Escopeta Default, But Not Terminated

By Dave Donaldson

The state today offered a Texas-based developer a little more time to drill for natural gas in Cook Inlet – but not much.   Technically in default,  Escopeta  Oil and Gas has one last chance to drill a well.

In a letter to the company,  the Department of Natural Resources placed the Kitchen Lights Unit of Cook Inlet in default of its leases of more than eighty thousand acres.  Oil and Gas Director Kevin Banks says the leases have been extended four times and the unit is in line to be terminated.

Under the circumstances and with the passage of Senate Bill 309 that granted potential credits to drillers in Cook Inlet if they bring up a rig and start drilling, and also in an effort to provide Escopeta with the full due process he should have,  I think defaulting this time is certainly appropriate.

Development has stalled since geological and seismic tests done by Escopeta in 2001 — since updated — indicated that the company has the potential to develop more than a  trillion cubic feet of gas in Kitchen Lights.  The most recent delay has been attributed to the company’s need to rent a semi-submersible vessel and a Jack-Up rig for the drilling operations.

Banks says termination of the unit can be avoided if Escopeta meets very specific requirements on a very exact time schedule to resolve those problems.

However, in defaulting the unit, we’ve offered a cure.  And the cure for the default is that Escopeta provide the state with a $4-million bond – or financial instrument of some sort —  to assure that he has the rig under contract or under way in time to be able to drill the well next year.

Besides the four million dollar bond, the extension of the lease depends of the Jack-Up Rig’s being on the way to Alaska next February and on a well being completed by the end of September 2011.

Banks says the prospect is among the more attractive areas for development in Cook Inlet.  The letter of default from Commissioner Tom Irwin says the state has seen strong interest in Cook Inlet development and it is the state’s best interest to maximize the potential for the area.

Danny Davis,  president of Escopeta,  did not return phone calls from Texas to comment on how the company will deal with the default.


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