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Vol. 14, No. 26 Week of June 28, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Rig moves to Nenana

Partners Doyon, Usibelli, ASRC, Rampart prepare to drill Interior Alaska wildcat

Kay Cashman

Petroleum News

On June 23 the Arctic Wolf No. 2 rig left Fairbanks, Alaska, in what the local newspaper described as “a slow caravan of tractor-trailers” on its way south to the Nenana basin to drill a natural gas exploration well for Doyon Ltd. and three partners.

Transported by Carlile Transportation Systems, the rig components will be reassembled at the drill site after a journey down the Parks Highway and a barge trip across the Nenana River.

The well site is on Alaska Mental Health Trust land about four miles west of the town of Nenana and about 50 highway miles southwest of Fairbanks, Jim Mery, senior vice president of lands and natural resources for Doyon, told Petroleum News in November.

According to a June 24 Fairbanks Daily News-Miner article, Doyon and its partners — Denver-based Rampart Energy and Alaska-based Usibelli Energy and Arctic Slope Regional Corp. — plan to spend $15 million drilling a 10,500- to 11,000-foot well over a period of about 40 days, starting in about two weeks. (Of the four partners in the venture, Doyon has the largest equity ownership.)

“We hope to have a commercial discovery, but the lack of a commercial discovery doesn’t mean we will be discouraged,” Mery told the News-Miner. Most of all, the partners hope to find “an active petroleum system” on their acreage in the undeveloped Interior Alaska basin.

“Our major focus continues to be bringing pipeline gas to Fairbanks,” but depending on the size of the gas resource, “there clearly are some opportunities for electric generation,” he said.

The Nenana basin holds an estimated 1 trillion to 4 trillion cubic feet of gas and from 250 million to 750 million barrels of oil, Mery told the newspaper. According to the News-Miner, Mery also thinks the prospects for propane “solid.”

Similar to Cook Inlet

The basin exhibits somewhat similar geology to Southcentral Alaska’s prolific Cook Inlet basin and is generally considered prospective for natural gas.

Doyon told Petroleum News that the proposed well will be the first deep test in the basin.

Two wells have previously been drilled in the area, both shallow and both towards the basin edge rather than the basin center: the Nenana No. 1 drilled by Union Oil Company of California in 1962 west-northwest of Nenana, and the Totek Hills No. 1 drilled by ARCO Alaska Inc. in 1984 on the southern side of the basin.

The Nenana well was drilled to 3,062 feet, found no pay intervals and was plugged and abandoned. The Totek Hills well was drilled to a total depth at 3,590 feet and encountered coal seams at various depths.

In 2002 Denver-based Andex Resources purchased a state exploration license for the Nenana Basin with a work commitment of $2.5 million. The license included about 500,000 acres of state land. Andex also negotiated oil and gas leases on about 41,000 acres of Native subsurface land owned by Doyon and on about 9,500 acres owned by the Alaska Mental Health Lands Trust in the basin.

Toghotthele Corp., a Native village corporation, owned the surface land over the Doyon subsurface holdings.

In 2004 Doyon, the Native regional corporation for Interior Alaska; ASRC, the regional corporation for northern Alaska; and Healy, Alaska-based Usibelli Energy formed a partnership with Andex to fund the Nenana exploration.

2005 seismic survey

In the spring of 2005 Andex contracted PGS Onshore to carry out a 2-D seismic survey in the basin, as part of the exploration license commitment. Following seismic acquisition Andex proceeded with the analysis of the new seismic data, to determine a site for a wildcat well — Andex had estimated the possibility of between 3 trillion and 10 trillion cubic feet of recoverable gas in the Nenana Basin.

But, in 2006 uncertainty regarding changes in Alaska gas production taxes, as new production tax legislation moved through the state Legislature, put the dampers on planned drilling on the Nenana acreage. Andex eventually pulled out of the project, with the remaining Nenana partners taking over operatorship of the exploration license.

ACES tax break

It wasn’t until November 2007, when a new state production tax — Alaska’s Clear and Equitable Share tax, or ACES — provided a tax break for gas produced and used within the state, that the Nenana project began to move forward.

That tax break proved crucial, Mery told Petroleum News, as did the November 2008 addition of a fourth partner to replace Andex.

The Alaska Department of Natural Resources October 2008 decision to approve a three-year extension of the Nenana exploration license, scheduled to expire in September 2009, was also vital to continuing the project, Mery said.

“We’re drilling within a mile of state lands,” he noted in an interview with Petroleum News at the time.

The Arctic Fox rig, operated by Anchorage-based Doyon Drilling, a subsidiary of Fairbanks-based Doyon Ltd., was subcontracted to the four partners from FEX, Talisman Energy’s Alaska subsidiary, and brought down from the North Slope in May.

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