Apache Corp. is on a growth spurt, with its most recent surge occurring just this week. On Tuesday, the Houston-based oil and gas exploration company announced it had successfully snatched up $7 billion of BP's assets, a deal designed to help BP raise cash quickly to cover the financial fallout from the oil spill in the Gulf of Mexico. BP's Alaska holdings were absent from the final package -- yet behind the scenes, as Apache and BP wrangled over which properties would be exchanged and at what price, Alaska was very much in play, although at lower latitudes.
Before swooping in to help BP's disaster-motivated fundraising efforts, Apache had already set its sights on gaining a foothold in Cook Inlet. By July 14 -- nearly a week before it announced its multibillion dollar deal with BP -- the company had successfully convinced a handful of existing leaseholders to part with their acreage, the Alaska Department of Natural Resources confirmed. Apache is waiting on approval from DNR on 60 lease assignments ranging in size from 230 to 5,760 acres, most of which were purchased from either Dan Donkel, Monty Allen or Samuel Cade. In total, the leases represent a blend of 196,524 on- and offshore acres, all of which are undeveloped. For now.
"We have a very aggressive operating style," said Bill Mintz, Apache's director of public affairs, who declined to elaborate on any specific exploration or development plans. "We would not have acquired these leases if we didn't believe there was potential."
Cook Inlet's status as a proven but underdeveloped hydrocarbon basin piqued the company's interest. "There are a number of people here who have advocated for getting into Alaska for a while," Mintz said.
But Apache does not appear to be looking to cash in on the state's multimillion dollar incentive plan to generate prompt development of the Inlet's offshore natural gas prospects. The company did make an offer, albeit unsuccessfully, on a lease cluster slated for development this year and next, according to a lessee who has been trying to get a development project launched in Cook Inlet for years.
"Their offer wasn't anywhere near as good as they made to BP," explained Danny Davis, who said Apache approached his company, Escopeta Oil, earlier this year.
Meanwhile, Escopeta is in a use-it-or-lose it position. Monday, the company received notice that it is in default on its Cook Inlet lease obligations, after failing three times to deliver a drilling rig to Cook Inlet under prescribed deadlines. But rather than seeing it as an admonition, Escopeta views the letter favorably.
"This is not a default letter; this is an extension letter," Davis said.
To prevent losing its leases, Escopeta must come up with a $4 million security deposit and prove that its drill rig has made it Cook Inlet by the end of February 2011, neither of which is a problem, according to Davis -- who half-jokingly, half-seriously says the state's incentive program is helping him comply with those terms.
"How can I fail if the state of Alaska is guaranteeing the payment?" Davis said, referring to a state-promised $25 million reimbursement plan for the first company to get a rig in place.
No other companies appear to be mobilizing equipment, leading him to believe he will Escopeta will be the first company to take advantage of the state's offer, he said, adding that he would welcome the participation of others should they express interest.
Any jack-up rig must be able to withstand Cook Inlet's cold water and strong currents, and finding a company with the right equipment and willingness to move it to Alaska has been challenging. Of several companies approached, only one, Pride, has been receptive, said Davis, who expects an agreement with Pride to be in place by the end of the month.
Davis is also pleased that the state's warning letter reinforces that the leases at risk for default contain "some of the most prospective offshore acreage in the Cook Inlet Basin."
Escopeta plans to sell its natural gas to customers in Southcentral Alaska, which is facing a shortfall in the years ahead. Yet Davis thinks there's a bigger market be had. "If we find the amount of gas we think we can find hopefully we can work with ConocoPhillips," he said, referring to the possibility of selling gas for export overseas.
While Alaska's short-term gas needs are a top priority, Davis is looking to heavier hydrocarbons longer term. "There's a whole lot of oil" in Cook Inlet, he said. "If it was up to me I would take the oil first and the gas second, but the state of Alaska needs gas first, so you're going to do both."
As for whether the company that only recently was looking to buy acreage from Escopeta might become a competitor in short order, Davis isn't worried. He expects Apache, now listed as the fourth-largest oil producer in the United States according to Forbes, will waste no time doing what it does best: finding oil and gas resources and getting them to market.
"Don't worry, they will find lot of oil and gas up there," he said. "It's a great thing they came to the Cook Inlet basin."
Contact Jill Burke at jill(at)alaskadispatch.com.
Alaska Dispatch Publishing