BlueCrest, WesPac ink deal to develop Cosmo

  • Monday, February 23, 2015 1:51pm
  • Business

BlueCrest Energy plans to resume drilling at the Cosmopolitan oil and gas deposit near Anchor Point this summer, BlueCrest CEO Benjamin Johnson said.

The company, based in Fort Worth, Texas, has signed a Memorandum of Terms with WesPac Midstream LLC to help finance development of gas resources at Cosmopolitan oil.

BlueCrest will move a land drill rig to an onshore pad this spring to begin preparations for drilling high-angle, or deviated, wells to the oil reservoir at Cosmopolitan, which is about three miles offshore. This summer the company also hopes to begin drilling offshore wells into the shallower gas reservoir with a jack-up rig, Johnson said.

WesPac Midstream is working on a medium-sized liquefied natural gas, or LNG, plant at Port MacKenzie, in upper Cook Inlet, with a goal of supplying LNG to Alaska communities and industrial customers.

The company is a “midstream” energy development company specializing in fuels. It is owned principally by a private equity investment fund managed by Oaktree Capital Management, LP. Oaktree is a global investment management firm with more than $93 billion in diversified assets under its management as of Sept. 30, 2014.

The company has substantial experience in the energy, finance, and infrastructure industries.

WesPac Midstream is developing several liquefied natural gas, or LNG facilities in major market areas in the US and Canada. The company recently inked a deal to supply LNG to Totem Ocean Trailer Express, or TOTE, from a first-of-its-kind LNG fueling facility in Jacksonville, Fla.

TOTE will have two large ocean freight vessels operating between Jacksonville and Puerto Rico which, when completed, will be fueled by LNG from WesPac’s Jacksonville facility by late 2016. TOTE also operates ocean freight service to Alaska from Tacoma, Wash.

Terms of the BlueCrest/WesPac arrangement are confidential but Johnson said it involved “several hundred million dollars” in capital commitment for the drilling of gas production wells and installation of two offshore production platforms at the field, which is near Anchor Point, south of Kenai.

“The agreement is subject to definitive documentation and all necessary governmental approvals, as well as confirmation of underlying agreements and approval by the Boards of both companies,” Johnson said.

BlueCrest would remain the operator of the field, he said.

WesPac intends to sell the produced natural gas to markets in Alaska, either as LNG delivered by truck, rail, marine vessel or directly as natural gas delivered into the existing gas pipeline infrastructure.

The WesPac partnership will allow BlueCrest to focus on development of the deeper oil deposit at Cosmopolitan, Johnson said. The company plans to begin drilling extended-reach production wells into the oil reservoirs with a shore-based drill rig this summer.

BlueCrest plans to drill up to 20 new oil wells over the next five years and is currently completing the preparatory work for those wells.

The shallower gas deposit will be produced using vertical production wells drilled with a jack-up rig, Johnson said. BlueCrest hopes to make arrangements to use the Spartan 151 jack-up rig now in Cook Inlet, although the rig is currently slated to be used by Furie Operating later in the summer to assist in that company’s construction of a gas production platform its Kitchen Lights project in north Cook Inlet.

A second jack-up rig, the Endeavour, had been in Cook Inlet and was used by BlueCrest to drill an exploration well at Cosmopolitan in 2013. The Endeavour recently departed for South Africa, but in light of current market conditions, Johnson said he believes that BlueCrest will easily be able to find another suitable rig under very favorable terms.

BlueCrest hopes to install the first gas production platform in 2016 and a second in 2017. Each platform will be capable of handling 35 million cubic feet per day of gas, or 70 million cubic feet per day total. Johnson said the estimate of oil and gas reserves at Cosmopolitan is confidential but the capacity of the production facilities gives an indication of the reserve size.

“We had been focused mainly on the oil development with the gas as a secondary goal, but WesPac came in and will now fund and accelerate the gas development,” he said.

The only published estimates of oil reserves at Cosmopolitan within the last several years were included in Buccaneer’s September 2013 quarterly report to investors and were based only on the earlier ConocoPhillips and Pioneer drilling (not accounting for the results from the 2013 drilling program).

That report listed 31 million barrels of oil of proven reserves; 44 million barrels of oil of proven and probable reserves and 70 million barrels of oil estimated as proven, probable and possible resources.

One new offshore well was drilled at Cosmopolitan in 2013 with Buccaneer, the 25 percent minority owner, as operator. Drilling began in May 2013. The first well, drilled to 7,599 feet, encountered productive gas sands from approximately 800 feet down to 5,600 feet deep and newly-found oil sands approximately 400 feet above those previously discovered by ConocoPhillips and Pioneer.

No long-term production tests on the oil zones were conducted, because of limitations in storing oil produced from a flow test. However, two of the newly-discovered oil sands were flowed to the surface under carefully constrained conditions in order to confirm their productivity.

A test of gas-bearing sands in the 2013 well at 5,500 feet depth flowed at a choked-back rate of 7.2 million cubic feet per day. In the second test, a gas-bearing sand at 4,300 feet was tested and flowed at a choked-back rate of 7.3 million cubic feet per day. BlueCrest has not announced what the gas sands would be capable of producing under a full production mode.

Cosmopolitan was discovered years ago by ConocoPhillips, who at the time did not have access to an offshore drilling rig to vertically explore the entire productive interval. ConocoPhillips sold the prospect to Pioneer Natural Resources, which had planned to develop the oil reservoir using production wells drilled from shore. Pioneer drilled another test from shore but then decided to exit Alaska to focus on the company’s shale oil program in Texas.

Cosmopolitan was sold to BlueCrest and a minority partner, Buccaneer Energy. BlueCrest itself has invested about $110 million in Cosmopolitan so far, Johnson said.

The existence of the shallow gas reservoirs were always suspected, but they had not been confirmed until the 2013 exploration drilling by BlueCrest and Buccaneer. BlueCrest subsequently bought out Buccaneer’s minority interest.

Tim Bradner can be reached at

Rashah McChesney of the Peninsula Clarion contributed to this article.