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BlueCrest accepts Cosmopolitan conditional POD with comments
Kristen Nelson Petroleum News
BlueCrest Alaska Operating President John Martineck notified the state Dec. 19 that the company accepts the conditional approval of the Cosmopolitan unit plan of development issued by the Alaska Department of Natural Resources' Division of Oil and Gas on Dec. 9. (See story in Dec. 15, 2024, issue.)
He provided extensive comments on the division's decision, to which the division responded Dec. 31.
Martineck said that after several large companies failed to find economic methods to develop Cosmopolitan, where oil was first discovered in 1967, BlueCrest developed a specialized technique, vertical open hole fishbone drilling, which allowed it to produce the Hemlock and Starichkof oil zones, "and a similar fishbone concept is now being employed in locations elsewhere around the world."
He itemized the work BlueCrest has completed since 2013 when it drilled the Cosmopolitan State 1 confirming oil in the Hemlock and Starichkof zones, with more than $450 million spent to date.
Along with developing oil at Cosmopolitan, BlueCrest also discovered the Tyonek gas zones and Lower Tyonek oil zones.
Progress wanted by state The division wants progress in two areas: drilling of an additional oil well and development of the gas, which will require a platform.
On gas development, Martineck said BlueCrest has acquired "critical long-lead-time permits" for that development and is working with the U.S. Army Corps of Engineers on the Clean Water Act Section 404 permit.
But there is no current market for a Cosmopolitan-sized gas supply, estimated at producing some 20 billion cubic feet per year over multiple years, he said, with local utilities having told BlueCrest that Tyonek gas sales would not be required to meet local demand until January 2030.
The division also said BlueCrest has not shown good faith in working with the Alaska Industrial Development and Export Authority on securing a loan. Martineck said BlueCrest has been working with AIDEA on the newly created reserves-based loan program but said it would have been premature to submit an application as the program was just enacted and the Legislature has not appropriated funds. He said BlueCrest will submit the application in January 2025, a submittal which it expects to see reflected in AIDEA's required report and request for funding to the Legislature, due Jan. 21, 2025.
Related to the issue of the new oil well is the division's requirement that, lacking the new oil well, BlueCrest submit an application to contract the Starichkof Sand and Hemlock Formation participating area to the drainage area of existing wells.
BlueCrest is requesting a nine-month extension of the contraction, providing the company time to secure funding, drill the H-10 and put it onto production.
Division response On the issue of lack of a market for production from a major new gas development, which would be the case with Tyonek, division Director Derek Nottingham said in the division's Dec. 31 response that Hilcorp has filed with the Regulatory Commission of Alaska to operate natural gas storage facilities at its Kenai gas field, and with a storage capacity of 38 bcf, that facility would provide adequate storage for Tyonek output.
On the issue of Tyonek development, he said that BlueCrest had committed to begin gas production by the end of the second quarter of 2027 and noted that Enstar told legislators in early December that there would be a deficit from current gas production by 2028, but development of known accumulations could push off the deficit until 2032.
In response to BlueCrest's request for an extension on the contraction date for the Starichkof Hemlock PA to Sept. 30, 2025, he said that in its 2025 proposed POD, the company committed to drill the H-10 oil well and told the division that six to 10 months would be required to bring the well on production after funding for the work was secured, requiring funding no later than June 30, 2025. If BlueCrest is unable to secure funding, Nottingham said the company would be required to apply to contract the PA to the current well drainage. BlueCrest is to provide a technical presentation to the division by June 30 to justify the current boundary of the PA.
He also said the company needs to bear in mind that the definition of a PA is the area actively contributing to production, and contraction "does not involve either disputing or refuting" the developed or undeveloped reserves in the area.
--KRISTEN NELSON
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