Headlamp – Enemy #1 for Alaska – Cantwell ignores record of responsible drilling in Arctic.

Enemy #1 for Alaska – Cantwell ignores record of responsible drilling in Arctic. Democrats in Congress are sounding the alarm about the Interior Department’s efforts to hold an offshore oil lease sale in the Beaufort Sea next year. Sens. Maria Cantwell of Washington and Jeff Merkley of Oregon, as well as Reps. Raul Grijalva of Arizona and Jared Huffman of California, wrote a letter to Interior Sec. Ryan Zinke Tuesday, urging the department to cease plans to schedule leases in the Beaufort in 2019. Their letter says drilling there would be risky and unpopular and that there’s no effective way to clean up if a spill occurs in Arctic waters. The Bureau of Ocean Energy Management last month issued a formal call for information on which parts of the Beaufort should be open to drilling and which areas are sensitive or important to subsistence activities. That comment period ends Monday. The government has received more than 1,200 comments so far, many of them opposed to Arctic offshore drilling in general. Drilling advocates say the outer continental shelf can be safely explored and that hundreds of wells have already been drilled in Arctic waters since the 1960s.

Strong performance for oilfield service sector predicted. Rystad Energy expects a strong performance from the oilfield service sector based on the first-quarter reports of the top three players in this field, which featured an average increase in income from oilfield services sales of 21 percent. Schlumberger, Halliburton and GE Baker Hughes also reported combined revenue growth of 15 percent, in tune with Rystad’s expectations for the period. The consultancy expects the rest of the year to be strong as well, with improvement in oilfield equipment sales slower but present. “With the great surge of activity in short cycle businesses – like U.S. shale and the slower-to-respond equipment market, typically in offshore – this will also be directionally in line with what we expect the trend to be in 2018 as a whole,” said Rystad’s vice president of oilfield service research, Audun Martinsen. Rystad’s researchers are particularly upbeat about oilfield service providers with a presence in the U.S. shale patch for obvious reasons, and despite some delays in frac sand deliveries over the first quarter of the year. In fact, Rystad’s VP said, frac jobs are growing in number, hitting a high of 44 per day in February.

“Even if you’re not in oil and gas, you’re in oil and gas.” A hundred-foot oil rig pushes up amid acres of irrigated cotton fields and long dirt roads on this oil patch between Midland and Odessa, the two main towns in the Permian Basin in West Texas. Both have about 150,000 people. Tommy Taylor, director of oil and gas development at Fasken Oil and Ranch, seems to know most of them. Taylor has worked at Fasken for 33 years. He jokes that the oil business isn’t just on his resume, it’s in his blood. “My dad was a petroleum engineer, my oldest brother is a petroleum engineer, my middle brother’s a mechanical engineer,” Taylor said as he scaled the oil rig his team. “My sister’s a schoolteacher, but she married a petroleum engineer. You know, it’s just kind of in the family.” Oil prices are hovering close to a three-year high, above $68 a barrel. Much of that oil comes from the United States, which will overtake Russia as the world’s top oil producer by year’s end, according to the International Energy Agency. That trend is thanks, in large part, to production in the Permian Basin, where output has tripled in the past three years. The basin towns of Midland and Odessa depend heavily on the oil and gas industry. For families here, the price of oil makes the difference between hard times and high times.   About six months ago, oil started creeping above $50 a barrel. Eighteen months earlier, it had been about half that. Taylor said Fasken went down to operating just one rig and stopped hiring. The drillers and roughnecks drifted away and found jobs elsewhere. But when oil prices fall, there are repercussions for those outside the oil industry, too. As they say in these parts, “even if you’re not in oil and gas, you’re in oil and gas.”

Shale-setting records in the Permian. The Permian shale play is all about setting records. Now, the region may even become the world’s largest oil patch over the next decade. Output in the basin is forecast to reach 3.18 million barrels a day in May, according to the Energy Information Administration. That’s the highest since the agency began compiling records in 2007. By 2023, the basin may produce 4 million barrels a day, according to the International Energy Agency. The Ghawar field in Saudi Arabia is currently the world’s biggest oil field, with capacity of 5.8 million barrels a day, according to a 2017 EIA report. This is all thanks to the size of the oil deposits, coupled with increased technology and efficiencies. “The technology is the biggest driver,” said Rob Thummel, managing director at Tortoise, which handles $16 billion in energy-related assets. “The basin in and of itself could end up being the largest oil field in the world, even bigger than Ghawar in Saudi Arabia.”

Equipment shortage for shale wells. The intensity of oilfield equipment used in hydraulic fracturing of shale wells is wearing out parts and machinery faster than ever today and should keep the pressure pumping market tight for the rest of 2018, Halliburton’s top executive said Monday. Even as companies move to bulk up the North American pressure pumping fleet used in well completions, a large chunk of the reported additions are believed to simply replace degraded equipment, rather than expanding the overall size of the fracking fleet capacity, Jeff Miller, CEO of the giant oilfield services and equipment provider, said during the company’s first-quarter 2018 earnings conference call. Roughly 50% of additional horsepower announced does not translate into new crews, said Miller, who projected a market shortage of about 1 million to 1.5 million horsepower. “Despite incremental horsepower coming into the market, I believe this undersupply will persist as wear and tear continues to degrade equipment,” he said. “We’ve analyzed the difference between horsepower additions announced and the related number of crews produced. It means about half the newbuild equipment is being used to replace or add to crews already in the field.”

EPA working on self-reporting policy. The Environmental Protection Agency’s (EPA) office of enforcement will announce a new policy aimed specifically at helping polluters in the oil and gas industry, The Hill has learned. The new policy, which has not been finalized, will focus on offering more flexibility to oil and gas companies that choose to self-audit their emissions and report any failures to meet EPA’s regulations, according to an EPA employee with knowledge of the plan. EPA’s head of the Office of Enforcement and Compliance Assurance (OECA), Susan Bodine, has plans to announce the policy Friday at the EarthX Law and Policy symposium in Dallas. The announcement is timed with Earth Day, which is Sunday. Bodine will be speaking on a panel focused on sustainable and ethical corporate decision-making.

 

First Reads:

Rystad Upbeat About Oilfield Service Providers
Oil Price.com, Irina Slav, April 24, 2018

Midland, Texas, is booming as oil prices rise
Marketplace, Andy Uhler, April 24, 2018

Permian Basin Is Growing Into the Largest Oil Patch in the World
Bloomberg Markets, Jessica Summers and Sheela Tobben, April 24, 2018

Offshore lease schedule for Beaufort draws flak
Alaska Public Media, Liz Ruskin, April 24, 2018

‘Frac’ intensity in shale wells wears out equipment faster: Halliburton
S&P Global Platts, Starr Spencer, April 23, 2018

EPA to unveil policy aimed at avoiding legal action over oil and gas polluters: source
The Hill, Miranda Green, April 20, 2018

Headlamp – Name it, claim it- North American Drilling Record! The 8th wonder of the world.

Name it, claim it – North American Drilling Record! Conoco Phillips Alaska has announced a North American drilling landmark as North Slope producers push efforts to tap oil as efficiently as possible after years of low oil prices. The company set the continent’s land-based record with a four-mile “horizontal lateral,” an extension branching off a vertical well, the ConocoPhillips said in a statement. The record, at 21,478 feet, beat a 19,500-foot horizontal lateral in Ohio announced in 2017 by Eclipse Resources, said Amy Burnett, a spokeswoman with the company. The record came at a well at the company’s CD5 field, the first commercially producing field within the National Petroleum Reserve-Alaska. Oil companies today are able to drill “extraordinary kickout lengths,” opening huge areas of a reservoir with a small footprint, said Mark Wiggin, deputy commissioner for the Alaska Department of Natural Resources. That saves money on the tons of gravel needed for well-pad foundations and roads, and reduces environmental impact, said Wiggin, a former engineer with Arco Alaska, a ConocoPhillips Alaska predecessor. Advances in drilling systems helped boost the distances, said Chip Alvord, Alaska drilling manager for ConocoPhillips.

If you pass it, will they come? A bill that would use bonds to pay off the state’s debt to oil and gas companies for tax credits has raised a question from lawmakers: are the companies interested? Revenue Commissioner Sheldon Fisher provided the House Finance Committee an answer Monday, saying most of the companies are on board with the idea. “So far, no one has informed us that they do not intend to participate,” Fisher said. “They’ve either informed us that they want to participate – which is far and away the majority – (or) there’s a handful of companies that have said they’re still thinking about it and want to get back to us.” The state owes the companies more than $800 million in tax credits. House Bill 331 would allow it to pay them off quickly. The state would receive a discount of roughly 10 cents on the dollar, to cover the cost of issuing the bonds. State payments for the credits slowed as oil prices fell. But companies have said the delayed payments have hurt development. One company that is especially interested is Caelus Energy. It has $180 million in tax credits owed it. Caelus Vice President Pat Foley said it would be a win for the state and investors if the bill passes. House Finance will be taking testimony on the bill at 1:30pm today. Watch it live at www.akleg.gov.  

A big, gold milestone. The Army Corps of Engineers will publish environmental recommendations this week for a proposed massive open-pit gold mine in western Alaska. The Corps’ final environmental impact statement for the Donlin Gold Mine is expected to be released Friday after five years of work, the Alaska Journal of Commerce reported. Owners envision a conventional open-pit mine 1.5 miles (2.4 kilometers) across and up to 1,200 feet (366 meters) deep. The mine at its peak is projected to produce more than 1 million ounces (28.35 million grams) of gold per year. Donlin spokesman Kurt Parkan said initial exploration began 22 years ago. “It’s a good day. We’re happy that we’ve reached (the final environmental impact statement). That’s a big milestone,” Parkan said. A final environmental impact statement includes the oversight agency’s recommendations on how a project can be adjusted to minimize its environmental impacts. The Corps also could recommend not approving the project Donlin Gold estimates the mine and associated infrastructure, including a 315-mile (507-kilometer), 14-inch (35.5-centimeter) natural gas pipeline from west Cook Inlet and fuel storage in Dutch Harbor, will cost $6.7 billion.

U.S. oil hurts OPEC and Russia. As OPEC’s efforts to balance the oil market bear fruit, U.S. producers are reaping the benefits – and flooding Europe with a record amount of crude. Russia paired with the Organization of the Petroleum Exporting Countries last year in cutting oil output jointly by 1.8 million barrels per day (bpd), a deal they say has largely rebalanced the market and one that has helped elevate benchmark Brent prices LCOc1 close to four-year highs. Now, the relatively high prices brought about by that pact, coupled with surging U.S. output, are making it harder to sell Russian, Nigerian and other oil grades in Europe, traders said. “U.S. oil is on offer everywhere,” said a trader with a Mediterranean refiner, who regularly buys Russian and Caspian Sea crude and has recently started purchasing U.S. oil. “It puts local grades under a lot of pressure.” U.S. oil output is expected to hit 10.7 million bpd this year, rivaling that of top producers Russia and Saudi Arabia. In April, U.S. supplies to Europe are set to reach an all-time high of roughly 550,000 bpd (around 2.2 million tonnes), according to the Thomson Reuters Eikon trade flows monitor.

The 8th wonder of the world. The Panama Canal may carry five times as much liquefied natural gas (LNG) in 2020 as it did last year as production of the fuel expands in the United States and Asian import demand rises, the head of the canal’s governing agency told Reuters. LNG volumes traversing the Canal could hit 30 million tonnes a year before the end of 2020, said Jorge Quijano, who leads the Panama Canal Authority, up from 6 million tonnes last year. Demand for LNG has risen significantly in the last three years as the increase of supply, especially from onshore shale fields in the United States and offshore reserves in Australia, has made it more competitive. Many countries including China have also been switching to gas more rapidly than expected, away from dirtier coal, for environmental reasons. For graphic on U.S. LNG tankers passing Panama Canal click here.

 

First Reads:

No oil companies oppose bonds for tax credits, commissioner says
Alaska Public Media, Andrew Kitchenman, April 23, 2018

ConocoPhillips claims North American record for horizontal drilling
Anchorage Daily News, Alex DeMarban, April 23, 2018

Arm Corps prepares to release Donlin environmental review
AP News, April 23, 2018

Trump’s revenge: U.S. oil floods Europe, hurting OPEC and Russia
Reuters, Olga Yagova and Libby George, April 23, 2018

Panama Canal to carry 30 million tonnes of LNG by 2020 as global demand grows
Reuters, Osamu Tsukimori, April 19, 2018

Headlamp – Get the facts on the Pebble Project.

Army Corps of Engineers describes Pebble Project in this video:

 

 

Years of underinvestment in the oil industry has led to weak production. The oil and gas industry may need a significant amount of new investments to offset a looming supply shortage, the head of oil services firm Schlumberger said. Companies like Schlumberger that cater to the exploration and production, or upstream, side of the industry are still evolving after the historic slump in crude oil prices two years ago. That forced major energy companies to cut costs, improve efficiencies and join forces in order to survive. Schlumberger last year formed several ventures with its industry partners. Extending a six-year relationship, the company in July spent $1.7 billion to acquire a 51 percent stake in Eurasia Drilling Co. Ltd., which holds one of the largest fleets of onshore drilling units globally. In February, it formed a joint venture partnership with Subsea 7 that built on a 2015 arrangement to coordinate broad offshore development work under one umbrella.

U.S. still has 49% fewer rigs than in October 2014. West Texas’ Permian Basin single-handedly accounted for another jump in the number of rigs actively drilling for petroleum in the U.S. The overall rig count increased by five rigs this week, while the Permian alone grew by eight rigs. Small declines in Colorado, North Dakota and Oklahoma partially offset the gains in Texas, according to the weekly data collected by Houston-based Baker Hughes, a GE company. The total U.S. rig count is now up to 1,013. Oil drilling currently accounts for 820 rigs of the total. The rest are seeking natural gas. U.S. oil was selling at about $68 a barrel in early afternoon trading in New York. West Texas’ Permian Basin now accounts for 453 rigs, which is 55 percent of all the nation’s oil rigs. The next most active area is South Texas’ Eagle Ford shale with 76 rigs. Texas is home to 509 rigs overall, while Oklahoma is second with 127 rigs. New Mexico is next with 90 rigs. Despite this week’s jump, the oil rig count is down 49 percent from its peak of 1,609 in October 2014, before oil prices began plummeting.

From today’s Washington Examiner, Daily on Energy:

15 REPUBLICAN ATTORNEYS GENERAL OPPOSE CALIFORNIA CLIMATE SUIT: The climate change court fight between California cities and big energy companies such as Exxon Mobil is widening as Republican attorneys general from 15 states filed a court brief Friday opposing the cities’ climate lawsuits. The attorneys general argue that the cities and municipalities suing the companies in federal court are overreaching in using local “nuisance” ordinances as a way to find a court remedy to the complex issue of global warming. Fossil energy producer and consumer states: The 15 states filing the amicus brief opposing the lawsuit include Texas, Louisiana, Wyoming, Colorado, West Virginia, Indiana, Alabama, Arkansas, Georgia, Kansas, Nebraska, Oklahoma, South Carolina, Utah, and Wisconsin.

 

First View:

The Pebble Project: Project Description and Summary Information
U.S. Army Corps of Engineers

First Reads:

Schlumberger sees growing supply challenges
UPI, Daniel J. Graeber, April 20, 2018

Permian Basin dominates another rig count jump
Chron, Jordan Blum, April 20, 2018

Headlamp – Just how bright is our future?

11.8 billion barrels are waiting. The Trump administration is taking its first administrative step toward allowing oil and natural gas drilling in Alaska’s Arctic National Wildlife Refuge (ANWR). The Interior Department’s Bureau of Land Management (BLM) released a notice Thursday that it is starting the “scoping” process for an environmental review to examine the impact of leasing drilling rights to companies in ANWR’s 1.6 million-acre coastal plain. The BLM will take public comments for 60 days and hold four meetings in Alaska to inform the public how it will conduct the environmental review, it said in the notice, which is set to be published Friday in the Federal Register. The notice comes just four months after Congress voted to allow drilling in the federally owned ANWR for the first time. Democrats had for decades successfully blocked efforts to open ANWR to rigs, but the GOP pushed the measure through as part of its Tax Cuts and Jobs Act. That law requires the BLM to hold at least two drilling rights lease sales in the next 10 years. Joseph Balash, Interior’s assistant secretary for land and mineral management, said last month that the first lease sale could be as soon as next year, the Anchorage Daily News reported. A draft environmental review, a final review, lease sales and applications to drill would be needed before any drilling, with the potential for lawsuits high at many of those steps.

New discovery means over 420 still have jobs. Recent exploration around the Pogo Mine near Delta Junction has shown promising evidence of more rich deposits of gold nearby. A Pogo geologist told a group of miners and industry officials early this month that more exploration will be needed before company officials can decide whether to expand the operation and develop the resources. But the officials are excited about the potential. Pogo Exploration Superintendent Gabe Graf’s Powerpoint was a largely technical talk, like most given during the Alaska Miners Association Biennial Conference. But in the course of the presentation, he offered a comment or two about some drilling done last year in the Goodpaster prospect that even a layman could easily understand. “… So we just turned the rig, drilling a shallower hole coming across,” Graf said. “And this hole, we hit 17-and-a-half feet of 1-point-seven-three-nine ounces per ton. Very good, very excited about that.” “It’s exciting for us, because it potentially means we continue to extend our mine life out there, and we continue to keep 320 employees,” Kennedy said. “We continue to keep 100-plus contractors employed. And we continue to be able to contribute to the community like we have been doing for the past 10 or 12 years.”

Higher oil prices have a positive impact on Alaska’s economy. North Slope oil prices this week rose to their highest level in more than three years, helping boost optimism that the battered Alaska economy could slowly be reversing course. “I have no doubt the higher prices are having a positive impact on the economy,” said Neal Fried, an economist with Alaska Department of Labor and Workforce Development. Exactly how much is hard to know at this point, Fried said. But there have been positive signs as North Slope oil prices reached $73 on Wednesday, with geopolitical tensions growing in the Middle East and elsewhere. High-paying employment in the Alaska oil industry is a leading indicator of statewide economic performance. Oil industry job losses have moderated after big cuts in recent years, Fried said. “Last year, companies were laying people off,” Fried said. “This year, in some cases, companies are actually hiring some people.” The higher price has led Petroleum Equipment and Services, providing drilling-related equipment and work to the oil industry, to anticipate additional work and add two employees to a staff of 20, said owner Kevin Durling. He said large oil companies are becoming profitable again after slashing expenses following the drop in oil prices that began in 2014. Work is modestly rising for industry support companies such as his. “Seventy (dollar) anything is good,” Durling said. Daily Alaska North Slope prices, as estimated by the state Department of Revenue, reached $70.22 on April 10 and have remained above $70 since. Improvements to the economy and hiring are expected to be gradual, assuming oil prices stay where they’re at or keep rising, economists said. Contractors still face a tough environment, said Rebecca Logan, general manager of the Alaska Support Industry Alliance. “(The price) is a great place to be and we hope it stays here, but it’s way too early to really make an impact,” Logan said.

 

First Reads:

Trump administration takes major step toward Alaska refuge drilling
The Hill, Timothy Cama, April 19, 2018

Pogo Mine officials “very excited” about two promising gold prospects under exploration
Alaska Public Media, Tim Ellis, April 19, 2018

North Slope oil has hit $70: What that means to Alaska’s economy, the oil industry and the state treasury
Anchorage Daily News, Alex DeMarban, April 19, 2018

Headlamp – Attorney General Jahna Lindemuth to Sen. Bill Wielechowski: No constitutional concerns with bill to pay debts that are owed.

Attorney General Jahna Lindemuth: No constitutional concerns with bill to pay debts that are owed. Alaska’s attorney general is at odds with a legislative attorney over the constitutionality of Gov. Bill Walker’s proposal to issue bonds to pay off remaining oil and gas tax credit obligations. Attorney General Jahna Lindemuth says her office carefully reviewed legal issues surrounding the proposal and concluded the plan is lawful. She says there are no constitutional concerns with it. Lindemuth’s statement came after Senate Democrats released a memo from a legislative attorney, who weighed in on the issue at the request of Democratic Sen. Bill Wielechowski (will-uh-COW-ski). The attorney, Emily Nauman, said there was a “substantial risk” that a court might find the proposal unconstitutional. She said the bill appears to establish a corporation solely to issue debt that, due to constitutional limitations, can’t be issued by the state.

Alaska’s new best friend. Governor Bill Walker announced Alaskan organizations that will travel this May for Opportunity Alaska: China Trade Mission. They include fisheries, tourism, and investment businesses, as well as a baby food maker, an architecture firm, and a university. The group represents varying sectors in Alaska’s economy and hopes to continue to make inroads with Alaska’s largest trade partner.

Know when to hold ‘em, know when to fold ‘em. A Houston-based LNG company is hoping to chart a course that hasn’t really been tried before: owning upstream natural gas assets, building the pipelines to get the gas to port, and owning the export terminal to ship the gas overseas. That part is not exactly new, but the kicker is that the company is hoping outside investors will pay a hefty portion of the bill, and in return they get an equity stake in the projects. Tellurian Inc. is a closely watched LNG company that is gambling on a high stakes bet that could change the dynamics of gas exports. The company is trying to get investors to pay around $12 billion of the upfront cost to build the Driftwood LNG export terminal in Louisiana. Footing that bill will grant them equity stakes as well as the ability to purchase the upstream gas without a markup. The plan has the advantage of not needing to take on debt, offloading some of the risk onto other companies. But the trick will be inking those deals. So far, Tellurian has not been able to secure major equity partners, although Total SA has pumped $207 million into the company, with smaller investments from others. “This cleverly removes the banks from the whole formula, and then it becomes the buyer’s problem,” Jason Feer, head of business intelligence at Poten & Partners Inc., told Bloomberg.

We’re talking Benjamins. Only a week ago week ago, news surfaced that Saudi officials were quietly hoping to push oil prices up to $80 per barrel, which would help boost the valuation of Saudi Aramco IPO. But why not $100 per barrel? Reuters reports that Riyadh would be fine with prices rising that far, which lends weight to the notion that OPEC will keep the production cuts in place even as its mission to drain surplus oil inventories around the world appears to be largely “accomplished.” OPEC and its non-OPEC partners are even considering yet another extension that would push the cuts into the middle of 2019. But with inventories back to average levels and expected to fall for the foreseeable future, the production limits would surely push the market into a deficit. The over-tightening, presumably, would lead to higher oil prices…just in time for the Aramco IPO. OPEC just posted its fifth consecutive month in which it recorded a new record high compliance rate with the production limits. In March, according to Bloomberg, the compliance rate surged to 164 percent, a new high, up from 148 percent in February. Unsurprisingly, output fell in Venezuela, but Saudi Arabia also chipped in further reductions.

From today’s Washington Examiner, Daily on Energy:

MURKOWSKI COMMITTED TO BIPARTISAN ENERGY BILL: Senate Energy and Natural Resources Chairwoman Lisa Murkowski said Thursday morning that she is committed to pushing a bipartisan comprehensive energy bill. The Alaska Republican made the statement at a hearing to address rural energy challenges, which will be addressed in the comprehensive bill.

“Sen. [Maria] Cantwell and I are committed, still, to advancing this,” Murkowski said, referring to the top Democrat on the committee. “We’ve worked hard on this as a committee, and those provisions will benefit our remote communities.”

The bill stalled in the last Congress in conference committee, as House members thought they could get a better bill under Trump.

 

First Reads:

Lindemuth: No constitutional issues with Alaska bonding plan
AP News, April 18, 2018

Alaska businesses selected for Opportunity Alaska: China Trade Mission
Office of the Governor, April 18, 2018

A Natural Gas Giant Like No Other
Oil Price.com, Nick Cunningham, April 17, 2018

$100 Oil Is Back On The Table
Oil Price.com, Nick Cunningham, April 18, 2018

Headlamp – FYI Legislators, the stability of fiscal terms important to companies looking to invest in Alaska.

“Clearly one of the most important things when a company looks at an area is stability of fiscal terms…” A Papua New Guinea oil company that’s new to Alaska is hiring workers to appraise and develop a large North Slope discovery — bucking a trend that’s seen the state’s industry workforce slashed and companies leaving. Oil Search last year acquired a $400 million stake in the Nanushuk field, a discovery announced by Armstrong Oil and Gas and Repsol in 2015. Geologists estimate the discovery is one of the largest in Alaska. Oil Search plans to find out just how big it is. The company operates oil and gas fields in Papua New Guinea. Its partners include ExxonMobil and Total. In late March, Oil Search officially took over as the Nanushuk operator. The company’s work could provide a big economic boost to the state, said Keiran Wulff, head of Oil Search in Alaska. The Anchorage Daily News spoke with Wulff last week at the downtown Anchorage building, Peterson Tower, where the company is retrofitting an entire floor to house a large staff. “We like the fact that in Alaska there was a lot of opportunity, despite the oil majors being up here a long time. There’s been some significant oil fields discovered, but also, relative to other parts of the world, the drilling density in Alaska is not significant.” “Once we commit to the development fully, hopefully in the second half of next year, that would provide significant impetus for employment opportunities for people in the state. Clearly one of the most important things when a company looks at an area is stability of fiscal terms because you spend a lot of money on projects and a lot of time and there are a lot of opportunities around the world.”

Unpredicted drop in crude inventories. Crude rose to its highest level since 2014 in New York as the drop in U.S. inventories reported by an industry group helped to sustain a rally spurred by geopolitical risks. Futures in New York rose as much as 2 percent, extending their gain beyond last week’s three-year high. U.S. crude and gasoline inventories fell last week, the American Petroleum Institute was said to report on Tuesday, in contrast to forecasts for a build in U.S. government data later. OPEC and Russia will probably look at ways to prolong their cooperation on cuts when they meet in Saudi Arabia this week. Oil had fallen earlier this week from the highest in more than three years as geopolitical risks surrounding Syria eased, with Russian President Vladimir Putin now seeking to reduce tensions with the U.S., according to people familiar. The U.S. has started talking to North Korea directly, President Donald Trump said on Tuesday, helping to buoy some equity markets. “The product draws were a bit surprising,” Tamas Varga, analyst at PVM Oil Associates, said, referring to the drop in gasoline and distillate inventories reported by the API. “As long as the geopolitical premium is here with us we should not sell off.”

The charity state of Alaska. The Alaska Legislature is already cutting into the amount of the yearly oil-wealth fund check given to residents to help pay for state government. Now, lawmakers are looking at other ways for residents to spend more of their check — to help pay for state government. One proposal would set up a raffle to benefit schools, with a minimum buy-in of $100 from a resident’s Alaska Permanent Fund dividend. Twenty-five percent of entry dollars would go toward the prize fund. Another bill, which passed the Senate, would let residents donate all or part of their Alaska Permanent Fund dividend to the state treasury to help pay Alaska’s bills. All this comes as lawmakers, deadlocked on taxes, look for alternatives to bolster state coffers in response to a persistent state budget deficit. It also comes amid a roiling political debate over the future of the dividend. Alaska has no state sales or personal income tax. The size of the yearly check paid to residents has been capped at $1,022 and $1,100 the past two years, and lawmakers propose limiting it again this year as they prepare to use earnings from the oil-wealth fund for the first time to help fill the deficit.

From today’s Washington Examiner, Daily on Energy:

ZINKE WON’T REDUCE AMOUNT COMPANIES PAY TO DRILL OFFSHORE: Interior Secretary Ryan Zinke on Tuesday declined to cut the amount that oil and gas companies pay for offshore drilling deep in federal waters. Zinke rejected the advice of the Interior Department’s Royalty Policy Committee, an advisory board that unanimously recommended that he lower the royalty rate companies pay on offshore drilling from 18.75 percent to 12.5 percent in federal waters deeper than 200 meters.

Low down: The proposed amount was the lowest rate the government can charge for offshore leases. Zinke said lowering the rate is not necessary to attract industry interest in drilling deep offshore.

 

First Reads:

Papua New Guinea oil company moves to develop big Alaska prospect
Anchorage Daily News, Alex DeMarban, April 17, 2018

Crude rises to highest since 2014
Chron, Alex Longley, April 18, 2018

Alaska looks at ways for residents to give to government
Daily News-Miner, Becky Bohrer, April 17, 2018

Headlamp – AGDC says no to Port MacKenzie and you’re still the one to Nikiski.

Tweet of the day: Wood Mackenzie (@WoodMackenzie) “China said in early 2017 it was targeting annual production of 30 billion cubic metres (bcm) of shale gas by 2020, but we forecast that production will reach 17 bcm by that time”

Nikiski is still the one. The President of the Alaska Gasline Development Corporation has confirmed that Nikiski is still the preferred site for the AK LNG liquefaction facility. On Thursday, April 12, AGDC President Keith Meyer stated in a press conference that Nikiski is still the preferred site for the natural gas liquefaction plant and terminus. The Mat-Su Borough filed a complaint on January 9, with the Federal Regulatory Energy Commision (FERC) stating that the project and regulators “improperly and intentionally excluded” the borough’s Port MacKenzie as a “reasonable alternative” for the proposed liquefied natural gas plant. According to the AGDC they plan to build a natural gas offtake facility at milepost 731 (measured from Prudhoe Bay) for gas withdrawals in the Mat-Su valley. Nikiski was identified as the preferred site location over four years ago, after more than two dozen possible locations were analyzed. Back in March, a schedule was released by the FERC to the AGDC. According to the plan, a draft Environmental Impact Statement will be completed by March 2019, with the final Environmental Impact Statement set for December of that year. Construction will begin after FERC finalizes its regulatory decision in March 2020.

Geopolitical uncertainty stimulates oil prices. Oil prices were little changed on Tuesday as investors took profit following last week’s rally above three-year highs, with prices supported by growing concern over the potential for supply disruptions. Brent crude oil futures LCOc1 were down 9 cents at $71.33 a barrel by 11:50 a.m. EDT (1550 GMT), having come off an earlier high of $71.89, while U.S. crude futures CLc1 slipped 8 cents to $66.14. “We’re starting to see a little of the premium come off from geopolitics, and the focus is shifting to inventories,” said Bill Baruch, president of Blue Line Futures in Chicago. Brent has risen 1.4 percent so far this month. It hit a peak last week of $73.09, the highest since late 2014, amid mounting tensions in the Middle East, the possibility of renewed U.S. sanctions against Iran and falling output in Venezuela, where economic crisis has dragged down oil output to multi-year lows. “The rally upwards was purely on geopolitical risk and if now we haven’t had any further stimulus, we’re seeing prices slip off a bit,” Natixis commodities strategist Joel Hancock said. Analysts expected uncertainty over U.S. policy towards Iran to continue to support prices through May 12, the deadline that U.S. President Donald Trump gave to Congress and European allies to “fix” the Iran nuclear deal.

Winter is coming…and we’re excited. ConocoPhillips say its 2018 winter exploration and appraisal program on Alaska’s western North Slope produced promising results. The Houston-based company Monday announced it had concluded 2018 winter program and that three appraisal wells supported a previously announced estimate of at least 300 million barrels of oil at its Willow Discovery leasing area within the National Petroleum Reserve-Alaska. Company executive vice president Matt Fox calls the results “promising.” The company says it originally planned to drill five wells, including two appraisal wells at Willow. Drilling efficiencies allowed the drilling of a third appraisal well plus three exploration wells. The company says all six wells reached oil and verified potential. The exploration wells represent new discoveries and the company will assess results in anticipation of additional appraisal next winter.

From today’s Washington Examiner, Daily on Energy:

TRUMP, ABE, MACRON ON CLIMATE COLLISION COURSE? President Trump will meet with Japan’s Prime Minister Shinzo Abe at Mar-a-Lago Tuesday and a week later with French President Emmanuel Macron at the White House. Both leaders are facing interesting energy climates.

Japan’s fossil fuel imports: Abe’s country is one of the largest importers of coal and natural gas, two areas of intense interest in meeting Trump’s energy dominance agenda, which includes more exports of both fossil fuels.

At the same time, Abe is a signatory to the Paris climate change deal, which Trump is leaving, although it will take until the next presidential election to do so. It will take a heavy lift for Japan to reduce its reliance on fossil fuels to meet its climate goals, especially in the wake of 2011 Fukushima nuclear disaster that caused its expensive shift in power production away from carbon-free nuclear energy.

France talks a good game: Macron, of course, has chided Trump for his climate stance, but for the most part wants to appear as though not having the U.S. on board the Paris Agreement will not deter the rest of the world from cutting greenhouse gas emissions.

However … : France imported more electricity last year than in the past five years, while lagging other European countries in its adoption of renewables, according to Reuters.

Bottom line: Both Japan and France find themselves in a place where aggressive climate actions may lag real-world challenges to keep the lights on.

 

First Reads:

Oil prices little changed as profit locked in; supply worry supports
Reuters, Ayenat Mersie, April 16, 2018

AGDC Confirms Nikiski Over Port MacKenzie For LNG Site
KSRM Radio Group, Jennifer Williams, April 16, 2018

Winter drilling in Alaska ‘promising’ for ConocoPhillips
AP News, April 16, 2018

Headlamp – Six new wells on the North Slope. Funding still needed for AK LNG project.  

North, the rush is on. ConocoPhillips says it was able to drill six new wells, including an additional Willow appraisal well, at Alaska’s Western North Slope, with all six encountering oil and verifying the potential of the play. COP says its original plan was to drill five wells comprising two appraisal wells of the Willow discovery announced in January 2017 plus three exploration wells, but improved drilling efficiencies allowed it to drill six wells. COP says the three Willow appraisal wells support its previously announced estimate of a recoverable resource potential of at least 300M barrels of oil, and the three exploration wells represent new discoveries for the company.

Funding unresolved as agreement expiration date nears. State officials leading the $43 billion Alaska LNG Project touted a productive visit from potential Chinese partners in the project while funding for the effort remains unresolved in the Legislature. Alaska Gasline Development Corp. President Keith Meyer told reporters during a Thursday press briefing that a six-day trip to Alaska from March 25-30 by leaders of the state-owned Chinese companies Sinopec, Bank of China and China Investment Corp. was the foreign contingent’s opportunity to see for themselves that the Arctic-sourced LNG export plan is as achievable and real as Gov. Bill Walker’s administration has insisted. Meyer said he expected the three companies to send “a couple handfuls of people” across the Pacific; 38 arrived. “We had a pretty large group,” he said. “It really shows their level of interest, activity, commitment to the project so we were really happy to see that.” Among other activities, the group toured the proposed pipeline route from the North Slope to Nikiski. The development agreement, signed last November, calls for AGDC to have the framework of final deals with the three in place by the end of May, with firm commitments signed before the agreement expires at the end of the year.

Deadlines are made to be…ignored? Early last week legislative leaders had realistic hopes of adjourning on the 90th day, on Sunday, April 15, but as of Saturday it appeared there was still too much work to do. A few more days is all, House and Senate leaders promise. Fundamentally, there appears to be agreement on major issues and that a long, drawn-out session that happened last year will be avoided. The differences between the House and Senate budgets will likely be worked out quickly. The operating budget is marginally up from the current year, with higher costs this year due mainly to rising health costs. Finding money for a state capital budget is a continuing problem, however. This year’s proposed capital budget is bare bones, paying the required state match to federal transportation funds and for a few urgent state needs. The state fiscal gap is the most serious problem confronting the Legislature and there is now consensus that some of the Permanent Fund’s ample earnings can be used this year to fund next year’s budget. The state has been running back-to-back multi-billion dollar deficits. Significantly, there’s now agreement that the draw on the Fund’s earnings must be done in a structured way, and the plan now agreed between the House and Senate is that a percent-of-market-value draw, or POMV, of 5.25 percent can be made from the Permanent Fund’s earnings reserve account.

From today’s Washington Examiner, Daily on Energy:

CANADA’S TRUDEAU PROMISES TO ENSURE CONSTRUCTION OF DISPUTED PIPELINE: Canadian Prime Minister Justin Trudeau has instructed his finance minister to begin talks with Kinder Morgan to “remove the uncertainty” of the controversial Trans Mountain pipeline expansion, according to the Associated Press. Trudeau, who is a global leader in fighting climate change, is preparing legislation that says the federal government can approve the project over the protests of leaders in British Columbia.

Uncertain future: Texas-based company Kinder Morgan threatened this month to halt its proposed $7.4 billion expansion of the Trans Mountain pipeline because of opposition from the provincial government of British Columbia, which fears potential spills along a coastline that attracts tourists. The company said British Columbia must drop its opposition to the project by the end of May or it will pull out from the project. The Trans Mountain expansion would nearly triple the amount of crude flowing from Alberta’s oil sands to a port near Vancouver.

 

First Reads:

ConocoPhillips announces promising results in Alaska exploration
Seeking Alpha, Carl Surran, April 16, 2018

AGDC chief recaps visit from Chinese delegation as funding unresolved
Alaska Journal of Commerce, Elwood Brehmer, April 15, 2018

Hopes for a 90-day session go by the wayside
Frontiersman, Tim Bradner, April 14, 2018

Headlamp – Zip, nada, none. Seaton gets no support from Alaskans for his money grab.

Dear Rep. Seaton,

Please listen to the consultant you hired to advise you. Rich Ruggiero of In3nergy, a consultant to the Legislature, said in an April 11 hearing on the bill that lawmakers should focus on what is necessary to bring on new North Slope developments. He recommended lowering the base tax, 10 percent is the number cited in his slide presentation, and making the highs higher. He told legislators that because costs rise with sustained price increases, windfall taxes will only occur with short duration price spikes. With sustained price increases, costs rise, lowering the production tax value, which includes costs the companies incur in producing the oil.

And to Alaskan’s who testified: “Please do your part to grow the economic pie and keep Alaskans living and working right here in our State. Help businesses to be successful so that we can reciprocate and do our own part to grow Alaska”.

Headlamp would like to point out, many Alaskans spent their time testifying last night…not one of them was in support of HB 411.

Let’s turn this EPA ship around. The Senate voted Thursday to confirm Andrew Wheeler, a former energy lobbyist, to be deputy administrator at the Environmental Protection Agency (EPA). Senators voted 53-45 to make Wheeler the No. 2 official at EPA, just below Administrator Scott Pruitt. All of the Republicans present voted for Wheeler, along with Democratic Sens. Joe Donnelly (Ind.), Heidi Heitkamp (N.D.) and Joe Manchin (W.Va.). Each of the Democrats is running for reelection this year in heavily Republican states. The vote came amid a wave of controversies involving Pruitt, who is facing calls for his resignation or firing. Democrats argued that Wheeler could become Pruitt’s successor if the administrator is dismissed, and that he has not been properly vetted for that scenario. “We should know whether Andrew Wheeler is up to the task of helping to right this badly damaged EPA ship, to restore the confidence and have it headed back on the right course,” Sen. Tom Carper (Del.), the top Democrat on the Environment and Public Works Committee, said on the Senate floor before the Wheeler vote.

An attack on oil is an attack on the US economy. Oil companies fell behind in hardening their computer control systems against cyberattacks after the collapse of crude prices more than three years ago, putting security initiatives on hold while state-sponsored hacking groups became more proficient at probing U.S. energy networks, according to cybersecurity experts. Oil and gas cybersecurity teams faced funding shortfalls for projects to protect networks that run pipelines, drilling rigs and other oil field operations, as energy companies slashed thousands of jobs and cut production, security professionals said in recent interviews and conferences. Meanwhile, the worst of the downturn in early 2016 and some of the deepest cuts to jobs and spending coincided with an intensifying campaign of online attacks on energy networks by hackers backed by the Russian government, according to a recent report by the FBI and Department of Homeland Security. The hackers almost certainly penetrated the networks, according to government and private cybersecurity specialists, likely with the aim of testing detection capabilities and responses and preparing for a day when they could launch an attack aimed at shutting down operations or damaging facilities. Attacks that interrupted the flow of power or crude oil or gasoline could disrupt, if not derail the U.S. economy.

Pebble: “complete public access and transparency.” Another environmental assessment of the proposed Pebble Mine is underway. This time, the lead agency is the Army Corps of Engineers, and in a call with reporters yesterday, the agency addressed criticism it’s already receiving as it weighs whether to give the controversial mine a permit. Sheila Newman, regulatory division deputy chief with the Army Corps’ Alaska District, said the agency recognizes that Pebble is not an average project proposal — it has a long history in Alaska, so the agency is trying to make adjustments for that. For example, it gave the public a longer-than-usual period to read the permit application before the first comment period. “We went for complete public access and transparency as soon as we possibly could for this project by making the application publicly available, I think it was 15 days after we received it. So that was a first,” Newman said. The Army Corps recently extended the first period for the public to weigh in on the proposed mine — called the scoping period — by two months, after Native Corporations and top officials like Lisa Murkowski said 30 days wasn’t long enough.

From today’s Washington Examiner, Daily on Energy:

OPEC NEARS ‘MISSION ACCOMPLISHED’ ON OIL PRODUCTION CUTS: OPEC is nearing “mission accomplished” on its efforts to prop up oil prices by cutting supply, the International Energy Agency said Friday. “It is not for us to declare on behalf of the Vienna agreement countries that it is ‘mission accomplished’, but if our outlook is accurate, it certainly looks very much like it,” the IEA said in its monthly oil markets report.

Beating expectations: Less than 10 percent of the global surplus in oil supply remains, the IEA said, as OPEC and its non-member partners, such as Russia, have reduced production more than expected as oil demand has increased.

OPEC, beginning in January 2017, reached an agreement to reduce output by about 1.2 million barrels a day. But the group’s 14 members actually produced 60 percent less oil than that target amount in March.

Is it sustainable?: Crude oil prices have recovered to $70 per barrel from below $30 in 2016, but energy experts have speculated the historic surge in U.S. output could limit the price surge.

 

First Reads:

New tax bill introduced
Petroleum News, Kristen Nelson, April 13, 2018

Senate approves Trump’s pick for No. 2 at EPA
The Hill, Timothy Cama, April 12, 2018

Oil and gas cybersecurity projects went “to the bottom of the pile” in energy slump
Chron, Collin Eaton, April 12, 2018

Army Corps addresses criticism of environmental review process for Pebble
Alaska Public Media, Elizabeth Harball, April 12, 2018

 

Headlamp – The return of “Thumbs Up, Thumbs Down.” State climate change plan short on details.

Thumbs Up:

House Resources committee for passing HB 331 – a bill to pay a debt owed and put Alaskans to work

Thumbs Down:       

Rep. Paul Seaton for introducing HB 411, the 8th oil tax change in 12 years, with 5 days left in the session

Thumbs Up:

Legislature’s oil tax consultant for clearly stating “non-payment of oil tax credits is what’s keeping investors from coming to Alaska.”

Thumbs Down: 

Rep. Gara for claiming that a 25% increase of $800 million is a “modest” increase while refusing to reduce the budget by even $50,000.  

 

Walker’s climate change task force asks Alaskans to turn their back on fossil fuels. The state of Alaska should reduce its use of fossil fuels, increase investment in renewable energy and plan for a global transition away from oil and gas. Those are some of the first recommendations from Governor Bill Walker’s climate change task force, which is meeting in Fairbanks today. The 20-person team was appointed by the governor last fall to write a state climate policy. The first draft of that policy is out and the recommendations run the gamut — from putting a price on carbon, to supporting a more diversified economy, to improving how climate change is taught in schools, to creating an emergency response fund. Michael LeVine is a task force member and senior Arctic fellow with the environmental group Ocean Conservancy. He said the big takeaway is how widely Alaska will feel the effects of climate change. “The choices we make about our communities and our economies can’t be cabined into a corner and called ‘climate change issues,’” LeVine said. “They are Alaskan issues. They are issues that affect all of our people, all of our communities and our economy.” So far, the draft is short on key details. It calls for the state to reduce carbon emissions by 2030, but it doesn’t say by how much. And it doesn’t put a price tag on any of its proposals. Task force members say those numbers will come later.

South Korean Supply Chain. Workers at a rural South Korean factory are busy extracting some of the world’s most coveted metals, used in the batteries that power electric cars. But they’re not digging in the ground or refining ore. Instead, they are sorting through a pile of lithium-ion batteries from old mobile phones and laptops. As China’s aggressive hunt for overseas cobalt and lithium for electric vehicles pushes up prices and causes a global shortage of the key metals, South Korea is increasingly turning to such “urban mining” to recover cobalt, lithium and other scarce metals from electronic waste. In 2016, the most recent year from which data is available, 19.6 trillion won ($18.38 billion) worth of metals were extracted from recycled materials, meeting roughly 22 percent of the country’s total metal demand, according to a report by the Korea Institute of Industrial Technology. SungEel HiTech is South Korea’s largest battery recycler. A decade ago, the company was at a crossroads as plasma TV panels, from which it extracted gold and silver, began to phase out.

Seaton says he and others will be “too busy worrying about re-election to deal with oil taxes” later.   The House Finance Committee has proposed a tax on the oil industry that could be worth more than $700 million to the state’s treasury. It comes with just a few days left in the 90-day session, though the state’s constitution still permits lawmakers to work through May 16. The proposal, first heard Tuesday night, reflects an ongoing effort by the House majority to generate new revenue while the state faces a $2.3 billion budget deficit. So far, those two-year efforts have been met with staunch Senate resistance. House Finance Committee Co-chair Paul Seaton (R-Homer) says the state cannot rely just on budget cuts and tapping into savings each year. “It’s one of those things where you need to have revenue,” Seaton said. “Balancing revenue and expenditure is balancing the budget. If you don’t want to balance the budget– other than taking out from a different savings account– you might not like this. “Most people realize that the lowest taxation on oil companies on the North Slope in the history of our state– I mean that’s when we started producing oil– is not a good system.” Senate Finance Co-Chair Anna MacKinnon (R-Eagle River) says there is hardly enough time for such review.

 

First Reads:

‘Urban mining’ in South Korea pulls rare battery materials from recycled tech
Reuters, Jane Chung and Ju-min Park, April 12, 2018

Draft Walker climate policy urges Alaska to transition away from fossil fuels
KTOO Public Media, Rachel Waldholz, April 12, 2018

House finance reprises oil tax debate
KTVA, Steve Quinn, April 11, 2018