September 11, 2009 --- Vol. 15, No. 72September 2009

California producer, mired in bankruptcy, dumps remaining Alaska oil and gas assets

Pacific Energy Resources Ltd. has abandoned the rest of its operated oil and gas assets in Alaska’s Cook Inlet, leaving the state and other landowners with the potentially costly burden of looking after the properties.

The abandonment came after a Delaware bankruptcy judge granted Pacific Energy’s motion seeking to walk away from the assets after weeks of failed efforts to find a viable buyer.

Bankruptcy Judge Kevin Carey’s order, entered today but signed Sept. 10, took effect immediately. The order commands Pacific Energy to finish out its process of shutting in wells, pipelines and other assets.

The abandoned properties, located along the west side of Cook Inlet, include state oil and gas leases, the West McArthur River field, the Redoubt Shoal field with its offshore Osprey platform and Kustatan onshore production facility, and the West Foreland field with two producing natural gas wells. Pacific Energy also abandoned some exploration acreage and a stake in the Three Mile Creek field, which Aurora Gas operates, plus an assortment of equipment such as work trucks, loaders and computer gear.

It wasn’t immediately clear whether the abandonment order covers Pacific Energy’s 50 percent stake in Cook Inlet Pipe Line Co.

Earlier this month, Pacific Energy abandoned perhaps its single most valuable asset, a minority stake in the Chevron-operated offshore Trading Bay unit and field. As with the other properties, Pacific Energy said it was unable to find an acceptable buyer for Trading Bay.

The Long Beach, Calif., producer also is trying to liquidate its oil and gas holdings in California.

Alaska officials fervently hoped someone would buy Pacific Energy’s assets, particularly those the company itself operated. Abandonment, they said, could invite safety and environmental problems and chew up millions of dollars to safeguard wells and other properties.

In recent days, Pacific Energy identified a handful of potential buyers, including the state, but no deal could be reached, the court order said.

Kevin Banks, director of the state Division of Oil and Gas, said the big problem buyers had was lining up sufficient financing to satisfy Pacific Energy’s lenders. The company’s lawyers said Pacific Energy needed to either sell or abandon the properties quickly, as they were simply rolling up millions of dollars in costs the company couldn’t cover.

In the overall picture of Alaska oil production, Pacific Energy was a tiny operator. Banks said total oil production from the company’s West McArthur River and Redoubt assets was a combined 1,090 barrels per day in 2008.

A variety of landowners including the state, Cook Inlet Region Inc. and the Salamatof Native Association host Pacific Energy operations.

One significant asset, however, the Kustatan facility, sits on land Pacific Energy itself owned, so it’s unclear what will become of that, Banks said.

The Osprey platform, installed new around the beginning of the decade, likely will fall to the state as it constitutes an improvement on a state lease, Banks said.

The landowners could be facing a scenario where people will have to go into the field to check on the abandoned properties, although Pacific Energy seems to have done a good job on the ground securing the properties, Banks said.

“But yeah, the state is going to have to figure out a way to secure the properties, which may involve getting padlocks out there and security guards and making sure the equipment is in order and making sure the platform is ‘lighthoused,’ so to speak,” he said.

All in all, it’s been a frustrating episode, Banks added.

“Is it a disaster? My view of it is this: We spent much of the last several months — and I can tell you the last few days have been incredibly intense — trying to figure out a way that someone could buy these assets and get a new operator out there,” he said. “I’ve had better weeks in this job, I can tell you.”

See full story in Sept. 20 issue, available on line at noon Alaska time Friday Sept. 18, at

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