Escopeta Oil Co. is now drilling at its KLU No. 1 exploration well in Cook Inlet with the Spartan Drilling Co.'s Blake 151 jack-up rig but state officials have given the company permission to drill only to 5,000 feet.
Drilling started Sept. 2 and the well was at approximately 1,800 feet as of Sept. 6, Escopeta spokesman Steve Sutherlin said.
When Escopeta reaches the 5,000-foot level, the state Division of Oil and Gas will meet with the company to discuss whether conditions will allow it to continue drilling to its planned depth of 16,000 feet, Division of Oil and Gas director Bill Barron said.
Sutherlin said Escopeta believes it can complete the well to the planned 16,000 feet before an Oct. 31 deadline but Barron said the state doesn't want Escopeta rushing the well and will authorize drilling deeper than 5,000 feet only if conditions permit.
State officials are being cautious because Escopeta is new to operating in Cook Inlet and is also a small company, without the kind of financial resources that BP had with its Gulf of Mexico blowout in 2010 or Exxon had in the 1989 Prince William Sound oil spill.
However, the state Department of Environmental Conservation praised the company for voluntarily submitting information beyond that required by state regulations.
"These documents have assisted us in understanding Escopeta's operations," Laurie Silfven, a state Department of Environmental Conservation environmental program specialist, said in a Sept. 6 letter to the company.
Escopeta's exploration is the first to be drilled in deeper waters of Cook Inlet with a jack-up rig since the 1980s.
"While the state welcomes the new investment and increased activity in Cook Inlet, a top priority is ensuring the companies conduct safe and responsible operations. A well control incident in Cook Inlet could have devastating consequences for the state and the industry," Barron wrote in a Sept. 2 letter to Escopeta President Edward Oliver.
The Oct. 31 deadline is driven mainly by the possible presence of difficult ice conditions in Cook Inlet at that time. Barron said if Escopeta cannot drill to its planned total depth, the company will be able to re-enter the well next spring.
As a condition of Escopeta's oil discharge prevention and contingency plan approval, the state DEC required Escopeta to cease drilling on Oct. 31. If the well is not completed, drilling may not be resumed until April 1, 2012, under the DEC order.
However, Escopeta's leases in the Kitchen Lights Unit are scheduled to expire in January unless the company finds hydrocarbons that can be commercially produced during the 2011 drilling. If that happens, the company's rights to its leases are retained.
There are possible hydrocarbon-bearing zones within the 5,000-foot depth to which the company is now authorized to drill, Barron said, and the state will work with Escopeta in the evaluation of well logs to make a determination that the hydrocarbons can be produced.
Barron said the January lease termination deadline could be modified under certain conditions.
"If Escopeta suspends drilling of the well this year to maintain safe and prudent operations, we intend to work with company officials to enable them to recommence drilling next year without loss of the unit (which contains the leases) in January 2012," he said.
Bringing the Blake 151 jack-up rig to Cook Inlet has been a long project for Escopeta. The rig was transported from the U.S. Gulf of Mexico to Vancouver, B.C., earlier this year with a Chinese heavy-lift vessel, then towed by tugs to Cook Inlet.
The use of the Chinese ship for part of the voyage has led the U.S. Department of Homeland Security to investigate a possible violation of the U.S. Jones Act. U.S. shipping groups that work to defend the Jones Act have complained to Homeland Security, arguing that the Jones Act prohibits even part of a voyage of a cargo from one U.S. port to another to be made with a foreign vessel.
Sutherlin said Escopeta has not yet been notified by the government that a violation has occurred.
By TIM BRADNER
Alaska Journal of Commerce