West Eagle a dry hole

Buccaneer finds no hydrocarbons in primary target, plans to plug, abandon well

Eric Lidji

For Petroleum News

The West Eagle No. 1 well is a dry hole, according to operator Buccaneer Energy Ltd.

On Feb. 17, the Australian company said it plans to plug and abandon the onshore exploration well in the southern Kenai Peninsula at its current depth of 3,700 feet.

The well reached its primary target and provided enough information for preliminary analysis, according to the company, but “while the analysis confirmed that the sands encountered exhibited excellent reservoir qualities, there were no indications of the presence of hydrocarbons in the target zones,” Buccaneer said in a recent statement.

While Buccaneer said that it permitted the well to much greater depths and was interested in testing deeper formations, the lack of oil or gas in the targeted sands “has significantly increased the risks associated with the deeper objectives,” according to the company.

Buccaneer said its board is in “discussions with major shareholders and third parties regarding financing” to determine how the dry hole will impact its ongoing efforts to get enough money to undertaken its ambitious workload in Alaska, but the company said it might have to sell assets or raise additional funds to pay down a private equity loan due at the end of June. For now, Buccaneer is taking some comfort in its other Alaska projects.

“After having enjoyed discoveries at the Kenai Loop and Cosmopolitan fields, the results of the West Eagle well are disappointing. The company will now focus its efforts toward Tyonek Deep and Kenai Loop,” Buccaneer CEO Curtis Burton said in a statement.

In addition to seeking standard tax credits for the $9.44 million well, Buccaneer said it would ask the state to return two bonds the company paid to backstop its commitments.

The original West Eagle unit agreement required Buccaneer to post two $600,000 bonds to guarantee drilling commitments. The state would return the first if Buccaneer spud a well by Sept. 1, 2013, and the second if Buccaneer completed the well by the same date.

The Alaska Department of Natural Resources placed the West Eagle unit in default last year when Buccaneer missed those deadlines. The cure required Buccaneer to spud a well by Dec. 1, 2013, to get the first bond and complete the well by Jan. 31, 2014, to get the second bond. Buccaneer spud West Eagle No. 1 on Jan. 22 and stopped drilling Feb. 11.

If the state refunds both bonds and issues the entire tax credit rebates Buccaneer plans to request, the company believes the state will pay $5.09 million of the cost of the well.

Another setback

Buccaneer recently sold its stake in the Cosmopolitan prospect and its interest in the Endeavour jack-up rig to raise money for other projects. The largest of those were the offshore Southern Cross and Northwest Cook Inlet units, which Buccaneer recently relinquished after missing numerous state-mandated drilling deadlines at both fields.

The onshore Kenai Loop field continues to produce gas — some 8.7 million cubic feet per day from two wells, according to Buccaneer — but Buccaneer is embroiled in a legal battle with neighboring Cook Inlet Region Inc. over drainage issues. The dispute has kept a third well from coming online and could jeopardize Buccaneer’s small revenue stream.

The remaining project in the Buccaneer portfolio is Tyonek Deep, a deep oil prospect that Buccaneer farmed-in last year at the ConocoPhillips-operated North Cook Inlet unit.

Buccaneer had previously announced a joint venture to pay for two exploration wells at Tyonek Deep, and at several other Alaska prospects, but the deal fell apart late last year.

Buccaneer had $28.9 million available at the end of January, but after paying $11.1 million in expenses related to Kenai Loop, West Eagle and Southern Cross, $8.3 million in payments required under its contract with the Alaska Industrial Development and Export Authority on the Endeavour rig and $3.7 million in other working costs, Buccaneer had only $5.8 million in the bank as of Feb. 7, according to the company.