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On track at Nenana Doyon and partners form deal with Babcock & Brown Energy to drill well Alan Bailey Petroleum News
With the triple fillip of a new partner, favorable production tax terms and an extended state exploration license, the group of businesses that is looking for natural gas in the Nenana basin in Alaska’s Interior is back on the road after a three-year hiatus in its exploration venture. On Nov. 17 Doyon Ltd. announced that Denver-based Babcock & Brown Energy is joining Doyon, Arctic Slope Regional Corp. and Usibelli Energy to “drill at least one vertical, 10,500-foot natural gas exploration well in the Nenana basin” in the summer of 2009.
The planned well will be situated on Alaska Mental Health Trust land about four miles west of the town of Nenana and about 50 highway miles southwest of Fairbanks, Jim Mery, senior vice president of lands and natural resources for Doyon, told Petroleum News.
Doyon said that Babcock & Brown Energy will operate the well and will also manage any gas production resulting from a gas find. Of the four partners in the venture, Doyon has the largest equity ownership, Mery said.
Arctic Wolf rig Mery said that the partners will subcontract the Doyon Arctic Wolf No. 2 rig from FEX, Talisman Energy’s Alaska subsidiary, to drill the well. FEX has the rig under contact from Doyon Drilling. UltraStar Energy plans to use the Arctic Wolf rig to drill an exploration well on the North Slope in the coming winter and is coordinating with Doyon and its partners to enable the use of the rig for the Nenana well in the summer, Mery said.
If commercial quantities of gas are found at Nenana, the Nenana partnership sees three potential gas markets, all in Alaska, Doyon said:
*Gas fired electrical power generation at Nenana — the exploration site lies close to the route of the electricity intertie between Fairbanks and Southcentral Alaska;
*Gas usage in Fairbanks for heating or power generation, with the gas being shipped to Fairbanks by pipeline; and
*Gas usage in Southcentral Alaska for heating, power generation or industrial purposes, with gas shipped by pipeline to Anchorage.
The question of which of these markets would pan out would depend on the scale of exploration success, Doyon said.
Prospective for gas The Nenana basin occupies an 8,500-square-mile area in a long, narrow, northeast trending zone northwest of the town of Nenana and may attain a maximum depth of as much as 16,000 feet. The basin exhibits somewhat similar geology to the prolific Cook Inlet basin and is generally considered prospective for natural gas. Doyon says that the proposed well will be the first deep test in the basin.
Two wells have previously been drilled in the area, both shallow and both towards the basin edge rather than the basin center: the Nenana No. 1 drilled by Union Oil Company of California in 1962 west-northwest of Nenana, and the Totek Hills No. 1 drilled by ARCO Alaska Inc. in 1984 on the southern side of the basin. The Nenana well was drilled to 3,062 feet, found no pay intervals and was plugged and abandoned. The Totek Hills well was drilled to a total depth at 3,590 feet and encountered coal seams at various depths.
In 2002 Andex Resources purchased a state exploration license for the Nenana basin with a work commitment of $2.5 million. The license included about 500,000 acres of state land. Andex also negotiated oil and gas leases on about 41,000 acres of Native subsurface land owned by Doyon and on about 9,500 acres owned by the Alaska Mental Health Lands Trust in the basin.
Toghotthele Corp., a Native village corporation, owns the surface land over the Doyon subsurface holdings, Mery said.
In 2004 Doyon, the Native regional corporation for Interior Alaska; ASRC, the regional corporation for northern Alaska; and Usibelli Energy formed a partnership with Andex to fund the Nenana exploration.
2005 seismic In the spring of 2005 Andex contracted PGS Onshore to carry out a 2-D seismic survey in the Nenana basin, as part of the exploration license commitment. Following seismic acquisition Andex proceeded with the analysis of the new seismic data, to determine a site for a 10,000- to 12,000-foot wildcat well — Andex had estimated the possibility of between 3 trillion and 10 trillion cubic feet of recoverable gas in the basin.
But, in 2006, uncertainty regarding changes in Alaska gas production taxes, as new production tax legislation moved through the state Legislature, put the dampers on planned drilling in the basin. And Andex eventually pulled out of the project, with the remaining Nenana partners taking over operatorship of the exploration license.
When in November 2007 the Legislature passed its eventual version of the state production tax — the Alaska’s Clear and Equitable Share, or ACES, tax — the statutes included a tax break for gas produced and used within the state. That tax break has proved crucial to moving the Nenana project forward, Mery said.
The Alaska Department of Natural Resources decision to approve a three-year extension of the Nenana exploration license, which had been scheduled to expire in September 2009, was also critical to continuing the project, Mery said (see sidebar).
“We’re drilling within a mile of state lands,” Mery said.
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