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Nenana partners ready to drill in June Goal pipeline gas to Fairbanks; large find could come to Southcentral; smaller volume could be used to generate power for intertie Kristen Nelson Petroleum News
The geology puzzle at Nenana could be unlocked — at least partially — with the drilling of the basin’s first deep well this summer by partners Doyon Ltd., Rampart Energy Co., Arctic Slope Regional Corp. and Usibelli Energy, an affiliate of Usibelli Coal Mine.
Drilling is planned to start in June on the Nunivak No. 1.
But results from the planned 10,500-11,000-foot well may not answer the question of whether there is enough gas to bridge needs in Southcentral until North Slope gas becomes available — what Jim Mery, Doyon Ltd. senior vice president for lands and natural resources called the “blue-sky case.”
The case that the partners are targeting is enough gas to support a pipeline to Fairbanks and North Pole.
The minimum case would be only enough gas for power generation to feed into the Railbelt intertie.
What would success look like from this summer’s drilling? And how much additional drilling would be required before the Fairbanks area might see natural gas from Nenana?
Success from the first well could be flowing gas — or simply a confirmation that Nenana has an active petroleum system, Jim Dodson of Rampart Energy told the Senate Labor and Commerce Committee April 2 when he and Mery briefed the committee on planned Nenana basin drilling and potential uses for Nenana gas.
Dry hole would be disappointing Dodson told Sen. Joe Thomas, D-Fairbanks, that while “it would be very disappointing to have a completely dry well,” such a result from this summer’s drilling would not lead to abandonment of the project.
The companies would take another look at the seismic data they have, and also at data that will be gathered while drilling that first well. That data — in the event of a dry hole — could provide a different understanding of basin architecture than that the partners now have, he said.
This summer’s well is targeted at what the partners believe is a reservoir where natural gas is trapped. If the well is dry, Dodson said, it could indicate the location drilled wasn’t a location where gas is trapped, but using data gathered from the well, they “could then map a trapping position (and) we would probably still be encouraged to go try another well in what we could then see was a better position.”
Oil and gas production require a source for the oil or gas, a reservoir to hold it and a sealing mechanism or trap to keep the hydrocarbon in place in the reservoir.
The look of success Dodson said that for a first well, “a success case wouldn’t necessarily be finding producible gas reserves.”
“Finding that we have an active petroleum system, meaning oil-and-or natural gas being generated, would be a significant success in this first well.”
One dry hole wouldn’t condemn the project, he said, “nor does one producing well prove up on the project.”
Committee Chair Joe Paskvan, D-Fairbanks, asked how many wells it would take to prove up the field.
Dodson said you need both reserves and deliverability, the ability to provide gas to a market on a daily basis — a function of rock properties, both porosity (the ratio of the volume of empty space to the volume of rock) and permeability (the ease with which oil or gas flows through the pore spaces in the rock).
A core recovered from the reservoir would need to be tested to determine permeability, he said.
Once they have a well into a reservoir they would do a pressure drawdown, flare gas for 30 days and “see what that does to the deliverability and to the pressure in the reservoir,” Dodson said.
If you could get 6 million cubic feet of natural gas a day from a well, you would need seven wells at that production rate to start off with about 40 million cubic feet a day of deliverability, he said.
That rate is going to decline, “but you only need somewhere in the neighborhood of 20 million cubic feet a day to serve Fairbanks, or less. I think it’s reasonable to say that seven successful wells would likely put you in a position to build a pipeline.”
Economic success Dodson pegged the cost of the initial well at about $15 million, calling it “a one-time project.” With the 2005 seismic estimated at some $5 million, that puts the initial investment at $20 million, he said.
With a development scenario the cost of wells should drop below $10 million each, a combination of drilling multiple wells and keeping a rig busy for two or three wells so that it only has to be mobilized and demobilized once and spreading other one-time costs over more wells, with “tremendous cost savings and efficiencies,” Dodson said.
There are also higher costs for that first well because it’s the first deep well in the basin, so they’ll be using a blowout preventer rated to 10,000 pounds.
“We may not need that ultimately but out of an abundance of caution we’ve gone with a very heavy blowout preventer for this well,” he said.
This first well also will use what Dodson called a very aggressive casing program. He said that once they know what zones are productive they may not have to case so much of the hole in drilling subsequent wells.
This first well “is being drilled somewhat differently than what a development well might look like,” he said.
Dodson said they’ve already positioned equipment, are building trail, have temporary bridges ready to swing into position across some of the streams they have to cross and anticipate moving the rig into position in May and early June to begin drilling.
Fairbanks target market Mery told the committee that the core target market for the project has always been Fairbanks and North Pole.
The critical element in making gas an economic reality from Nenana is industrial users, he said. Power generation by Golden Valley Electric Association and the North Pole facilities is “an essential piece of making a project like this successful,” Mery said.
A 15- to 20-year supply would be 150 billion to 200 billion cubic feet, and since the one prospect the partners will be drilling this summer could contain as much as 200 bcf, “it’s not inconceivable that we get very close to being right at what we would need to justify a pipeline,” he said.
A backup is power generation: If the prospect proves to hold only 50-60 bcf of gas, then power could be generated on site, and Mery said a lot of advance discussions have already been held with Golden Valley on that possibility.
Blue-sky case If power generation is the “minimal success case,” then the “blue-sky case” is finding enough gas to justify a line to Southcentral to meet increasing shortages in the Anchorage area.
“So could Nenana be an alternative to the bullet line from the North Slope foothills or elsewhere?” Mery asked.
“Obviously we’d need a much larger reserve base, but it should be much less than the 2-3 tcf (trillion cubic feet) that’s knocked around as far as what’s needed for a bullet line all the way from the North Slope.”
He said Nenana gas wouldn’t be a permanent solution for Southcentral, but could “be a good medium-term, short-term solution as a bridge” until the big pipeline comes through taking North Slope gas to Lower 48 markets.
It’s not the main focus of the project now, Mery said, but if they found enough gas in the Nenana basin in the next three or four years to justify a line to Southcentral, “our intention could change pretty quickly.”
“And we have had a lot of discussions with Enstar about that; they’re very interested,” he said.
Based on work done by ARCO Alaska in the basin in the 1980s, “there’s a real possibility of some propane in the gas stream,” Mery said.
And Doyon would be very interested in that because propane could be delivered into the Railbelt, but mainly because “Nenana is the hub of barge distribution to the entire Yukon River drainage” and a lot of the communities there are part of Doyon so there would be the opportunity to deliver an alternative fuel source to those communities, he said.
What next? Dodson said if drilling this summer is successful — whether finding gas in a trapped position or finding that there is an active petroleum system — the next step would likely be additional 2-D and 3-D seismic shoots in the winter of 2009-10.
The 2-D would be shot at the northern end of the exploration block where there is currently no seismic coverage and where the basin, based on aeromagnetic data, is believed to be deeper; and a 3-D survey would be shot in the area of this summer’s planned drilling.
If the project moves forward, more drilling would be done in 2011-12 and “we could potentially have proven up enough reserves in 2013 or so to then build a pipeline into Fairbanks.”
If drilling is successful and a reserves base is being proved up, permitting for the pipeline right of way into Fairbanks would be the first step.
Development drilling could start as early as the winter of 2011, but Dodson said it would most likely be the winter of 2012.
A line in the Interior would probably be 12 inches in diameter and cost about $110 million to go to North Pole.
The project would have an estimated life of 30-50 years, Dodson said.
Comparison to Cook Inlet? Paskvan asked if the geology at Nenana compared to Cook Inlet.
Dodson said the basins correlate stratigraphically: Both are Tertiary age, nonmarine basins.
But the 9-10 tcf of natural gas known in Cook Inlet is biogenic, from microbial action, digesting coal infused with fresh water.
The model they are using of the Nenana basin “is based on thermogenic generation of natural gas, which is burying coals, burying shales deeply enough to cause thermochemical reactions to occur that then generate natural gas.”
There is biogenic potential in the Nenana basin, but Dodson said the size of that resource is unknown.
The Cook Inlet basin is three times the size of the Nenana basin, so if Cook Inlet is going to produce 9 tcf, Nenana might have the potential to produce 3 tcf.
“We’re at that point in the exploration. ... I can’t give you a more definite answer,” he said.
2014 target to Fairbanks Mery said there “is a possibility of a very large gas resource in the Nenana basin,” and some possibility of oil.
Even without a large resource Fairbanks’ projects are possible, he said.
“Infrastructure and access would allow us to move quickly to develop power generation by 2012.”
He said the timetable for pipeline gas to Fairbanks is “harder to predict, but 2014 is kind of our target.”
And gas to Southcentral “is certainly not beyond the realm of possibilities.”
Paskvan asked what the price of the gas would be in Fairbanks.
Dodson said it was “to a large degree a function of the lithology of the rock; it’s a function of what the reservoir gives us.”
If the reservoir has very good porosity and permeability and one well can drain 30 bcf it’s a very different cost structure than if one well drains 5 bcf.
“Both are in the realm of possibility,” Dodson said. “So if I have to drill six times as many wells to get the same 30 bcf of gas, my capital costs are six times higher.”
He said it isn’t possible to say what the gas would cost now: Drilling is required to prove that there is gas in a trapped position, and the properties of the reservoir have to be determined before capital costs can be estimated.
Mery said the gas would have to be priced lower than fuel oil because people in Fairbanks would have to convert from burning fuel oil to burning natural gas and there would have to be an incentive for customers to make that conversion because of the cost of the conversion and the time it would take to amortize that cost.
“So whatever the lithology may be,” Mery said, “we’re still going to have to price the stuff attractively enough to make people want to switch to gas.”
The prospect includes a state exploration license, Alaska Mental Health Trust leases and Doyon acreage. The block covers some 800 square miles.
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