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THE EXPLORERS 2005: Escopeta Oil looking for Cook Inlet giants Houston independent wants to drill $35 million exploration well to test oil migration theories Steve Sutherlin Petroleum News
Houston-based independent Escopeta Oil isn’t the biggest oil company on the block, but it doesn’t shy away from the brutally expensive task of getting a jack-up rig to Cook Inlet to drill its East Kitchen, Alexander, and Kitchen prospects.
Escopeta President Danny Davis thinks Escopeta’s prospects are reason enough to bring a jack-up to the inlet. The company is working on a deal to begin drilling in 2006. Davis said he has negotiated with a number of investors and that he was in talks with a lead investor that was conducting due diligence studies as The Explorers went to press.
Escopeta thinks its prospects are among the missing giants — large oil and natural gas fields that remain to be found in Cook Inlet — postulated by the U.S. Department of Energy report on Alaska Cook Inlet natural gas.
Davis is convinced a jack-up rig will only appear in Cook Inlet if a single company steps up and does the deal on the merits of an economic drilling prospect. Given the slowness and risk adversity of corporate culture, Davis doesn’t expect workers at larger companies to green light a costly and unproven venture such as “giant hunting” in Cook Inlet, until a smaller swifter company shows the way.
“An independent will do it first,” Davis said.
Davis said the company’s holdings in Alaska offer numerous attractions for his investors.
“The investors are new to Alaska, but they like what they see,” Davis said. “Alaska offers the opportunity for Middle Eastern-sized fields with American title, on American soil.” he said, adding that Alaska looks even more appealing because it offers discovery royalty tax credits and exploration incentives for exploratory wells offshore in Cook Inlet.
“Alaska is the only place they do it,” Davis said. “I don’t know anywhere else they do the two combined.”
Moving target If he can stay on schedule, Davis estimates the cost of his initial drilling program will be $35 million, but the final number is a moving target. Because of the distances involved, the cost of moving a jack-up rig to Cook Inlet has always been high, and it keeps getting higher as robust oil and gas markets push rig prices higher worldwide.
“Three to four years ago we were looking at $4 million mobilization and demobilization cost with day rates of $35,000 per day; a year ago the cost was $10 million for mobilization and demobilization with rig rates of $65,000 per day; last week it was $15 million for mobilization and demobilization with rig rates of $75,000 per day,” Davis said.
Escopeta’s lone wolf strategy is a departure from mainline thinking on Cook Inlet’s jack-up rig dilemma. If only a jack-up rig could be moved to the inlet it would be busy for years, say Cook Inlet experts. Many say the key to paying the cost of mobilizing and demobilization of a rig to Cook Inlet is working together to spread the cost of mobilization. A cooperative plan was floated last year with the support of the Murkowski administration to bring a jack-up rig to the state — complete with an offer from the state to pay as much as $6 million to cover part of the costs — but the plan fizzled for lack of financial support from oil companies.
Escopeta’s game plan Davis said his game plan is to bring the jack-up rig to drill the company’s East Kitchen prospect in the spring of 2006. He would then drill the company’s North Alexander prospect in the winter of 2006/2007. In spring 2007 the company would test the East Kitchen prospect.
The Kitchen and East Kitchen prospects are offshore the Kenai Peninsula, in 70 feet of water close to the Kenai industrial complex north of Nikiski. Escopeta has 11 years of work into the prospects, including studies by geologists with Cook Inlet experience and, more recently, the reprocessing of seismic by Houston-based Apex Metalink Inc. with its proprietary technology.
Escopeta’s acreage positions at Kitchen and East Kitchen are east of the Middle Ground Shoal field, where XTO Energy Inc. is doing additional development work to improve on the 12 million barrels of reserves it bought from Shell Oil in 1998. Shell developed the east flank of the Middle Ground Shoal structure in the 1960s and it moved on to the west flank in the late 1980s.
If Escopeta’s theories on oil migration in the inlet are correct, the oil in the Middle Ground Shoal structure migrated from east to west, filling Escopeta’s Kitchen prospect traps first before moving on to Middle Ground Shoal and then on to subsequent traps.
“The theory on migration of oil is that the migrating oil finds a path, and then travels along that path, not deviating from it,” said Bob Warthen, a consulting geologist working with Escopeta.
“When it leaves the source area, it migrates up dip and fills the deepest traps first,” he said. “As these are filled the oil continues to migrate up dip filling the shallowest traps in turn.”
Warthen said Middle Ground Shoal is about 80 to 85 percent filled while structures farther along the migration path are less filled, supporting the idea that the Kitchen structures were filled before Middle Ground Shoal. If that is true, the Kitchen structures would likely contain a great deal of oil and gas.
Escopeta consultants estimate potential reserves at East Kitchen as 2.33 trillion cubic feet of gas and 457 million barrels of oil, Davis said. For Kitchen the numbers are 3.95 tcf of gas and 829 million barrels of oil.
Warthen’s Cook Inlet experience has guided Escopeta in its approach to its prospects there. Warthen has worked the inlet since 1967, first for Union Oil where he was a regional geologist for 26 years, and then as a consultant. He remembers after Prudhoe Bay was discovered, the working scenarios in the inlet shifted to a strictly development-type scenario, resulting in very little exploration work being done.
“I’m probably one of the few guys left working the inlet that started in the early days,” Warthen said.
After Warthen took an early retirement from Unocal in 1992, he began working all the available data on the inlet, including well information and seismic, and looked at rocks, trying “to get a better understanding of the intricacies of the formations.”
Warthen developed a basin map that identified acreage acquired by Escopeta, which began looking for opportunities in Alaska in 1993 and bought its first leases in the state in 1994. The company now owns some 130,000 acres of oil and gas leases in the Cook Inlet basin.
New technology employed The work Warthen originated on the inlet was focused on the petroleum system and potential untested habitats and traps for hydrocarbons. In addition to Warthen, geologists Walter Wells and Frank Banar, retired from Mobil, contributed to Escopeta’s “idea map,” hiring on as consultants for Escopeta.
Banar said one very key thing Escopeta did was to have its seismic data reprocessed using a process called wavelet energy absorption, which has been used in Asia, West Africa and Siberia. In China, he said, the process was used in basins which have both coal and gas, and where the gas needed to be identified on the seismic.
Because Cook Inlet has both coal and gas, the process seemed appropriate, he said. In addition to the seismic processing for gas, Apex Metalink also has a process for fluids identification.
The wavelet energy absorption processing “showed some significant gas reserves on the Kitchen and East Kitchen structures, especially in the Tertiary section, where abundant coal beds have generated major dry gas reserves,” Banar said.
Current Cook Inlet production is from Tertiary formations: dry gas from Sterling, Beluga and upper Tyonek; oil from the lower Tyonek and Hemlock. There is no production from the older Cretaceous and Jurassic in the upper Cook Inlet basin, although surface oil seeps are known from the Jurassic Tuxedni formation. The Tuxedni, said Warthen, has been identified by the USGS as the source rock for all of the oil present in the Hemlock.
Deep gas separate prospect Davis said potential deep gas below the Tertiary is a separate prospect. The objectives at Kitchen and East Kitchen are the major producing Cook Inlet formations, the Sterling, Beluga, Tyonek and Hemlock. Escopeta does not attribute any reserves to pre-Tertiary, he said, but considers them a very viable future target.
One of the things the Department of Energy report says is that the inlet has been explored for structural traps but not for stratigraphic traps. “There was no concentrated exploration for stratigraphic-type plays or potential below where they’ve found everything in the Hemlock (formation).” East Kitchen is a structural trap, he said, while Kitchen is a faulted stratigraphic trap first proposed by the U.S. Geological Survey.
What Escopeta is doing matches up with the Department of Energy report’s description of two-phase exploration history in mature basins, first exploration for structural traps like the company’s East Kitchen prospect, Davis said, and then a second phase focused on stratigraphic plays like the company’s Kitchen prospect.
USGS theories hold that only 4 percent of the volume of oil that theoretically generated from Cook Inlet source rock has ever been identified. If Escopeta’s approach bears fruit, it will fill in many of the blanks in Cook Inlet knowledge, with a payoff for the company.
“We believe that these prospects are among the missing giants postulated by the U.S. Department of Energy,” Warthen said.
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