Explorers 2022: Interior Alaska keeps drawing interest

Hilcorp project in Yukon Flats follows decades of work throughout basin

Eric Lidji

for Petroleum News

The modern Alaska oil industry is in its eighth decade, and before that came decades of wildcat exploration. By now, explorers have sniffed every corner of the state.

And yet, even after so much time and work and expense, oil and natural gas production remains firmly focused in just two basins: Cook Inlet and the North Slope.

Between them is a vast region known locally as the Interior.

The Interior would seem to have many advantages. Situated well below the tundra, it sidesteps many of the seasonal restrictions that create so much uncertainty for North Slope explorers. It is close to existing road infrastructure, such as the Parks Highway. But it’s far enough away to avoid disputes over property rights and setbacks, the kind that occasionally emerge in populated sections of the southern Kenai Peninsula.

Reviewing the plays in the Interior, familiar themes emerge. One is the use of exploration licensing, which was created to encourage exploration is basins outside the North Slope and Cook Inlet. Another is the complex geology that complicates intriguing discoveries. A third is the way that larger natural gas developments, especially on the North Slope, have a way of smothering Interior projects in commercial uncertainty.

Yukon Flats

While exploration, development and production have been constant in Cook Inlet and on the North Slope for decades, the Interior has yet to become a third producing basin in Alaska. And yet, explorers have never fully forsaken the region, either.

Interest may swell and shrink in any given year, depending on the market. But there always seems to be at least one company trying to put together an Interior program.

Hilcorp is currently that company. A deal signed with Doyon in December 2019 created a multi-year framework for Hilcorp to conduct exploration in the Yukon Flats.

The Yukon Flats have intrigued exploration companies going back to the 1970s and almost came to fruition in the late 1980s, when Exxon was operating in the region. (See article on Hilcorp.)

Nenana

Doyon pursued Nenana basin exploration for two decades, chasing leads from wells drilled in the gas-prone area southwest of Fairbanks in the 1960s and the 1980s.

Doyon first secured an exploration license in the Nenana basin in 2002, launching a long effort to make a commercial discovery. The company drilled several wells, commissioned various seismic surveys, and brought together many joint ventures. But finally, in early 2019, Doyon said it was done with the Nenana basin (at least for now).

The effort proceeded in waves.

The initial wave started with the 2002 exploration license. A joint venture led by Andex Resources LLC acquired leases and 2D seismic but suspended the project during the Petroleum Profits Tax debates and North Slope natural gas pipeline discussions of 2006 and 2007. The companies felt that the policies were overlooking the Interior.

An extension of the exploration license through 2012 accommodated a new joint venture, this one led by Babcock & Brown Energy, which was later renamed Rampart Energy Co. The partnership drilled the roughly $15 million 11,100-foot Nunivak No. 1 well in mid-2009. Although non-commercial, the results intrigued Doyon. But a state-backed plan to bring North Slope liquefied natural gas to the Interior to address rising energy prices again brought uncertainty to the project, and the joint venture dissolved.

Working without partners, Doyon kept at it. The company converted some of the license to leases in 2012, commissioned a 2D seismic survey in the northern end of the basin that same year, drilled the 8,667-foot Nunivak No. 2 well in mid-2013, and then commissioned a targeted 3D seismic survey in 2015, a targeted 2D survey in early 2016, and a 64-square-mile 3D seismic survey in 2016 and 2017. And then Doyon partnered with Cook Inlet Region Inc. for the Toghotthele No. 1 well in mid-2016 and Totchaket No. 1 well in mid-2018, both located at the northern end of the Nenana basin.

But in early 2019, the disappointing results of Totchaket No. 1 convinced Doyon to withdraw investment from the project and allow its leases in the area to expire.

A separate project proceeded nearby during the same time. Rocky Riley of Tolovana Construction Co. received a five-year license for the North Nenana basin in 2015, but he had failed the meet the $500,000 minimum work commitment by 2020.

Copper River

There have been at least 12 exploration wells drilled in the Copper River basin in the Glennallen region, starting with the unsuccessful Eureka No. 1, drilled back in 1953.

The Texas-based independent Rutter & Wilbanks Corp. drilled the Ahtna 1-19 well in the area between 2005 and 2007. The well encountered natural gas, but high subsurface pressures and water encroachment prevented the company from continuing.

The Ahtna Inc. subsidiary Tolsona Oil and Gas Exploration LLC returned in late 2016 with the Tolsona No. 1 well through an exploration license. The local Alaska Native corporation designed the well based upon some of the lessons learned from Ahtna 1-19.

But the lack of announcements in the years since suggest disappointing results.

Delta Junction

The area is also thought to contain shallow natural gas.

Lapp Resources acquired more than 300,000 acres of shallow gas leases in the area in the early 2000s. The plan was to use abandoned military pipelines to bring fuel to Fairbanks. But partner Evergreen Resources backed out, and principal Dave Lappi dropped most of the leases. He said that potential investors worried that a North Slope natural gas pipeline - if built as designed - would fully supply the Fairbanks market.

Healy

“It was successful in confirming the existence of gas in the basin, but it’s inconclusive on a commercial level,” Usibelli company representative Mitch Usibelli told Petroleum News in January 2017. Although the company had permitted a four-well program, it has yet to drill a second well, and its exploration license has since expired.