Tax credits bolster middle earth exploration in Alaska: Doyon says Frontier Basins well has '1 in 2' chance of gas, '1 in 4' chance of oil.

• Author: Resz, Heather A.
• Position: OIL & GAS

All of the oil and gas liquids produced in Alaska come from Cook Inlet and North Slope fields. But that may be about to change.

Separate drilling programs underway this summer by Doyon Limited and Ahtna, Inc. could produce the first oil and gas from Alaska's vast and largely unexplored Frontier Basins.

After working to "de-risk" the Nenana Basin for ten years, Doyon Limited President and CEO Aaron Schutt says the ten thousand vertical feet well, Toghotthele No. 1, planned on state land near Nenana this summer has a one in two chance of producing gas and a one in four chance for oil.

Doyon holds about four hundred thousand acres of state oil and gas leases in the basin and forty thousand acres of subsurface rights received under the Alaska Native Claims Settlement Act.

Data shows a tremendous amount of gas generated in that region, he said. As with all oil and gas wells, the million-dollar question is where to drill to bring the trapped resources to the surface, Schutt says.

The trap contains a mean estimate of 70 million barrels of recoverable oil and 200 billion cubic feet of natural gas.

"There could be plenty of gas for Fairbanks and the rest of the Interior in that one well location," Schutt says.

If Toghotthele No. 1 in the Nenana Basin is successful, Doyon says it could open the door to exploration in the larger Yukon Flats Basin.

Ahtna is exploring forty-six thousand acres under its Tolsona Exploration License from the state in the Copper River Basin. This summer the company will drill a deep gas exploration well of four thousand to five thousand feet deep in the thick Nelchina sandstone near Glennallen, close to a pair of earlier wells that found gas and water together under high pressures, Ahtna says.

Companies say their Frontier Basin oil and gas exploration projects are part of a larger, multi-faceted effort to reduce energy prices strangling Interior Alaska communities.

'Greatest care should be exercised'

Over the past decade, Doyon was reimbursed between $62 million and $65 million through several state exploration credits--including the Frontier Basins Tax Credits Program approved by the Legislature in 2011, according to the company's written testimony delivered to the House Resources Committee March 2.

That investment could net hundreds of millions in returns to Doyon and the state. At $60 per barrel oil, the state would collect $525 million in oil royalties alone from the oil Doyon hopes to produce from the Toghotthele No. 1 well, writes Sarah Obed, vice president of external affairs for Doyon.

Summer exploration plans were based on the "reasonable expectation" that the project would be eligible for the state's tax credit program, now undergoing a rewrite in the Legislature, she writes.

Doyon is one of several companies using state tax incentives to reduce the financial risk of...