Native corporations team up again in hunt for oil and gas in Interior Alaska

Two regional Native corporations are teaming up for another shot at unlocking oil and gas in Interior Alaska in what could be a $25 million drilling effort.

Anchorage-based Cook Inlet Region Inc. announced Monday it will join Doyon Ltd. as a partner on a second oil and gas exploration well in the little-explored Nenana basin west of Doyon's Fairbanks headquarters.

Doyon, Alaska's largest private landowner, has drilled three wells but has yet to find commercial discoveries of oil and gas in the region, in an effort dating back more than a decade.

Petroleum exploration is high risk, but with potentially huge rewards if a big discovery is made, said Ethan Schutt, CIRI senior vice president of land and energy development. CIRI is the largest private landowner in Southcentral Alaska.

The project is expected to cost $20 million to $30 million, Schutt said Tuesday.

Doyon will be majority partner and project operator.

Schutt said CIRI's investment strategy allows risky but promising projects, if the costs represent a small portion of its $1.1 billion balance sheet, as this one does.

A 40 percent state exploration credit remains available through 2021 for "Middle Earth," the frontier region where the drilling will occur, between the established North Slope and Cook Inlet fields.

That will cut costs by several million dollars, said Schutt.

The two companies joined forces in summer 2016 on the Toghotthele #1 well, also in the basin. Toghotthele is Athabascan for "hill on the water."

That effort produced tantalizing clues.

Doyon's exploration has "demonstrated the presence of an active hydrocarbon system that produces both natural gas and oil," CIRI's statement said Monday.

Now, the goal is finding a profitable pool. Doyon has hoped for a big discovery to lower energy prices in the region, while development could provide jobs and income to Native shareholders.

A three-dimensional seismic study conducted last year, analyzing underground formations over a 64-square-mile area, revealed indications of trapped hydrocarbons such as natural gas or light oil, a first. Both companies have cited that as a key reason in moving forward.

The next well, named the Totchaket #1, will be drilled this summer over "one of several promising" oil and gas prospects identified by the seismic survey, CIRI said. Totchaket refers to the name of a slough a few miles from the proposed drilling site.

The well will be drilled about 2 miles deep, roughly 20 miles north of Nenana. The activity will take place east of the Tanana River, a departure from the earlier wells drilled across the river, CIRI said.

That means development, if it occurs, would take place on the same side of the river as the Alaska Railroad and Parks Highway, reducing costs and timelines.

Schutt said the "direct hydrocarbon indicators," showing up as anomalies in the recent seismic study, are "interesting and exciting." They're an important step, he said.

The indications of hydrocarbons can be found "at multiple horizons spanning thousands of feet of sedimentary section" that will be drilled, he said.

Schutt said the opportunity to open an entirely new basin to oil and gas production is a rarity.

Jim Mery, Doyon's senior vice president of lands and natural resources, said the Totchaket well was chosen for its potential success, after it was prioritized above multiple prospects in the area.

Oil or gas production, if it occurs, would come from both Doyon and state lands, providing revenues to Native corporations and the state treasury, he said.