Chevron raps Pacific Energy plan

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Oil giant says financially strapped California producer trying to ‘cherry pick’ by dumping only select parts of Cook Inlet interests, retaining beneficial parts of integrated arrangement

Wesley Loy

For Petroleum News

A key court hearing on the fate of Pacific Energy Resources Ltd.’s oil and gas assets in Alaska’s Cook Inlet is scheduled for Sept. 1, and one of the company’s partners is raising questions about whether Pacific Energy has an “ulterior motive.”

Lawyers for Chevron on Aug. 21 filed a 17-page objection in U.S. Bankruptcy Court in Delaware, where Pacific Energy is going through a Chapter 11 reorganization that involves liquidating its Alaska and California holdings.

Pacific Energy, based in Long Beach, Calif., says it has bidders for its Cook Inlet assets, which are divided into two groups of properties.

One group centers on the Chevron-operated Trading Bay unit, an offshore oil and gas field in which Pacific Energy holds a minority interest.

Lawyers for Pacific Energy have said that, barring a sale, the company might be forced to simply abandon assets rather than continue absorbing millions of dollars in losses.

“Hidden beneath the surface of (Pacific Energy’s) motion to abandon property and reject executory contracts (leases) is an ulterior motive that contravenes the principals of the Bankruptcy Code, as well as the underlying agreements, fair play, and common sense,” Chevron’s objection says.

Chevron’s lawyers argue Pacific Energy is trying to “cherry pick” by proposing to shed “only the burdensome portions of an integrated contractual arrangement while retaining only the most beneficial portions.”

Pacific Energy’s “piecemeal rejection” of some Trading Bay leases shouldn’t be allowed, Chevron’s lawyers argue.

Pacific Energy’s sale plans

According to the 77-page purchase and sale agreement filed with the court on Aug. 12, Pacific Energy is proposing to sell its 47 percent working interest in Trading Bay for $100 to Ocar Energy, a Delaware limited liability company with a business address in Toronto, Canada.

The deal would obligate the buyer to assume certain major obligations, such as the $43.6 million Chevron is owed for Pacific Energy’s share of production and maintenance expenses in Trading Bay

Aside from Trading Bay, Pacific Energy also is trying to sell a second package of Cook Inlet assets to a different buyer.

The package includes assets that Pacific Energy itself operates: the West McArthur River field, the West Foreland field, and the Redoubt Shoal field with its Osprey offshore platform and Kustatan onshore facility. Also included are interests in the Three Mile Creek field, which Aurora Gas operates; some exploration properties; and a 50 percent stake in Cook Inlet Pipe Line Co.

Pacific Energy has said in court filings that it has a $7 million offer for these assets from New Alaska Energy, an Alaska limited liability company. Papers the state of Alaska filed on Aug. 27, however, say New Alaska Energy was “unable to consummate the sale” and Pacific Energy is moving to abandon the assets.

The proposed sales, as well as objections from Chevron and other parties, are scheduled for consideration in the Sept. 1 bankruptcy court hearing.