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February 2008

Vol. 13, No. 5 Week of February 03, 2008

Yukon Flats draft EIS out

New assessment of oil and gas potential raises land swap stakes for Doyon, villages

Alan Bailey

Petroleum News

The Jan. 25 publication of the draft environmental impact statement for a proposed land swap in the Yukon Flats of Interior Alaska, between Doyon Limited and the U.S. Fish and Wildlife Service, has brought this contentious deal back into the public limelight. It has been nearly two years since Fish and Wildlife, faced with a barrage of questions from some Yukon Flats communities, agreed to conduct an EIS that would address the various issues that people had raised.

Doyon is the Alaska Native regional corporation for Interior Alaska, including the Yukon Flats area.

The Yukon Flats consists of an approximately 15,000-square-mile lowland area around the Yukon River between the trans-Alaska oil pipeline and the Canadian border. The 8.6-million-acre Yukon Flats Wildlife Refuge, administered by the U.S. Fish and Wildlife Service, lies within the lowlands. Doyon and some Native village corporations own a patchwork of surface and subsurface land amounting to about 2 million acres inside the refuge perimeter boundary — the Native corporations selected this land under the terms of the Alaska Native Claims Settlement Act before the wildlife refuge came into existence.

A sedimentary basin with petroleum potential, the Yukon Flats basin, lies under the flats. And motivated by the potential for oil and gas development in the region, Doyon has been trying to engineer the land swap with Fish and Wildlife, to consolidate its land holdings in the deepest part of that basin.

In addition to securing oil and gas rights, ownership of the deepest and most prospective parts of the basin would increase Doyon’s ability to control oil and gas development in the area and help achieve the critical mass of oil discoveries needed to render oil development viable, James Mery, Doyon’s senior vice president, lands and natural resources, told Petroleum News Jan. 28.

Agreement in principle

In 2005 Doyon and Fish and Wildlife published an agreement in principle for a land swap that would involve the shuffling of a jigsaw puzzle of land tracts. That agreement gained support from some communities in the Yukon Flats, but vehement opposition from others. The controversy triggered the EIS that has now been drafted.

According to its evaluation and review document Fish and Wildlife based its land selections for the swap on fish and wildlife habitats and on the contribution that the land might make to the refuge. Fish and Wildlife believes that it would “acquire many of the high-priority fish and wildlife habitats identified on Doyon’s lands.” On the other hand, much of the land that Fish and Wildlife would give to Doyon lies in upland areas of the refuge.

Doyon would acquire about 110,000 acres of refuge lands over the deepest part of the Yukon Flats basin. The corporation would also receive 97,000 acres of oil and gas rights next to some of these lands — this subsurface acreage would only be accessible by directional drilling from Doyon land. The refuge would acquire a minimum of 150,000 acres of Doyon full-fee land. And Doyon would also re-allocate about 56,000 acres of remaining entitlement within the refuge to locations outside the refuge.

Also Doyon would pay Fish and Wildlife a portion of any oil and gas revenues from land obtained in the swap. Fish and Wildlife would subsequently have the right to use that money to purchase up to an additional 120,000 acres of Doyon land.

How much oil and gas?

The big question behind the whole deal, however, remains unanswered — just how much oil and gas lies in the Yukon Flats basin?

Some Yukon Flats exploration by Exxon and Chevron between 1984 and 1986 included shooting some seismic lines and drilling some shallow wells around the perimeter of the basin. Exxon was looking for hydrocarbon source rocks but the company has never released the results of its work to the general public. Texaco also shot some seismic lines in the Yukon Flats in the mid-1980s.

In the wake of a major drop in oil prices in the mid-1980s followed by the Exxon Valdez oil spill in 1989, the oil companies withdrew from the Yukon Flats exploration, Mery said. But Doyon licensed the seismic data and determined that there was land prospective for oil and gas both within its own territory and within adjacent refuge land to the south.

“We certainly saw (basin) depth and trapping mechanisms,” Mery said.

And since that initial interest, the ramp up in oil prices has significantly improved the potential economics of oil development in the Yukon Flats basin.

Interest piqued further in 2004 when the U.S. Geological Survey published its assessment of the basin. That assessment pointed to a possible technically recoverable resource of 173 million barrels of oil and 5.5 trillion cubic feet of natural gas. The southern side of the basin where Doyon would gain land from the swap is particularly prospective, USGS determined.

Up to 1 billion barrels?

But a recent assessment by Petrotechnical Resources Alaska has increased the stakes further by suggesting the possibility of from 300 million barrels to almost 1 billion barrels of oil, and perhaps 15 trillion cubic feet of conventional natural gas, in the basin, Mery said.

“We clearly think that this area is permissive of at least a couple, maybe more, Alpine-sized fields,” Mery said.

Tom Walsh, a principal partner in PRA, told Petroleum News that PRA had assessed the 1980s seismic data and compared the Yukon Flats basin with similar basins around the world.

PRA spotted several very promising oil and gas prospects from the seismic data, Walsh said. Then, by assessing the areas of the potential trap closures and the likely reservoir properties, PRA saw the possibility of large volumes of oil and gas. Just one prospect, for example, could reservoir 800 million barrels of oil, Walsh said.

“We would expect there to be more closures like that within the basin,” Walsh said.

And there are known to be carbon-bearing shales within the rock sequence. These shales, known as lacustrine shales because they were formed from sediments deposited in lakes, could form an effective source rock for oil and gas. And, although people have thought in the past that this type of shale would be more likely to generate natural gas than oil, exploration in lacustrine basins such as the Bohai and Sichuan basins in China has uncovered substantial oil resources, Walsh said.

“That’s given us a fair amount of confidence that this (Yukon Flats) basin is very prospective, just compared to other lacustrine basins around the world,” Walsh said. “... A lot of these Tertiary lacustrine basins are more oil prone than gas prone.”

So, with oil prices continuing to escalate and the possibility of a significant oil find, Doyon has become pretty gung ho about getting some exploration moving.

“If it is there, the reward is so tremendous,” Mery said. “… It simply changes the nature of our company.”

But the possibility of oil and gas development in the Yukon Flats remains a contentious issue. In the second part of this story, we’ll look at the arguments for and against the land swap proposal.

The draft EIS is out for public review at :

http://yukonflatseis.ensr.com/yukon_flats/default.html. Comments are due by March 10.






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