Interior gas projects stalled: gas exploration and development on slowdown: State and federal government blamed.

• Author: Liles, Patricia

Efforts to explore and develop sources of natural gas in locations other than Alaska's North Slope and Cook Inlet appear to be steadily grinding to a halt, and industry is pointing to the state and local government as a primary contributor to the slowdown.

Andex Resources, operator of the Nenana Basin gas project west of Fairbanks, has put that program on hold until company officials and state regulators determine impacts stemming from a new production tax proposed by Gov. Frank Murkowski and passed by State legislators earlier this year.

"We currently do not have plans to drill," said Tom Dodds, president and CEO of the Houston and Denver-based Andex. "Our project has been adversely affected by the new tax bill and we're still trying to determine the economics."

Increasing the size of the tax rate, basing it on profits and linking gas taxation to oil prices are moves that are " ... certainly not encouraging for a lot of new exploration," Dodds said. "The bottom line is that it is very adverse to our risk economics."

Part of the consortium working on the Nenana Basin program is Usibelli Coal Mine, which also applied independently in 2003 for shallow-gas leases near the company's Healy based mine operation.

That project has also stalled, according to Steve Denton, vice president of development at Usibelli, but due to a different governmental impact. The Denali Borough passed an ordinance in September that "effectively closes about 40 percent of the exploration license area to all forms of exploration activity," Denton said. "We're not sure we want to be awarded the license for the remaining area--it's enough to wound the whole project."

Whether the local borough has authority to close state lands to development remains an unanswered question for Denton, and the Usibelli company. "There are obviously legal issues that the state and borough have to work out--who has control of the subsurface resources," he said.

CONFLICTING MESSAGES

Another local entity that planned to explore for natural gas in a remote region of Southwest Alaska, Holitna Energy, received in early October rejection of its license application by the state Division of Oil & Gas, more than three years after the company's original filing.

Phil St. George, an Eagle River resident who formed Holitna Energy in 2003, filed a reconsideration request with the State and is working to submit supporting evidence to counter the division's assertion that the Holitna project is not in the state's best interest.

The negative decision announced in early October...