Oil Patch Insider

BP orders three new rigs for Prudhoe Bay; Minmet release comes as surprise to Escopeta

According to Petroleum News sources BP Exploration (Alaska) has ordered three new drilling rigs for in-field drilling at the giant Prudhoe Bay oil field — two rigs from Parker Drilling and one from Doyon Drilling. The sources said the request for proposals that went to drilling rig contractors was for as many as six new rigs.

Petroleum News sources also said in early January that the rigs would take about two years to build and that BP had ordered them so it could pull as much oil as possible from the field before a gas pipeline is built from the North Slope to Outside markets.

BP spokesman Steve Rinehart verified only part of that information in a Jan. 11 e-mail to Petroleum News.

He said BP has “entered into agreements for two new drilling rigs from Parker Drilling Co. and one workover rig from Doyon Drilling Co.,” and that the new rigs should be delivered in just under two years — “by the end of 2009.”

But, Rinehart said, the new rigs “do not represent or signal an increase in actual drilling or the number of rigs at work.”

Instead, he said, “The new equipment, offering better performance and efficiency, will renew the drilling fleet available to BP.” Commissioner Cathy Foerster of the Alaska Oil and Gas Conservation Commission told legislators in mid-January that the more aggressively BP produces oil from Prudhoe before a gas pipeline is built to Outside markets, the less impact a major gas sale will have on oil production. (See story in this issue, page 9.)

There are currently six drilling rigs working in Prudhoe Bay, excluding satellite rigs.

—Kay Cashman

Minmet announcement comes as surprise to Escopeta president

The news sounds like bad news for Alaska, and for Escopeta Oil and Gas because Minmet said Escopeta’s Cook Inlet properties were part of an “exploration and joint venture agreement” between Escopeta and UK-based Alaska Oil and Gas. Minmet described the properties as “three oil and gas exploration licenses, namely the North Alexander, Kitchen and East Kitchen prospects, covering approximately 100,000 acres in the Kenai Peninsula in the Cook Inlet, Alaska, USA.”

In fact, Alaska Oil and Gas had already reneged on an Aug. 9 agreement with Houston-based Escopeta to close on those Cook Inlet properties by Sept. 14, per correspondence Escopeta President Danny Davis shared with Petroleum News.

“They paid us for an option on an agreement that was signed Aug. 9 and expired on Sept. 14,” Davis said.

He was uncomfortable about revealing the amount of the deposit Escopeta was paid for the 37-day option, but said it was a fraction of the US$4.35 million Minmet said it paid UK-based Carbon as a refundable deposit on the Alaska deal. That amount, Davis said, “is news” to him.

Furthermore, it is Davis’ understanding that Carbon is a non-public affiliate or subsidiary of Minmet, and that Alaska Oil and Gas Resources is affiliated, if not outright owned, by Carbon.

“I checked out Minmet when they first approached me about the deal, and it looked okay. It was publicly traded and had $14 or $15 million cash on hand. ... I had no idea Alaska Oil & Gas Resources was trying to trade my properties to Minmet for $87 million. That’s insane,” Davis said.

None of the three companies — Alaska Oil and Gas, Minmet or Carbon — has an option on Escopeta’s Cook Inlet basin properties now, Davis said. He, in fact, is working with another group to finance exploration on his Cook Inlet prospects — a group that is in no way affiliated with the three UK companies.

In Minmet’s Jan. 21 press release it said the US$4.35 million deposit would be repaid to Minmet by Carbon, together with interest, within 180 days of Dec 31.

What was more disturbing to Davis, was Minmet’s assertion that it “may elect to accept repayment of the deposit in shares in a new vehicle that Carbon intends to set up to acquire Alaska” (which is how Minmet refers to the Cook Inlet JV). What’s more, Minmet said Carbon “has agreed to pay a premium for canceling the agreement in the form of shares in the new vehicle equivalent to twice the value of the original deposit.”

Minmet Chief Executive Jon King was quoted in the press release as saying, “The board’s decision not to proceed directly with the more speculative Alaskan project — whilst retaining a carried interest — and to focus on the phased development of the Tucumcari assets is designed to provide a significant asset base and cash flow to fund Minmet’s future growth strategy.”

Davis is adamant: “There is no ‘carried interest’ held by Minmet or Carbon or Alaska Oil and Gas.”

In a Sept. 13 letter sent by Davis to Alaska Oil and Gas’ solicitors, Davis complained about making numerous attempts to contact the company after the Aug. 9 agreement was signed in order to get the closing set up “on or before Sept. 14,” as agreed, and getting no response.

Jon King has not responded to a query from Petroleum News.

It’s just as well, because Minmet was a bit confused about what its affiliate was supposedly buying. Minmet had the three names right, but Kitchen, East Kitchen and North Alexander are prospects — prospects on state oil and gas leases, not exploration licenses. Those three prospects are contained in two state oil and gas units named Kitchen and North Alexander. And, none of the Cook Inlet basin prospects is on the Kenai Peninsula. Kitchen is offshore, in the body of water called Cook Inlet, and North Alexander is across the inlet from the Kenai Peninsula.

—Kay Cashman