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Alaska miner turns to gas play, forms Holitna Energy Corp.
Patricia Jones, Petroleum News contributing writer
Holitna Energy Corp., recently formed by a gold exploration manager in Alaska, has applied for four shallow gas leases in Southcentral Alaska within a 50-mile range of the Donlin Creek gold development project.
The 19,840 acres requested by Holitna Energy for leasing are in a seven-mile long, six-mile wide section located east of the Holitna River and southeast of the Kuskokwim River village of Sleetmute, James Hansen, lease sales manager for the Alaska Division of Oil and Gas, told Petroleum News May 28.
The acreage is about 50 miles southeast of the 28-million ounce Donlin Creek gold prospect being developed by NovaGold Resources and Placer Dome. A key hurdle for developing the remote gold prospect into a producing mine is obtaining affordable power. St. George left NovaGold Phil St. George, former vice president of exploration at NovaGold Resources, left that company about a month ago to start Holitna Energy, said former co-worker Doug Nickolson, NovaGold’s senior projects engineer.
“He formed his own company to explore for gas and to supply gas for a power plant for Donlin Creek,” Nickolson said.
St. George, who could not be reached for an interview for this story, is listed as the contact for Holitna Energy on its lease application. Alaska regulators placed the lease application up for public comment on May 21, and will take written testimony through July 30, Hansen said.
It’s one of several shallow gas lease applications submitted to the state division in recent months, Hansen said. Shallow gas terms Terms for the shallow gas, non-competitive leases include a $5,000 per lease application fee, and one dollar per year rental for the three-year term, Hansen said. The countdown begins after the state develops and offers to Holitna Energy a lease with mitigation measures and guidelines specific to the lease area, and the company accepts those terms.
“We’ve got a template for shallow gas mitigation in the Mat-Su valley, so it won’t be that long to do,” Hansen said. “It should be less than a year, but we’ve also got lease sales to do.”
Should Holitna Energy choose to accept the state’s lease terms, it must then submit an exploration permit application for activity on the leased land.
Leases can be maintained beyond the three-year term if the company can show cause to extend the term, or if production starts on the land, Hansen said.
Shallow gas leases are for fields in which part of the production gas extends in a formation above 3,000 feet true vertical depth, although drilling work can follow the formation further down, Hansen said. “They have to show us geologically that there is an extension of the gas contained above 3,000 feet.”
Shallow gas leases are not a license to drill deeper for oil. Should a company happen to hit a hydrocarbon accumulation, they would be required to immediately “cease and desist,” Hansen said. “That’s the beauty of this program — companies can do something in an area without having a lease sale…it’s not in the best interest to hold lease sales in these areas—we’ve found no one comes to them.” Prospective area Located within the Holitna Basin, the lease area is likely located within an area that state geologists recently evaluated for gas potential, Hansen added.
“We don’t know much about the subsurface,” he said. “We’ve identified the basin through gravity data, but there’s very little information available.”
State geologists conducted limited field work in the Holitna Basin area in 2000, with a small follow-up program in 2002, in an effort to evaluate potential for gas development, said Dave LePain, geologist in the state’s Division of Geological & Geophysical Surveys (see sidebar).
That basin evaluation is difficult, due to ground conditions, he said. “There’s no exposure there — it’s muskeg,” he said. “We have no seismic data and no subsurface data or outcrops.”
Preliminary organic geochemical samples collected nearby during the first season, combined with gravity data and geological hypothesis, provide indications of good gas source potential and some liquid hydrocarbon potential, he wrote in a one-page project study summary posted on DGGS’s website.
“It gets pretty interesting in possibilities, but it’s really risky with no subsurface data,” he said. “The next step is to drill a hole.” Potential large gas user With two state-produced geological reports already publicly released and another due later this year, interest in the unexplored Holitna Basin surfaced, but not from the oil industry. It came from St. George, who worked for NovaGold for five years, during which the company spent $10 million on exploring the Donlin Creek prospect.
LePain said another group interested in the state-generated data is Calista Corp., an Alaska Native corporation also involved with Donlin Creek, as the gold prospect is located within the Native regional lands.
Calista officials working with LePain on a presentation nearly two years ago estimated that a large mine and mill complex at Donlin Creek would consume about 27 million gallons of diesel fuel a year to generate the necessary electricity. That translates to 3.6 billion cubic feet of gas a year, LePain said, and anywhere from 54 to 144 bcf for the projected mine’s life.
Since that mine energy analysis was completed in March 2001, the known size of Donlin Creek has more than doubled. NovaGold’s work in late 2001 and 2002 identified a gold resource of about 28 million ounces.
Now, developers are looking at a planned 30,000-ton per day mill, requiring about 70 megawatts of electricity, Nickolson said. Because Donlin Creek ore is associated with a sulfide material, extracting gold involves an autoclave process, which requires adding oxygen and heat to crushed ore.
“It’s not the logistics or the grade that are the hold-up—it’s the power requirement,” Nickolson said. “If we can figure out how to get around that, we can open it up.”
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