Homer Alaska - Business

Story last updated at 6:46 PM on Wednesday, November 9, 2011

Escopeta Oil announces largest gas discovery in Cook Inlet in 25 years

By Tim Bradner
Morris News Service - Alaska

Escopeta Oil Co. has made a significant discovery of natural gas in Cook Inlet and believes the project could be rushed into production as early as 2013.

The company announced the discovery late Friday at its Kitchen Lights No. 1 well in Cook Inlet, estimating reserves at the one well at 45 billion cubic feet based on tests of 670 feet of gas-bearing reservoir intervals penetrated in the Sterling and Beluga formations, a company official said Saturday.

However, no flow tests were done. Those will be done next spring when Escopeta re-enters the well to resume drilling to a planned total depth of about 16,000 feet, Escopeta spokesman Steve Sutherlin said.

Most of the gas encountered so far is in the Beluga formation, Sutherlin said. Both the Beluga and Sterling formations produce gas elsewhere in Cook Inlet.

Based on test data so far Escopeta estimated the resource potential of those two formations across approximately 10,000 acres in leases held by the company, at approximately 1.4 tcf of an estimated of gas-in-place resource of 3.5 tcf, Sutherlin said. However, additional delineation wells will be required to prove the extent of those reserves.

Sutherlin said there also are potential gas-bearing formations at lower depths that will be reached when drilling resumes next spring.

There is also potential oil-bearing rocks in the Hemlock formation, which produces most of Cook Inlet's oil at oil platforms in the Inlet.

In a statement distributed Friday Escopeta vice president Bruce Webb said the discovery is the largest Cook Inlet gas find in 25 years.

"Escopeta is currently in the preliminary design stages of an accelerated natural gas development scenario that could bring new gas deliverability to the Cook Inlet as early as 2013," Webb said in a statement.

In a separate statement, Sutherlin said, "Escopeta earlier this year green lighted an engineering study of various production scenarios to fast-track natural gas to market, so we actually have a jump start on bringing our gas to market. While it will surely take Escopeta much longer to get its oil to market, it is quite possible that the company can produce gas without constructing a production platform."

"Given the advances in subsea completion technology that have occurred since offshore production was last put on line in Cook Inlet, the 2013 date is optimistic, but not unrealistic," he said.

In a recent presentation to a state legislative committee, Escopeta outlined conceptual plans for a simple production structure that could be installed quickly in Cook Inlet. If gas reserves wind up being larger, or if a commercial oil deposit is also discovered, a larger conventional platform could be installed, the company told the Senate Resources Committee.

Escopeta's well location is about 10 miles south of ConocoPhillips Tyonek gas production platform, which serves the North Cook Inlet gas field.

The well eventually will be drilled to Jurassic-age rocks at about 16,000 feet, which state geologists believe could also hold oil.

Dan Seamount, a member of the Alaska Oil and Gas Conservation Commission and a petroleum geologist, said he believes there is a substantial amount of oil in the Jurassic rocks, and that these are the source rocks for much of Cook Inlet's oil.

Escopeta hopes to qualify for a $25 million state incentive grant as the first jack-up rig in Cook Inlet drilling a deep well to the Jurassic rocks. However, if a commercial discovery is made the grant is converted to a loan and the company must repay the state.

Drilling has meanwhile been suspended at the order of state agencies because of the onset of winter weather, and the Blake 151 jack-up rig is being prepared for a move to a winter moorage in lower Cook Inlet, Sutherlin said.

The Alaska congressional delegation welcomed Escopeta Oil's discovery as a critical step in exploring the inlet and and said it was vindication of the congressional delegation's efforts to address Jones Act issues related to the company's use of a foreign-flagged vessel to deliver a specialized drilling rig to Alaska.

"The discovery is good news for Southcentral residents, who face rising utility bills because of declining gas supplies, and explains why the delegation fought so hard with the Obama administration and its agencies to overcome Jones Act issues that threatened to keep Escopeta from drilling in Cook Inlet this summer," according to a press release from the delegation.

U.S. Sens. Lisa Murkowski, R-Alaska, and Mark Begich, D-Alaska, and Congressman Don Young, R-Alaska, worked with the head of the U.S. Department of Homeland Security to challenge objections to Escopeta's use of a foreign-owned vessel to deliver a specialized jack-up drilling rig to the inlet.

"The delegation believes that a Jones Act waiver was warranted because no U.S.-flagged vessel was capable of transporting a rig of that size in time to allow exploration this summer. As DHS deliberates a fine, the unique factors involved in this case should be understood as mitigating circumstances, and Homeland Security Secretary Napolitano should use her discretion in light of the facts," said the release.