Sunday, August 5, 2012

With jack-up, Buccaneer Energy getting busy in Cook Inlet

—Eric Lidji
Petroleum News

With a flurry of announcements over the span of one week, Buccaneer Energy Ltd. made big steps toward several wells its hopes to drill in the Cook Inlet by the end of the year.

First, the Australian independent said its jack-up rig is currently en route to Alaska, allowing the company to drill an initial exploration well at one of its offshore Cook Inlet units in the late summer and early fall. Second, Buccaneer said it expects to close on its purchase of the offshore Cosmopolitan prospect in mid-August, giving it another location for the rig later in the year. Third, Buccaneer said newly processed seismic information suggests its onshore Kenai Loop prospect might be larger than previously thought.

But Buccaneer is now also asking the state for an extension to its offshore drilling commitments at one unit, allowing it to push back the drilling deadlines by a year.

The jack-up rig, called Endeavour — Spirit of Independence, left Singapore July 31 on the Kang Sheng Kou heavy lift vessel, according to Kenai Offshore Ventures LLC, a joint venture between Buccaneer and the Singapore marine company Ezion Holdings Ltd.

“We are very excited to finally have the Endeavour on its way to the Cook Inlet. We spent a significant amount of time and effort outfitting the Endeavour to make it ‘fit for purpose’ for work in the Inlet, and once it’s on station will stay for years to come, providing the citizens of Southcentral Alaska with the key to unlock the vast amounts of oil and gas locked in the Cook Inlet,” Jim Watt, president of Buccaneer Alaska, the local subsidiary responsible for Alaska exploration and development work, said in a statement.

Kenai Offshore Ventures purchased, modified and mobilized the rig through a public-private partnership with the Alaska Industrial Development and Export Authority.

“We are proud to be a partner in this project, pleased that all the work to ready the Endeavour for its mission in Alaska waters is done, and very happy it is on its way,” AIDEA Board Chairman Hugh Short said in a statement. “This is a landmark day in our efforts to help secure long-term energy supplies for Alaskans.”

Buccaneer plans to use the rig for as many as two offshore wells this year, and Kenai Offshore Ventures wants to eventually make the rig available to third parties in Alaska.

Buccaneer expects the journey across the Pacific Ocean to take between 21 and 28 days.

Summer plans unfolding

Upon arriving in Cook Inlet, the rig will be towed to North West Cook Inlet, an offshore unit situated along the northern and northwestern boundary of the North Cook Inlet unit.

Buccaneer also operates a second offshore unit in the Cook Inlet, the Southern Cross unit located further to the south, between the Granite Point and Trading Bay oil fields.

Under its unit agreements, Buccaneer must drill one well each at North West Cook Inlet and Southern Cross by Sept. 30, 2012 and a second well at each by Sept. 30, 2014.

While Buccaneer expects to meet the Sept. 30 deadline for its first North West Cook Inlet well, it recently asked the Alaska Department of Natural Resources to extend its deadlines at Southern Cross by one year. With the extension, Buccaneer would have until Sept. 30, 2013 to drill the first well and until Sept. 30, 2015 to drill the second well.

In its request, Buccaneer said “unavoidable delays have prevented execution of drilling activities this year, but allowed for tremendous improvements” to the jack-up rig.

Specifically, Kenai Offshore Ventures decided to perform additional upgrades beyond the work it initially expected to do to make the rig suitable for operations in Alaska waters.

Those additional upgrades included adding lifeboat capacity on the rig to meet new federal safety regulations and work to extend the certification of the rig with the American Bureau of Shipping. But they also included improvements allowing Endeavour to be used as a standby rig for exploration work in the Beaufort and Chukchi seas and pushing up work planned for next winter to accommodate the drilling at Cosmopolitan.

With the Oct. 31 seasonal deadline for companies to stop drilling in the upper Cook Inlet, to avoid sea ice, Buccaneer said it would not be able to drill at Southern Cross this year.

Further, the company told the state in its request, “there is no other jack-up drilling rig available in Alaska waters for Buccaneer to drill at Southern Cross this year.”

Through a predecessor company, Furie Operating Alaska LLC brought the Spartan 151 jack-up rig to Cook Inlet last year, but is currently using the rig at its offshore prospects.

Buccaneer said it has “had some positive discussions” with state officials and “feels the request will be viewed in a positive light” because of its efforts to bring a jack-up rig to Alaska. The company said it expects a formal decision sometime in mid to late August.

Cosmopolitan close to closing

Buccaneer expects to complete drilling at North West Cook Inlet in early November and move Endeavour south to ice-free waters to begin drilling at the Cosmopolitan prospect.

Buccaneer and a privately owned firm out of Fort Worth, Texas called BlueCrest Energy II, LP announced plans in February to buy the oil and gas prospect from Pioneer Natural Resources Alaska Inc., but as of late July the companies had not yet closed on the deal.

Since February, BlueCrest requested and received two extensions to close the deal, according to Buccaneer. The most recent extension gives the companies until Aug. 14.

Under the proposal, BlueCrest would acquire a 75 percent working interest in the two leases off the coast of Anchor Point in the southern Kenai Peninsula. Buccaneer would acquire the remaining 25 percent interest and also become operator of the prospect.

The companies have not disclosed the value of the deal.

Buccaneer recently announced it had secured financing for its share of the deal.

Buccaneer also said it has been “working with third parties who have expressed an interest in the Cosmo transaction and who have substantial financial capabilities.” These third parties “confirmed that they would like to proceed and fund the acquisition of the remaining 75 percent working interest if BlueCrest is unable to proceed to settlement.”

“More efficient development”

Although Cosmopolitan contains known oil and gas accumulations, the two previous leaseholders, ConocoPhillips and Pioneer, both gave up on the prospect within the past decade because their estimates of its resource potential didn’t justify development.

But because Buccaneer and BlueCrest are much smaller companies than ConocoPhillips and Pioneer, they may be able to make an economic case for developing the prospect.

Pioneer previously estimated Cosmopolitan could contain between 30 million and 50 million barrels of oil and would average 3,000 barrels per day over its 30-year field life.

Buccaneer is currently quoting similar figures.

Using previous drilling, testing and seismic data, Buccaneer estimates Cosmopolitan contains some 31 million barrels of proved oil reserves. It also estimates the prospect could hold as much as 55.2 million barrels of oil equivalent of proved and probable reserves (broken down as 44 million barrels of oil and 90 billion cubic feet of gas).

Although working with similar estimates, Buccaneer believes its jack-up rig provides “a more efficient development plan than was previously available to Pioneer.”

First, Buccaneer can now drill all wells — production and injection — from offshore locations, rather than directionally from an onshore pad. Second, Buccaneer claims the shallower gas reserves at Cosmopolitan can only be reached by offshore drilling.

Buccaneer is planning a two-pronged development at Cosmopolitan. It plans to use its jack-up rig for shallow gas development between 3,000 and 4,000 feet deep, and directional wells started onshore for deeper oil development between 6,000 to 8,000 feet.

The well planned for this winter would target both zones.

Kenai Loop ready to go

As it works to finalize permitting and logistics for its offshore program starting later in the summer, Buccaneer expects to spud the Kenai Loop No. 4 well in early August.

While noting that all permits are in place and the Glacier No. 1 rig is on site, Buccaneer said it couldn’t pin down a precise spud date until it finalizes a bottom-hole location.

Buccaneer is drilling Kenai Loop No. 4 from an existing pad. It expects the 11,000-foot well to take between 35 and 40 days to drill, followed by 10 additional days of testing.

Although it had permits and equipment in place by late June, Buccaneer decided to hold off on drilling until it incorporated data from a recent 3-D seismic acquisition of the region into the geologic model it built from two Kenai Loop wells it drilled in 2011.

Having processed that seismic, Buccaneer now believes the producing formation at Kenai Loop is larger and contains more hydrocarbon anomalies than it originally thought.

The shoot covered a 23.4-mile area over the prospect and focused on two producing Tyonek sands — at 9,700 and 10,000 feet — around the Kenai Loop No. 1 well.

Based on preliminary results, Buccaneer now believes the aerial extent of Kenai Loop stretches 840 acres — or 1,680 acres, if both zones are considered separately.

In a previous assessment based on an aerial extent of 340 acres, Ralph E Davis Associates, Inc. estimated the Kenai Loop prospect contained 31.5 billion cubic feet of proved gas reserves and 38.3 billion cubic feet of proved and probably gas reserves.

Buccaneer said its early analysis also identified “11 new seismic hydrocarbon anomalies from stacked pays in the shallow Sterling and deeper Tyonek formations,” but said it planned to have these reviewed by third parties before finalizing future drilling plans.

The 9,308-acre prospect is adjacent to the northern border of the Cannery Loop unit on the northern Kenai Peninsula. Buccaneer recently applied to form a unit over its leases.

Buccaneer brought the Kenai Loop No. 1 well online in mid-January.

Producing at a rate of 5 million cubic feet per day, Kenai Loop No. 1 generated $2.8 million in gross revenue for Buccaneer in the second quarter, according to the company.