NordAq gets Chinese financing $90M investment, $150M credit

NordAq Energy Inc. is moving ahead on its drilling plans for the North Slope and Cook Inlet thanks to a recently announced financial package from a Chinese firm.

The private investment group Chinanx has agreed to invest $90 million and provide a $150 million debt facility to help NordAq develop its Alaska portfolio, according to the two companies. NordAq said that it received an initial $20 million tranche on Sept. 9.

With the investment, NordAq can pursue “gross unrisked potential recoverable reserves” of 1.2 billion barrels of oil and 115 billion cubic feet of gas, according to the companies.

As part of the deal, Chinanx Honorary Chairman Doris Cheng is now the vice chairman of the NordAq board of directors, which the parties point to as one sign that the agreement “forms the basis for long-term cooperation between the two companies.”

The recent revisions to the Alaska fiscal system - a 2013 law that survived a voter referendum in August - “facilitated” the deal by “signaling to the financial markets that Alaskans are committed to a stable fiscal regime,” according to the two companies.

An ambitious portfolio

The company made a natural gas discovery in 2011 with the Shadura No. 1 exploration well, located west of the Swanson River field in the Kenai National Wildlife Refuge.

A regulatory snafu over mitigation measures in the refuge stalled development plans until July 2013, when the U.S. Fish and Wildlife Service approved NordAq’s preferred development scheme for the prospect. While optimistic about the field, NordAq has wanted to drill a delineation well to prove initial results. “It’ll really hinge on this second well,” NordAq Land Manager Chick Underwood told Petroleum News in May 2014.

Next, NordAq expanded its vision to the west side of Cook Inlet.

In October 2012, the state approved the 7,680-acre Tiger Eye unit. Soon after, as per a unit agreement, NordAq drilled the Tiger Eye Central No. 1 well. The results prompted NordAq to propose an eight-well program to bring the field online by October 2013, but the program subsequently proceeded slowly and development plans have been on hold.

Through acquisitions in federal leases sales in 2011, 2012 and 2013, NordAq also amassed a discontinuous a land position across the National Petroleum Reserve-Alaska.

The largest chunk is in the Smith Bay region, which is thought to be highly prospective for oil but is far from the nearest oil and gas infrastructure at the Colville River unit.

The land position also includes the Aklaq, Amaguq and Tuvak prospects, which are located even deeper within the NPR-A and even farther from existing infrastructure.

In 2013, the company subsequently proposed an eight-well program at Smith Bay over two winters. The work would have been split between coastal region and onshore sections of the northwest planning area of the NPR-A. The work was initially scheduled to begin earlier this year but presumably was delayed by the search for financing.

- Eric Lidji

RCA looks to Legislature for direction

The Regulatory Commission of Alaska plays a role in the state’s power generation and transmission, but it is “not inclined toward regulatory overreach,” RCA Chair Bob Pickett told legislators at the Energy Roundtable Workshop Sept. 5. The workshop, “Designing Alaska’s Future: Removing Energy Gridlock,” chaired by Rep. Doug Isaacson, R-North Pole, co-chair of the House Energy Committee, heard from players in the state’s energy industry, including the Alaska Energy Authority, RCA, electric utilities and independent power providers (see overall coverage in main story).

The Legislature has never given RCA “siting authority for either generation or transmission,” Pickett said. RCA responds to filings when utilities are adding a new asset to a rate base. “And so we sort of see things when it’s a done deal,” he said.

Providing RCA with siting authority “will probably be on your plate” to review, Pickett told legislators. Since the commission is “a creation of the Legislature,” he requested that when the Legislature tells RCA to do something, “please be as clear as you possibly can.”

ISO study

Pickett said RCA received $250,000 in the capital budget to determine, by June 30, 2015, whether it would be beneficial to create an independent system operator, an ISO, “or similar type of structure in the Railbelt.”

In mid-July RCA contracted with the Alaska Center for Energy and Power at the University of Alaska Fairbanks.

“Primarily I wanted to secure the services of Antony Scott,” Pickett said. Scott, senior economist and energy analyst with ACEP, was formerly on the staff of RCA. Pickett said Scott was instrumental in the trans-Alaska oil pipeline settlement methodology case “that ultimately ended up revising the whole way TAPS tariffs are determined.” Pickett said the initial phase of the study is determining what the commission has in its records on transmission. RCA will make a determination and recommendation to the Legislature next summer, but Pickett said he anticipates interim reports to the Legislature along the way.

IPPs want access

Duff Mitchell, vice president and business manager of Juneau Hydropower Inc. — a privately funded proposal for a hydro project which would provide power in Juneau — and executive director of the Alaska Independent Power Producers Association, told legislators the state needs to change its regulations to encourage competition in the electrical power industry.

He cited 2012 figures from the U.S. Energy Information Administration showing Alaska was last among the states in generation of heat and power by IPPs.

Using EIA figures from this May, Mitchell also said Alaska had the second highest rates for electricity in the United States, with residential rates 39 percent higher than overall U.S. rates, commercial rates 42 percent higher and industrial rates 149 percent higher. On a kilowatt hour basis those rates are 17.88 cents in Alaska, compared to average rates of 12.84 cents; Alaska commercial rates are 14.93 cents compared to 10.51 cents overall in the U.S.; and 16.33 cents for industrial rates in Alaska, compared to 6.76 cents U.S.

Mitchell told legislators IPPs can only do business if they provide power cheaply and said Alaska is holding IPPs back from some solutions to Alaska’s energy costs.

Ethan Schutt, president of CIRI Energy, which provides wind power from a facility at Fire Island offshore Anchorage, said that as an IPP, you can only sell to a utility which has a certificate of public convenience and necessity. He also said open access to transmission was needed, noting that CIRI can sell to Chugach Electric Association, but said it would be difficult for CIRI to sell beyond Chugach because of transmission issues.

—Kristen Nelson