Aussie indie picks up Cook Inlet leases

Linc Energy buys 123,000 acres from GeoPetro, plans to drill exploration well this year, looking at unique coal operation in future

Eric Lidji

For Petroleum News

An Australian company focused on innovative coal-based energy is buying the Cook Inlet acreage of a small independent and plans to drill an exploration well this year.

Linc Energy (Alaska) Inc., the local subsidiary of an Australian exploration and production firm with assets in Australia, Vietnam and the United States, announced March 2 that it bought 123,000 acres from San Francisco-based GeoPetro Resources.

The acreage is spread over two prospects, one at Point MacKenzie along the western bank of Knik Arm, and the other at Trading Bay on the west side of Cook Inlet. The acreage is spread over state, Cook Inlet Region Inc. and Alaska Mental Health Trust Authority land.

The deal involves current and future payments, and an overriding royalty.

In return for 100 percent working interest in the acreage, Linc will pay GeoPetro $1 million now and $4 million from any future revenue generated from production on the leases. GeoPetro also gets a 10 percent overriding royalty on oil or gas production from leases owned by the state and the Mental Health Trust and 7 percent from CIRI leases.

Linc will also pay the maintenance costs on the leases through their primary terms, and work toward drilling a natural gas exploration well at the Point MacKenzie prospect.

Stuart J. Doshi, chairman, president and chief executive officer of GeoPetro, said in a prepared statement that the sale was “consistent with our business strategy of gaining control of key acreage in projects which individually have the potential to be ‘company makers,’ performing extensive geologic and geophysical evaluations thereon, and leveraging through strategic transactions with other resource companies.”

Doshi also said the sale allows the company to focus on other assets in its portfolio.

Frontier Spirit well prepped

Frontier Spirit No. 1 would test a conventional gas prospect in the middle and lower Tyonek formations, at a depth of about 8,000 feet in an 11,500-acre structure.

GeoPetro’s enthusiasm for the prospect, formerly called Midnight Sun, came after it reprocessed 2-D seismic acquired from Amoco and pinpointed a target that it estimates could contain as much as 1 trillion cubic feet of natural gas.

That would be a basin-altering discovery, and one that conflicts with state expectations.

In a December 2009 report, the state Division of Oil and Gas estimated that undeveloped but promising onshore prospects in the Cook Inlet basin “might yield between 40 and 120 BCF of recoverable gas (in aggregate).” According to the state, the six prospects with the most potential all sit on the east side of the Cook Inlet basin, and do not include Frontier Spirit.

Frontier Spirit is well situated for development, though. The well site is 12 miles from Anchorage, albeit across a waterway, and two miles from an Enstar Natural Gas pipeline.

Point MacKenzie exploration dates back to various efforts throughout the 1960s by the likes of Union Oil Co. of California, Atlantic Richfield and Pan American Petroleum that encountered coal seams, but not commercial amounts of oil or natural gas.

GeoPetro noted additional prospects at the sold acreage, including natural gas in the Tertiary sandstones at Point MacKenzie and Trading Bay, and the Cottonwood Creek prospect at Trading Bay, based on a 1967 well Shell drilled to look for oil in the Hemlock formation that ultimately encountered natural gas shows at a depth of about 3,000 feet.

Linc eyeing coal resources

“Linc Energy has been studying the potential of Alaskan resources for some time and we have been quietly looking for the right opportunity to enter the region,” Peter Bond, chief executive officer of Linc Energy, said in a prepared statement.

Linc specializes in combining two technologies, underground coal gasification and gas to liquids, to produce energy from underground coal deposits without mining huge areas.

Gasification is a common process, but typically involves coal already extracted from the ground through mining. Underground coal gasification, or UCG, involves pumping air and water into underground coal seams that have been ignited. This mixture of heat and oxygen converts the solid coal into a synthesis gas that is produced from a second well.

Using processes like Fischer-Tropsch can turn this gas into a liquid fuel.

The benefits of UCG are less land disturbance and more control over the carbon content of coal. However, energy projects that involve pumping large amounts of water underground typically draw local concerns about potential groundwater contamination.

Linc is not the first company interested in bringing UCG to Alaska. This past October, CIRI, the Alaska Native corporation that owns some of Linc’s new acreage, proposed a 100 megawatt UCG power plant north of Tyonek on the west side of Cook Inlet.

Alaska is home to roughly half the nation’s coal reserves, but much of that coal is located in remote corners of the state that are not economic to develop. Southcentral Alaska is also coal rich, but various efforts in recent years to develop coalbed methane have been met with community opposition, or faced economic hurdles that weren’t overcome.

Previous leaseholders in the area, including GeoPetro and its predecessor Pioneer Oil, saw various possibilities in 20- to 70-foot thick coal seams in the gas prone region.

Linc believes its Alaska leases overlay some 20 billion tons of “known” coal deposits.

Alaska currently produces about 1.6 million tons of coal annually, all from the Usibelli Coal Mine in Healy, according to the U.S. Energy Information Administration.