Anchorage Daily News

WASILLA -- Pioneer Natural Resources plans to pull the plug on its coal bed methane program in the Matanuska-Susitna Borough, bringing to a close an energy development venture that generated plenty of heat from Valley property owners.

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Pioneer Natural Resources will surrender all of its oil and gas leases in the Mat-Su, said company spokesman Pat Foley on Wednesday. The company aims to close its wells and move out of the area by the end of the year.

Foley is the manager of land, commercial and regulatory affairs for Pioneer's Alaska office in Anchorage. Colorado-based Evergreen Resources started the coal bed methane development venture in 2001.

Alaska Department of Natural Resources staff said Pioneer Natural Resources has not notified the state of its intent to relinquish the leases, which Foley said the company plans to do.

Foley said Pioneer officials decided a few days ago to surrender the company's leases in Cook Inlet and to dissolve the Pioneer unit. The unit was created in 1997 by Unocal. It includes about 72,000 acres of mineral leases on land held privately and by the state, the Alaska Mental Health Trust Authority and the University of Alaska between Wasilla, Houston and Big Lake.

Mark Myers, director of the DNR Division of Oil and Gas, said unitizing allows oil companies to hold leases beyond the typical seven-year expiration date if the company goes into production. Companies operating a unit must submit yearly development plans to the state. Two DNR employees currently manage more than 50 units across the state.

Evergreen chief executive Mark Sexton, in a 2003 teleconference to stock analysts and investors, said two clusters of wells drilled by the company in the Pioneer unit showed disappointing results. Myers said that doesn't indicate the unit is a poor producer, simply that Evergreen didn't find the key to unlocking the methane in coal seams within the unit. Drilling into a deeper coal seam, or in a different area, he said, could open the area to coal bed methane development.

Pioneer, of Irving, Texas, took control of oil and gas leases held by Colorado-based Evergreen Resources Inc. when the two companies combined last year.

In 2003, Evergreen's plan to develop state mineral rights beneath privately held land kicked off months of debate over how the state and Mat-Su Borough should protect the rights of private-property owners.

DNR officials announced a gas-leasing moratorium and scheduled several weeks of public meetings in the Mat-Su to hear what protections residents wanted. DNR staff developed regulations for coal bed methane development on state-owned mineral rights within the borough, and the borough crafted regulations that apply to all land in the Mat-Su. To date, no company has tried drilling under the new regulations.

The merger netted Pioneer about 300,000 leased acres in the Mat-Su. Shortly afterward, Pioneer relinquished interest in about 235,000 acres of that land in the Willow, Houston, Palmer and Sutton areas. Pioneer holds about 30 state leases in the Knik-Goose Bay area, Foley said, and about 400 leases on private property. Property owners will be notified soon, he said, of Pioneer's plan to surrender the leases. He said it was too early to say when those notices will be sent.

The decision this week, Foley said, means Pioneer will pull out entirely from the Mat-Su.

"It didn't really fit in with the rest of our business in Alaska," Foley said of the area planned for coal bed methane development. "It just wasn't something we wanted to do."

Foley said Pioneer holds shallow-gas leases in the Lower 48, but the company's focus in Alaska has been on the North Slope. Last month, Pioneer announced plans to contract with Doyon Drilling Inc. to build and operate a new, exploratory drilling rig on the North Slope. Earlier this year, the company announced a $50 million exploration program on more than 1.6 million acres on the North Slope, according to information on its Web site.

"We have a lot of business we're trying to accomplish on the North Slope," Foley said. "We're going to continue to do all of that."

Protests from residents against drilling in the rapidly developing area may have played a role in Pioneer's decision to pull out of the Mat-Su, Foley said.

"That was sort of an underlying thought throughout the whole process," he said. "If companies are welcomed to do activity, they're more likely to."

Big Lake area resident Myrl Thompson, who protested shallow-gas development locally and before the Alaska Legislature, said he's glad to see Pioneer pull out. He hopes DNR sees what he believes is a statement that the leases are too difficult to develop.

"I would hope DNR would back off of offering those same leases up," Thompson said. "They're just in too dense of an area."

Pirtle Bates, who oversees lease sales for DNR, said the deadline for land to be included in the 2005 Cook Inlet area-wide lease sale passed in February. The leases Pioneer said it would relinquish will not be up for sale this year, Bates said. But they could be included in lease sales as early as next May.

Pioneer Oil Co., an unrelated Illinois-based company, has been awarded leases on about 98,000 acres stretching from Big Lake to Point MacKenzie, and it's now the largest leaseholder in the Valley. Bates said the leases are conventional oil and gas leases. The leases are not active. Myers said Pioneer can hold the leases for seven years without any action, but must file plans with the state if it wants to move toward exploration or development.

Foley said the company would soon begin abandoning the dozen wells it owns in the area, following state abandonment procedures. Crews will cut well pipe to below ground and plug them with cement before covering over them. Surface owners whose subsurface rights are leased by Pioneer will have some say in how their property is left, Foley said.

"It's kind of what the surface owner wants," Foley said. "But we haven't even begun that discussion yet."

Daily News reporter Rindi White can be reached at rwhite@adn.com or 1-907-352-6709.