State officials said a Cook Inlet lease sale held Jan. 9 had modest results but has reaffirmed industry interest in an area where new natural gas is being discovered and where there Is deeper oil potential.
It could also help ensure there is more competition in producing and selling gas to regional utilities. Currently Hilcorp Energy is the major Inlet gas producer and supplier, raising concerns of a potential monopoly.
Three small independents submitted bids in an online competitive, winning rights on eight state oil and gas tracts covering 21,268 acres.
“It is gratifying to see this renewed bid activity in Cook Inlet lease sales from both established operators and a new entrant,” Sara Longan, Deputy Commissioner for oil and gas at the Department of Natural Resources, said June 10.
The state received $451,495 in bonus bids offered by Furie Operating Alaska, LLC and HEX LLC, which are affiliated, along with a third company, Strong Energy Resources LLC.
Furie is the operator of the Kitchen Lights unit in northern Cook Inlet and is a current gas producer. The acreage acquired by the company is near its current leases that are producing gas.
HEX recently acquired majority working interest in Furie but also bid separately on other prospects in the sale, including onshore Kenai Peninsula tracts.
Strong Energy is new entrant in the Cook Inlet region, but its owners have previously been engaged in exploration the Inlet, according to state officials.
The Inlet sale is part of the state’s program of offering “areawide” lease sales annually in both Cook Inlet and on the North Slope. In an areawide sale all unleased tracts in a large regional area are put up for bid.
The lease sale results, though modest, provide evidence that industry is responding to the state’s practice of holding lease sales at regular, predictable times, Longan said.
All the lease sale tracts receiving bids had been leased in the past and are located near existing oil and gas development. Proximity to nearby pipeline and platform infrastructure will facilitate new exploration and development, she said.
Four tracts covering 3,400 acres are adjacent to the Kitchen Light Unit, which is also controlled by Furie and HEX, and the Julius R production platform and pipelines that take gas to shore. HEX is currently producing about 15 million cubic feet of gas per day through the Julius R platform, according to company CEO John Hendrix.
Although Kitchen Lights is currently a gas play exploration wells have confirmed the presence of oil at deeper intervals. Furie has plans for testing the oil potential but delayed those tests while the company focused on building the production platform and pipelines.
Hendrix said HEX also acquired an onshore tract comprising 5,760 acres in the onshore North Fork Unit, a small onshore gas field on the Kenai Peninsula, on Cook Inlet’s east side.
An additional two tracts covering 5,750.28 acres onshore and offshore were awarded to HEX near the existing Birch Hill gas field on the peninsula.
Cook Inlet is a mature oil and gas producing basin where Alaska’s first commercial petroleum discoveries were made in the late 1950s. Large gas discoveries were made in the 1960s and 1970s, and producing fields discovered then supply gas for space heating and power generation to communities in Southcentral Alaska where half of Alaska’s population resides.
Gas production has declined in recent years, however, which has led to concerns about supply to local communities and efforts by the state to stimulate new exploration. Furie has been among the more active small companies doing exploration.
Hilcorp Energy, the major Inlet producer, is also exploring did not bid in the Jan. 9 sale. The company is busy developing new onshore gas discoveries on existing leases on the Kenai Peninsula.