Doyon seeks partner for gas exploration

Andex Resources pulls out of search in Nenana basin

Posted: Friday, December 21, 2007

ANCHORAGE - The possibility of a large gas find in the Nenana basin in Alaska's Interior, just 35 miles southwest of Fairbanks, has intrigued people for a number of years.

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But Andex Resources, the operator of an exploration program in the basin since 2002, has decided to call it quits. Andex is not investing any more money in Nenana exploration, Jim Mery, senior vice president of lands and natural resources for Doyon Ltd., told Petroleum News Dec. 6.

Doyon, along with Arctic Slope Regional Corp. and Usibelli Energy, were Andex's partners in the exploration venture.

Andex lost interest in the project in 2006 when the state of Alaska introduced its new petroleum profits tax that would have resulted in a tax rate of 22.5 percent on profits from a Nenana gas field. But the inclusion of preferential production tax rates for Alaska-produced gas used in-state in the new production tax the Legislature enacted in November significantly improved the economics of Nenana gas production, Mery said.

So Doyon plans to find a new partner to replace Andex and forge ahead with the Nenana exploration.

"Now we're in a process of trying to get the project moving again. We've lost, in effect, a 50 percent partner," Mery said. " Our goal is to get a drilling rig on the ground in the winter of 2009."

The special session of the Alaska Legislature that enacted the new production tax came too late to pull everything together for drilling in the winter of 2008-09, Mery said. Meantime engineers are looking at well sites and evaluating rig options and rig costs, he said.

The 8,500-square-mile Nenana basin lies in a long, narrow, northeast trending zone just a few miles northwest of the town of Nenana. The basin exhibits somewhat similar geology to the prolific Cook Inlet basin and is generally considered prospective for natural gas. An Andex geologic assessment of the basin indicated the possibility of 3 trillion cubic feet of technically recoverable thermogenic gas in the basin, with the possibility of additional biogenic gas.

But past exploration of the basin has been very limited.

Unocal drilled the Nenana No. 1 well to a depth of 3,062 feet in 1962 and ARCO drilled the Totek Hills No. 1 well to a depth of 3,590 feet in 1984. Both of these wells lie toward the edge of the basin and neither found oil or gas. Geologists think that the basin may be as much as 16,000 feet deep at its deepest point.

Denver- and Houston-based Andex originally entered the Alaska oil and gas industry when it participated in BP's West Gwydyr exploration project on the North Slope. Andex shifted its attention to the Alaska Interior after the Gwydyr No. 1 well was plugged and abandoned in the winter of 2000.

The company purchased and reprocessed some Shell and ARCO seismic data for the Nenana basin area, and using seismic interpretations, well data from the two wells and information from surface outcrops completed a geologic model for the Nenana basin. Encouraged by the results of this modeling exercise, the company applied for a state exploration license.

In 2002 the state of Alaska awarded Andex the exploration license for about 500,000 acres of state land in the basin. The terms of the seven-year state license included a work commitment of $2.5 million. In addition, the company negotiated oil and gas leases on about 41,000 acres of Native land owned by Doyon and on about 9,500 acres owned by the Alaska Mental Health Trust.

Then in 2004 Andex formed its Nenana basin exploration partnership with Doyon, ASRC and Usibelli Energy, leading to the shooting of a 2-D seismic survey west of Nenana in the spring of 2005. Andex proceeded with the analysis of the new seismic data, to determine a site for a 10,000 to 12,000-foot wildcat well.

"Our intention is to have that data processed and interpreted such that we'll be able to define drill sites so that we can be drilling our first wildcats next drilling season, in early 2006," Bob Mason, Andex vice president of exploration for the northern region, said at the time contractor PGS Onshore was shooting the new Nenana seismic. "With success, we could be moving into the development phase based on our initial wells, as early as late 2006, or 2007, and depending on the results we see from this drilling, we could be in the process of negotiating, and then finally building a pipeline into Fairbanks, such that we could have first gas sales in 2008."

But the spring of 2006 saw the long PPT debate in the Alaska Legislature. Tom Dodds, president of Andex, told the Alaska House Finance Committee on April 3, 2006, that Andex and its partners were on hold in planning a Nenana basin gas exploration well, pending resolution of the proposed PPT.

The Nenana basin lies close to a significant Interior Alaska market and a potential gas pipeline corridor connecting Fairbanks to Anchorage along the route of the Parks Highway, where rights of way already exist for the highway, the Alaska Railroad and the northern Railbelt electrical intertie. Developers say there might also be the possibility of using Nenana gas to fuel a power station for the Alaska Railbelt electrical grid.



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