Glacier Oil & Gas Corp. is delaying the drilling of its Sabre No. 1 oil exploration well, offshore on the west side of Cook Inlet, until the spring of 2018, Glacier CEO Carl Giesler has told Petroleum News. The company had hoped to start the 70-day drilling project in late March or early April of this year and has been gearing up for the drilling using the Spartan 151 jack-up drilling rig. But uncertainties over the future of Alaska’s oil and gas production taxes have caused the company to defer the work, Giesler said, referencing the current debate in the state Legislature over changes to the tax laws.
“With the fiscal uncertainty in the state it was hard to pencil out the exact economics. We think it’s an extremely promising prospect and would require development over a year or two. It’s just hard to commit to something of that size … without having fiscal stability,” Giesler said.
Cook Inlet Energy, Glacier’s subsidiary in the Cook Inlet region, had previously considered drilling the well as an extended reach operation, drilled from an onshore location. However, that original plan eventually morphed into the current concept of drilling vertically from a jack-up rig. The planned well location is about 3.5 miles east of the onshore Trading Bay production facility, towards the northern edge of the Cook Inlet Energy-operated West McArthur River unit. Cook Inlet Energy had previously indicated the eventual possibility of a six-well development. The nearby Sword No. 1 well, also in the West McArthur River unit, went into production in November 2013.
Oil and gas potential
Giesler said that the Sabre prospect has both oil and gas potential, with the possibility that development of the prospect would make a step change to the Cook Inlet oil and gas industries. The idea of drilling vertically from the jack-up rig is to enable the testing for a gas cap above the oil pool - drilling directionally from shore would have only tested for oil.
The project is definitely viable under the current production tax structure, although the price of oil also obviously plays into the project economics, Giesler said.
Giesler commented that he empathizes with the state’s governor and legislators over the fiscal predicament that they are grappling with. But uncertainty over future tax arrangements causes the providers of capital to hesitate over commitments to investments.
“One of the consequences, whether it is intended or not, is that it certainly causes pause in investment, and the Sabre project is a reflection of that,” he said.
One concern with the delay in the project is the continued availability of a jack-up rig to conduct the drilling. Currently there are two jack-ups in the Cook Inlet region, the Spartan rig and the Randolf Yost rig that Furie Operating Alaska is using for drilling in the Kitchen Lights unit. The longer the Spartan rig sits idle, unused, the greater the incentive for the rig owner to pull the rig from the region, Giesler said.
The deferral of the Sabre well drilling was originally reported by the Alaska Dispatch News.
