• Recent setback latest bump in rocky road for oil and gas producer
By Hannah Heimbuch
After months of preparation and just a few short weeks of drilling, Buccaneer Energy Limited announced on Monday it is pulling out of natural gas exploration efforts at the West Eagle #1 site east of Homer.
The drill project, which the Australia-based oil and gas producer initially called a promising prospect, reached 3,700 feet before the company ceased operations.
According to a Buccaneer press release, operators found “excellent reservoir qualities” in the drill zone, but did not find evidence of the hydrocarbons they were targeting. Given that analysis, and the risk associated with continuing to drill toward the permitted depth of 8,500 feet, the company has chosen to “plug and abandon the well.”
Buccaneer CEO Curtis Burton is looking to a reinvigorated approach at the company’s other Cook Inlet holdings and some immediate fundraising to keep the company going forward, though Buccaneer has sold tens of millions of dollars worth of assets associated with those other projects in recent months.
“After having enjoyed discoveries at the Kenai Loop and Cosmopolitan fields, the results of the West Eagle well are disappointing,” Burton said in the report. “The company will now focus its efforts towards Tyonek Deep and Kenai Loop.”
Buccaneer reports a $9.44 million total cost for the West Eagle drill effort, though they are hoping to recoup up to $4.35 million of that through rebates from the State of Alaska. They intend to file for a $2.31 million Alaska Clear and Equitable Share (ACES) Drilling Rebate, as well as a $1.58 million ACES NOL rebate.
The ACES program incentivizes oil and gas exploration in Alaska in a multitude of ways, including reimbursement by the state of up to 40 percent of exploration costs.
Also on Buccaneer’s list of potential payouts from the State surrounding their West Eagle investments are two $600,000 bonds, totaling $1.2 million.
However, in December of last year, Alaska’s Department of Natural Resources notified Buccaneer that it would be forfeiting at least one of those bonds due to its failure to begin the West Eagle drill by Dec. 1 of last year. It remains to be seen whether or not they will receive the second bond, as its contingencies have variables.
“The second $600,000 will be forfeit if Buccaneer fails to test, or plug and abandon by Jan. 31, 2014,” the letter states. “If Buccaneer has spud the well before Jan. 31, 2014 and significant progress has been made but total depth has not been reached, DNR will consider an extension of the cure date and modification of the bond conditions.”
Buccaneer has received several such rebates in its time investing in oil and gas exploration in Alaska. Six months ago the company announced that, since it began operating in Alaska in 2010, it has received $30.5 million in ACES rebates.
That number is more than five times what the company is currently worth according to a Buccaneer financial report, which put its financial position at $5.8 million, down more than $20 million from one year ago.
While many are supportive of the rebates that encourage increased investment in Alaska’s economy and natural resources, others oppose the pattern of large payouts. That opposition includes Cook Inletkeeper Executive Director Bob Shavelson.
At a time when the state is looking at budget cuts and Alaskans are paying the highest natural gas prices in the nation, Shavelson said, he sees a problem with an ACES operational plan that greases the wheels so thoroughly for industrial resource development.
“We’re giving away our resource, we’re getting screwed at the gas meter, and we’re talking about tapping our PFD and cutting pay for teachers and road maintenance,” Shavelson said.
Buccaneer has a $57 million debt to pay to the Meridian Facility by June 30 of this year, and is currently in the process of looking for ways to do so.
“This may involve, amongst other things, a sale of assets and/or capital raising,” the release states.
Buccaneer stocks have experienced a consistent downward trend the last few months, as the company met mixed results in its fall exploration. It is currently trading at 8/10th of a penny on the Australian stock exchange, down from 3.5 cents three months ago.
Shavelson is concerned with what future Buccaneer operations around Cook Inlet and the Kenai Peninsula mean for the area — from both an economic and environmental stand point — in terms of what kind of business residents and leaders hope to attract.
“If you’re going to be open for business, you have to mean you’re open to responsible business,” Shavelson said. “I think we want to bring in companies that are committed to our community, to jobs, to local jobs, to local businesses that recognize the importance of the fisheries and the waters here to our local communities.”
Buccaneer is currently involved in a court dispute with Cook Inlet Regional, Inc., which is accusing the oil and gas producer of illegally retrieving gas resources from its Kenai Loop wells. CIRI maintains that the wells are illegally draining gas resources from their nearby property. Hearings are taking place this week on whether or not CIRI should be compensated for this under current drilling and pooling laws.
From funding and capital instability to a flexible approach to permitting and drilling laws, Shavelson said, he doesn’t see Buccaneer as a stable investor and developer for Cook Inlet resources.
“These guys have put a black eye on the oil industry in Cook Inlet,” Shavelson said. “They put a black eye on the public state and our government agencies.”
That’s not to say there aren’t some companies out there doing it right, he said, naming Cook Inlet Energy as one that has been operating and exploring business opportunities in the Inlet in a way he sees as responsible and reasonable.
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