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State extends Susitna exploration license Small oil and gas firm makes $750,000 work commitment on land along Alaska’s Parks Highway; Miller sending rig to Cook Inlet Wesley Loy For Petroleum News
The Alaska Division of Oil and Gas has granted Cook Inlet Energy LLC a three-year extension of its Susitna basin exploration license.
In exchange, the small oil and gas producer made $750,000 in work commitments over the period. Cook Inlet Energy, based in Anchorage, is a subsidiary of Miller Energy Resources, a publicly traded firm headquartered in Huntsville, Tenn.
“Extending the license was one of the key initiatives for our team in Alaska this quarter,” Miller chief executive Scott Boruff said in a Nov. 1 company press release.
The license area takes in mainly natural gas prospects.
“We are now moving into the development stage for Susitna as we finalize our drilling plans along with continuing to evaluate joint venture opportunities,” Boruff said. “This extension comes at an opportune time as the State of Alaska continues to promote drilling, offers advantageous drilling cost reimbursements, and the prices offered for natural gas continue at a premium.”
Susitna license history The license gives Cook Inlet Energy exclusive exploration rights on 471,474 acres west of the Parks Highway between the Houston and Talkeetna communities. The Susitna River skirts the eastern edge of the license area.
The license isn’t the same as a state oil and gas lease. Rather, the state has used exploration licensing to supplement its conventional oil and gas leasing program. The idea is to encourage exploration on land with relatively low or unknown hydrocarbon potential — land typically far removed from the state’s existing oil and gas fields.
The Susitna basin has been lightly explored, a state best interest finding from 2003 says. Nine oil and gas exploration wells and four core holes have been drilled in the region. All the exploration wells were dry holes, though some had minor gas shows.
The state originally licensed the 471,474 Susitna acres in 2003 to Forest Oil Corp. The award was known as Susitna Basin Exploration License No. 2. The state at the time made two more licenses available on neighboring tracts.
License No. 2 was good for a term of seven years, and carried a $3 million work commitment with an option to extend the primary term for up to three years.
Forest later sold its Alaska assets to California-based Pacific Energy Resources Ltd., which filed for bankruptcy in March 2009 and has since largely liquidated.
A newly formed company, Cook Inlet Energy, picked up numerous Pacific Energy assets out of bankruptcy in December 2009.
Two paths State Oil and Gas Director Kevin Banks, in a Sept. 30 decision letter, said the state received Cook Inlet Energy’s three-year extension request on April 29.
Banks noted the original work commitment was carried out, and said the state offered Cook Inlet Energy a choice: It could extend the license, or convert the acreage to leases.
Converting to leases would have required Cook Inlet Energy to pay the state a per-acre fee, and also commence drilling operations within specified timeframes, the Miller Energy press release said.
“Miller and Cook Inlet Energy elected to obtain an extension of the license term to allow for better control of our drilling schedule as we continue to develop our Alaskan resources,” the press release said.
Banks approved the extension request, giving the Susitna No. 2 license a new expiration date of Oct. 31, 2013.
Under the extension, Cook Inlet Energy can choose one of two paths for fulfilling its work commitment.
Under the first path, the company would review existing seismic data and determine if additional 3-D seismic is needed. If so, the company would spend the three-year term collecting the data, identifying well locations and preparing to drill.
Under the second path, which assumes no additional 3-D seismic data is needed, Cook Inlet Energy would pick a well location; secure a rig and permits; mobilize the rig to the site; and abandon, suspend or complete the well by the end of the third year.
If the full $750,000 work commitment is met before the license expires, the company can convert its acreage to oil and gas leases.
Finally, Cook Inlet Energy must relinquish some acreage if it fails to spend at least $250,000 in each of the first two years.
“Upon completion of the work commitment, Cook Inlet Energy will have the option to convert any or all of the license acreage to oil and gas leases with a five year term and a royalty rate of 12.5%, with annual rentals of $3.00 per acre,” the Miller Energy press release said.
Miller rig bound for Cook Inlet Most of the assets Cook Inlet Energy and its parent Miller picked up from Pacific Energy are arrayed along the west side of Cook Inlet.
In a Nov. 3 press release, Miller said it had “completed preparations to mobilize Miller Rig 34 and associated support equipment to Cook Inlet.”
Miller, which bills itself as a top driller in Tennessee, said the Atlas Copco RD20 rig has the capability to drill to 6,000 feet. The rig will be used to support development of Cook Inlet Energy gas prospects, Miller said.
The rig and other equipment will travel by land from Tennessee to Tacoma, Wash., then by cargo vessel to Nikiski on Cook Inlet, where the rig will be modified for winter operations.
From Nikiski, the rig will be deployed to company properties on the west side of the Inlet, Miller said.
“There will be significant cost saving with the use of a company owned rig that will use a mix of company personnel and local contractors,” the Miller press release said.
“At Miller we have a history of successful drilling that goes back over forty years,” said Boruff, the Miller chief executive. “Utilizing our own drilling equipment allows us more flexibility and affords us more control over costs. Our aggressive drilling schedule has required us to increase our capabilities in Alaska.”
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