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THE EXPLORERS 2006 - Nenana gas project still on hold New economic risk: State taking its North Slope royalty gas and dumping some in Fairbanks for cheap Kay Cashman Petroleum News
Tom Dodds, president of Andex Resources, told the Alaska House Finance Committee April 3, 2006 that Andex and its partners were on hold in planning for a Nenana basin gas exploration well pending resolution of the proposed petroleum production tax.
Andex and its partners Usibelli Energy, Arctic Slope Regional Corp. and Doyon Ltd. completed a 2-D seismic survey west of the town of Nenana in the spring of 2005 and spent the summer interpreting that data, Dodds said.
Dodds told legislators that the partners wanted to try new reprocessing of the seismic data, which delayed drilling to the winter of 2006-07. Logistics work was planned to start in February 2006, he said, but then the new PPT tax appeared, which he believed would result in a tax increase..
A new production profits tax was signed into law Aug. 22, 2006, a tax that several North Slope explorers have said is positive for exploration.
On Oct. 27, 2006, Petroleum News asked Andex if it would move ahead with its Nenana drilling plans in the upcoming 2006-07 winter drilling season.
PPT does not help undeveloped basins The answer is no, says Jim Mery, senior vice president of lands and natural resources for Doyon.
“We are still reviewing the impacts of the PPT, as well as increasing exploration and development costs. The PPT did not help our project, which is quite a bit different from North Slope projects. We are in a virgin basin. No one has determined if there is a petroleum system present at Nenana,” Mery said.
“There is no gathering system, processing facility or pipeline to market. Unlike oil on the North Slope, there are no large, unlimited markets for Nenana gas; and we are unlikely to ever get access to any North Slope gas line,” he said, noting that drilling and pipeline costs “have risen dramatically since our group started this project.
“Plus, what has emerged in recent months is the growing political and very large economic risk of the State of Alaska taking its royalty gas and dumping some of it in Fairbanks for almost nothing once the North Slope line gets built. So, the risks are substantial,” Mery said.
Cook Inlet protected The PPT, Mery said, “reduces the potential reward of higher commodity prices for taking these risks in a project like ours, when compared to the prior production tax. As you know, the Cook Inlet got fenced off and will never have to pay the full tax, but we would. Moreover, if some semblance of the governor’s North Slope gas line deal gets accepted,
those producers will never pay the full tax, but we would.”
Nonetheless, Andex and its partners are still “working hard” to make their project viable.
“We are tearing down many of our initial economic and geologic assumptions about the project, and reworking the numbers,” he said.
Looking at summer drilling “For example, drill rig availability is still a big problem for a winter program, due to all the activity elsewhere in the state. So we are looking at a summer 2007 program when rigs are generally stacked,” Mery said, pointing out that summer drilling is more expensive.
The partners are also trying “to figure out how to reduce costs elsewhere in the project. “We hope to reach a decision later this winter about drilling,” Mery said.
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