By McKibben Jackinsky AND MICHAEL ARMSTRONG
“It’s great being in Homer again,” said homeboy John Hendrix in his opening remarks at last week’s Industry Outlook Forum.
That was just one of the hats the 1975 Homer High School graduate was wearing Thursday evening. Hendrix also is the general manager of Apache Alaska Inc., an oil and gas company that, with more than a million acres, is “the largest acreage holder in Cook Inlet,” he told forum participants.
Hendrix and representatives from Buccaneer Energy, Cook Inlet Energy and Hilcorp Energy gave updates on current oil and gas activities and plans for the future in Cook Inlet and the Kenai Peninsula at the two-day forum at Land’s End Resort, hosted by the Kenai Peninsula Economic Development District.
Hendrix led off with the keynote address at last Thursday’s dinner.
In Cook Inlet and the Kenai Peninsula, independent oil and gas companies have jump started a resurgence in exploration and production. From the upper inlet to East End Road, small companies have been taking a second look at prospects, some of them dating back to territorial days, like the Swanson River fields.
“Anchorage is a little jealous of what’s happening down here,” said J.R. Wilcox, president of Cook Inlet Energy.
“It’s an extremely good market for oil and gas companies, (with) good commodity prices for gas and oil and good incentives the state has put to come in,” said James Watt, president of Buccaneer Alaska.
“There’s a lot of opportunity in the inlet,” said John Barnes, senior vice president of Hilcorp Energy. “It’s all hard work. That’s my common theme.”
Wilcox, Watt and Barnes spoke last Friday morning, adding to what Hendrix said to give a snapshot of what they’re up to and what the near future holds.
“Alaska has a tremendous resource base. We need, as Alaskans, to depend upon it to go forward into the future,” said Hendrix.
Comparing the Homer in which he grew up to the Homer of today, he continued, “There were 800 people. It didn’t take much to support an economy of 800 people. Our fathers and grandfathers did multiple jobs to make it work. Now there’s a bigger population base. We need to reach out, access that resource and aggressively and responsibly develop it. That’s what Apache is about. That’s what a lot of players on Cook Inlet are about. We know we have to do things right.”
Hendrix talked about the founders of Apache — Truman Anderson, Raymond Plank and Charles Arnao — and their commitment to “making a small difference in people’s lives.” He linked that with the need to keep the public informed of the company’s plans before they happen “so you’re not questioning us after we move.”
Although Apache drills for oil, Hendrix said about 50 percent of the company’s income stream is from gas.
“So, we think we can be part of the solution to the natural gas problem,” he said, referring to a predicted shortfall of natural gas for Southcentral Alaska by 2014.
Using three-dimensional seismic, the company hopes to “responsibly identify” subsurface hydrocarbon-containing upthrusts and pinpoint the most promising areas for exploratory drilling. An inability to get the necessary permits for seismic work in the Ninilchik area brought a halt to that part of the company’s efforts last year.
“There’s a lot of good, positive things happening in Cook Inlet,” said Hendrix. “We just have to have the permits to run.”
Looking ahead, Hendrix said Apache Alaska’s plans for 2013 include producing from its first well, interpreting acquired seismic data, identifying new exploration well operations and securing permits to resume seismic activities.
Through the company’s community outreach, it held the Apache Rainbow Challenge that raised more than $40,000 for the Tustumena 200 and made contributions to the Homer Playground Project and the Pratt Museum.
“We want to be part of the community,” said Hendrix. “I want to continue to make Alaska my home and do what I know how to do: find oil and gas.”
He invited the public to contact him or Lisa Parker, manager of government relations for Apache Alaska, with questions.
“We have to have our hands on the pulse at all times,” he said. “This is not an easy environment to work in. We’re always getting criticized, but there are a lot of people out here that know how to work responsibly and can get the job done.”
Buccaneer Alaska, a subsidiary of Buccaneer Energy, is the most visible company on the lower Kenai Peninsula, if only for the 410-foot jack-up rig, Endeavour-Spirit of Independence, which has been moored at the Homer Deep Water Dock since late August.
James Watt, president of Buccaneer Alaska, said that the Endeavour is expected to move to the Cosmopolitan lease site off Anchor Point in early March and start drilling a gas well. Buccaneer still has to get American Bureau of Shipping and U.S. Coast Guard certificates to move the rig.
That process has been slowed while Buccaneer gets technical drawings from Archer Drilling, its former contractor with Kenai Offshore Ventures on the Endeavour, Watt said. Buccaneer and Archer Drilling parted ways in December over a dispute over Archer’s performance in work on the rig. Archer also filed a $6 million lawsuit against Buccaneer seeking payment for alleged past-due bills.
Buccaneer has received a land-use permit to put legs down for the Endeavour at the Cosmo site, but still needs an Oil Discharge Prevention and Contingency plan, or C-plan, from the Alaska Department of Environmental Conservation. Last month, DEC sent Buccaneer Alaska a request for additional information it needs to process Buccaneer’s application for an amendment to its C-plan for another Buccaneer prospect, the Northwest Unit in Cook Inlet.
Watt said Buccaneer found a lot of work needed to be done on the jack-up rig when the Endeavour arrived in Homer after being moved across the Pacific Ocean from Singapore on a heavy-lift vessel.
“Safety’s first for Buccaneer,” Watt said. “The timing wasn’t as critical as getting it safe to work in Alaska waters.”
As part of the Industry Outlook Forum, on Thursday night Buccaneer sponsored a fireworks show on the Homer Spit.
“The fireworks would have been better if the rig actually left Homer,” Watt joked.
Purchasing the $68.5 million jack-up rig and moving it from Singapore represents a high-mobilization cost, Watt noted. The Endeavour will be used not just at Cosmo, but at the Northwest Cook Inlet prospect and the Southern Cross Unit in the central inlet.
“It became apparent to us that to be successful you have to have a multi-well program,” he said. “That’s what the Endeavour will allow us to do.”
Buccaneer had planned to start drilling at the Northwest Cook Inlet site last September, but because of the delays with the Endeavour missed a narrow ice-free drilling period. A proven structure, Northwest Cook Inlet has a resource potential of 220 billion cubic feet of natural gas, Watt said. Southern Cross, the Australian company’s name for the North Middle Ground Shoal petroleum feature, has about 15 million barrels of proved oil, Watt said.
“That size accumulation isn’t really of the size that moves the Chevrons, the Unocals, but for a company the size of Buccaneer, (it) moves,” Watt said.
Onshore, Buccaneer also has been drilling for gas at Kenai Loop No. 4 in Kenai near WalMart and plans to explore at the West Eagle site on Basargin Road off East End Road. Once permits are in place for West Eagle, Buccaneer plans to drill in mid-2013.
“Our focus here is really gas. Obviously, Southcentral Alaska needs gas,” Watt said. “We’ve defined our program to explore and develop for gas.”
Cook Inlet Energy
In contrast to other oil companies, Cook Inlet Energy is the local kid on the block. J.R. Wilcox, president of Cook Inlet Energy, is the first fourth-generation graduate of the University of Alaska.
He founded Cook Inlet with partner David Hall, chief executive officer, after buying the assets of Pacific Energy when the company went bankrupt in 2009. That was a bleak time, Wilcox said.
“You had the volcano (Redoubt Volcano) going off, Drift River (terminal) shut down,” he said.
When Pacific Energy shut down, Wilcox said his wife said things weren’t so bad, that he would find a job. He said, no, he and Hall were going to get some money and buy out Pacific Energy.
“It’s been a multiyear experience proving my wife wrong,” Wilcox said.
In some ways, working in Cook Inlet with independents has been easier than at a big oil corporation.
“Things happen fast,” he said. “You don’t have to do 14 PowerPoint presentations to get some insulation.”
At the Osprey oil platform on the West Foreland across the inlet from Nikiski, Cook Inlet Energy has been producing 1,000 barrels of oil a day using its Miller Rig 35.
“Our focus as a company was stuff we could drill quickly and get to market quickly,” Wilcox said.
One lesson Wilcox said he and Hall learned is that to be successful, independents needs to own their assets — something the other companies also said.
“We try not to repeat mistakes that sent your predecessors bankrupt,” he said.
Cook Inlet Energy also has permits to drill in the Susitna Basin, an oil and gas basin similar to Cook Inlet, Wilcox said.
“If we’re successful up there, we’ll put a new basin on the map in Alaska.”
Another Cook Inlet Energy project is building a pipeline across Cook Inlet to Nikiski.
“It was frustrating to stand on the deck of our Osprey platform and see Tesoro and not get our oil there,” Wilcox said.
That pipeline takes a circuitous route in shallower water to avoid an area where ships sometimes drag anchor and with lower tidal stresses.
Alaska could start looking like Texas, where 70 percent of the oil industry is small independent companies.
“The independents are the future for oil and gas in our state,” he aid. “We’ve been hitting the home runs, but we haven’t been hitting the singles. The ability for us to exploit the small opportunities is going to be critical for our economic future.”
Hilcorp Energy’s big news on Friday was an announcement that on Jan. 31 a $375 million acquisition of Marathon Oil’s assets in Cook Inlet had been finalized, with Hilcorp taking over operations on Friday of 10 oil and gas fields, 75 producing wells, and several pipelines. In his talk, John Barnes, senior vice-president of Hilcorp Alaska, gave that announcement barely a mention and focused more on other projects.
One big Hilcorp Energy is upgrading the Drift River Oil Terminal downstream from Redoubt Volcano. In the 2008 eruptions, lahars, or a mix of mud, ash and lava, washed over the top of an outer circle of dikes surrounding oil tanks, but did not breach an inner circle.
“People forgot the dikes worked,” said. “There was never a spill.”
At Drift River, Hilcorp is raising the dikes to 29 feet, with 15 feet of sheet pile on top of that. Barnes said the new system of dikes could withstand lahars from a future eruption.
In drilling projects, Hilcorp has two wells and two discoveries at a Happy Valley lease. Red Pad, a well at Nikolaevsk is in production and producing 4.4 million cubic feet of gas a day, Barnes said. In mid-December, Conam Construction finished a 10-mile pipeline along Tall Tree Avenue to the Kenai-Kachemak Pipeline, and started selling that gas to Enstar.
For this year, a focus is on Hilcorp’s Swanson River prospects, the field that started the oil and gas industry in Alaska before statehood.
“That’s pretty cool,” Barnes said. “It’s the oldest filed in Alaska.”
McKibben Jackinsky can be reached at firstname.lastname@example.org. Michael Armstrong can be reached at email@example.com.