Modest results in latest Cook Inlet oil and gas lease sale; Concerns over declining natural gas, needed for fuel

Hilcorp Alaska, subsidiary of Houston-based Hilcorp Energy, was the sole bidder in Alaska’s 2025 annual “areawide” sale of Cook Inlet unleased state-owned acreage. Hilcorp is the major oil and gas producer in Cook Inlet.

Exploration in Cook Inlet is being watched closely because of pending declines in natural gas production, which will affect fuel from Enstar Natural Gas Co. for space heating and power generation from Matanuska Electric Association.

Results of bidding, which was done online, were posted by the state Division of Oil and Gas on its website June 11. Hilcorp bid on five tracts in the region, three onshore and two offshore, all located near areas where Hilcorp is producing natural gas.

Bids totaled $872,071 on the 21,801 acres bid on by Hilcorp, or about $40 per acre. The state Division of Oil and Gas will formally convey the tracts later.

Cook Inlet has attracted only modest interest in recent years for both oil and gas in recent years mainly from companies already established and producing the region, so only five tracts bid on in 2025 bidding is not surprising.

There have been state areawide sales in the Inlet that have attracted no bids. There have been similar results with federal Outer Continental Shelf leases sold in Lower Cook Inlet in past years. The lackluster bidding reflects the industry view that significant new discoveries are unlikely in the region, which is a mature producing area where exploration began in the late 1950s and production began in the 1960s and1970s.

The modest bidding is a concern for state leaders and local communities because Cook Inlet gas supplies are being depleted and regional utilities are planning to import liquefied natural gas to augment supply for power generation and space heating.

For the 2925 sale, two onshore leases bid on are northeast of Anchor Point on the lower Kenai Peninsula south of Anchorage near the small North Fork gas field. Hilcorp is now exploring for additional gas in the area. Hilcorp acquired North Fork earlier this year from Louisiana-based Gardes Holdings, which was struggling to raise funds for new drilling.

Hilcorp spokesman Matt Shuckerow said in a statement that the company is looking to drill new wells as soon as this winter.

“Hilcorp is excited about the opportunity to further develop the North Fork Unit — a field that is largely undeveloped but shows potential for new production,” Shuckerow said. North Fork is connected with 7-mile pipeline to an Enstar Natural Gas pipeline on the Kenai Peninsula.

North Fork was discovered originally by Standard Oil Co. of California in 1965 but not developed and produced until recent years. Hilcorp is also active in drilling other small gas deposits in the area such as at Whiskey Gulch, about three miles northeast of Anchor Point.

Two other tracts bid on are offshore, and just off the west shore of Cook Inlet and north of the producing Ninilchik gas field, which Hilcorp owns and operates.

One other tract bid on is onshore on the west side of Cook Inlet and near the small producing Nicolai Creek gas field also owned and operated by Hilcorp. Texaco discovered this deposit in 1966 but it has been developed and produced only in recent years. Hilcorp is also working to further develop another small gas field at Pretty Creek, also on the west side of Cook Inlet.

Cook Inlet still produces modest amounts of crude oil from platforms still operating in the Inlet. Several platforms that operated in the flush days of the Inlet are shut down and some of the others, while still producing, are marginally economic.

The state Division of Oil and Gas has developed several incentive programs to stimulate bidding in lease sales including a net profits royalty in lieu of the traditional state royalty based on gross revenues. So far the incentives do not seem to be particularly productive, and an exploration tax credit program that included cash payments to explorers was discontinued in 2017 mainly due to its costs.