Buccaneer Energy Ltd. is taking a stab at the Cosmopolitan prospect.
The Australian independent and BlueCrest Energy II, LP, a privately held energy company out of Fort Worth, Texas, announced Feb. 2 that they have purchased two leases at the offshore Cook Inlet prospect from Pioneer Natural Resources Alaska Inc. and plan to start developing the oil and natural gas resources as soon as this year.
Although Pioneer surrendered the majority of its acreage in the area when it terminated the former Cosmopolitan unit in January 2011, the company kept two leases with wells certified as capable of producing in paying quantities, ADL 384403 and ADL 18790.
Through the deal, scheduled to close on March 30, BlueCrest would acquire a 75 percent interest in those leases and Buccaneer would acquire the remaining 25 percent.
The companies did not disclose the financial terms of the deal.
Buccaneer sees the acquisition as a way to increase its reserve base in Alaska and to get more use out of its recently purchased jack-up rig. “As a more advanced project with an existing well and some infrastructure already in place, Cosmo provides nearer term oil and gas production potential than our two other Cook Inlet offshore projects, which will still be developed in parallel,” Buccaneer Director Dean Gallegos said in a statement.
Considering that Apache Alaska Corp. leased the surrendered Cosmopolitan acreage at a premium during a special sale last summer, the Buccaneer deal adds another layer of intrigue to the development prospects of the southern Kenai Peninsula, a region long known to contain oil and gas, but only recently beginning to see commercial production.
Decades of appraisal
Buccaneer is now the fourth company to seek success at Cosmopolitan.
Pennzoil discovered the prospect in 1967 with the Starichkof State No. 1 and the Starichkof State Unit No. 1. Those wells encountered oil in the Starichkof interval and water in the Hemlock interval, results that did not justify development at the time.
ConocoPhillips subsequently acquired the acreage, and formed the Cosmopolitan unit in 2001. The company drilled the Hansen No. 1 well up dip of the Starichkof State No. 1 in 2002, encountering oil in both the Starichkof and Hemlock intervals, and the Hansen 1A sidetrack in 2003. A 50-day flow test on the sidetrack averaged 550 barrels per day of oil.
ConocoPhillips completed a 3-D seismic survey over the unit in 2005.
After Pioneer acquired the Cosmopolitan unit that year, the company interpreted the seismic data and began appraising the economics of the ConocoPhillips discovery.
In 2007, Pioneer drilled Hansen 1A-L1, a lateral from the Hansen 1A wellbore targeting the upper Starichkof interval. Pioneer re-entered and flow tested the lateral in early 2010.
The results soured the company somewhat on the viability of the prospect. In a plan of operations submitted to the state in early 2010, Pioneer wrote that the Cosmopolitan reservoir “is lower quality than most other producing oil fields of the Upper Cook Inlet.”
That didn’t stop the company from trying to develop it, though.
Pioneer launched a unique pilot project, trucking crude oil from flow tests up the Sterling Highway to the Tesoro refinery in Nikiski, and hypothesized it could produce up to 8,000 barrels per day from Cosmopolitan, or 40 tanker truckloads, sometime after 2014.
The Hansen field produced 33,504 barrels of oil and 119,006 thousand cubic feet of gas, according to production figures from the Alaska Oil and Gas Conservation Commission.
But in early 2011, Pioneer left Cosmopolitan, saying that despite “encouraging” results from the workover and fracture stimulation, “subsequent flow test results and engineering studies indicated that the resource potential was not as large as originally estimated.”
Apache takes a turn
With a known oil resource on its hands, and believing the prospect to contain significant natural gas reserves as well, the Alaska Department of Natural Resources placed special terms on the Cosmopolitan prospect in its June 2011 Cook Inlet areawide lease sale.
Seeing the prospect as being “on the cusp of production,” the state bundled the three leases and reduced the term to five years, rather than the customary seven to 10 years.
It also required the lessee to file a plan of exploration within six months, and commit to drill and complete at least one well — penetrating the stratigraphic interval equivalent of the oil reservoir found in Starichkof State No. 1 — by the fourth year of the lease terms.
The state chalked up Pioneer’s decision more to budgeting than to reservoir quality.
“We are still pretty optimistic about the prospect here at the division. It’s a challenge, but there’s one well that could come into production with just a completion. We’re pretty excited,” Kevin Banks, then-director of the Division of Oil and Gas, said in April 2011.
Apache jumped at the opportunity.
In addition to grabbing the three bundled leases, Apache also picked up some three-dozen offshore tracts surrounding the former Cosmopolitan unit and extending northward.
Apache has not, as of yet, submitted its plan of exploration for the leases.
A two-pronged approach
Buccaneer wants to develop Cosmopolitan in two parts.
The company will use Endeavour, its recently acquired jack-up drilling rig, to target shallow natural gas deposits between 3,000 and 4,000 feet, and use directional drilling from an existing onshore pad to target deeper oil deposits between 6,000 to 8,000 feet.
Buccaneer plans to drill the offshore well in late 2012 to “further quantify” both the oil and gas prospects at Cosmopolitan, and continue development through to 2014.
Through a joint venture with Ezion Holdings Ltd. and a public-private partnership with the Alaska Industrial Development and Export Authority, Buccaneer purchased the rig earlier this year to use at Southern Cross and Northwest Cook Inlet, its offshore units.
The jack-up rig improves the economics of Cosmopolitan by keeping the company from having to drill all wells, including injection wells, from the onshore pad, Buccaneer said.
And Cosmopolitan, in turn, gives Buccaneer a place to use its rig in the winter, thereby extending what the company previously estimated would be a 240-day drilling season.
Although AIDEA claimed that the jack-up rig purchase made economic sense based entirely on Buccaneer’s four-well commitment at Southern Cross and Northwest Cook Inlet, the three players always planned to make the rig available for third-party use and even identified 22 offshore wells in Cook Inlet that could be drilled using the rig.
That list included two wells at Cosmopolitan.
Cosmopolitan adds to an already ambitious workload for Buccaneer in Alaska.
The company recently said it would drill as many as eight wells in Cook Inlet this year if it could secure the financial and technical resources. That plan involves drilling up to four wells at its onshore Kenai Loop prospect, one well each at its onshore West Eagle and West Nicolai prospects, and one well each at its offshore Southern Cross and Northwest Cook Inlet units, as well as 3-D seismic surveys at all three onshore prospects.
New player, old name
But Buccaneer isn’t alone.
Although not much information was available at press time, BlueCrest Energy appears to be a relatively new independent founded by industry veteran Larry Lydick.
On its website, which features a jack-up rig floating off the coast of snow-capped mountains, the company lists Cook Inlet as its “primary area of concentration,” but also claims to be pursuing onshore prospects in Texas, Alabama and Nebraska.
BlueCrest President J. Benjamin Johnson “grew up in Kenai, Alaska and worked his way through college on Cook Inlet offshore oil platforms and on the North Slope,” according to the website. “He worked for ARCO Alaska where he created the first Kuparuk full-field development model and coordinated the first waterflood surveillance plans for Prudhoe Bay.” Johnson also said he leases in some 5,000 acres in Cook Inlet.
