For first time, Cook Inlet oil and gas lease sale has no bidders

Cook Inlet by Paxson Woelber, Wikimedia creative commons license
The state has received no bids during lease sales in the past, but never in Cook Inlet. Photo: Paxson Woelber, Wikimedia creative commons license

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Cook Inlet has apparently lost some of its charm – for the oil and gas industry.

State officials announced this week that, for the first time ever, they received no bids for the annual oil and gas lease sale in Cook Inlet.

The state Division of Oil and Gas blamed low oil prices – and difficult access to the tracts of land being offered. But industry representatives said lawmakers aren’t helping.

Sarah Erkmann, of the Alaska Oil and Gas Association, said it came as “absolutely no surprise” that companies aren’t biting in Cook Inlet.

“Companies are looking to make investments, they need some degree of certainty, and there is nothing but uncertainty right now in the Alaska oil and gas industry,” she said.

Erkmann placed the blame for that uncertainty squarely on lawmakers in Juneau, who have been tied up for weeks trying to negotiate a major rewrite of the state’s oil taxes. The most recent proposals would either scale back or end the state’s generous subsidies for drilling in the Inlet. Companies can’t invest when they don’t know what the tax structure will be, Erkmann said.

But state officials said that while the debate in Juneau might be part of the problem, there are much bigger issues at play – like the ongoing slump in oil prices.

“It’s all a matter of perspective,” said Jim Beckham, deputy director of the Division of Oil and Gas. “We just think the main driver of this is low oil prices — and the lack of acreage on major producing trends.”

In other words, the acres being offered were in the Cook Inlet version of the boonies – far from infrastructure and expensive to develop.

The state isn’t worried about the future of Cook Inlet, Beckham said, pointing out that there’s plenty of activity in the inlet right now. The companies Hilcorp and Furie Operating Alaska are both producing natural gas; last month, BlueCrest Energy began producing oil.

It’s also not the first time the state has received no bids on a lease sale. But in the past, it’s been in more remote areas, like the Alaska Peninsula or the North Slope Foothills region — not usually a major basin like Cook Inlet. (You can find the results of all lease sales since 1959 here.)

There has been no easily discernible pattern to lease sales in recent years, which can be affected by both oil prices and the entrance of new players into the Inlet. Last year, the state received a relatively low eight bids for seven tracts in Cook Inlet, taking in $671,033. That was down from 39 bids in 2014. A mammoth lease sale in 2011 brought in 110 bids. But in 2009, amid lower oil prices, the state received only five bids for four tracts.

The next state lease sale, which will include tracts on the North Slope, is tentatively scheduled for this fall.