Doyon, partners launch exploratory gas well

Companies take $15 million gamble on Nenana Basin project

Posted: Monday, July 27, 2009

FAIRBANKS - Drillers punching 11,000 feet beneath Nenana Basin could strike it rich with a natural gas find of 2 billion cubic feet - or they could find a dry hole.

Doyon Ltd. and three partners are taking the gamble, sinking about $15 million this summer into an exploratory gas well, Nunivak No. 1.

Even a small initial find of about 60 billion cubic feet could be enough to call the foray a success, said Jim Mery, Doyon's vice president for land and resources. He estimated the basin could hold 1 trillion to 6 trillion cubic feet of gas. For comparison, Cook Inlet has produced 7 trillion cubic feet since the early 1960s.

Doyon doesn't need a massive find to turn gas into profit and maintain aggressive exploration.

"It's unlike a North Slope project," Mery said. "With a little bit of success, you could be generating power."

With a little more, gas could run to Fairbanks via pipe, and with great success, even Southcentral could get in on the game.

Doyon is keeping its enthusiasm in check while shooting pipe deep beneath the basin, hoping to get a handle on whether gas is available. If nothing else, Mery said, data collected through the Nunivak No. 1 well will help define future exploration.

"We really have no coverage of any consequence over the truly deep part of the basin," he said, indicating potential beneath the Minto Flats State Game Refuge.

"We do think parts of that northern area have great promise," he said.

Doyon is partnering with Usibelli Energy, Arctic Slope Regional Corporation and the official developer, Denver-based Rampart Energy, which manages oil and gas properties for investor groups.

Doyon Drilling's Arctic Wolf rig was transported in 50 truckloads from the North Slope to test the find. As of Friday, crews had coaxed pipe about 7,500 feet deep through mostly loose sands making good time.

"I've seen nothing discouraging," Mery said of progress so far.

Drillers pulled the pipe Friday to conduct a mandatory test of the rig's blowout prevention equipment, and drilling was to resume Friday evening toward the 11,000- to 11,500-foot goal.

Doyon has leased drilling rights to 500,000 acres in the Nenana Basin.

Drilling is taking place on Alaska Mental Health Trust land about four miles from Nenana.

The Native corporation acquired basin data collected during the 1980s when ARCO and Union punched one well each to find oil. They struck out, but Mery said fresh data indicated promising potential on the eastern edge of the basin, where Nunivak No. 1 sits.

"We felt this was the best first place to look," Mery said.

Plenty of eyes are on Doyon's work as Interior Alaska looks for alternatives to using diesel fuel to generate power and heat space. Mery led several tours of the site last week for local business people, media, legislators and state officials.

"The gas market here in Alaska is so dynamic," Mery said. "At this point, we need to get moving."

After lunch and a safety briefing at Nunivak Camp No. 1, the tour group patrolled the well pad perimeter with Doyon Drilling training director Mike Krupa as smoke billowed high from the Minto Flats South Fire about four miles away.

Krupa has 30 years of drilling experience and said for most of the Arctic Wolf crew, trees and scenery is a novelty. They've spent most of their careers on the North Slope.

"I've never seen a tree where I drill a well," Krupa said. "These guys are loving this."

Crews drill 24 hours per day, working two weeks on, two weeks off, and lodging at the site.

"What we say in this business, you certainly don't want a rig that's quiet and dark," the burly driller said.

He pointed out drill bits with varied tips for different types of geology, ranging in price from $5,000 to more than $60,000 apiece. Pipe lay on pallets - spiral sections weigh 162 pounds per foot, adding weight when drilling begins. Smart tools offer information on the stones and sands beneath the surface. Drilling mud lubricates the pipe and offers a liquid avenue for displaced chunks of earth to follow back to the surface, a flexible mixture of bentonite and barite.

"Mud is everything," Krupa said. "But, you've got to stay on top of it all the time."

Should Doyon develop a gas play, the scene already is set with some advantages. The initial drill site is close to critical infrastructure, including the Parks Highway, Alaska Railroad and the electrical Intertie. Crews transformed a trail from the Parks Highway into a road and built four temporary bridges over waterways to access the site. The prep work this spring involved 65 percent local workers, Mery said.

A gas find could prove "an opportunity to create a whole new industry in the Interior," Mery said.

Pending successful exploration this summer, Doyon plans to drill additional wells in 2010 to define the play further. Depending on the quantities found, gas could be piped to Fairbanks and North Pole or used at Nenana to generate electricity for the Railbelt.

If gas is bountiful, Doyon could opt to pipe it 280 road miles to the Southcentral gas system, although Mery said that's a long shot.

"Our core target market has always been pipeline gas to Fairbanks and North Pole," Mery said, adding that Flint Hills' refinery and Golden Valley Electric Association would be key elements of any plan to commercialize the gas.

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