Small Cook Inlet producer says it has funds for new drilling that can help avert gas crisis in the short term

A small Cook Inlet producer said Tuesday that it has secured financing to conduct drilling that should significantly boost natural gas supply in Southcentral Alaska, after the state had threatened to revoke the producer’s leases.

BlueCrest Energy said in a prepared statement Tuesday that the funding will help it advance drilling at its Tyonek gas resource in the Cosmopolitan unit on the Kenai Peninsula. BlueCrest already produces about 500 barrels of oil daily, after a decade of operation at the unit.

In a separate development last week, another gas producer, Hilcorp Alaska, said it has enough gas in storage to resolve a potential winter shortfall faced by Enstar, the natural gas company for Southcentral Alaska.

But providing that gas will require a restructuring of contractual terms between Hilcorp and the utility, an effort that raises complicated questions about gas prices and other issues, said Lindsay Hobson, vice president and general counsel with Enstar.

BlueCrest may not start producing natural gas until March, after much of the heavy winter demand for the gas that heats and powers homes has passed.

“I think that there are some positive developments on the horizon, but it’s too soon to say if we’re out of the woods,” Hobson said.

“We are certainly encouraged by the news around BlueCrest, and we absolutely hope that they are successful,” she said.

The developments could help the Anchorage region address, at least in the near term, a shortage of natural gas from Cook Inlet that has raised concerns of rolling blackouts, along with rising costs and conservation requirements for consumers.

BlueCrest’s announcement came weeks after the Alaska Department of Natural Resources threatened to revoke the producer’s state-issued leases at the Cosmopolitan unit, after it had not met requirements for drilling for gas.

The state had said BlueCrest needs to drill a well by April 2027, and the company needs to show it has the financial capacity to make it happen.

BlueCrest plans to meet that timeline, according to details in its statement Tuesday.

The company will be part of the solution to the natural gas shortfall facing the Cook Inlet region, said the statement from the company’s CEO Benjy Johnson and Chief Operating Officer John Martineck.

With funding secured, BlueCrest is focused on execution and bringing additional locally produced natural gas to the Cook Inlet market as quickly and responsibly as possible, they said.

BlueCrest wells could do a lot

The company’s plans include completing the H-17 Lower Tyonek, which is a extended-reach gas well, and expanding the Hansen Production Facility, the statement said.

The company anticipates producing first gas from the H-17 well by March 1.

The well’s initial production rate should be about 25 million cubic feet of gas daily, the statement said.

That would be enough to meet about 13% of the annual gas needs in Southcentral Alaska, about 70 billion cubic feet.

There’s also potential for a second BlueCrest well that, together with the first well, could help overall gas production approach 50 million cubic feet of gas daily, according to a recent email that Johnson sent to state Sen. Cathy Giessel, an Anchorage Republican and chair of the Senate Resources Committee.

Giessel said in an interview Tuesday that Johnson said the email could be shared with reporters.

BlueCrest is reengaging “key vendors necessary to complete the refurbishment and recertification of BlueCrest Rig #1,” the email said.

BlueCrest plans begin to begin drilling the first well on Dec. 15.

“Following confirmation of reservoir performance and deliverability from the first well, our development plan calls for a second well into the same reservoir,” the email said.

“This represents a meaningful new source of Cook Inlet gas supply, and we are eager to get the work underway,” the email said.

The field contains a total resource of about 200 billion cubic feet of natural gas, Johnson said in an interview last month.

That’s equivalent to about three years of natural gas consumption in the region.

Giessel said the drilling operation will be complex.

She also said the gas in the field is “a short-term solution when you look at decades of gas need.”

“This is a significant step forward, and so I appreciate that,” she said. “And we can only hope that the drilling is is successful with no flaws in the process.”

The state has been waiting more than a decade to see that gas produced, she said.

The gas crisis began in 2022 when Hilcorp, the dominant Cook Inlet gas producer, notified Enstar and other utilities that it did not have enough natural gas reserves in Cook Inlet to extend gas supply contracts.

The last and biggest of those contracts, with Enstar, is set to expire in 2033.

The utilities are now looking at importing natural gas in the coming years, at potentially high costs to ratepayers.

The Senate Resources Committee has recently held joint meetings with the House Resources Committee to address the state’s natural gas crisis.

Johnson, with BlueCrest, did not attend a joint Resources meeting on the topic last week, though he was on the agenda.

Johnson later said BlueCrest at the time was “in the process of the negotiations” needed to secure the financing, Giessel said.

Shortfall for Enstar this winter?

The Cosmopolitan gas, if it’s produced, seems like it will come too late to resolve a potential gas shortfall this winter.

John Sims, president of Enstar, has stressed that the utility faces a shortage of gas this winter of 18 days, or 3 billion cubic feet.

Sims has the gap is due in part due to BlueCrest’s delayed gas production.

Luke Saugier, senior vice president of Hilcorp Alaska, the dominant Cook Inlet producer, told lawmakers at the joint Resources meeting last week that Hilcorp has enough gas in storage to close the shortfall.

But doing so will require adjustments to contractual terms with Enstar, Saugier said.

Saugier said that Hilcorp Alaska has about 30 billion cubic feet of gas in storage going into this winter, about 10 times the potential Enstar gap.

But that stored gas is proposed for future deliveries, largely to Enstar, Saugier said.

Some of that gas can be made available to Enstar for use this winter, but that same volume of gas will not be available to Enstar in the future, he said.

He told lawmakers last week the company is currently negotiating with Enstar.

Contractual restructuring raises complicated questions, including about price and other terms, Hobson said.

Hilcorp is contracted through 2033 to provide the vast majority of Enstar’s gas needs through that period.

Providing 3 billion cubic feet from storage today “creates the same hole in a different year,” she said.

And “opening the contract opens a lot of questions beyond this 3 (billion cubic feet),” she said.

“There’s a lot of value in the terms that we have right now, and I think that we would be hesitant to chip away at that value of that,” she said.

Hobson said the Regulatory Commission of Alaska, which approves utility rates for consumers, would need to approve the changes.