Following bankruptcy, Cook Inlet Energy plans exploration well

An independent oil and gas company that has risen from the ashes of bankruptcy plans to explore an area in western Cook Inlet using a jack-up drilling rig in waters that are visited by endangered beluga whales.

Cook Inlet Energy, now owned by two private equity firms that picked up the oil company after the bankruptcy, plans to drill a single exploration well starting in April about 3 miles off the coast in Trading Bay, according to an application filed with the U.S. Army Corps of Engineers. It's called the Sabre Project.

The company is a subsidiary of Glacier Oil and Gas, a Tennessee-based firm formerly named Miller Energy Resources before its bankruptcy and reorganization a year ago. It's now owned by affiliates of Highbridge Capital Strategies and Apollo Global Management, New York firms that saw opportunity in the struggling company.

Carl Giesler, chief executive of Glacier Oil and Gas, said Thursday that the Sabre Project would open up a new geological structure in Cook Inlet to development if the company finds commercial quantities of oil or gas.

"The target looks attractive," he said.

The company's April start date is a best-case scenario, he said. The timeline will ultimately be dictated by the permitting process. The company is working with state and federal agencies to operate in an area designated as critical habitat for beluga whales.

"This is still in the preliminary stages," he said. "We're making sure we dot our i's and cross our t's."

Cook Inlet witnessed a resurgence of oil and gas activity in recent years after the state's tax credit program paid up to 65 percent of exploration costs, attracting explorers.

With the state facing massive budget deficits sparked by low oil prices, lawmakers last year agreed to begin phasing out the Cook Inlet incentives starting in January, essentially cutting them in half before eliminating them in 2018.

Giesler would not discuss tax credits.

Bob Shavelson, executive director of watchdog group Cook Inletkeeper, said the company's original oil-spill plans contained insufficient information to adequately address spill response from the Sabre prospect, leading the Alaska Department of Environmental Conservation to seek significant new information.

"The first spill plan to the state had very cursory information, and that raises fairly significant concerns," he said.

[State agency proposes $771,000 fine against a Cook Inlet independent over unplugged wells]

The state agency approved the amended plan on Friday.

Mike Evans, a DEC regulator, said the approval from the agency is not permission to drill. It does, however, restrict drilling to between April 15 and Oct. 31 to avoid ice that can begin forming in late November.

The DEC permit was approved because Cook Inlet Energy showed it has the personnel, equipment and procedures to clean up a spill lasting 15 days. The Alaska Oil and Gas Conservation Commission will address specific details of the company's plan to prevent and stop a blowout at the well, Evans said.

Evans said the company's initial spill plan relied heavily on a response from the nearby Osprey platform it owns, an approach that didn't raise red flags with him because the required resources are generally the same. However, the new information is more clear, allowing for easier public review.

Cook Inlet Energy plans to drill the Sabre exploration well in state waters, using the Spartan 151 jack-up rig raised on three 250-foot truss-type legs, with a main deck half the size of a football field.

Plans call for drilling the well to a depth about 2 miles beneath the seafloor. The well will be drilled in about 40 feet of water. The company must acquire roughly a dozen permits from state and federal agencies.

Authorization from the Army Corps is required under the Rivers and Harbors Act because of risks to navigation from the project, such as work associated with a 30-inch-wide pipe that will be driven into the seafloor and structures such as the rig's legs. The Corps launched a monthlong period to receive public comment through Jan. 30.

One permitting agency with oversight will be the National Marine Fisheries Service, in part to protect animals under the Endangered Species Act. Endangered belugas swim through the proposed drilling area but have been observed there only sporadically in fall and winter, a NMFS official said. Observations indicate the whales don't visit the area in spring and summer.

Activity at the well will be minimal during fall and winter, according to the application, submitted in October.

The company "does not intend to harass or disturb" listed endangered or threatened animals and will shut down operations if observers spot those animals in the area, the application says.

The drilling effort is expected to take 70 days, with about 25 people working on the rig. The rig will be equipped with a blowout preventer stack to minimize the potential for an oil or gas blowout.

Before well-drilling begins, an impact hammer will be employed in an effort to drive the 30-inch pipe to about 140 feet. That will create a noise that could cause "behavorial disturbance" in animals such as harbor seals that are not listed under the Endangered Species Act, the application says.

The hammering is expected to last one or two days.

"We need to drill responsibly," Giesler said.