BlueCrest Energy president and CEO Benjamin Johnson urged the public to contact the Legislature and ask them not to make any changes to the oil and gas tax credit program until 2017.
The company is less than three months away from its first oil production at the Cosmopolitan field off the coast of Anchor Point. Production will be relatively limited at first — neighbors can expect to see one to two trucks a day on the Sterling Highway, taking crude oil north to the Tesoro refinery in Nikiski. As more wells are drilled, that number could be as many as 20 per day, Johnson said.
While the oil production is on schedule, the other aspect of the development remains in limbo. A gas pocket that sits above the oil reservoir will be postponed if the state makes significant cuts to the oil and gas tax credit program, Johnson said at the annual Industry Outlook Forum in Kenai’s Old Carr’s Mall on Thursday.
“It doesn’t work without the tax credits or some type of incentive,” Johnson said. “But we know that we have large amounts of resources. … These resources need to be developed. The tax credits are really critical to make sure that that’s done.”
The position of the gas requires offshore drilling, while the oil development will be done with directional drilling from a facility onshore. Placing offshore platforms is significantly more expensive, and if the tax credit program is modified too much, it will postpone the gas development, Johnson said.
There is a deadline for the gas development as well. A jack-up rig, the Spartan 151, is currently harbored in Seward and would be used to develop the gas wells if the development moves forward, Johnson said. However, unless the development goes through in 2016, the rig will leave Alaska and “I’m not sure when we’ll be able to get another rig to drill offshore,” Johnson said.
“To know if we’ll drill in 2016, we have to have the funding commitments and everything put together in 2016,” Johnson said. “Everything’s ready to go, we could be drilling April 15 if we knew the tax credits were going to be in place. ”
The oil and gas tax credit program is one of the most scrutinized area of Alaska’s state budget as the Legislature looks to plug an approximately $3.5 billion gap in the unrestricted general fund this year. Gov. Bill Walker has called the incentives “unsustainable” and has proposed changes that would significantly cut payments, limiting the annual repurchases to $25 million.
While Johnson said he could see the reason for some changes to the program, he said the Legislature should keep the same program for at least the next year. The company has already signed contracts based on the expectation that those tax credits will be carried through, he said. BlueCrest has accrued $45 million in tax credits to date, and the building this year would total about another $100 million in tax credit payments, Johnson said.
He asked the attendees at the forum to “let the governor know” the impacts of changing the oil and gas tax credits.
“This is the time that … it’s important that legislature and the governor understand that the gas development in the Cook Inlet is very important,” Johnson said. “Properly designed tax credits are … a very good investment for Alaskans. It’s an investment, not a cost.”
Even if the gas production has to be delayed, the company plans to begin drilling soon, with first oil expected by April from the first well. Two additional wells will be drilled later this year, all of which will be hydraulic fracture wells, Johnson said. All three wills will be directionally drilled from an onshore rig that was designed specially for the BlueCrest project, designed to run on both diesel and natural gas, Johnson said.
Johnson said 100 percent of the employees hired to work on the facility are Alaskans, and the company just hired several graduates from Kenai Peninsula College.
Jayce Robertson is one of those new employees. A December 2015 Kenai Peninsula College graduate, Robertson obtained his degree in process technology and was immediately offered a job working at BlueCrest, which he said he will start Feb. 1.
“I am extremely grateful for the opportunity that BlueCrest has offered me,” Robertson said when he spoke at the forum. “This is also a success story for Kenai Peninsula College and BlueCrest Energy.”
Johnson said Robertson was one of a group of students who attended the forum last year who stood up during Johnson’s speech and asked to be hired for the development of Cosmopolitan.
“We’re really excited about the folks that we just hired out of Kenai Peninsula College,” Johnson said. “I was thankful when they stood up last year and said, ‘Hey, hire me!’ And we did.”
Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.
