State will offer special lease sale in Cook Inlet in coordination with planned federal OCS lease sale

The state of Alaska is planning a special Cook Inlet oil and gas lease sale late this year to coincide with a federal sale planned in adjacent Outer Continental Shelf waters in the lower Inlet. A formal notice of a special lease sale will be published later this week, by Oct. 28, a state official said.

The U.S. Bureau of Ocean Energy Management, or BOEM, published its Final Environmental Impact Statement Oct. 20 for federal Lease Sale 258, taking a step toward a Record of Decision and a notice for the sale 30 days before it is to be held.

“We will be offering a special State Cook Inlet lease sale at the end of the year to coincide with the federal sale for the benefit of potential bidders,” Alaska’s deputy state resources commissioner John Crowther said. Putting up more acreage for explorating is part of an effort to encourage more industry interest in the region, he said.

Natural gas reserves in south Alaska producing fields have been in a long-term decline and Hilcorp Energy, the major Cook Inlet gas producer, has warned regional utilities it may not be able to meet long-term demand from existing fields. To counter that the state wants to see more exploration because the Inlet is thought to have potential for substantial new gas as well as oil.

BOEM had earlier pulled the lower Inlet sale off the OCS schedule, citing a lack of industry interest, but Congress ordered the sale to be rescheduled and held as a part of the federal Inflation Reduction Act passed earlier this year. The state has also been plagued with tepid responses from companies in its annual offerings of state Cook Inlet acreage in sales of unleased acreage, with offers from only one small independent company for two tracts in a sale held last spring.

By offering larger amounts of acreage in both federal and state acreage the hope is to attract more bids because geologic plays often extend across the boundary between state and federal-owned lands. A similar strategy has been followed on the North Slope in the past with simultaneous sales of state lands and adjacent federal National Petroleum Reserve-Alaska acreage along the Colville River.

BOEM is proposing to offer OCS lands in the lower Inlet from Kalgin Island in the north to Augustine Island in the south, and in water depths ranging to 260 feet. The state-owned tracts are from the state three-mile territorial limit to shore on either side of the OCS tracts in the middle of the Inlet and in north Cook Inlet from Kalgin Island north, where there is existing oil and gas production from platforms mostly built in the 1960s and 1970s.

The state will basically make available all unleased offshore lands in Cook Inlet similar to its annual “areawide” lease sales. In its announcement BOEM said the preferred alternative in the final EIS would offer for lease 193 unleased OCS blocks, or approximately 387,771 958,202 acres, while deferring the 17 OCS blocks that wholly or partially overlapping beluga whale and northern sea otter critical habitats.

BOEM would also apply additional mitigation measures to reduce potential impacts on a commercial salmon fishery important to local communities, the agency said.

Crowther, with the state DNR, took a poke at the Biden administration for its reticense to offer the Alaska OCS sale. “While we appreciate announcement (by BOEM) ib finally taking a step forward to offer federal resources in Cook Inlet for lease, it took a literal Act of Congress to advance this sale after repeated delays and cancellations. To explore and develop any leases in these federal waters, the State of Alaska needs recognition from federal managers and permitters that Alaskans require access to these energy resources,” Crowther said in a statement.

It’s not clear that the effort to induce more exploration will work, however. Substantial acreage is offered yearly to companies in the scheduled state sales and BOEM’s periodic solicitation of industry interest in the Inlet’s OCS has brought little response. The main problems are high costs in drilling the Alaska offshore particularly in the deeper OCS waters and the small market for natural gas, which is mainly with regional utilities.