HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS PETROLEUM NEWS BAKKEN MINING NEWS

Providing coverage of Alaska and northern Canada's oil and gas industry
December 2008

Vol. 13, No. 50 Week of December 14, 2008

State rejects Corsair expansion again

Irwin upholds April ruling, citing missed deadlines; Pacific Energy to lose four leases at the end of the year; unit remains intact

Eric Lidji

Petroleum News

Upholding its ruling from April, the Alaska Department of Natural Resources decided Dec. 3 not to expand the offshore Cook Inlet Corsair unit by incorporating several leases on the verge of expiration.

In a 13-page ruling, DNR Commissioner Tom Irwin said the unit operator, Pacific Energy Resources Ltd., hadn’t proven its geologic argument for expanding the unit, and had missed several deadlines on inherited work commitments at the prospect.

“The proposed hydrocarbon accumulation has not been reasonably defined or delineated and does not justify expansion of the Corsair unit,” Irwin wrote.

The expansion would have more than doubled the Corsair unit by incorporating four adjacent leases owned by Pacific Energy. With the ruling, three of the adjacent leases will expire at the end of the year. The remaining lease expired at the end of April.

The earliest those leases could be made available is the May 2009 Cook Inlet lease sale.

With his ruling, Irwin also rejected Pacific Energy’s request for a six-month delay of the first drilling deadlines at Corsair in exchange for drilling more wells at the prospect.

The ruling is the final decision on the matter from DNR, but Pacific Energy now has 30 days to file an appeal to the Alaska Superior Court.

Pacific Energy requested the expansion of the unit on March 26. The state rejected that request on April 30, and Pacific Energy appealed the decision on May 16.

Deadlines and delineation

In its request to expand the Corsair unit, Pacific Energy argued that the previous operator, Forest Oil, based the unit boundaries entirely on shallow gas prospects, failing to include a deeper oil prospect stretching onto adjacent leases to the north and the south.

In his final decision, Irwin said the geologic and geophysical information provided by the company did not “support the structural mapping on which the extent of the potential hydrocarbon accumulation is based” under the definitions provided by state statute.

In its original ruling on the issue back in April, the state accused Pacific Energy of “warehousing” leases by asking for deadlines to be extended. In his recent ruling, Irwin tied his decision in part to Pacific Energy’s failure to meet work commitments at Corsair.

“(Pacific Energy’s) commitment to drill more wells and pursue the structure’s oil prospect lacks credibility based on its non-performance of existing commitments,” Irwin wrote, adding, “It is the Operator who must prudently consider and weigh commitments before making them; it is not in the State’s interest to accommodate late planning.”

In acquiring the Alaska assets of Forest Oil in August 2007, Pacific Energy also acquired fast-approaching deadlines for work commitments agreed to by the former operator.

By the time the state approved the title of the leases and transferred the status of operator to Pacific Energy in November and December respectively, the company only had until the end of the year to prove it had secured a specialty rig required for exploring Corsair.

Irwin acknowledged, but dismissed the deadlines Pacific Energy inherited from Forest Oil, writing, “(Pacific Energy) appears to have not fully and seriously considered the commitment it assumed when it purchased Forest’s working interests in Cook Inlet.”

When Pacific Energy failed to meet the rig commitment, the state put the unit in default, but soon agreed to push the first drilling deadline at Corsair from Dec. 31 to June 30, 2009, if Pacific Energy successfully secured a jack-up rig by April 1, 2008.

A jack-up rig is a mobile drilling unit well-suited for shallow offshore prospects.

Pacific Energy got the jack-up rig in March and brought Corsair out of default, but in the months since the company has struggled to meet a second work commitment: securing a “heavy lift vessel” to lug the rig to Alaska from its current location on the Gulf Coast.

Along with Escopeta Oil, another independent with offshore Cook Inlet leases, Pacific Energy submitted a contract for the ship on Oct. 31, but the state rejected the contract in part because it only went into effect if the state extended deadlines on some 30 leases.

By rejecting the contract, the state once again placed the Corsair unit into default. Pacific Energy now has until March 1, 2009, to submit a ship contract that meets state approval.

State continues firm tone

Irwin’s decision continues a policy in the Palin administration of strictly enforcing lease terms, even in the face of growing opposition from industry and some state lawmakers.

The final decision not to expand Corsair comes after the state refused to extend deadlines at the offshore Kitchen unit operated by Escopeta, and is in court with ExxonMobil over a decision to revoke leases and terminate the Point Thomson unit on the North Slope.

These decisions come at a time of major supply concerns in Alaska. Known natural gas at Point Thomson is believed to be crucial to filling any natural gas pipeline from the North Slope, while if commercial discoveries are made, units like Corsair and Kitchen could help reverse declining gas production in the Cook Inlet.

Even with the defaults and missed deadlines, Pacific Energy believes it can start exploring the Corsair leases more quickly than any other company since it has the jack-up rig needed to drill wells in the waters of Cook Inlet.

The state believes the leases, and others in Cook Inlet facing expiration, will be drilled most quickly by enforcing deadlines and using lease sales to circulate inactive leases.

During a recent legislative hearing on the issue, Kevin Banks, acting director of the Division of Oil and Gas, said extending leases, rather than re-offering them in a competitive bidding process, amounted to awarding “a lottery ticket” allowing a company “to come to the state and negotiate a better deal” rather than upholding work commitments.






Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
[email protected] --- http://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©2013 All rights reserved. The content of this article and web site may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.