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Vol. 13, No. 45 Week of November 09, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Will almost be enough?

Pacific Energy partners with Escopeta at Corsair, hoping for clemency from state

Eric Lidji

Petroleum News

With a new partner and a few conditions, Pacific Energy Resources is hoping to save a bundle of Cook Inlet leases from expiring, and proceed with a drilling program next year, but negotiations between the company and the state raise as many questions as answers.

The California-based independent had until Oct. 31 to provide state oil and gas officials with proof it had contracted a ship capable of bringing a specialty rig to the waters of Cook Inlet. The deadline came after two previous extensions requested by the company.

According to a press release dated Nov. 3, Pacific Energy claims to have “executed” a “conditional contract” with an unnamed company to bring that rig to Alaska next year.

In previous filings with the state, Pacific Energy outlined negotiations with Dockwise, a Dutch shipper with a Bermuda holding company, to bring a Blake jack-up rig to Cook Inlet. Pacific Energy would use the rig to drill the offshore Corsair unit south of Tyonek.

The Nov. 3 press release said Pacific Energy entered the conditional contract with “an additional Cook Inlet partner who will be responsible for 50 percent of the mobilization costs should the contract become effective.”

The release also mentions “several conditional events” that must be met for the contract to “become effective,” but only specifically mentions “a request to have several leases extended by as many as three years” for both Pacific Energy and its unnamed partner.

An official with the state Division of Oil and Gas declined to say whether it received a contract from Pacific Energy, or whether it was even in discussions with the company, directing Petroleum News instead to the Pacific Energy press release.

Pacific Energy did not return a call for comment.

A representative from Escopeta Oil, another independent operating in the region, confirmed that the company was the unnamed partner mentioned in the release.

Companies have history

Escopeta is the operator and majority owner of the Kitchen unit due south of Corsair, as well as significant un-unitized acreage in the region set to expire at the end of the year.

Escopeta and Pacific Energy have a recent history as partners.

The companies announced earlier this year that Pacific Energy would operate a drilling program at the Escopeta-operated North Alexander unit at the mouth of the Susitna River.

Corsair and Kitchen face similar challenges: looming state deadlines for development, complex physical properties requiring special drilling equipment and the financial struggles inherent for all small independent oil companies working in Alaska.

Since arriving in August 2007, Pacific Energy has overcome many of those hurdles.

Through financing and asset sales, the company socked away enough funds for an exploration program. Earlier this year, the company signed a three-year contract on a jack-up rig, the kind needed for drilling in shallow waters like Cook Inlet.

But to get that rig north, the company needs a ship not only capable of carrying the load, but also of sailing from the Gulf of Mexico to Alaska, around the tip of South America.

The jack-up rig and the ship alone are expected to cost nearly $200 million, which is why Pacific Energy and its neighbors in the region hope to drill as many wells as possible.

For much of this year, Pacific Energy has battled with the state over four leases adjacent to the Corsair unit, three of which expired in April and the last of which expires at the end of the year. For geologic and economic reasons, Pacific Energy wants those four leases brought into the boundaries of Corsair, more than doubling the size of the unit.

The state denied that request, saying it would be tantamount to “warehousing” leases.

The matter is currently under appeal with the state Division of Oil and Gas.

State officials previously suggested the desire to see companies in the region form partnerships to get the offshore prospects drilled more effectively.

Should the state accept the heavy lift vessel contract and its conditions, Pacific Energy will still need to get a waiver of the Jones Act, the federal law requiring ships docking at U.S. ports to be registered and built in the country, because the only ships both capable of bringing a jack-up rig to Alaska and available this winter are foreign vessels.

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