Doyon Ltd. began searching for natural gas in the Nenana Basin in the 2000s, hoping to alter the existing dynamics for fueling homes and businesses in Interior communities.
The Interior is largely dependent on oil for space heating. A small discovery in the Nenana basin would provide a local source of relatively cheap fuel. A large discovery would be hundreds of miles closer to Outside markets than North Slope reservoirs.
Geology, politics and economics have changed that plan somewhat.
To date, the company has drilled two exploration wells in the region and recently commissioned a 2-D and a 3-D seismic program in the area surrounding its two wells.
In March 2015, Doyon Vice President of Lands and Natural Resources Jim Mery told state lawmakers that the company was “looking hard” at drilling a third well in 2016.
This time, though, the company would also be looking for oil.
“We view the chance of success in the next well for oil as somewhere between one in five and one in 10,” Mery said. The minimum economically viable field size would be between 25 million and 50 million barrels, depending on the price of oil, Mery said.
The company is still optimistic about finding gas. “Gas is so de-risked at this point, we believe, based on work that we’ve done, that there is 50-50 chance of commercial success next time we drill,” Mery told lawmakers. But current plans to truck North Slope natural gas into the Interior could strand Nenana gas for a decade or longer, according to Mery.
A future large-diameter gas pipeline coming down from the North Slope could potentially grab Nenana production along the way but would require some technical considerations.
The current Nenana exploration program follows previous forays into the region by other companies. 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.
Doyon was created through the Alaska Native Claims Settlement Act of 1971. Seeing the opportunities both for revenues and for a cheaper local energy source for the Interior, the company took an interest in the resource potential of the region. When industry interest in exploration dimmed in the late 1990s, Doyon began organizing an exploration program.
Exploration license
As with all exploration activities outside of the North Slope or Cook Inlet, the current program in the Nenana basin started through the Alaska exploration license program.
The program allows companies to nominate regions for exploration activities and creates the opportunity for turning portions of the license area into traditional mineral leases.
Doyon and the Houston-based independent Andex Resources LLC formed a joint venture in late 2001 to explore a section of the Nenana basin. The partners intended to commission a seismic survey in the winter of 2002 and 2003 and drill in early 2004.
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 some potential leftovers for Anchorage.
“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.”
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.
Early optimism
Even though Andex was initially bullish about the program, telling state lawmakers in January 2002 that it expected to spend $18 million to drill three exploration wells and $6 million for seismic, a series of obstacles prevented drilling for a number of years.
Andex wanted state lawmakers to extend a 10-year gas exploration incentive program set to expire in 2004. The program offered credits in return for geophysical information. That provision had scared one exploration company away and made another ineligible but proved enticing for the Nenana basin. The state agreed to extend the program until 2007.
In December 2004, Andex and Doyon partnered with the Usibelli Coal Mine affiliate Usibelli Energy LLC and the Alaska Native corporation Arctic Slope Regional Corp.
Eager to get started, the 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 seismic program was complete, Andex was growing optimistic about the region. Measuring just the thermogenic gas, Andex believed the basin could contain 3 trillion cubic feet of recoverable reserves and 10 tcf 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.”
Political obstacles
As the financial and technical components of the program were coming together, the joint venture faced a series of political obstacles, which delayed the program for years.
Andex postponed its 2006 exploration program while lawmakers debated the Petroleum Profits Tax and postponed its 2007 program after the Petroleum Profits Tax became law.
Evolving state policy overlooked the Interior. The Petroleum Profits Tax excluded the Interior from a tax break for Cook Inlet production. At the same time, a proposed contract for producing and marketing North Slope natural gas also excluded the Interior basins.
The Alaska’s Clear and Equitable Share law, approved in late 2007, expanded the Cook Inlet tax credit to include any gas produced for use within Alaska. By then, though, Andex had lost interest, leaving Doyon and its two partners to search for another partner.
The delay created a regulatory obstacle. The seven-year exploration license was set to expire in September 2009. In late 2008, the state approved a three-year extension.
The 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 subsequently changed its name to Rampart Energy Co. Andex executive Jim Dodson even returned to Alaska as an executive for Rampart.
A fifth company, Cedar Creek Oil and Gas Co., also joined the joint venture.
Going it alone
By scheduling its program for summer, the joint venture was able to secure the Arctic Wolf No. 2 rig after the end of the winter exploration season of the North Slope.
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.
The program ran into political obstacles.
As Interior utilities looked to truck liquefied natural gas from the North Slope and lawmakers talked about uniting the Railbelt utilities, Doyon postponed its seismic program until it had more certainty about its position in the statewide energy market.
Doyon also began searching for additional investors. The other four joint venture partners in the program had lost interest after the lackluster results of the Nunivak No. 1 well.
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.
Once again, though, Doyon was nearing the end of its exploration license. The company began converting sections of the area into traditional leases, which it still maintains.
In mid-2013, Doyon drilled the 8,667-foot Nunivak No. 2 well using the Nabors rig 105.
As before, the well encountered encouraging geology but no commercial volumes of oil or gas. “The Nunivak No. 2 drill program was only the second deep test of this basin,” Doyon CEO Aaron 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 under way which will assist us in the development of our forward program.” The reasons for optimism included “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,” Doyon said.
New seismic
Still optimistic, Doyon began permitting another seismic program in mid-2014.
The program described in permitting papers included both 3-D and 2-D components. The 3-D survey would cover some 30 square miles in an area just west of the town of Nenana where it drilled its two wells. The 2-D survey would cover two transects to the northeast.
The 3-D survey was targeting a geologic feature identified in previous 2-D surveys, according to Mery. “The feature is certainly large enough to potentially hold the minimum field size … for an economic project. So we’re going to image it and hopefully go out and drill it,” Mery told Petroleum News in August 2014. The results of the 3-D survey will determine whether and where Doyon will drill in the basin in the future. The 2-D surveys would expand on previous 2-D surveys and give Doyon a better picture of the depths of the basin in the area north of its wells, Mery told Petroleum News.
In March 2015, Mery said the 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.”
The Yukon Flats
With its Nenana leases set to expire in 2020, Doyon is focusing its exploration resources on the Nenana basin rather than allocating some resources to the Yukon Flats region.
For five years, the Doyon and the U.S. Fish and Wildlife Service worked on a proposal to swap resource-rich acreage in the Yukon Flats National Wildlife Refuge with nearby Doyon acreage. The two parties dropped the plan in 2010, amid public opposition.
After the setback, Doyon reassessed its existing acreage using a 2010 seismic survey and other existing data. The second look suggested that the region was much more prospective than originally thought, with the potential for an Alpine-sized reservoir. “So we’re kind of happy that land exchange didn’t happen,” Schutt said in September 2013.
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.
