THE EXPLORERS 2006 - Escopeta prepares to drill Alexander

Company cleared major hurdles in 2006, including Jones Act waiver to bring jack-up rig to Cook Inlet

Kay Cashman

Petroleum News

Escopeta Oil’s had a pretty good year in Alaska.

A year ago, Escopeta President Danny Davis announced the Houston independent had secured a partner willing to take majority ownership in its 130,000 acres under lease in Cook Inlet in exchange for providing exploration funds for the next two years — exploration that would require bringing a jack-up into the Southcentral Alaska basin.

The new partner was Johannesburg-based Centurion Gold Holdings Inc.

Centurion CEO and Chairman Dale Paul said Escopeta would remain operator of the leases, which include the offshore Kitchen prospects and the onshore North Alexander prospect.

The partners believe their Kitchen prospects could contain the inlet’s missing giants, i.e. large oil and gas fields that remain to be found in Cook Inlet, as per a 2004 U.S. Department of Energy report on the inlet.

“We think we have a possible total resource of 1.2 billion barrels of oil and 7 trillion cubic feet of gas,” Davis said of the two Kitchen prospects.

A quick inspection of a map of Cook Inlet’s producing fields shows that they follow two main trends on either side of the basin axis — one trend passes up the west side of the Kenai Peninsula and the other trend passes up the west side of the body of water called Cook Inlet. Oil and gas leases have also tended to follow these trends, which lie on either side of the central axis of the basin.

“If you look at a map of the well plots there’s very few in the core, along the axis (of the basin),” commercial analyst Tim Ryherd of the state Division of Oil and Gas told Petroleum News.

Interestingly, Escopeta’s Kitchen prospects are on the axis of the basin, east of the Middle Ground Shoal and Trading Bay fields, Paul Decker pointed out in an interview with Petroleum News. Decker is a geologist with the division.

He said much of the drilling in the Cook Inlet basin has focused on the crests of the major structures. Decker thinks that there is scope for exploring the flanks of the structures, where fluids will likely have migrated up the structures.

There is also scope to explore for stratigraphic traps.

“So far the basin has only really been explored for structure, not for stratigraphic traps,” Decker said.

Escopeta’s next success came in March 2006 when it announced it had entered into a contract with Songa Drilling for use of the Tellus jack-up rig.

Songa’s Greg Carter made arrangements to meet with Kenai -based Inlet Drilling, which was to supply the crews for the Tellus that was to leave the Gulf of Mexico for Alaska via the Tai an kou in late May or early June.

An independent-leg cantilever jack-up, the Tellus could work comfortably in 250 of water and had a drilling depth capacity of 20,000 feet — more than enough for what Escopeta needed, Davis said.

Prior to signing the contract, Songa demanded Escopeta have a heavy lift vessel under contract to transport the Tellus to Alaska when Songa was done retrofitting and refurbishing the jack-up, so Davis secured the Tai an kou from Coscol (HK) Investment & Development Co. of Hong Kong.

But when the Tai an kou arrived in the Gulf of Mexico in June to pick up the Tellus for its trip north the jack-up rig was months away from being ready.

Moduspec USA, an inspection firm, did a visual walk-through of the Tellus. In its report Moduspec said the refurbishment was running four to five months behind schedule because of difficulties in securing workers, equipment and supplies.

Among other things, it said there was still major reconstruction work to be done on the derrick and rig floor.

But lessees can’t be fussy in today’s jack-up market; especially lessees like Davis who had locked in Escopeta’s day rate three months earlier.

So, Davis renegotiated his contract with Coscol and announced the Tai an kou would be back in December to pick up the Tellus for the journey to Alaska.

But the news wasn’t all bad. The new schedule worked for Escopeta and its partner Centurion Gold Holdings.

“The timing works because it takes about 60 days to get up there, and leaving in, say, mid-to-late December puts us there at the end of February. If everything works out we could be drilling the first or second week of March,” Davis said. “That gives us just enough time to drill our three wells before the end of the season.”

Escopeta was also in the process of raising additional funding in London, so all around the change in scheduling was not a serious setback.

Songa, on the other hand was up for sale and in late May had received an offer from Abbot Holdings Norge AS.

At the same time Davis was waiting to hear from Moduspec on the status of the Tellus’ refurbishment, Centurion was dishing out thousands of dollars to attorneys and consultants to help Escopeta get a Jones Act waiver — something almost everyone, including the governor of Alaska, said would be impossible to secure.

But on July 7, U.S. Sen. Ted Stevens, R-Alaska, announced Homeland Security had issued the waiver to Escopeta. Davis said Homeland Security had granted the waiver in the interest of national security.

“The Maritime Administration, the Department of Homeland Security, the Department of Defense and the Department of Energy all signed off on this,” he said. “And we had excellent support from our Congressional delegation in Washington, D.C., the governor, and the mayor of the Kenai Peninsula Borough and his liaison, Bill Popp.”

The Jones Act waiver is “a one-time waiver, to bring the jack-up to Alaska only. When it leaves, Songa is taking the Tellus to the Middle East,” he said, so the Jones Act won’t be a factor.

The Jones Act requires U.S. flagged vessels be used between U.S. ports. Escopeta has to use a foreign-flagged vessel to transport the Tellus from the Gulf of Mexico to Alaska because there are no American-flagged vessels “capable of moving a rig like this,” Davis said.

Escopeta’s manager in Alaska, geologist Bob Warthen, initiated permitting and related activities for the Kitchen and North Alexander prospects shortly after signing the deal with Songa, including preparing paperwork to unitize the Kitchen prospects — Kitchen and East Kitchen — into a single unit.

The company’s plans were to drill the North Alexander prospect in January 2007 with a Nabors rig and then spud the first of three 2007 offshore wells using the jack-up in March at its East Kitchen prospect.

“Then we’ll move it to our Kitchen prospect, and then do a delineation well at East Kitchen or Kitchen depending on what we’ve found,” Davis said.

Meanwhile, Abbot’s acquisition of Songa went through in July. It included all of Songa’s jack-up rigs — the Songa Tellus, Songa Jupiter and Songa Neptune, rated at 250 feet, 300 feet and 350 feet respectively.

Shortly before the deal closed Abbot announced Songa had won a lucrative contract with Mexico’s national oil company, Pemex, for the Songa Jupiter, a drilling contract that was supposed to commence during the summer of 2006.

The contract had an impressive day rate of US $145,000.

According to rumors floating around the Kenai Peninsula, there are problems between Escopeta and Songa, which could impede the Tellus coming to Alaska.

Petroleum News asked Davis about those rumors in mid-October. He said, “The Songa Tellus will come to Cook Inlet in early 2007, as soon as weather allows — if the Tellus is finally ready and if Escopeta and Songa Drilling can iron out contract issues that arose because of refurbishment delays. Escopeta wants Songa to honor its contract, but if the Tellus isn’t available, Escopeta will contract a different jack-up rig to meet its 2007 drilling objectives.”