Ahtna drills cautious well as Native companies step into oil and gas exploration

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Michelle Anderson, president and shareholder of Ahtna Inc., on site of their exploratory gas well “Tolsona No. 1” about 11.5 miles west of Glennallen on Monday, Oct. 10, 2016. Anderson said the project has the potential of employing many shareholders and local residents, lower the cost of energy, and bring much need economic opportunities for the area. (Bill Roth / Alaska Dispatch News)

GLENN HIGHWAY — Beneath snow-clad peaks not far from Glennallen, a rumbling drilling rig punched deep into the earth Monday in pursuit of natural gas to lower energy costs for nearby villages.

The Tolsona No. 1 gas exploration well being drilled by Ahtna Inc. marks a growing effort by Alaska Native corporations to produce oil and gas to support their Native shareholders. The state is supporting such exploration with generous tax credits.

Ahtna's ambitions are as big as what could lie beneath the ground, officials said.

A relatively small discovery could provide a new source of heat for local families and businesses facing crippling energy costs in winter as they use stove oil to keep warm.

A huge gas field, if Ahtna is lucky enough to find one, could lead to gas sales across a much bigger chunk of Southcentral Alaska, contributing to new business and employment opportunities, said officials with Ahtna. The company represents mostly Athabascan people from eight villages in the Copper River region.

"This is a big deal," said Hillary Hagberg, an Ahtna shareholder from Anchorage and drilling roustabout.

"It means people won't have to pay upward of $3,000 a month just to heat their home with fuel oil," said Hagberg, 24, taking a break from fueling operations as the Schlumberger rig spun drilling fluid into a well bore almost half a mile deep.

Hagberg, wearing a jacket to ward off the autumn chill, is one of about 60 people working on the 4-acre gravel pad, recently built atop the spruce-covered muskeg to support the 120-foot-tall rig.

Eleven of those workers are Ahtna shareholders, said officials who had invited journalists to tour the site, two weeks after the launch of the unique exploration program near Ahtna's Glennallen headquarters.

The well is Ahtna's first as owner and operator.

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Company executives said they were hopeful it would lead to a marketable gas discovery, and combat a population drain that a couple of years ago led to the closure of the elementary school in Copper Center because of low student enrollment.

"People are moving away," said Nick Jackson, Ahtna chairman and an elder involved with the corporation for decades. "I want to see development for the people."

A discovery could help complement government contracts that play a key role in Ahtna's portfolio.

"We want to provide gas to the local utility or do a utility of our own and hopefully export gas out of this region," said Roy Tansy Jr., executive vice president of Ahtna.

The corporation's entry into wildcatting was marked by a fast-paced permitting effort, officials said. Agency approval came in eight months, faster than the multiyear efforts for much larger North Slope projects seeking permits.

Ahtna took on the full project after two out-of-state partners, discouraged by low oil and gas prices, pulled their support.

To study the Nelchina sandstone that might produce the gas, experts turned to data gathered during decades of exploration in the area. Eleven wells have been drilled since 1963, including one by Amoco, which merged with BP in 1998.

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Experts pored over old seismic information and new seismic tests were conducted across a 40-square-mile area, providing more details about the reservoir and where to place the well, said Dan Lee, Ahtna's oil and gas development manager.

Still, Lee called the well a "true wildcat" effort, saying the few holes punched in the region provide limited clues.

The Copper River area is considered a frontier for oil and gas exploration, compared to the North Slope or Cook Inlet, where batches of old wells can help inform a drilling operation, he said.

As a result, Ahtna is taking a cautious approach that includes starting with an oversized well bore, akin to the massive wells drilled on the North Slope that extend for a few miles, Lee said.

The large hole will help the company combat high-pressure water that has entered wells and stymied drilling in the past. The goal is preventing the influx of that water so only natural gas will flow up a small-diameter pipe at the end, he said.

If gas is found at the Tolsona well, it's expected to be less than a mile below ground, starting at 4,300 feet.

Also crucial was the state's tax program. It could pay up to 80 percent of the $11 million cost associated with the effort, he said.

Production would have benefits for the state. The well sits on state-owned land, so gas produced there would provide revenue, including from taxes and sales of the state's royalty share, 12.5 percent of produced gas, according to a state report.

"This project was a no-go without tax credits," said Lee, who previously worked for Italian oil company ENI before joining Ahtna.

[Company behind big oil discovery jittery about future of tax credits]

The Legislature earlier this year phased out Cook Inlet tax credits to help Alaska battle a massive deficit. But it extended tax credits through June next year for the "Middle Earth" region, so-called because it lies between the North Slope and Cook Inlet in Southcentral Alaska.

Also exploring "Middle Earth" is Doyon Ltd., an Alaska Native corporation representing communities in the Interior. The company drilled for oil this summer in the Nenana basin about 60 miles southwest of its Fairbanks headquarters.

Doyon has not announced any results or future plans since drilling ended.

Jim Mery, Doyon senior vice president of lands and natural resources, said the company expects to release information about the project in the next week or two.

"Not at liberty to discuss now," Mery said in an email.

Arctic Slope Regional Corp. is also among the Native corporations plowing ahead with efforts to find oil and gas. On the North Slope, ASRC is partnering with Hilcorp and BP in the prominent offshore Liberty project. And in September, the state approved a two-year extension at the Placer Unit, allowing ASRC Exploration more time to pursue oil after drilling and testing a well there in February.

As for Ahtna, the company isn't planning to release information about next steps or what it finds until next year, Lee said.

The drilling is expected to wrap up in the next few weeks. One question Ahtna hopes to answer with the Tolsona well is whether natural gas exists in scattered pockets, or in one large pool, he said.

James Maxim, a security guard who checked fuel trucks and other vehicles onto the pad on Monday, said he's hoping for a gas discovery to support long-term production.

The Ahtna shareholder recently made $10 an hour at a part-time hotel job. This new position is paying close to double that, and it's steady work.

"If we find gas, this job will be year-round. There is a big opportunity here," Maxim said.