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State encourages small-scale efforts to hunt for oil and gas in Southcentral

  • Author: Alex DeMarban
  • Updated: September 30, 2016
  • Published February 19, 2016

The state is trying to encourage oil and gas drilling in a large chunk of Southcentral Alaska under an exploration licensing program geared toward small-scale efforts that might help local communities.

The plan to declare about 50 million acres open for exploration was announced Feb. 2 as part of a preliminary determination signed by Corri Feige, director of the state Division of Oil and Gas.

"These frontier basins really do have a lot of unknown potential, so part of this licensing program is the chance to see new data," said Schick. "Second, if there is production even on a small scale to support a small community, then that's a win."

The announcement opened a comment period that closes March 11.

The proposed area north and east of Anchorage extends to the Canadian border, with boundaries encompassing some state waters -- such as Prince William Sound -- and communities that include Talkeetna, Tok and Cordova.

It includes the abandoned Katalla oil field about 50 miles southeast of Cordova, where Alaska's first commercial oil discovery early last century provided refined oil locally for many years.

The preliminary determination, if finalized, would not permit land use. Instead, the state would review each exploration license proposal before deciding if the project is in the state's best interest, with public comment included, said Schick.

Drilling would then require an additional permit.

"It's not a license to drill, it's a license to explore," Schick said on Friday.

The state has already approved a few efforts under the exploration licensing program, which provides wildcatters with a much cheaper option than oil and gas leasing programs on the Slope or in the Inlet.

But following an internal review of state law, the division decided it should take the extra step of declaring regions eligible for the program before it considered future license applications, said Schick.

The division hopes to expand the licensing program to other areas of Alaska. It's tackling the Southcentral region first in part because of its road system, which makes it relatively easy to mobilize equipment such as drill rigs, Schick said.

The drilling, if allowed, would be eligible for the state's controversial $500 million tax credit program, which the Legislature is considering reducing to help close Alaska's $3.8 billion budget shortfall. A Senate working group, in part noting the limited efforts in the frontier basin, has recommended the benefits continue for areas outside the Slope and Inlet.

In one licensed exploration effort already underway, regional Native corporation, Ahtna, plans to drill a gas well this spring near its headquarters in Glennallen, with an eye on selling natural gas in the Copper River Basin and surrounding areas.

If the results are promising and the company provides the required data to the state and meets other obligations, it can apply for a lease to move into a production stage, said Schick.

Another licensed wildcatter outside the Southcentral area is Rocky Riley, who hopes to find oil and gas near Minto west of Fairbanks. Riley could not be reached for comment Friday.

Though upfront costs in the licensing program are relatively inexpensive compared to say, drilling in the Inlet, they're still not cheap.

As part of a bonding requirement that seeks to protect the state, Riley is on the hook to spend at least $500,000 doing work over the five-year term of his license, said Schick.

Schick said a couple of potential explorers have expressed interest in applying for a license in the area.

"It's not ConocoPhillips," he said. "They're welcome to it, but this is really geared toward smaller-scale investors and exploring unknown areas."