Oil, gas producers say Cook Inlet Renaissance comes with pipeline plan, new wells, Susitna Basin
• Buccaneer, Cook Inlet Energy and Hilcorp say the new day’s success depends on owning their own infrastructure and equipment, working efficiently
By Naomi Klouda
On the horizon is an underwater pipeline to get fuel from Western Cook Inlet to Nikiski and a push to replace or refurbish an aging infrastructure.
Independent oil and gas drillers in Cook Inlet forecast big projects, but with the caveat that it will be different from the big oil companies’ work in previous years – smaller opportunities capitalized on for maximum drilling volume.
Speaking at the Kenai Peninsula Economic Outlook 2013 Forum, a two-day conference last week at Land’s End Resort, James Watt of Buccaneer, J.R. Wilcox who co-founded Cook Inlet Energy, and John Barnes of Hilcorp Energy spoke about the work ahead.
Watt, chief executive officer of Buccaneer’s, anticipates adding more gas to an ailing supply market this month. The company has acquired 80,000 acres off and on shore.
Buccaneer CEO James Watt addresses participants in the Kenai Peninsula's Economic Outlook Forum for 2013. Photo by Naomi Klouda/Homer Tribune
“There are a lot of marginal opportunities with a step up in prices that will be profitable. We (had been) experiencing a global financial crisis where public money has dried up,” Watt said. Those two details together make for a challenge that has left Buccaneer scrambling to raise public money the past few years for its drilling programs.
With an experienced team of Alaska drilling experts, Watt said the company has tried to focus on de-risking the opportunity. “It takes time to mature opportunities at drill wells in a multi-year program,” he said.
Independents like Buccaneer experienced high starting costs in its jack up rig, Endeavour for off shore and its Glacier rig for onshore. The company wants to get to the Cosmopolitan Unit in March to drill a shallow gas well. “Accessing these rigs was important to us. Access of on and off shore rigs will allow us to move in a prompt manner,” he said. But safety can’t be sacrificed for speed.
“The timing wasn’t as critical as safety,” he said. “We’re looking for American Bureau of Shipping certification shortly, and we have been lacking certificates and drawings that Archer has in their possession.”
Archer Drilling and Buccaneer had a falling out and parting of ways over alleged non-payment to Archer from Buccaneer. A lawsuit is filed in Texas District Court, and in the meantime, Spartan Offshore has stepped in to operate the drilling rig.
Buccaneer is aimed at producing gas in its combined drilling work, including from West Eagle at East End Road that should amount to 100 million barrels equivalent. That’s Buccaneer’s biggest unit at 50,000 acres. “We’re getting ready to hopefully have a unit approved by Alaska so we can get going there. We’re trying to find gas for Alaska so short term needs can be met,” he said.
Co-founder of Cook Inlet Energy, J.R. Wilcox, moved into buy assets in 2009 in Cook Inlet when oil companies were going bust. Photo by Naomi Klouda/Homer Tribune
“This is a hibrated area of interest, an attractive feature of shallow gas and deeper oil but we’ll be looking at shallow gas first, by mid year this year, once 2013 permits are in place.”
Since the Endeavour could be used to drill in the Chukchi and Beaufort Sea, the rig has additional investment and payoff potential for Buccaneer. The assets are a good market and a state encouraging new players to come in. “What you are seeing now is Renaissance of Cook Inlet and we’re glad to be part of it.”
JR Wilcox, co-founder of Cook Inlet Energy and named one of the top 40 Alaska entrepreneurs under 40 in 2012, talked about the recent past in Cook Inlet when big oil companies were filing bankruptcy. As they were selling off assets, it made a lucrative environment for the minors to move in.
“Recall how bleak it was in 2009 when the Drift River (tank farm) shut down, operators were going to the bank or looking to sell. Dave (Hall) and I were some of the last people in the world to believe there is a good future for Cook inlet,” Wilcox said. They founded a company to buy back equipment and drill more oil. They started by buying the Osprey Rig in 2009 and set to work drilling a 1,000 barrels a day. Today, Cook Inlet Energy’s stock is sold on the Miller Energy Resources. “We’ve had a hell of a week so you may want to look at that.”
In addition to the nearly 800,000 acres in the Cook Inlet Basin, the company plans to develop the Susitna Basin, which hasn’t yet seen oil and gas work. “If we are successful, then we’ll put a new basin on the map for Alaska,” Wilcox said.
Perhaps its biggest work ahead, however, is building a pipeline across Cook Inlet to the Nikiski refinery. This presents a safer alternative to using the Drift River Tank Facility, which sits at the base of Mt. Redoubt Volcano. Cook Inlet Energy estimated the cost of the pipeline at $50 million, $15 million for materials, $35 million for construction and installation. It estimated the annual cost of operating and maintaining the line at $5.2 million per year. Construction would generate 130 part time jobs in addition to the 12 positions created to operate and maintain the pipe with an estimated life of 30 years
Wilcox, a fourth-generation Alaskan who’s grandfather ran the Independence Mine in the Mat-Su Valley many years before, said the business strategy they are aiming for is to “own the drill rig on your platform. Own the iron out there and know it can do what it needs to do.”
One of those is called the Miller Rig, a smaller drill for on-shore work that has an unusual truck mounted so it can be driven around and drill where needed. Another goal is to avoid the interrupted drilling that occurs whenever Redoubt blows. Pacific Energy was bankrupted because of this, he said. “One thing we began working on right away is how do we have a way to move oil to market with out having to interrupt drilling? It would be frustrating to stand on the Osprey and see the refinery that does our oil and not be able to get it there.” The pipeline project is in the permitting stages now, with a hoped for 2014 installation. It won’t go straight across, but curves to stay in a lower tidal stress area in less than 200 feet in depth that allows divers to inspect and maintain it.
Exploiting the small opportunities will be critical to success in this new age of players.
“One thing we’ll probably work on is streamlining what it takes to do business in the state. Smaller independents have a more limited staff. The ability to take best practices from other permitted agencies without compromising standards will be critical to the success of small producers,” he concluded.
John Barnes, senior vice president of production at Hilcorp, acknowledged that when they entered the Cook Inlet picture “no one here at heard of us.” The company does work in the North Sea, headquartered in Houston. “We’re here to stay, here to grow, and here to produce. We took over Marathon’s holdings in Cook Inlet. It’s been a long journey (that) closed its deal yesterday (Feb. 7),” he told the group.
Hilcorp focuses on letting employees take ownership through an alliance.
“We want to be a transparent company, take feed back and do the right thing. Urgency is in our industry. We’ve worked faster than any other company I’ve ever worked with,” Barnes said. “We tell our (workers) you own what is going on in that facility. Contractors, production, financial performance, safety and environmental performance. That word ownership wasn’t driven home with the other majors.”
Hilcorp, founded in 1989, is one of the largest privately-held independent oil and natural gas exploration and production companies in the U.S. Headquartered in Houston, Hilcorp has over 1,000 employees and 11 operating areas including the Gulf Coast region, the Gulf of Mexico, the Rockies and Alaska’s Cook Inlet.
Hilcorp owns the Drift River facility, 10 fields, 75 producing wells and the Kenai-Kachemak pipeline, Beluga Pipeline, Cook inlet Gas Gathering System pipeline and Kenai Nikiski Pipeline.