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Shallow gas leasing uncertainty delays Holitna project Upstart Alaska independent loses funding for winter exploration drilling; state leases still not finalized Patricia Jones Petroleum News Contributing Writer
Holitna Energy’s plan to drill two exploratory wells this winter for shallow gas and coalbed methane occurrences on prospective state land in southwest Alaska have been cancelled.
According to a Jan. 31 interview with Holitna Energy’s President and founder Phil St. George, $2 million in funding for the planned remote exploration program fell through at the last minute.
Placer Dome, a mining company earning an interest in a neighboring gold deposit, “continually told us they wanted to fund the core drilling but backed out at the last second, a really big disappointment,” he said.
“We are currently pursuing other sources of funding for a possible summer core drilling program, and possibly some spring geophysics,” St. George added. Unresolved land access One of the major reasons for the funding fiasco is unresolved land access.
Spending $20,000 for lease application fees, Holitna Energy filed in May 2003 with the Alaska Division of Oil and Gas for four shallow gas leases, covering 19,840 acres of state land. Those non-competitive leases, along with two other applications submitted under Alaska’s relatively new shallow gas leasing program, still have yet to be issued by state regulators.
Public controversy that arose from one of Alaska’s first coalbed methane development programs in the Matanuska-Susitna area, north of Anchorage, caused the delay. Recently, Alaska state officials put a moratorium on the shallow gas leasing program until additional regulations can be filtered through the public debate and Legislative approval process.
Alaska’s existing shallow gas leasing plan is “a great program. They need to stay the course,” St. George said.
Talk of possible buy-backs would be “a big mistake for the state … a setback for the shallow gas program,” St. George said. “The state knew what it was doing when it put the land out there for leasing, which is good for the state.” Leases hold up other financing Holitna’s leases being in limbo has hurt the company and its partner, local Native corporation TKC, in securing other types of financing for the project, St. George said.
“We have the (exploration) permits almost in place, even though the leases weren’t issued yet,” he said. “Even so, it’s tough to do financing with the land tenure not completed.”
Although it’s legally allowable to permit and conduct some initial exploratory work on the state ground without approval of the leases, St. George said it’s difficult to secure private financing for exploration without the land tenure issue resolved.
“We’re trying to get the leases finalized as quickly as possible,” he said.
State regulators told him to expect finalized leases in late February or early March, he said. Leases likely to be issued this summer Pat Galvin, coalbed methane coordinator for the Alaska Division of Oil and Gas, said it’s likely to take several months before shallow gas leases are issued.
“In the summer is our best guess,” he told Petroleum News Feb. 4.
Galvin is involved in a series of public workshops in the Mat-Su area, which are continuing throughout February. Comments from those five meetings will be incorporated in the revised state shallow gas leasing program that state Legislators will consider, he said.
A draft document will be produced and then be released for further public comment, Galvin said.
Terms in the state’s existing shallow gas program, developed by legislation passed in 1996, include a $5,000 per lease application fee, and one dollar per year rental for the three-year term. 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.
Alaska’s non-competitive 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. Gas for gold mine power St. George, a long-time mineral geologist and a former project manager at the 28 million ounce Donlin Creek gold deposit in southwest Alaska, left the mining industry last spring to work on the Holitna gas project.
Based on geological and geochemical information gathered by state geologists in recent years, St. George and his partners believe there is a gas resource in the remote area that would be sufficient to power a large industrial user, such as a proposed gold mine at Donlin Creek.
“Technically, the basin is looking better with every bit of new data we get,” St. George said. “So we are more encouraged then ever that there is something there.”
His fast-track development plan was designed to identify the presence of gas this spring, in order that it be considered by Placer Dome during the company’s on-going feasibility study for the Donlin Creek project, located about 50 miles northwest.
Now, St. George believes the mining company will need to use another source of power for consideration in the feasibility plan, while Holitna Energy continues to pursue its exploration.
“If gas is there, it will be a benefit … it’s cleaner and a less expensive fuel, so whatever (other energy source) is permitted, it will be over-permitted,” St. George said. “If we find gas out there, it will be the energy source for Donlin Creek."
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