Buccaneer Energy will have access to drill for oil with the Endeavour-Spirit of Independence jack-up rig within a well-established Cook Inlet unit known for its gas reserves after inking a deal with ConocoPhillips.

The two companies agreed to a deep oil rights agreement on the North Cook Inlet unit — which ConocoPhillips owns — that allows Buccaneer to earn a 100 percent working interest on its 23,368 acres, according to a press release. The unit is directly south of Buccaneer’s lease holdings in the Northwest Cook Inlet prospect, which is 8,728 acres. The deal also gives Buccaneer access to ConocoPhillips’ 3D seismic data in both areas.

Per the agreement, Buccaneer must use the Endeavour, currently on site at the Cosmopolitan prospect near Anchor Point, to drill two wells in the North Cook Inlet unit — one in a certain area by the end of 2014 and the other by the end of 2015 in a different area.

No upfront cash considerations were exchanged during the agreement, but ConocoPhillips stands to make royalty money on the overriding royalty interest it retained in the deal.

Buccaneer had planned — and has an oil discharge prevention and contingency plan approval for — summer drilling operations in four locations of northern Cook Inlet, including two at the company’s Northwest Cook Inlet leases and two at its Southern Cross leases.

In the release, Buccaneer wrote that it plans to spud the first well in the southern area and as a result is “revisiting” its planned, two-year offshore drilling schedule.

The North Cook Inlet unit, which is home to the Tyonek platform, has produced about 1.9 trillion cubic feet of natural gas from its shallow gas formations since the 1960s.

Gas from that platform has gone predominately to the company’s LNG facility in Nikiski, but now goes to feed the local consumer market, said Natalie Lowman, ConocoPhillip’s spokesperson. The unit has received little attention from ConocoPhillips recently, and is one of the company’s three remaining Cook Inlet assets.

Lowman said additional specific terms of the agreement were being kept confidential, but said ConocoPhillips is retaining the rights to its shallow gas reserves in the area.

“Basically the leases that we have include deep oil,” she said. “We’re not an oil producer in Cook Inlet, we’re a gas producer. We evaluated the potential and determined it doesn’t compete in our portfolio.”

The agreement also presents an interesting question surrounding the deliverability of a deep oil discovery to market. The Tyonek platform is equipped with only a gas pipeline that ties into Kenai Peninsula infrastructure, but Lowman said deliverability would be up to Buccaneer.

Alaska Division of Oil and Gas Director Bill Barron said if Buccaneer made a discovery, the company could either seek a deal to retrofit the Tyonek platform to handle oil, or install its own platform. That decision depends on drilling results, size and location of the discovery.

“Installation of oil-handling materials (on a gas platform) is not unheard of, but it all depends on what kind of real estate you have,” he said. “It’s all a matter of how much stuff is already in the box.”

If Buccaneer were to bring the discovery to market, it would be some of the northern most oil produced in the inlet as most oil production is clustered near the Forelands area, Barron said.

According to a release, the North Cook Inlet unit has been penetrated by 13 wells. ARCO and Phillips drilled eight of those wells in the 1990s. The remaining five wells were drilled by other companies earlier in the delineation process.

Ten of those wells were successfully flow tested and Buccaneer said it hopes to drill its first well near ARCO’s North Forelands No. 1, the most successful well in the area, which tested at 4,343 barrels a day in 1992.

That well is located at the southwestern edge of the unit, but the second well Buccaneer plans to drill is in the northeastern portion of the unit near Shell’s North Cook Inlet No. 1 well that tested at 2,270 barrels a day in 1964.

“Apparently (ARCO) thought it was too small, but maybe Buccaneer has a different idea, but that is probably what they are chasing,” Barron said.

Barron said there are many reasons why a company would seek to drill and produce in an area where another company had tried previously.

“The product price is a big piece of that,” he said. “The other ideas could be directly related to reinterpretation of seismic and looking for a different trap … or a larger trap ARCO didn’t see.”

Cathy Foerster, chair of the Alaska Oil and Gas Conservation Commission, said the agreement would likely be a good deal for both companies — if Buccaneer is successful, it has a bigger land holding with more reserves and ConocoPhillips makes money without spending any.

Also, Buccaneer might have seen its oil potential going off the edge of its oddly-shaped Northwest Cook Inlet lease holdings as reservoirs tend to form in predictable, oval shapes, Foerster said.

“It is not unusual for a company who sees great potential in an area to look around and say, ‘OK, I think that potential could spill over into this other acreage and rather than do all the work and take all the risk and then let them benefit from it, I think I’ll ask them if I could work a deal to get the rights to their acreage,’” she said.

ConocoPhillips likely thought they stood to make a good profit on royalities with no risk and no capital outlay, Foerster said.

“Conoco obviously doesn’t see as much potential on it as Buccaneer does and that doesn’t make Conoco right or Buccaneer right until they drill and test a well,” she said.

Brian Smith is the city editor and a reporter for the Peninsula Clarion.