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Wilcox: Alaska needs small independents Co-founder of Cook Inlet Energy says big oil companies open basins, smaller companies needed for smaller geologic opportunities Kristen Nelson Petroleum News
J.R. Wilcox, the president and one of the co-founders of Cook Inlet Energy, says Alaska needs small independents to develop smaller geologic opportunities in the state, to keep larger fields producing and basically to keep the lights and heat on after the super majors move on.
Cook Inlet Energy took over fields in Cook Inlet which had been shut-in and has been returning wells to production.
“We’re currently producing a proud one-sixth of 1 percent of Alaska’s oil production,” Wilcox said.
Wilcox told the Alaska Support Industry Alliance’s annual Meet Alaska conference in Anchorage Jan. 21 his focus was on the role of small independents — and what the State of Alaska needs to do to encourage small operators.
Wilcox is a fifth-generation Alaskan and said his focus is on the long-term: His great-great grandfather came to Alaska and his focus is on where Alaska will be 100 years from now and what his great-great grandchildren will be doing.
A novelty The state has a problem to address and “that’s that Cook Inlet Energy is a novelty,” Wilcox said. “The most remarkable thing about Alaska as an oil basin north of the Mexican border is the almost complete absence of small independents.”
He said he loves big oil companies because “they can do all the things that small companies can’t,” from building facilities and pipelines to advancing technology.
“They’re the basin openers,” Wilcox said.
But there are 8,000 to 10,000 operators producing oil and gas in Texas; in Alaska there are eight, he said. And while super majors account for 10 percent of the oil and gas produced from state lands in Texas and large independents account for another 20 percent, 70 percent of that production is from small independents.
Texas is not an anomaly, he said — the same holds true for states like Oklahoma and Kansas.
“Small producers, while not doing the big sexy projects, are actually giving you your bread and butter production,” Wilcox said.
More focus needed Alaskans tend to focus only on the super majors, Wilcox said: on attracting new investment from super majors to slow North Slope production decline; on bringing North Slope gas to market; on opening federal lands onshore and offshore for development. Addressing those issues involves discussions around a more stable fiscal regime and battling with the federal government for development.
But Alaskans also need to focus on another issue: “How do we create a vibrant class of independent companies?”
Looking into the future, “the most significant thing we can be doing is trying to create a vibrant class of entrepreneurs and the infrastructure that is going to create a state capable of taking advantage not just of the very, very large geologic opportunities but of the small and mid-sized geological opportunities.
“And over the long term, that’s what it’s going to take to realize the sustainable prosperity and energy security in our state.”
With locally focused companies a lot more oil and gas revenues will stay in the local area and be invested in energy or other sectors of the local economy, he said.
What’s needed? Cook Inlet production has dropped from 200,000 barrels per day to 10,000 bpd, but there’s more oil and gas to be found, he said, and looking at mature basins elsewhere production declines and then rises again as new technologies allow more production or as the oil price rises.
Wilcox said Cook Inlet is the least developed, developed oil and gas basin in North America: the crude quality is high; it’s next to the Pacific Rim and ready markets; there is a refinery optimized for Cook Inlet crude; there is a favorable fiscal regime — but there still isn’t much going on.
That’s because there are barriers to entry, including access issues and complex and unique systems for permits and taxes which make it difficult for small companies. Systems more similar to other basins in the Lower 48 and Canada are needed, he said.
Wilcox said the oil and gas system in Alaska evolved at a time when there were big companies and small government and is based on negotiation, but with small companies and a large government the situation is different.
“It’s very easy even if the government isn’t being aggressive to just bowl over the small guy. So you really need to … change that paradigm from a negotiation paradigm to a fostering business paradigm,” he said.
“If you get enough of a critical mass of small companies in the local economic ecosystem — making money, sharing expertise … you start cutting down infrastructure costs because you’re sharing things.”
That sector can be grown by lowering barriers, creating “a clear and consistent regulatory regime” and easing up on some land restrictions. That will “broaden and diversify our oil and gas production opportunities” and result in “more stable and durable production for this state,” Wilcox said.
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