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Vol. 15, No. 27 Week of July 04, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Usibelli Healy license

Company gets access to state lands to look for gas, coalbed methane near Denali

Eric Lidji

For Petroleum News

State officials are proposing to give Usibelli Coal Mine a license to explore for natural gas in the Healy basin of Interior Alaska, according to a final finding dated June 28.

The license gives Usibelli the right to explore for conventional and unconventional natural gas supplies across 208,630 acres just east of Denali National Park and Preserve, a stretch of land that traverses the Parks Highway. Usibelli currently operates a coal strip mine in that area, and the region is thought to have high potential for coalbed methane.

The license does not allow Usibelli to explore for oil. If Usibelli unexpectedly discovers oil during exploration, it would be required to shut down activities and contact the state.

The Alaska Department of Natural Resources issued its final finding on the matter nearly five years after issuing its preliminary finding, a delay caused by local opposition to coalbed methane development in the region. Whether additional concerns remain will come to light in the coming weeks. Those who commented on the preliminary finding have until July 19 to ask the state to reconsider its decision to issue the exploration license.

If no one protests, the license would become effective on July 28.

The license requires Usibelli to conduct $500,000 worth of work over 10 years.

During the licensing phase, Usibelli can conduct geological and geophysical studies and perform environmental assessments over the area, and drill exploratory wells. If the company decides to pursue the resources further, it would need to convert the license to normal exploration leases, and follow the traditional development process from there.

Usibelli wants to find enough gas to power its mining operations, but the company has kept the door open to supplying Railbelt utilities if it finds a large enough supply of gas.

The state created the licensing program to encourage exploration outside of the traditional production areas: the North Slope, the Brooks Range foothills and the Cook Inlet basin.

Although there is currently no commercial production of coalbed methane in Alaska, companies are showing increasing interest in the natural gas potential of the state’s huge coal reserves, believed to be as high as 5.5 trillion tons, or half the national total.

More than five years of work

Because they involve activity in regions not accustomed to oil and gas development, exploration licenses can often face opposition and take a long time to reach fruition.

The state began seeking proposals for exploration in the Healy area early last decade, but got only one, from Usibelli, in early 2004. That proposal first went out for comments in January 2005, followed by two public meetings in Healy. The state issued a preliminary best interest finding on Aug. 31, 2005, kicking off a 60-day comment period.

In addition to numerous comments, both supporting and opposing the license, the Denali Borough in 2006 blocked exploration west of the Parks Highway, the area near Denali National Park and Preserve, covering about 40 percent of the proposed license area.

The borough removed those restrictions in May 2008, but left in place setbacks that prohibit drill pads within 500 feet of property lines and compressor stations within 1,500 feet of property lines unless the company strikes a deal with the property owner.

Environmental comments

The comments addressed in the final finding include concerns about water and air quality, protecting wildlife and limiting noise pollution, issues at play with resource development in any part of the state, but also include issues somewhat unique to Healy.

On the environmental issues, the state believes the coalbed methane leasing guidelines in Alaska “are more protective of environmental and surface owner interests” than those in Colorado and Wyoming, states with a history of coalbed methane development.

For water quality, the state noted that both the Alaska Department of Environmental Conservation and the U.S. Environmental Protection Agency mandate certain standards, and that the Alaska Oil and Gas Conservation Commission requires unconventional gas operators to gather baseline information about water wells in the area of development, and prohibits unconventional gas wells that touch aquifers used for drinking water.

The AOGCC also regulates disposal of waste fluids in deep injection wells.

For air quality, the state said that during the licensing phase, it couldn’t predict “the type and amount of pollutants that may be produced,” but noted that emissions would comply with the Clean Air Act. However, Healy’s designation under the Alaska State Air Quality Control Plan “allows a moderate incremental decrease in the air quality of the area.”

Concerns from the Healy area

The concerns unique to Healy arise from the unique nature of land ownership in Alaska, where the state and federal governments manage large swaths of neighboring land, and where private landowners, as a rule, do not control the mineral rights on their property.

These dynamics emerge in the comments in two general ways.

The first is how exploration might impact neighboring Denali National Park and Preserve, a premier tourism spot in Alaska and home to various migrating animals.

Alaska Department of Natural Resources Commissioner Tom Irwin treated those concerns as an issue of jurisdiction. Regarding concerns that the proposal does not require setbacks from the park boundaries, Irwin noted that the National Park Service doesn’t have the authority to manage the license area, which is entirely on state land.

Similarly, Irwin noted that the Wolf Townships, a buffer area outside the park, is also on state land, despite proposals to include them in the park. However, he said the state could impose seasonal restrictions to protect moose and caribou calving and wintering areas.

Some asked the state to reducing the size of the license area, but Irwin said removing lands west of the Nenana River “may make the project economically unfeasible.”

The second way is how exploration work could impact communities along the Parks Highway, particularly Healy. While oil and gas development is obviously widespread in Alaska, the size of the state has kept much past activity away from residential areas.

State revenues a factor

While more than 1,000 people live in Healy and other highway communities, Irwin noted, “although local interests are critical in making a decision about issuing exploration licenses, local interests are not overriding or prioritized above all other interests.”

Those interests include state revenues. Some questioned why the state would proceed with the license when the projected state revenues from coalbed methane would likely be insignificant compared to current revenues from oil and gas. Irwin noted that in addition to revenues, the project promised a “significant source of clean-burning natural gas,” close to existing infrastructure, that might one day offset declines from Cook Inlet.

Some, though, noted that Usibelli is primarily searching for gas to fuel its mining operations, not to power Interior communities. Irwin said that it’s too early in the process to know whether a coalbed methane discovery would be suitable for local deliveries.

With activity potentially taking place near homes, some worry about falling property values. Studies have shown that having coalbed methane nearby can lop 20 percent or more off the sale price of a house. The state, though, pointed to studies showing that when the development occurs more than 550 feet away, the impact is “modest.”

“It is unclear how applicable this property assessment is to the Healy area because of Healy’s smaller population and more rural setting,” Irwin wrote.

More time for Susitna Basin

The state also extended the comment period for an exploration license proposed in the Susitna Basin until July 9. For more information, visit

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