Buccaneer Energy has struck a deal with ConocoPhillips that greatly expands the Australian company's holdings in Cook Inlet and increases the major oil and gas company's interest in the inlet.
Buccaneer executed an agreement with ConocoPhillips that allows it the right to earn a 100 percent working interest in ConocoPhillips' deep oil rights to 23,368 acres held in the North Cook Inlet Unit. That's a sizable unit that provides a "huge area to explore," said Cathy Foerster, a commissioner at the Alaska Oil and Gas Conservation Commission.
The area has a long track record dating back to the 1960s. The oil is contained in the Lower Tyonek, Hemlock, Sunfish and West Foreland Formations. Since 1962, the formations have been penetrated by 13 wells, all of them in North Cook Inlet Unit. Seven of the wells were drilled in the 1990s, according to historical data provided by Buccaneer. The remaining six wells were drilled by various majors during the discovery and delineation phase of Cook Inlet in the 1960s. Of the 13 wells drilled, 10 were successfully flow tested.
'Good news for oil production'
"This could mean good news for more oil production in Alaska," Foerster said. The North Cook Inlet Unit has produced almost 1.9 trillion cubic feet of gas from the shallow Sterling and Beluga formations since the 1960's. The unit's gas production has been predominantly used to supply ConocoPhillips' Kenai LNG facility. The shallow gas production will continue to be owned by ConocoPhillips.
Bob Shavelson, public advocate at nonprofit advocacy group Cook Inletkeeper, sees the agreement as a sign that a major oil and gas company has moved back into Cook Inlet. And that means the state may need to look at how it allows discharge of drilling wastes into the inlet's waters.
"One of the rationales to continue the dumping in Cook Inlet when the EPA set these rules in 1996 was that Cook Inlet was a declining oil-and-gas province and they did not anticipate growth or new discharges," Shavelson said. "Cook Inlet is the only coastal area where industry can discharge their drilling waste. The state carved out a loop hole that didn't anticipate this new interest."
If ConocoPhillips is participating in a potentially lucrative agreement with an independent, "that tells me there is enough interest to attract these larger players," he added.
Since there are now two jack-up rigs operating in the inlet and more wells to be spudded, the premise for allowing the discharge of drilling waste is undermined, he said.
The jack-up rig Endeavour, now located on the Cosmopolitan Unit between Anchor Point and Whiskey Gulch, was a big selling point in the negotiations, Buccaneer's Dean Gallegos said in the news release.
Another boon to the deal is a license agreement on the existing 3D seismic owned by ConocoPhillips. The 3D license covers both the area subject to the Deep Oil Rights Agreement and parts of Buccaneer's North West Cook Inlet Unit. It also contains valuable information on the Tyonek Unit, where Buccaneer is permitted to drill two wells.
No upfront cash was part of the negotiations, Gallegos said, but there are timeline commitments. A well must be spudded in either Block A or Block B by Dec. 31, 2014 -- and a second well in the remaining block by Dec. 31, 2015.
The company plans to spud the first well in Southern Block A using the Endeavour jack-up rig. As a result of this transaction, the company is revising its planned offshore drilling schedule over the next two years.
Summer work at West Eagle Unit
Buccaneer Energy has a three-prong cash-flow strategy that involves its Kenai Loop Onshore gas wells, using the jack up rig for third party drilling, and developing Cook Inlet projects.
Among the onshore work ahead is the West Eagle Unit, which Buccaneer has said will begin this summer. A new update is pending, said spokesman Jay Morakis.
ConocoPhillips spokesperson Natalie Lowman said the business arrangement made sense because the oil is in the unit. "But that's an opportunity for someone else in obtaining deep-water rights in north Cook Inlet," she said. "We're not ready to drill for oil right now – it doesn't work for our portfolio."
Instead, ConocoPhillips has been focused on gas in Cook Inlet. Their interest is in ownership of the North Cook Inlet Unit, the Tyonek Platform, the Beluga River Gas Field and as a one-third owner with Hilcorp and Municipal Light and Power.
Buccaneer finally ready to drill for gas
Buccaneer announced Wednesday that the company has received the go-ahead to drill at the Cosmopolitan Unit off Anchor Point, near Whiskey Gulch, which is three miles from shore. The nod came from the Alaska Oil and Gas Conservation Commission.
Naomi Klouda is a reporter at the Homer Tribune. Used with permission.