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Vol. 16, No. 24 Week of June 12, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Escopeta acquires Hanna, aims to succeed where others failed

As it works to explore an overlooked offshore prospect in Cook Inlet, Escopeta Oil & Gas is now also chasing an overlooked onshore prospect in the basin: the Hanna prospect.

Escopeta recently acquired Hanna from Paul L. Craig, the company told Petroleum News, and plans to drill at the 6,800-acre prospect as soon as this winter.

Hanna sits on four leases on the west side of the Cook Inlet, near the mouth of the Susitna River, surrounded by the Ivan River unit to the east, the Lewis River unit to the north and the Pretty Creek unit to the south, all operated by Union Oil Co. of California. Because of that development, the area is home to a 20-inch Enstar Natural Gas transmission line.

Escopeta took an interest in Hanna because of its geology.

“It’s an anticlinal feature. There are no dry anticlines in the Cook Inlet basin,” Escopeta President Danny Davis told Petroleum News, adding that the area hosts “a ton of good coalbed methane” that feeds the gas bearing sands in the Beluga and Sterling formations.

Escopeta is currently permitting an exploration program that would start with a 5,500-foot well to tests those gas-bearing sands. Escopeta also wants to test a potential deep oil prospect at the leases, but Davis said that effort might take several years because of the lack of sufficient equipment for that type of drilling on the west side of Cook Inlet.

Hanna would be the first onshore well for Escopeta. The company is currently bringing a jack-up rig to Alaska to explore the offshore Kitchen Lights unit. Previously, Escopeta owned leases at the North Alexander prospect about seven-miles northeast of Hanna.

A history of stops and starts

For decades, economics have hampered Hanna.

Union Oil Co. of California planned to drill in the area in the early 1980s, but abandoned those efforts as falling oil prices made exploration in the region unaffordable.

Craig first picked up the acreage in 1993 — coincidentally around the time Escopeta picked up its first acreage in Alaska — and formed Trading Bay Energy Corp. to develop that and two other prospects, but on the day in 1996 he received approval from the State of Alaska to hold a public offering and raise capital, Stewart Petroleum Co. filed for bankruptcy, chilling the marketplace for investment. “I knew at that point I was pretty doomed in terms of raising capital from Alaska investors,” Craig told Petroleum News.

Forcenergy Inc. acquired the leases in 1997, but did not get around to drilling them before it went bankrupt in 1999, because of debt, poor drilling results and low oil prices.

The leases expired, but Craig picked them up again in a 2001 lease sale. Informed by his earlier attempts to raise capital for a drilling program, Craig looked for partners instead.

He planned to sell Hanna to U.S. Petroleum Corp. in 2002, but the Vancouver company backed out at the last minute. “From what I can tell in hindsight they were smoke and mirrors. They didn’t have the capital to do what they wanted to do.” Craig said.

Under a farmout agreement with Craig’s company Trading Bay Oil and Gas, Pelican Hill Oil and Gas drilled the Beluga prospect in 2004, but when that well proved to be dry Pelican Hill set aside its plans to drill at Hanna and pulled out of Alaska in early 2005.

Acquired by Aurora

Aurora Gas acquired the prospect in late 2005. At the time, Aurora wanted to branch into exploration drilling after completing all its available options for low-risk development drilling. Aurora planned to drill at Hanna as early as March 2006, but eventually postponed the well because it couldn’t get financing from partner Kaiser Francis Oil Co.

Aurora ultimately suspended all drilling operations in late 2006 because of ongoing litigation with Enstar Natural Gas over commercial agreements in Southcentral.

With those legal issues resolved, Aurora returned to the prospect in early 2009. Aiming to mobilize quickly once it secured partnerships, the company got a permit from the Alaska Oil and Gas Conservation Commission to drill the Hanna No. 1 well on the leases.

By that May, Aurora said it had partners to fund an exploration program, but drilling got delayed again because the Alaska Department of Fish and Game refused to allow the company to build a drilling pad on a marshy section of the Susitna Flats Game Refuge.

Because Escopeta plans to drill in the winter, that wouldn’t be an issue now. “It wasn’t really that Aurora couldn’t drill. It’s just that they couldn’t drill in summer,” Craig said.

That problem ultimately derailed Aurora, though, and the leases expired again.

Craig acquired them for a third time at a May 2010 lease sale. Because of the state of Cook Inlet, where production and deliverability keep declining but companies as of yet haven’t been able to explore, he planned to hold onto the leases until the market made more sense, but “faster than I ever anticipated I was approached by Escopeta,” he said, specifically by Vladimir Katic, who heads up Escopeta’s operations in Alaska. Katic brought the deal to Davis.

Although the road to Hanna is strewn with the failed attempts of previous independents, Craig said the Escopeta effort is encouraging for two reasons. First, Escopeta approached him about making a deal. Second, Escopeta didn’t mind the performance requirements he tied to the leases this time. “If they were going to buy them, I wanted them to get drilled,” Craig said. “They didn’t balk at the terms, which says to me they intend to drill them.”

50 million barrels, 50 bcf

Because of all those stops and starts, though, little is known about Hanna.

Seismic data and surrounding geology suggests the prospect is an extension of the Pretty Creek and Lewis River formations. Craig and Escopeta estimate Hanna contains between 50 billion and 100 billion cubic feet of natural gas in the Beluga and Sterling formations, with a deeper oil prospect in the range of 50 million to 100 million barrels.

—Eric Lidji



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