Doyon keeps up Nenana drilling; touts gas alternative to Cook Inlet

Doyon Ltd. is sticking with its oil and gas exploration program near Nenana.

Despite past challenges, the Interior Alaska Native regional corporation announced Nov. 28 that it plans to drill another exploration well in the frontier basin west of Fairbanks next summer.

The Totchaket-1 well will be drilled based on the results of a 64 square-mile 3D seismic program shot early this year, according to a Doyon release.

Company leaders think their years of exploration around Nenana are close to paying off.

“We are especially excited about the recent seismic results because for the first time in this basin we see trapped hydrocarbons,” Doyon CEO Aaron Schutt said in a formal statement. “This could be a game-changer.”

Doyon has drilled three exploration wells in recent years on the roughly 240,000 acres of state leases it holds in the area and conducted several seismic shoots. The Native corporation also owns land around Nenana.

The results of that drilling have mixed. A well drilled in 2016 did not turn out to be successful, but one drilled in 2013 hit several hundred feet of natural gas-saturated sandstone, according to company officials. If not for a faulty geologic trap, Doyon believes it could’ve produced up to 180 billion cubic feet of gas, or bcf, from the formation and potentially supplied the Fairbanks market for decades.

Doyon Vice President Jim Mery said the trap was full of water and the gas in place was under pressured as a result of the fault.

“We think the building blocks have been there and that’s why we’ve kept at it. We learn from every project and it informs us as to what we should do next,” Mery said.

The Totchaket well will be drilled to 12,500 feet and be about 20 miles north of Nenana and on the east side of the Tanana River, according to Doyon. Prior drilling was done closer to Nenana and west of the Tanana.

“Although our primary target is oil, our gas prospects are greater, so it is unfortunate timing to see the Interior Gas Utility ready now to commit to a course of action with (the Alaska Industrial Development and Export Authority) which will tie Fairbanks for at least a generation to imported LNG by truck at much less favorable price projections,” Mery said in the release.

He added that by committing to the Interior Energy Project plan to expand natural gas distribution in Fairbanks, the borough-owned utility would kill “the option for use of future Nenana gas as well as foreclosing future opportunities to tap into any North Slope gas export line.”

AIDEA spokesman Karsten Rodvik said via email that after the three-year gas supply contract the authority reached with Hilcorp for the project earlier this year expires, IGU can purchase gas from any source.

That contract, which kicks in Jan. 1, is included in the $331 million package for IGU to purchase Fairbanks Natural Gas and finance gas infrastructure build out in the Fairbanks area with low-interest state loans, bonds and grant money.

IGU leaders have expressed concerns with some of the finer points of the financing terms in the tentative deal with AIDEA, but the start-up utility board is expected to make a decision on it soon.

Since its inception in 2013, the Interior Energy Project has been intended as an interim solution to Fairbanks’ high energy costs until a gasline from the North Slope is built.

While high fuel oil costs subsided along with oil prices in late 2014 — which has also challenged the economics of the IEP by reducing the incentive for residents to switch to gas — getting more natural gas to the city would also help improve its at-times dangerously poor winter air quality.

Mery said in an interview that the gas contract is not the issue; rather, it’s the investment in the LNG supply chain — expanding the Mat-Su LNG plant, tankers and LNG storage in Fairbanks — that will tie the utility to Cook Inlet-sourced gas for years.

“Once that entity commits to hundreds of million of dollars of debt they’re wedded to that project. How can they abandon that project to buy cheaper gas? Somebody has to pay for those assets that have been acquired,” he said. “We’re just saying there might be another option; there might be a better option in the relative near term. We’re just throwing that out for the public to consider.”

IEP leaders have discussed the possibility of using the LNG supply chain to fuel other communities on the road system if another gas supply for the Fairbanks area is found, but their primary focus has been on getting the project up and running first.

Mery has said in the past Doyon could start supplying natural gas about three years after a commercially viable discovery is made.

On its current schedule, additional gas is expected to start flowing from the IEP in 2020.

IGU leaders could not be reached for comment in time for this story.

Mery noted Doyon would have to beat fuel oil prices with its natural gas if it is successful, which the company thinks it can do.

Elwood Brehmer can be reached at [email protected].

11/29/2017 - 10:22am