Energy

All eyes on Furie as company unveils oil-drilling plans in Cook Inlet

A Cook Inlet producer that has helped lower natural gas prices in Southcentral Alaska while alleviating uncertainty about gas supply is enjoying more good fortune from an unusual source: low oil prices.

Bruce Webb, senior vice president of Furie Operating Alaska, said the company is benefiting from the low petroleum prices that have prompted much of the oil and gas industry to slash jobs and projects.

Service companies are increasingly hungry for work, and they're lowering prices for the contract work they do for explorers and producers like Furie, Webb said.

"It's not terribly cheaper, but the costs have come down, like the drilling fluid suppliers and well-head equipment and that sort of thing," said Webb on Thursday.

Furie's also fortunate because it's not dependent on oil prices. It operates one producing well that began flowing gas in November from the Kitchen Lights Unit about 10 miles north of Nikiski, allowing the young company to sign new contracts with two utilities, deals that could lower the rates Southcentral residents pay for gas-generated power and heat.

Now Furie has big plans to punch up to nine new holes into the Inlet and re-enter a 10th exploration well in the next five years. It plans to use a jack-up rig that's newly arrived at the Homer Port from Singapore.

Furie will scout mainly for gas, but its plans include drilling deep into Cook Inlet for oil with two wells in 2018 and 2019.

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Though the oil exploration plans are at least two years away, they're stirring concerns among groups wary of a potential oil spill.

"We're certainly not opposed to oil and gas development, but it needs to happen carefully and safely to avoid incidents like we've seen in the past," said Erik Huebsch, vice president of United Cook Inlet Drift Association, representing hundreds of drift gillnet salmon fishermen.

The company wants to drill two wells a year, according to a permit application with the state Division of Oil and Gas.

The drilling is expected to start in May after permits from various agencies are approved. The drilling would take place from the Randolph Yost, the jack-up rig that arrived in Homer in early March after working in the South Pacific.

Owned by Shelf Drilling in Dubai, the Randolph Yost is more powerful than the Spartan 151, the other jack-up rig available to operate in Cook Inlet, Webb said.

It's also more efficient. Cranes, hoisting machinery and other functions operate electrically, and the Randolph Yost has three diesel engines instead of seven, Webb said.

"It's almost completely electric, so it releases much fewer emissions and requires less maintenance," Webb said.

The 37-year-old rig is a barge, with three extendable legs that can be "jacked down" to seafloor depths of 300 feet, Webb said. Water is pumped onto tanks on the barge to stabilize the legs in the seafloor, then the water is pumped off when the barge is ready to rise above the water for drilling.

Furie, formerly Escopeta, also brought the Spartan 151 to Alaska in 2011. It was the first jack-up rig to arrive in the basin in almost 20 years, and has led to increased offshore drilling opportunities, Webb said.

Furie took advantage of generous state tax incentives designed to spark more production in Cook Inlet. With the state facing huge deficits, the Republican-led Legislature is looking to trim some of those incentives -- the state pays up to 65 percent of project costs with cash credits.

The tax credits have helped attract new players, but they've also drawn risk-takers, including Australian-based Buccaneer Energy. That company brought a jack-up rig to Cook Inlet in 2012 -- the Endeavour -- before it went bankrupt. The rig is no longer operating in Alaska.

Bob Shavelson, executive director of Cook Inletkeeper, a watchdog group that was critical of Buccaneer, said he's concerned the Randolph Yost could introduce invasive species into the Kachemak Bay Critical Habitat Area outside the Homer Port.

Tammy Davis, the invasive species coordinator in Juneau for the Alaska Department of Fish and Game, said Webb contacted her last fall, before the rig left Singapore, asking how to ensure barnacles and other sea creatures that had lived on the rig in the South Pacific didn't end up in Alaska.

"It was a proactive step on his part," Davis said.

She said Webb sent samples of barnacles and other sea creatures to her office. She sent photos to a marine invasive species expert, who said the creatures are tropical and unlikely to survive in cold Alaska waters, especially if they've been out of the water at least a month.

Webb planned to provide records showing the rig had been in dry dock in Singapore for at least that length of time. The 6,700-mile trip to Alaska from Singapore, with the drilling rig hauled on a heavy lift vessel, also would have helped dry out and kill the creatures.

As an additional measure, Webb has agreed to have the rig inspected for invasive species, Davis said.

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Shavelson said he plans to ask state regulators to require that Furie have a second drilling rig on hand when it drills into potential oil-bearing zones, so a relief well can be drilled to stop a spill. Shell was bound by the same requirement when it drilled into the U.S. Arctic Ocean in 2015.

Shavelson said Furie has been a much better company to work with than Buccaneer. But he said the state's tax-credit policy needs to end because it has attracted risky companies to Alaska.

"The only reason this drill rig is here is because we are literally giving away our oil and gas wealth through massive tax credits," Shavelson said. "I look at this rig and I see lots of laid-off schoolteachers and firemen."

Webb agreed the tax credits helped his company bring the Randolph Yost to Alaska. But he argues that the credits have worked, resulting in more jobs, investment and increased production.

Furie has sunk more than $700 million into its effort, drilling five wells that led to one producing well, with a small offshore platform in Cook Inlet, a 16-mile pipeline and a gas-processing center on shore.

With its substantial gas reserves, Furie is also responsible for lowering utility's gas costs, he said.

Furie has signed multiyear contracts to sell gas to Homer Electric Association and Enstar Natural Gas. In both cases, the deals brought down the price of gas from previous contracts, officials said.

The deal with Homer Electric will lead to lower electricity rates starting this summer, said Mike Salzetti, with Homer Electric.

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The deal with Enstar, awaiting approval from the Regulatory Commission of Alaska, could help lead to lower rates for gas users across Southcentral Alaska, said Lindsay Hobson, Enstar's communications manager.

"An additional producer in Cook Inlet and a new source of gas in Cook Inlet is good for us and good for our customers, no doubt about it," Hobson said.

As for its hunt for oil, Furie plans to drill two wells nearly 5 miles deep, reaching formations in the little-explored Jurassic period.

Some geologists believe the formation brewed up the oil that's been produced in the Cook Inlet basin, once a large oil province where daily oil production reached 219,000 barrels in 1971, as the giant Prudhoe Bay discovery was drawing the industry's attention to the North Slope.

Over the decades, oil production slid to a trickle. But it has risen in recent years, to 17,000 barrels daily in 2015, as producers squeezed more oil from old fields.

Some geologists believe the unit's Jurassic-period rock, formed when the dinosaurs roamed, has significant potential for an important oil discovery, Webb said.

"It'd be nice to confirm those theories," he said.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

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