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July 19, 2010 --- Vol. 16, No. 60July 2010

State puts Kitchen Lights in default

State officials are giving Escopeta one more chance to drill at the Kitchen Lights unit.

In a decision released today, the Division of Oil and Gas chose to put the offshore Cook Inlet unit in default, rather than terminate it. Unit-operator Escopeta failed to meet two work commitments agreed to in 2009 after meeting several previous work commitments.

The state gave Escopeta three tasks to complete to return Kitchen Lights to compliance.

First, the Houston-based independent must give the state a $4 million security deposit in the next 90 days. The deposit represents the estimated final payment Escopeta would need to make in order to mobilize a jack-up rig on a heavy lift vessel bound for Alaska.

The state would return that deposit in time for Escopeta to make its final payment.

Second, Escopeta must have that rig headed to Alaska by the end of February. Third, the company must drill an exploration well at Kitchen Lights by the end of September 2011.

If Escopeta fails to meet any of those targets, the unit would automatically terminate.

Under a plan of exploration for Kitchen Lights approved in early 2009, Escopeta agreed to have that rig bound for Alaska by June 30, 2010, and have a well drilled by the end of this year. In late May, the company asked for an extension, one of several the company has requested since arriving in Alaska in 2000 and becoming a unit operator in 2007.

In the ruling, the state challenged Escopeta’s claims to have spent some $32.5 million on Kitchen Lights, saying that figure included expenses by all previous leaseholders at the unit (which the state formed in early 2009 by combining three smaller units).

Division of Oil and Gas Director Kevin Banks told Petroleum News that he chose to put Kitchen Lights in default because, “This will assure more clearly that he’s been given the appropriate due process that perhaps terminating it today perhaps would not do.”

See story in July 25 issue, available to subscribers online at noon, Friday, July 23, at www.PetroleumNews.com

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