THE EXPLORERS 2004: State’s non-competitive CBM program abolished

A one-time opportunity to convert shallow gas lease applications to exploration license saves day for Holitna Energy, which is looking to tap remote gas to power Donlin Creek mine in southwestern Alaska

Kay Cashman

Petroleum News

Companies interested in tapping Alaska’s shallow gas experienced a setback in mid-2004 when the state of Alaska legislated out of existence its non-competitive, first-come first-served, shallow gas leasing program, also known as the coalbed methane program.

Alaska’s non-competitive shallow gas leasing program started in the mid-1990s with the goal of providing access to cleaner, less expensive natural gas resources in isolated rural areas of the state, replacing diesel. But after the Alaska Legislature approved the program in 1996 and the state Division of Oil and Gas started taking applications for the over-the-counter leasing program, it became evident that much of the interest was not in small blocks in rural areas, but in large blocks on the state’s road system.

The Legislature amended the program to better cover the state’s leasing costs and to accommodate the larger blocks of land needed for commercial development. But, unlike the state’s competitive leasing programs, shallow gas did not require a best interest finding and the large amount of shallow gas acreage in the Matanuska-Susitna Borough created public concerns about surface use issues.

In response to these concerns, the Legislature passed House Bill 531 on May 11, 2004, abolishing the state’s shallow gas leasing program. This left a number of pending shallow gas applications, including companies looking to tap shallow gas for remote mining operations.

Holita Energy Co.’s was one of those applicants. Its four pending shallow gas leases in southwestern Alaska were about 50 miles from the Donlin Creek mine project, which would need a low-cost source of power to help make the proposed gold mine financially feasible.

One year process

On July 2, 2004, Holitna Energy, and its Native corporation partner, TKC, submitted a request to the division to convert its shallow gas applications to a Holitna basin exploration license under the state’s conventional gas leasing program.

On Oct. 22, 2004, the division issued a public notice saying it intended to evaluate Holitna Energy’s proposal, which encompassed 26,880 gross acres.

In its public notice the agency asked for comments on the proposed license area. The 60-day comment period ends Dec. 21.

Before issuing an exploration license the division also will have to issue a finding to determine if an exploration license in the area is in the state’s best interests, which typically takes about a year to complete.

Pat Galvin, the division’s permitting and leasing manager, told Petroleum News Oct. 22 that even though the agency had hired a private contractor to help with the workload related to converting shallow gas lease applications to exploration licenses, the one year time period could likely not be shortened.

Pebble power possible

The company’s top executive, Phil St. George, told Petroleum News that Donlin Creek may not be the only potential large mine customer for Holitna basin gas. St. George said he was approached by state development employees interested in taking Holitna gas about 100 miles south to Iliamna Lake, to the giant Pebble gold-copper-molybdenum project.

Despite the loss of the non-competitive, shallow gas leasing program, which was designed to help bring low-cost energy to rural Alaska, St. George remains positive about his company’s chances of finding gas to supply power and heat for Donlin Creek.

“We’ve got new information that there’s a good possibility of finding conventional gas, so we think there’s a better chance,” he said on May 25, 2004. “We’ve got some more data on the basin and I don’t want to say any more about that.”