Jack-up rig may spur oil industry

State could buy, rent equipment for Cook Inlet exploration

Posted: Sunday, March 27, 2005

State officials and legislators are talking about having the state purchase a jack-up rig to encourage oil exploration in Cook Inlet.

A jack-up rig is a portable offshore drill rig with legs that can be jacked up. Some are transported by barge while others are self-contained.

Proven oil reserves in the region are projected to run out by 2016. Aurora Gas is the only company with stated plans to explore in the region this year.

Sen. Tom Wagoner, R-Kenai, said there have been talks with the Alaska Industrial Development and Export Authority, a state agency, about purchasing it for the state. AIDEA is a public corporation that helps facilitate and finance business in Alaska. It also can own and operate facilities to further this goal, the organization's Web site says.

No formal proposal has yet been made for the state to purchase one, he said.

"We want to keep the discussion going," he said.

The Alaska Department of Natural Resources is in discussions with AIDEA to see if it has a role to play in bringing a jack-up rig to the inlet, said Jim McMillan, deputy director of credit and business development for AIDEA. This could be determined in the next couple of months, he said.

The state has $6 million in its budget to help bring a jack-up rig to the area, said Mark Myers, director of the Alaska Department of Natural Resources Division of Oil and Gas and director of the state Division of Geological and Geophysical Surveys.

Myers said there are two possible ways to get a rig to the area. One is for the state to pay for half of the cost of transporting a rig to and from the inlet up to $6 million, he said. The second scenario is for the state to purchase a rig. Either way, there would need to a commitment from oil companies in the form of a contract to use the rig, he said.

Wagoner said for the amount of money it would cost for rental and transportation of a rig, it may make sense for the state to purchase one.

Transporting the rig would cost about $12 million and purchasing one would cost between $40 million and $50 million, Myers said. If one was purchased, a state corporation would be set up to run it, he said, adding its operation would be contracted out to a private company. Oil companies would lease it from the state corporation, he said.

"It's got to make good business sense," he said.

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