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NEWS BULLETIN

January 13, 2011 --- Vol. 17, No. 4January 2011

Jack-up rig projects moving slower than hoped

The two competing efforts to bring a jack-up to Alaska are moving slower than expected.

The Alaska Industrial Development and Export Authority began negotiations with Buccaneer Alaska to purchase a jack-up rig late last year, but doesn’t expect to have a proposal ready before the end of January, staff told the board of directors this morning.

The direction of those negotiations remains unknown, as AIDEA conducted most of its discussion in executive session. However, generally, AIDEA is considering whether or not to co-own a jack-up rig capable of drilling 25,000-foot wells in 300 feet of water.

AIDEA is a public corporation of the State of Alaska created to finance economic development projects. Buccaneer is the local subsidiary of an Australian independent.

During executive session, AIDEA staff showed the board a “first draft” of the proposal it made to Buccaneer to begin negotiations, according to Jim Hemsath, who is leading AIDEA’s due diligence effort on the project. In open session, Hemsath told the board that Buccaneer responded yesterday with a different proposal that hasn’t yet been evaluated.

Hemsath called the deal “a relatively complicated project” for AIDEA. He said, “there is a fairly long road to haul on this before we get to some place with Buccaneer that’s acceptable to both parties, and then to bring to the board for final discussions.”

AIDEA Executive Director Ted Leonard described the deal as being in the “beginning phases.” While he couldn’t predict when AIDEA staff might have a final proposal ready, he said, “It will not be by the end of this month. I pretty much feel pretty sure about that.”

The second jack-up rig project, lead by Escopeta, is also running slower than expected.

Escopeta originally hoped to start drilling at its offshore Cook Inlet prospect by April, but now expects the spud date to be sometime in May or June, Steve Sutherlin, a contractor for Escopeta, told the AIDEA board of directors during a public comment period. (Sutherlin is a former Petroleum News contributor and minority owner in the company.)

Sutherlin said the delay is the result of getting an oil spill contingency plan approved.

“Our most time critical concern is the spill plan,” Sutherlin said.

Escopeta signed a contract last year with Spartan Offshore Drilling to lease the Spartan 151 jack-up rig. That contract includes an option to buy the rig. Escopeta previous said that it wants to take advantage of that option. “We think there’s some reasons it would make sense to own the rig. But right now, it’s basically under study,” Sutherlin said.

Sutherlin said Spartan 151 recently completed work on a well in the Gulf of Mexico and is now available for Alaska drilling. He expects the rig to go into dry dock as soon as this weekend and now only needs to be modified for Cook Inlet drilling before heading north.

However, Sutherlin said the “capital is in place” and “Escopeta’s ready to roll.”

Time is of the essence not only because of declining production in Cook Inlet and short seasons for offshore drilling, but also because the first company to drill an offshore well to a certain depth in Cook Inlet becomes eligible for significant tax credits.

See story in Jan. 23 issue, available to subscribers online at 11 a.m., Friday, Jan. 21, at www.PetroleumNews.com

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