Vol. 22, No. 32 Week of August 06, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

Cosmo drilling to stop

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BlueCrest says state has failed to pay tax credits that are owed to the company

Alan Bailey

Petroleum News

BlueCrest Energy is curtailing its development drilling program in the Cosmopolitan oil field off the southern Kenai Peninsula, Benjamin Johnson, BlueCrest president and CEO, told Petroleum News Aug. 1. The drilling suspension results from the state withholding $75 million to $100 million in cashable tax credit payments owed to the company, Johnson said. The halt to the drilling will likely go into effect around Sept. 1.

“We’re going to finish drilling what we’re doing right now. It’s not an immediate shutdown,” Johnson said, adding that oil production from the field will continue using wells that have been completed thus far.

A number of oil companies operating in Alaska have earned cashable tax credits from the state for exploration and development work. However, because of the state’s fiscal crisis resulting from low oil prices, Gov. Bill Walker has vetoed tax credit payments beyond minimum payments mandated by the tax credit laws.

Alternative funding?

Johnson said that his company hopes to find an alternative source of funding for continuation of the drilling, in which case the drilling will resume. The company operates its own drilling rig at Cosmopolitan and will park the rig at the field once the drilling stops. The cessation of drilling will impact several hundred jobs, primarily on the Kenai Peninsula, Johnson said.

BlueCrest invested more than $400 million of its own funds in the field development program but based its economics on cost-sharing offered by the state, Johnson said. The full development program at the field could involve the drilling of more than 20 new wells over a seven-year timeframe, he said.

“This project has a tremendous amount of value. It offers the opportunity for years and years of good, viable drilling to develop the hundreds of millions of barrels of oil in the ground,” Johnson said. “But we relied on the state’s commitment that they were going to participate in the funding in the project.”

The company has built one of the largest production facilities on the Kenai Peninsula, using state-of-the-art technology for environmental protection, he commented.

Directional drilling

Although the field reservoir lies offshore under the waters of Cook Inlet, the field is being developed using extreme directional drilling from an onshore pad near Anchor Point. Oil production began in April 2016 from a converted exploration well, the Hansen 1AL 1. But continuing development of the field required an especially powerful drilling rig, capable of drilling directionally to measured depths of up to 24,000 feet. The idea has been to penetrate the field reservoir horizontally at a vertical depth of about 7,000 feet.

Given the compartmentalized nature of the reservoir, field development also requires hydraulic fracturing of the wells to open up impervious barriers in the reservoir rocks. However, unlike in a shale oil play, where regular drilling and fracking are required to maintain oil production, each of the Cosmopolitan wells will be produced in a conventional manner over an extended period of time.

New drilling rig

BlueCrest commissioned the construction of a suitable rig with a 750-ton top drive and a 7,500-pounds-per-square-inch drilling mud system. The company obtained financial assistance in the form of a $30 million loan from the Alaska Industrial Development and Export Authority for the acquisition and construction of the rig.

In November last year the company used the new rig to start drilling a first development well, the Hansen 16 well. Drilling of that well was finished in March and BlueCrest has hydraulically fractured the well. The company is still assessing the results of the fracking operation and has yet to complete the well for production, Johnson told Petroleum News. The company started drilling a second development well, the Hansen 14 well, in March and is currently drilling a long horizontal lateral section of that well.

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