Cook Inlet oil production up 25 percent

Cook Inlet oil producers have boosted output 25 percent in the last year, data from the state Department of Natural Resources indicates.

Production averaged 16,288 barrels per day in the first half of 2014 compared with 13,087 barrels per day in the same period of 2013.

Information from the Department of Revenue, which also tracks production, shows a similar growth trend, with an average of 15,800 barrels per day in fiscal year 2014 that ended June 30, compared with 12,200 barrels per day in the previous fiscal year.

In fiscal year 2010, production in Cook Inlet was 8,900 barrels per day after five years of decline from 20,300 barrels per day in fiscal year 2005, according to the Revenue Department data.

Alaska Natural Resources Commissioner Joe Balash credited the growth to increased investment by Inlet oil producers, mainly independents Hilcorp Energy and Cook Inlet Energy. The two companies have been drilling new wells and upgrading platforms acquired from others.

“Increased capital investment in the Cook Inlet fields has yielded higher employment and increased oil royalty revenue,” Balash said in a statement.

The increase in activity has also led to new natural gas reserve additions, providing energy security for electric and gas utilities in the region and allowing ConocoPhillips to restart the idled LNG export plant near at Nikiski.

Because virtually all Cook Inlet oil is sold to Tesoro Corp.’s refinery near Kenai, the increased production helps maintain the viability of that plant, which produces most of the gasoline in the state as well as jet fuel and diesel.

The increases in production have also allowed the state to phase out reduced royalties that were granted for some of the Inlet’s aged platforms. The reductions were granted under a program that allows reduced royalty when platforms are near their economic limit of production.

The Monopod Platform in the Inlet, operated by Hilcorp, has increased to 2,900 barrels per day, up from 820 barrels per day in the first quarter of 2013. The Osprey platform, operated by Cook Inlet Energy, saw an increase from 226 barrels per day to 1,221 barrels per day in the same period.

As a result, state royalty rates were increased from a reduced rate of 10 percent to the normal 12.5 percent on the two platforms. The full royalty is 12.5 percent on most state oil and gas leases.

The combination of increased production and higher royalties being paid have increased Alaska’s royalty collections from $14 million in the first half of 2013 to $24.9 million in the first half of 2014, an increase of nearly 78 percent.

Cook Inlet oil and gas fields have been producing since the 1960s and 1970s and the current renaissance is typical when new companies, particularly independent companies, enter a producing basin that was pioneered and initially developed by large oil companies.

Over time, as production declines, the large companies find the remaining oil in the region to be unattractive compared with other, larger opportunities elsewhere, and tend to move on.

Independent companies like Hilcorp, which specialize in taking over mature producing fields and aggressively redeveloping them, typically buy the producing assets.

In Cook Inlet, Hilcorp purchased assets of Chevron Corp. and Marathon Oil Co. Cook Inlet Energy, a subsidiary of Miller Energy Resources of Tennessee, bid on and took over the bankrupt assets of Pacific Energy, which was operating the small Osprey platform and onshore wells on the Inlet’s west side.

Another major independent, Apache Corp., is exploring on its own in the inlet with a major seismic program and one exploration well drilled so far.

Oil and Gas Division Director Bill Barron echoed Balash’s comments: “Increases in production from mature fields are not possible without significant investment by the operators,” he said.

Tim Bradner is a reporter for the Alaska Journal of Commerce. 

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