In just a few hours on Wednesday morning, the state of Alaska made almost $7 million.
The source: the sale of Cook Inlet Oil and Gas leases.
Ever since oil was discovered in the Kenai Peninsula in the 1950’s, lease sales have become a much anticipated event, because it gives the state a snapshot of the industry.
As workers with the State Division of Oil and Gas opened the envelopes with bids from producers at the Dena’ina Center in downtown Anchorage on Wednesday morning, many were anxious to see what this year’s sales would reveal.
There were no surprises on Alaska Peninsula leases that were also up for sale. There were no takers at all. And there haven't been any bids on those leases for a number of years.
But on Cook Inlet offerings, 44 tracts were sold, encompassing almost 198,000 acres.
The bids brought in $6,865,835, which Tim Bradner, a longtime industry observer, called “modest bidding.”
Bradner, who writes for business publications like the Alaska Journal of Commerce, says the tracts with the highest bids are near areas with existing production, which suggests that the bidders are not necessarily moving boldly, but proceeding with caution.
Also, this year’s sales pale compared to last year’s, which set a record for the highest bidding since 1999. In 2011, the state sold almost $11 million in leases for about 600,000 acres of land.
Even so, Bill Barron, director of the Division of Oil and Gas, was pleased with Wednesday’s bids, which he says rank as the second highest Cook Inlet lease sale since 1999.
Until recently, Cook Inlet was considered a declining oil field, but now is showing signs of a turnaround.
Some like Rep. Mike Hawker, R-Anchorage, credit the Cook Inlet Recovery Act, which was signed into law two years ago. It provided tax breaks and other incentives to stimulate production.
“There’s a real lesson for the way we manage the North Slope,” said Hawker, who was one of the architects of the legislation. “The Cook Inlet is showing that we can, in this state, create a resurgence of oil and gas development, even in a declining basin.”
Hawker says he’s not disappointed that lease sales dropped this year from 2011. He says the acreage leased on Wednesday marks a different kind of milestone for Cook Inlet oil and gas development.
“What we’re seeing in the Inlet is a transition from an industry that was dominated by the major players, to one that is dominated by a second tier of more aggressive, more nimble explorers and developers.”
The three main bidders this year are Hilcorp Alaska, Apache Alaska Corporation and Cook Inlet Energy, which are actively engaged in working their leases, a reassuring sign, says Hawker.
“If anything, it’s a commitment of these companies to fill out their portfolios, to consolidate their investments.”
But Hawker is not entirely happy. He says the main goal of the Cook Inlet Recovery Act was to stimulate natural gas production. But instead, companies are more focused on oil.
“It’s important to note they’re really not after gas plays, and that’s something of concern to this community -- that we have an adequate and predictable supply of gas,” said Hawker, who says the gas is needed to provide Southcentral Alaska longterm energy security.
Hawker believes the answer might be to develop an export facility for natural gas in Cook Inlet, to make it easier for producers to market gas beyond alaska, which will give them more incentive to develop the resource.
Another shadow on the horizon is a lawsuit filed this week by several environmental groups and the Chickaloon Native Village. It seeks to revoke Apache Alaska Corporation’s permit to explore for oil and gas in Cook Inlet.
Apache has about 800,000 acres and is one of the largest lease holders. The environmental groups object to Apache’s plans to conduct seismic testing to explore for oil.
“Seismic testing is basically a series of very loud noises,” said Rebecca Noblin, the Alaska director of the Center for Biological Diversity. “As we’re adding more activity to the Inlet, it’s putting more and more stress on belugas, and on fish, and on marine mammals.”
The lawsuit seeks to protect a dwindling population of about 280 belugas. Noblin says that seismic testing interferes with their hearing and ability to communicate, as well find prey.
Apache hopes to demonstrate that it can develop its prospects without harming the whales.
Lisa Parker, a representative of Apache Alaska, says the company plans to conduct aerial surveys before it operates in the water, to make sure there are no belugas nearby. She says, if whales are spotted, work will come to a halt.
Parker says Apache also has observers on board its exploration ships -- on the lookout for belugas and other marine mammals.
Cook Inlet oil production does have one thing in common with the belugas. It’s been in decline for a long time.
“Today, it’s at 10,000 barrels a day,” says Parker who says that’s a fraction of Cook Inlet’s historic highs of 227,000 barrels a day.
“But we believe it’s still to be found. And that’s why we’re there.”