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Oil Patch Insider: Banks offers Davis no state guarantees for Cook Inlet wells
On Dec. 22 the top executive of Escopeta Oil and Gas received a polite, but “absolutely not” reply from the State of Alaska’s oil chief in response to his Dec. 16 request that the state guarantee no “federal interference” in the company’s Cook Inlet oil and gas drilling activities, planned for 2010 and beyond.
The state’s reply came in the form of a letter from Kevin Banks, director of Alaska’s Division of Oil and Gas, to Escopeta President Danny Davis, whose company is obligated to drill its first exploration well in the undeveloped Kitchen Lights oil and gas unit by the end of 2010. The acreage in that unit belongs to the State of Alaska and, simply put, is under lease to Escopeta and its partners. The leases, many past their individual expiration dates, are being held in the unit as long as Escopeta performs its promised exploration work, including one well in 2010.
Davis said his primary investor in the Kitchen Lights unit, Vetra Group, is concerned about the impact the beluga whale “issue” will have on Escopeta’s ability to drill in the upper Cook Inlet unit, which is almost certainly going to be part of a federally mandated beluga critical habitat. (See last week’s Insider.)
In October 2008 Cook Inlet’s beluga whales were designated an endangered species under the U.S. Endangered Species Act, which mandates the establishment of a critical habitat and does not allow activities that harm the environment considered critical to the listed species.
The National Oceanic and Atmospheric Administration’s Fisheries Service wants to designate all of upper Cook Inlet as part of the belugas’ habitat.
Ready to drill According to Davis, the company was ready to “execute contracts with the jack-up rig contractor … and a heavylift contractor, to have the jack-up on location in mid to late April 2010,” but on Dec. 15 Vetra asked him to get “at least” a 12-month extension from the state on the drilling obligation, until the beluga issue can be “resolved.”
Banks reply in a nutshell In addition to making it clear that the State of Alaska cannot “speak on behalf of the federal government regarding actions a federal agency may, or may not, take regarding matters within their jurisdiction,” in his reply Banks reminded Davis that the beluga whale endangered species listing was first proposed in April 2007, and the final determination was made in October 2008, “well in advance of the negotiation and acceptance of the final KLU agreement.”
In light of the fact a “final critical habitat designation” for Cook Inlet’s beluga whales would be issued no later than June 30 by the feds, he also said “Escopeta would be well advised to move immediately to acquire all of the necessary permits needed to execute” its exploration program.
Banks gave Davis a link to the Federal Register notice regarding the proposed critical habitat — http://edocket.access.gpo.gov/2009/pdf/E9-28760.pdf — and a link to an estimate of the economic impacts that might result from the designation — http://www.fakr.noaa.gov/analyses/cookinlet/draftririrfa111709.pdf.
In his letter Banks listed several important points in the federal proposal, including the fact that Kitchen Lights is in Area 2, where “whales typically occur in smaller densities or deeper waters,” versus Area 1, which has “the most stringent proposed restrictions.”
—Kay Cashman
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