Today’s Key Takeaways: High oil prices haven’t led to job growth in the AK oil patch. One oil and gas lease sale planned for Cook Inlet in the next five years. South Korea’s Daewoo Shipbuilding & Marine Engineering cancelled the second of three Russian LNG carriers after client failed to pay. Manh Choh feasibility study ahead of schedule.
NEWS OF THE DAY:
Oil prices are through the roof. Here’s why job numbers in the Alaska oil patch are not.
Alex DeMarban, Anchorage Daily News, July 4, 2022
Oil prices in Alaska have surged to their highest levels in a decade.
Industry observers in Alaska give several reasons for the tepid job growth in the oil patch.
They say it mirrors a trend in the industry nationally, a slow recovery that breaks from past practice. Companies, increasingly flush with cash, aren’t investing in oil field activity like they once did when the good times rolled.
Companies are now more likely to question big, long-term projects, observers say, as investors raise concerns about the industry’s past performance and new regulations that could result from climate change policies.
Sara Teel, an economist with the Alaska Department of Labor and Workforce Development, said in a June report that companies face shareholder pressure to cut capital expenditures while some lenders and investors are shying away from funding projects in environmentally sensitive areas such as the Arctic.
It’s usually “drill, baby, drill” for oil and gas companies when prices rise, Teel said in a phone interview.
“But when prices spiked this time, they restricted spending,” she said. “They are investing some, but not like before.”
In Alaska, the COVID-19 pandemic gutted the oil and gas workforce. Jobs plunged by about 40% as demand for crude oil, and the gasoline it makes, collapsed.
Alaska North Slope crude oil hit a record low of $16.55 a barrel in April 2020, Teel noted in the report. Two years later, the price rose to $109.41 per barrel, a “whopping” 561% jump, she wrote.
Meanwhile, jobs in Alaska’s oil patch have grown by only 18%, to 7,200, after bottoming out in November 2020 at 6,100 jobs, the latest state records show.
The workforce is a fraction of what it was in December 2014, when it hit a record 15,300 positions. Oil prices and job numbers at the time began a multi-year slide. But just before the pandemic, the industry was rebuilding, reaching 10,000 positions.
Teel wrote that the current slow job growth and “muted” activity is being caused by several factors, including automation in the oil patch that continues to reduce the need for workers.
The industry’s tolerance for risk also has changed, she wrote. Alaska projects can also require huge up-front costs, and years of planning.
Investment could grow if prices remain high for a long period, she said.
The risk of an economic downturn is making the industry more cautious, said Roger Marks, a former petroleum economist for the state.
“I think (the slow recovery) has to do with inflation and supply bottlenecks going on throughout rest of economy,” Marks said. “And the recession I think has people skittish about investing too much.”
Sean Clifton, a policy and program specialist at the Alaska Division of Oil and Gas, echoed those concerns.
“The likelihood of companies being willing to pull the trigger on projects goes up when the price of oil goes up,” he said. “But there are complications from the supply chain, and access to basic materials like steel.”
“So, it’s not as easy as flipping a switch and getting back to work,” he said. “Unfortunately, the market is still complicated.”
A lean workforce
Industry observers say an additional important factor behind the slow job growth is that Hilcorp Alaska took over operation and partial ownership of Alaska’s largest oil field, Prudhoe Bay, in 2020. Hilcorp is known for operating with a lean workforce, compared to the much larger BP, the previous operator, they said.
“That’s going to be a permanent change in the industry’s employment profile,” said Brad Keithley, a retired Alaska oil and gas attorney who tracks economic issues in Alaska.
Other factors include concerns about future climate change regulations that could impact the industry and increased production of renewable energy that could affect demand for oil and gas, he said.
“There’s a fundamental change going on in the oil industry raising questions about its future, and as a consequence people aren’t putting a lot of additional cash into generating additional projects,” Keithley said.
Hilcorp has been increasing its workforce in Alaska, said Luke Miller, a spokesman for the company.
The company hired about 70 new people last year. It is on pace to more than double that number this year, he said.
Hilcorp also produces oil and gas in Cook Inlet in Southcentral Alaska and employed more than 1,500 people in Alaska last year.
Job increases in the Alaska oil industry are generally tied to new projects, said Teel, the Alaska economist. The lack of new fields in Alaska explains some of the slow growth, she said.
Kara Moriarty, head of the Alaska Oil and Gas Association, the industry trade group in the state, said oil companies are largely focused on drilling within existing fields, rather than launching big new projects.
“If you want more jobs, you have to have more activity,” she said.
Projects on hold
In Alaska, drilling activity plunged after the pandemic was declared and remains slow compared to pre-pandemic years, according to data from the Alaska Oil and Gas Conservation Commission.
The industry completed 291 wells in the two years before March 11, 2020.
It completed 138 the next two years, the data shows.
Two major projects in Alaska that could sharply boost jobs are on hold or uncertain, industry observers say.
ConocoPhillips’ Willow prospect is undergoing a new round of federal review after a federal judge ruled in favor of conservation groups that had sued to stop it.
Also, Oil Search’s Pikka prospect faces major financing questions as banks withhold financing for Arctic projects following pressure from climate activists. And Oil Search’s merger last year with Santos, a larger Australian oil company, has raised uncertainty about Pikka’s future.
Santos, now the parent of Oil Search, said in a prepared statement that it employs about 150 people in Alaska, primarily located in Anchorage.
“At Santos, we are focused on controlling costs and not the fluctuation in oil prices,” the statement said.
The company will maintain that low-cost model as it works toward making a final investment decision on Pikka, the statement said.
Tara Stevens, a spokeswoman for ConocoPhillips, said in an email that the recent increase in oil prices is a promising indicator of future industry growth. But high oil prices don’t immediately result in growth, she said.
She said ConocoPhillips in Alaska is focused on expanding drilling and production in existing fields, which includes projects in the Alpine field, Greater Mooses Tooth-2 and Fiord West, where new oil production started in recent months.
ConocoPhillips’ workforce of 960 has held steady the past two years while capital spending in Alaska has remained stable, she said.
Willow is an $8 billion project that could create more than 2,000 construction jobs and 300 permanent jobs, she said.
With the supplemental environmental review underway, ConocoPhillips has not made a final decision to invest in the project.
Biden administration offshore oil plan envisions a single Cook Inlet sale
Yereth Rosen, Alaska Beacon, July 4, 2022
The Biden administration would hold one oil and gas lease sale in federal waters of Cook Inlet in the coming years, according to a new five-year plan released Friday by the Department of the Interior.
The proposed 2023-2028 plan is similar to the just-ended Obama administration five-year plan, with 10 potential Gulf of Mexico lease sales, the single Cook Inlet sale and no sales off the Atlantic or Pacific coasts, Interior Secretary Deb Haaland said in a statement.
Haaland asked the public to weigh in on the Bureau of Ocean Energy plan, which she said is preliminary and “not a decision to issue specific leases or to authorize any drilling or development.”
“From Day One, President Biden and I have made clear our commitment to transition to a clean energy economy. Today, we put forward an opportunity for the American people to consider and provide input on the future of offshore oil and gas leasing. The time for the public to weigh in on our future is now,” she said in the statement.
The Cook Inlet lease sale, the sole Alaska sale, would be confined to the northern waters in federal territory, the area closest to existing infrastructure. It would be held in 2026, according to the proposal.
Release of the proposed plan is part of a public process. Before the plan is finalized, it must go through public review, including Federal Register notices, public hearings, and a final agency review.
One Alaska environmental group blasted the plan for a Cook Inlet lease sale.
“This decision is incredibly disappointing in the face of ongoing climate impacts that are already being deeply felt by our community around Alaska,” Liz Mering, advocacy director at Cook Inletkeeper, said in a statement. “Alaskans have worked to ensure that Lower Cook Inlet remains this incredible place for our fisheries and tourism industry, which support a thriving local economy. Thirty-three years after the horrific Exxon Valdez disaster, Alaskans still remember and recognize the risk of more oil fouling our waters, killing our fish, and hurting Alaskans.”
A previous five-year leasing plan proposed by the Trump administration in 2018 would have opened nearly all Alaska federal offshore areas to oil leasing. That included areas of the Arctic — the remote Chukchi Sea, where a multibillion-dollar Shell program was abandoned in 2015, and the Beaufort Sea. Such sales would have contradicted an action by President Obama in December of 2016 that removed all of the Chukchi and most of the Beaufort from the leasing program. Among the 19 lease sales proposed in the Trump plan were auctions in regions where there has been virtually no industry interest, including the Bering Sea and the waters off the Kodiak Island Archipelago, regions known for their rich commercial fisheries.
That Trump plan never went into effect. It was struck down in 2019 by U.S. District Court Judge Sharon Gleason of Alaska, who ruled that it illegally overturned leasing bans in the Chukchi and in protected parts of the Beaufort, as well as along the Atlantic Coast. The ruling left the Obama administration plan in effect.
Alaska politicians slammed that decision; Sen. Dan Sullivan, in a statement, claimed the administration’s statement about low industry interest was false. “Joe Biden, Gina McCarthy, and the ultra-left members of this administration are blatantly lying to the American people,” Sullivan said in a statement that cited a top environmental official in the administration.
However, a subsequent state lease sale for Cook Inlet territory gave support to the idea of little industry interest in exploring the basin. Only two bids were submitted in the annual Alaska Division of Oil and Gas sale for state territory in the Cook Inlet basin held on May 25.
There were similar paltry showings in Cook Inlet lease sales held by the state in recent years. Each annual lease sale from 2015 to this year has drawn no more than eight bids, according to division records. Only three bids were received in the 2019 and 2020 sales, and the 2016 sale generated no bids.
Poor industry interest in federal waters of Cook Inlet is a pattern over the past decades. A 2004 lease sale drew no bids, according to BOEM records. Subsequent federal Cook Inlet lease sales were canceled in 2007, 2009, 2011 and 2015 for lack of industry interest, according to BOEM. A 2017 lease sale drew 14 bids, all from Hilcorp Alaska LLC, the dominant operator in Cook Inlet. The leases were awarded to Hilcorp, but BOEM said it has not received a completed exploration plan for any of those.
Cancelled: Newbuild carriers destined for Russia’s Arctic LNG 2 project
LNG Upstream, July 3, 2022
Daewoo Shipbuilding & Marine Engineering pulls the plug after Sovcomflot misses payment deadline
South Korea’s Daewoo Shipbuilding & Marine Engineering has cancelled the second of three liquefied natural gas carriers ordered a couple of years ago by Russia’s Sovcomflot, after the client failed to make an interim payment by the designated date as sanctions continue to bite.
“As the shipowner did not pay the shipbuilding price for one LNG carrier within the due date, the company notified the contract termination. The contract has conditions that the shipowner must fulfil and, if the conditions are not met, the contract may be cancelled,” Daewoo said.
Sovcomflot ordered the three Arc7 LNG carriers, destined to serve the Arctic LNG 2 project, from Daewoo in October 2020. In mid-May, the shipyard cancelled the first of the trio after a payment was missed.
Daewoo’s original three-vessel contract with Sovcomflot was worth 1.137 trillion won ($875 million in today’s money) but this was revised down to 675.8 billion won after it cancelled the first carrier and then further reduced to 337.9 billion won after the shipyard axed the second.
The shipbuilder reportedly said the third LNG carrier could also suffer the same fate if payments are not made before their due date.
Daewoo is also constructing three newbuilding Arc7 LNG carriers for Japan’s Mitsui OSK Lines.
All six of these vessels, which were scheduled for delivery next year, had secured 30-year time charters for the Arctic LNG 2, Upstream’s sister publication TradeWinds reported.
South Korean offshore and marine contractors Samsung Heavy Industries and Hyundai Heavy Industries are also building LNG carriers for Novatek-operated liquefaction projects in Russia.
Contango ORE eyes golden milestones
Shane Lasley, North of 60 Mining News, June 30, 2022
Manh Choh feasibility study expected in July; drilling starts at historic Lucky Shot gold mine; Curt Freeman joins CORE board North of 60 Mining News – July 1, 2022
With an earlier than expected feasibility study on its way for Manh Choh, drilling started at Lucky Shot, and the addition of geologist Curt Freeman to its board of directors, Contango ORE Inc. has a lot to look forward to as 2022 progresses.
Freeman’s addition to the Contango ORE board coincides with the departure of Joseph Greenberg, an oil and gas executive that has been a director of CORE since it was spun out of Texas-based Contango Oil and into a public company in 2010.
Contango ORE Chairman Brad Juneau says Greenberg, who is CEO of Alta Resources, an independent oil and gas company that he founded in 1999, has provided a great service to CORE and its shareholders over the past 12 years.
“On behalf of the entire board of directors, we want to thank Joe Greenberg for his dedication, many contributions, and wisdom in helping build Contango ORE from a startup in 2010 to our current multi-project gold exploration business,” he said. “We wish him the very best on his next chapter. We will miss him.”
CORE directors have voted to appoint Freeman to fill the position vacated by Greenberg.
A geologist with more than 40 years of experience, Freeman was the project manager of the Peak Gold project, which was renamed Manh Choh following Kinross Gold Corp.’s 2020 acquisition of 70% joint interest in the project, from discovery in 2008 through 2019. Freeman provided those services through Avalon Development Corp., an Alaska-based mineral exploration consulting firm, and acted as CORE’s technical consultant at the time.
“Curt is intimately familiar with the gold and minerals exploration business in Alaska, including the exploration process, resource development and field operations. We believe his expertise will be of significant value to the company as we advance our projects to the next step,” said Juneau.
“Like Brad, I welcome Curt to our board. His industry expertise will be of great value as we continue to advance the company,” Contango ORE President and CEO Rick Van Nieuwenhuyse added. “I am also happy to announce the achievement of two important milestones for the company regarding the status of the Manh Choh feasibility study and the initiation of our exploration program at our Lucky Shot project.”
Manh Choh FS ahead of schedule
At Manh Choh, Kinross announced on June 28 that the feasibility study for developing a mine at this high-grade gold deposit near the Village of Tetlin in eastern Alaska is running ahead of schedule and is expected to be finalized by next month.
This study will detail the economic and engineering parameters of mining the high-grade ore at Manh Choh; trucking that ore to Kinross’ Fort Knox Mine north of Fairbanks, Alaska; processing the ore through the Kinross Alaska mill; disposing of the tailings on the Fort Knox property; and a reclamation plan for the Manh Choh mine site.
According to the most recently published calculation, Manh Choh hosts 9.2 million metric tons of measured and indicated resources averaging 4.1 g/t (1.2 million oz) gold and 14.2 g/t (4.2 million oz) silver.
Kinross, however, expects mining at Manh Choh to yield higher grades due to an updated resource model. As a result, the ore from this mine is anticipated to be 10 times higher grade than the current average being fed through the Kinross Alaska mill at Fort Knox.
This addition of high-grade ore is expected to lower all-in sustaining costs and increase cash flow from Fort Knox.
The higher grades should also help offset some of the inflationary pressures being added to developing and operating the Manh Choh Mine.
An updated resource estimate and the first mineral reserves are expected to be included in the feasibility study.
Earlier this year, Kinross signed an extension of the Peak Gold Joint Venture’s community support agreement with the Native Village of Tetlin, on whose land Manh Choh is located.
“Since the beginning, we have had constant communication with the Manh Choh Project team. They have been diligent about keeping us informed and at the table every step of the way. We are respected and valued,” said Native Village of Tetlin Chief Michael Sam.
Kinross says it is also continuing comprehensive local community programs and prioritizing local economic benefits as it develops the project.
Assuming permits are issued, early construction work at the Manh Choh site could start later this summer.
Lucky Shot drilling begins
As Kinross finalizes the Manh Choh feasibility study, CORE has begun exploration drilling at its Lucky Shot gold project in Southcentral Alaska.
A road-accessible project about 75 miles north of Anchorage, the 8,590-acre Lucky Shot property blankets a large portion of the Willow Creek Mining District, including the pre-World War II Lucky Shot and War Baby mines. It is estimated that from 1918 until being shut down by the federal War Production Board in 1942, these two underground operations produced 250,001 oz of gold from ore averaging around 1.6 oz per metric ton (40 g/t) gold.
This year’s drilling at Lucky Shot, which got underway last weekend, is being carried out from the Enserch Tunnel, a historical underground development that has been rehabilitated and extended to allow for detailed infill drilling from underground.
“We are very excited to see the drills turning and to start exploring at Lucky Shot,” said Van Nieuwenhuyse.
Five initial “pilot” holes from a drill bay in the Enserch Tunnel have been laid out in a cross pattern intended to intersect the vein down-dip from the historically mined areas.
With this five-hole cross pattern, CORE expects to be able to more accurately determine the strike and dip of the historically mined vein. The company also hopes to obtain five intervals of the shear zone hosting the Lucky Shot vein mineralization, as well as more accurately determine the optimum position of a crosscut drift in the footwall to the historical Lucky Shot vein that will serve as a platform for more than 3,000 meters of underground exploration drilling.
CORE has also contracted Alberta-based Geologic AI to scan the 2022 drill core as well as a significant portion of the core from drill programs conducted by previous operators at Lucky Shot.
This drill core scanning will include high-resolution digital photography, lidar (3D laser profiling to determine rock texture and fracture density), shortwave, visible, and near-infrared hyperspectral imagery, and X-ray fluorescence (XRF) scans.
CORE anticipates using this information to assist with logging mineralization and alteration mineralogy to better understand the geologic and geochemical ore controls.
“It is this type of cutting-edge technology that we plan to bring to exploring the historical Lucky Shot vein and the entire Willow Creek mining district,” Van Nieuwenhuyse added.
From the Washington Examiner, Daily on Energy:
IN CASE YOU WERE TOO BUSY ENJOYING THE FOURTH OF JULY… The Interior Department waited until close of business on Friday before the holiday weekend to drop its 500+-page proposed program for offshore oil and gas leasing, a classic news dump for a document that mostly delayed major decisions about the fate of drilling in federal waters and prolonged the dissatisfaction among many parties…
What’s in it: The proposed program contemplates between zero and a maximum of up to 11 lease sales in the Outer Continental Shelf between 2023 and 2028.
The schedule mirrors the 2017-2022 final program, which just expired on Thursday: 10 lease sales in the Gulf of Mexico and one in Alaska’s Cook Inlet.
The eastern Gulf is off limits as proposed, as are most waters offshore Alaska, and all OSC areas in the Atlantic and Pacific regions.
The yays and nays: The proposed program was met with intense backlash from green groups, who want to see an end to both the onshore and offshore leasing programs in order to abate climate change and brought up President Joe Biden’s campaign trail promise to restrict oil and gas leasing on federal lands.
“President Biden has called the climate crisis the existential threat of our time, but the administration continues to pursue policies that will only make it worse,” said Food & Water Watch executive director Wenonah Hauter.
Several environmental groups, including Friends of the Earth, had been urging the administration to issue a proposed program with no potential new lease sales.
Hallie Templeton, FOE’s legal director, accused the administration of cozying up to energy companies and said the proposed program exposed Biden as “as yet another leader who cares more about polluters than about a livable future for people and the planet.”
Oil and gas interests, and notably Democratic Sen. Joe Manchin, welcomed the proposed program but reacted warily to Interior’s emphasis on the discretion it holds to ultimately hold fewer sales than the 11 contemplated — or none at all.
Erik Milito, who heads the National Ocean Industries Association, called on the administration to finalize and implement the program “as proposed, without reduced acreage.”
The agency delayed and delayed and then avoided committing itself: Interior used every bit of runway it gave itself, and then an extra day, to put out a proposed program it knew wouldn’t sit well with Biden’s environmental allies.
The department went lengths to communicate that its proposed program is not final and remains amenable, all the way up to the carrying out of no new lease sales, as green groups and some congressional Democrats requested.
“A Proposed Program is not a decision to issue specific leases or to authorize any drilling or development,” Secretary Deb Haaland said in a statement.
The department, in a brief filed last week as part of the oil industry’s appeal of D.C. District Judge Rudolph Contreras’s ruling that vacated last year’s lone offshore sale, emphasized that even the finalized program doesn’t necessarily hold it to carrying out included sales.
“During the course of every prior five-year program, Interior has used its discretion to hold fewer sales than contemplated by the applicable program,” it said.
The document itself noted that Interior prepared it in order to perform further analytical work on the net benefits of the potential lease sales and that the “inclusion of an area for analysis in this Proposed Program is not a final determination that the area will be included in the [proposed final program], or ultimately offered in a future lease sale.”
The timing: Republicans in Congress, and industry too, had lobbied the Biden administration to act more swiftly in putting together the proposed program, which is well behind schedule compared to the predecessor program finalized during the Obama administration.
The Obama Interior Department issued its proposed program well over a year before the expiration of the 2012-2017 five-year program.