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Leaseholders fill in Apache, Cook Inlet Energy, Hilcorp big bidders in $6.9 million Cook Inlet sale Kristen Nelson Petroleum News
The State of Alaska took in $6,865,835 in apparent high bids on almost 200,000 acres at its areawide Cook Inlet oil and gas lease sale May 16 in Anchorage, the second-highest dollar volume for a Cook Inlet sale since areawide sales began in 1999.
The state’s 2011 Cook Inlet areawide sale brought in $11 million when Apache bid heavily as it established a Cook Inlet acreage position.
In this year’s sale, Hilcorp Alaska had apparent high bids of $3.1 million on 82,560 acres (18 tracts), followed by Cook Inlet Energy with $2.7 million in apparent high bids on 74,880 acres (18 tracts) and Apache Alaska with apparent high bids of $1.03 million on 40,320 acres (seven tracts). William Crawford took one small tract, 35 acres, for $875.
There were 52 bids on 44 tracts, with the highest bid $345,600 by Hilcorp on tract 721 (in an undeveloped area on the southeastern Kenai Peninsula) and the highest bid per acre $82.50 by Cook Inlet Energy on tract 374 (on the west side of Cook Inlet astride CIGGS, the Cook Inlet Gas Gathering System).
The three major bidders are all large current Cook Inlet leaseholders, two of them producers, and much of the bidding appeared to be filling in around existing leasehold positions.
Hilcorp Alaska purchased Chevron’s Cook Inlet assets last year and is in the process of acquiring Marathon’s Cook Inlet assets.
Cook Inlet Energy bought assets of a bankrupt Pacific Energy Resources in 2009 and has been bringing production back online since early 2010.
The tracts Apache was apparent high bidder on seven of 14 tracts, picking up an offshore tract which filled in a large block the company acquired last year stretching from Anchor Point north almost to Kenai offshore the Kenai Peninsula, and a block of six tracts northeast of Nikiski, which look to fill in acreage the company already has in that area.
Lisa Parker, Apache Alaska’s government relations manager, said after the sale that the company was filling in on acreage it already has. Apache is doing 3-D seismic over its Cook Inlet acreage, and is in the first year of a three-year shoot.
David Hall, chief executive officer for Cook Inlet Energy, said after the sale that the company “got everything we went after, so we’re very happy there.” Already a producer, Cook Inlet Energy is in the process of getting rig 35 assembled on the Osprey platform and has rig 34 mobilized to an exploration well behind the Beluga gas field, Hall said.
The company outbid Apache on a four-tract block north of Clam Gulch on the Kenai Peninsula and also acquired a tract offshore Nikiski and another farther west, adjacent to the company’s Redoubt unit, along with two tracts on the northern shoreline of the peninsula south of Point Possession. On the west side Cook Inlet Energy acquired five tracts north of its West McArthur River unit and outbid Apache for three tracts adjacent to both Cook Inlet Energy and Apache acreage northwest of the Trading Bay unit. These three tracts, 373, 374 and 377, had the highest per-acre bids in the sale: $77.50, $82.50 and $77.50, respectively.
Hilcorp took a number of tracts which added to existing acreage: a tract east of Kenai on the peninsula and four tracts in Cook Inlet north and northwest of the Hilcorp-operated Trading Bay unit. On the southern Kenai Peninsula Hilcorp took a tract north of Anchor Point, filling in existing Hilcorp acreage, and another at the southern boundary of the sale area between Armstrong and Apache acreage southeast of the North Fork unit. On the southeastern boundary of the sale area Hilcorp took 10 tracts, outbidding Buccaneer on one of them.
The block of southern tracts is in an undeveloped area west of the Deep Creek unit, north of a block of leases held by Buccaneer. Hilcorp paid $50 an acre for one of the tracts and $60 an acre for an adjacent tract; overall Hilcorp bid an average of $37.76 per acre, comparable to the $36.26 per acre average bid by Cook Inlet Energy, and above the $25.50 per acre average by Apache.
DNR encouraged In a statement after the sale, Department of Natural Resources Commissioner Dan Sullivan called the results encouraging and said DNR has worked to get the word out on the world-class resources in the state. He said the Cook Inlet basin “continues to attract explorers on the basis of its hydrocarbon resources” and generous financial incentives.
“Cook Inlet is an excellent example of how a combination of a solid resource base and an attractive financial environment encourages exploration and development,” Division of Oil and Gas Director Bill Barron said.
There is no tax on oil production in Cook Inlet, where production has dropped from a peak of more than 227,000 barrels per day in 1970 to some 10,000 bpd currently. The production tax on Cook Inlet natural gas is 18 cents per thousand cubic feet for new production and producers pay a 5 percent royalty on any new Cook Inlet discovery for the first 10 years of production, in contrast to the usual 12.5 percent royalty.
The state also offers tax credits, and due to 2010 legislation, a special incentive for the first three exploration wells drilled from a jack-up rig.
Solidifying holdings After reading bids at the sale, Barron said major Cook Inlet players — Apache, Cook Inlet Energy and Hilcorp — were primarily filling in around existing positions.
He said it was positive, that “... people are solidifying land holdings to continue to do their exploration and development activities.”
Crawford was the only bidder in the sale without a major land or production position. Typically Cook Inlet sales attract bidders without production or large land positions looking to put together prospects.
This year’s Cook Inlet terms were steeper, with a minimum bid of $25 an acre, compared to a minimum bid of $10 an acre in previous sales, and much steeper rentals, starting at $10 an acre through the seventh year and jumping to $250 an acre in the eighth through tenth year if the lease is not producing.
As Barron noted before he read the bids, if production has begun or if the DNR commissioner determines the lessee has exercised reasonable diligence in exploring and developing the lease, the annual rental can remain at $10 an acre.
These are the type of terms the state used in last year’s North Slope and Beaufort Sea lease sales. DNR has characterized the new terms as designed to motivate more rapid exploration and production on leases.
Previous sales The state held its first Cook Inlet oil and gas lease sale in 1959, offering 37 tracts and leasing 31.
Beginning in 1999, sales were held on an areawide basis, with non-leased acreage in the Cook Inlet basin offered on an annual basis. The state has leased more than 2 million acres under its Cook Inlet areawide lease sale program, averaging almost 155,000 acres per sale, and bringing in a total of $32.5 million, an average of $1.8 million per sale.
The largest sale was in 2011, when 575,202 acres were sold for $11.13 million.
Apache Alaska Corp. was the largest bidder in that sale, bidding on 94 tracts and winning 92, with a total of almost $9 million in high bids.
A copyrighted oil and gas lease map from Mapmakers Alaska was a research tool used in preparing this story.
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