BlueCrest Energy Inc. graduated into an operator in 2014. The Fort Worth, Texas-based independent came to Alaska in February 2012, when Buccaneer Energy Ltd. acquired the Cosmopolitan prospect in the Cook Inlet basin.
Through the deal, BlueCrest became a 75 percent, non-operating owner of the offshore oil and gas prospect off the coast of Anchor Point in the southern Kenai Peninsula.
Originally, the two companies planned a two-well program using the Endeavour jack-up rig - Cosmopolitan No. 1 in February 2013 and Cosmopolitan No. 2 in April 2013.
A series of technical issues delayed the program. In May 2013, the companies drilled Cosmopolitan No. 1 to 7,599 feet, some 400 feet shallower than intended. The well encountered oil and condensate at 5,600 feet, in the Lower Tyonek, much shallower than expected. A pair of flow tests yielded peak rates of 7.2 million cubic feet and 7.3 million cubic feet per day from the Tyonek but technical restraints prevented an oil flow test.
In early 2014, as the companies were permitting Cosmopolitan No. 2, Buccaneer sold its interest in the project to BlueCrest for some $41.25 million. The deal initially required BlueCrest to use the Endeavour rig for at least 50 working days each winter for the next three winters, at a rate of $175,000 per day. To backstop the deal, BlueCrest had to file a $5 million letter of credit that would remain in effect until it used the rig for 150 days.
The provision became moot when the owners of the rig sold their stake.
Now, BlueCrest is pursuing a multi-faceted approach at Cosmopolitan: developing deep oil deposits while it creates a strategy for exploring the shallower oil and natural gas.
An enticing prospect
BlueCrest is the sixth company to try its hand at Cosmopolitan.
Pennzoil discovered the field in 1967 with the 12,112-foot vertical Starichkof State No. 1 well. A pair of drill-stem tests at approximately 6,800 and 6,900 feet produced a small amount of oil but the deeper Hemlock formation was wet. The down-dip Starichkof State Unit No. 1 well, drilled to the north, collected full cores in the upper Tyonek and Starichkof sands, finding good-quality sands but not potential for natural gas production.
ARCO Alaska began a second exploration effort at Cosmopolitan in the 1990s. In 2001, after acquiring the Alaska assets of ARCO, Phillips Inc. formed the Cosmopolitan unit over seven state leases and two federal leases. Using an onshore pad, Phillips drilled the Hansen No. 1 well directionally to an offshore target. The well confirmed the presence of oil in the Starichkof sands and found productive sands in the deeper Hemlock formation.
Following a merger, ConocoPhillips Alaska Inc. assumed control of the unit. In 2003, the company drilled Hansen No. 1A, a sidetrack of the original well. The sidetrack provided a deviated penetration into the Starichkof and a lateral penetration into the Hemlock. A flow test produced some 1,000 barrels of oil per day and 14,851 barrels cumulatively.
In 2005, Pioneer Natural Resources Alaska Inc. joined ConocoPhillips on a seismic program at Cosmopolitan. The partners commissioned a 3-D survey covering some 40 square miles of the region. They kept quiet about the results. But according to a recent BlueCrest filing, the seismic program “provided a clear view of the perimeter flanks of an anticlinal structure, but the crestal view of the structure was obscured by a gas cloud, rendering a conclusive description of the reservoir structure unobtainable at the time.”
After the joint seismic program, Pioneer Natural Resources acquired the remaining working interest at Cosmopolitan and became the operator of the exploration program.
In 2007, Pioneer plugged the original Starichkof and Hemlock completions on the Hansen No. 1A sidetrack and drilled Hansen No. 1A-L1, another sidetrack off the original Hansen well. The “long-reach undulating lateral well” ran through the upper portion of the Starichkof 8 sub-interval of the sands and tested a 300 barrels per day.
After a hiatus caused by the collapse of the financial system in 2008, Pioneer returned to the prospect in 2010 to fracture stimulate the interval from Hansen No. 1A-L1. An extended flow-test produced 250 barrels per day and more than 33,000 barrels, cumulatively, which the company trucked to the Tesoro refinery under a pilot program.
The company even went so far as to propose a development program for Cosmopolitan, but in early 2011 Pioneer decided that “subsequent flow test results and engineering studies indicated that the resource potential was not as large as originally estimated.”
As such, Pioneer terminated the Cosmopolitan unit, relinquished all the leases at the prospect except the two held by wells, which it sold to Buccaneer and BlueCrest.
The state offered three of the relinquished leases under special terms. Apache Corp. acquired the leases and proposed seismic and exploration drilling. But regulatory delays over a basin-wide seismic program prompted the company to delay its plans. Apache ultimately sold the three leases to Buccaneer and BlueCrest in August 2013.
Development now
Those previous exploration efforts identified numerous leads.
By June 2014, BlueCrest had proposed a two-pronged development program for Cosmopolitan. The company decided it would use extended reach drilling to target oil accumulations in the Hemlock and Starichkof formations from an existing onshore drilling pad and install two offshore platforms to develop the natural gas reservoirs.
BlueCrest expects its onshore development program to come into production by early 2016. The future offshore development program is currently at a much more preliminary stage.
In March 2015, BlueCrest applied to form a new Cosmopolitan unit over seven leases covering some 22,535 acres off Anchor Point. The unit would include ADL 18790, ADL 384403, ADL 391899, ADL 391900, ADL 391902, ADL 391903 and ADL 391904.
The application included an August 2014 proposed plan of development calling for 44 wells: 20 onshore oil production wells, 10 onshore injection wells and two onshore disposal wells and 12 offshore wells divided between the proposed monopod platforms.
The application, though, listed other targets worth exploring. The prior exploration activities at Cosmopolitan discovered potentially commercial hydrocarbons within 10 Tyonek formation intervals, according to BlueCrest. Those include oil in the Hemlock, the Starichkof and the Lower Tyonek and gas in the Lower Tyonek and Upper Tyonek.
Under the proposed program, BlueCrest would evaluate a gas development program on leases ADL 391899, ADL 391900 and ADL 391902 in 2015 and 2016. Previously, BlueCrest had said gas development would depend on “a suitable market for gas in the Cook Inlet basin, additional information gained from drilling the first offshore delineation wells, and receipt of all required governmental approvals from the offshore program.”
In early 2015, BlueCrest announced a partnership with WesPac Midstream LLC.
“What we’re planning to do is design these facilities where the shallow part is (with) WesPac and the deeper part, where the oil lies, is with BlueCrest,” President and CEO J. Benjamin Johnson told the Kenai Peninsula Economic Development District. “WesPac would get 100 percent ownership of the gas sands, while BlueCrest will continue to operate them,” he said. “Then, at some point, after they’ve reached the minimum terms and get their money back, BlueCrest will come back in and begin owning the gas.”
The program would give WesPac a supply for a proposed two-phase liquefied natural gas project at Port MacKenzie. The first phase would involve a small-scale plant processing 25 million cubic feet per day of Cook Inlet gas for shipment to Alaska communities by rail, truck or boat. The second phase would involve a 150 million cubic foot per day system with tanker-loading facilities for export, in addition to shipments within Alaska.
The August 2014 plan also called for drilling the offshore Cosmopolitan State B1 exploration will this year on ADL 384403 to test oil and gas zones. The oil zones would be plugged and the gas zones suspended for future development, according to the plan.
BlueCrest asked the state to approve the plan for a one-year term, which would allow the company to amend the plan easily based on information gleaned this year. Such amendments would include more detailed plans for delineation and exploration activities.
