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Vol. 16, No. 13 Week of March 27, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Spartan 151 headed for Cook Inlet; needs final modifications

A jack-up rig is headed for Alaska for the first time in more than a decade.

The M.V. Kang Sheng Kou heavy lift vessel left Freeport, Texas, at around 6:50 p.m. on Friday, March 18, carrying the Spartan 151 jack-up rig to Cook Inlet on behalf of operator Escopeta Oil. As of press time, the last known location of the ship was somewhere in the Gulf of Mexico, on its way to round the tip of South America.

“Yup. We’re on our way,” company President Danny Davis told Petroleum News.

Escopeta plans to use the rig to explore Kitchen Lights, a large offshore unit in the upper Cook Inlet that combines four distinct prospects and is thought to hold both oil and gas.

The Division of Oil and Gas put Kitchen Lights in default last year because Escopeta missed work commitments deadlines and Escopeta appealed the ruling. The two sides reached a settlement that required Escopeta to have a rig bound for Alaska by March 31 and drill to a certain depth by Oct. 31. Escopeta expects the jack-up rig to arrive in Cook Inlet around May 8 and begin drilling shortly thereafter, once modifications and inspections are done.

Final inspections needed

Before Escopeta can drill, the company must still pass final inspection by the Alaska Oil and Gas Conservation Commission. The company is having a 15,000-pound blowout preventer manufactured for the rig — the largest blowout equipment ever employed in Cook Inlet. It will be installed in Alaska.

Another outstanding issue is whether Escopeta will face delays related to the Jones Act, a federal law that requires ships moving between domestic ports to be built in the United States and manned by American crews. Because most of the available heavy lift vessels large enough to carry a jack-up rig are foreign-flagged ships, Escopeta got a Jones Act waiver in 2006, during an earlier attempt to bring a jack-up rig to Cook Inlet.

The U.S. Department of Homeland Security has not publicly said whether that waiver is still valid. If the waiver isn’t accepted, it is uncertain what impact — timing or financial — it would have on Escopeta’s program. U.S. Sen. Mark Begich, D-Alaska, recently petitioned the U.S. Department of Homeland Security to resolve some of those uncertainties.

A jack-up rig is a mobile offshore drilling unit that is well suited for relatively shallow waters, such as those in the upper Cook Inlet. Because companies have been unable to get a jack-up rig to Alaska since the 1990s, many choice prospects have gone undrilled.

Buccaneer deal up for vote

Buccaneer Alaska is also looking to bring a jack-up rig to Cook Inlet.

Rather than lease the rig, the company is looking to buy a jack-up in partnership with the Alaska Industrial Development and Export Authority and private investors to use first at its two offshore prospects — Southern Cross and North West Cook Inlet — and then to rent out to other offshore operators in Alaska, both in Cook Inlet and in the Arctic.

For months, Buccaneer has been in private negotiations with AIDEA management over the terms of that business arrangement. The AIDEA board of directors is scheduled to vote on that proposal on April 1. The specific terms of that deal have not yet been made public, but AIDEA could release the details in some form before the meeting.

Time is of the essence for both companies because significant tax credits are at stake.

The State of Alaska will pay 100 percent of the cost, up to $25 million, of the first well drilled to a certain depth in Cook Inlet using a jack-up rig. The one-time program also offers significant tax credits for the second and third wells drilled to the same depth in the Cook Inlet, but only if those wells are drilled by different companies using the same rig.

—Eric Lidji

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