Cranked up exploration: is it enough to dent decline?

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

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Exploration for oil and gas in Alaska has really cranked up, but there are questions whether the pace is enough to dent the continued decline in production from the big oil producing fields on the North Slope, or to provide enough new natural gas to offset looming shortages in Southcentral Alaska.

A lot of what is prompting the new drilling is the generous set of incentives put forward by the state that pays for as much as 60 percent of the explorers' costs, or even more. In Cook Inlet, an offshore explorer is eligible for 100 percent of well costs, and a new incentive approved by the Legislature this spring will pay 80 percent of well costs in unexplored Interior Alaska basins.

But there are other factors at work, too. High oil prices have attracted a new crop of independents to Cook Inlet, where they hope to find deep oil deposits in rocks previously unexplored. State taxes on oil are also much lower in the Inlet compared with the North Slope. On the slope, expiring lease deadlines have provided the prime motivation for at least one company, Repsol, to get busy and drill.

What's the Drill?

Cook Inlet is going to be a busy place this year, with more exploration drilling than the inlet has seen in decades. Most of the drilling is focused in finding oil, which commands high prices. Some gas will almost surely be found too, because oil and gas are often found together. There is some exploration focused just on gas, too.

Projects being watched closely in Cook Inlet include the completion and testing of an offshore test well where Furie Alaska Operating, formerly Escopeta Oil, found gas last fall with a jack-up rig; new drilling of offshore exploration wells by Buccaneer Energy with a second jack-up rig to be in the inlet in June; the drilling of wells by Buccaneer near its new onshore Kenai Loop gas field to test for extensions of the known deposit, which is now producing; and the first wells to be drilled by Apache Corp., a major independent company that has acquired a large group of leases in the region.

One other project being watched is a reported onshore gas discovery by NordAq, an Alaska-based independent company, on the Kenai Peninsula. NordAq's well is within the Kenai National Wildlife Refuge on a lease where the subsurface mineral rights are owned by Cook Inlet Region Inc., the Alaska Native regional corporation based in Anchorage. NordAq must fully test its discovery but is meanwhile proceeding with permits for production facilities with the U.S. Fish and Wildlife Service, which manages the Kenai refuge. What is advantageous is that the NordAq discovery is near an existing gas...