By the time this edition of The Explorers goes to print, BlueCrest Energy Inc. will almost certainly have moved from the “explorers” column into the “producers” column.
Whether the company remains an explorer in the future remains to be seen.
The Fort Worth-based independent expected to bring the Cosmopolitan unit into production in April 2016 from existing wells. As of late March, the company was in the process of shipping a large land-based drilling rig to Alaska from a construction site in Texas. Development drilling would begin in early July, according to the company.
As operator of Cosmopolitan, BlueCrest has taken a phased strategy: developing oil directionally from an onshore pad and potentially proceeding with a shallower gas accumulation from an offshore platform. The region also includes some exploration potential, although BlueCrest has said that those activities would be unlikely in 2016.
Majority interest
BlueCrest was brought to Alaska as a majority non-operating partner at the Cosmopolitan prospect, in the Cook Inlet basin off the coast of Anchor Point, and worked with operator Buccaneer Energy Ltd. to fund the 7,599-foot Cosmopolitan No. 1 well in May 2013.
When Buccaneer sold properties to improve its finances, BlueCrest acquired the remaining 25 percent interest and became operator of the program. The company held 21,476.40 acres in onshore and offshore state leases, as of early March 2016.
Like many independents operating in the state, BlueCrest arrived with no Alaska experience as a company but considerable Alaska experience among its principles: President and CEO J. Benjamin Johnson was raised in Kenai, worked in the oil patch in his youth, and, with ARCO Alaska, created the first Kuparuk full-field development model and coordinated the first waterflood surveillance plans for Prudhoe Bay.
Through the end of 2015, BlueCrest had spent approximately $200 million to develop the Cosmopolitan field and expected to spend approximately $525 million altogether before revenue from sales could fund operations, Johnson said in a November 2015 address at the Resource Development Council’s annual conference. Profitability would come even later.
A second plan of development submitted in October 2015 proposed a three-well program at the Cosmopolitan unit: one single lateral well and two dual lateral wells drilled to offshore targets from the existing onshore drilling pad. One of those proposed wells would likely be called Hansen No. 2. Until those wells are active, BlueCrest said the existing Hansen No. 1AL1 well would be the primary production well. Following a pilot project from a previous operator, BlueCrest planned to initially truck crude oil from the onshore production facility to the Tesoro refinery in Kenai, to the north. Any associated natural gas would be used as fuel for the operation or sold into the regional grid, using a short lateral pipeline connecting to an existing Enstar Natural Gas Co. pipeline.
The company described the three-well program as “tentative” and said plans could change “due to reservoir modeling, anti-collision, drilling optimization or other issues.”
Fiscal certainty
The future gas development depends in part on the state tax credit program.
According to Johnson, BlueCrest has been waiting for some certainty in the fiscal system before it decides whether to proceed. A joint venture with the liquefied natural gas company WesPac Midstream LLC calls for drilling this year with production starting as soon as 2018. WesPac would fund the entire development program and would control all of the natural gas production from the field, although BlueCrest would operate the program and would gradually increase its stake in the project to as high as 80 percent.
As of December 2015, BlueCrest intended to use the Spartan 151 jack-up rig for its proposed natural gas development. “It’s parked in Seward now, with the intention of drilling these Cosmo wells in 2016, 2017 and 2018,” Johnson said at the time. Without some certainty, Alaska could risk losing the rig, he said. A few weeks after the speech, Furie Operating Alaska LLC announced plans to bring Shelf Drilling’s Randolf Yost rig to Cook Inlet. While the rig would be tied up at the Kitchen Lights unit, it would mean Alaska would have at least one jack-up in Cook Inlet, if the Spartan 151 departed.
BlueCrest made the gas development a lower priority than the oil development in part because the local market was satisfied by existing production through early 2018. The company claims to have several supply contracts pending but is unwilling to finalize those deals without an assurance that the state production tax program will be continued.
In testimony before the House Resources Committee in early March 2016, Johnson reiterated that the gas development was too expensive to pursue without the tax credit program.
Other leases
Far down the list of priorities is the potential exploration acreage at Cosmopolitan.
According to the company, a 3-D seismic program from 2005 “suggests that the southern exploratory blocks potentially have producible hydrocarbon deposits at a deeper depth,” which would require some “additional evaluation” to determine if the deposits are economically viable. Both the oil and gas developments are focused on leases near the center of the unit, leaving areas to the north and the south for future exploration work.
In particular, the company has identified a prospect worth exploring in the south, located predominately within ADL 391899 and potential extending into two neighboring leases.
