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Oil Patch Insider Jack-up rig has legs, but won’t walk to Alaska’s Cook Inlet basin
A jack-up rig has legs, but it won’t walk to Alaska by itself — it needs help, mainly in the form of dollars, and the state is trying to find a way to assist.
Many companies have said they would use a jack-up rig to explore offshore, primarily in Cook Inlet — if a jack-up rig were around — but none have stepped up to pay the cost of mobilization to Alaska waters.
The Alaska Legislature has shown strong early signs that it will support a request from the governor’s office for funding to stimulate action on mobilization of a jack-up rig to Alaska.
The world market for jack-up rigs is red hot, making actual mobilization and demobilization costs hard to predict, but a consensus seems to be building that the cost will exceed $10 million. The state is using a cost estimate of $12 million, according to Mark Myers, director of the Alaska Division of Oil and Gas. In the interest of meeting industry half way, discussions in the House have centered on a figure of $6 million from the state general fund to help bring a jack-up rig to Alaska. The state is also considering a corporate tax incentive above and beyond the appropriation, to encourage companies to use the jack-up.
Myers said he thinks the state first needs to spend some time and several hundred thousand dollars to study the situation and find the best way to apply the $6 million. He said he would not rule out any options at this point, including using the money to set up a deal through the Alaska Industrial Development and Export Authority to buy a rig.
If any deal is to be made, the state will need up front commitments from the companies that want to use the rig, Myers said, adding that the state’s criteria is that the ultimate solution must make economic sense and be delivered at the lowest possible cost to the state.
Myers said the need for a jack-up rig in Cook Inlet has been recognized for some time, but now a high level of interest on the part of the state and the private sector had vaulted the issue into the spotlight.
“Everybody is pulling in the same direction,” he said. “We just need to get the right number of oars in the water on both sides of the boat.”
The outcome of the jack-up rig situation is expected to affect bidding in two upcoming Cook Inlet lease sales — a Cook Inlet Areawide sale scheduled for May 18 by the state Department of Natural Resources, and the U.S. Department of the Interior Minerals Management Service Sale 199, proposed for 2006.
—Steve Sutherlin Oil price crash a long shot, say Canadian researchers It will take a powerful convergence of events for world oil prices to start crumbling, says the global energy analyst with the Canadian Energy Research Institute.
Otherwise the organization, jointly funded by governments and industry, is counting on average West Texas Intermediate prices of $42 per barrel this year (starting at $47.50 in the first quarter, slipping to $42.50 in Q2, $37.50 in Q3 and exiting the year at $42.50 in the final three month) and $42.50 in 2006.
CERI said its prediction is based on assumptions of an easing in world economic growth to 3.5 percent in 2005 and 3 percent next year.
It is counting on moderate supply growth from non-OPEC countries such as Russia and continuing tension in Iraq, confining output in that country to 1.8 million barrels per day; mean OPEC production will be flat through 2006.
For a crash to occur, CERI analyst Vince Lauerman said there would have to be a world-wide recession, including a nose-dive in the Chinese economy, a surge in production from non-OPEC countries and a sudden turn towards peace in Iraq.
—Gary Park Houston Exploration hires Jack Bergeron The Houston Exploration Company said March 10 that John E. “Jack” Bergeron Jr. has been named vice president and general manager of its offshore division. Bergeron, 47, will be responsible for all aspects of the independent’s Gulf of Mexico operations including prospect generation, exploration and development drilling, technology, and leasing opportunities.
Bergeron, who has 26 years of industry experience, spent the last 10 years in management roles with Total E&P USA Inc. and Fina Oil and Chemical Co. While at Total his roles included managing exploration operations in the National Petroleum Reserve-Alaska and supervising the domestic onshore development operations.
Houston Exploration’s main oil and gas operations are in South Texas, the Arkoma Basin, the Rocky Mountains and offshore in the shallow waters of the Gulf of Mexico.
—Kay Cashman Gwich’in involved in property deal in gas-rich Mackenzie Delta A partnership involving Northern Property Real Estate Investment Trust, Gwich’in Tribal Council and Inuvik Gwich’in Band Council has entered into conditional agreements to purchase nine commercial buildings — eight in Inuvik and one in Yellowknife, Northwest Territories, the trust said in a March 15 press release.
“We are very pleased to enter into a second real estate endeavor with our Gwich’in partners. Marrying the business and financial strengths of both groups in pursuing commercial real estate opportunities in the rapidly developing oil and gas zone in the Mackenzie Delta economy is a real asset,” trust President and CEO Jim Britton said in the release.
The purchase price for the buildings is $10.8 million. The partnership has also budgeted $1.8 million for capital improvements.
Commercial tenants include the governments of Canada, NWT and Yukon, as well as the Business Development Bank and CBC.
Inuvik is a regional government and trading center, home to a regional hospital and college, and a major service center for Canada’s natural gas industry in the far north.
“Development of the vast proven Mackenzie Delta gas reserves is expected to result in substantial economic activity for Inuvik,” the trust said.
—Kay Cashman Fears about Lower 48 on-shore gas ‘exaggerated’ All the talk of a disastrous slump in Lower 48 natural gas production is “greatly exaggerated,” says Vello Kuuskraa, president of Advanced Resources International, a leading U.S. energy consultant.
Challenging the common wisdom that onshore supplies have topped out and face a precipitous, long-term decline, he believes there are enough factors at play to boost the U.S. gas resource base by 440 trillion cubic feet over the next 25 years from its current 1,450 tcf.
However, his confidence that unconventional gas production — the same resource basket where EnCana is placing all of its eggs — can more than offset declines in conventional onshore output is tied to an assumption that advances in exploration and production technology will continue at a solid pace.
All bets are off, Kuuskraa suggested at a North American gas conference in Calgary earlier in March, if the U.S. government and private sector scale back spending on research and development.
He said the “terminal decline” faction bases its gloomy outlook on the lack of production response to record drilling, the departure of majors from upstream activity, poor results from conventional exploration and the climbing cost of replacing reserves.
On the flip side Kuuskraa points to a rise in proved reserves, the emergence of gas-oriented independents, increasing unconventional output and improved drilling completion and efficiency.
To reinforce that upbeat assessment, he said the industry has replaced Lower 48 onshore reserves in nine of the past 10 years and since 2000 has averaged a 139 percent replacement rate.
The reason why production is lagging while reserves are growing is the shift to coalbed methane, which is dominated by low-productivity wells, but long life reserves, he said.
Advanced Resources has estimated that 84 plays in 39 U.S. basins have technically recoverable unconventional gas resources of 536 tcf, including 377 tcf of tight-sands gas, 81 tcf of coalbed methane and 78 tcf of shale gas.
In comparison, the U.S. National Petroleum Council lists technically recoverable unconventional resources at 282 tcf.
—Gary Park
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