Sunday, July 21, 2013

West Eagle Unit - Plan of Operations Approved

Buccaneer Energy has announced that the plan of Operations for 100% owned West Eagle Unit #1 well has been approved by the Alaska Department of Natural Resources (DNR).

The company requires the following additional approvals before drilling operations commence:

  • A drilling permit must be approved by the Alaskan Oil and Gas Conservation Commission (AOGCC). This takes approximately 30 days and the company anticipates lodging the application shortly; and
  • The oil spill plan (C-Plan) amendment needs approval by the Alaska Department of Environmental Conservation (ADEC). Buccaneer applied for this amendment in March 2013 and it is currently under final review by ADEC.

The Company plans to spud the West Eagle #1 well on completion of the Kenai Loop #1-4 well using Glacier drilling rig currently on location at Kenai Loop. On completion of the West Eagle #1 well, the Glacier drilling rig will move back to Kenai Loop to continue the Kenai Loop development program.

The Glacier drilling rig was secured by Buccaneer Energy in 2012 for use on its land drilling projects and will utilized for the West Eagle prospect due to its lower risk profile and improved economics when compared to alternative drilling options.

The primary of objective of the West Eagle #1 well targets a 150’ Upper Tyonek interval of sandstones that has gas shows in a down-dip offset well, the Standard Oil of California, Anchor River #1. Up-Structure on a northwest to southwest trending ridge, the West Eagle well will test a large amplitude anomaly mapped on 223 miles of 2D seismic data. The anomaly size is estimated at more that 4,000 acres.

The West Eagle #1 well will also test a deeper, large stratigraphic pinch-out which is part of what is often called the East Side Oil Play made up of basal Teriary or older potential reservoirs up-dip from a postulated middle Jurassic oil source conduit system. The deeper objected is also amplitude supported.

The West Eagle #1 well is also included in the Letter of Intent announced by the Company on July 5, 2013. Subject to execution of binding agreements, the Farm-In party has an option to pay 100% of the costs associated with two wells at West Eagle for which is will earn 49% working interest.

Read entire July 17, 2013 press release:

Friday, July 19, 2013

Alberta oil export plan could use Alaska pipeline

By Tim Bradner
Alaska Journal of Commerce

Boats cruise past the Alyeska Pipeline Service Co.’s marine terminal where the 800-mile Trans-Alaska oil pipeline ends in Valdez, Alaska, Aug. 15, 2006. A new proposal could increase the flow through TAPS by adding Canadian oil, carried by rail or pipeline from Alberta to Alaska.

Boats cruise past the Alyeska Pipeline Service Co.’s marine terminal where the 800-mile Trans-Alaska oil pipeline ends in Valdez, Alaska, Aug. 15, 2006. A new proposal could increase the flow through TAPS by adding Canadian oil, carried by rail or pipeline from Alberta to Alaska.

Alaskans might get their long-sought rail connection with the Lower 48 paid for by Alberta oil producers.

They are now interested in shipping Alberta oil, including tar sands oil, to Alaska to be inserted into the Trans-Alaska Pipeline System and loaded on tankers in Valdez.

Another option is a pipeline to a possible Beaufort Sea port at Tuktoyaktuk, Northwest Territories. From there it could be shipped by tanker to markets in Asia via the Bering Straits.

Canadian provincial officials were in Alaska the week of July 15 to build support for new options to exporting landlocked Alberta oil.

“We’re pursuing all options, south, west, east and north,” Ken Hughes, Alberta’s energy minister, told the Pacific NorthWest Economic Region, or PNWER, annual meeting, being held this year in Alaska.

PNWER is a regional association of northwest U.S. states and western Canadian provinces, and includes Alaska, Yukon and Northwest Territories.

Shipping more of Alberta’s oil south to its traditional U.S. market is stymied by the stalled Keystone pipeline. Efforts to ship oil west and to export oil to Asia through a new pipeline to British Columbia are being opposed there.

Given that, Alberta is now looking north, Hughes said.

One option is the rail link or pipeline to Alaska that would transport oil to a possible connection with the Trans-Alaska Pipeline System at Delta.

TAPS, which is operating at one-third capacity, would then move the oil south to the Valdez Marine Terminal for loading on tankers.

The second option is shipping oil through the Beaufort Sea.

A study of a pipeline to Tuktoyaktuk is nearly complete, Hughes said in an interview, while an assessment of the Alaska plan is due to be finished by 2014. Alberta has retained two consultants, Calgary-based Canatec Associations International on the northern pipeline option and the Van Horne Institute and University of Calgary on the second proposal for rail.

G Seven Generations Ltd., a Vancouver, B.C. firm with connections to Canadian First Nations groups, has been pursuing the Alaska rail initiative for some time, Hughes said, and has been talking with Alaska state and industry officials.

Alberta has made a $1.8 million (Canadian) contribution toward the cost of the rail option study, he said.

David Ramsay, Northwest Territories’ Minister of Industry, said his province favors the northern pipeline option because it would provide an outlet for a shale oil play in the region as well as the Alberta oil, and would enhance the construction of a Mackenzie River valley gas pipeline someday.

A lateral connection with TAPS from that project is also being explored that would follow a northern route through Yukon Territory rather than the rail option being investigated by G Seven Generations, Ramsay said. It would offer better terrain conditions, he said.

Alaska officials were not available to comment on the proposals by Alberta but an influential legislator, state Rep. Bob Herron, D-Bethel, said the rail option, “will get a chilly reception here after the Quebec disaster.” Herron co-chairs the new Alaska Arctic Policy Commission.

Hughes said he doesn’t believe the Quebec tragedy will stem the growth of oil shipments by rail but that the oil and railroad industries will have to ramp up sharply on safety.

“The Quebec tragedy reminds us that if we’re to be able to handle the immense amounts of oil we see being developed we’ll have to up and game in all aspects,” Hughes said.

Representatives of G Seven Generations have made contacts in Alaska in recent months and have spoken of a rail system capable of moving up to 1 million barrels per day, but sources in industry said that number is far higher than would be realistic.

One engineering consultant familiar with the rail idea, asking to remain unidentified, says a technical hurdle will be the cost of heating the oil, or bitumen, in the rail tank cars as they are moved in winter through northwest Canada and eastern Interior Alaska, where winter temperatures can drop to as low as minus 70 degrees Farenheit.

There could also be technical problems if bitumen is shipped through TAPS, and the existing pipeline owners, who are also oil shippers and North Slope producers, would be concerned with the degradation of the quality and value of crude oil shipped in the pipeline if it were mixed with Alberta bitumen.

Also, building through hilly terrain through western Yukon Territory and discontinuous permafrost soils in eastern Interior Alaska pose big challenges to a rail or pipeline, the consultant said.

Another problem is that west coast U.S. refineries may be unable to refine the blended Alberta and North Slope crude oil if it is much heavier than the oil now being shipped. Several refineries on the west coast were built or adapted to efficiently process North Slope oil. As the volume of Alaska oil has declined and grown heavier because the changing types of oil being produced, the refiners have had to import lighter oil from Russia and other places to mix with Alaska oil.

If the oil is made even heavier by adding Alberta crude or bitumen it could complicate things for the refineries, resulting in lower values paid for the oil.

A spokeswoman for BP, one of the owners of the Alaska pipeline, said she could not comment on any discussions of the rail/TAPS option.

“The TAPS owners frequently get approached by people with ideas on how to increase the utilization of TAPS. As common carriers, we listen to them all, but those business conversations are confidential,” said Dawn Patience, spokeswoman for BP.

Meanwhile, Alaska Railroad Corp. spokesman Tim Sullivan said the state-owned railroad is still working on its own long-range plan for a rail extension from Fairbanks to Delta, and someday on to the Canada border.

The first increment of that is now under construction, a bridge over the Tanana River at Salcha, east of Fairbanks, Sullivan said. The bridge is dual road and rail and will initially be used by the U.S. Army, who is helping to pay it for it, but the bridge is an essential part of an eastern rail extension because the route must be on the south side of the river.

“We have to take this one step at a time, and the bridge is the first step,” Sullivan said. Route surveys have been done as far as Delta, and the hope is that the U.S. Department of Defense will help pay the costs to Delta to improve logistics for the missile defense facility there.

The extension on to Canada has always been a big question, but if Alberta oil shippers foot the bill along with sections of new rail from northern British Columbia through Yukon, the question will be answered.

University of Alaska minerals economists have done studies showing that rail transportation and less expensive transport costs could lead to more development of mines in Interior Alaska.

Read more:

Friday, July 12, 2013

New BP president outlines aggressive investment plans

Tim Bradner
Alaska Journal of Commerce

More than 900 people crowded into the Dena’ina Center in Anchorage June 23 at the Resource Development Council’s annual meeting, most coming to hear BP’s new Alaska President Janet Weiss talk about the company’s plans for investment on the North Slope.

Weiss was appointed Jan. 29 to replace former president John Minge, but this was her first public address. Her selection to lead the company is significant because she is the first BP Alaska president to have spent most of her entire career in the state, most of it with BP.

That gives here first-hand experience with the company’s operations and with the state as well.

“I’ve just celebrated my 28th anniversary with BP and ARCO, and I’ve spent nearly 20 of those years right here in Alaska … right where I want to be,” Weiss said.

She takes over BP at a pivotal time. The state Legislature passed Senate Bill 21 in mid-April, reshaping and reducing the state’s oil production tax with the hopes for the change to spur renewed oil investment.

Most of that would have to come from BP and its partners ConocoPhillips and ExxonMobil, who own the large producing fields on the Slope where the bulk of the near-term potential for new production is located.

BP is operator of two of the biggest fields, Prudhoe Bay and Milne Point. In her speech, Weiss described her hands-on background with the North Slope:

“I’m an engineer by background. I came to Alaska in the mid-‘80s when times were tough. I’ve seen North Slope production climb to more than 2 million barrels a day and decline (now) to half a million barrels a day. I was here to live through single-digit oil prices and to experience prices well over $100 a barrel,” Weiss said.

“I’ve seen companies go through mergers and acquisitions. From small independents to some of the largest oil companies in the world, I’ve seen new entrants to the Slope come, and I’ve seen some companies go.”

She made personal observations: “Troy and I raised our two kids mostly in Alaska. Alaska is stunning. Our family is attracted by its beauty and the spirit of adventure among Alaskans.

“For me, Alaska’s vastness and sense of adventure apply to the North Slope as well. The extent and quality of the reservoirs are world-class, and the lure of innovation is infectious. Conditions are challenging; innovation and technology are imperative to tap the vast resource potential that’s there. That’s what makes it great.”

Coming together

Weiss cited examples of Alaskans coming together with shared vision: statehood, economic recovery from the 1964 earthquake, and construction of the Trans-Alaska Pipeline System.

She put the Legislature’s passage of SB 21 in the same category as a historic point where people decided to change the economic fundamentals that underlie a major state industry, petroleum.

“I’m inspired by the challenge of ensuring BP does our part to build a strong and sustainable future for Alaska now that you’ve provided us with a more competitive investment climate,” she said. “I believe our 2,300 employees in Alaska feel the same way.

“SB 21 signaled something important to industry: that Alaska wants to be a globally attractive place for investment. This is already having a profound impact on the pace and scale of projects we’re pursuing as a company with our co-owners and as an industry on the North Slope.”

The tax change made by the Legislature in SB 21 effectively lowers the “government take” (federal, state and local, most of its state) share of Alaska oil production from about 75 percent under the previous tax law to between 60 percent and 65 percent under the revised tax approved by the Legislature in April, getting to a mid-range of producing jurisdictions.

Within days after the Legislature passed SB 21 on April 14, North Slope companies including BP began making announcements on projects.

ConocoPhillips announced new work in the North Slope fields it operates, the Kuparuk River field and leases in the National Petroleum Reserve–Alaska, where it is operator. BP announced shortly after it would invest $1 billion in new work in fields it operates.

Project plans

In her June 26 speech, Weiss elaborated on this initial announcement to discuss new projects including a potential $3 billion development in the west end of Prudhoe Bay and a new project in the Milne Point field with an estimated investment of $1 billion to $2 billion.

If the new projects being planned and evaluated by the major North Slope producers go forward, it would total more than $5 billion in new investment.

A separate slate of projects are meanwhile planned by independent companies, including Brooks Range Petroleum, a small Alaska-based company, and Pioneer Natural Resources, a large independent based in Dallas.

Companies are also exploring. Repsol, the Spain-based major oil company, made three oil discoveries in three exploration wells it drilled this past winter season, two of them very encouraging, the company has announced.

Repsol’s drilling has been underway for two winter seasons — and prior to the passage of SB 21 — but the company says that the prospect of a tax change encouraged it to come to Alaska in 2011 when the governor first proposed the reduction.

What the companies have said they will do for certain, so far, is:

• put three new rigs to work;
• develop one small new field outside the producing fields (the Brooks Range “Mustang” field;
• develop a small, economically-marginal reservoir within the Prudhoe field.

BP said it would put two new drill rigs to work in the fields it operates, Prudhoe Bay and Milne Point. Weiss, at the RDC, said the company is now soliciting proposals to build the rigs and that they will be drilling by 2015 and 2016.

The two rigs will add 30 to 40 new production wells per year for at least five years in the BP-operated fields and about 200 new drilling jobs, Weiss said. They will increase BP’s rig fleet to nine.

A new Prudhoe Bay project BP will tackle soon, she said, is development of the Sag River formation, a thin, technically-challenged reservoir that overlies the main Ivishak producing formation of the Prudhoe field.

The first phase of Sag River development involves 16 wells, with drilling to begin in 2015. Ultimately there could be 200 new production and injection wells, and about 200 million barrels of new oil production.

BP will also evaluate the Northwest Schrader prospect in the Milne Point field, Weiss said. Technical hurdles must still be overcome, but the project would require $1 billion to $2 billion in new investment, construction of two new well pads and 70 new wells, with about 80 million barrels of new production added.

“These were projects that were sidelined by the state’s tax policies,” prior to the change made by the Legislature in April, Weiss told the RDC.

Weiss added more details on the potential Prudhoe Bay west end projects also being evaluated. If these proceed they will include “debottlenecking existing facilities and field infrastructure, expansions of existing well pads, construction of one new pad and 100 new wells,” she said.

“We expect appraisal work to last two to three years. Development could last at least a decade. These projects would create thousands of direct and indirect jobs, access hundreds of millions of barrels of additional oil at Prudhoe, and eventually generate tens of thousands of barrels of new production per day.”

ConocoPhillips, meanwhile, has announced new projects in the Kuparuk River field, where it is operator, along with the prospective development in the National Petroleum Reserve–Alaska.

In the Kuparuk field, ConocoPhillips said it will add one drill rig and begin evaluation of a new production pad in the southern part of the field.

The new Kuparuk production pad being considered is Drill Site 2-S at the southern edges of the known Kuparuk reservoir. ConocoPhillips had earlier drilled an exploration well there, “Sharktooth,” to test for potential oil accumulations.

In the NPR–A, ConocoPhillips holds federal leases along with Anadarko Petroleum Corp., a minority owner. ConocoPhillips said it has started work there on permitting and engineering for the development of GMT-1, one of two discoveries made by the company several years ago in the northeast part of the petroleum reserve. GMT-1 is 17 miles southwest of the Alpine field, which is operated by ConocoPhillips.

The company plans to submit permits to the U.S. Bureau of Land Management, which administers the NPR–A, later this year. ConocoPhillips’ other discovery in the area is GMT-2, which is eight miles further west, and which is not being developed at this time.

Even though NPR-A is federally-owned, under federal law half of the NPR-A royalties are shared with the state and production taxes to the state are paid just as if the production were from state-owned or private lands. That means the changes made by SB 21 also benefit the economics of potential NPR-A projects.

Independent moves

While most attention is focused on the companies operating the large producing oil fields independents are also moving aggressively on new projects.

Brooks Range Petroleum is now constructing its new “Mustang” project west of the Kuparuk River field. This is a small field that will produce about 15,00 barrels per day at peak, and will be in operation by 2015.

While Mustang was in development before the tax change, SB-21 has improved its economics and has encouraged Brooks Range to begin work on other nearby prospects that are similar to Mustang, the company has said.

Pioneer Natural Resources, a major independent company, is meanwhile working on a potential new project near its existing Oooguruk field. Pioneer’s “Nuna” prospect has been drilled and evaluated, and the company is expected to make a decision this fall on whether to develop the project. If it moves ahead Nuna could produce about 15,000 barrels per day.

These are relatively small fields, but together they could add an amount of new production for TAPS. While there have been many oil discoveries on the North Slope, the geology is still attractive for the finding of many small to medium-sized fields, Brooks Range and Pioneer have both said.

Read more:

Buccaneer Energy puts a big bet on its Cook Inlet strategy

Tim Bradkner
Alaska Journal of Commerce

Buccaneer Energy CEO Curtis Benson, seen during a June visit to the Journal office, initially thought making a move to Alaska was “nuts,” but now the Houston-based company is arguably now the most aggressive explorer in Cook Inlet.

Alaska wasn’t on Curtis Burton’s radar screen when he helped start Buccaneer Energy in 2007 but it quickly became the centerpiece for the company’s growth strategy.

Buccaneer, based in Houston but listed on the Australian stock exchange, is essentially a U.S. company. Its assets and people are all in the U.S., and the company is arguably now the most aggressive explorer in Cook Inlet.

Burton is a 30-year industry veteran who has helped start several companies focused on offshore oil and gas. His first idea in forming Buccaneer was to concentrate on the U.S. Gulf of Mexico and follow the classic independents playbook of picking up prospects too small for major companies but ripe for small, aggressive firms like Buccaneer.

There were some bumps, however, mainly the meltdown in financial markets in 2008 that hurt Buccaneer’s plan to raise funds. Emerging from that, Burton looked at the industry’s new trends, like shale oil.

Someone mentioned Alaska.

“I thought they were nuts,” he said in an interview at the Journal office.

“Too cold, too green,” he said, a reference to the state’s reputation for attracting environmental activism.

“Then I spent a couple of months digging into it. I found Alaska, and Cook Inlet, to be exactly what we were looking for. There are issues of course, but we believe they are all manageable,” Burton said.

Basically, Burton became convinced Cook Inlet was underexplored. A few large oil and gas fields were found in the basin in the 1960s and 1970s by “major” companies, but when very large discoveries were made on the North Slope in 1969, all the exploration effort went there and essentially never returned to Cook Inlet.

The fields that were found were developed and are being produced, but are now winding down. Declining gas production led to the closure of the Agrium Corp. fertilizer plant near Kenai in 2007 and, more recently, suspension of operations at the nearby ConocoPhillips liquefied natural gas plant.

More important, the region’s gas and electric utilities became seriously concerned about having adequate supplies of natural gas.

Most geologists believe, however, there are still substantial oil and gas discoveries yet to be made in the Inlet and Burton believes that new technology available to industry now, like three-dimensional, or 3-D, seismic, and horizontal drilling, will make that happen.

Independents have come, and gone, from Cook Inlet in previous years, but Buccaneer timed its recent entry just right for the state’s new exploration incentives but ahead of other, larger independents like Apache Corp. and Hilcorp Energy, who are also now active in Cook Inlet.

Buccaneer bid against Hilcorp for Marathon Oil Co.’s Alaska assets when they were put up for sale, but was outbid, Burton said.

However, Burton believes Buccaneer helped stir up industry interest in Alaska because he was out early stumping for investment funds. A lot of other independents had negative impressions at the time, having read all about Shell’s problems in the Arctic offshore in the trade press. Still, Buccaneer’s promotion along with the state’s own marketing efforts by the Department of Natural Resource, opened some eyes in the industry, Burton believes.

What really opened eyes, though, was when Buccaneer purchased onshore leases on the Kenai Peninsula in 2010, permitted and drilled its first well and made a discovery in 18 months. It was an unheard-of pace in Alaska, at least in recent years.

What’s more telling is that the well, Kenai Loop No. 1, is one mile from Marathon Oil Co.’s Cannery Loop gas field that has been producing for decades. The well is so close to the city of Kenai that it became known as the “Wal-Mart well” because it can be seen from the parking lot of the retail store in Kenai.

That a commercial gas discovery on acreage overlooked by a major company could be pulled off by a small company made Burton’s point. At first it was also dismissed by the major company operators as a small gas pocket that would quickly decline but in the two years since the well has been operating its production has been steady, and in fact has increased. A second well was successfully brought on line in what is now called the Kenai Loop gas field.

More drilling is planned in Kenai Loop and on other Kenai Peninsula gas prospects, such as the “West Eagle” well planned to be drilled this fall east of Homer, a region where other independent companies are also working.

However, Buccaneer’s prime prospects are offshore, in Cook Inlet, and involve oil as well as gas.

The company acquired leases in north Cook Inlet with prospects, in the “North West Cook Inlet” and “Southern Cross” units that were identified years ago by drilling but not developed. Another prospect, “Cosmopolitan,” near Anchor Point, was acquired and is now being drilled. Test wells on the two north Cook Inlet prospects are planned for later this year.

Another innovative move by Buccaneer, however, was to get a jack-up rig to Cook Inlet to explore the offshore leases. The company brought in Ezion Holdings of Singapore, an investment company, as a partner in the Endeavor jack-up rig, and convinced the Alaska Industrial Development and Export Authority, the state’s development corporation, to invest in the rig to facilitate it to Alaska.

AIDEA’s share will eventually be purchased by the other partners under the deal.

At the time, Escopeta Oil and Gas was attempting to bring a jack-up rig to Cook Inlet it wasn’t clear it would be able to pull it off. It did make it, but Buccaneer and its partners proceeded with bringing the Endeavour rig from Asia because Escopeta (now Furie Alaska Operating) had its own wells for its contracted rig to drill.

So far Buccaneer is on course with its plan but there have been hiccups. One was the lateness of the Endeavour’s arrival in Cook Inlet and unfinished work on the rig, which had to be done last winter in Homer.

Buccaneer is meanwhile in a lawsuit with the former rig operator over the unfinished work.

More recently, dissident shareholders attempted to take over the company and replace its board, with concerns about the company’s Alaska strategy among their prime criticisms. There were also board changes but so far Burton and other supporters of the Alaska strategy are still in control.

Meanwhile, the Endevaour rig continues drilling on the Cosmo No 1 well offshore Anchor Point. There is a known oil and gas discovery there and Buccaneer is doing tests to see if production can be done economically.

The decision to list what is for all practical purposes a U.S. company on Australia’s stock exchange came about because of the costs and extensive requirements of a listing on U.S. exchanges, Burton said.

“The U.S. exchanges are not well suited to small startups. The Australian exchange is, however, although it is strictly regulated,” he said. “The plan was always to start the company and grow it while listed in Australia, and then eventually move to the Toronto or a U.S. exchange.”

Burton said small independents and particularly new companies are chronically underfinanced if they develop an aggressive strategy like Buccaneer’s, and a shortage of capital has created problems, he acknowledged.

For example, Buccaneer fell behind last year in paying suppliers and contractors for their work on the Kenai Peninsula and Cook Inlet wells, but those payments are now caught up.

“We appreciate peoples’ patience with us,” Burton said.

In total, Buccaneer has spent $100 million in the region since it started work in 2010, he said.

However, Australia’s rule that shareholders with more than 5 percent of shares can call for a special shareholder meeting and replace the entire board created the opportunity recently for the challenge by dissident shareholders.

It is unclear just who the dissidents are. The shares, which total 8.7 percent of Buccaneer’s shares, are held by two companies with offices in Singapore and Hong Kong. The new directors named to the board are people experienced in the industry, although they are not familiar with Alaska.

However, there is also concern that the money behind the dissidents may be coming from mainland China and that this could represent an attempted takeover of a U.S. energy firm by Chinese interests.

In any event, AIDEA says its investments in the jack-up rig are secure against any attempted change in the company’s plans. Buccaneer is committed by contract to drill the Cook Inlet offshore wells, AIDEA spokesman Karsten Rodvik said.

The board takeover failed and Buccaneer has now reinforced is position by bringing in a new investor, Meridian Capital International Fund, which now owns 19.9 percent of Buccaneer’s shares.

Read more:

Wednesday, July 10, 2013

Cook Inlet Energy appeals Otter unit denial, questions state’s ‘new policy’

—Wesley Loy

Cook Inlet Energy LLC is appealing the state’s recent rejection of its Otter unit application, arguing the decision goes against past practice and “undermines” the governor’s efforts to spur oil and gas development.

The June 13 appeal was filed on the letterhead of law firm Crowell & Moring.

Otter is a natural gas prospect on the west side of Cook Inlet.

Cook Inlet Energy had applied to form a 5,855-acre unit out of portions of four state oil and gas leases.

Creating the unit holds some urgency for the company, as two of the leases could soon expire. Unitization has the effect of extending lease terms.

On May 23, however, state Oil and Gas Director Bill Barron denied the Otter unit application. He found, among other things, that unitizing the acreage wasn’t necessary, and that Cook Inlet Energy had yet to prove a viable reservoir for development.

Otter in jeopardy?

Cook Inlet Energy is the young subsidiary of Miller Energy Resources Inc., a publicly traded company based in Tennessee.

The Otter unit appeal is addressed to Dan Sullivan, the commissioner of the state Department of Natural Resources.

Unless Barron’s decision is reversed, the appeal says, further drilling “will most likely not occur” on the Otter prospect.

While Barron said the company could proceed lease by lease, Cook Inlet Energy argues no prudent company would move forward with drilling if part of the lease hold overlying the Otter structure is about to expire.

“Investors simply are not going to commit capital for a project unless the acreage position is secure,” the appeal says.

The appeal further says Cook Inlet Energy already has spent, to date, more than $10 million on exploration activity at Otter, and plans to spend $2 million more to prove up the gas reservoir — if the Barron decision is reversed.

‘Rolling the dice’

The Otter prospect is about nine miles north of the ConocoPhillips-operated Beluga River gas field.

Cook Inlet Energy already has drilled one exploratory well at Otter, on lease ADL 390579, and plans to re-enter the well to deepen it. The lease’s primary term already has elapsed, but the company is able to hold it with the drilling operations.

An adjacent lease is due to expire on Sept. 30, while the other two leases are good through February 2018.

The company has spoken positively of what it has found at Otter so far, and says it already has received state approval of a gas pipeline right of way.

In its appeal, Cook Inlet Energy touted its vigor since forming in 2009, describing itself as “nimble, diligent, and willing to explore and develop prospects long neglected.”

The company noted how it took over and revived a collection of shut-in assets from Pacific Energy Resources Ltd., a company that went bust.

Since 2009, Cook Inlet Energy has invested some $41.5 million on the offshore Redoubt unit, and $13.3 million on the West McArthur River unit. What’s more, the company says it has bid millions of dollars in Cook Inlet lease sales, and is pursuing multiple drilling projects in the Cook Inlet and Susitna basins.

The appeal says Barron’s decision goes against the stated goal of Gov. Sean Parnell, as well as the Alaska Legislature, to see more investment in Cook Inlet where gas deliverability has become strained and where an “oligopoly” exists in the gas supply market.

Barron is “rolling the dice” that the Otter acreage will be developed lease by lease, and his decision “will have a chilling effect on attracting new companies and investors to Cook Inlet,” the appeal says.

Change of policy suspected

In his denial, Barron noted that while Otter shows clear potential for a hydrocarbon accumulation, Cook Inlet Energy “has been unable to provide evidence of a reservoir at the Otter structure.”

A major argument in the company’s appeal is that Barron and the Division of Oil and Gas appear to have unlawfully adopted a new policy against “exploration units.”

“This new policy runs counter to DNR’s statutes, regulations and DNR’s past practice,” the appeal says.

The company also argues that, in denying the unit, the state denies Cook Inlet Energy the ability to explore and develop the leases in the most rational manner, with the least surface impact.

Cook Inlet Energy is asking the DNR commissioner to vacate Barron’s decision, and to direct Barron to form the Otter unit and work with the company to “address any perceived deficiencies.”

The company also is asking that the commissioner clarify DNR’s unit policy, as Barron “disregarded DNR’s unitization regulations and DNR’s past practice.”

Finally, Cook Inlet Energy wants the commissioner to convene a hearing on its appeal.

Read more:

State applies for seismic exploration permit in ANWR coastal plain

Tim Bradner
Alaska Journal of Commerce

Gov. Sean Parnell said Tuesday the state will apply for a federal permit to do a winter seismic program in the coastal plain of the Arctic National Wildlife Refuge and said federal law requires that Interior Secretary Sally Jewell grant the permit if the proposal complies with U.S. Fish and Wildlife Services rules.

The seismic exploration program would be in the “1002” coastal plain area of the Arctic National Wildlife Refuge, Parnell said Tuesday in a press conference.

The state has pressed the federal government for years to allow coastal sections of the wildlife refuge to be explored. Federal and state geologists have said the area is prospective for major discoveries for several years.

Congress approved the exploration once, but the bill was vetoed by former President Bill Clinton, a Democrat. Other efforts to get a bill through the U.S. Senate failed several times, although the House has given approval at least 12 times. Conservation groups have mounted vigorous campaigns to keep the area closed to drilling.

Parnell said the Alaska National Interest Lands and Conservation Act allows for certain exploration activities that meet U.S. Fish and Wildlife regulations. In a letter send to Interior Secretary Sally Jewell June 9 Parnell said the state would pick up the $50 million estimated cost of the first year of a three-year, three-dimensional seismic program in the 1.2 million acres of the 1002 area.

In 1980, Congress set aside the coastal area of ANWR under Section 1002 of the act for study of its oil and gas potential. Eight million acres of ANWR, which totals 19 million acres, was designated as wilderness, but not the 1002 coastal area.

Parnell said Section 1002(e) of ANICLA is clear that the Secretary shall issue a special use permit allowing seismic if the requirements of regulations are met. No drilling is included in the state plan.

“When presented with an exploration plan and permit application, ANILCA requires the Secretary of the Interior to publish the plan in the Federal Register, hold a public hearing in Alaska and, if the plan is consistent with applicable law, to approve the plan within 120 days of its filing,” Parnell said. “The clock is now ticking.”

Once the data is gathered the state will make it public, State Natural Resources Commissioner Dan Sullivan said at the press conference. Data from a 2-D industry seismic program done in 1980s is public but the results of the only exploration well drilled in ANWR, the KIC No. 1 well drilled by BP and Chevron in 1985 on subsurface land owned by local Native corporations, are still confidential.

Interior officials were briefed several weeks ago on the proposal and in a letter sent to Parnell in late June, Jewell said the department opposes the plan and that the permission in section 1002(e) has expired. Sullivan said there in nothing in the existing statute that terminates the section, and that current fish and wildlife service regulations allow such activities if requirements are met.

Parnell said the state’s proposal is prompted by a pending Department of the Interior management plan for ANWR that includes no provision for assessing the oil and gas potential of the 1002 area.

“It’s critical the American people know the potential of this area for oil and gas to be able to weigh that again the value of fish and wildlife resources on the surface,” Parnell said.

An industry-sponsored 2-D seismic program was conducted in the 1002 area in the 1980s, but the 3-D seismic program now proposed would use modern technology to provide a much more detailed and sophisticated look at potential hydrocarbon accumulations, Sullivan said.

“Why wouldn’t the federal government want to know the value of these resources? The intent of ANILCA is for a continuing assessment of all the values, surface and subsurface, so why not?” Sullivan said.

Parnell said the state’s $50 million would cover only the first year of the three-year program but that he may seek additional funds from the Legislature for the second and third years if other funding, such as from industry, does not materialize.

The first year of winter seismic would be in the western part of the 1002 area and would cover the Marsh Creek area. This area is believed to have the greatest potential and is also close to existing industry infrastructure in the Point Thomson area, on state lands just to the west, state petroleum geologist Paul Decker said. If the program continues, the second winter of seismic work would cover the Hula Hula River area generally further east. The third year would focus on areas of the 1002 area to the south, Decker said.

Parnell did not say whether the state would go to court if Jewell rejects the state’s permit application.

“Her response could take many forms, so we’ll cross that bridge when we come to it,” he said. Read more:

Thursday, July 4, 2013

Buccaneer board splits over Cook Inlet work

Tim Bradner
Alaska Journal of Commerce

Three new directors were named to the board of Australian independent Buccaneer Energy in a special July 2 shareholder meeting, a development that puts the company’s current focus on Cook Inlet offshore exploration in question.

The board is now split three-to-three, with the three new directors — Nicholas Davies, Shaun Scott and Clinton Adams — critical of Buccaneer’s current exploration with the Endeavour jack-up rig, which is also partly owned by the State of Alaska.

Three other directors — company CEO Curtis Burton, Dean Gallegos, who is also the board chairman, and newly-appointed director Brian Moller — are supportive of the Alaska strategy, sources familiar with the shareholder election said.

Under the company’s rules, Gallegos, as chair, is entitled to an extra vote if there is a tie vote among the directors. However, a new investor in the company, Meridian Capital International Fund, is entitled to appoint a director, although it has not yet done so, Buccaneer said in a press release.

That would give the company seven directors.

The special board meeting came about at the request of two financial companies with offices in Hong Kong and Singapore — Pacific Hill International and Harbor Sun Enterprises Ltd., respectively — which purchased 8.69 percent of Buccaneer’s shares last December.

Under Australian law, shareholders with more than 5 percent of a company have the right to request a special shareholder meeting and to name new directors.

The company’s Alaska strategy is being questioned because of concerns for costs of the Cook Inlet offshore exploration and a preference for a less-risky onshore strategy.

However, the connection of Pacific Hill International and Harbor Sun Enterprises Ltd. with Hong Kong and potential mainland Chinese investment sources has caught the attention of state officials in Alaska.

Buccaneer’s CEO Curtus Burton, who was in Alaska recently touring company operations, defended the current plan of exploring both offshore and onshore in Southcentral Alaska because it gives the company access to potential oil production, which is offshore, as well as potential gas, which is both offshore and onshore.

The leases Buccaneer is exploring in Cook Inlet are known oil discoveries that can be evaluated for development with the Endeavour jack-up rig.

At this point it may be difficult for Buccaneer to change course, at least soon, because of contractual commitments and lease obligations to the state.

A spokesman for the Alaska Industrial Development and Export Authority, the state development finance agency that has partnered with Buccaneer and Ezion Holdings in the Eneavour rig, says it is watching developments with the company’s new board closely.

AIDEA has invested $23.6 million in Kenai Offshore Ventures, which owns the rig and is co-owned by Buccaneer and Ezion.

AIDEA feels its investment is protected by contracts signed with Buccaneer to drill additional wells on the company’s Cook Inlet leases beyond the current drilling at the Cosmo well, spokesman Karsten Rodvik said.

“All of Buccaneer’s obligations to AIDEA, including their commitment to drill four wells in Cook Inlet, are clearly and contractually defined, and must be fulfilled,” Rodvik said.

Buccaneer is also obligated to drill wells on its offshore leases under lease extension agreements signed with the Department of Natural Resources. If the wells are not drilled, Buccaneer is likely to lose the leases.

Buccaneer meanwhile announced new results on its Cosmo No. 1 offshore text in Cook Inlet on July 2.

The well is at approximately 6,000 feet and wireline testing has been completed on 170 feet of possible gas-bearing zones in the Upper Tyonek formation, which Buccaneer has drilled through.

“At least one zone is known to be capable of gas production as a gas sample was taken using MDT,” or a Measurement-While-Drilling tool, Buccaneer said in a press release.

The company plans now to deepen the well through known oil-bearing reservoir sections in the Starichkoff and Hemlock formations, where oil samples will be taken.

The company plans to do a production test of the shallower potential gas-bearing zones. The well is in shallow water three miles off Kasilof, on the Kenai Peninsula south of Anchorage.

Buccaneer hopes to do a subsea production system at the site to avoid the cost and permitting issues related to a platform. The location is also near an existing onshore gas pipeline.

Read more:

Monday, July 1, 2013

Showdown under way; Buccaneer shareholders to vote July 2 on whether to keep existing board

Eric Lidji
For Petroleum News

In a showdown likely to have implications for Cook Inlet, the shareholders of Buccaneer Energy Ltd. will meet on July 2 to decide whether to keep the existing board of directors, or replace them with officers chosen by two Hong Kong based shareholders.

Earlier this year, Pacific Hill International Ltd. and Harbour Sun Enterprises Ltd. requested the meeting for shareholders to vote on whether to remove the four existing directors: Chairman Alan Broome, CEO and Managing Director Curtis Burton, Finance Director Dean Gallegos and Director Frank Culberson. The shareholders will also vote on whether to add Nicholas Davies, Clinton Adams and Shaun Scott to the board.

Under Australian corporation law, shareholders holding at least a 5 percent interest in a given company may request a meeting for shareholders to vote on proposed resolutions.

Pacific Hill International and Harbour Sun Enterprises became shareholders through a stock placement late last year, and hold a combined 8.6 percent interest in Buccaneer.

Issue is Alaska

The two investors accuse Buccaneer of having “lost its way” in Alaska, citing its ever-growing lease portfolio, its recent cost overruns, its difficulties securing funding and the vagaries surrounding its recent efforts to better market the company for a potential sale.

The existing board is making a push to get shareholders to vote against the resolutions, including letters, video appeals, meetings in Texas and Australia, and conference calls.

They argue that the company has “never been more focused,” and is poised to capitalize on its ambitious portfolio in Cook Inlet basin after three years of preparatory work.

Since arriving in Alaska in early 2010, Buccaneer has acquired a large portfolio in Cook Inlet, including seven prospects across some 50,000 net acres, a stake in the Endeavour jack-up rig for offshore activities and a lease on the Glacier rig for onshore activities. Currently, the company is earning revenue in Alaska from the 3 billion cubic feet produced to date at its Kenai Loop field and from tax credits, but whether the bulk of its investments in the region pay off depend on its activities over the next two years.

A jacked-up debate

The Endeavour jack-up rig seems to be at the heart of the issue.

Pacific Hill International and Harbour Sun Enterprises appear to believe Buccaneer is taking on too many opportunities without adequate funding, according to a statement the companies sent to shareholders, which Buccaneer partially quoted in recent filings.

The two shareholders believe Buccaneer “has lost investor confidence and is struggling to secure the necessary funding required to execute its strategy” and thinks the company “needs to get back to the business of being an upstream oil and gas company,” presumably a reference to the significant investment partnership required to buy the rig.

Buccaneer believes owning the rig has allowed it to pursue known prospects in Cook Inlet, while opening the door to a future revenue stream through leasing opportunities.

Through Kenai Offshore Ventures LLC — a joint venture with Singapore based Ezion Holdings Ltd. and the Alaska Industrial Development and Export Authority — Buccaneer purchased the rig from Transocean Offshore Resources Ltd. in late 2011.

The jack-up rig is currently drilling at the offshore Cosmopolitan prospect, and is scheduled to drill in the coming years at the Buccaneer-operated Southern Cross and Northwest Cook Inlet units, and at the ConocoPhillips-operated North Cook Inlet unit (a legacy natural gas field where Buccaneer recently farmed-in the deep oil rights).

Without any jack-up rig, Buccaneer would be unable to explore these prospects. And if it leased a jack-up rig, such as the one Furie Operating Alaska is using to explore the Kitchen Lights unit, Buccaneer would be unable to drill its portfolio at its desired pace.

But purchasing the rig brought risks.

The rig arrived in Alaska from Malaysia in August 2012, but subsequently spent months docked in Homer. The exact nature of the delay remains in dispute, but Buccaneer and rig operator Archer Drilling LLC eventually parted ways. In legal filings, the companies have accused each other of breaching the contract and failing to pay contractors on time.

Buccaneer is now using the rig, but the delay created a ripple effect, forcing it to request extensions for its state work commitments at Southern Cross and Northwest Cook Inlet.

Even as the company needed more time to handle its existing portfolio, it was closing on a deal to purchase the Cosmopolitan prospect from Pioneer Natural Resources Alaska Inc. and working on a deal to farm-in the deep oil rights at North Cook Inlet. And although the jack-up delays concern only offshore developments, Buccaneer also asked for additional time to pursue West Eagle, an onshore development in the Homer area. The state agreed to the extension, but required Buccaneer to post bonds to guarantee the work.

Pacific Hill International and Harbour Sun Enterprises believe all these events prove Buccaneer is unfocused, but the existing Buccaneer directors believe they are steadfast.

In a recent letter to shareholders, Broome described Buccaneer as being in the “execution phase” for its Alaska portfolio: producing at Kenai Loop while starting its offshore program. “This puts the company in a compelling position and is the result of more than three years of effort by the current board and management team putting together permits, technical data and a skilled team in a niche, but highly attractive market,” Broome wrote.

Is Buccaneer for sale?

The two revolting shareholders also criticized the status of Buccaneer on the market.

While acknowledging that Buccaneer’s stock price is low (and has generally been declining since about March 2011), Broome wrote that the existing board believes “the market is nowhere close to fully or fairly valuing Buccaneer’s assets and their potential.”

Broome said that Buccaneer wanted to have something other than its share price to show any potential buyers interested in the company, and so it hired Canaccord Genuity (Australia) to evaluate its portfolio. To the two shareholders, though, this move made it appear as though Buccaneer is “now pursuing a process which appears that the entire company is up for sale with no clear or preferred transaction outcome being articulated.”

North Cook Inlet reserves

As it negotiates this drama, Buccaneer is announcing progress at three of its prospects.

With a new report estimating that the deep oil deposits at North Cook Inlet unit contain some 9.8 million oil equivalent barrels in proven reserves, Buccaneer is now detailing plans to begin drilling at the offshore field in mid-2014. The report from Netherland, Sewell & Associates Inc. also estimated that the deeper oil-prone formations at the offshore Cook Inlet field contain some 38.5 million oil equivalent barrels of proven and probable, 2P, reserves and some 95.9 million oil equivalent barrels of proven, probable and possible reserves, Buccaneer announced in a statement on June 20.

Generally, “probable” means there is at least a 50 percent chance of actual recovered volumes meeting or exceeding the 2P estimate, and “possible” means there is at least a 10 percent chance of actual recovered volumes meeting or exceeding the 3P estimate.

The reserve estimates are 80 percent oil and include additional “contingent” reserves.

The report estimated the reserves in the Lower Tyonek, Hemlock, Sunfish and West Foreland formations at North Cook Inlet. Since 1962, there have been some 13 wells drilled into those formations at the unit, including seven wells drilled in the 1990s by ARCO and Phillips, separately. At the time, the companies called the prospect Sunfish.

Buccaneer farmed-in the deep oil reserves at the 23,368-acre unit from operator ConocoPhillips in early May. Under the deal, Buccaneer agreed to drill a well by the end of 2014 and a second well in a different section of the acreage by the end of 2015.

Buccaneer said it plans to use its Endeavour rig to drill an offset of the North Forelands No. 1 well that ARCO Alaska drilled in 1992 starting in the second or third quarter of 2014. The original ARCO well flow-tested at 4,340 barrels of oil equivalent per day, but low oil prices at the time kept the company from pursuing development.

For the second well, Buccaneer said it plans to offset the NCI No. 1 well that Shell drilled in 1964. The well had originally flow tested at 2,270 barrels of oil equivalent per day.

Shallow oil at Cosmo

The Endeavour rig is currently drilling at the Cosmopolitan prospect, where it recently encountered oil at a slightly shallower interval than Buccaneer had anticipated.

As of June 24, the Cosmopolitan No. 1 well had encountered oil and condensate at 5,600 feet, in the Lower Tyonek formation, according to Buccaneer. Because of the unexpected discovery, Buccaneer set intermediate casing about 400 feet higher than it had originally planned and is now preparing to run wire line logs, test pressure and take core samples.

Buccaneer previously set casing at 2,055 feet.

Buccaneer has previously said it expected the Tyonek to hold “multiple prospective gas zones” to a depth of 6,000 feet. The drilling to date has penetrated “three primary gas zones totaling 175 feet” and early logging indicates “good resistivity, permeability and porosity characteristics,” the company said, adding that it may flow test, “if warranted.”

Buccaneer said it remains interested in four “secondary” zones in the Tyonek.

Under its initial well plan, Buccaneer said it would case the well at the bottom of the Tyonek before continuing to drill into the oil-bearing Starichkof and Hemlock formations, where it would take core samples. Buccaneer is not planning a flow test.

Upon reaching a total depth of 8,000 feet, Buccaneer plans to plug the well back to the bottom of the Tyonek formation to perforate and flow test the prospective gas zones.

The Cosmopolitan prospect is located off the coast of Anchor Point.

Buccaneer is the operator of the Cosmopolitan program and owns a 25 percent interest in the leases, with Fort Worth-based BlueCrest Energy II LP owning 75 percent.

Kenai Loop developments

Finally, Buccaneer is permitting additional wells at its Kenai Loop field.

The company recently applied for an Alaska Oil and Gas Conservation Commission permit for the Kenai Loop No. 1-4 at the onshore field near the city of Kenai.

The directional well would be drilled from the existing pad to a bottom hole location some 1,368 feet to the southeast at a total depth of around 10,900 feet, according to the company. Buccaneer plans to drill the well using its contracted Glacier rig.

Buccaneer said it is permitting two other wells at the field. All three wells would test targets identified in an earlier well brought online in February, according to the company.

In addition to permitting additional wells, Buccaneer is asking the AOGCC to rename its existing wells at the field “to reflect their pad number.” Under the proposed scheme, Kenai Loop No. 1 would become Kenai Loop No. 1-1, Kenai Loop No. 3 would become Kenai Loop No. 1-2 and Kenai Loop No. 4 would become Kenai Loop No. 1-3.

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