Cosmo drill permit filed as credits debated

  • BlueCrest hopes to use the Spartan 151 jackup rig, seen here working for Furie Operating Alaska at the Kitchen Lights Unit in Cook Inlet, to drill at its Cosmopolitan lease off the southern Kenai Peninsula near Anchor Point. The Spartan 151 is currently in port at Seward. BlueCrest filed an application to drill three offshore wells at the prospect in the next two years to delineate the oil and gas reservoirs. Photo/Courtesy/Furie Operating Alaska

KENAI — If it gets the state’s approval, BlueCrest Energy will switch its drilling operations from onshore directional drilling to an offshore jack-up rig.

The company’s Alaska arm, BlueCrest Operating Alaska, applied to the Alaska Division of Oil and Gas to change its operating plan, adding an extra well and changing its drilling method.

The company originally planned to drill three wells from its onshore facility near Anchor Point, drilling diagonally out into Cook Inlet to reach oil in its Cosmopolitan lease.

The change in plans would bring a jack-up rig — either the Spartan 151, currently in Resurrection Bay, or a similar rig — to Cook Inlet to drill the two remaining wells and a new one for BlueCrest, according to the application.

The Cosmopolitan formation has both oil and gas assets. The gas is situated above the oil, and because of the shallow depth of the gas, drilling for it from onshore is impossible. The wells drilled from the offshore rig would delineate the oil and gas formations, according to the application.

However, the gas production would not begin immediately — after the wells are drilled, they would be plugged and abandoned below the lowest gas reservoir once logging and evaluation of the oil formations has been completed, according to the application.

“The wells may be re-entered and developed for gas production operations under a future development and production authorization,” the application states.

If approved, the company would drill one well in 2016 and the remaining two in 2017. If there are delays, two may be drilled in 2017 and the third drilled in 2018. One well has already been drilled from onshore, a hydraulic fracturing well, also known as fracking.

Drilling operations would include casing and cementing, geologic evaluations, flow testing and well plugging and abandonment. If the company decides to flow test a well, it will develop a testing program.

Two helicopter flights per day would support the operations at the offshore rig. The flights would come from either the Kenai or Homer airports, changing rig crews and handling cargo, according to the application.

The Spartan 151 is currently docked in Seward, with its seasonal contract under negotiation, according to Spartan Offshore Drilling’s website. Furie Operating Alaska brought the rig to Cook Inlet to drill in its Kitchen Lights lease in 2011 and used it until 2015, when its permanent gas production platform was installed.

BlueCrest’s president and CEO Benjamin Johnson has said the company would not be able to drill offshore if the oil and gas tax credit program were to change significantly. The expense of developing the gas limited the company’s ability to conduct operations offshore. The jack-up rig is not a permanent offshore operation, but it places wells offshore.

The Legislature is currently debating a number of options to change the structure of the oil and gas tax credit regime at the prompting of Gov. Bill Walker, who has called the current tax credit system unsustainable for the state because there are no caps on how much the state will pay. One proposed bill would cut all the Cook Inlet oil and gas tax credits by 2018; another would cap repurchases at $25 million per company per year.

The Legislature’s regular session was scheduled to end on Sunday, but was extended with the oil and gas tax credit bills still in limbo.

With $525 million sunk into developing the Cosmopolitan field with no revenue yet — oil production is estimated to begin in April — BlueCrest representatives have spoken out strongly against the tax credit cuts. The company submitted testimony to the Legislature on a committee substitute for HB 247, one of the oil and gas tax credit bills, urging the Legislature to leave the tax credits stable so the company could continue to develop the resources even at low oil prices.

Johnson testified to the House Finance Committee on April 4 that any changes should be gradual. He said the state’s investment has been a good one at Cosmopolitan because the company has done low-risk drilling on known resources — the company bought its field in 2014 from Pioneer, which was planning to operate on a former Pennzoil discovery in the area.

“I want to emphasize that the state’s investment through its tax credit program has facilitated our success at Cosmopolitan,” Johnson said at the meeting. “BlueCrest is in Alaska today directly as a result of Alaska’s tax credit program.”

Reach Elizabeth Earl at [email protected].

 

Updated: 
04/20/2016 - 4:02pm

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