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Producers 2025: Cosmo brings hope, frustration in Cook Inlet
Tensions between the state and BlueCrest have increased over the past year
Eric Lidji for Petroleum News
When the New York Times profiled the Cook Inlet gas situation in August 2025, it mentioned a number of possible solutions, including a North Slope gas line, development projects from HEX, liquefied natural gas imports, coal, and renewable energy projects.
Absent was a long-delayed but nearly complete project in the southern Kenai Peninsula.
BlueCrest Operating Alaska says it has been working to develop natural gas resources at the Tyonek field of the Cosmopolitan unit since 2017. Over the 50 years prior, Pennzoil, ARCO, ConocoPhillips, Pioneer, and Buccaneer all pursued the Cosmopolitan unit.
With looming shortfalls in Cook Inlet, BlueCrest and Alaska's Division of Oil and Gas have been going back and forth on efforts to expand gas production at the unit.
By the end of summer 2025, BlueCrest said Cosmopolitan was mired in administrative complications. The division had placed the unit in default, and it was holding a plan of development for the unit in abeyance while it considered a request from the company to reconsider the default.
Central to the issue were two projects. The first would drill the H-10 Trident Fishbone oil well. The second would create a plan for bringing the Tyonek Gas Project online.
The H10 Trident Fishbone is an innovative concept designed to maximize subsurface recovery while minimizing surface drilling. Drilling with a powerful extended-reach rig from an onshore pad, a single directional wellbore would branch into three subsurface "fishbone" with eight laterals each for 24 individual wells into an offshore prospect.
For this specialty well, BlueCrest would use the custom-built BlueCrest Rig No. 1 to drill as far as three miles out and then a mile-and-a-half down to the reservoir and an additional mile-and-a-half horizontally through sands, according to the company.
The Tyonek Gas Project sits even farther out, beyond the reach of the rig. The project would require a new offshore platform and a new pipeline system back to shore.
According to the company, the Tyonek field contains 235 billion cubic feet of proven gas reserves, enough to support as much as a quarter of Cook Inlet demand. The company estimated in February 2024 that the project required some $400 million in financing.
The figures are likely higher today, given the uncertainties around global supply chains.
A great deal of the engineering work on these two complicated projects has been completed. What has delayed both projects for several years now is the financing.
Four questions Frustrations between BlueCrest and the State have emerged in filings surrounding the annual plans of development BlueCrest must file for its work at the Cosmopolitan unit.
In approving a Cosmopolitan unit plan of development for 2024, the DOG required a mid-year update and publically reminded the company a few weeks before the deadline.
The update posed four questions for BlueCrest: Did it have the funds to drill an oil well at Cosmopolitan in 2025? Did it have the funds to advance the Tyonek project?
Did it have a "fully defined plan and schedule for Tyonek Gas development?"
And were the existing financing and development plans enough to bring sustained gas production by 2027?
In its update, BlueCrest described Cook Inlet as "a closed gas market" with 70 billion cubic feet of annual demand and declining supplies. The company said it needed upfront sales contracts to justify the investment required to bring additional supplies online.
The division deemed BlueCrest's response "insufficient."
Following closed-door talks with the division, BlueCrest filed its 2025 plan of development at the end of September 2024.
Five conditions In early December 2024, the division approved a conditional plan of development running through March 2025. (A plan of development typically covers a full 12-month period.)
In its conditional approval, the division imposed five conditions:
* BlueCrest would secure a loan from the Alaska Industrial Development and Export Authority, or AIDEA, covering the Tyonek gas project.
* BlueCrest would secure private funding for the Tyonek project.
* Once funding was secured, BlueCrest would submit a realistic project schedule.
* Throughout 2025, BlueCrest would provide monthly financing updates.
* BlueCrest would contract the Starichkof Sand and Hemlock Formation Participating Area, or SHPA. With only three wells drilled since the state approved the participating area in 2017, the division felt "BlueCrest has been given a reasonable amount of time and has not continued drilling efforts required to maintain the entirety of the SHPA."
A decade of work In mid-December 2024, BlueCrest formally accepted the conditional three-month approval. In its response, it challenged some of the assumptions underlying the five conditions. BlueCrest also summarized its work at Cosmopolitan since 2013, including the following:
* investing $450 million,
* drilling Cosmopolitan State No. 1 to confirm potential of Hemlock and Starichkof,
* drilling more than 25 new vertical well stratigraphic penetrations throughout the Hemlock and Starichkof zones, and at least five new horizontal well penetrations,
* drilling four long-reach wells accessing every geologic zone to the Hemlock formation,
* designing and building the record-breaking BlueCrest #1 land drilling rig,
* building a gas sales pipeline system for future sales,
* and completing various imagining, infrastructure, and logging projects.
Southcentral gas BlueCrest also offered its perspective on the Tyonek gas project.
The company said it had "completed the necessary long-lead-time steps to accelerate gas development at the appropriate time when there is a market for the gas."
According to BlueCrest, the big impediment toward bringing the field online was market constraint.
Here is how BlueCrest analyzed the situation:
After decades of stable supply, Southcentral utilities were expecting a natural gas shortfall as soon as 2030. Tyonek could help meet demand but faced a kink in the market.
According to BlueCrest, the Southcentral market could not currently accept the 20 billion cubic feet per year of natural gas expected from Tyonek. Existing storage in the Cook Inlet could not handle such volumes either.
"Based on BlueCrest's discussions with local utilities, the first Tyonek gas sales contract would not be required to meet local demand until January 2030," the company wrote in its filing. "Without a clear and current market at the time of first production, no investor could be expected to invest hundreds of millions of dollars and then wait years to begin to realize a return on this investment."
If the Tyonek field were an onshore prospect, BlueCrest could likely design incremental development that would gradually grow with unmet demand. Developing an offshore prospect requires building an expensive platform upfront. "Consequently, premature development of Cosmopolitan gas that cannot be immediately sold would be imprudent."
In a response on Dec. 31, the division challenged BlueCrest on several points.
On storage: Division Director Derek Nottingham said staff had spoken with multiple Cook Inlet operators who were interested in converting depleted gas fields into storage within the next two or three years. Additionally, Hilcorp Alaska had begun working with regulators to permit a 38 billion cubic foot storage facility at the Kenai gas field. These proposed projects would have enough capacity to store the volumes expected at Tyonek.
On demand: Nottingham said Enstar had recently projected shortfalls as soon as 2028 but could delay the issue until 2032 with additional production and storage. By bringing Tyonek online in mid-2027 as committed, BlueCrest would not face any timing issues.
This year In late 2024 and early 2025, BlueCrest submitted applications with AIDEA to fund the H-10 and the Tyonek projects.
The application flipped the order of the projects. Instead of starting with oil and moving to gas, it would use an extended reach rig to drill three wells into the eastern portion of the Tyonek A sand in 2025 with the hopes of easing Southcentral supply concerns.
Once that stopgap project was complete, BlueCrest would return to the H10 Trident Fishbone oil project. It would then return to the offshore Tyonek project by mid-2027.
In a pair of decisions on May 23, 2025, Nottingham approved the new plan of development through the end of 2025 and also placed the Cosmopolitan unit in default.
Both decisions came with the same conditions. BlueCrest must obtain financing for both projects within 90 days and must agree to regular updates over the intervening period.
In an update to the division in late July 2025, John M. Martineck, president and chief operating officer of BlueCrest Alaska Operating, revealed that BlueCrest and the division had a positive meeting with an unnamed company interested in investing in the project.
The update also included a proposed plan of development for Cosmopolitan running through August 2026. "BlueCrest anticipates commencing drilling of the H10 well ten months after finalizing the commercial structure with Party A; engineering work for the Tyonek gas development would begin within a short period after funding is secured."
What about the proposed onshore extended-reach gas project?
Given the high mechanical risk of the project, and announcements of gas developments by other Cook Inlet operators, BlueCrest was deferring proposed onshore plans.
In late August 2025, the division announced it would hold the proposed plan of development in abeyance while BlueCrest worked to cure the default on the unit and while the division considered a request from BlueCrest to reconsider the default.
No official action or response by the division had been taken as of Sept. 28, 2025.
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