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Small company makes big waves Tiny Escopeta Oil and Gas largest bidder in 2001 Cook Inlet sale; new analysis of old seismic generates jumbo estimates and jumbo headlines Steve Sutherlin PNA Managing Editor
Houston-based Escopeta Oil and Gas Corp. drilled and operated small oil and gas wells in Texas for 25 years, but now its sole focus is on developing the huge oil and gas deposits that its analysis shows on its leases in Cook Inlet.
When the state attracted $1,215,046.40 in apparent high bids at its May 9, 2001, Cook Inlet areawide sale, Escopeta Production-Alaska Inc. spent the most — $776,217.60 for 63.9 percent of the total apparent high bids. Escopeta took all 14 tracts on which it bid in a sale that saw 31 bids for 30 tracts from six bidders.
Escopeta added 13 tracts to a group of tracts it already held, onshore and offshore of the Kenai Peninsula starting southwest of Nikiski following the coastline around East Forelands and running north and west into the inlet. The company also added one tract to two others it holds northwest of the Lewis River gas field on the west side.
Previously in the April 21, 1999, Cook Inlet areawide sale Escopeta won twelve of the 14 tracts it bid on, spending $433,611.37.
In January and February Escopeta transferred 100 percent of its working interest in its Cook Inlet leases to BBI Inc., a holding company owned by Escopeta President Danny Davis and Lawrence Berry of Berry Contracting Inc. of Texas. BBI is now the third-largest leaseholder in the inlet with 120,000 acres. The leases are owned 50 percent by Escopeta and 50 percent by BBI, Davis said. New technology suggests huge deposit at Kitchen, east Kitchen In October 2001 the Houston-based independent captured national headlines when it released estimates of 12 trillion cubic feet of natural gas and 1.35 billion barrels of oil at its Kitchen and East Kitchen prospects just east of the South Middle Ground Shoal unit. The results were based on new analysis of 20 year-old 2-D seismic data, Escopeta said.
If Escopeta’s estimates are correct, the gas discovery is about one-third the size of proven North Slope natural gas reserves and exceeds the total amount of gas recovered in Alaska to date. It is significantly more than the current remaining reserves of 2.56 tcf of gas in Cook Inlet.
Davis told PNA the seismic data was reprocessed using an energy absorption technique, a new technology that identifies the existence of hydrocarbons in the target structure.
“We ran the test on this and it lit up like a Christmas tree,” he said.
Michael Economides, Ph.D., a professor of chemical engineering at the University of Houston is a consultant to Escopeta on the project. He told PNA the energy absorption technique has been successfully used to re-explore and find deep natural gas structures in the transition zone in Louisiana, Texas and on the Louisiana and Texas Gulf coast.
“Energy absorption is a technique that can actually easily detect gas at great depths, 25,000 feet or more. It has opened up a huge new tool of exploration to the point that those that demand drilling for proof today look pretty much completely outdated,” he said. In Alaska since 1993 Escopeta and Davis first did business Alaska in 1993, Davis said. In 1994 it invested with Stewart Petroleum Co. on the Cosmopolitan play in Cook Inlet. Due to bankruptcy Stewart lost its interest in the field, which is now operated by Phillips Alaska Inc. Davis still holds a royalty interest in the unit.
Davis praised the foresight of Bill Stewart, saying that without Stewart, the renaissance of drilling taking place in Cook Inlet today would not have happened.
“He’s the real pioneer of the independents up there,” Davis said.
Escopeta doesn’t have many of employees. It has an office in Houston, and closed an Anchorage office in 1997. Bob Warthen of Anchorage, who has been working in the inlet since 1967, does the company’s geological work and the company uses freelance geophysicists and other experts as needed.
“We’re lean and fast,” Davis said.
“I like to think that I’ve had some good ideas that they’ll capitalize on,” Warthen said. “They’re open-minded, optimistic, and they’re certainly knowledgeable about the oil business and certain facets of it.” Company persists despite caveats of some Cook Inlet experts Escopeta estimates its gas discovery lies 18,000 to 21,000 feet below the surface. At those levels in Cook Inlet, experts questioned whether the gas, if it exists, could be produced at economic rates. Mike Wilson, a Golden, Colo., petrographer who has performed numerous studies in Cook Inlet and elsewhere in Alaska, told PNA shortly after Escopeta’s announcement that he would expect low porosity and low permeability at deep levels in Cook Inlet.
Economides said he expected the levels of porosity in Escopeta’s structure to be 12 to 15 percent.
Wilson said that might be possible if the structure was highly over-pressurized: “Even if you’ve got good indications you need a well to prove it up.”
Davis said drilling was the next step. “Until you get a bit to the bottom, you don’t know for sure what’s there,” he said. The major portion of the prospect lies offshore, but Escopeta said that the initial wells could be drilled from onshore locations.
Warthen said he thinks Escopeta is on the right track and that much opportunity exists in the Inlet basin, especially for smaller companies.
“The infrastructure is laid out and the threshold for the volume of oil to make a profit is less,” Warthen said.
Warthen said that just because other companies held leases on the area previously, it didn’t mean there was no oil there. Other companies had the same seismic results, but were looking at other things without the benefit of new concepts Escopeta is using.
“When something is dropped, it doesn’t mean they looked it over carefully,” he said. Company will take on partners to drill In January 2002 Davis told PNA Escopeta was seeking partners and was gearing up to drill on three different prospects in Cook Inlet. “We’ll try to get the first well done by 2003,” Davis said. In May he said the company was processing one more seismic line, and still hadn’t finalized a deal with potential partners but was close.
“If I was big enough to drill it straight up myself, I would,” Davis said.
“In the early days, even the majors couldn’t afford to go it alone,” Warthen said. “They liked to have a partner to share the risk and reward.”
The company is still choosing the exact location for its wells, and is gathering the information it will need for permits, Davis said, adding that Escopeta has enlisted the services of Fairweather Inc. to negotiate the permit process.
“Things that take 30 days in Texas take six months up there,” he said.
Davis said he accepts that permitting and other issues in Alaska take time, but the state would benefit if it streamlined the process, because more wells would be drilled.
Fairweather also is currently negotiating for a jack-up rig for Escopeta to use in the inlet, Davis said. Other companies that need it might share the cost of relocating the rig to Alaska.
East Kitchen is likely to see the first drilling, and Davis is hopeful that the field will approach the size of McArthur River, about 600 million barrels of oil. Escopeta’s data suggests East Kitchen might contain 200 million barrels to 500 million barrels of oil, and 2 trillion cubic feet to 5 tcf of natural gas, he said. The structure is big, about 60,000 acres, with four-way closure, and Davis is confident it will pay.
“Any monkey can find oil in a four-way closure in Cook Inlet,” Davis said.
The third prospect, North Alexander, in the Upper Susitna area on the west side, is smaller; it might contain as much as 600 billion cubic feet of gas, Davis said.
Davis said that despite regulatory delays and expense, Cook Inlet is the place to be for independents.
“The geology is phenomenal.”
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