Archer says it terminated its contract with Buccaneer

Archer lawsuit outlines more than $6 million in debt and a breach of contract
By Naomi Klouda

Homer Tribune
Buccaneer Alaska announced it had terminated its contractor, Archer Drilling, for alleged nonperformance of work, but Archer officials on Wednesday said the situation was actually the other way around.
David Walker, the manager for international platform drilling and engineering at Archer, said a lawsuit is now filed claiming more than $6 million in unpaid invoices are owed by Buccaneer. All local subcontractors hired by Archer have been paid by Archer, Walker said.
“We announced we were terminating the contract on Thursday (Dec. 13) and Buccaneer/KOV came out with their statement on Friday,” Walker said. “They responded by claiming they fired us. We feel that statement was done in retaliation and to save public embarrassment.”
The lawsuit, filed in Texas state court, states:
“The Endeavour is still at quayside in Homer, Alaska because Defendants refused to listen to their vendors, failed to accept a reasonable work scope for the refurbishment of the rig, and failed to secure enough money for the project. While drilling for oil and gas in the Cook Inlet is possible, Archer believes both the personnel involved and the equipment in use must be in excellent condition and ready for work.”
But the equipment wasn’t in excellent condition. The 30-year-old rig had been dry docked in many years of nonservice and suffered the corrosion and other degradations that go with it. One of the Archer employees, Douglas Weber, is a retired Coast Guardsman whose expertise in federal regulations made his insight invaluable. Weber would not make a direct statement to the media about conditions on the rig, but pointed to that paragraph in the lawsuit. It continued:
“After a year of experiencing delays in getting paid and witnessing shortages in scopes of work for the refurbishment of the Endeavour, Archer in its experience believes those conditions had not been met and cannot agree to crew and operate Endeavour in its current condition and under its current ownership and the companies expected to be in control.”
The 18-page lawsuit outlines how the Master Services Agreement signed by both KOV and Archer Drilling is valid, and therefore is an enforceable contract. Archer contends it held up its side of the contract but KOV breached it on their end. Among the allegations is the claim that KOV required of Archer to provide services and “incur millions in expenditures without reimbursement.”
It also alleges skilled workers were available for the refurbishment in Singapore, but not in Alaska and that is a crucial part of the problem that kept the rig on the Homer dock. This occurred because Homer does not have a shipyard and does not have access to the tradesmen of a shipyard, such as the one in Singapore.
“As a result, Defendants (KOV) had to use Archer drilling crews to do shipyard work,” the lawsuit said. “Defendants’ haste to transport the Endeavour to Alaska placed the entire project in a logistical quagmire: more work needed to be done on the rig but they no longer had the resources or manpower of a shipyard… Moreover, defendants lacked relationships with the local vendors to execute the outstanding work.”
Yet, in spite of these obstacles, KOV publicly claimed that the rig would only need two weeks of modifications before setting off north to gas and oil deposits. “This baseless posturing flew in the face of the facts on the ground,” the lawsuit said.

Needed experience
Archer Drilling is the largest rig management corporation in the world, including work in the North Seas of Norway and the United Kingdom and some of the harshest Arctic environments. “We know how to work in inhospitable environments under strict regulations. There are industry minimums,” Walker said. “But at Archer, we’re about exceeding minimums.”
With these standards in mind, conflict arose before the Endeavour jack up rig made is journey from Singapore to Homer. Archer Drilling told Buccaneer it was not yet ready for work in the icy Cook Inlet.
Buccaneer contracted Archer for this work soon after purchasing the rig, because they needed the most experienced in the industry since Buccaneer is a new player. Buccaneer Alaska Energy was formed in 2007 and had never drilled in Alaska waters, according to the lawsuit. But they disregarded the expertise in advice that the rig needed more work.
“From the start, the Defendants undermined and underfunded the project. By favoring wishful thinking over hard facts, the Defendants turned a blind eye to the amount of time, money and effort needed to bring such a rig up to operational levels.”
The company underfunded the refurbishment and then instructed it to be prematurely removed from the shipyard and transported to Alaska before refurbishment and recertification work had been completed.
Even after four months in Homer, the work is not complete by Archer’s standards, Walker said.
In Homer, Archer Drilling hired from a local workforce and brought in certified oil rig workers from the Lower 48, a total of 70 workers. Doug Slone, the rig manager, is a 43-year Alaska resident and a long time oil rig veteran who did the hiring. He said he wanted the Endeavour outfitted properly for its work in the Inlet and knows what it takes to be safe for workers and the environment. “We need the energy and the fuel to offset natural gas shortages predicted for Southcentral Alaska,” he said. “We wanted this to work.”
At this point, Slone, Weber and Walker are working with a crew of six people to make a smooth “handover” of the services work to Spartan Offshore.
“That’s our emphasis now, making a smooth, safe transference that is safe for workers and safe for the environment,” Walker said.
Archer Drilling makes a policy to avoid going directly to the media, but company approval was granted earlier this week for Archer to talk to the City of Homer and to the local media to explain its side.
In an announcement made public Friday, Buccaneer spokesperson Jay Morakis had said the company stepped in after discovering Archer had not paid vendors and was racking up heavy local debt in Homer. The Master Services Agreement holds Archer responsible for contracting out work and overseeing the rig’s modifications.
In reality, Archer says, only three invoices were paid by KOV this past year, and others were either disputed or went unpaid by KOV.
“We, Buccaneer, found out last week that there is an issue with Archer Drilling. The issue is that Archer hasn’t paid local venders and we don’t know the reasons,” Morakis had said. “Buccaneer, operating with our partners as Kenai Offshore Ventures, has paid in full to Archer all bills with the exception of disputed amounts.”
Once expenses were paid, Archer was to be reimbursed by KOV, the partnership made up of Buccaneer, Ezion Holdings, Ltd and the Alaska Industrial Development Export Authority, though AIDEA invested only in purchasing the jack-up rig, $24 million, and is not invested in operations.
Morakis, contacted Wednesday after the lawsuit claims were released, issued a press release stating the company believes this lawsuit is “without merit.”
“Kenai Offshore has been continually forced to undertake unanticipated work and to contribute unanticipated expenses. Archer Drilling’s failure to live up to its representations and contractual responsibilities under the MSA seriously undermined Buccaneer’s confidence in their ability to complete
their work,” the release said. “In connection with Archer Drilling’s termination, Buccaneer, as Manager of Kenai Offshore, has contacted each of those contractors hired by Archer Drilling to perform services on the Endeavour with the understanding that Kenai Offshore will review each of their cases and will step in and make payments for legitimate expenses associated with work performed by those contractors on the Endeavour.”
KOV admits it is currently withholding payments to Archer Drilling for amounts that it has formally disputed.
Dean Gallegos, Finance Director at Buccaneer Energy expressed disappointment. “We are disappointed to see it come to this, as initially we had hoped that Archer Drilling would be the Endeavour’s long-term operator. As the Manager of Kenai Offshore, and to act in the manner to protect the interests of our joint venture partners and shareholders, we were left with no choice other than to terminate Archer Drilling’s work on the Endeavour. Given the timing we did not make this decision lightly.”

The Endeavour Jack up rig is brightly lit at night, docked by the Homer Harbor

City of Homer payments
A separate arrangement is a contract between KOV and the City of Homer for leasing dock space. So far, the city has received payment for most of the dock lease though a balance remains of $141,000. The amount paid since September is more than $184,000.
City Manager Walt Wrede said at a meeting Friday with KOV officials, he was assured that all the contractors hired by Archer Drilling would be paid. “They are moving ahead, with some reorganization, but everyone is going to get paid and that’s something that was our big concern,” Wrede said. He had heard a few weeks ago about welders going without pay and wanted to step in.
“I wanted to make sure that at the end of the day, the workers weren’t stiffed,” Wrede said. “It’s clear that there are money issues involved through the whole system.”
Harbormaster Bryan Hawkins said the city is paid $60,000 per month, or $1,956 per day, for Endeavour dockage plus other dockage or moorage fees for the two or three tugs on stand by. As of Thursday, only one tug remained, with allegations that another tug was pulled out due to nonpayment, Hawkins said. Over the course of four months, the city received payments, though at times had to call and send reminders to KOV, Wrede said.
An agreement was reached on Friday for a replacement contractor, this one already drilling in Alaska, Spartan Offshore. That company is operating the other jack-up rig in Cook Inlet, the Spartan 151.
“We have entered into an LOI (Letter of Intent) with Kenai Offshore Ventures and expect definitive contracts to be signed in the next few days,” said Paul Butler, president and CEO of Spartan Offshore. “I think our experience operating the Spartan 151 in the Cook Inlet over the last 18 months makes us uniquely qualified to take on this challenge and we look forward to a very active 2013.”
All vendors and tradesmen who worked on the Endeavour are encouraged to call Spartan’s office at (504) 885-7449 or fax information to (504) 456-6560. More information is available at
City Manager Wrede said in the update from KOV Friday, he was told the Endeavour will likely be here a few more weeks, into January. Buccaneer has received Department of Environmental Conservation food and waste water permits and now is awaiting a Certificate of Compliance with the U.S. Coast Guard. That involves an inspection by a crew traveling to Homer from Morgan City, La., a process that could take a few weeks. The American Bureau of Shipping signed off in approval on Nov. 30.
The goal is to head to the Cosmopolitan Unit and remain there for the winter.
AIDEA was made aware of a situation regarding the operator of the Endeavour last week, said Karsten Rodvik, external affairs manager.
“As the preferred member of KOV, LLC, our first concern and main priority is for Alaska workers and businesses to be promptly paid,” Rodvik said in an email. “We are pleased that our partners are responding quickly and responsibly, and we are confident in their ability to resolve this matter as soon as possible.”
In the new light of the lawsuit, AIDEA has not yet responded to questions from the Homer Tribune.
Rodvick had said AIDEA will continue to monitor the situation during this transition process.
During a visit from Gov. Sean Parnell in Homer this fall, Wrede said they discussed the Endeavour at length. “The governor is very interested in that rig. I think that gives us some assurance that the company will meet its obligations,” he said.
Bob Shavelson, the director of advocacy at Cook Inletkeeper, sent a letter to Commissioners Larry Hartig at the Alaska Department of Conservation, and Dan Sullivan at DNR, urging them to immediately delay all ADEC and DNR permitting efforts until the State of Alaska conducts a review of Buccaneer’s fiscal and operational capacity to drill safely among the fisheries of Cook Inlet. He sent the letter Thursday afternoon, after reviewing Archer’s lawsuit against Buccaneer.
“Buccaneer has repeatedly made false representations to Alaskan officials, the general public and its investors about the condition of the rig Endeavour and its ability to operate it. AIDEA’s considerable investment in the Endeavor also counsels for heightened scrutiny,” he wrote.

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Posted by on Dec 19th, 2012 and filed under Headline News. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

21 Responses for “Archer says it terminated its contract with Buccaneer”

  1. pot meet kettle says:

    Wasn’t it Buccaneer that did not pay contractors in Kenai?

    Is this a case of the pot calling the kettle black, or is Archer a scapegoat subsidiary of Buccaneer?

  2. most? says:

    “the city has received payment for most of the dock lease though a balance remains of $123,000″

    How much have they paid? doesn’t sound like most.

  3. JJ says:

    Well this pretty much says what I had said last week when I commented on the other article. Buccaneer is full of Lies! Say what they want but we all know that they should be banned from drilling in the U.S. because of the reason that they operate under different (SHADY) ways that other Companies in Alaska Would never go the route of, and for Spartan they can’t even keep there own employees on the Spartan 151 because it is worse off than the endeavor, Archer paid its employees at a competitive rate of other oil Companies in Alaska Spartan is way below there rates I have checked with spartan and for the same position I worked, when I was on the endeavor last month is 6 to 8 dollars less now working for Spartan, would a guy work for that, when he can work for any other company in Alaska and make more. I think that should be a law suit in its self Lay everyone off than bring them back for less money? You tell me.

  4. Unbelievable says:

    Irregardless of the “finger-pointing” I was floored when I was on my days off…(after having worked my 3 weeks on the Endeavor this past Nov/Dec 2012) I was enjoying the idea of being back home with my family when I was given a call by telephone from my employer that I didn’t have a job. At that moment and time during the phone call, I tried with every fiber in my body to remain “cool, calm and collective” about the whole ordeal….and I believe I was.

    Now that being said, I’d like to elaborate further about the condition of the Jack-up Endeavor when it made it to port at Homer back in August of 2012.

    I was one of two Derrickmen that first stepped onto the Endeavor and it didn’t take us long to establish that work needed to get the rig up to “snuff”…for example, newly painted over railings that had over 75% rust through and through…basically paint disguising rotted junk iron. Some of that what I’ve described has/had been rectified after it was pointed out via the “chain-of-command”…thank goodness for that.
    Now, is there more to be done on this particular “Rig”? The obvious answer is “Yes”…a lot more before any kind of drilling should be done…the key word here is “should”.
    The reason being that I emphasis the word “should” is that the industry more often than not overlooks “safety” in terms of drilling…and the “Endeavor” is far from being the safe ship and the safe rig it needs to be in order for any hard working personnel to even “attempt” to drill in Alaska…especially in its austere and unforgiving weather conditions that it offers out on the Cook.
    I’m hesitant to even attempt to call Spartan for a number of reasons…the pay being of a paramount issue. But should I decide and/or the powers that be hire me to come back to work on the Endeavor…a lingering question would come to mind a sit does now…what’s to stop Buccaneer from attempting to “back-door” Spartan and welch on it’s “contractual” obligations again…?
    Will I be in the same boat sometime later on looking at being unemployed again…huh?
    For now, I’m unemployed…and looking for work…a lil’ apprehensive and somewhat hopeful that I’ll be working on some rig somewhere…and it may not be with the Spartan/Endeavor…
    But for what it’s worth, I’d do it again if I had the same hardworking folks that I’ve had the most worthwhile and fortunate opportunity to have come to know and work side by side with.
    To the city of Homer, your graciousness and hospitality made my “stay” up in Alaska one of the most memorable….and you all will have a place in my heart and in my hopes that for whatever “grace” that Providence has bestowed on me, that it be shared and given to you all…especially during these times and the holidays.

  5. Local says:

    so, buccaneer lied to us, again. maybe the city of homer and governor parnell shouldn;t be so rah rah for buccaneer. maybe they should represent us alaskans instead of these australian and chinese investors who care nothing about our fisheries. oops. i forgot, there’s money to be made. will we do anythign for gas? walt wrede, brian hawkins and sean parnell and the aidea guy – when do you say enough is enough?

  6. Tool Push says:

    Here is why they rushed to get the rig to Alaska before it was finished .
    Press release on 7?31

    Aidea will be investing a total of us 23.6 million into Kov on completion of the mobilisation phase .

    So from bcc’s asx release we can gather that Aidea did not fork out all the cash initially and is doing it in stages with 1 major injection only when the rig arrives in alaska .

  7. Getgo says:

    Well well certainly looks like Bucaneer have bitten of more than they can chew this time.
    Used to bully boy tactics and the im bigger than you are syndrome this time they are up against a company who dont play by Buccs rules.
    There petulant and extremely childish response to the news Archer had withdrawn services was laughable….quick contact the paper and tell them we fired Archer…tell them we care for local companies…tell them anything ( but not the truth )
    Archer on the other hand maintained a dignified silence until permission given to talk to Homer officials and media.
    Archer the world biggest supplier of drilling teams across the globe, and Buccaneer 5 years old, a few land rigs, a hole in a carpark and a reputation that OJ Simpsons lawyer couldnt fix…hmmmm i know who my money would be on.
    Reading through all posts on the subject things are very clear Buccaneer made a complete mess of the purchase of a scrap iron rig, lied to fellow investors about its condition and attempted major repairs on a minimal budget in the vain hope they could reap tax and incentive revenues from the Alaskan goverment.
    Archer quite rightly refused to crew or operate a rig that they have deemed to be not fit for purpose, why would a massive company like Archer potentially sacrifice its honesty, integrity and its safety standards to appease Buccaneer..they never would and never will.
    Who are Buccaneer ?? one guy supposed to be the big boss turned up on Endeavour kitted out like the psuedo Southern oilman tapped a few handrails pointed out some poor paint work and left!!! google him he is listed on Buccaneer website, background wireline! semi retired ! owns a company that builds piers, and get this..some times does part time oil and gas consultancy….no idea about offshore drilling.
    AIDEA have no idea whats going on they wouldnt they are not oil people and thats just how Buccaneer like it, sadly for them Archer do know what there doing.
    Non payment is a current theme of Buccaneer dealings, they know they can starve most into submission in small drilling projects….but Buccaneer have attempted to step up with the big boys and made a complete and utter disaster of it and of course in this different league they are the small fry.
    They held back repairs in Singapore, they refused to supply eqpt to make repairs, they insisted the rig was shipped over when not ready, they have refused to pay for services, there buyer found the rig and has now dissapeared, they have ignored advice etc etc and now its all coming back to bite them.
    Spartan clearly wont turn down work but i hope they are not just yes men and sacrifice safety etc to do Buccaneers drilling programme ( questionable whether that will ever start ) Buccaneer are teetering on the edge of a financial abyss one can only assume that they are not paying because they cant pay….an expensive court case against a major in the oilfield ( one im sure they will lose ) should see them tipped over the edge of that abyss.

  8. incompetence abounds says:

    “AIDEA have no idea whats going on”

    Maybe we shouldn’t have such gullible people running that organization, or the city council, or the homer news…it makes it really easy for corporations and corporate owned governors to steal our resources using our state money to do it.

    This community would be wise to notice the individuals and organizations in town that have been blindly supporting Buccaneer against all evidence of their corruption and incompetence….and never listen to or support them again. Choosing this corporation over our community- corrupt people suck! Root them out and return this community to the people.

    As far as the seemingly permanent eyesore on the spit …( Just great for tourism-isn’t it Walt Wrede? Why do we give tax money to the Chamber of Commerce for tourism/advertising, just $20,000 more added last week, meanwhile opening the door for that piece of cr#p to sit in our view for months!) …We need to transform this rig, which is already owned by the state of Alaska, to the first state run all state profit oil drilling rig. We can transform this incident into something positive. This can be the first example of how much more money we can make by keeping our own profit from our own resources (like Norway- remember how our legislators took a vacation to Norway to study how they do it?)

    • Local says:

      agreed. buccaneer has violated its social contract. if we don;t take the rig, the chinese will. but parnell does not have the balls to do anything that might run counter to the corporate masters that control him and seaton and all the rest.

  9. What the says:

    “The 30-year-old rig had been dry docked in many years of nonservice and suffered the corrosion and other degradations that go with it.”

    The state of Alaska paid 24 Million for this? I highly doubt this piece of cr#p cost 24 million. Did they give the money to Buccaneer who actually paid 4 million and pocketed the other 20 million?

  10. picpic says:

    The irony is that the commons loses funding for their community projects/programs while the corporations reap the benefits for their private sector companies. How is it that the GOP wants to cut public programs, but finance their own private sector projects. And really how many actual jobs did Homer get? or was it mostly the hospitality and lodging that saw the real benefits? Entitlements depends on how you define the term. Is a public entitlement any different than a private entitlement? Just asking as this is all very confusing.

  11. Local says:

    cook inletkeeper hits the nail on the head: – and see archer legal complaint and letter to alaska officials at bottom of this piece

  12. former lobbyist says:

    “The governor is very interested in that rig.”

    ConocoPhillips is shipping natural gas to Asia for double the price they get here in the US. Parnell gave the money for dock, state money pays for rig, special giveaways for the first drillers here, money for the dump to get rid of their toxins…all so companies like Buccaneer will get drilling and give Conoco the opportunity to ship even more natural gas to Asia because they are paying double what we are in the US.

    Parnell and Buccaneer and many public employees continue to push the idea we are running out of natural gas when ConocoPhilips is shipping the vast majority to Asia because they pay better.

    If we allow more drilling, based on this false scarcity lie, they will still continue to sell it to Asia because they pay twice as much.

    Buccaneer = major profits for ConocoPhillips, that is why Parnell is so interested and doing everything he can to help.

  13. Nina Faust says:

    I am not surprised about what I just read regarding all the lies and misrepresentations made by Buccaneer. I have one simple message to DNR, the Governor, and the Legislature. End this Stampede by buying back all these Lower Peninsula Leases and let this area continue to work towards a sustainable community and renewable energy. We have said no to a boom and bust economy for more than 20 years, so please honor that and let us make this area a model for sustainability and renewable energy.

    • Pete says:

      Nina do u mean renewable energy like burning timber to keep warm in winter ? I despise anyone who does that in a residential area as it not only smells bad but is a major health risk to surrounding homes .
      I’m pretty sure solar won’t work so well in the Alaska cold winters and the tidal thing sounds interesting but I’m yet to see towns survive on it . Wind farms and windmills seem to cause more drama with noise and other health issues and are an eye sore . Gas is cheap and burns clean but should never be allowed to enter a house . Gas powered electricity generation like what you guys mainly use is great so I agree about buying back leases but get your Govt organized to stop letting others take the risk in drilling and drill for your own gas . I’m so tired of reading endless stories about the shortage of gas in Alaska and then to read how much they have shipped to Japan . Your Govt. opened the door to let drillers like BCC enter your world and in fact assisted in financing them as well , another mistake with much risk . It appears to me some of the major companies like Marathon and others have made their fortune from the Alaskans and have now moved on allowing the small under capitalized companies like Bucc. to enter your environment . Here is hoping u guys can keep em honest as us Aussies surely can’t . cheers Pete

      • concerned sourdough says:

        Pete, nothing about wood burning “smells bad” to Alaskans, but, I agree with you that the burning of wood and coal (free fossil fuel) are a nuisance to some of the human environment living in Homer. I’m not one that’s bothered by wood smells, and the occasional coal burning smells, however, I’ve always been opposed to “taking” vs “give back” all my life.

        Trees grow fast and can be replanted . Coal farms itself for the taking.

        Oil and gas, however, must be taken from the Earth by extreme measures. That extraction affects a total geological area, and it cannot be given back, not ever, and especially once it’s been burned into the atmosphere causing further damage to the environment.

        Just because we (as a species) have been led to believe gas and oil are the only form of energy available for our consumption … we now know WE HAVE ALL BEEN LIED TO … for ages. And our appetite begets a bigger appetite. The only reason gas and oil are the energy market is because of BIG MONEY.

        The transformation to a superior energy was possible during Tesla’s life (still is), and the only reason we don’t all have FREE ENERGY right now is because of the liars of BIG MONEY wanting control of utilities. The UTILITIES are the form of control that’s been the greatest human downfall. They have had that control for so long the rust is showing. Even to those who don’t use computers for research know that its all coming to an end. Greed will lose.

        • Pete says:

          Dear concerned sourdough , Are u sure this Tesla fellow wasn’t an Aussie ? sure sounds like a smart cookie [ joking ]
          Lets hope and pray that all his inventions one day go commercial and not just his fluro’s etc . How nice it would be to stuff off big power companies and greedy oilers as well , lets hope there time is coming to an end shortly .

          All u Homer residents will be glad to see the back of the Jack up rig as it was just granted permission to go to the Cosmo oil and gas site ;

          Better fly but just one more quicky for those greenies who still use wood burning heaters in their houses [in suburban areas ] Burning of timber should be BANNED banned banned unless it is a barbecue and I am invited .lol

          cheers Pete .

  14. confused says:

    Pete, Thank you for a respectful reply as we work through this community discussion of viable options. The one thing I can’t get my head around is when the commons receives funding it’s called an ” entitlement “that the GOP is so opposed to, but when a corporation receives funding it’s called “incentives,” job creators? But, I don’t see the job creation just more for the “job creators and the incentive benefits whom? Please explain?

  15. 'unidentified' purchaser ? says:

    Why is Buccaneer selling to an unidentified purchaser at twice the cost?

    Because they are selling it to Asia at twice the cost and lying about us running out in Alaska. They think we are the biggest fools, that we will believe any BS they tell us.

    Just look at the headline of this article and the paragraph that follows…

    article titled “Southcentral gas supplies tight; producers to the rescue?”

    “Buccaneer also has increased the amount of gas being produced from its one well in the Kenai Loop field, and announced recently that it sold a quantity of gas from the well to an unidentified purchaser for $15 per thousand cubic feet, or mcf, which is about twice the prevailing contract prices for gas sales in Cook Inlet region.”

    Are we really going to let them treat us like we are idiots?

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