Cook Inlet Energy bids $1.5M for Iniskin exploration license

Kristen Nelson

When the Alaska Division of Oil and Gas asked for comments and competing proposals on a proposed southwest Cook Inlet exploration license it received in April 2013, it received a competing proposal.

Because of that, division Director Bill Barron said at the Aug. 6 bid opening, the state was required to hold a sealed bid opening.

In a finding issued June 20, the division found that offering the license, in the Chinitna Bay and Iniskin Bay area across Cook Inlet from Homer, was in the state’s best interest.

And because the division had received a competing proposal, it requested bids from the two companies.

In the end, Cook Inlet Energy was the only company to submit a final bid.

Barron said that while the state has issued exploration licenses previously, “today marks the first ever sealed bid opening for competitive exploration licenses.”

The division is not releasing the name of the other company which expressed an interest.

$1.5 million work commitment

In its bid, Cook Inlet Energy committed to spend $1,501,000 over four years for an exploration license on 168,581 acres of state land on and offshore the Iniskin Peninsula. The minimum work commitment for the license was $1 million.

Barron said Cook Inlet Energy will also pay a one-time of fee of $168,581, $1 an acre, for the license.

He said the exploration license program, in which companies bid the amount they will spend to explore rather than the bonus bids the state receives in its areawide oil and gas lease sales, is intended to encourage exploration in areas not included in the state’s areawide oil and gas sale program. These areas are far from existing infrastructure, have relatively low or unknown hydrocarbon potential and have a higher investment risk.

Upon completing its work commitment, Cook Inlet Energy may convert any portion of the license area to oil and gas leases with a five-year term, a royalty rate of 12.5 percent and annual rent of $3 per acre.

Cook Inlet Energy, owned by Miller Energy Resources of Tennessee, operates the Redoubt Shoal field offshore in Cook Inlet, the West McArthur River field and the West Foreland gas field on the west side. In 2013, the company acquired the North Fork gas field on the southern Kenai Peninsula, and it is in the process of acquiring Savant Alaska, which operates the North Slope Badami oil field.

Cook Inlet Energy holds two exploration licenses, 62,909 acres in the Susitna Basin IV license and 45,764 acres in the Susitna Basin V license. The company has a $2.25 million work commitment in Susitna Basin IV and a $250,000 commitment in Susitna Basin V.

Site of early drilling

There are oil seeps on the Iniskin Peninsula, which drew early exploration efforts. Barron said the first well was drilled there in 1902 and drilling continued sporadically through the 1950s.

The most recent exploration work in the area was a 41-mile 2D seismic shoot done by SAExploration Inc. for Hilcorp Alaska between Chinitna Bay and Iniskin Bay in the summer of 2013. The seismic application said 3.1 miles of the survey would be on state land, with local land use permits required for other areas from Tyonek Native Corp., Cook Inlet Region Inc., Salamatof Native Association Inc., Seldovia Native Corp. Inc. and Ninilchik Natives Association, Inc., as well as private permits from landowners for staging areas.

As the map of the exploration area demonstrates, the state owns just four blocks on the Iniskin Peninsula in the exploration license area, so the majority of acreage Cook Inlet Energy licensed is state tidal and offshore acreage.

This story originally appeared in Petroleum News and has been republished here with permission.