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Alaska's Cook Inlet oil, gas still luring investors north

Alex DeMarban

Renewed interest in Cook Inlet's oil and gas prospects continued on Wednesday, with three companies offering winning bids totaling $6.9 million to expand their holdings, a near-record sale amount since the state began a new bidding system in 1999.

Alaska's big oil field before the mammoth Prudhoe Bay field began producing in the 1970s, long-quiet Cook Inlet has seen a revival in recent years driven by generous state tax incentives, promising announcements of discoveries, and a boosted estimate on the oil and natural gas still available.

On Wednesday, Cook Inlet Energy, which now operates old wells that contribute to the Inlet's meager oil production, was the top successful bidder. The Anchorage-based company paid more than $2.5 million for 17 tracts on both sides of the inlet.

"I'm pretty high on the Cook Inlet, and we've got a lot of good acreage and a lot of potential," said Greg Kirkland, a geologist with Cook Inlet Energy, after the sale.

Hilcorp, based in Houston, Tex., was second. A major Inlet gas player that took over Chevron's Cook Inlet assets earlier this year, Hilcorp won 14 tracts at a cost of about $2.5 million.

Also attracting interest in the Inlet is the fact that one of the world's top independent oil and gas companies is now betting on plays there. Apache Corp., through its subsidiary Apache Alaska, was Wednesday's other big bidder. Apache Corp. is based in Houston, Tex.

The company snatched up more than 500,000 acres and spent some $9 million at last year's Cook Inlet lease sale. The state then notched a sale amount of $11 million, a new record since the state began offering the entire area for lease in 1999.

That success had state officials expecting a smaller sale this year because much of the promising acreage was already leased, said Bill Barron, director of the Division of Oil and Gas. But that didn't happen.

Companies during the bid opening snatched up 44 tracts totaling 200,320 acres, making it among the biggest sales in tracts leased, said Barron. The preliminary results rank second in terms of dollars bid, he said.

"That's a significant comment, that people are still seeing a robust potential development and exploration activities for the Cook Inlet," he said.

For the most part, Cook Inlet Energy, Hilcorp and Apache strengthened their existing holdings, Barron said.

Also winning a single tract was individual bidder William Crawford. Buccaneer Energy, an Australian company that found gas near Kenai last year, also bid but lost to Hilcorp for a tract on the east side of the inlet.

The Cook Inlet basin holds huge potential for oil and natural gas -- much more than previously thought, according to a U.S. Geophysical Survey estimate released last year. Apache, which recently began an extensive three-year seismic program and plans some exploratory drilling on land in the western Cook Inlet this summer, has said it's looking for oil and is going all the way to bedrock to find it.

Considered underexplored by many, the Inlet once produced some 225,000 barrels of oil daily. That's now down to 10,000 barrels, said Lisa Parker, government relations manager for Apache Alaska.

"We believe there is still oil to be found and that's why we're there," said Parker.

On Wednesday, Apache, consistently offering little more than the minimum bid of $25 an acre, snatched up seven tracts for about $1 million.

The company's new leases complement Apache's existing acreage in the Inlet, which exceeds 800,000 acres, she said. The company's acreage includes tracts northwest of Anchor Point in the potentially oil-valuable Cosmopolitan Unit.

Apache's low-bidding strategy didn't work when there was competition. Cook Inlet Energy beat out Apache for seven tracts.

Cook Inlet Energy's strategy involves oil too, but it expects natural gas to dominate its discoveries, said Kirkland of Cook Inlet Energy.

"There's a good market for gas up here right now, and we're pretty excited about gas," Kirkland said.

Contact Alex DeMarban at alex(at)alaskadispatch.com