Pacific Energy Resources Ltd., mired in bankruptcy proceedings, has walked away from perhaps its most valuable Alaska oil and gas asset — a minority interest in the Trading Bay unit in Cook Inlet.
The company’s last-ditch effort to sell its Trading Bay stake never came together and U.S. Bankruptcy Court Judge Kevin Carey in Delaware signed an order Sept. 2 granting Pacific Energy permission to abandon the property and associated contracts.
Pacific Energy had said it simply couldn’t afford to hang onto Trading Bay any longer due to “significant operating losses.”
What now becomes of the company’s share in the offshore Trading Bay unit, and the adjacent Trading Bay oil field, is unclear. It appears likely, however, that more court wrangling will be necessary to sort out who ends up with the property and the various obligations and liabilities that come with it.
“State law determines which party is responsible for property once it is abandoned,” say papers the State of Alaska filed Aug. 26 in the Delaware bankruptcy court. The papers note a lawsuit already has been filed in state Superior Court to determine who is liable for dismantlement of Trading Bay offshore platforms.
The majority owner and operator, Chevron, pledged to continue oil production and maintenance at Trading Bay and to “work with all interested parties to determine an appropriate path forward.”
It wasn’t known whether Chevron itself made a bid to take over Pacific Energy’s share of the property.
Failed saleIn the days leading up to the judge’s abandonment order, Pacific Energy had attempted to spin off its 46.8 percent stake in Trading Bay to Ocar Energy, a Delaware limited liability company with a business address in Toronto, Canada. Little more is known about Ocar.
According to a 77-page purchase and sale agreement filed with the court on Aug. 12, Pacific Energy aimed to sell the property to Ocar for $100.
The tiny purchase price, however, masked the true size of the deal, which would have required the buyer to shoulder major obligations, including the $43.6 million owed to Chevron for Pacific Energy’s unpaid share of production and maintenance expenses at Trading Bay.
The judge had approved the sale contingent on the buyer meeting an Aug. 31 deadline for showing “satisfactory evidence of financial ability” to meet the obligations. When lawyers said at a Sept. 1 hearing that a financing deal was close, the judge granted Ocar and Pacific Energy a couple of extra hours to try to close it.
But according to the order the judge signed the next day, “no sale transaction … could be consummated.”
Forced into bankruptcyPacific Energy, based in Long Beach, Calif., filed for Chapter 11 bankruptcy reorganization on March 9 citing the steep drop in oil prices toward the end of 2008. The Mount Redoubt volcano also hurt the company, with eruptions halting oil production earlier this year on the west side of Cook Inlet.
Facing millions of dollars in losses on its Alaska holdings, Pacific Energy sought to sell its Alaska assets as well as its oil and gas properties in California.
The company packaged its Alaska properties into two groups, one centered on Trading Bay and the other holding oil and gas assets that Pacific Energy itself operates.
Pacific Energy has said New Alaska Energy, an Alaska limited liability company, has offered to pay $7 million for the second group of assets. But so far no sale has been completed.
The group includes the Pacific Energy-operated West McArthur River field, the West Foreland field, and the Redoubt Shoal field with its Osprey offshore platform and Kustatan onshore production 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.
State worriesPacific Energy has told the court it might abandon these assets, too, if it can’t work a sale.
Lawyers for the State of Alaska on Aug. 27 filed an objection to that plan, arguing the environment might be at risk and the state might have to spend tens of millions of dollars to safeguard or decommission abandoned wells. Pacific Energy’s lawyers responded Aug. 28 by saying the company is proceeding with a sound shut-in plan for its operated assets.
“The State of Alaska argues that the Debtors must ‘winterize’ their wells, pipelines and other facilities prior to abandonment, but that is precisely what the Debtors are doing (and quite a bit more) as part of the Abandonment Protocol,” Pacific Energy lawyers wrote.
Pacific Energy entered the Alaska scene in 2007, buying the assets of Forest Oil Corp. for $464 million.
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.
Surrendered assetsTrading Bay produced a high this decade of 666,000 barrels of oil in 2002, but production has declined sharply since then, state Division of Oil and Gas records show.
A court exhibit lists the assets Pacific Energy has abandoned, including its working interests in 11 state leases in the Trading Bay unit, most of them dating back to 1962. Pacific Energy also held an interest in the single lease comprising the Trading Bay field.
In terms of Trading Bay unit equipment, Pacific Energy surrendered interests in four offshore platforms with five drilling rigs plus the onshore production facility, the exhibit shows.
The assets include the Dolly Varden platform with associated infrastructure, pipelines and nine wells; the Grayling platform with 12 wells; the King Salmon platform with four wells; and the Steelhead platform with three wells.
In the Trading Bay field, Pacific Energy abandoned interests in the Monopod platform with a drilling rig and 27 wells.