The tax credits and operating incentives available to companies exploring the Cook Inlet for oil and gas have become part of some companies’ business plans, said Bruce Webb, vice president of Furie Operating Alaska.
While the credits weren’t essential for Furie — which two summers ago brought the Blake 151 jack-up drilling rig to Cook Inlet — to take interest in the area, they did curb a portion of the company’s risk, Webb said.
“When you first come up, you have the mobilization costs of the rig and all the upfront capital, and then you’ve got to drill the first well and you don’t know what’s going to happen,” he said. “That first well could have been the deal breaker. We could have turned around and went back. The tax credits took away some of the risk to make it more palatable.”
Such is the case for other operators fresh to the Cook Inlet like Hilcorp, Apache and Buccaneer, representatives of those companies said. From fiscal year 2009 to 2011, the state has awarded slightly less than $60 million in tax credits and exploration incentives to the Cook Inlet’s operators, according to state information. That number is expected to increase as claims previously filed by companies are audited and ruled on by the state, new filings are submitted and work continues to grow in the area.
Webb said Furie has applied for several credits and received some during its several-year campaign in the area. But Furie has not taken advantage of the jack-up rig credit developed to lure the exact infrastructure it brought to the area.
The reason, Webb said, is that Furie did not drill deep enough with the Blake 151. The credit is good for incentives on the first three wells drilled by the first jack-up rig brought to the area, but the well must hit the pre-tertiary level.
Webb said the Blake 151 drilled the Kitchen Lights Unit No. 1 well to 13,390 feet before hitting a large pocket of natural gas. The pre-tertiary in that area is at about 16,000 feet deep, he said.
“We thought about using that (credit), but we are pretty focused on natural gas so we are not drilling a well that deep,” he said. “It’s up for grabs for Buccaneer if they can get their rig running.”
Buccaneer, which last summer brought the Endeavour-Spirit of Independence jack-up rig to the area, could take advantage of the credit at its Northwest Cook Inlet or Southern Cross units it plans to drill later this summer.
Jay Morakis, spokesman for Buccaneer, in an email wrote that the company doesn’t give out specifics related to tax credit applications, but said those credits available “make the economics of operating in the Cook Inlet far more attractive to independents” like itself.
In addition to its jack-up rig, Buccaneer has been busy drilling and producing at Kenai Loop, an onshore gas field, and gathering seismic data throughout the area.
“We try to take advantage of any incentives offered by the state that apply to our situation and the success of those policies is represented by the success we are having at Kenai Loop bringing the first major discovery to market on the Kenai Peninsula in record time,” Morakis wrote.
Also new to the area is Hilcorp, which has been working to boost production on the assets both onshore and offshore that it acquired from Chevron and Marathon.
External Affairs Manager Lori Nelson said Hilcorp has been taking advantage of the qualified capital expenditure and well lease expenditure credit, but couldn’t give specifics.
“It’s no secret that the tax structure was a component of the overall decision for Hilcorp to enter into Alaska,” Nelson said. “As far as that atmosphere and any other regulatory atmosphere, the things that we really need to be successful in this state are predictability and stability.”
Apache — which has gathered 300 square miles of seismic data in its time in the area — has submitted six applications for tax credits based on its work from 2010 to 2012, said Lisa Parker, government relations manager.
The company has received one tax credit it has turned around and cashed for about $1 million and has been issued another it has not decided what to do with yet, she said. Other credit applications Apache filed are being audited by the state, she said.
Parker said Apache has been taking advantage of seismic data gathering provisions in the alternative credit for exploration credit and the carried-forward annual loss credit. She said the company would also likely apply for a credit for the Kaldachabuna No. 2 well it is drilling near Tyonek.