Explorers 2011: It’s almost free

To encourage exploration and development, the State of Alaska offers Cook Inlet oil and gas producers one of the most favorable tax and royalty environments in the United States, with total rates at or below every other major producing state: Cook Inlet oil is assessed no production tax, and a 12.5 percent royalty rate; natural gas’ royalty rate is the same but its gross production tax rate varies, depending on gas prices — at $5 per mcf it’s 3.6 percent, which assumes no capital credit-write-off.

Plus, the state pays up to 40 percent of exploration costs. And production tax increases and decreases with oil prices and the level of investment; in other words, the more you invest, the less tax you pay.

And there is a credit for capital investments, plus a 25 percent credit for net losses

On top of that, in 2010 Alaska lawmakers passed a bill with a $25 million tax incentive for the first offshore Cook Inlet well drilled by a jack-up into the Mesozoic. Subsequent wells, which have to be drilled by different oil and gas companies, get $22.5 million and $20 million if they are drilled with the same jack-up.

But drilling into the deeper Mesozoic offshore is very costly; hence the state’s decision to help cover some of the cost of a jack-up.

The possibility of finding oil and gas in the Mesozoic, beneath the Tertiary basin, intrigues geologists, especially since Cook Inlet oil originated from the Jurassic Tuxedni group within the Mesozoic sequence, having presumably percolated upwards.

Cretaceous rocks in the Mesozoic exposed at either end of the Cook Inlet basin show evidence of oil formation.

However, geologists have also been concerned about the potential for minerals called zeolites to clog the pores of potential reservoir rocks — the chemistry of the Mesozoic rocks tends to be conducive to zeolite formation.

But State of Alaska geologist Paul Decker thinks that the nature of the Mesozoic under the basin is not well understood. In fact the Mesozoic oil and gas potential has become one of several focuses of a multiyear Cook Inlet research program begun in 2006 by Alaska’s Division of Geological and Geophysical Survey, or DGGS.

—Kay Cashman