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Naknek project in Alaska with hardly any chance for continuation

Boats stored for the winter, Naknek, Alaska (source: flickr/ Buzz Hoffman, creative commons)
Alexander Richter 26 Sep 2011

It is expected that Alaskan Naknek Electric Association will sell its drilling rig and pay about 10% of its debt positions to creditors under a new reorganization plan following bankruptcy proceedings.

As part of a proposed reorganization plan that Naknek Electric Association (NEA) filed in U.S. Bankruptcy Court in Ancourage, the small Southwest Alaska cooperative intends to sell its drilling rig and pay its unsecured creditors about 10% of its debt.

In search of fighting high oil prices, the utility tried to develop a geothermal project at King Salmon, Alaska. Up to today the utility derives most of its electricity from diesel generation.

“In early 2008, NEA bought a 120-acre drill site some 17 miles outside King Salmon, and the following year bought an oil and gas drilling rig.

It began drilling its first exploratory geothermal well Aug. 16, 2009, the court papers say.

But complications soon obscured the vision of multiple productive wells driving a geothermal power plant.

After drilling began, the U.S. Department of Energy said the well wasn’t eligible for grants as no environmental assessment had been done for the project — a requirement NEA was led to believe wasn’t necessary, court papers say.

Another setback came three days before drilling began, when regulators with the Alaska Oil and Gas Conservation Commission told NEA its exploratory well would be regulated as an oil and gas well rather than a water well.

This meant NEA “would need more robust blowout preventers, and would have to use heavier drilling fluids than it had intended,” court papers say.
In December 2009, at a depth of 11,218 feet, a bit broke, forcing drillers to attempt a sidetrack. The first sidetrack failed, but a second was successfully drilled to 11,387 feet, the court papers say.

The change of plans with respect to drilling mud would prove a bigger problem.

On the advice of a vendor, the court papers say, NEA used barite, a dense mineral commonly used in heavy drilling fluids.

After drilling, the well refused to flow under its own pressure, preventing reliable testing of the well’s geothermal strength. NEA’s experts believe the barite drilling mud clogged the well, and despite the use of a large air compressor to try to flush out the mud, “the well continues to stubbornly resist cleaning,” the utility’s Sept. 15 court filing says.
NEA’s disclosure statement says costs associated with the well “were substantially greater than had been anticipated.”

By the Sept. 29, 2010, bankruptcy filing date, NEA “had incurred approximately $40 million of debt that was in one way or another associated with the geothermal project.”

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Source: The News Tribune