Industry players weigh cook inlet incentives: facing uncertainty with costs, benefits, taxes, and credits.

• Author: Resz, Heather A.
• Position: OIL & GAS

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Developing the Cosmopolitan oil and gas project in Cook Inlet is a big play for BlueCrest Energy, one of a group of smaller-sized independent producers and explorers lured north in recent years by the states Cook Inlet petroleum incentives.

The privately-held Texas company--sole owner of one of the largest undeveloped fields in the Cook Inlet basin--will soon take delivery of a specially commissioned $44 million, three thousand horsepower drilling rig that will sit on the bluff and reach out three miles and down seven thousand feet to bring the oil to the surface, according to Benjamin Johnson, president and CEO, BlueCrest Energy. Oil production from an existing well will begin in April at the new $84 million, thirty-eight-acre site in Anchor Point, he says.

BlueCrest also has plans to use the new rig to drill two new oil wells in the last half of this year, Johnson says.

The Cosmopolitan project also includes a large natural gas deposit located in more shallow zones directly above the deeper oil. A jack-up rig will be used to drill wells offshore to reach the gas, Johnson says. That gas would be produced into two offshore gas platforms and piped to the existing onshore Cosmopolitan facility for processing.

However, if passed as introduced by the governor, HB 247 (House Bill 247) would have significant financial impacts for the company's plans this summer and for years into the future, Johnson says.

As written, HB 247 would terminate key tax credits--AS43.55.023(a) Production Tax Credits: Qualified CapEx Credits and AS43.55.022(I) Production Tax Credits: Well Lease Expenditure credit--in July.

"What we really have a concern with is the timing of the changes," Johnson says. "All of the plans and all of the spending obligations have already been entered into for this year.

"That's what we've based all of our funding on--the assumption that the laws would continue as is--at least for the rest of 2016 and into early 2017. We've already spent large amounts of our investments getting the oil facility ready to accept the oil from the new wells, and we have already committed to contracts for drilling the new wells that cannot even be started until the last half of 2016. If the tax credits expire in July, that would eliminate a large portion of the funding we had planned to use for drilling those new wells."

HB 247 was scheduled for hearings in the House Resources and Finance committees before heading to the Senate for consideration.

Johnson said 023(a) and 022(1) are the two main credits BlueCrest uses. BlueCrest has received about $24 million in tax credits to date and filed for an...