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August 2017

Vol. 22, No. 33 Week of August 13, 2017

Companies bid on Aurora Gas assets; bids come in response to bankruptcy

In the latest twist in the bankruptcy case for Aurora Gas LLC, two companies have offered to purchase Aurora Gasí interests in the Nicolai Creek gas field on the west side of the Cook Inlet. The two companies who have made the offers are Escopeta Oil and Gas Corp. and Aurora Exploration LLC. Despite the similarities in the names, Aurora Exploration is a completely separate company from Aurora Gas. Escopeta originally brought a jack-up rig to Cook Inlet to drill in the Kitchen Lights unit which is now operated by Furie Operating Alaska LLC.

Aurora Gas operates five gas fields on the west side of the Cook Inlet. The company is owned by Rieck Oil Inc.

Following major problems with two of the companyís projects, a group of the companyís creditors filed an involuntary bankruptcy petition against Aurora in early May 2016. Complicating the companyís financial woes is the non-payment of some state tax credits which the company claims it is owed, but which have been deferred because of an issue relating to proof of payment of some of the gas companyís costs.

The bankruptcy case is continuing in the U.S. Bankruptcy Court for the District of Alaska.

Proposed asset sale

In early April Aurora Gas filed a plan with the court, proposing the sale of the companyís assets, including its properties on the west side of Cook Inlet. The company suggested that the sale of the assets could raise money owed to the companyís creditors.

On June 23 Trading Bay Oil & Gas LLC, a company owned by Alaska oil and gas investor Paul Craig, offered to purchase all of Aurora Gasís assets, with a commitment to subsequently conduct well maintenance work and to use money earned from the fields to reimburse over time $2.4 million to Aurora Gasís creditors. However, Cook Inlet Region Inc. and Tyonek Native Corp., land owners for several of Aurora Gasís fields, declined the terms of Trading Bay Oil & Gasís offer.

Trading Bay Oil & Gas has a 50 percent ownership interest in Aurora Exploration.

Offers for Nicolai Creek

On July 27 Escopeta and Aurora Exploration filed their offers for Aurora Gasí Nicolai Creek assets with the court. Nicolai Creek is entirely situated in state of Alaska leases. In a July 29 court filing Aurora Exploration commented that limiting the purchase to Nicolai Creek would eliminate some legal and commercial complications associated with the fields that are located in Native corporation lands.

Escopeta offered $125,000 for Aurora Gasí Nicolai Creek field, and $50,000 for Auroraís gas supply contracts. The offer for Nicolai Creek included seismic data for the field. Aurora Exploration made a cash offer of $75,000 for the Nicolai Creek field, associated gas contracts and associated seismic data. Both bidders commented that, in addition to keeping the field in operation, the purchase of Nikolai Creek would eliminate from the bankruptcy $3.5 million or so in liabilities associated with the shutting down of the field and that restoration of impacted land.

Need for urgency

Following the filing of Escopetaís and Aurora Explorationís bids, the committee for Aurora Gasí unsecured creditors filed some comments urging speedy resolution of the situation, given that, the filing says, Aurora Gasí daily expenses will begin to exceed its daily income after Aug. 31. Meanwhile, several significant issues remain to be resolved. One issue is the fact that the liquidation value of equipment that a purchaser of field assets might acquire is not clear to the creditors. Another issue relates to the assignment of Aurora Gasí gas sales contracts to Helena Energy, a marketing company that was spun off as a separate company from Aurora Gas prior to the start of the bankruptcy proceedings, the creditor committee filing said.

On July 31 U.S. Bankruptcy Judge Gary Spraker issued an order allowing Aurora Gas to offer for hearing a motion seeking approval for the sale of its Nicolai Creek assets to a qualified purchaser. The judge also invited a motion for the approval of the sale or auction of certain equipment. Any motions filed will be heard by the court on Aug. 21.

- ALAN BAILEY






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