The Explorers 2016: Doyon drilling third Nenana well this summer
Alaska Native corporation sees a high probably for finding gas and oil too
For Petroleum News
Doyon Ltd. has shown great persistence in its search for natural gas.
The Alaska Native corporation for the Interior region has been exploring within its territory for nearly 15 years and is actively continuing the program this year.
The company completed a fourth seismic survey in the Nenana basin during the first quarter and is planning to drill a third exploration well in the region this coming summer.
The 2-D seismic survey covered approximately 172 line miles of state, Native and Mental Health Trust leases in the area northwest of the city of Nenana. The goal was to eliminate gaps from 2-D seismic surveys in 2005 and 2012. The company might also commission a 3-D survey in the future to upgrade promising leads into viable prospects worth pursuing, according to Doyon Vice President for Lands and Natural Resources James Mery.
A 3-D seismic survey in the central part of the basin in the winter of 2014 and 2015 added enough detail to a previous 2-D survey to inspire the current drilling program.
“We are very excited to begin the next phase of our exploration program,” Doyon President and Chief Executive Officer Aaron Schutt said in late August 2015. “Building on promising results from each of our earlier programs, we have substantially reduced exploration risks to a point that we estimate the chance of success for a developable gas find is one in two, and one in five for oil. An oil or gas discovery would be great news for our companies, shareholders, residents of Interior Alaska and the state.”
Doyon plans to drill the Toghotthele No. 1 well this summer, after completing a short road to extend existing infrastructure. “We’re looking at multiple zones of interest, starting around 7,000 feet and going down a little deeper than 9,000 feet,” Mery said.
“Toghotthele” is the name of the local Native village corporation at Nenana and comes from an Athabascan word for “hill on the water,” a reference to a nearby topography.
In recent permitting documents, Doyon said it would drill the well between June and September and would either test the initial well or drill a second well, depending on timing. The company was considering two sites - one on Toghotthele Corp. surface lands, the other on state lands - located between the two previous Doyon wells.
Between 2005 and 2014, Doyon spent approximately $68 million on the program, according to the company. The current seismic and drilling program was expected to cost $30 million to $35 million. The company relies heavily on tax credits to fund its work.
Early interestThe prospect of a commercial development between Deadhorse and Anchorage has long intrigued those Interior communities dependent on energy “imports” from north or south.
Unocal drilled the 3,062-foot Nenana No. 1 well in 1962. ARCO drilled the 3,590-foot Totek Hills No. 1 well in 1984. “Except for minor amounts of gas associated with coal beds no hydrocarbon shows were observed in the wells,” the Alaska Division of Oil and Gas reported in 2002. “Reports of oil seeps in the basin are unconfirmed.” Given the considerable coal quantities in the region, the state expected the basin to be gas-prone.
As private industry began losing interest in exploring the region in the late 1990s, Doyon began organizing an exploration program. The company saw the potential for a low-cost energy supply for the region and, with a large enough discovery, perhaps profits as well.
In late 2001, Doyon formed a joint venture with the Houston-based independent Andex Resources LLC to explore the Nenana basin using an exploration license. The program allows companies to propose exploration on lands excluded from annual lease sales.
The Alaska Department of Natural Resources issued a seven-year license to Andex Resources in August 2002. The license covered 482,942 acres in the Nenana basin and required Andex to post bonds and spend at least $2.525 million exploring. The joint venture grew its land position several months later when the Alaska Mental Health Land Trust leased it 9,500 acres adjacent to the exploration license area in January 2003.
At the time, Doyon estimated that the Nenana basin contained 250 million barrels of recoverable oil and between 250 billion and 1 trillion cubic feet of recoverable natural gas, enough to meet the needs of Fairbanks with potential leftovers for Anchorage.
The partners intended to start by commissioning a seismic survey in late 2002 and drilling a well in early 2004. Overall, Andex expected to spend $18 million to drill three exploration wells and $6 million for seismic activity over an initial exploration program.
“When industry explored the basin in the early ’80s, their focus was oil but they knew it was a gas-prone basin and thought there was also a good shot at oil. Andex’s focus is gas,” Andex Resources Executive Vice President Jim Dodson told Petroleum News in August 2001. “We’d be happy if we found oil, but our focus is traditional natural gas.”
OptimismAfter seeking and receiving an extension of tax credits for exploration activities in the Interior, Andex and Doyon partnered with the Usibelli Coal Mine affiliate Usibelli Energy LLC and the Alaska Native corporation Arctic Slope Regional Corp. in late 2004.
The enlarged joint venture commissioned a 2-D seismic survey from PGS Onshore for early 2005 with the intention of drilling as soon as 2006. The $3 million campaign covered some 218 square miles of the region. Andex said it planned to spend another $3 million acquiring information from previous seismic surveys over the region.
Even before the program was complete, Andex was growing optimistic. Measuring just the thermogenic gas, Andex believed the basin could contain 3 trillion cubic feet of recoverable reserves and 10 trillion cubic feet of total reserves. “That number was based on some very, very conservative inputs,” Andex Vice President of Exploration for the Northern Region Bob Mason told Petroleum News in March 2005. In addition to the thermogenic supplies, he said, “We know that there’s biogenic gas in this basin.”
The U.S. Geological Survey had estimated that central Alaska contained some 500 billion to 7.3 trillion cubic feet of technically recoverably reserves with a mean of 2.8 tcf.
Early wells were shallow. The joint venture planned to drill deep, at least 10,000 feet. “I want to take a look at structures that preserve a very thick layer for my initial well,” Mason 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.”
DrillingPolitical matters stalled the program for several years.
Andex postponed its 2006 and 2007 exploration programs because of the Petroleum Profits Tax and commercial negotiations for producing and marketing North Slope natural gas. Both excluded Interior basins from incentives and tax credits. By the time Alaska’s Clear and Equitable Share was approved in late 2007, and Cook Inlet tax credits were expanded to include any gas produced for use within Alaska, Andex had lost interest.
With the seven-year exploration license set to expire in September 2009, Doyon and its remaining partners sought and received a three-year extension, through mid-2012.
Denver-based independent Babcock & Brown Energy became the operator of the joint venture in early 2009 and announced plans to drill at least one 10,500-foot well that summer. Babcock & Brown later changed its name to Rampart Energy Co. A fifth company, Cedar Creek Oil and Gas Co., also joined the joint venture during this time.
The joint venture drilled the Nunivak No. 1 well about three miles west of the town of Nenana in July and August 2009 to a total depth of 11,100 feet. The roughly $15 million well failed to find commercial volumes of gas, but information collected during the drilling suggested that the basin was much deeper and cooler than previously expected and offered tantalizing clues about high resource potential in the basin, Doyon said.
To get a wider understanding of its large license area, Doyon commissioned a seismic survey over the northern end of the basin. “Other than a few gravity measurements at the northern end of the basin, there really isn’t any exploration,” Mery said in April 2010.
With state officials now looking to truck liquefied natural gas from the North Slope to the Interior and considering plans to unite the Railbelt utilities, Doyon postponed its seismic program until it had more certainty about its position in the statewide energy market.
As Doyon waited, its four joint venture partners lost interest in the program.
Ultimately, Doyon decided to go it alone. The company commissioned its 2-D seismic survey in the northern end of the basin in the winter of 2011 and 2012 and announced plans to drill the Nunivak No. 2 exploration well some seven miles west of its first well.
The state helped by approving an incentive program specifically for “frontier basins” in early 2012. The program included exploration credits and lower production taxes. With its exploration license expiring, Doyon converted sections of the area into regular leases.
Going it aloneDoyon drilled the 8,667-foot Nunivak No. 2 well in mid-2013.
As with the first well, Nunivak No. 2 encountered encouraging geology but no commercial volumes. “The Nunivak No. 2 drill program was only the second deep test of this basin,” Schutt said in a November 2013 statement. “Despite the disappointment of a non-commercial effort, other results from the well clearly indicate the potential for significant commercial discoveries of oil and gas and we consider it a success. Follow-on studies are underway which will assist us in the development of our forward program.”
According to the company, drilling results suggested “excellent potential reservoirs, competent top seals, source rocks actively expelling wet gases and similar shows of likely migrated gas which are indicative of an oil and/or gas-condensate system.” In March 2015, Mery said the two wells had encountered propane, butane and pentane, which typically indicate a petroleum system conducive to oil. “We have all the elements of an active and prolific wet gas, condensate and hopefully oil system,” he said. “Through modeling we really believe that the basin, given the thick packages of source rock, really could have produced billions of barrels of oil and trillions of cubic feet of gas.”
At that point, Doyon launched the 3-D seismic program to illuminate aspects of the previous 2-D seismic program, which eventually created confidence in a third well.
Yukon FlatsAlthough focused on Nenana, Doyon also wants to explore the Yukon Flats region.
The program was stalled for five years as Doyon and the U.S. Fish and Wildlife Service negotiated and eventually dropped a proposal to swap resource-rich acreage in the Yukon Flats National Wildlife Refuge with nearby Doyon acreage. After the setback, Doyon reassessed its acreage and decided the land was more prospective than originally thought.
With no license or leases in the region, and none of the associated deadlines, any exploration in the Yukon Flats is hypothetical at the moment. A successful development in the Nenana region would improve the economics of a Yukon Flat program.
SAExploration conducted a 3-D seismic survey in the Stevens Village region of the Yukon Flats in the winter of 2012 and 2013, on behalf of Doyon. As of December 2013, Doyon was studying the results of the survey to determine potential drilling locations, although those plans are currently on hold while Doyon pursues its Nenana leases.
A 2004 USGS study of the 13,500 square mile lowland between the trans-Alaska oil pipeline and the Canadian border estimated mean technically recoverable resources of 173 million barrels of oil, 127 million barrels of natural gas liquids and 5.5 trillion cubic feet of natural gas, which exceeded earlier estimated for the entire central Alaska region.