Nenana wildcat gets green light

First gas to Fairbanks, but Andex sees Anchorage, North America as potential markets for Interior Alaska gas

Steve Sutherlin

Petroleum News Associate Editor

Proximity to market is gold in the natural gas business. The proximity of Fairbanks and other Interior Alaska communities has encouraged Andex Resources to issue a green light for drilling in its Nenana basin gas project in early 2006. The company wants to be selling natural gas in Fairbanks by 2008.

Just 35 miles away from the Nenana project, the Fairbanks gas market has been underserved for years. Costly fuel oil and coal-fired electricity bills drain the pockets of Fairbanks consumers every winter. A Nenana gas find would be especially sweet because plentiful natural gas in the winter-kissed Interior would likely be a very popular product.

As sweet as the local market may be, Andex believes it has more than just a local-sized gas field. Gas from a find at Nenana could end up in Anchorage, or at the Chicago hub of a future pipeline from Alaska’s North Slope, according to Bob Mason, Andex vice president of exploration for the northern region.

“The Nenana basin is a very uniquely situated exploration opportunity,” Mason said.

“The lynchpin that made Andex decide to go forward on this project was the presence of transportation infrastructure that comes up right along the east side of this basin.”

Currently, Fairbanks natural gas customers are served by a system that uses LNG trucked from Cook Inlet.

“This is a very, very large reserve potential project, it’s a gas-prone basin,” Mason said. “It will have a lot of gas and could possibly have associated liquids; it’s very strategically located in the state; it could serve not only the energy needs of the Alaska Interior where the project is located, but could also become a very important new source of gas reserves for the greater Anchorage area.”

Based on its analysis to date, the company is hopeful that its Nenana project will be large enough to serve the Alaska market, with gas left over for consumers in the Midwestern United States.

“If it’s of sufficient reserve size, we could also be selling gas to the pipeline coming down from the North Slope,” Mason said. “As a matter of fact, the reserve size potential we’ve got here could possibly impact and help in the decision to build that pipeline.”

Considering thermogenic hydrocarbons alone, the company’s analysis of the data indicated the most likely recoverable gas reserves are 3 trillion cubic feet, but the company believes the actual reserves could be as high as 10 tcf, Mason said.

“That number was based on some very, very conservative inputs,” he said. Biogenic gas is a wild card — not included in the projections, but the biogenic component could be a significant add-on to thermogenic reserves.

“We know that there’s biogenic gas in this basin,” Mason said.

Mason said he wants to drill the initial wells to depths of at least 10,000 feet, and if seismic indicates, to 12,000 feet, regardless of what is discovered on the way down. Eventually the company may drill shallower wells, but it wants to go deep enough initially to understand sediment depths in the basin, measuring 20,000 feet or more.

“I want to take a look at structures that preserve a very thick layer for my initial well,” he said. “We are evaluating structures deeper in the basin where we don’t have to worry about flushing, we don’t have to worry about section missing — that sort of thing.”

Fast track

Andex isn’t sitting still; it is spending the money on additional seismic data.

“PGS Onshore is in the field acquiring proprietary 2D seismic, infilling the ARCO and Shell seismic grid, and pursuing a number of structural leads identified on the grids,” Mason said, adding that data is anticipated to be in hand before the end of March.

Andex and its partners, Usibelli Energy, an affiliate of Usibelli Coal Mine of Healy, Alaska, Fairbanks-based Doyon Ltd. and Barrow-based Arctic Slope Regional Corp. are pushing a tight timeline to drill for gas in the Nenana basin.

“Our intention is to have that data processed and interpreted such that we’ll be able to define drill sites so that we can be drilling our first wildcats next drilling season, in early 2006,” Mason said. “With success, we could be moving into the development phase based on our initial wells, as early as late 2006, or 2007, and depending on the results we see from this drilling, we could be in the process of negotiating, and then finally building a pipeline into Fairbanks, such that we could have first gas sales in 2008.

“It’s a very, very high-risk exploration project but it contains a very high quality, unique dataset that defines the opportunity,” Mason said, referring to two early wells drilled in the basin, and existing seismic the company has studied.

“Andex purchased the ARCO and Shell seismic; we reprocessed it, and incorporated that seismic into the subsurface data and actually into the outcrop data,” Mason said. “If this kind of data set had existed anywhere in the Lower 48 states, the critical wells to evaluate this basin would have been drilled years ago.”

The data clearly says the basin needs more wells, Mason said In 2008, with a line in place to Fairbanks, and if reserves prove large enough, the next logical step is a line to Anchorage, Mason said. Once Andex has a spur line already built to Anchorage from Fairbanks, it would be easy to join Anchorage with the North Slope natural gas pipeline — but it may not be necessary.

“The knee jerk reaction is that you’re going to get this huge quantity of gas coming down from the North Slope and they’ll be able to flood the Fairbanks market with cheap gas,” Mason said. “If that’s the case then this is the only commodity I’ve ever seen that somebody has the opportunity to sell for five bucks in Chicago, but they’ll be happy to drop it off in Fairbanks for two.”

With a pipeline to amortize, North Slope gas won’t be cheap, and once it’s in the line the sellers would just as rather sell it in Chicago, Mason said, adding that North Slope gas is liquids-rich, and it would need to be processed to burner tip quality for businesses and homes in Fairbanks. Fairbanks doesn’t need gas liquids, so the liquids would have to be handled and re-shipped — very inefficient.

Conversely, Alberta needs gas liquids to feed its underused liquids processing capacity, so it is eager to get the North Slope gas. The North Slope reserves are, he said, some of the few that are large enough to supply the infrastructure that already exists in Canada.

Nenana vs. Cook Inlet

The Nenana basin is part of a series of Interior basins that have been developed as a result of extension, associated with movement along right-lateral faults that are present in the state, Mason said.

“This is one of the richest most widespread source rock packages I’ve ever worked with in 30-some odd years of exploration, predominately down in the Rockies,” he said. People who are familiar with Cook Inlet know that the best reservoirs are at the top of the section, and that reservoir quality and thickness deteriorates as you go down, Mason said.

“That is not the case with the Usibelli group,” he said. “You have very thick widespread reservoirs all through the section and the reason is that you’re much closer to a regional tertiary source for a higher percentage of proximal reservoir quality rock.”

In the Cook Inlet oil and gas fields, cumulative production has been just over 5 trillion cubic feet of gas and about 1.2 billion barrels of oil, leaving remaining reserves on the order of between 3 tcf and 3.5 tcf of gas, Mason said. All Cook Inlet oil and gas comes from tertiary, non-marine sediments that range in age from Eocene to Pliocene, he said.

“In the Kenai group you’ve got thermogenic hydrocarbons — oil and thermogenic gas — from the lower part of the section and predominately biogenic gas from the upper part of the section — in particular, the Sterling formation, which contains most of the economic reservoirs in the basin,” Mason said. “Cook Inlet is an asymmetric basin — very steep east side, tertiary depocenter just to the north of the village of Kenai. The tertiary is in excess of 20,000 feet thick and it’s got a very gentle west side.”

At Nenana, he said, the depocenter is also hugging the steep east side, while the west side has a gentle slope.

Regional structural noses and closures — both simple anticlinal four-ways, faults and anticlines form all of the major oil and gas accumulation in the Cook Inlet, Mason said. Like Cook Inlet, the Nenana basin is infilled with a very thick, non-marine coal-bearing tertiary section, Mason said. The Usibelli group, like the Kenai group ranges in age from Eocene to Pliocene.

“When you take a look at the outcrops, the Usibelli group not only contains potential reservoirs that are very thick and very widely distributed, it also has interformational seals, (like Cook Inlet.)” Mason said.

In addition to the interformational seals, there are regional seals at Nenana — a promising difference between Nenana and Cook Inlet, Mason said. It seems Nenana has all of the prospectivity of Cook Inlet, buttressed nicely by chances for bigger, deeper, higher quality reservoirs.

“You’ve got both an intercrop regional seal, and a regional seal that sits on top of all of the coal-bearing sediment in the Nenana basin,” Mason said. “That’s something you don’t have in the Cook Inlet."