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Vol. 16, No. 26 Week of June 26, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

New rig to stay busy

Cook Inlet Energy has ambitious drilling plans for its Osprey platform in Alaska

By Wesley Loy

For Petroleum News

Anchorage-based Cook Inlet Energy LLC has ordered a custom rig to carry out an aggressive drilling campaign on its Osprey offshore platform.

“It’s being built as we speak,” David Hall, the company’s chief executive, told Petroleum News on June 21.

Voorhees Equipment and Consulting Inc. is fashioning the rig in Houston from new and used components under a contract worth just over $17.9 million.

“A tremendous amount of work went into identifying a manufacturer and designing a custom rig for the Osprey Platform,” said Scott M. Boruff, chief executive of Tennessee-based Miller Energy Resources Inc., parent company of Cook Inlet Energy. “Once in place, we will be able to initiate our aggressive offshore drilling program, as well as having the rig available for any routine maintenance or future repairs that are necessary.”

Word of the rig contract comes amid a continuing stream of news from Miller and Cook Inlet Energy, which in recent days brought a second well onstream on the Osprey platform.

Cook Inlet Energy also has worked out an oil storage deal with Chevron, Hall said.

Osprey’s revival

Osprey sits in the Redoubt unit and is the newest and southernmost platform in Cook Inlet. Installation was completed in 2000, but Osprey’s story generally has been a sad one up to now.

Abandoned and in jeopardy of becoming a ward of the state due to the bankruptcy of its former owner, Miller Energy and its Anchorage subsidiary bought Osprey in December 2009.

Since then, Hall’s team has set about reviving the platform and its shut-in wells. In early June the company achieved the first oil production from Osprey and the Redoubt unit since mid-2009 in bringing the RU-1 well onstream at a steady rate of about 350 barrels per day gross.

Since then, the company has restored production from the RU-7 well, Hall said.

Cook Inlet Energy was able to reactivate the wells after workovers done with a hydraulic snubbing unit brought up from Lafayette, La., on a day rate basis.

The unit has been removed from the platform, and Hall was hoping another Alaska operator would hire the equipment to avoid the expense of shipping it back to supplier Cudd Energy Services.

Rig expected by fall

Hall said Voorhees Equipment won the rig contract in part because of its experience building and maintaining other rigs used around Cook Inlet and on Alaska’s North Slope.

Once built, the rig will be hauled by truck to the Seattle area, then shipped up to Nikiski, Hall said.

Cook Inlet Energy hopes to have the rig installed on the Osprey platform and working sometime between October and December, he said.

Given the amount of drilling work Cook Inlet Energy anticipates on the platform as well as onshore, it made more sense to buy a rig than to pay day rates to hire rigs, Hall said.

While the derrick will be designed for use only on the platform, the rig’s other components will be portable for drilling onshore.

Miller Energy, in a June 13 press release, said funding for the new rig would come from a two-year, $100 million borrowing arrangement with New York-based Guggenheim Corporate Funding LLC and other lenders.

Ambitious drilling plans

Cook Inlet Energy’s new rig is in for quite a workout once it reaches Alaska.

The first job is drilling four sidetracks off existing but damaged wells on the Osprey platform, Hall said.

The wells had problems in their design, with casings that were too light for the formation pressure, he said. As a result, the casings collapsed.

Cook Inlet Energy plans to drill sidetracks off the existing wellbores at around 8,000 to 9,000 feet. The sidetracks will bypass the collapsed areas and extend to the original well depth of about 14,000 feet.

Making use of the good parts of the existing wellbores will result in significant cost savings, Hall said. A new well could cost up to $15 million versus $3 million to $5 million for a sidetrack, he said.

The four sidetracks should restore the 2,000 barrels per day that the original wells once produced.

“I view that as low-hanging fruit,” Hall said.

But for Cook Inlet Energy, that 2,000 barrels would be highly significant, roughly tripling the company’s current Alaska production.

After the sidetracks, Cook Inlet Energy has bigger plans for Osprey. It has identified 13 potential new wells from the platform, Hall said.

Prior to the shut-in, Osprey had been a serious disappointment in terms of production. But Hall has faith in the Redoubt unit.

“I’m very excited about the huge potential Redoubt holds,” he said.

Chevron midstream deal

Cook Inlet Energy acquired not only the Osprey platform in late 2009, but also the related Kustatan shoreside production facility. Osprey production flows to the Kustatan.

The facility has five 10,000-barrel crude oil storage tanks. Cook Inlet Energy has rented Chevron two of these tanks, and Kustatan on June 20 began receiving crude from Chevron’s Trading Bay operations, Hall said. With some of its regular tanks down for servicing, Chevron needed more storage between tanker arrivals on the west side of Cook Inlet.

Cook Inlet Energy is aiming to grow all aspects of its fledgling Alaska business, including the midstream, Hall said.

Aside from Osprey, Cook Inlet Energy also operates the West McArthur River oil field.

Good progress thus far with its Alaska properties has really sparked parent company Miller Energy, which is publicly traded on the New York Stock Exchange. Its share price closed June 22 at $6.19, up 19 percent since the start of the year.

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