Buccaneer Energy Ltd. was the last company to bring a new field online in Alaska.
But the Australian independent is unlikely to be an Alaskan producer for much longer.
After assembling an ambitious portfolio of exploration prospects across the entire Cook Inlet basin, the company filed for Chapter 11 bankruptcy protection in late May 2014.
As a debtor-in-possession, Buccaneer continues to operate production from its onshore Kenai Loop gas field as it reorganizes. But the field will likely have a new operator when dust settles. Throughout the bankruptcy proceedings so far, Buccaneer has discussed plans to auction off its Alaska assets. AIX Energy LLC, its largest secured creditor, had agreed to be a stalking horse bidder. In September 2014, Miller Energy Resources Inc. said that it had entered into a non-binding letter of intent to buy “substantially all” of Buccaneer’s operating assets in Alaska for between $40 million and $50 million.
The matter is unlikely to be resolved before the end of the year.
In late September, Buccaneer asked the court for a 30-day extension to the exclusivity period for its reorganization plan. The extension would give Buccaneer until Oct. 28 to file a plan with the court and until Dec. 27 to solicit the plan to its creditors for a vote.
Without the extension, Buccaneer could still propose a plan to its creditors but would have to compete against other proposals. The U.S. Bankruptcy Court for the Southern District of Texas planned to hear the request Oct. 21, after The Producers went to print.
Even without the bankruptcy proceedings, the future of Kenai Loop is complicated by a correlative rights dispute before the Alaska Oil and Gas Conservation Commission.
The two currently producing Kenai Loop wells are located on Alaska Mental Health Trust Authority leases but have also been draining from surrounding acreage owned by the Trust Land Office, Cook Inlet Region Inc. and the state of Alaska. A case before AOGCC - and a related case in Alaska Superior Court - is attempting to fairly allocate production among the various landowners.
On May 23, the court required Buccaneer to deposit all future profits from Kenai Loop production into an escrow account until the parties could reach an allocation agreement.
The order was effective June 1. Buccaneer declared bankruptcy on May 31. The bankruptcy proceedings stayed aspects of pre-existing legal and regulatory cases.
In September and October 2014, AIX Energy LLC and Miller-subsidiary Cook Inlet Energy LLC unsuccessfully sought access to a confidential report presented in the case, which they claimed would have helped resolve both the bankruptcy and draining issues.
Four wells
In early 2010, Buccaneer acquired the Cook Inlet assets of Stellar Oil & Gas LLC.
The acquisition included a non-contiguous block of state of Alaska, Cook Inlet Region Inc. and Alaska Mental Health Land Trust leases northeast of the Cannery Loop unit.
Through October 2014, Buccaneer had drilled four wells at Kenai Loop.
Using the Glacier No. 1 drilling rig, Buccaneer drilled the 10,680-foot Kenai Loop No. 1 well in April 2011. In June, the well flowed at a rate of 10 million cubic feet per day.
In September 2011, Buccaneer used Glacier No. 1 to drill the Kenai Loop No. 3 well to a total vertical depth of 11,000 feet to test the prospective zones identified in the first well.
The well was a dry hole.
Buccaneer brought Kenai Loop into production in January 2012. After an initial ramp up, the well produced at a rate of some 5 million cubic feet per day. Buccaneer increased production to 6 mmcf per day in October 2012 and 6.5 mmcf per day in December 2012 to accommodate two small short-term contracts with unnamed buyers in the region.
The bulk of production - 5 mmcf per day, initially - went to the Enstar Natural Gas Co.-subsidiary Cook Inlet Natural Gas Storage Alaska LLC. The 2011 deal covered a minimum of 12 billion cubic feet with the option to increase supplies to 31.5 bcf. The deal required Buccaneer to drill at least two more Kenai Loop wells by November 2013.
(Over its tenure as operator, Buccaneer also signed a short-term deal to sell Kenai Loop production to the Kenai liquefied natural gas facility. And in October 2013, Buccaneer signed short-term deals with a “large commercial end-user” and with an un-named oil producer “to ensure operation of their oil facilities in the Cook Inlet,” respectively.)
In early 2012, with Kenai Loop in production, Buccaneer commissioned a 3-D seismic campaign over 25 square miles around the field. After incorporating the results of the program into its geologic model of the region, Buccaneer drilled the Kenai Loop No. 4 well to some 13,000 feet in September 2012. A test in January 2013 flowed at some 3 mmcf per day. Buccaneer brought the well into regular production in February 2013 at some 2 mmcf per day. By March, Kenai Loop was producing some 10 mmcf per day.
In June 2013, Buccaneer renamed its Kenai Loop wells “to reflect their pad number.”
Under the new scheme, Kenai Loop No. 1 became Kenai Loop No. 1-1, Kenai Loop No. 3 became Kenai Loop No. 1-2 and Kenai Loop No. 4 became Kenai Loop No. 1-3.
Buccaneer started drilling the Kenai Loop No. 1-4 well in August 2013. The 10,700-foot well targeted what “appears to be fault separated from the current producing zones in the Kenai Loop No. 1-1 and Kenai Loop No. 1-3 wells,” according to the company.
The well flowed at 5.9 mmcf per day during a test in October 2013. Regulatory issues surrounding the well triggered the drainage complaint from CIRI. The well remained suspended as of October 2014 while the parties resolved the ongoing drainage dispute.
Averaging monthly production, Kenai Loop produced some 10 mmcf per day in July 2014. Cumulatively, the field produced some 6.7 bcf through July 2014.
Slide into bankruptcy
While it developed Kenai Loop, Buccaneer continued to expand.
The company pursued exploration campaigns at other prospects in the portfolio it had acquired from Stellar and acquired additional prospects as they became available.
The buying spree included a stake in the Endeavour jack-up drilling rig.
In early 2014, Buccaneer sold its interest in the offshore Cosmopolitan prospect and its interest in the Endeavour jack-up rig and then relinquished its offshore Southern Cross and North West Cook Inlet units after failing to meet state-imposed work commitments.
Further setbacks followed, including a dry hole at the West Eagle unit, the resignation of CEO Curtis Burton and the acknowledgement of drainage at Kenai Loop. In conjunction with various debt obligations, those events certainly hastened the bankruptcy filing.
