Legislature's incentives may draw gas drill rig to Inlet

Though the Inlet still contains vast quantities of natural gas, geologists say, exploration and production drilling have ebbed to the point that Southcentral utilities could begin importing gas from the Lower 48 or overseas within a few years until they can secure new in-state supplies.

Gov. Sean Parnell last week signed a pair of bills crafted by Anchorage and Kenai legislators to try to boost Cook Inlet gas exploration and create natural gas storage options for reducing the winter supply crunch. The state tax concessions in the bills are huge: for their drilling, companies can shave tens of millions of dollars off their income and production tax liabilities.

State Sen. Tom Wagoner, R-Kenai, predicted a "stampede" of companies will descend on the Inlet to drill.

Some major Cook Inlet producers like Conoco Phillips, Marathon Oil and Chevron so far have not expressed any interest in bringing an offshore exploration rig to the inlet.

Still, at least two small companies are assembling plans to drill on their Cook Inlet leases next year: Houston-based Escopeta Oil & Gas, and Sydney, Australia-based Buccaneer Energy. No work contracts have been signed yet.

The two firms are enthusiastic about the tax incentives but said they could not secure a drilling rig this year.

One of the world's biggest offshore drilling contractors -- Houston-based Pride International Inc. -- said it is studying to determine which of its rigs is suitable to bring to the inlet next spring.

"We're certainly interested in the area," said Christopher Young, Pride's director of marketing for North America. For now, the company's rigs are in the Gulf of Mexico and offshore of Africa, the Middle East and Southeast Asia.

Young agreed with Escopeta and Buccaneer that it's too late to bring a drilling rig to Cook Inlet this year.

"We don't have enough time to do it properly this year," he said. To bring a rig to the inlet by next spring, Pride would need to hammer out an agreement with an oil and gas explorer before the end of this year. Right now, Pride is talking to Escopeta, he said.

GOING OFFSHORE

Cook Inlet's oil and gas resources straddle the land and the water, but geologists say that most of the remaining prospects are probably offshore.

The oil and gas still accessible from land is getting "skinny" and the last best chance to find large amounts is from drilling offshore wells, said Ken Boyd, an Anchorage-area geologist who previously ran the state's Division of Oil and Gas.

The sort of mobile offshore drilling rig suitable for the inlet is called a jack-up rig. These rigs are towed or carried on heavy-lift ships to a drilling location. Their legs are jacked down until they rest on the seafloor.

The last time a jack-up drill rig explored for oil and gas in Cook Inlet was about a decade ago.

In the legislation authored by Republican Sens. Lesil McGuire and Wagoner -- Senate Bill 309 -- up to three companies can qualify for the state's new tax incentives -- between 80 and 100 percent of their capital expenses -- but they must use the same jack-up drill rig.

That's a way to try to keep a rig busy in the Inlet for several years, at least, Wagoner said.

Several oil and gas industry observers said they are optimistic that the tax incentives will bring a rig to the Inlet but there's no guarantee that a company will find a profitable amount of oil or gas. On the other hand, they question whether the massive oil spill from an offshore well in the Gulf of Mexico will prompt new rules that make it less attractive for companies to make the investment.

"You know, I can definitely say that (the bill) is piquing people's interest. But I can't say that X, Y and Z will result as a consequence of it," said Dan Dickinson, an oil and gas consultant who worked on provisions of the natural gas storage bill, but not the McGuire-Wagoner bill.

Cook Inletkeeper, an environmental group, has raised concerns that the state no longer requires a relief drill rig to be available in the event of a major blowout like the one in the Gulf.

A few oil and gas companies said last week they believe that requirement would harm their projects: It's hard enough to bring one rig to the inlet, they said.

UNCERTAINTY

Working for a variety of companies, oil and gas land manager Mark Landt has been trying to get a jack-up rig to Cook Inlet for a decade.

"It's perseverance that will bring a rig up here. All the pieces have to fit," said Landt, vice president of Buccaneer Alaska, a subsidiary of the Sydney-based firm.

With no major oil companies interested in exploring the Inlet anymore, "if it's going to get done, it's going to get done by a group of independents," he said.

Danny Davis, of Escopeta, has a similar attitude of persistence. He's been acquiring offshore leases in Cook Inlet since the mid 1990s and his company planned to bring a rig to Alaska four years ago. That project fell apart.

Now, Escopeta is at risk of losing its Inlet leases: Its agreement with the state commits the company to begin drilling this summer.

Davis said he's going to ask the Alaska Department of Natural Resources for an extension this week.

"Hopefully, they'll work with us," he said.

STORING GAS

The ultimate solution to Southcentral's energy problems isn't just drilling. It also requires more energy conservation and developing alternative energy supplies, said Rep. Mike Hawker, R-Anchorage.

Parnell last week signed Hawker's bill, House Bill 280, to provide new tax incentives and regulatory changes to make it cheaper and easier for companies to build gas storage facilities. By storing gas during the summer, when demand for it is low, such facilities could help the region's utilities survive the peak demand periods that have nearly caused equipment failures during cold snaps over the past several years.

"It's about keeping the houses heated and the lights on," Hawker said.

Enstar Natural Gas Co. and TransCanada Corp. were working on a gas storage proposal that fell apart recently, but Hawker said he's aware of "a number of interested investors" who would like to move a project forward. He wouldn't name any names.