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Vol. 16, No. 37 Week of September 11, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil Patch Insider: Keystone battle lines take shape; Miller calls in military; used Transocean rigs on the block

TransCanada’s Keystone XL project is taking on a life form of its own as environmentalists, politicians and B-list entertainers put the heat on President Barack Obama to block the planned 500,000 barrels per day pipeline from the Alberta oil sands to the Texas Gulf Coast.

It’s turning into a test of wills with no precedent in more than four decades since the battle over the trans-Alaska oil pipeline system.

Demonstrations against XL flared up outside the White House, with more than 500 arrests over the past month.

Galvanized by an August U.S. State Department report that essentially came up empty handed in its search for environmental and safety reasons to oppose XL, the “green” movement is rolling out plans to march on Washington, D.C., and Ottawa in advance of a final State Department decision this year on whether to issue a special presidential permit allowing the pipeline to enter the U.S. from Canada.

In Canada, nationalists, aboriginals and environmentalists have scheduled “civil disobedience” in Ottawa on Sept. 26, backed by writers, union leaders and scientists.

Parallel events are in the works for Washington, where former Vice President Al Gore and Nebraska Gov. Dave Heineman have found common cause in halting XL.

“President Obama should block a planned pipeline from the tar sands of Alberta to the Gulf of Mexico,” Gore wrote on his blog. “The tar sands are the dirtiest source of fuel on the planet.”

Aquifer concerns

Heineman said in a letter to Obama that the environmental risks to Nebraska’s Ogallala Aquifer, which supplies almost 80 percent of the state’s drinking water, are reason enough to block the pipeline.

He disagreed with the State Department’s finding that any spill from Keystone would be localized and none would adversely affect the Aquifer, joining Nebraska’s two U.S. senators in pressing Obama and Secretary of State Hilary Clinton to require a new pipeline route, delaying the project by three years.

Out on the street, actress Daryl Hannah (famous for her movie roles in Splash and Wall Street) ensured heavy TV coverage when she was handcuffed by SWAT team officers outside the White House.

Before being arrested, she said Obama will alienate his liberal base if he allows the pipeline to go ahead. “He does not need to compromise. He needs to just make the right decision. If he doesn’t … I’m sure we will see huge effects in the next election,” Hannah said.

Adding to the arrest list was Canadian actress Margot Kidder (who starred alongside Christopher Reeve as Lois Lane in the original Superman movie).

In an attempt to inject some heft into the debate, U.S. climatologist James Hansen, head of NASA’s Goddard Institute for Space Studies, told the National Press Club the U.S. must stop the pipeline before the country becomes more dependent on unconventional fossil fuels. “We’ve put enough CO2 in the atmosphere already,” he said.

He argued world governments could still stabilize global warming and avert a climate disaster by leaving unconventional fuels in the ground, capturing coal emissions and restoring some forests.

Girling: XL a proxy

But it’s not all a one-sided debate.

Based on the State Department findings, the American Petroleum Institute said “the nation’s quintessential shovel-ready project is a step closer to reality. That’s good news for tens of thousands of Americans who stand to find new jobs when this pipeline project is finally approved.”

TransCanada Chief Executive Officer Russ Girling, while confident XL will get its presidential permit, complained that the pipeline has become a proxy for the broader issue of oil sands development.

But he insisted oil sands development will proceed with or without XL.

Canada’s Environment Minister Peter Kent disclosed on Sept. 1 he expects the U.S. will approve the project because there are “significant elements of fuel and energy security, but also jobs and stimulation of the economy along the entire path of the pipeline.”

He said that although the environmental concerns are “very real … it’s a matter of better informing those who might not understand exactly what the project would entail and at the same time ensuring it is done in the most environmentally sensitive way possible.”

Whether that horse has already bolted the stable is an open question that is likely to be answered over the balance of 2011 and perhaps beyond.

—Gary Park

Retired USAF general vouches for embattled Miller Energy Resources

Miller Energy Resources Inc. has come under siege in recent weeks — hostile media reports questioning the stated value of the company’s oil and gas assets in Alaska’s Cook Inlet, a steep slide in its stock price, a slew of lawsuits alleging securities fraud.

Executives of the small, Tennessee-based company have fought back, defending the value of its Cook Inlet properties and dismissing the lawsuits as baseless.

On Aug. 30, the company called in further reinforcements in the form of retired U.S. Air Force Gen. Merrill A. “Tony” McPeak.

McPeak, 75, has been on the Miller Energy board of directors since April 2010. Speaking at the start of the company’s fourth-quarter earnings conference call, McPeak said he saw Miller as “a very interesting, very exciting prospect, kind of a Cinderella story, one that I continue to believe in.”

Miller Energy, he said, has set about upgrading every aspect of its operation, including its governance. It has secured outside independent directors, a new audit firm, better lawyers and upgraded management.

“This company, Miller Energy, is moving as fast as it can in every way that it can to be an absolute best-of-breed enterprise, now listed on the New York Stock Exchange, of course,” the general said.

“The reason I make this speech is because there has been some, you know, perhaps irresponsible allegations or charges made about the company,” McPeak continued.

“I just want to say on behalf of myself as the lead outside director, and all the other independent directors, that none of us would be around for five minutes after we determined that there was something wrong with the way that the business of this company is being conducted. So, you know, there’s no doubt about the integrity of the board. There’s no doubt about the integrity of our senior management.”

Miller Energy is parent company of Cook Inlet Energy LLC, which operates the West McArthur River oil field and Osprey offshore platform on the west side of Cook Inlet.

Miller’s stock closed Sept. 6 at $3.17, far below its 52-week high of $8.04.

—Wesley Loy

Transocean sees better market for secondhand jack-up rigs

According to a Sept. 7 Reuters report, Transocean, the world’s largest offshore drilling contractor, has seen a recent increase in demand for the older jack-up rigs it is trying to sell.

The company announced plans to sell off its aging jack-up fleet earlier this year.

“The market for secondhand assets is improving,” Transocean Chief Executive Officer Steven Newman told the Barclays Capital CEO Energy-Power conference in New York. “There are more buyers out there today than there were a few months ago.”

Australia-based Buccaneer Energy said Sept. 1 that its subsidiary, Kenai Offshore Ventures, had acquired a shallow-water Transocean jack-up, the GSF Adriatic XI, for $68.5 million. The sale is expected to close between Sept. 30 and Oct. 25.

The rig has been cold stacked in Malaysia since 2009. Once the deal is finalized, Buccaneer said the Adriatic would be moved to an Asian-based shipyard to undergo modifications to winterize it for use in the sub-Arctic conditions of Alaska’s Cook Inlet.

—Kay Cashman

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