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Inlet upstart shows promise: Cook Inlet Energy continues oil, gas development plans

Posted: Wednesday, September 22, 2010

A new independent oil producer operating on the west side of Cook Inlet is reporting that it's on track with production goals and has big plans for the future.

That came from Anchorage-based Cook Inlet Energy LLC Chief, David Hall, who presented to the Alaska Industry Support Alliance, an industry trade group, on Tuesday in Kenai.

The comparatively small and locally based company is a guinea pig of sorts for what many consider to be the future of operations in the inlet.

CIE is a wholly owned subsidiary of Tennessee-based Miller Petroleum Inc.

In December 2009 CIE purchased assets abandoned by financially embattled Long Beach, Calif.-based Pacific Energy Resources, including the West McArthur River Unit, the West Foreland gas field, the Kustatan Production Facility, the Osprey Platform, the Redoubt Unit, a 30-percent interest in Aurora Gas's Three-Mile Creek field and more than 600,000 acres of exploration acreage in Southcentral.

Hall has said in the past that the company's main goal for this year has been to restore production at its onshore facilities, specifically at the West McArthur River Unit and its Kustatan Production Facility.

The company currently has six producing wells online and is producing about 1,000 barrels of oil per day.

He said the company would continue to develop the "West Mac," as it's referred to, reworking existing wells on-site with the possibility of new drilling activity in the future.

In 2011 however, he said the company plans to begin work to restore operations on the Osprey Platform, the newest platform in the inlet built a decade ago.

The Osprey, located off of the West Forelands, sits in 60 feet of water and pumped out 4,850 barrels of oil per day at its peak. It's been in lighthouse mode since it was shut-in in April of 2009.

"It's not just the flip of the switch and off we go," Hall said, explaining what it would take to bring the platform back online. "The Osprey platform needs some pretty major capital expenditures."

He explained that there are six oil producing wells on the platform, all of which will need some work and four of which will need to be redrilled.

On top of this, Hall said the company is looking to purchase a drill rig for the platform.

"We think it's going to be pretty critical, not only as we restore base production by getting these six wells online, but there's many other wells on the Osprey Platform that we think are viable to drill," he said. "Before we launch into spending that amount of capital we want to make sure that we totally understand the failures to those wells."

He estimated that to get the platform back up and running could cost $30 million to $35 million.

Those are dollars that will have to be raised through outside investments.

So far, he said CIE has spent about $11 million in capital expenditures to date this year.

Currently they're operating on a production based cash flow of $1.5 million a month coming out of West Mac, but Hall said that securing investments is easier now than it was even a year ago.

"A year ago nobody would even talk to you," he said. "Now days we've got banks competing over us."

Additionally, Hall said his company is positioning itself to become a gas supplier for Southcentral in the future.

"Compared to the Lower 48, gas is not so appealing," he said, noting that the price of natural gas is lower Outside.

He explained that in Alaska gas fetches a premium comparatively though, and with possible shortages for the region on the horizon, Hall said he thinks his company can be ready to provide.

"We want to look at all those possibilities from drilling a conventional gas well to gas storage to even underground coal gasification," he said.

"There's several companies that have that technology and we have some acreage that we think might be amenable to that type of extraction."

Hall said his company's challenges aren't limited purely to finances and oilfield technicalities either.

While Hall said that he believes small independents like his company are the future of the Inlet, he said the state still needs to catch up.

"One thing that would really help is that the state needs to change their mindset and start catering to the independents," he said. "Right now everything is tailored to the big major companies."

This is particularly important for abandonment requirements, he explained, which pressure small companies like his to chose between long range planning and a short term need to keep operations producing.

Another is royalty rates, specifically he noted for the Osprey, which are set to rise for the asset in 2012.

Dante Petri can be reached at dante.petri@peninsulaclarion.com.



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