Broken promises: the shallow gas leasing program was curtailed, leaving two mining companies the option of converting pending leases to a conventional gas exploration license application.

• Author: Liles, Patricia

Development of Alaska's rich mineral resources, typically located in remote regions of the Last Frontier, includes overcoming significant logistical hurdles to meet infrastructure needs.

In particular, mine projects must acquire reliable and economic sources of power and fuel to make a development project productive. And despite Alaska's vast oil and gas industry on the North Slope and in Cook Inlet, fuel and power costs in other regions of the state continue to be a sticking point for mine development and operations.

To address this infrastructure issue, three separate companies in the mining industry have looked for an answer within Alaska's oil and gas industry, applying for access to explore state land under the recently created shallow gas lease program.

Those three include Usibelli Coal Mine, based in Healy; Holitna Energy, a recently formed company with interest in shallow gas development in Southwest Alaska near the Donlin Creek gold deposit; and Teck Cominco, operator of the Red Dog zinc and lead mine in Northwest Alaska.

Of the three, only Teck Cominco holds current shallow gas leases, first issued in 2000 and extended in 2003. Usibelli and Holitna, along with other recent shallow gas lease applicants, have lost their ability to use the shallow gas leasing program, as the state Legislature voted this spring to eliminate the program.

Alaska's shallow gas leasing program, which first came into existence in 1996 by state law, provided a "quicker way to get out in the field," said Pat Galvin, petroleum land manager in Alaska's Division of Oil & Gas. "It was a quicker and cheaper way to get land into hands for exploration."

A potential leasee paid an application fee of $5,000 per lease and annual rent of $1 per acre for the noncompetitive shallow gas leases, which allowed exploration and development of gas fields, including coalbed methane, within 3,000 feet of the surface.

Leasing terms were designed to encourage participation in the program, including elimination of bonus payments to the state and reduced royalty payments, should the parcel be developed. Lease terms were set for three years, with the ability to extend. Shallow gas leases could include up to 5,760 acres, with a total acreage leased by one entity limited to 138,240 acres.

The state Department of Natural Re sources issued a handful of shallow gas leases between the first applications received in 2000, through 2003. Other current shallow gas leases include 22,000 acres...