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March 2011

Vol. 16, No. 12 Week of March 20, 2011

Troubled Alaska power utility forges on

Naknek Electric, mired in bankruptcy, obtains permit to drill second geothermal well as flow testing continues on initial hole

Wesley Loy

For Petroleum News

A small electric cooperative in southwestern Alaska has obtained a state permit to drill a second geothermal well.

Meanwhile, work continues on the utility’s first well — a project that forced the Naknek Electric Association into Chapter 11 bankruptcy reorganization due to cost overruns.

The co-op is attempting to forge ahead in hopes of establishing a geothermal energy source, providing relief from the high cost of diesel to generate electricity.

Naknek Electric serves the villages of King Salmon, Naknek and South Naknek in the salmon-rich Bristol Bay region.

Testing first well

A challenge for the utility has been perfecting its first well, to include flushing out drilling mud and cuttings and testing the well’s flow and temperature to determine its strength as a geothermal producer.

To complete the job, Naknek Electric needed to borrow additional money despite its bankruptcy filing.

In December, a bankruptcy judge in Anchorage approved a $1.5 million loan from the National Rural Utilities Cooperative Finance Corp., a private, nonprofit lender based in Herndon, Va.

The same lender financed Naknek Electric’s purchase of a rig to carry out the co-op’s plan to drill multiple geothermal wells.

According to a “status report” the co-op filed Feb. 24 in the bankruptcy court, Naknek Electric used the loan to purchase, ship and operate a compressor and air booster to clean out the well.

“Over the last three weeks, the Debtor has boosted water from as deep as 4,500 feet and expects to reach the 7,000 feet level and the slotted liner within the next week,” the status report said. “The water being pumped from the well is very dirty — the Debtor believes that is a good sign.”

The report indicates it’s not yet clear whether Naknek Electric is on a successful “geothermal path,” or will end up with an “all diesel outcome.”

Permit for second well approved

The Alaska Oil and Gas Conservation Commission, which regulates drilling, on Feb. 8 approved a permit for a second exploratory geothermal well — the Naknek G-2 well.

But drilling has not yet begun on the second well, as the rig remains over the G-1 well while testing proceeds, said Erik LeRoy, an Anchorage attorney representing Naknek Electric in the bankruptcy case.

“Within a month, we’ll have the answer as to whether we have a viable well there,” LeRoy told Petroleum News.

The G-1 well site is a few miles northeast of King Salmon.

Naknek Electric doesn’t yet have the financing to start a second well, LeRoy said.

But the co-op has mapped out a plan to obtain financing. In court filings, the utility has said it intends to apply for a $52 million loan guarantee from the U.S. Department of Agriculture’s Rural Utilities Service.

The co-op would then apply to the Federal Financing Bank, a government corporation, for a loan backed by the Rural Utilities Service guarantee, the Feb. 24 status report said.

Naknek Electric filed for Chapter 11 protection from creditors on Sept. 29, 2010, citing assets of $10 million to $50 million and liabilities in the same range. Unexpected costs and other problems with the geothermal drilling venture precipitated the filing.

The co-op began looking at geothermal several years ago, as the boundary of the volcanic Katmai National Park and Preserve is just a few miles from NEA’s electric lines.

Its vision is to build a 10-megawatt geothermal power plant to supply villages in the region.

The co-op’s residential and business members in December took a vote signaling continued support for the geothermal project.






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