How to Become the Next Alaskan Millionaire

The earliest historical references to the oil in Alaska come from the 1850s. Hardy Russian explorers and fur trappers traipsing about mountain ranges and sea passages noted oil seeps around what’s called Cook Inlet today.

The oil-rich inlet is named for Captain Cook. He stumbled on this 180-mile inlet on his search for the Northwest Passage. It stretches from the Gulf of Alaska to Anchorage. Too bad for Cook, he never realized the true value of his discovery.

However, investors today are in the best position to reap the gains. Right now, the value of Cook’s oil “jackpot” is over $23 billion, but it wasn’t always like this…

You see, after the Russians’ discovery, a variety of fortune-seekers — lone prospectors, private wildcatters and big oil companies — took shots looking for commercial oil here. While there was some success, there were mostly setbacks and a trail of abandoned wells.

It wasn’t until 1961 (two years after Alaska became a state) that Swanson River — a joint venture between Richfield and Standard Oil — became a commercially successful oil field.

The rest, as they say, is history.

More than a billion barrels of oil, along with 5 trillion cubic feet of natural gas, has been pumped out of the Cook Inlet area. Oil and gas development in Alaska as a whole has been huge.

About one-fifth of the domestically produced oil in the U.S., for instance, comes from Alaska.

But these assets have been in long decline. Production of crude oil is down more 70% from its high in the 1980s.

Cook Inlet is now an old horse with oilmen trying to coax whatever they can get out of it.

But here’s where things get interesting…

Chevron, one of the largest Cook Inlet producers, recently said it would sell all of its assets here. This includes offshore and land-based oil and gas fields, 10 offshore rigs and two gas tank farms. Chevron will also part with its interests in two regional pipelines.

“The decision comes as production from Cook Inlet oil and gas fields is declining,” Anchorage Daily News reports, “typically, a period when big energy companies lose interest in their investments and smaller operators jump in.”

Here, then, is the opportunity. There is still a lot of oil and gas left in Cook Inlet. It’s just too small for big guys like Chevron to spend time and money on. For a smaller outfit, it could mean a fortune.

Remarkably, despite the fact that the Cook Inlet is the oldest producing basin in Alaska, much of it is still untapped, as Petroleum News points out:

Nearly all of the operating oil and gas fields in Cook Inlet derive from exploration done in the 1950s and 1960s, before the discovery of the giant Prudhoe Bay field caused the attention of explorers to switch to the North Slope. As a consequence, only limited exploration of Cook Inlet has taken place in more recent decades.

The state of Alaska, too, is bending over backward to keep investment in oil and gas flowing.

The state leans greatly on this industry. Some 80% of state revenues depend on oil and gas extraction.

It employs thousands of people. Those people in turn support shops, restaurants and the whole wheel that is a community.
So the government created some sweetheart deals for oil and gas companies to spend money here. Among these goodies is a 40% state refund on money spent for drilling and exploration costs — paid in cash to the operator. There are other laws in place that could refund as much as 20% of other costs and 25% of net losses incurred.

Again, for a small operator looking to get a sweet return on a moderate-sized pot of money, Alaska is golden. The economics of Alaskan oil and gas are as good as anywhere in the world.

Location is very important. As with real estate, where you are makes all the difference. I like to find “pockets” where natural gas goes for a big premium. For example, in Turkey, prices are more than double what they are in the U.S. And here we find another pocket in Alaska. Plus, the state gives you all kinds of goodies besides.

I see Alaska’s oil and gas fields becoming a very profitable region for smaller companies.

Cook Inlet may well enjoy a revival.

In fact, the seeds are already starting to germinate. One group is bringing the first new drilling jack-up rig to come to Alaska in 16 years. Another group is bringing back shut-in wells. There is actually a fairly long list of companies squeezing life from old assets and/or exploring new prospects, spurred on by generous state incentives.

It’s the beginning of a good old-fashioned Alaskan oil and gas boom. In a world where foreign sources of oil are more frowned upon and uncertain than ever, my guess is that investors will look warmly on the efforts of those in “the last frontier.”

[The Sleuth's Note: Doing a quick search using Yahoo! Finance, we came across a few Alaskan drilling companies. You can start out by taking a closer look at these: Parker Drilling Company (NYSE:PKD), Tesoro Corporation (NYSE:TSO), and Linc Energy LTD (ASX:LNC). But, before buying anything, we suggest doing your homework.]

Sincerely,
Chris Mayer
Penny Sleuth

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