Friday, August 31, 2012

Doyon to spend $37M on exploration, Nenana test well

Tim Bradner
Alaska Journal of Commerce

A helicopter transports a drill from a staging area at the end of Standard Creek Road overlooking the Minto Flats during the North Nenana seismic program conducted by Doyon Ltd. last winter. The corporation announced Aug. 27 that it would spend $37 million on exploration this year, as well as a second test well in the prospective Nenana basin west of Fairbanks.
Courtesy Doyon Ltd.

Doyon Ltd., the Interior Alaska Native regional corporation, says it will spend $37 million this year on several oil and gas projects in Interior Alaska and will drill second a test well in the prospective Nenana Basin, west of Fairbanks, this winter.

Doyon will also be the first explorer to take advantage of a new Alaska exploration incentive that will have the state pay for 80 percent of the well and extend preferential state tax treatment, Doyon CEO Aaron Schutt said in a Aug. 27 briefing in Fairbanks.

The new well will be Doyon’s second in the Nenana Basin. The first well, Nunivak No. 1 drilled in 2009, found evidence of hydrocarbons but was not a commercial discovery, said Jim Mery, Doyon’s vice president for natural resources.

Doyon is based in Fairbanks.

Permit applications for the ndew well have been made, Mery said. Its location is about 11 miles west of Nenana and about 8 miles west of the Nunivak No. 1 well drilled in 2009, Mery said.

Doyon is also interested in the northern part of the basin following seismic work done there last winter, and more seismic testing is planned for this winter. Applications for permits for two potential wells are being prepared for that area but they will not be drilled this winter, Mery said.

Doyon had four partners in the 2009 well including independents Rampart Energy Co. of Colorado and Minnesota-based Cedar Creek Oil and Gas Co., and two Alaskan firms, Usibelli Energy and Arctic Slope Regional Corp., another Alaska Native corporation.

Those companies have an option to join in on the second well but for now Doyon is proceeding on its own, Mery said.

In the Aug. 27 briefing, Schutt said Doyon’s board has approved $37 million for Interior oil and gas exploration projects this year that include the well and additional seismic in the Nenana Basin as well as seismic exploration in the Yukon Flats basin north of Fairbanks.

“These projects show a lot of promise. If successful, they could provide substantial benefits not just to our shareholders, but also to all Alaskans in terms of jobs and helping alleviate the energy crisis in Interior Alaska,” Schutt said.

The initial target is for natural gas that would serve Fairbanks, about 60 miles east of the exploration site, but there is oil potential as well. Flint Hills Resources operates an oil refinery near Fairbanks and the Trans Alaska Pipeline System, which is operating below its capacity, runs near the city.

The Nenana Basin program is on state-owned lands but in the Yukon Flats Doyon will explore its own lands and lands belonging to nearby village corporations, Mery said. An area near Stevens Village, on the Yukon River, is of particular interest, Mery said. It is also very near the TAPS pipeline, he said.

Doyon and its partners now hold a state exploration license in the Nenana Basin, which gives the corporation rights to explore across approximately 500,000 acres of state lands and to convert some of the license area acreage to leases.

This year Doyon will convert 400,000 acres, most of the land now held under the exploration license, to conventional state leases with seven-year terms.

Besides the Nenana Basin in the Interior the state has issued four other exploration licenses in the Copper River and Susitna River regions, but Doyon is the first to convert areas in the licenses to state oil and gas leases.

Schutt credited the new state incentives with allowing Doyon to proceed with the well. A change in state tax law approved by the Legislature in 2012 extended to Alaska frontier basins special incentives enacted for Cook Inlet three years ago that has now attracted new companies to the Inlet, and that have resulted in new discoveries of natural gas.

The incentives provide for the state to pay directly for 80 percent of well costs and 75 percent of seismic, Schutt said, and also to extend to frontier basins a low state production tax that applies to Cook Inlet rather than a higher tax that applies to the North Slope. That would previously would have applied in frontier basins.

“The recent state legislation expanding exploration incentives and a change in the oil production tax regime in frontier basins including Interior Alaska, were essential for us to move forward with these substantial projects,” Schutt said.

Senate Bill 23, approved by state lawmakers in the 2012 session, included sections creating the new frontier basin incentives.

Schutt gave credit to State Rep. Steve Thompson, R-Fairbanks, and state Sen. Tom Wagoner, R-Kenai, who took the lead in extending the new incentives to the frontier areas.

Thompson, who attended the Doyon briefing in Fairbanks, said, “Doyon is the Interior’s biggest player in oil and gas today and when they talk, we listen. The potential for jobs, lower energy costs and a more positive future outlook is amazing.”

Besides the Nenana Basin the incentives cover the Yukon Flats, the Selawik Basin near Kotzebue where NANA Regional Corp. of Kotzebue hopes to promote exploration, the Copper River basin near Glennallen, and Emmonak, Egegik and Port Moller in southwest Alaska.

Doyon owns about 11 million acres of Interior Alaska lands and its one of the nation’s largest private landowners. It has about 18,500 shareholders, mostly Interior Alaska Athabascan Indians.

Doyon also owns several operating companies including Doyon Drilling, one of state’s major drilling contractors, and pipeline and utility service and operating companies. Besides conducting oil and gas exploration on its lands and state lands, the corporation also has a substantial minerals exploration program underway on lands.

Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/September-Issue-2-2012/Doyon-to-spend-37M-on-exploration-Nenana-test-well/#ixzz257jCpsLb