Buccaneer to lease MHT land near Kenai

Australian company offers high bonus bid and royalty rate, as well as a promise to drill next year, in return for acreage

Eric Lidji

For Petroleum News

The Alaska Mental Health Land Trust Office plans to lease acreage on the Kenai Peninsula to Buccaneer Alaska, saying the company will drill within the next year.

The 3,427-acre lease is two miles northeast of the city of Kenai and the Cannery Loop unit, on undeveloped land the Trust called “highly prospective” for oil and natural gas.

The lease would be for five years. The rental rate would start at $1 an acre for the first year and increase by 50 cents per acre per year through the life of the lease. The Trust said Buccaneer’s bonus bid “exceeds the minimum bonus bid required and the average bonus bid received by the (Trust Land Office) in past lease sales” and that the proposed royalty rate “exceeds the standard (Trust Land Office) royalty of 12.5 percent.”

The Trust did not open the land for competitive bidding.

“Given Buccaneer’s land interest in the area it is unlikely that another credible oil and gas company would bid on the Trust land if offered competitively,” the Trust Land Office wrote in a best interest finding, referring to Cook Inlet Region Inc. land adjacent to the proposed Trust Land Office acreage that Buccaneer is also leasing for exploration activities. In the best interest finding, the Trust also worried that competitive bidding “could lead to speculation from entities not interested in actual lease development but only in trading of royalties and would not guarantee that a well would be drilled.”

The Trust noted that the current market value of oil and the expected shortfalls of natural gas in the Cook Inlet basin make the proposed lease a worthwhile use of the land. The Trust Land Office used a similar reason to justify its June decision to offer 190,000 acres across three boroughs for underground coal gasification exploration licenses.

The Trust Land Office is taking comments on the proposed lease through Oct. 19.

With the Trust lease, Buccaneer could end up drilling five wells in the next two years.

The company recently applied to form two offshore units in the Cook Inlet basin, promising to drill a well at each by mid-2012. The company is also discussing plans to permit wells at two onshore prospects in 2011, presumably for drilling in 2012. A well on the Trust lease could beat all those projects, though, if Buccaneer drills in the first year.

The Kenai acreage is not one of those four Alaska projects Buccaneer is touting on its website. However, when the Australian company arrived in Alaska in March, after acquiring 57,600 gross acres from Stellar Oil and Gas, the company counted three “identified prospects” and two “significant leads” in its new Alaska land holdings.