Cook Inlet Lease Sales Reflect Renewed Interest In Oil

     The state of Alaska leased nearly 150,000 acres to oil and gas developers in a sale Wednesday. The sale represents a continued interest in development in Cook Inlet that could focus on oil drilling in the coming years.

     Hilcorp was the big bidder Wednesday, picking up 19 tracts totaling more than one hundred thousand acres at a price of $2.6 million. The past three years have seen a surge of interest in Cook Inlet. 2011 and 2012 were both record years for oil and gas lease sales, and that interest continues.

     “These leases are getting more expensive, but the industry is also saying they’re willing to invest in leases to be able to further develop this…potentially rich basin,” said Bob Pawlowski, the Legislative and Policy adviser for the Division of Oil and Gas.

     In all, the state received nearly $4.5 million in high bids for Cook Inlet. Of the 28 tracts companies put bids in for, 17 are on the southern Kenai Peninsula in the West Eagle unit just east of Anchor Point. Pawlowski says incentives developed by lawmakers have made Cook Inlet more attractive.

     “The legislature, in the past, passed some Cook Inlet incentives that have allowed drill rigs to come in and do surveying and seismic (testing). The utilities have seen the need for getting more natural gas to keep a stable energy source for the rail belt, and oil is still a very productive commodity,” he said.

     There’s been a scramble the past few years to get enough natural gas to market to serve south central Alaska. But companies that have shown up recently, like Hilcorp, are gearing up for the potential for more oil production.

     The wells they want to drill near Ninilchik are the first new wells on the Kenai Peninsula in decades.

     That renewed interest in producing oil on the Kenai Peninsula is raising the eyebrows of environmental watchdogs. Cook Inlet Keeper’s Bob Shavelson says that while onshore development is preferred, like what Hilcorp plans to do this year, getting oil out of the ground in a populated area presents unique challenges.

     “The thing that’s…surprising a lot of Alaskans, particularly people on the Kenai Peninsula, is that the state offers every year, roughly 4.2 million acres of our lands for oil and gas leasing.Oil and gas development (is) coming into more populated areas, and you’re seeing some conflicts between the different uses that we want to have in those areas. You don’t see those things, for example, on the North Slope,” he said.

     Shavelson’s other big concern with onshore development is the quick turnaround time for granting permits. It takes about a week for the state to review a company’s fish habitat permits, less than two weeks to complete the coordinated review process. He says the process is driven by politics and permits are “rubber stamped without any real scrutiny”.

     Not every tract that was leased will be developed for oil and gas production, though. The state sold its first geothermal lease on Augustine Island. The last time the state leased land for that potential energy source was in 2008.