The challenge of Cook Inlet: reserves are there, but who is going to develop them?

• Author: Bradner, Mike
• Position: OIL & GAS

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It has been more than half a century since Alaska's first commercial oil .field was discovered at Swanson River on the Kenai Peninsula. Over the next decade, a burst of exploration resulted in the discovery of several major oil and gas fields in the Cook Inlet Basin. The region quickly became the center for a major new industry in the state.

Now, after decades of activity, production is declining.

According to data from the state Division of Oil and Gas, about 12,500 barrels per day of oil are being produced from wells in the Inlet, down from about 30,000 barrels per day in 1999 and a peak of 230,000 barrels per day in 1970. Reserves of natural gas, which heats homes and businesses and generates electricity in Southcentral, have dropped from about 2.5 trillion cubic feet in 2000 to 2.03 trillion cubic feet in 2003, to 1.68 trillion cubic feet in 2007.

Geologists believe there is a lot of oil and gas left to be discovered in the Inlet, but despite record-high oil prices, activity is at only a modest level, although there will be a number of new development wells in gas-producing fields drilled in 2008.

If the activity uptick is modest, however, there are reasons why. One is that there are constraints on getting equipment and skilled personnel against competition for them from the intense levels of activity on the North Slope. Another is that costs are rising just as fast, or even faster, than oil prices.

Match both of those up against uncertainties over the potential for commercial discoveries in the Inlet that are big enough to justify the investment, and it's not difficult to see why Cook Inlet is lagging in the race for new industry investment.

REASON TO CELEBRATE

There are bright spots in this picture, however. First is new drilling of production wells in the Beluga and North Cook Inlet gas fields by ConocoPhillips, and by Marathon Oil Co. in the Ninilchik gas field it operates on the Kenai Peninsula.

Another positive note is Chevron Corp.'s program to invest up to $300 million in new development and drilling in several mature offshore oil and gas fields that the company operates. Yet another is Pioneer Natural Resources Corp.'s ongoing work to develop the Cosmopolitan oil discovery in Cook Inlet just offshore Kasilof, on the Kenai Peninsula.

Chevron announced plans last year, but has not yet released details of specific projects. The hope is to both modernize aging production platforms and find new recoverable reserves. Chevron won't confirm this, but one possible test under consideration is a deep...