The Explorers 2018: Ahtna encounters familiar challenges with Tolsona

The Alaska Native corporation describes Glennallen-area well as ‘disappointing,’ spends year in regulatory tussle

Eric Lidji

for Petroleum News

In the months before operations began on the Tolsona No. 1 well, and during the weeks operations were underway, Ahtna Inc. provided regular updates on its progress.

By comparison, the year that followed was somewhat quiet.

The biggest news was a regulatory dispute between the Alaska Native corporation and the Alaska Oil and Gas Conservation Commission over suspension activities at the well.

While that matter is largely resolved, the results of the well remain mostly unknown.

Through its wholly owned subsidiary Tolsona Oil and Gas Exploration LLC, Ahtna launched a natural gas exploration program in the Copper River region in recent years in the hopes of offsetting expensive energy sources with an affordable local supply.

The program is the latest effort in decades of interest in the region around Glennallen, starting with the unsuccessful Eureka No. 1, drilled in 1953 with a cable tool rig. The subsequent exploration activity in the region yielded promising hydrocarbon shows but also identified significant geologic challenges that consistently thwarted development.

All 11 wells drilled in the Copper River region prior to the Tolsona program encountered gas. The most recent was the Ahtna 1-19 well drilled by Texas-based independent Rutter & Wilbanks Corp. between 2005 and 2007, about two miles east of the current well.

But all 11 wells also encountered complex geology.

For example, Ahtna 1-19 found natural gas, but high subsurface pressures and water encroachment ultimately forced Rutter & Wilbanks to plug and abandon the well.

Armed with this knowledge, Ahtna used especially large diameter casing strings to accommodate additional casing when the well encountered water. The company also used “managed pressure drilling” to respond to high pressures encountered in the well. And the drillers started with a small 1,100-foot pilot hole before setting the first casings.

Even with these precautions, and with the knowledge gleaned from seismic and well data, Ahtna was forced to improvise in response to unexpected geology. “We had to drill the well deeper than we had proposed because the formations were coming in deeper in the fault block that we were in,” drilling manager Marty Lemon said in December 2016.

Ahtna drilled the 5,500-foot Tolsona No. 1 well - some 700 feet deeper than it had originally intended - into the thick Nelchina sandstone intervals of the basin in late 2016.

Log data obtained from the well indicated the possibility of a natural gas resource, but Ahtna was unable to say at the time whether it had discovered commercial volumes. The company referenced five distinct intervals of interest to consider during flow testing and said testing would involve perforating well casing between 5,000 and 5,220 feet.

In early January 2017, Ahtna said that it expected data evaluation on the well to last for several months. The company provided no additional results about the drilling or testing throughout 2017. But in an annual message in January 2017 where he formally announced the decision to suspend operations, Ahtna CEO Tom Maloney wrote, “These results are very disappointing, as we have all hoped and prayed for commercial success.”

AOGCC fine

The agency had issued a notice of proposed enforcement action against the company in April 2017 for failing to provide pressure reports, to give inspectors from the commission a chance to witness pressure tests and to install a required pressure gauge on the well.

The action emerged from suspension activities at the well in December 2016.

Early in the suspension operations, increased pressure in the casing annulus of the well triggered various pressure monitoring and reporting requirements by the AOGCC. The company was slow to respond or entirely non-responsive to these requirements throughout February and March 2017, leading to the fine, according to the AOGCC.

Through its subsidiary, Ahtna formally responded to the charges in late June 2017.

“Immediately upon receipt of the Order, Tolsona performed a comprehensive internal investigation, which revealed numerous deficiencies in Tolsona’s communication, both internally and with the AOGCC,” the company wrote in its June 23 response. “These were caused by changes in personnel, the loss of experienced technical capacity, a failure to create internal redundancy, and lack of oversight in the communication channel.”

The company described an ongoing situation where readings were taken but never delivered to the AOGCC as required, and where information was received from the AOGCC but never delivered to the appropriate senior management of the company.

As a response to the shortcomings, Ahtna instituted new internal communication policies and hired Petrotechnical Services of Alaska to assist with communication to the AOGCC.

But the company also lobbied for a lesser penalty, saying that $380,000 was disproportionately high by the standards of other fines issued to other operators.

At a mid-September 2017 hearing, Tolsona officials described the circumstances surrounding their violation and detailed their efforts to correct those problems going forward. The AOGCC reduced the fine to $92,000 in a late November 2017 ruling.

All told, the AOGCC imposed a $60,000 penalty against the company for failing to install appropriate gauges at the well and a $32,000 penalty for failing to provide monthly pressure reports. The commission also ordered to company to begin the application process for plugging and abandoning the exploration well before Dec. 14, 2017.

Exploration licensing

The state issued a five-year license for the Tolsona basin in December 2013. The license covered 43,492 acres and required Ahtna to spend at least $415,000 on exploration.

The company had already spent $3 million on the program by February 2015 and estimate a total cost between $10 million and $15 million by the end of operations.

The program began with considerable seismic acquisition.

Ahtna commissioned Global Geophysical Services in late 2014 to conduct a 2-D survey covering some 40 miles. Ahtna also reprocessed some 80 miles of existing 2-D data.

Based on these efforts, Ahtna Vice President of Land and Resources Joe Bovee told the House Energy Committee in February 2015 that the company had a 60-to-70 percent chance in finding natural gas with a new well in a geologic structure west of Glennallen.