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Needs leases, mining company agreement Holitna Energy wants to drill shallow gas project in southwest Alaska, needs finalized leases, agreement with mining company Patricia Jones Petroleum News Contributing Writer
Phil St. George, president of recently formed Holitna Energy, needs leases from the state of Alaska and a working agreement with a mining company considering construction of a large hard-rock mine neighboring his company’s shallow gas prospect in remote southwest Alaska.
Those two pieces of paper are keeping the upstart exploration company from drilling on gas prospects in the Holitna basin, a teardrop-shaped formation that stretches for some 70 miles along the Farewell Fault east of the Holitna River and southeast of the Kuskokwim River village of Sleetmute.
State regulators overseeing the shallow gas leasing program are currently working on surveys and land status of the area, St. George told the Alaska Miners Association in Fairbanks March 17. He’s waiting for a moratorium on shallow gas leasing to end, in order to receive leases his company applied for in May 2003.
“May is our drop-dead date for planning summer work,” St. George said, when asked when the company’s first drilling work will start. “We’ll be out there the week after we get money for drilling.”
Holitna Energy Corp. and its partner in the project, The Kuskokwim Corp., TKC, have “two good looking private financing options,” St. George said, for the initial $1.7 million needed for core drilling and some additional gravity surveys. “Financing is easy, with cooperation from the mining company in a take or pay agreement.”
Such agreements are standard in the oil and gas exploration industry, St. George added.
He’s hoping to negotiate such an agreement with Placer Dome, a major mining company working on a feasibility study for the Donlin Creek gold deposit some 50 miles northwest of the Holitna Basin shallow gas prospect.
Operation of a large-scale hard-rock mine, envisioned by developers of Donlin Creek, will require some 60 megawatts of electric power. St. George hopes to provide shallow gas for that energy source.
But he can’t finalize financing for the first stage of exploration, he said, without leases in hand and without a working agreement with the potential user of the field’s resources. State benefits Alaska state geologists identified the potential gas-prone region, based on grassroots geological and geophysical work that includes analysis of low quality coals exposed in sections of the fault.
Gravity surveys indicate the basin is more than 10,000 feet deep, with exposed intervals of 537 feet of coals or carbonaceous shales, St. George said.
“It has good potential for conventional gas or coalbed methane,” he said. “Personally, I think gas is the cleanest fuel for use in this region.”
Shallow gas development could replace up to 2.6 million gallons of diesel fuel used in electric generators by 20 or so local villages and could save the state and federal governments more than $3 million a year in electric power subsidies to the region, St. George said.
In addition, he estimates the state would receive $1.2 million a year in royalties and about $400,000 in corporate income taxes from the proposed gas development.
The project would need to produce approximately 300 million cubic feet of gas per day to meet the needs of the proposed gold mine at Donlin Creek and to supply electric power needs for villages.
That translates to 5.9 billion cubic feet per year, St. George said. Project finances During his presentation, St. George outlined development costs for the proposed shallow gas project. In addition to the $1.75 million for initial core testing, about $6.6 million in production tests would be required.
Field development costs are estimated at $42.19 million, and gas transmission lines, involving burying a four to six inch pipeline, would cost about $20 million. Total project costs are estimated at $70 million.
The technology is “amazingly simple,” said St. George, who has a long career as a minerals geologist. “Typical production facilities are contained in a 150 by 150 foot building. This is not a North Slope appearance.”
A buried gas line, vs. building a power plant at the gas field and transmitting electricity by power lines, is the preferred alternative. “A buried pipeline is cheaper … and is more visually appealing,” St. George said. “About $200,000 per mile is the lowest price we’ve seen for transmission lines.”
Villages and the mine would benefit more from having gas on location, rather than just buying electricity. In villages, gas could be used for heat as well as power generation, he said.
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