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Escopeta wants stay on Kitchen Lights As appeal extends beyond deadline for curing default at offshore unit, Escopeta asks the court to put state proceedings on hold Eric Lidji For Petroleum News
Escopeta is asking the Alaska Superior Court to put the Kitchen Lights unit on hold until the company’s appeal of a state ruling on the Cook Inlet acreage reaches a resolution.
A stay would prevent the Alaska Department of Natural Resources from terminating the unit, which is in default, and taking back any of the unitized leases that have expired.
Escopeta is challenging that default notice, as well as DNR’s proposed cure: a $4 million security deposit. The deadline for Escopeta to put down that security deposit and cure the default on the unit passed in late October, while the case has been on appeal.
Escopeta believes the stay is justified for three reasons: It believes the state didn’t have the right to put the unit in default or to require a security deposit as a cure; it believes the termination proceedings would cause Escopeta “irreparable harm”; and it believes that re-leasing the acreage would cause significant confusion unless the appeal is resolved.
Escopeta made its argument for a stay based on many of the same claims it made in its 24 points of appeal filed back in September when it brought the case against the state.
The state has not yet filed its response to Escopeta’s motion.
A decade of trying to drill Generally speaking, the debate at Kitchen Lights is about what path forward would most likely lead to offshore exploration drilling in Cook Inlet. The potential answers are numerous and conflicting, but generally fall into two categories: giving Escopeta additional time to arrange a drilling program or putting the leases back up for sale.
Although Escopeta is appealing DNR’s July 19 decision to put the Kitchen Lights unit in default, Escopeta’s efforts to develop that acreage go back more than a decade.
Escopeta arrived in Alaska in 1994, but didn’t begin amassing a major acreage position in the waters of the upper Cook Inlet until lease sales around the turn of the century.
Convinced that its leases overlaid major undiscovered oil and gas fields, Escopeta announced plans to explore the area, known at the time as Kitchen and East Kitchen.
It proved very challenging, though, to arrange an offshore drilling program in Cook Inlet. It required a special mobile drilling unit called a jack-up rig, a heavy-lift vessel capable of bringing that rig to Alaska and a waiver of the federal Jones Act that requires goods bound for U.S. ports to be carried on ships flagged and built domestically. In 2006, Escopeta came closer than any other company in decades, securing all three of those pieces, but then a partner backed out, forcing Escopeta to find new investors.
The state formed the Kitchen unit in 2007, but put the unit in default at the end of the year when Escopeta missed a drilling deadline. The state ultimately gave Escopeta until the end of 2008, but as that deadline approached without a rig bound for Alaska, the state ultimately came up with an alternative idea: combining the holdings of Escopeta and two other independents — Pacific Energy and Renaissance — into a single, giant unit.
That unit became Kitchen Lights, owned and operated by Escopeta. The state gave Escopeta until June 30, 2010, to have a rig bound for Alaska to drill by Dec. 31, 2010.
In May 2010, though, Escopeta asked for a six-month extension to its work commitments. In its motion for a stay, Escopeta said it bore the brunt of two “unexpected, once-in-a-lifetime events,” the federal government’s announcement of critical habitat designations for Cook Inlet beluga whales and BP’s oil spill in the Gulf of Mexico.
In its motion, Escopeta said that the habitat listing placed enough uncertainty over Kitchen Lights that a potential investor, Vetra Group, backed out of a partnership.
Escopeta also said it lost a jack-up rig contract with Pride International because, in the wake of the BP oil spill, “Pride International’s insurer insisted on a number of additional, new requirements and conditions that eventually made the contract not feasible.”
Despite these issues, the state put the Kitchen Lights unit into default in mid-July, giving Escopeta three tasks to keep the unit and the leases: First, give the state a $4 million security deposit on a jack-up rig within 90 days. Second, have the rig headed to Alaska by the end of February. Third, drill an exploration well by the end of September 2011.
Escopeta appealed that ruling in late August.
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