begin. A decision to develop Quokka is likely after Pikka is complete. Another delineation well is also needed at Horseshoe, development there will likely follow Quokka. Because of the extended development period at Pikka, Santos was able to lock in good prices, which will Santos continues rolling ahead on Pikka Project CONTINUED on PAGE 14
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allow better cost control not just on Pikka but subsequent developments as well. Quokka was discovered in 2020 with estimates of millions of barrels of oil. Horsehoe was discovered in 2017 and Stirrup in 2020. Pikka itself was discovered in 2013 in an exploration initiative led initially by Bill Armstrong, of Armstrong Oil and Gas, and Repsol. Armstrong eventually sold his share to Oil Search, of Papua, New Guinea. The discovery was made in the Nanushuk, a geologic formation that extends across much of the west-central North Slope on state lands as well as parts of the National Petroleum Reserve-Alaska, the federal lands to the west of the Colville River. Meanwhile, Oil Search assumed a 51 percent interest at Pikka and became operator after Repsol, for internal corporate reasons, decided to reduce its share from 51 percent to 49 percent. Oil Search was eventually acquired by Santos, which retained the 51 percent share. Arctic Slope Regional Corp., the Alaska Native regional corporation for the North Slope, shares the mineral rights at Pikka with the state of Alaska and will receive a share of the production royalties. Under the Alaska Native Claims Settlement Act of 1971, or ANCSA, the federal law that allowed Alaska Native corporations to select lands, ASRC must share 70 percent of royalties with other Native corporations. Kuupik Inc., the Native village corporation for Nuiqsut, the nearby Inuit village, owns surface lands in the Pikka area also conveyed under ANCSA. The discovery in the Nanushuk by Bill Armstrong is an example of an exploration effort using advanced technologies that unlocked large new reserves in an area that was previously explored, but where companies missed the production potential of the Nanushuk. The formation has actually long been known to geologists and companies, as well as the fact that oil was present. Most of the prior drilling in the area had penetrated the Nanushuk rocks while aiming for other formations but it was felt that the Nanushuk oil could not be economically produced. The work by Armstrong and Repsol changed that thinking, and the availability of new drilling techniques like horizontal drilling helped shift the industry’s thinking. Still, it’s also the case that there has not yet been commercial production from the Nanushuk. Santos feels that it has minimized this risk with extensive production tests of wells at Pikka. — Tim Bradner 14 2024 Meet Alaska Conference & Trade Show Linking Alaska’s Resources to Alaska’s People CONTINUED from PAGE 12
2024 Meet Alaska Conference & Trade Show 15 www.AlaskaAlliance.com Photos Courtesy Santos Ltd. Santos Ltd. and its partner Repsol have made big oil discoveries in the Colville River area. Surprisingly, companies have explored for decades in this area but failed to find, or at least commercially develop, the oil Santos and Repsol will start producing in 2026, when Pikka’s phase one is to be completed. The first exploration effort in the region came in fact before the Prudhoe Bay discovery wells were drilled. BP, the early explorer on the North Slope, drilled what looked like an attractive and very large prospect in the Colville Delta. It turned out to be a dry hole. Then it was Texaco’s turn. Texaco found what it thought were encouraging oil shows in exploration but after several years of effort was unable to develop a commercial project. Other companies including ARCO Alaska took their turns. Ironically, the oil in the Nanushuk formation, which Santos and Repsol are developing, was always known because companies drilled through it on the way to deeper targets they felt had better prospects, at least based on what was known then. What has made the difference is newer technologies developed over the years particularly in the use of advanced 3-D seismic, which allowed geologists to spot potential oil-bearing rocks not seen on older 2-D seismic, along with the advent of horizontal drilling that allowed companies to drill laterally into prospects from existing surface infrastructure. That made what had first appeared to be unviable prospects more attractive. More than anything, Pikka’s development is testimony to the preserverance and openness to new ideas of geologists and company managers willing to take a fresh look at where others had drilled before. — Tim Bradner LOOKING BACK: Why wasn’t Pikka’s oil found earlier in Colville River area?
Linking Alaska’s Resources to Alaska’s People 16 2024 Meet Alaska Conference & Trade Show Work moving ahead despite winter onslaught Despite often brutal weather on the North Slope, ConocoPhillips is pressing ahead with construction of the Willow project in its first full season of winter construction. ConocoPhillips Alaska plans to spend up to $7.5 billion by 2029, when first oil is projected. The entire Slope has experienced several Phase 3 weather conditions this season, which means work is restricted to critical or emergency traffic only. During Phase 3 conditions, travel is only by heavy equipment convoy. Severe weather conditions are divided into three phases, Phase 3 being the worst, and based on wind speed, temperature and visibility. Despite the weather, construction continues with field activities including opening of the Willow mine site, gravel road construction and pipeline installation, said ConocoPhillips Alaska spokesperson Rebecca Boys. This follows the U.S. Bureau of Land Management’s Final Record of Decision in March 2023 and the company’s final investment decision in December 2023. Ground disturbing construction activities resumed Dec. 20 and are ongoing. “Crews are mobilizing to the field and preparation activities are underway with the expectation that approximately 1,800 personnel will be employed in the field during the winter construction season,” Boys said in an email. All winter 2024 construction and construction support contracts have been awarded. ConocoPhillips presses forward on Willow Project CONTINUED on PAGE 18
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Fabrication on the project is in process at sites across the United States. “Willow will be built using materials primarily made and sourced in the U.S. and has the potential to create over 2,500 construction jobs and approximately 300 long-term jobs,” Boys said. Willow is in the federally-owned National Petroleum Reserve-Alaska located west of the major producing fields, which are on state lands east of the Colville River. The project involves three drill sites, roads, pipelines and utilities, and most importantly a new, standalone processing facility. Currently, oil and gas fluids from the two existing production pads in NPR-A, the GMT-1, and GMT-2 pads, are shipped as mixed crude oil, gas and water fluids through pipelines to be separated and processed in facilities in the Alpine field. The new processing plant to be built at Willow will have the capacity and proximity to make possible the economic development of Willow area oil deposits. Willow has been a hardfought project for ConocoPhillips. Out-of-state conservation groups sued to stop the project, arguing that environmental reviews and permitting for the project done initially under previous president Donald Trump were hurried and flawed. After taking over from Trump, the Biden Administration initiated a supplemental environmental review and ultimately decided to re-approve the project in a modified form. In March 2023, the U.S. Department of the Interior issued its record of decision (ROD) adopting BLM’s preferred project alternative, with additional mitigation measures. In November 2023, U.S. District Court for the District of Alaska Judge Sharon Gleason upheld BLM’s ROD, rejecting the legal challenges. That led to ConocoPhillips announcing Final Investment Decision (FID) in December 2023. Although Willow is the biggest new ConocoPhillips project this year, it isn’t the only one. Project construction activities will begin this year and continue in 2024 with pipeline and on-pad construction for Nuna, in the Kuparuk River Unit, officially known as the Kuparuk 3T Drillsite. Drilling is anticipated to begin in late 2024 with first oil anticipated by early 2025, and an expected peak oil rate of 20,000 barrels per day. The Nuna project will add 29 development wells, on-pad infrastructure and pipelines that tie back to existing KRU processing facilities. Drillsite 3T will be the 49th drillsite developed within the KRU. Nuna was originally discovered by Caelus Energy, a Dallas-based independent, in 2015 with some initial development work done, such as construction of a pad and access road. Caelus had to put the project on the shelf, however, when crude oil prices crashed in 2016. Nuna was eventually sold to ConocoPhillips, which operates the Kuparuk River Unit. — Tim Bradner Linking Alaska’s Resources to Alaska’s People 18 2024 Meet Alaska Conference & Trade Show CONTINUED from PAGE 16 Photos Courtesy ConocoPhillips Alaska
www.AlaskaAlliance.com 2024 Meet Alaska Conference & Trade Show 19 The National Petroleum Reserve-Alaska was created in 1923 because of the region’s oil and gas potential. So why did it take so long to find the first commercial oil deposits? It wasn’t for lack of trying. The U.S. Navy and then the U.S. Geological Survey, in a program managed by Husky Oil, drilled extensively in the reserve, but failed to find a commercial deposit. Then industry had its turn when the federal government began leasing lands for exploration to private companies. The failures continued. ARCO drilled an expensive dry hole southwest of Barrow (now Utqiagvik). BP took its turn in the north-central part of the reserve and built what was then the longest ice road on the slope. Another dry hole. Total, a French company, made an effort. Another expensive failure, after which Total left Alaska. NPR-A had developed a reputation as a graveyard for exploration. But just as with Pikka, the ultimate success of ConocoPhillips and its previous partner, Anadarko Petroleum, was a result of a steady, patient program over several years in the northeastern part of the NPR-A to explore lands just west of the Alpine field on state lands, which the same companies had developed. It took a series of modest discoveries to develop the first successful production. These were gradual steps taken west from Alpine. First there was CD5, then GMT-1 and GMT-2, Each was supported by extension of infrastructure. Now there is Willow, a larger discovery further west. Each step, patiently taken, had built on earlier success. — Tim Bradner LOOKING BACK: NPR-A was ‘graveyard’ for numerous early explorers
Linking Alaska’s Resources to Alaska’s People 20 2024 Meet Alaska Conference & Trade Show Coordination by utilities, Hilcorp aided in efforts Close coordination between utilities and Hilcorp Energy averted what could have been a natural gas emergency in the state’s largest communities in Southcentral Alaska during the winter cold snap. Temperatures dropped to negative-25 degrees Fahrenheit or below in some locations. “In the years I’ve been here I’ve never seen the system under such strain,” said John Sims, CEO of Enstar Natural Gas Co., the state’s largest gas utility, in a briefing to state legislators in early February. The situation was compounded by technical difficulties in wells that produce gas from a large storage facility near Kenai, south of Anchorage. This was of grave concern because Anchorage and other communities in the region depend on natural gas for space heating and gas also fuels a majority of electric generation. About half of Alaska’s population live in communities served by Enstar. Sims said two of five wells at the Cook Inlet Natural Gas Storage Alaska, or CINGSA, facility experienced problems that reduced the ability to withdraw gas by 30 percent. Enstar was unable to find a repair crew during the cold weather, although a contractor has now been located to do the work, Sims said. It was a close call, although Enstar’s main gas transmission lines never lost pressure. Hilcorp Energy, the major gas producer in Cook Inlet, stepped in to make more gas available from its storage. Gov. Mike Dunleavy called Southcentral natural gas supply emergency averted
www.AlaskaAlliance.com 2024 Meet Alaska Conference & Trade Show 21 Alternative energy sources like the wind turbines on Fire Island in Cook Inlet (above) are a supplement but will likely never replace natural gas as the primary source for Railbelt electricity. Hilcorp remains the primary natural gas producer, from Cook Inlet, for Southcentral Alaska utilities (left). the commander at Joint Base Elmemdorf-Richardson to ask the military to conserve energy. Dunleavy also ordered thermostats to be turned down in state buildings. Matanuska Electric Association was on standby to fire up diesel-powered backup generators at the cooperative’s Eklutna power plant, which could have saved gas, but that step was not needed. There are now plans to create more backup gas “deliverability” at CINGSA with two more gas producing wells to be drilled, Sims told state legislators. Work will start this summer. This will increase the number of producer wells from five to seven. Enstar is the operator and part-owner of CINGSA. As cold weather continued through late January the situation became more dire. Daily meetings began between utility managers including Matanuska Electric Association and Hilcorp Energy. At one point so much gas had been withdrawn from storage at CINGSA that only 10 million cubic feet of deliverability was left. What was worrisome was more problems could develop with gas wells. When the first of the CINGSA wells developed problems the gas deliverability, or withdrawal rate, dropped about 150 million cubic feet per day to 121.5 million cubic feet per day, Sims said. That is a 19 percent drop that could be managed. But when problems hit the second well deliverability dropped to 105 million cubic feet per day, approximately a 30 percent decline. “At that point, all of us became very concerned,” Sims said. Enstar began checking the wells at CINGSA every 15 minutes. Hilcorp agreed to provide backup gas to Enstar above the gas company’s current contracted gas purchase volumes at no extra cost, Luke Saugier, Hilcorp’s senior vice president for Alaska, told legislators. “We felt this was the right thing to do,” Saugier said. There were other continencies in place. Golden Valley Electric Association, the Fairbanks-based electric cooperative for the Interior, was prepared to generate more power with its oil-fired plant at North Pole and send power south to Mat-Su over the electric intertie that connects the Interior with Southcentral Alaska. Again, this was a contingency that turned out not to be needed. Chugach Electric Association, the state’s largest power cooperative, was in a somewhat more secure position because it owns a part of the Beluga gas field on the west side of Cook Inlet and can supply 60 percent of its fuel needs for generation with its own gas, Arthur Miller, Chugach’s CEO, told legislators in the hearings. — Tim Bradner
Pipeline could spur interest from new investors The state’s Alaska Gasline Development Corp., or AGDC, has put forth a new phase one plan for its project to build a natural gas pipeline from the North Slope. It’s a concept of building the pipeline an initial phase to meet the emerging short-term need for gas in Southcentral Alaska and with the export liquefied natural gas plant in a phase two. Frank Richards, AGDC’s CEO, outlined the idea in a Feb. 26 briefing for legislators in Juneau. A rough cost, working off AGDC’s estimates for the entire project, is $10.7 billion. The idea would be to build the 42-inch pipeline without the compressor stations or the large North Slope gas treatment plant that are part of the larger project, to reduce costs. Since there would be no large liquefied natural gas, or LNG, export plant on the Kenai Peninsula in phase one, there is no need for a Cook Inlet crossing for the pipeline, another cost saving. The new pipeline would connect with the Enstar Natural Gas Co.’s existing pipeline system in the MatSu Borough. The conceptual plan involves utilities to sign up for gas as well as a major industrial customer. AGDC is talking with Nutrien, owner of the mothballed fertilizer plant on the Kenai, as a potential industrial customer, Richards said. Gas would move to that plant through Enstar’s pipeline from the terminus of the new 42-inch pipeline in the MatSu. Under this plan ADGC would sell North Slope gas delivered through the pipeline to utilities and Nutrien at or below the cost of imported LNG shipped to Alaska from the Lower 48. That is pegged at about $15 per million cubic feet, about twice what Cook Inlet gas now sells for. Imported LNG appears the best near-term solution for meeting the gas supply gap in Southcentral, the utilities have said. Richards said getting the pipeline built, assuming it can be done, will make it easier to bring investors for the bigger project because would leave only the LNG plant at Nikiski and the gas treatment plant on the slope to build. If the pipeline-only plan could come together one year of final engineering is needed with four years of construction. First gas could be delivered in 2029. AGDC says $50 million is needed to do Final Front-End Engineering and Design, or FEED, for the pipeline, and a source of funds is needed for that. Gas sales contracts with North Slope producers also must be finalized. Nutrien would also have to commit to rebuilding its Nikiski fertilizer plant. One of the uncertainties facing the “pipeline first” plan for North Slope gas is the commercial structure of the project. Gov. Mike Dunleavy said he wants the private sector to take the lead in the gas project with the state having only a role as facilitator. However, attracting a private investor to the slimmed-down phase one may be a challenge given the narrow customer base, which would be the utilities and possibly Nutrien as an industrial customer. Because of this, state financial backing may be needed. Another issue is that serving Fairbanks with gas will require a separate lateral pipeline because the approved route of the large pipeline is west of the community. The lateral pipeline is not part of the Alaska LNG Project and absent a state subsidy the lateral will have to be financed by a tariff on gas shipped and used by Interior consumers. Despite that, a big advantage of the North Slope gas pipeline, even in a phase one, is that all permits and rights-of-way have been approved. As for President Biden’s well-publicized ban on U.S. LNG exports, that won’t apply to Alaska LNG. That’s because the federal export permit is already signed unless the president were to revoke it, which is considered highly unlikely. — Tim Bradner Linking Alaska’s Resources to Alaska’s People 22 2024 Meet Alaska Conference & Trade Show AGDC proposes North Slope gas to Southcentral first
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Linking Alaska’s Resources to Alaska’s People 24 2024 Meet Alaska Conference & Trade Show There is a path contingent upon decisive action Recent cold weather has been a wakeup call for Alaska leaders regarding Cook Inlet’s natural gas supply. State legislators were startled at the seriousness of the strain on the natural gas system during cold weather in Southcentral Alaska as well as new information that an annual gas shortage will show up in 2025 rather than 2027, two years earlier than expected. Further, lawmakers were told in hearings this spring that imports of liquefied natural gas, or LNG, likely can’t be done to bridge the gas supply gap until 2030. By then gas production from producing fields in Cook Inlet will be in sharp decline, the state Division of Oil and Gas told legislators in separate hearings. If there’s a silver lining to this it is that the Legislature is now really motivated to help producers in the Inlet drill and produce new gas, and fast. Fortunately, there is a path forward that could get some new gas in production quickly, if the Legislature can move fast enough to help HEX LLC, which owns the Kitchen Lights gas field in upper Cook Inlet. There is even more gas that could be developed if a mechanism can be found to help BlueCrest Energy finance development of a substantial proved gas deposit at the Cosmopolitan oil field offshore Anchor Point, near Homer. The gas deposit is estimated at 235 billion cubic feet that overlies, and is separate form, the oil at Legislature works to spur Cook Inlet gas output
www.AlaskaAlliance.com 2024 Meet Alaska Conference & Trade Show 25 Cosmopolitan, which is now being produced. BlueCrest needs a production platform and pipelines to tap the gas, which will cost about $400 million, its CEO, Benji Johnson, told legislators. The company is producing the deeper oil at Cosmopolitan with high-angle lateral wells drilled from shore, but this can’t be done with the shallower gas deposit, Johnson said. So far, BlueCrest has been unable to finance this large investment partly because of the unique nature of the small regional gas market. If the state could help with at least some of this financing, Bluecrest could have the gas in production possibly within three years, and bringing 50 million cubic feet of new gas production on-line, Johnson said. A state loan guarantee may be the easiest way to do this because it wouldn’t involve the state putting up cash. The Alaska Industrial Development and Export Authority, the state development finance corporation, has helped both BlueCrest and HEX with loans to do drilling, but a $400 million commitment may stretch AIDEA’s capacity. However, the state itself has a good credit rating and relatively low levels of debt to backstop a loan guarantee. Its current borrowing capacity is $1.4 billion, according to the state Department of Revenue. This may take new legislation to accomplish. HEX has a different problem at Kitchen Lights, Mark Slaughter, the company’s chief commercial officer, told legislators. The company has partners with royalty shares and this, combined with the state’s 12.5 percent royalty, raises the combined royalty payout to 30 percent of gross royalties, Slaughter said. This heavy gross royalty burden makes it difficult for HEX to borrow for new drilling into known gas deposits near the company’s Julius R platform at Kitchen Lights. HEX has tried unsuccessfully to renegotiate the partners’ royalties, Slaughter said, so the easiest way to solve this would be if the state could reduce its 12.5 percent royalty. With this, HEX could finance $3 million needed to drill prospects near its platform and possibly have new gas in 60 days, Slaughter said. The initial drilling could add 10 million to 20 million cubic feet per day of gas production, he said. Royalty reduction is proposed in bills now in the Legislature sponsored by the governor and, in a separate bill, by Rep. George Rauscher, R-Sutton, who chairs the House Energy Committee. There is other new legislation in the mix, too. Sen. Cathy Giessel, R-Anchorage, the Senate Majority Leader who also cochairs the Senate Resources Committee, has a bill in that would expand the capability to store gas in the Cook Inlet region. Additional storage is needed to augment the Cook Inlet Natural Gas Storage Alaska, or CINGSA, facility near Kenai, which is owned partly and operated by Enstar Natural Gas. Hilcorp Energy owns gas storage elsewhere in the region. — Tim Bradner Does all this sound familiar? A looming natural gas shortage in Cook Inlet. Regional utilities being forced to import liquefied natural gas? Governor, Legislature called on to act. It should ring familiar. It was all the talk in 2012. The predictions by geologists then were for legacy producing fields in Southcentral Alaska to decline by 10 percent to 26 percent yearly and for gas production to drop from 107 billion cubic feet per year in 2012 to 20 billion cubic feet per year in 2020 (the region requires about 80 billion). There was a lot of teeth-gnashing. Then-Mayor Dan Sullivan organized for rolling “brown outs” of power to conserve gas. Utilities began seriously working on plans to import LNG. All that didn’t happen. The two major Inlet producers, Chevron and Marathon Oil, sold out to Hilcorp Energy, an energetic independent with a reputation for rejuvenating old oil and gas fields. Alaska was no longer a priority for major companies Chevron and Marathon and their lack of drilling demonstrated that. Hilcorp was different. It invested and brought in new equipment and within two or three years the Inlet was actually producing more. The state did its part by enacting the Cook Inlet Recovery Act to encourage new gas and to facilitate natural gas storage, or the storing of surplus gas produced in the summer to supply peak gas demand in winter. But what’s different now is that Hilcorp itself is predicting a decline and this is backed by reservoir studies by the state Division of Oil and Gas. LNG imports are being considered again as a backstop, but the state hopes to avert this with new incentives for drilling and development. Will history repeat itself with new gas in 2025 and 2026? Too early to tell. — Tim Bradner LOOKING BACK: LNG history nothing new RAUSCHER
Linking Alaska’s Resources to Alaska’s People 26 2024 Meet Alaska Conference & Trade Show New graphite mine critical to strategic mineral Coming off a highly successful 2023 summer field season, Graphite One is on track to complete a required feasibility study by the end of 2024 for the company’s planned graphite mine on the Seward Peninsula northwest of Nome. Assuming favorable results of that, the company will be poised to begin a two-year permit process in 2025, mine construction in 2027 and the first shipments of graphite concentrate to a Lower 48 processing plant in 2029 and 2030, Mike Schaffner, Graphite One’s senior vice president for operations, told the Resource Development Council in a Feb. 15 briefing. The 2023 drilling program was the company’s largest drill program since exploration began at the graphite deposit about 40 miles northwest of Nome. The goal was to complete 30,000 feet of drilling last summer bringing the total footage drilled over 10 years to 71,366 feet in 151 holes, Schaffner said. Two diamond drill rigs were moved to the site early in the summer with a third rig added in late July. By drilling into the first week of October, the company was able to complete 57 holes. The assay results are now being incorporated into an updated geologic model that will be used to complete a new mine design and development schedule for the feasibility study, Schaffner told the RDC. A significant accomplishment was the completion of winter trails to the site, which allowed heavy equipment to be moved overland, which reduced the amount of helicopter support needed. Graphite One looks ahead after successful season
www.AlaskaAlliance.com 2024 Meet Alaska Conference & Trade Show 27 Building Alaska for over 40 years • Heavy Civil • Oil Field • Marine Transportation • Camps PALMER: 907.746.3144 | DEADHORSE: 907.670.2506 | KENAI: 907.283.1085 ONLINE AT CRUZCONSTRUCT.COM Reducing the need for helicopter support was important to ensure the summer program stayed on track because there is typically a 30-40 percent downtime with helicopter operations due to weather and other factors, Schaffner said. The helicopters were often limited by low-visibility conditions in Nome, the main staging area for flights. Graphite One was also able to develop staging areas for equipment and supplies on the Kougarak Road (the Nome-Taylor highway) which also reduced reliance on helicopters. Graphite One now operates a 60man camp at the exploration site and another 24-person camp in Nome which helps support the exploration. The project site is 17 miles off Mile 28 of the Kougarak Road. Schaffner said completion of the mine in 2029 and the start of concentrate shipments will coincide with completion of the Nome deep water port project which is now underway. Nome now has a port with limited water depths, but the new project being built by the U.S. Army Corps of Engineers will allow larger vessels to call at Nome. This will be a seasonal port similar to that serving the Red Dog Mine further north, with shipments made the summer open water season, Schaffner said. The logistics are one of the more complex parts of the project with a need to store up to 180,000 tons of concentrate at site or Nome though the winter until ice conditions allow for shipments to begin in late spring. Because of the light weight of the concentrate, the shipping will be done using containers, Schaffner said. The graphite produced and shipped from the mine will be in a concentrate that is about 95 percent graphite. It will be processed further in the Lower 48 to 99 percent graphite. Once in production, Graphite One is expected to employ about 100 to 150 in the mining operation, but when the shipping and logistics are added the number of jobs created is expected to reach about three hundred. An economic impact evaluation will be completed as part of the feasibility study by done by the end of the year. Graphite is now considered to be a strategic mineral for the U.S. because of its importance in high-technology products, from cellphones to drones, and because of that having domestic source of graphite is important to national security. Currently 95 percent of the graphite needed for batteries is produced and processed in China. China began producing graphite at a large scale in the 1990 with the aim of undercutting other sources and dominating the world supply of the material. The strategy has been successful. The last graphite mine in the U.S. shut down in 1996. — Tim Bradner
Linking Alaska’s Resources to Alaska’s People 28 2024 Meet Alaska Conference & Trade Show Implementation follows decision in Sackett vs. EPA Alaska’s development agency has new guidance for Alaska industries trying to navigate new Federal water rules. The Alaska Industrial Development and Export Authority, or AIDEA, has developed a method for determining whether wetlands are subject to federal or state regulatory jurisdiction. The new AIDEA Jurisdictional Evaluation Method, or JEM, was released in November and follows United States Supreme Court’s decision in Sackett v. Environmental Protection Agency (Sackett). That decision clarified the definition of “Waters of the United States,” the stream and wetlands subject to the U.S. Clean Water Act and significantly narrowed the reach of federal wetlands regulatory jurisdiction. For decades, federal agencies have used the wetlands regulatory process to slow or halt the development of resources on state lands, and often impose permit conditions such as costly compensatory mitigation requirements that challenge the economics of a project. In some cases, Alaskans conducting activities on their own property that accidentally disturb wetlands have received large fines for not obtaining prior federal authorization. Such federal control over wetlands emphasizes the importance of identifying the jurisdictional boundaries that determine whether a project is subject to state or federal permit standards. This is particularly true in Alaska given that the state contains 175 million acres of wetlands, which equates to 63 percent of all wetlands AIDEA develops method for wetlands decisions
A great Safety Award or Retirement Gift! AVAILABLE IN BOTH HARDBOUND AND SOFT COVER EDITIONS (907) 223-4704 | judypatrickphotography.com Also available in bulk quantities! A COFFEE TABLE PHOTO BOOK OF ALASKA’S NORTH SLOPE OIL PATCH ON SALE NOW! www.AlaskaAlliance.com 2024 Meet Alaska Conference & Trade Show 29 in the United States. Prior to the 2023 Sackett decision, “Any piece of land that is wet at least part of the year was in danger of being classified by EPA employees as [federal] wetlands,” said Supreme Court Justice Samuel Alito. “Virtually any parcel of land containing a channel or conduit ... through with rainwater may occasionally flow ... could be claimed as federal wetlands; including a land area some 120 miles away from a river,” Justice Alito said. In the 2023 Sackett case, the Supreme Court recognized several legal limits to the definition of federal “wetlands” including: n The constitutional due process clause. The U.S. Constitution requires federal laws to give clear notice in advance whether an act by a property owner, such as moving dirt, is a crime. To give notice, federal wetlands must have visible surface water, be a relatively permanent water body (lakes, rivers, etc.,) able to sustain the movement of goods and people, or have a continuous surface connection to such waterbody. n The Clean Water Act’s statutory use of the term “waters” in defining “Waters of the United States” and wetlands as meaning relatively permanent water bodies ordinarily described as “streams, rivers, oceans, and lakes”, “that were or had been navigable in fact or which could reasonably be so made” but not “lands, wet or otherwise.” n A broad definition of federal wetlands would gut the traditional and statutory authority of states in the Clean Water Act to be the first or primary authority “to plan the development and use ... of land and water resources.” For several months, AIDEA has been studying the implications of the Sackett decision with legal and scientific experts. One of the key subject matter experts involved with developing the AIDEA JEM is Eddie Packee, Ph.D. Initial applications of AIDEA’s method for implementing Sackett have shown reductions of federal jurisdictional wetlands by 75 percent to 80 percent. This reduction of federal jurisdiction provides the state with oversight over wetlands and could eliminate federal bureaucratic red tape and forced payments of property owners to develop their own property. “By precisely defining federally designated wetlands, we have brought clarity to the bureaucratic process and reduced federal control statewide. This achievement is a significant win for property rights in Alaska,” said Alaska Gov. Mike Dunleavy. “JEM represents a significant step forward in our understanding and the ability to effectively manage permitting requirements. We are hopeful it will pave the way for more informed decisions in the realm of land management,” said Eddie Packee. To view a recent presentation of the JEM application, see the AIDEA website: www.aidea.org/Programs/ Infrastructure-Development-Resources — Tim Bradner
Linking Alaska’s Resources to Alaska’s People 30 2024 Meet Alaska Conference & Trade Show n 49th Freight n AIDEA n Alaska Airlines n Alaska Business n Alaska Industrial Hardware n Alaska Resource Education n All Pro Alaska n Pettibone n ASRC Energy Services n Beacon Occupational Health & Safety Services n Brenntag Pacific, Inc. n Carlile n Cook Inlet Spill Prevention & Response Inc. n Denali Industrial Supply n Equipment Source, Inc. n Fairweather, LLC n Kakivik Asset Management n Kartorium, Inc. n Lynden Inc. n Marsh McLennan n Matson n Mericka Group LLC n North Star Terminal & Stevedore n Northern Industrial Training n Northrim Bank n Pape’ Kenworth n Parker, Smith & Feek n People AK n Petroleum Equipment & Services Inc. n PND Engineers, Inc. n Power the Future n Sourdough Express n Total Benefit Solutions n UMV, LLC n US Ecology Alaska n Wilderness Medical Staffing Please give a big thank you to our trade show vendors!
And hats off to our annual industry partners! 2024 Meet Alaska Conference & Trade Show 31 www.AlaskaAlliance.com
Barrels per day (thousands) Data source: Alyeska Pipeline Historic Throughput Historic and Future Alaska North Slope Oil Production 1982 Kuparuk River field startup 1987 Endicott field startup 2000 Alpine field startup 2,500 2,000 1,500 1,000 500 0 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 1977 Prudhoe Bay field startup
2001 Northstar field startup 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 ASSUMES: 2026 80,000 added b/d (Pikka 1 and Nuna) 2029 130,000 added b/d (Willow) (Estimated)
Linking Alaska’s Resources to Alaska’s People 34 2024 Meet Alaska Conference & Trade Show A federal judge in Anchorage has confirmed her decision to uphold the suspension of oil and gas survey work in the Arctic National Wildlife Refuge. In a 19-page opinion, U.S. District Court Judge Sharon Gleason declined to reconsider a 2023 ruling against the Alaska Industrial Development and Export Authority, which won oil leases in the refuge during a January 2021 sale and sued the Biden administration after it suspended those leases. The Biden administration subsequently canceled the leases altogether, and AIDEA is challenging that decision in a separate lawsuit. “Today’s court decision in Alaska is a small part, not the conclusion, in defending the rights of Alaskans and AIDEA to our ANWR leases. We will continue to fight against the wrongful cancelation of our leases,” said Randy Ruaro, executive director of AIDEA, by email. AIDEA, Alaska’s state-owned development bank, won seven tracts in the refuge during a Jan. 6, 2021, lease sale, but the Biden administration immediately suspended work on those and other tracts after taking office. The lease sale was the result of decades of work by Alaska’s congressional delegation, which repeatedly pushed the idea of drilling in the refuge until Sen. Lisa Murkowski, R-Alaska, added a provision in President Donald Trump’s 2017 tax law. That law mandated a lease sale in 2021 and a second sale before Dec. 22, 2024. The federal government has said it expects to issue a final environmental impact statement on that second sale by the end of March, but U.S. Sen. Dan Sullivan said he’s not certain that second sale will ever happen. “To be perfectly honest, I don’t trust this administration on any issue at all,” he said. — James Brooks Judge declines to rule on oil work in Arctic refuge GLEASON
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Linking Alaska’s Resources to Alaska’s People 36 2024 Meet Alaska Conference & Trade Show Unconventional, innovative ideas led to success The Alaska Support Industry Alliance turns 45 this year after decades of advocacy on behalf of its members. What the organization does most effectively is sending a message to Alaska’s elected officials that the state’s oil and gas industry is more than large companies, and that it includes hundreds of mostly locally-owned medium-sized and small companies who employ thousands of Alaskans. They are constituents of the politicians. Oil and gas are important to Alaska. Production from the North Slope has provided billions of dollars of royalty and tax revenue to the state, making possible a huge array of public services with no statewide broad-based tax as well as the annual Permanent Fund Dividend, a direct annual payment that is particularly important to low-income Alaskans. In Cook Inlet, where the Alaskan industry began in 1957, the continued operation of offshore oil platforms and the onshore and offshore gas fields provides the energy for space heating and electrical generation, as well as the state’s main supply of gasoline and jet fuel that supports a growing air cargo industry at Anchorage’s airport. None of this can be taken for granted, however. Almost as soon as Alaska’s oil was discovered in the 1950s and 1960s, out-of-state groups with special interests arrived and began working to throttle the economic engine driving the state’s growth, oil and gas. Closing off the state’s oil revenue and oil activity would slow the economy and the migration of working-age people to Alaska. Without the prospect of good jobs, over time people would leave. Eventually Alaska would essentially become a vast park with beautiful land, but few jobs that pay family wages, the kind needed to retain young people. It is this dire future that the Alliance works to avoid by reminding government leaders that their actions affect thousands of ordinary working Alaskans. This is important because in Alaska the oil and gas industry lacks the kind of natural constituency that it has in most other states. In those places the industry produces mostly on private lands. Farmers and ranchers who are land and royalty owners are quick to mobilize when their producers are threatened. This isn’t the case in Alaska. Here the state owns the land where most oil and gas production take place. Royalties are paid to the state treasury. Alaska citizens are affected when the industry hits headwinds, but the connection is indirect and not often well understood or recognized. The Alliance reminds elected officials that they have an Alaska constituency affected directly when bad things happen. The Alliance gives a voice to workers in them, the service companies and support companies. It took a while for this to happen, however. The Alliance had not yet been formed but its major activity — advocacy — came out in full force at the 1979 joint federal-state lease sale on the slope. This was a combined offering, the first of its kind, of prospective undeveloped acreage offshore where the large oil finds had been made onshore. It was also the first time that opposition groups had organized to oppose an expansion of exploration and development, particularly offshore where the operating conditions were difficult. The lease sales survived the initial lawsuits against the state and federal governments, but the opponents were also focused on urging the agencies to put stipulations, or conditions, on new leases that would make them difficult to develop. Larger Alaska companies, particularly ARCO Alaska, were worried that an outpouring of opposition at public hearings held by the agencies might lead to those stipulations being attached, particularly if only a handful of large companies based out of state At 45 years, The Alliance celebrates Webb’s legacy
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