• List of unsecured creditors includes many Alaska businesses
By Carey Restino
After several controversial years of operation in Cook Inlet, Buccaneer Energy appears to be on its way out. The Australia-based company filed for Chapter 11 bankruptcy on Saturday, but the implications for its many Cook Inlet endeavors is still unknown.
In its Chapter 11 filing, Buccaneer and its many subsidiaries listed assets estimated at less than $50,000 and liabilities between $50 million and $100 million. Calls to the Kenai office requesting information about the future of Alaska projects were referred to the corporate office in Texas, where reporters were referred to the website of Epiq Systems, a bankruptcy management company. Legal counsel for the company, Fulbright and Jaworski LLP, said it had few details to provide yet, as many decisions were still in the hands of the company’s lender.
However, in a June 2 press release, the company said it will continue to operate and oversee its assets during the restructuring process and “expects to have sufficient cash on hand throughout the Chapter 11 proceedings to pay all of its post petition obligations as they come due.”
Employees of the company are expected to continue to receive compensation, the release said.
Buccaneer has had a tumultuous several years in Alaska. Its subsidiary, Kenai Offshore Ventures, brought the jack-up rig Endeavor to the Inlet in the fall of 2012, but the rig needed extensive repairs and spent seven months at the Homer dock. Archer Drilling sued Buccaneer for work it did on the rig while docked in Homer. Buccaneer filed countersuit against the contractor citing lost revenues and expenses.
Many in the community applauded when the rig left, though the city’s coffers did get a substantial windfall from its time in town, as did some workers who helped with repairs. There were rumors and concerns about the financial stability of the company for years, however, both near and far, with some saying they had difficulty getting payment for services rendered.
Those watching Buccaneer’s trajectory predicted the bankruptcy filing months ago, and closer to home, expressed concerns about the company’s ability to pay clean-up costs if any spill occurred in the Cook Inlet. Cook Inletkeeper Director Bob Shavelson said the state, which provided significant incentives to the company, should have vetted the company more before inviting them to Alaska to do business.
“We are always saying we are ‘open for business,’ but if that’s the case, let’s start selling crack,” Shavelson said. “There’s got to be a line where we put companies through a test as to whether they are reputable to do business with.”
Shavelson said Buccaneer consistently withheld information — such as the extent of the repairs needed on its drill rig and the length of time it would need to be at the Homer Harbor — and conducted itself recklessly and with questionable morals while operating on the Kenai Peninsula. Shavelson said the company blasted more than 800 shotholes during its seismic testing work on wetlands near the Kenai River — work he claims was done without permits. He also said the jack-up rig dumped tons of drilling mud into rich fish habitat off Anchor Point.
“I think before we throw open our arms and welcome a new company into Kachemak Bay or the Cook Inlet, there needs to be some sort of social contract,” Shavelson said.
The City of Homer, however, did receive a significant boost from the drill rig’s time in Homer. A study commissioned by the city last winter concluded that the company contributed $3.8 million for shipyard work, operations and property tax to the Kenai Peninsula. That figure included $577,000 on port fees and dockage, moorage and utilities, as well as stevedoring services, and $181,087 in city property taxes. In addition, some 50 jobs were generated by Buccaneer’s activities, the report said.
But some of that reported revenue may be lost. A list of the 30 largest unsecured creditors to Buccaneer filed in bankruptcy court includes many Alaska companies, including All American Oilfield Associates of Kenai, owed $600,000, the Port Graham Corporation, owed nearly $200,000 and even the State of Alaska Department of Revenue, owed more than $600,000.
While Buccaneer’s release said it expects to pay some of its unsecured creditors, that list also includes its own subsidiary, Kenai Offshore Ventures, to which it reportedly owes $18.5 million.
Months of controversy
In February, an exploratory well 20 miles out of Homer called the West Eagle well came up empty after drilling down more than a half a mile at a cost of $9.4 million.
Meanwhile, the company’s corporate business structure has been shaky for more than a year, with internal fighting and the recent suspension and termination of CEO Curtis Burton, who has since sued the company for their actions. Trading of Buccaneer Energy Ltd stock was suspended earlier in the year on the Australian Stock Exchange.
A dispute also arose in Kenai regarding two wells near land owned by Cook Inlet Region Inc. The Native Corporation said the Buccaneer wells were draining gas from their land and asked for 30 percent of the gas from the wells.
The case came before the Alaska Oil and Gas Conservation Commission in late April, and resulted in an escrow account being established as of June 1 into which all revenues from the gas sales were to be deposited. Buccaneer cited the account as a factor in its filing of bankruptcy in its release.
In recent months, Buccaneer has been selling off assets while juggling bills and lawsuits, but it couldn’t come up with either the cash or credit to keep the drill rigs running.
“The rigs are presently inactive and accordingly represent significant liabilities without providing any offsetting benefits,” Buccaneer’s filing said.
It’s been spending thousands of dollars a day keeping those rigs idle, but without being able to get them into operation, Buccaneer said, and it no longer has any realistic hope of doing so.
Among the permissions sought from the bankruptcy court was to get out of contracts to operate the rigs with Alaska companies, including with All American Oilfield Associates, which operated the onshore rig, and Kenai Offshore Ventures, which operated the Endeavor.
The state’s business development arm, the Alaska Industrial Development and Export Authority, has an ownership stake in Kenai Offshore Ventures, according to the authority’s website, as well as Buccaneer’s. But the deal’s third partner, Ezion Holdings of Singapore, said in its annual report that it now fully owns Kenai Offshore Ventures.
Department of Natural Resources Commissioner Joe Balash called Buccaneer’s difficulties “unfortunate,” but said they might have only a small impact in Alaska.
“This is a consequence of an eager company that came in and saw all of the opportunity that Alaska, generally, and Cook Inlet in particular presented, and got itself overextended,” he said.
Alaska did what it could to first bring Buccaneer to Alaska and keep it going by offering generous tax credits and tax deductions intended to spur interest in Cook Inlet at a time when the Anchorage area was thought to be facing critical natural gas shortages.
Alaska had initially offered as much as $25 million in tax credits to the first company to get a jack-up rig in operation, something that Buccaneer appears to have qualified for.
The company also said it was able to take advantage of other general tax credits, including $9.8 million under Alaska’s Clear and Equitable Share Act for its successful Cosmopolitan No. 1 well in Cook Inlet, and another $3.3 million in a related tax refund. An additional $6 million tax credit came from non-Cosmopolitan exploration.
Buccaneer has already sold Cosmopolitan No. 1 for $41 million; cash that helped keep the company going earlier this year.
Balash said he hoped Buccaneer’s assets would continue to work in Cook Inlet; the new owners of Cosmopolitan No. 1 have said they’d like to continue work in the Inlet.
Companies involved in Cook Inlet leasing and exploration either did not respond to questions or declined comment about the possible purchase of Buccaneer’s Alaska assets.
With recent successes in Cook Inlet exploration and production, Balash said he didn’t expect the state to face natural gas production problems related to the bankruptcy.
“The good news is, it’s summertime. Even if there’s a disruption, there’s a lot of slack in the system right now in terms of delivering gas volumes. But I don’t expect any disruption at all,” he said.
The Alaska Dispatch contributed to this story.
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