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Alaska Native corporations wildcatting in big unexplored interior basins

Anchorage — Alaska Native-owned oil service contractors are exploring the state'slarge, mostly untested interior sedimentary basins, areas long thought tobe natural gas-prone but now known to also have crude oil potential.

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The Trans Alaska Pipeline System runs through several of the basins beingtested, which includes state-owned as well as lands owned by the Nativecorporations.

Doyon, which has large landholdings in Interior Alaska, has now starteddrilling its fourth well in the Nenana Basin west of Fairbanks withanother Native American company, Cook Inlet Region, of Anchorage, as apartner.

The primary target is oil, says Jim Mery, Doyon's senior vice presidentfor lands and natural resources. But the basin has gas potential andcould supply Fairbanks, the state's second largest community about 50miles east of the drilling location, he added.

Further south, Ahtna, which owns lands in the Copper River Basin ineastern Interior, completed a third exploration well in late spring inthat area and is planning a fourth prospect, according to Ahtna's COO,Tom Maloney.

Success has been elusive so far, but this is rank wildcat country wherepersistence and patient capital is needed, the Native corporations say.Both Doyon and Ahtna own oil support companies active on the North Slope.Doyon Drilling, a Doyon subsidiary, is one of the state's major drillingcontractors.

Major oil and gas companies were interested in the Interior basins in the1980s but have since shifted their focus to the existing Alaska producingregions like the North Slope Cook Inlet.

That view by larger companies may be changing, however. Mery said Doyonsigned a confidential exploration agreement last week with a majorcompany interested in the Yukon Basin, a huge 1.5 million-acre area thatfollows the Yukon River from the Canadian border to west/central Alaska.

The identity of the company is confidential, Mery said.

Federal and state geologists had earlier thought both the Nenana andYukon Flats basins to be too shallow for oil formation and that gas findswould be more likely.

However, work done by Doyon in the Nenana Basin shows it to be deeperthan believed and recent drilling has confirmed the presence of an activeoil as well as gas generating system. In the larger Yukon Flats BasinDoyon has done seismic work, and the geohemical sampling has confirmedthe presence of oil.

The Native-owned wildcatters have been drilling on their own dime andmostly without industry partners. A state exploration incentive programdid help fund some of the work, but that program is not shut down.

Mery said Doyon has invested about $130 million of its own funds in theprogram over several years and the number grows to about $150 millionwhen partners like Cook Inlet Region are included.

Maloney said Ahtna cannot reveal its investment but he did say thecorporation has applied for about $25 million in state exploration taxcredits for its most recent well, which would cover at least part of thecost.

The state has delayed paying the tax credits because of budget problems,so for all practical purposes Ahtna is on its own. The corporation didfind gas in two of its wells, but neither was commercial. Ahtna ispinning hopes niow on a new prospect nearby it calls Moose Creek, Maloneysaid.

Mery said Doyon has found good shows of oil as well as gas in all four ofthe wells it has drilled in the Nenana Basin. Some seemed near-misses, hesaid, prospects with source rock and good reservoir rock and traps butwhere drilling later showed incomplete "cap" rocks to seal inhydrocarbons, allowing them to leak.

At its latest drill site a 3-D seismic survey by Doyon has indicated thepresence of liquid accumulations at depth, a sign that an enclosed trapexists. What is not known, but will be when the drill bit reaches thetarget depth in late July, is whether there is oil or gas, or water.

Another Native corporation, NANA Regional Corp., with its lands in thefar northwest part of Alaska, is studying prospects for drilling a wellin the Selawik Basin, south of Kotzebue, said Lance Miller, NANA's vicepresident for natural resources..

The basin is generally considered to be gas-prone and NANA would like tofind gas to supply local communities where its Inupiat shareholders live,Miller said.

That may not be enough to attract a company to do exploration, so thecorporation may fund drilling on its own as Doyon and Athna have done, hesaid.

However, a major customer may be NANA itself for the Red Dog Mine, alarge, producing lead and zinc mine in the region that NANA owns andwhich annually uses about 30 million gallons of fuel oil to power miningoperations. --Tim Bradner, newsdesk@spglobal.com

--Edited by Richard Rubin, newsdesk@spglobal.com