Alaska offers incentives for 73 Cook Inlet tracts

State sets May 19 lease sale date for Cook Inlet, Foothills areawide sales

Kristen Nelson

Petroleum News Editor-in-Chief

The Alaska Division of Oil and Gas has set May 19 as the date for two areawide sales, North Slope Foothills and Cook Inlet, is offering exploration incentive credits for 73 of the Cook Inlet tracts and has included in the Cook Inlet sale 126 tracts previously deferred by court order because of concerns over Beluga whale habitat.

Jim Hansen, the division’s lease sale manager, told Petroleum News Feb. 18 that the last time the state offered an exploration incentive credit was in 1991. Both Cook Inlet and North Slope sales included the provision, he said, although it was for all leases, while it is only for specific tracts in the state’s May areawide Cook Inlet sale.

The tracts with the exploration incentive credit, he said, are beyond three miles from shore, farther than an onshore drilling rig can reach. The goal of the incentive is to “facilitate the ability for companies to get together and bring a jackup rig into the inlet,” Hansen said. Because no jack-up rigs are available locally, the mobilization and demobilization costs for a rig add substantially to the cost of drilling exploration wells in Cook Inlet waters.

Seventy-three of the offshore Cook Inlet tracts have been assigned an exploration incentive credit of $200 per foot drilled for the first exploratory well per tract, not to exceed 20 percent of the total exploratory well costs, the division said. Credit may be earned for one well per lease during the first three years of the primary term, inclusive of other allowed exploration and development credit program. For a list of tracts with an exploration incentive credit see the sale announcement on the division’s website: www.dog.dnr.state.ak.us/oil.

Beluga tracts back in, but subject to restrictions

For deferred tracts around the mouth of the Kenai River and on the west side of the inlet across from Kenai, he said, exploration rigs are allowed during certain times of the year, “but no permanent facilities offshore.” However, he said, those tracts “could be accessed from onshore facilities.”

The National Marine Fisheries Service segregated Cook Inlet lease sale tracts into three categories, the Department of Natural Resources said in a Feb. 18 decision to supplement its Cook Inlet areawide oil and gas lease sale best interest finding.

Category one includes “all tracts in Upper Cook Inlet that have the highest observed use by beluga whales, including nearshore areas along the west and north shoreline, Knik Arm and Turnagain Arm.” For that category, the Fisheries Service recommended no oil and gas exploration and development, permanent or temporary, “unless it occurs on upland tracts.”

A second category, “all other nearshore tracts which have also been identified as concentration areas during summer periods,” would have “no permanent surface entry or structures,” but temporary activities and structures, for exploratory drilling, could occur between Nov. 1 and Apr. 1 of each year. Those two categories cover the 126 previously deferred tracts and the division has added mitigation measures to its best interest finding to correspond with the Fisheries Service recommendations.

The Fisheries Service had no recommendation for the third category, which includes all other Cook Inlet lease sale tracts.

Bid opening for the Cook Inlet and North Slope Foothills areawide sales will begin at 8:30 a.m. in the Wilda Marston Theater at the Loussac Public Library in Anchorage. Following the state sales, the Minerals Management Service will open bids in its Cook Inlet sale 191.

There are 1,347 tracts in the state North Slope Foothills sale, ranging in size from 1,280 to 5,760 acres, in an area between the Arctic National Wildlife Refuge and the National Petroleum Reserve-Alaska. The northern boundary of the sale area is the Umiat Meridian; the southern boundary is the Gates of the Arctic National Park and Preserve. The minimum cash bonus bid is $5 an acre, leases have a royalty of 12.5 percent and a 10-year term. Areas in the lease sale not covered by existing leases as of Feb. 5 will be considered available for leasing.

There are 815 tracts in the Cook Inlet areawide, ranging from 640 acres to 5,760 acres, in the Matanuska and Susitna valleys, the Anchorage Bowl, the western and southern Kenai Peninsula from Point Possession to Anchor Point, on the western shore of Cook Inlet from the Beluga River to Harriet Point, as well as within Cook Inlet. The minimum cash bonus bid is $5 an acre, leases have a royalty of 12.5 percent and a term of seven years. Areas in the lease sale not covered by existing leases as of Feb. 5 will be considered available for leasing. Tracts 287, 485, 486, 488 and 489 have been withdrawn due to litigation or appeals of actions taken by the Alaska Oil and Gas Conservation Commission or the Division of Oil and Gas.