The Explorers Magazine Preview: Explorers keep pursuing exploration licenses

Program continues to make acreage available outside major producing basins

Eric Lidji

for Petroleum News

Alaska has many small prospects that would be instantly sanctioned almost anywhere else in the country but are not large enough to overcome the logistical challenges inherent to the far north: getting supplies to the site and moving production back to market.

While some of those burdens have been gradually overcome in large basins thanks to decades of step-out development, no one has yet cracked the code for the rest of the state.

And yet, explorers keep trying.

The exploration licensing program offered by the state Division of Oil and Gas is a way for companies to venture beyond the regions covered by existing lease sales. In the decades since the exploration license program was launched, it has led to many issued licenses, a small number of exploration activities, and no commercial production to date.

The state Division of Oil and Gas can make a preliminary determination that certain areas are suitable for exploration licensing and then begin accepting proposals for exploration.

Each April, companies can request a license for a geographic area between 10,000 and 500,000 acres, along with a proposed financial work commitment and a term limit. Other companies can then make competing bids, in an effort to get the best deal for the state.

There are currently two active "determined" areas.

The "Southcentral Region" is an L-shaped area including the coastline along Prince William Sound and extending north to include the southern edge of the Interior, including the cities of Cordova, Valdez, McCarthy, Glennallen, Talkeetna, Paxson and Tok.

The "Nenana Region" covers a smaller area immediately west of the Fairbanks North Star Borough and immediately west and north of the Interior city of Nenana.

There is currently one active exploration license and one license under appeal.

Houston-Willow

The partners originally submitted the application in April 2007 with local independent LAPP Resources Inc. but resubmitted after the death of principle Dave Lappi in 2011.

According to the Division of Oil and Gas, some 22 earlier penetrations have been drilled in the Houston-Willow basin, mostly to evaluate shallow gas and coalbed methane.

Exploration began around 1917, when excavations for the Alaska Railroad exposed subbituminous coal. The coal supplied area military bases until at least 1955. The U.S. Bureau of Mines drilled three core holes in 1951-52, with reports of methane and brackish water. Anchorage Oil and Gas completed a sidetrack of one of these core holes in 1955, but no information exists about the results. Anchorage Gas and Oil Development and Hackathorn Drilling separately completed five wells between 1956 and 1962.

After a period of dormancy, Growth Resource International and Evergreen Resources completed six coalbed methane wells in the Houston area between 1998 and 2004.

The state approved the exploration license with the hope that modern exploration techniques "would likely help to resolve details of the anticline's geometry and to clarify its conventional gas and CBM resource potential," according to the decision results.

Gulf of Alaska

The Division of Oil and Gas initially leaned toward granting the company a 10-year license over 65,773 acres with a $1 million work commitment but ultimately denied the application in late 2020, saying it failed to serve the best interests of the state.

The state said the denial reflected the particulars of the project -- its technical complexities relative to the current geologic prospects -- not a disinterest in seeing activity in the basin. In short, "the potential positive effects of the exploration license do not clearly outweigh or balance the potential negative effects to the other resources and habitat of the license area," then-Division of Oil and Gas Director Tom Stokes wrote.

A British consortium drilled near Katalla Meadows in 1902 to investigate oil seeps from the mid-1890s. The consortium sold some of its assets in 1910 to Amalgamated Development Corp. out of Washington state, which sold them to Chilkat Oil Co. in 1911.

Chilkat Oil built a small refinery. Kennecott Copper Corp. acquired the properties in 1922, a few years after additional drilling in the area led to a small boost in production. The area was seen as promising but hampered by its remoteness. The refinery burned down in 1933 and was never rebuilt. All told, some 154,000 barrels of oil were produced.

Northern Development Co. visited in the 1950s, using a provision of federal law giving the Interior Department permission to grant contracts in frontier basins. Other companies explored through the early 1960s, all without success. Chugach Alaska Corp. secured an exclusive exploration contract from the early 1980s through the early 2000s.

Cassandra Energy President William H. Stevens joined that venture in the early 2000s, but his project was thwarted by a combination of environmental and regulatory delays until the late 2010s, when he submitted his exploration license application to the state.

Susitna Valley

The two license areas covered 913,249 contiguous acres in the Susitna River basin within the Matanuska-Susitna valleys, immediately west of the Parks Highway.

Alaska Natural Gas Corp. submitted its proposal in late April 2017, asking for 10-year licenses, each with a $500,000 work commitment. Based on economic and geologic considerations, the state imposed $3 million and $3.3 million work commitments. The licenses only allow for natural gas exploration. The Susitna Valley is considered gas-prone, with a higher likelihood of unconventional resources such as coal-bed methane.

Alaska Natural Gas Corp. is a privately held company. On its website, the company said it plans to use horizontal drilling technology to target coal-bed methane in the region.