Linc Energy (Alaska) Inc. is running a diverse operation in Alaska — not only in terms of the resources it hopes to find in the state, but where in the state it hopes to find them.
In the coming year, Linc plans to explore for oil in northern Alaska, underground coal deposits in Southcentral and the Interior, and potentially natural gas in southern Alaska.
That varied portfolio came from three quick acquisitions.
The local subsidiary of an Australian independent arrived in Alaska in March 2010 after acquiring acreage on both sides of Cook Inlet from the San Francisco-based independent GeoPetro Resources. In February 2011, the Alaska Mental Health Trust awarded Linc a major underground coal gasification exploration license in three blocks across Southcentral and the Interior. And in June 2011, Linc acquired the Umiat prospect, a long known but undeveloped oil accumulation in the foothills of the Brooks Range Mountains.
Currently, Linc Energy holds nearly 190,000 acres in Alaska: 19,358 acres at Umiat, almost 2,000 acres in the Cook Inlet basin and 167,917 acres of exploration licenses.
In the coming year, Linc plans to embark on a five-well exploration campaign at Umiat, drill three exploration holes across acreage in its underground coal gasification exploration license and potentially continue gas exploration on its Cook Inlet leases (although that final effort is hampered by an ongoing unitization dispute with the state).
Another shot at Umiat
After acquiring the Umiat prospect in June 2011, Linc announced its intentions to conduct a multi-well exploration program at the field in the next winter drilling season.
With the onset of winter, though, Linc decided low snow levels in the foothills had impacted its ability to build a snow road. The road is crucial for accessing the remote prospect, some 80 miles west of the trans-Alaska oil pipeline and Dalton Highway.
Also, the “lack of timely availability of a suitable drill rig” challenged drilling plans.
So Linc delayed its program by one year.
The 2012 edition of the exploration program is slightly more robust than the 2011 edition, adding a horizontal well test to the original vertical drilling campaign.
This winter, Linc plans to drill as many as three vertical wells — two shallow and one deep — a horizontal well into the Lower Grandstand formation and a disposal well.
Linc said the program is also enhanced by a year of additional technical work. That includes 3-D seismic processing and interpretation, project development and community engagement such as launching a project specific website, www.lincenergyumiat.com.
The delay also gave Linc time to land a rig well in advance of its Umiat program. In April 2012, the company announced it had “first right of refusal” on the Kuukpik 5 rig.
Now, Linc has an “aggressive” timeline to bring Umiat online in five to seven years, saying it is “committed” to developing the field and is now studying facilities, pipeline and access scenarios “to determine the best, most efficient, plan for development.”
Known but undeveloped
The road to success at Umiat passes failed attempts by other companies.
The Umiat prospect is one of the white whales of northern Alaska.
The U.S. Navy discovered the field in 1946, during its epic drilling campaign across the National Petroleum Reserve-Alaska. But the field has remained undeveloped because of its remoteness from infrastructure, historically low oil prices and insufficient technology at the time to unlock the shallow oil in a reservoir partially located within permafrost.
With high oil prices and the state studying an all-season road to Umiat, interest in the prospect increased over the past decade. The small independent Renaissance Umiat LLC announced an exploration program in 2007 and conducted a 3-D seismic campaign in 2008, but ultimately delayed drilling on numerous occasions before selling the prospect.
Through the deal, Linc acquired Renaissance Alaska LLC — the independent company that holds an 84.5 percent interest in Renaissance Umiat — for $50 million plus adjustments for working capital, deposits and inventory. The acquisition gave Linc 100 percent working interest in Umiat and an 80 percent net revenue interest in the project.
The prospect is estimated to hold 1 billion barrels of oil in place. The consulting firm Ryder Scott Co. LP recently estimated Umiat contains reserves of 154.5 million barrels of proved and probable (P2) oil equivalent and 194 million barrels of proved, probable and possible (P3) oil equivalent. When Linc acquired Umiat, it estimated the field held some 108 million barrels of P2 reserves and 201 million barrels of P3 reserves.
For the purposes of the reports, “probable” means at least a 50 percent chance of actual recovered volumes meeting or exceeding the P2 estimate, and “possible” means at least a 10 percent chance of actual recovered volumes meeting or exceeding the P3 estimate.
This winter, Linc plans to drill as many as three vertical wells — two shallow and one deep — a horizontal well into the Lower Grandstand formation and a disposal well at Umiat. The company intends to bring the field into production within five to seven years.
The prospect currently covers two state and two federal leases.
The state leases expire on Jan. 31, 2014, and Jan. 31, 2016, respectively. But in recent years the BLM renewed its two leases, giving Linc until 2018 and 2022, respectively.
State and federal policies
Because it straddles the boundary between state acreage and the federal National Petroleum Reserve-Alaska, the fate of Umiat is tied to state plans for expanding access to remote plays and to federal plans for managing the 23 million acre petroleum reserve.
In 2009, the state chose a $357 million route running 116.5 miles northwest from Galbraith Lake at milepost 278 on the Dalton Highway to Umiat. The U.S. Army Corps of Engineers began preparing a draft Environmental Impact Statement in May 2011.
But the project soon faced opposition.
At a Senate Finance Committee hearing in February 2012, Sen. Donny Olson, D-Nome, said the road had generated more opposition from his constituents than any transportation project in his 12 years on the committee. In particular, many locals worried the road could impact subsistence resources if opened to the public. And Sen. Johnny Ellis, D-Anchorage, said many of his constituents considered the project “corporate welfare” because its primary purpose would be to reduce the cost of industry exploration.
Because of those concerns, the Army Corps expanded the scope of its studies to include two additional routes and pushed back its record of decision for a final EIS to late 2014.
When Linc acquired Umiat, it cited the public commitment to develop the road as a “significant” factor in its decision. While the company still believes the road “would have a very positive impact on the Umiat development program” and help efforts to increase oil production, it now says “Umiat could be successfully developed without a road.”
On the federal front, Linc supported “alternative D” in the U.S. Bureau of Land Management’s integrated activity plan for the NPR-A, but in August the agency chose “alternative B-2” as its preference among the four alternatives included in a draft plan.
While alternative B-2 contained the strictest environmental protections of the four proposals, Linc said alternative D “most closely aligns with the original intent” of the petroleum reserve. The company also said it “understands first-hand the significant environmental protections already built into NPR-A leases through the lease stipulations, existing management practices, environmental protections, ‘best practice’ requirements and the additional oversight brought to bear by State of Alaska regulatory agencies.”
UCG online in five years
While it hasn’t received as much public attention as its Umiat program, Linc has also been pursuing an underground coal gasification exploration program over the past year.
In fact, Linc has been touting Alaska’s deep coal potential since its first days in the state.
Underground coal gasification is a way to “create” natural gas inside coal deposits too deep to mine. The process involves injecting air and water into an ignited coal seam to synthesize the carbon and hydrogen into methane, the main component of natural gas.
While it already planned to explore for underground coal gasification candidates on its state leases in the Cook Inlet, Linc greatly expanded its reach when the Alaska Mental Health Trust awarded the company an exploration license over three large blocks. The blocks are on the east side of Cook Inlet near Nikiski, on the west side of Cook Inlet near the Beluga Power Plant and in the Interior region around Anderson, Healy and Nenana.
In late 2011, Linc spud the first hole in its program, TYEX01/01X, on the west side of the Cook Inlet. Linc called the results of the 1,450-foot core hole “very encouraging.”
Linc also acquired 2-D seismic over its Interior and Cook Inlet underground coal gasification acreage between September 2011 and April 2012. The company also called those results “very encouraging,” pointing in particular to its acreage in the Interior “where there is very little previous exploration drilling and very few well logs exist.”
Linc planned to drill two more exploration holes on the west side of the Cook Inlet this summer and fall followed by one exploration hole in the Interior region, near Healy.
The goal of the program is to target specific sites for future commercialization.
For the upcoming exploration program, Linc commissioned a new, fit-for-purpose rotary-core rig from Buffalo Custom Manufacturing. The dual capabilities allow the rig to “drill at a faster rate and offer greater borehole stability and control than a traditional core rig.”
Linc is aiming to begin synthesis gas production in Alaska within five years.
Appealing unit decision
Linc continues to pursue conventional gas targets in the Cook Inlet, as well.
The 123,000-acre leasehold Linc acquired from GeoPetro included a block along the Knik Arm north of Pt. MacKenzie and a smaller block across the Inlet near Trading Bay.
Within six months of arriving in Alaska, Linc drilled LEA No. 1 in the Pt. MacKenzie region. The well followed up on gas prone intervals Pan American Petroleum Corp. encountered some 4,000 feet to the east with its Big Lake USA No. 1 well in 1968.
LEA No. 1 encountered several gas-bearing coal seams, but after subsequent tests Linc decided the structure was “too tight” to produce without “swabbing” the well with large amounts of formation water. “The conclusion from the testing is that although gas is trapped within the coal, there is not sufficient natural fracturing in the coal to allow for the recovery of commercial quantities of gas,” the company announced in May 2011.
Linc contemplated drilling a well on its leases in the Trading Bay region, where Shell encountered gas in the 1960s while searching for deeper oil, but after “extensive geologic and petrophysical due diligence” it decided the prospect “did not warrant drill testing.”
Much of the leases Linc acquired from GeoPetro in March 2010 reached the end of their primary term in June 2012. Prior to the expiration, Linc applied to form the Angel unit around one state and one Alaska Mental Health Trust lease in the Pt. MacKenzie region.
In September, the Alaska Department of Natural Resources denied the application, saying Linc hadn’t sufficiently defined the hydrocarbon accumulation it wanted to explore.
The proposed unit is just southwest of where Linc drilled LEA No. 1. Although Linc decided at the time the well couldn’t produce in commercial quantities, it told the state “incorporating the data gathered during the LEA No. 1 program into our exploration model resulted in an exciting play development within the proposed Angel Unit.” The program would have investigated a geologic “feature” of the Pittman Anticline that extends into both the Tyonek and Hemlock formations, according to the application.
The state found the proposal lacking.
“At this time,” Division of Oil and Gas Director Bill Barron concluded, “Linc Energy has not presented a structural trap that is reasonably defined and delineated, and therefore has not identified a potential hydrocarbon accumulation for the proposed Angel unit.”
Linc proposed a two-year exploration program for the unit.
In the first year, Linc would have acquired 3-D seismic over the proposed unit area as well as 2-D seismic extending to the east, beyond the proposed unit boundaries. In the second year, Linc would have drilled a well into the Tyonek/Hemlock interval. With successful results, Linc would submit an application for a participating area within the unit and start building infrastructure sometime around late 2014 or 2015, at the earliest.
The company still believes it can make the case for unitization. “Linc Energy respectfully disagrees with the State of Alaska’s decision regarding the Angel Unit, and we do plan to appeal,” Linc’s general manager of Alaska operations, Corri Feige, told Petroleum News.
The state of the industry
When asked what policymakers could do support the oil and gas industry, Linc said creating and maintaining “a stable, competitive, investment-friendly business climate.”
“The current tax structure has resulted in the loss of service providers and skilled labor to more competitive regions in the Lower 48. Further, increasing costs that are being driven by those regions are having a direct impact on explorers and producers in Alaska,” it said.
When asked how players in the Alaska oil and gas sector could support their industry, Linc said, “Having a vital service industry goes hand-in-hand with a competitive business climate. When the market demands more equipment and more services, the service companies can increase their inventories and worker numbers — grow their businesses — to meet those demands. In Alaska, it is important for service companies and producers alike to strive for win-win business arrangements and contracts.”
