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Pacific Energy dumps more Cook Inlet assets List includes West McArthur River, Redoubt Shoal, West Foreland fields; properties expected to fall to state or other landowners Wesley Loy For Petroleum News
Pacific Energy Resources Ltd. has abandoned most if not all of its remaining oil and gas assets in Alaska’s Cook Inlet, leaving the state and other landowners with the potentially costly chore of looking after the properties.
The company, several potential buyers and the state worked hard to bring in a new operator, but no deal could be reached and on Sept. 11 a Delaware bankruptcy judge entered an order allowing Pacific Energy to walk away from the assets.
Kevin Banks, director of the Alaska Division of Oil and Gas, said the big problem buyers had was quickly lining up sufficient financing to satisfy Pacific Energy’s lenders. The company’s lawyers said Pacific Energy needed to either sell or abandon the properties quickly, as they were simply rolling up millions of dollars in costs the company couldn’t cover.
The state itself even considered buying the assets, figuring they might be worth more if held together as a unit. Ultimately, state officials concluded many of the properties might fall into state hands anyway.
“We spent much of the last several months — and I can tell you the last few days have been incredibly intense — trying to figure out a way that someone could buy these assets and get a new operator out there,” Banks told Petroleum News the day the judge’s order came down.
The abandoned properties Bankruptcy Judge Kevin Carey’s order required Pacific Energy to finish out its process of shutting in wells, pipelines and other assets. But it was believed most or all of the company’s operated wells and other assets already were shut-in and secure.
State officials at one point expressed alarm at the prospect of abandonment, saying it could lead to an environmental disaster or millions of dollars in costs to the state to freeze-protect or otherwise safeguard wells and pipelines.
“The division has got staff out on site right now, inspecting the facilities,” Banks told Petroleum News on Sept. 17. “The facilities appear to have been well-maintained. We’re concerned about when it gets cold.”
The abandoned properties, located along the west side of Cook Inlet, include state oil and gas leases, the West McArthur River field, the Redoubt Shoal field with its offshore Osprey platform and Kustatan onshore production facility, and the West Foreland field with two producing natural gas wells. Pacific Energy also abandoned some exploration acreage and a stake in the Three Mile Creek field, which Aurora Gas operates, plus an assortment of equipment such as work trucks, loaders and computer gear.
Pacific Energy’s 50 percent stake in Cook Inlet Pipe Line Co. did not appear to be covered in the abandonment order.
On Sept. 2, the judge signed an order allowing Pacific Energy to abandon probably its single most valuable asset, a minority stake in the Chevron-operated offshore Trading Bay unit and field. As with the other properties, Pacific Energy said it was unable to find an acceptable buyer for Trading Bay.
The company also is trying to liquidate its oil and gas holdings in California.
Pacific Energy’s fall The abandonment of the Alaska assets all but wraps up Pacific Energy’s disastrous foray onto the Alaska oil and gas scene.
The small oil and gas exploration and development company, based in Long Beach, Calif., made its entry in 2007, buying the Alaska assets of Forest Oil Corp. for $464 million.
The company filed for Chapter 11 bankruptcy reorganization on March 9, citing “the dramatic decrease in the market price of oil over the past five months.” Another problem for the company was a series of eruptions of Redoubt volcano, interrupting oil production for a time earlier this year on the west side of Cook Inlet.
Lawyers for Pacific Energy said the company was losing millions of dollars on its Alaska operations and needed to dispose of the properties quickly. Thus, its Chapter 11 reorganization proceeded more like a Chapter 7 liquidation.
In the overall picture of Alaska oil production, Pacific Energy was a tiny player.
In a May 15 financial report, Pacific Energy said its total production for the first quarter of this year was 6,514 barrels of oil equivalent per day, with 3,415 barrels produced in California and 3,099 barrels in Alaska.
Of the main Cook Inlet assets abandoned Sept. 11, total oil production from the company’s West McArthur River and Redoubt assets was a combined 1,090 barrels per day in 2008, Banks said.
Fate of abandoned assets It appears most or all of Pacific Energy’s Alaska assets now will fall into the hands of various landlords, including the state, Cook Inlet Region Inc. and the Salamatof Native Association.
One significant property, however, the Kustatan facility, sits on land Pacific Energy itself owned, so it was unclear what would become of that, Banks said.
The Osprey platform, installed new around the beginning of the decade, likely will fall to the state as it constitutes an improvement on a state lease, he said.
In the wake of the judge’s order, the landowners were facing the prospect of sending people into the field to padlock or guard the abandoned properties, although Pacific Energy seemed to do a good job of securing them, Banks said.
On Sept. 17, Petroleum News was aware of at least two companies or individuals pursuing pieces of Pacific Energy’s Cook Inlet portfolio.
“Buyers are still talking with us with the idea that perhaps they can go back to the bankruptcy court,” Banks said, and ask the judge to reverse the abandonment order and approve a sale.
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