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Cook Inlet leaseholder is in default

Jill Burke

The state of Alaska wants natural gas in Cook Inlet developed posthaste and is no longer in the mood to wait around for companies to make good on good intentions. Just ask Escopeta Oil, which Monday received a default notice from the Alaska Department of Natural Resources on leases held in an area of Cook Inlet known as the Kitchen Unit.

Escopeta failed to seek permitting to drill this year and to mobilizing a jack-up rig to the site, violating the terms of the company's Plan of Exploration under the lease agreement, according to the state.

Escopeta had originally pledged to drill in 2007, but has sought and received two extensions on its performance obligations. This year, it again wanted to push its obligations back, but the state said no. With its new incentive program in place, which offers to reimburse the first companies to successfully drill new wells up to $25 million, interest in Cook Inlet is high, according to DNR. "Several new companies have expressed a strong interest in Cook Inlet leases. It is in the State's interest to maximize competition among parties seeking to explore for and produce oil and gas," the default letter states. "It is not the state's interest to unconditionally approve work obligation delays that simply prolong unitization and result in lease warehousing with no exploration and development."

The company told the state more than $32 million had been spent thus far preparing to tap gas in the Kitchen Unit. But the state believes Escopeta's share of that is more in the neighborhood of $2.6 million. Regardless, Escopeta's only hope of salvaging its investment is to comply with three demands: Fork over $4 million by October 19, 2010 as a security deposit, prove by Feb. 28, 2011 that a drill rig has made its way to Cook Inlet, and drill an exploration well by Sept. 30, 2011.

Contact Jill Burke at jill(at)alaskadispatch.com.