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State wants some answers from Escopeta DO&G wants more information from company before it decides whether to extend the work commitment deadlines at Kitchen Lights Eric Lidji For Petroleum News
State officials are leaving the door open just a crack to extending the deadlines for work commitments at the Kitchen Lights unit in the Cook Inlet basin, but first they want some answers from the unit operator, Houston-based independent Escopeta Oil and Gas.
In a June 18 letter, Alaska Division of Oil and Gas Director Kevin Banks asked Escopeta President Danny Davis for seven pieces of information the division wants to have in hand before it decides whether to grant Escopeta’s request for six additional months at the unit.
That information includes:
• An itemized list of expenses to back up the claim that Escopeta and its partners have spent $32.5 million on the Kitchen Lights unit, as well as a detailed account of which expenses came after the division approved the formation of the unit last summer;
• An account of Escopeta’s efforts and negotiations to get a jack-up rig to Alaska;
• A detailed list of the “critical steps, contracts, or agreements” Escopeta needs to have in hand in order to meet the work commitments it proposed to the DOG at the end of May;
• A list of the permits Escopeta has in hand, and a list of the permits and bonds it still needs to get, as well as its anticipated timeline for getting those additional permits;
• An account of Escopeta’s efforts to address its concerns about offshore drilling in the wake of a moratorium imposed by the federal government in response to an ongoing oil spill in the Gulf of Mexico. While the moratorium does not include state waters, Escopeta worried that the ruling would make it more difficult and more expensive to get insurance;
• An account of Escopeta’s attempts to find alternative ways to meet its commitments; and
• A status update, including documentation, for offers to buy the Kitchen Lights leases.
The division wants the information by June 28, and plans to meet with Escopeta soon after.
Another chance? Last chance? Escopeta came to Alaska a decade ago, buying up offshore leases in the Cook Inlet basin. The company formed the Kitchen unit in early 2007, but continually failed to line up all the pieces needed for an offshore exploration campaign in the shallow waters of the region.
The state put the unit in default in late 2007, giving Escopeta a year to bring the unit back into compliance, primarily by arranging for a jack-up rig to come to Alaska. A jack-up, a mobile drilling platform used in shallow waters, is crucial for exploring the prospect.
By the end of 2008, though, Escopeta still didn’t have the rig. The company asked the state to extend the drilling deadline until December 2010. Following various appeals and a somewhat heated legislative hearing, the two sides reached an agreement. The state combined three neighboring offshore units — Kitchen, Corsair and Northern Lights — into one super unit called Kitchen Lights to be owned and operated by Escopeta. In return for this consolidation, designed to improve the odds of exploration at multiple areas of an anticline running northeast to southwest beneath the three old units, the state extended the work commitments over the leases. Escopeta currently has until June 30, 2010, to have a jack-up rig headed for Alaska and until Dec. 31, 2010, to spud a well at Kitchen Lights.
Just a little more time On May 30, 2010, though, Escopeta asked the state for an additional 180 days to meet the work commitments set out in the first Kitchen Lights plan of exploration from June 2009.
Escopeta said the extension would give it enough time to finalize a contract for a jack-up rig, outfit the rig for sub-Arctic conditions and get the rig on a ship bound for Alaska.
Aside from those permits related specifically to the drilling rig, Escopeta said it has all other permits either in hand or pending, including a waiver of the federal Jones Act that restricts access to domestic ports to ships built, owned and manned domestically. That waiver is crucial because of the scarcity of domestic ships able to bring a jack-up north.
Davis recently confirmed rumors that Houston-based Apache Corp. made an offer on some of Escopeta’s leases, an offer contingent on the division granting the time extension.
Escopeta is negotiating with offshore drilling contractor Pride International Inc. to build a jack-up that can be used in the Cook Inlet, but doesn’t believe the rig will be ready to deploy to Alaska before early 2011, making April 2011 the earliest realistic spud date.
Escopeta believes it can get back on the original timetable set out in the June 2009 plan of exploration by the end of 2011, or the second year of required work commitments.
Escopeta has signaled that it would appeal an unsatisfactory ruling.
A satisfactory ruling, though, might allow Escopeta to take advantage of the incentives of Senate Bill 309, which commits significant state funds to pay for jack-up rig exploration drilling.
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