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Vol 21, No. 27 Week of July 03, 2016
Providing coverage of Alaska and northern Canada's oil and gas industry

Doyon optimistic about Nenana exploration

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Says previous exploration, drilling results increased the probability of finding oil or gas with Toghotthele well being drilled

ALAN BAILEY

Petroleum News

Doyon Ltd. thinks that there is a one-in-two chance of finding a viable gas resource and a one-in-four chance of finding commercial oil in the prospect being tested by the Native regional corporation’s Toghotthele No. 1 well in the Nenana basin in Alaska’s interior, James Mery, Doyon’s vice president for lands and natural resources, told a press briefing on June 22. At the time of the briefing, the well had reached a depth of 6,394 feet. The drilling crew was casing the well in preparation to continue drilling down to target horizons, to a total depth of 10,000 feet.

Characterizing Doyon’s multi-year exploration program in the Nenana basin as an exercise in de-risking the potential hydrocarbon resource, Mery said that a combination of seismic surveying and the drilling of previous wells had established the prerequisites for a significant find. The corporation has conducted 2-D seismic surveys across wide areas of the basin and a detailed 3-D survey in the central part of the basin, where the corporation has been drilling. Previous drilling consisted of the Nunivak No. 1 well, drilled in 2009, and the Nunivak No. 2, drilled in 2013.

All three wells, including Toghotthele No. 1, are located to the west of the town of Nenana, on a structural high into which hydrocarbons may have migrated from deeper parts of the basin. The target horizons are in an uplifted, faulted block.

Encouraging findings

The verification of the presence of good quality reservoir rocks at depth; a subsurface hydrocarbon trapping structure; and coals and shales with hydrocarbon source potential have all helped to lower the exploration risk, Mery said. And, in particular, the Nunivak No. 2 well encountered wet gas, gas which includes natural gas liquids such as propane. The presence of wet gas indicates that the hydrocarbons were formed from the heating of organic material, rather from microbial action - this thermal mechanism could have generated oil as well as gas.

The structure being tested by the drilling could hold recoverable volumes of about 70 million barrels of oil or 200 billion cubic feet of gas, Mery said.

Mery said that the No. 2 well encountered about 400 feet of gas-bearing rock, which appeared to be a depleted gas reservoir. But the reservoir contained too much water to be commercially viable.

“The trap that we tried to penetrate had apparently leaked,” Mery said. “We saw gas from top to bottom.”

There was an effective seal rock capping the reservoir - the trap consisted of a three-way closure bounded by a fault which appears to have acted as a conduit for the gas leakage, Mery said. The Toghotthele well is testing a potential trap with a fault that is likely to present a better seal, he said.

Close to the highway

The drilling is taking place quite close to the Parks Highway, with the gravel drilling pad accessible using gravel roads that Doyon has constructed on the west side of the Nenana River. With the state highway system being on the east side of the river, vehicles have to cross the river by barge.

However, the location would be convenient for development, should a viable resource be found. Oil could be transported to the trans-Alaska pipeline at pump station 7, just north of the basin, or at North Pole, where there are already connections for oil to flow in and out of the pipeline, Mery commented.

From a gas perspective, the route of a proposed major gas sales line from the North Slope passes near where the Nenana basin drilling is taking place, leading to the possibility of delivering gas into that line. There should be available capacity in the line for a modest-sized Nenana gas project. Gas delivery by pipeline to Fairbanks is also a possibility. And, with the drilling site being close to the truck and river system, there is the potential to ship propane from Nenana to communities in the Interior, Mery said.

The convenient project location in the Nenana basin would render a relatively modest oil find economic. Even at an oil price in the range $50 to $60, a find in the range of 30 million to 35 million barrels could be viably developed, Mery said.

Another well planned

In the interest of moving forward quickly with the appraisal of any find from the Toghotthele No. 1 well, Doyon has already started the permitting for a Toghotthele No. 2, potentially to be drilled as a delineation well from the Toghotthele gravel pad later this summer. By drilling into the target structure in a different direction from the No. 1 well, the No. 2 well could establish greater confidence in any find, enabling a development decision without having to wait until next summer’s drilling season, Mery said. But Doyon would probably only drill the No. 2 well this year in the event of a gas discovery, rather than an oil discovery, he said.

To allow adequate time for well testing and the drilling of a second well this year, Doyon started drilling the Toghotthele No. 1 well on June 1, an earlier date than the spud dates of previous wells.

“We wanted to get an early start because we’re really constricted on the tail end of the project,” Mery said. It is necessary to demobilize equipment back across the Nenana River before the sizable drop in river level that typically takes place in mid to late September, he explained.

A large acreage

In addition to 400,000 acres in state oil and gas leases, Doyon owns about 40,000 acres of the subsurface and operates a Mental Health Trust lease in the Nenana basin. The Toghotthele No. 1 is being drilled in state land.

“We’ve got a lot of work to do because it’s a lot of acreage and it’s still well underexplored,” Mery said, commenting that Doyon pays more that $1 million to the state each year for the right to explore. Mery has previously commented that Doyon is making use of state tax credits in support of its exploration efforts.

Doyon owns about 1.5 million acres of subsurface in the Yukon flats basin, a basin north of Fairbanks that has similar geology to the Nenana basin. The corporation is currently focusing its efforts on the Nenana basin because, being closer to infrastructure than the remote Yukon Flats, it is cheaper to operate in and could be more quickly developed, Mery said. Also, there was initially more information available about the Nenana basin, he said.



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A question of timing for the IEP

With Doyon’s exploration efforts in the Nenana basin and the Alaska Industrial Development and Export Authority’s Interior Energy Project both having the potential to provide a new natural gas supply for the city of Fairbanks, questions have been raised by the state Senate over the timing of the AIDEA project. On May 14, in a letter from the Senate Finance Committee, committee co-chair Anna MacKinnon questioned the advisability of putting state funding into AIDEA’s IEP while simultaneously supporting Doyon’s project through state tax credits.

The IEP team is in the process of negotiating arrangements for a Cook Inlet gas supply and the construction of a Cook Inlet liquefied natural gas plant for the delivery of an expanded LNG supply to Fairbanks. The team had hoped to present a recommendation to the AIDEA board in March on whether to approve construction of the LNG plant, but discussions over the proposal are still in progress. MacKinnon suggested deferring the AIDEA decision “for a minimum of six to 12 months,” to allow Doyon time to use the results of the drilling it is conducting this summer to determine the gas production potential of the Nenana basin.

Governor’s response

In a May 17 letter responding the MacKinnon, Gov. Bill Walker said that AIDEA anticipates concluding its IEP negotiations in August or December and that the requested delay in a development decision might then defer that decision by about 60 days, a not unreasonable request. However, Walker said that before discussing the matter with the AIDEA board he would require an analysis of the legality of the delay and any potential for resulting litigation.

In a June 29 email AIDEA spokesman Karsten Rodvik told Petroleum News that progress continues in confidential discussions between the parties involved in the IEP.

In 2015, under the IEP, the two Fairbanks gas utilities, Fairbanks Natural Gas and the Interior Gas Utility, began building out the gas distribution infrastructure in Fairbanks, in anticipation of an expanded gas supply for the city. Rodvik confirmed that no further expansion of the distribution system has so far taken place this year. The two Fairbanks utilities continue to look at ways in which future expansion and LNG storage can facilitate consolidating the two utilities into a single unified system, he said. AIDEA, which owns Fairbanks Natural Gas, wants to consolidate the utilities before spinning them off to a local control entity.

—ALAN BAILEY


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