Monday, March 31, 2014

Exxon Valdez oil spill; the scab that never heals

Deborah Brollini

I thought I had moved on from the Exxon Valdez oil spill. Then Governor Parnell ripped the scab off by appointing a retired out-of-state oil executive to the Alaska Gasline Development Corporation (AGDC) board. I do not have a problem with ExxonMobil being a part of a project. However, HELL NO on being on the AGDC board. The Governor yanked off the scab and the memories started flooding back.

On the day the Exxon Valdez grounded on Bligh Reef I was working for the law firm Tugman, Clark and Ray foreclosing on homes. I have learned since the oil spill that Chuck Ray is one of the best maritime lawyers in the country. As an employee, and Alaskan our little law firm was thrown on the front lines representing fishermen, and I did not know what to think of it. I left the law firm shortly after the oil spill and began working for CACI, a litigation firm representing the federal government as a party in the Exxon Valdez litigation.

I was the first employee and Alaskan hired as a senior paralegal with CACI representing the federal government setting up an Exxon Valdez litigation center in the building where McGinleys now resides.

I walked to both state and federal courts twice a day everyday to obtain court dockets. I sat in on federal and state hearings. I reviewed and summarized documents, reports, and hearings for high-level officials. I supervised paralegals on the front lines. I was present when the jury convicted Hazelwood. Judge Johnstone summoned me to his chambers during the Hazelwood trial. (Talk about scaring the hell out of a 20 something young professional with a judge who wants your head on a stick, and a room full of powerful suits). I know more than any Alaskan should ever know about the Exxon Valdez oil spill.

I coordinated scientific meetings which are now housed in the PWS Advisory Council. It was not an environmentalist frenzy at the time. I sat in a room with the best of the best in scientific knowledge, and Alaskans who cared deeply about our state. I am proud of being part of these scientific meetings. I never cared about birds, fish, otters, killer whales, or the Prince William Sound ecosystem prior to the oil spill. Alaska learned a lot since the oil spill, and we have a come a long way in oil spill response preparedness

Unfortunately, the Exxon Valdez oil spill born an environmentalist movement that uses our state, and uses the oil spill to fundraise, and to shut down resource development in Alaska.

I remember vividly like it was yesterday fishermen wailing during meetings and trying to hold back tears, and crying inconsolably after meetings. ExxonMobil needs to settle its litigation with Alaskans for me to move on.

The Exxon Valdez oil spill impacted me profoundly deep into my soul. I no longer wanted to work as a paralegal, and I changed my major to business in college, and I eventually left my job with CACI. I ended up taking a year off to concentrate on college, and went on to work for Dr. Ted Mala who was the Commissioner of Health and Social Services during the Hickel administration.

Saturday, March 29, 2014

TransCanada big issue; Consultants talk to committee about value of partnership in Alaska LNG Project

Kristen Nelson
Petroleum News

Senate Bill 138, Gov. Sean Parnell’s enabling legislation for state equity participation in a North Slope liquefied natural gas project, is in House Resources, its first stop of three committee assignments in the House.

Resources co-Chair Eric Feige, R-Chickaloon, said in a press availability March 20 that the committee would be meeting almost every day, with the goal of moving the bill April 4. The bill then goes to House Labor and Commerce before it reaches the Finance Committee.

Resources co-Chair Dan Saddler, R-Eagle River, said they’d been studying the bill prior to receiving it from the Senate. House Resources held hearings on the memorandum of understanding and heads of agreement while SB 138 was in the Senate.

The bill passed the Senate March 18; House Resources held its first hearing on the bill March 19, and beginning the week of March 24 has met every day, taking testimony from the administration, Legislative Budget & Audit consultants and the administration’s consultants.

TransCanada a big concern

A big concern aired in House Resources was the value to the state of partnering with TransCanada, rather than going it alone to finance and manage its approximately 25 percent share of the proposed Alaska LNG Project.

The MOU and HOA presented by the governor in January, and enabled by SB 138, propose that the state would take its royalty and production tax in kind rather than in value, giving the state a 20-25 percent ownership in natural gas from the Prudhoe Bay and Point Thomson fields, the variation based on the production tax imposed on natural gas. The state would then take a comparable equity share in the project, which includes a gas treatment plant on the North Slope, a gas pipeline from the North Slope to Nikiski and a liquefied natural gas plant at Nikiski.

TransCanada has been involved with the state through AGIA — the Alaska Gasline Inducement Act — and a license which TransCanada took under that legislation for a pipeline into Canada to deliver Alaska North Slope natural gas to the contiguous United States. New natural gas development in the Lower 48 made that project uneconomic, and Parnell asked the North Slope producers and TransCanada to collectively consider an LNG project to take natural gas to Asian markets, while also providing natural gas for use within the state.

Parties representing the state — the departments of Natural Resources and Revenue and the Alaska Gasline Development Corp. — then negotiated with the North Slope producers — BP, ConocoPhillips and ExxonMobil — and TransCanada, producing the two agreements which would be ratified by SB 138, the heads of agreement or HOA and the memorandum of understanding or MOU.

Going it alone

The MOU provides the basis for the state and TransCanada to exit the AGIA agreement, with TransCanada holding the state’s equity interest in the gas treatment plant, or GTP, and the pipeline; the Alaska Gasline Development Corp. would hold the state’s interest in the liquefaction facility.

The MOU provides that the state could buy back up to 40 percent of the GTP and pipeline interests from TransCanada, leaving TransCanada with minimum interests of 14 percent in those portions of the project. In committee discussions in both the House and Senate consultants have told legislators that the state will likely have opportunities to sell part of its interest in the LNG facility as it negotiates the sale of its gas, since LNG buyers frequently want to hold an equity position in the project.

If the state were to back out of the MOU it would be faced with exiting AGIA, and could face arbitration and possibly litigation over the issue of whether the project is uneconomic; it would also have to pay TransCanada for information that company has developed which would be contributed to the AKLNG Project if the MOU is signed.

If the state goes it alone it would have to fully fund its participation in the pre-FEED, pre-front-end engineering and design portion of the project, estimated at $104 million and $486 million for FEED, as well as fully funding its share of construction costs, some $12 billion (estimates by enalytica, the LB&A consultants) and at $108 million and $450 million, respectively for pre-FEED and FEED (estimates by the administration’s consultants, Black & Veatch) and an estimated $13.2 billion in construction costs.

If the project did not continue beyond pre-FEED, the state would owe TransCanada some $50-60 million for work done to that point, and if the project were abandoned after FEED, the state would owe TransCanada $150-400 million, with the variations — these are from enalytica estimates — based on whether the state allows TransCanada to carry all of its GTP and pipeline interest, or buys back 40 percent of that interest.

Both consultants have said that all numbers at this early stage of the project are certainly wrong, and are useful for showing direction.

Advantages of TransCanada

Estimates from enalytica show that state equity leads to higher government take on average, with the state taking a larger proportion than the producers combined, due to its dual role as equity participant and sovereign — the state would still collect corporate income taxes and property tax — and the fact that the state would not pay federal income tax. These estimates show the state taking up to 35 percent at high gas prices while the combined producer take would be less than 30 percent at the same gas price. That was for a 25 percent state equity share, and was higher than the state’s take at 20 percent. Compared to the state’s take in-value, i.e. without an equity stake, at high gas prices the state would take more — although it would take much less at low gas prices — but without state equity participation there might not be a project.

TransCanada’s share of the cash from the project ranges from 1-7 percent, based on enalytica modeling, varying dependent on price levels and the level of buyback which the state exercises. TransCanada’s cash share is lowest with buyback and at high gas prices.

Black & Veatch, the administration consultants, said the economic impact to the state of partnering with TransCanada include TransCanada investing 60-100 percent of the state’s upfront capital costs for the GTP and pipeline (the variable is buyback by the state of up to 40 percent).

Once the project is in operation, the state would pay TransCanada a negotiated tariff for 60-100 percent of the GTP and pipeline capacity used to move state gas, again dependent on whether the state exercises its buyback option.

Black & Veatch concluded that the economic impact to the state from TransCanada’s involvement would be a reduction of some $4 billion in total cash flows. But the firm said the net present value impact would be marginal because upfront money carries more weight than cash flow over 25 years of operation.

Black & Veatch said TransCanada could reduce the state’s investment in the project by $4-7 billion (depending on buyback), said the state might hit debt limits going it alone and also noted TransCanada’s value as a partner, citing experience, keeping momentum going and the pipeline company’s bias toward expansion of the project, something it shares with the state.

TransCanada has committed to a tariff for state gas based on financing, and a change in TransCanada’s ability to get financing could lower its return on equity and net present value, Black & Veatch said.

Read more:

Saturday, March 22, 2014

Buccaneer suspends CEO; Inlet strategy may be under review

By Tim Bradner
Alaska Journal of Commerce

Buccaneer CEO Curtis Burton, seen here during a 2013 visit to the Journal office, was suspended with pay by the company board of directors March 14. Buccaneer, one of the most active companies in Cook Inlet, is now undergoing a financial restructuring after several setbacks.

Buccaneer CEO Curtis Burton, seen here during a 2013 visit to the Journal office, was suspended with pay by the company board of directors March 14. Buccaneer, one of the most active companies in Cook Inlet, is now undergoing a financial restructuring after several setbacks.

Buccaneer Energy, an Australia-based independent company exploring for oil and gas in Cook Inlet, has suspended its CEO Curtis Burton and asked that trading of its shares on the Australian stock exchange be suspended while a restructuring of the company’s finances is accomplished.

The events appear connected with a series of problems Buccaneer has encountered with its Cook Inlet program that were complicated when a major investor failed to provide money that had been promised last year.

Buccaneer also announced March 14 that the company’s board will not be able to sign a half-year financial statement for the period ending Dec. 31 due to the restructuring now underway.

Sources familiar with Buccaneer said the actions are not expected to have an immediate impact on Alaska operations — Buccaneer is now a natural gas producer at its small Kenai Loop field on the Kenai Peninsula — but since Burton is a key architect of the company’s strategic plan to focus on Cook Inlet, his suspension may signal a move by the company’s board to refocus assets elsewhere, such as the U.S. Gulf of Mexico where Buccaneer is also active.

“Curtis Burton has been suspended with pay allowing for a (financial) review to be conducted. Mr. Burton has filed a lawsuit in the District Court of Harris County, Texas claiming improper termination of his employment contract,” Buccaneer announced in a March 6 press release.

The company has appointed John Young Jr. as its Chief Restructuring Officer effective immediately, according to the press release. Buccaneer asked for suspension of trading of its shares Feb. 19.

“The company will make further announcements as soon as it is able, but no later than April 30,” according to the March 14 press release.

The shakeup at the top at Buccaneer follows a series of difficulties for the company. One financial hit came when an investor in Buccaneer’s planned Inlet offshore wells and its West Eagle gas exploration well onshore northeast of Homer, EOS Petro, failed to come through with money. That left the company scrambling for funds to drill the wells.

Money was advanced as a loan by Meridian Capital, which is also a part owner of Buccaneer, but the shortfall also led to a decision not to continue drilling late last summer at Southern Cross, an offshore prospect.

Meanwhile, the West Eagle exploration well turned up dry, which exacerbated problems.

Buccaneer has had its successes in Cook Inlet, though. The company was successful with 2011 natural gas exploration and has developed its small Kenai Loop field that now has two wells producing gas.

However, an expansion of the field is stymied by a complex dispute with Cook Inlet Region Inc., which owns adjacent acreage.

CIRI says Buccaneer’s existing wells may be draining resources from its land and has asked the Alaska Oil and Gas Conservation Commission, the state regulatory agency that sorts out such conflicts, to intervene. The commission held one hearing on the question Jan. 30 and plans a second hearing April 8.

With that issue unresolved, the commission has not given Buccaneer permission to turn on a third gas well at Kenai Loop that was been drilled but it not yet producing.

Ironically, Buccaneer had CIRI land under lease but the Anchorage-based Native regional corporation for Southcentral cancelled the lease in a dispute over terms. That issue is now in court.

Another success for Buccaneer, however, was drilling an exploration well at Cosmopolitan, an offshore prospect near Anchor Point, which found gas at shallower intervals that overlie a deeper oil deposit, which had been discovered earlier by ARCO Alaska, a previous owner of the leases. An estimate of new gas resources is still pending, but a second well, to delineate the discovery, is also needed.

Buccaneer was the operator of the exploration program but held a 25 percent minority interest in Cosmopolitan with Fort Worth, Texas, independent BlueCrest Energy, which held 75 percent.

When Buccaneer’s cash crunch hit in mid-2013, however, the company had to sell its 25 percent share to BlueCrest following the gas discovery along with a 50 percent ownership stake in the jack-up rig Endeavour, which was used in the drilling at Cosmopolitan.

Ezion Holdings, a Singapore-based investment firm that held the other 50 percent, purchased Buccaneer’s share of the jack-up rig. The Alaska Industrial Development and Export Authority, which helped Buccaneer and Ezion finance the acquisition of the Eneavour, also holds an interest in the rig.

AIDEA’s participation in the Endeavour rig is secure, a spokesman for the authority said.

“We understand that Buccaneer is involved in a reorganization. We are in contact with our partner Ezion, and they are working with Buccaneer on continuing the drilling in Cook Inlet. It is important to note that Buccaneer is not a partner in the Endeavour, but is leasing the rig,” said Karsten Rodvik, AIDEA’s spokesman. “Ezion is the common owner and is responsible for management of the rig. It is our understanding that pending DNR approval, Buccaneer intends to drill this summer. Also, there are other entities interested in putting the Endeavour to work in Cook Inlet.”

Following the Cosmopolitan drilling, the Endeavour rig was moved into North Cook Inlet in late summer 2013 to begin drilling at the Southern Cross prospect, but then experienced problems setting the rig’s steel legs into the sea bottom due to unexpected soil conditions.

An alternative nearby site was surveyed, but faced with funding problems due to failure of the EOS Petro deal, Buccaneer had to terminate the drilling and move the rig to Port Graham, a port in south Cook Inlet, for winter storage.

That also meant the company missed a deadline with the state to drill the well, which prompted the state Division of Oil and Gas to terminate the unit late last fall. Buccaneer still has one lease within the former unit but the clock on a 2018 expiration is now ticking.

Meanwhile, Buccaneer has a 2014 commitment to ConocoPhillips to drill a well in deep parts of the North Cook Inlet field, where gas is now being produced from shallower intervals. Buccaneer’s “farm-out” agreement is to test deeper parts of North Cook Inlet for oil.

The company’s plan was to drill the deep intervals at North Cook Inlet, move the rig back to Cosmopolitan to drill a second well for BlueCrest, and to then return to North Cook Inlet to drill a second deep test.

However, to accomplish those things, the Endeavour rig, still in storage at Port Graham, must be mobilized soon. Whether that happens will depend on if Buccaneer has the funding to drill the expensive deep tests at North Cook Inlet, and whether the company’s board decides to stick with the overall Cook Inlet strategy pushed by Burton, the CEO who is now suspended.

Read more:

Monday, March 17, 2014

Forum@360: Decoding the Gas Line Project

For years Alaskans have been talking about a natural gas pipeline. Now the Alaska LNG project has momentum and the state could become an owner.

Guests include Larry Persily, a Federal Coordinator for an Alaska natural gas pipeline, Tim Bradner from the Alaska Journal of Commerce and Frank Ameduri from the Alaska Budget Report. Rosemarie Alexander hosts.

Location: @360

The Exxon Valdez oil spill hurt never goes away.

I have been busy the last two weeks, and I have not been keeping up with the Governor, or the legislature. I knew the Governor had appointed non-Alaskans to a board or two. I pretty much knew the legislature would not confirm non-Alaskan appointees because Alaskans would be outraged, and it is an election year. I had to learn from Amanda Coyne’s ADN piece that that one of the Governor’s appointees to the Alaska Gasline Development Corporation (AGDC) board was a former ExxonMobil executive. Are you friggen kidding me? I am sorry. The Exxon Valdez oil spill hurt never goes away for this Alaskan.

In 1989, the law firm I worked for was not only foreclosing on homes we were also the first firms representing Alaska’s fishermen harmed by the Exxon Valdez oil spill. There is nothing more humbling than witnessing grown men crying, and devastated for their futures and their communities. I remember it like it was yesterday, and it was heartbreaking. Exxon has yet to resolve some of its oil spill litigation with Alaskans, and because they are spending money we Alaskans are expected to trust them? As Dr. Phil would say, “the biggest predictor of future behavior is past behavior. “

The foreclosing on homes business slowed down, and I went to work for a litigation firm representing the federal government in the Exxon Valdez litigation. I know more than any Alaskan should ever know. I am always willing to forgive and forget and move on. However, your company harms Alaskans you should never have a seat on the AGDC board, ever.


Amanda Coyne: Parnell's light seems to be flickering