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Vol. 11, No. 13 Week of March 26, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

No news is bad news

Cook Inlet is finally getting a jack-up rig, but is anyone paying attention?

Kay Cashman

Petroleum News

The latest news about the jack-up rig coming to Alaska this summer is that there isn’t much news. After all the hullabaloo about the need for a jack-up in Cook Inlet to get offshore prospects drilled, only one oil and gas company has approached Escopeta Oil about using it. Escopeta is the small Houston-based independent that is bringing the rig to Alaska, footing the multi-million dollar mobilization, as well as the day rate charges.

And after all the concern politicos have given to looming natural gas shortages in Southcentral Alaska, only one government official has offered to help get an exemption to the federal Jones Act. Without such a waiver Escopeta and its partner, Centurion Gold Holdings, will pay hefty fines because they are using a foreign-flagged ship to transport the Songa Offshore Tellus jack-up from the Gulf of Mexico to Alaska. The Jones Act requires U.S. flagged vessels be used between U.S. ports.

According to Escopeta President Danny Davis the only company that has talked to him about using the jack-up was another small Texas independent, Midland-based Rutter and Wilbanks, which owns the Cook Inlet Northern Lights prospect (former names were Tyonek Deep and Sunfish).

Lease expiration a factor

“We’re hoping to use the jack-up next summer,” Bill Rutter Jr. told Petroleum News March 24. (Rutter and Wilbanks said in February that it has partners for Northern Lights but several more partners might be added before drilling.)

“I congratulate Danny Davis for biting the bullet and getting a rig up here. There hasn’t been a jack-up in Cook Inlet for 15 years or so and there are a lot of prospects that need drilling. … It’s a new day for Alaska” because of the increase in oil and gas prices, he said, noting the inlet is an “expensive” place to explore and develop.

On Feb. 21 Bill Rutter III told Petroleum News that “Cook Inlet has been dormant for nearly 40 years. At sixty-dollar oil, it’s screaming to be developed.”

Rutter Jr. said most of the inlet wells “have only been drilled into the top of the structure. … But you don’t know how much oil and gas is in a structure until you drill down the sides of it, drill deeper.”

Escopeta’s Kitchen wells will be drilled in about 70 feet of water and be 16,000 to 17,000 feet deep as compared to an average vertical depth of approximately 12,000 feet for the deepest inlet wells. The first well will take about 90 days to drill and test, Bob Warthen told Petroleum News March 23. A long-time Cook Inlet geologist, Warthen is a partner in Escopeta Oil and general manager of Alaska operations for the company’s new Alaska affiliate, Escopeta Oil of Alaska.

Davis hopes that the Tellus will start a whole new wave of oil and gas exploration in Cook Inlet. But even though Escopeta has the Tellus under contract for three years with a one-year option to extend, unless companies “step up to the plate and use it we’ll have to let it go when we’re done. … The demand for jack-ups is high around the world, and day rates are getting higher,” he said.

According to a Petroleum News source at drilling company Rowan a current day rate for the Tellus would be between $135,000 and $140,000 — more than twice what it would have cost two years ago.

So which Cook Inlet operators have said they need a jack-up to explore their prospects? The two most prominent are Forest Oil for its Corsair prospect and partners ConocoPhillips and Pioneer Natural Resources for their Cosmopolitan unit.

Forest has said pre-drill analysis indicates its Corsair prospect could conservatively contain 137 million barrels of oil and 480 billion cubic feet of natural gas. Three of Corsair’s eight leases expire in January 2007. The only “practical way of extending” those leases is to unitize them, said Bill Van Dyke, acting director of the Alaska Division of Oil and Gas. But even then, an exploration plan would be needed to hold the unit. And that would likely mean drilling a well in the next year or two and either using the Tellus or bringing in a second jack-up, he said.

At Cosmopolitan, ConocoPhillips said it and partner Pioneer are still analyzing seismic data, but PN sources say the companies are also considering putting a platform at Cosmo for exploration and then converting it to production, which is what Forest did at Redoubt Shoal.

Popp offers help

The only government official to step forward and offer to help convince the U.S. Customs Service to grant a Jones Act waiver was Bill Popp, special assistant to the Kenai Peninsula Borough mayor on oil, gas and mining issues.

“We’ve asked Gov. (Frank) Murkowski for help on the Jones Act, and written him a letter, but we haven’t heard back from him,” Davis said.

On March 23 Petroleum News asked the governor if he intended to help Escopeta. He said he’s aware of the effort to bring a jack-up into Cook Inlet but that it’s tough to get an exemption. However, he said his office was gathering more information.

When asked why Escopeta chose to use a foreign-flagged heavy lift vessel to transport the Tellus to Alaska, Davis said no U.S. flagged vessels were available.

Escopeta could have chosen a slower U.S. flagged barge but the current day rates for jack-ups worldwide — $135,000 to $140,000 per day in the Tellus class — necessitated using a faster vessel to make the trip north. Hong Kong-based Coscol (HK) Investment & Development Co.’s 520-foot-long Tai an kou heavy lift vessel will be transporting the Tellus from the Gulf in late May, arriving in Alaska in late July with a targeted first spud date of Aug. 1 at one of Escopeta’s three Kitchen prospects.

Escopeta has hired ASRC Energy Services to operate the Tellus. ASRC Energy will oversee Inlet Drilling crews trained for the Tellus by Songa.

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