By Naomi Klouda
Buccaneer Energy struck a deal with ConocoPhillips that greatly expands the Australian company’s holdings in Cook Inlet and moves a major back into higher profile in the inlet.
Buccaneer executed an agreement with ConocoPhillips that allows it the right to earn a 100 percent working interest in ConocoPhillips deep oil rights in 23,368 acres held by the North Cook Inlet Unit.
That’s a sizable unit that provides a “huge area to explore,” said Cathy Foerster, a commissioner at the Alaska Oil and Gas Conservation Commission.
This area has a long track record dating back to the 1960s. The oil is contained in the Lower Tyonek, Hemlock, Sunfish and West Foreland Formations. Since 1962 they have been penetrated by 13 wells, all of them in North Cook Inlet Unit, according to the historical portion of a press release issued Monday. Seven of the wells were drilled in the 1990s. The remaining six wells were drilled by various majors during the discovery and delineation phase of the Cook Inlet in the 1960s. Of the 13 wells drilled, a total of 10 wells were successfully flow tested.
“This could mean good news for more oil production and more revenue in Alaska,” Foerster said.
The NCIU has produced almost 1.9 trillion cubic feet of gas from the shallow Sterling and Beluga formations since the 1960s. Now the NCIU is currently held by gas production that has been predominantly used to supply ConocoPhillips’ 100 percent owned LNG facility. The shallow gas production will remain owned by ConocoPhillips. But oil drilling will be new to Buccaneer.
Bob Shavelson, public advocate at Cook Inletkeeper, sees the agreement as a sign that a major oil and gas company has moved back into the inlet. And that means the state needs to look at how it allows discharge of drilling wastes into the waters of Cook Inlet in the face of increased production.
“One of the rationales to continue the dumping in Cook Inlet when the EPA set these rules in 1996, was that Cook Inlet was a declining oil and gas province and they did not anticipate growth or new discharges,” Shavelson said. “Cook Inlet is the only coastal area where industry can discharge their drilling waste. The state carved out a loophole that didn’t anticipate this new interest.”
If ConocoPhillips is participating in a potentially lucrative agreement with an independent, “that tells me there is enough interest to attract these larger players.”
Since there are now two jack-up rigs operating in the inlet and more wells to be spudded, the premise for allowing the discharge of drilling waste is undermined, he said.
The jack-up rig Endeavour, now located on the Cosmopolitan Unit between Anchor Point and Whiskey Gulch, was a big selling point in the negotiations, Buccaneer’s Dean Gallegos said in the news release.
Another boon to the deal is a license agreement on the existing 3D seismic owned by ConocoPhillips. The 3D license covers both the area subject to the Deep Oil Rights Agreement and parts of Buccaneer’s North West Cook Inlet Unit. It also contains valuable information on the Tyonek Unit where Buccaneer is permitted to drill two wells.
No upfront cash was part of the negotiations, Gallegos said, but there are timeline commitments. A well must be spudded in either Block A or Block B by Dec. 31, 2014 and a second well in the remaining block by Dec. 31, 2015.
The company plans to spud the first well in the Southern Block A using the Endeavour jack-up rig. As a result of this transaction the Company is revising its planned offshore drilling schedule over the next two years.
Buccaneer Energy has a three pronged cash-flow strategy that involves its Kenai Loop Onshore gas wells, using the jack-up rig for third party drilling, and developing its Cook Inlet projects.
Among the onshore work ahead is the West Eagle Unit, which Buccaneer has said begins this summer. A new update is pending, said spokesman Jay Morakis. We are a gas company in Cook Inlet producing that for 40 years. Up until this year, exporting it.
ConocoPhillips spokesperson Natalie Lowman said the business arrangement made sense because the oil is in the unit. “But that’s an opportunity for someone else in obtaining deep water rights in north Cook Inlet,” she said. “We’re not ready to drill for oil right now — it doesn’t work for our portfolio.”
Instead, ConocoPhillips has been focused on gas in Cook Inlet. Its interest is in ownership of the NCIU, the Tyonek Platform, the Beluga River Gas Field and a one-third owner with Hilcorp and Municipal Light and Power.