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Vol. 15, No. 50 Week of December 12, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Escopeta to buy

Plans change from leasing to buying Spartan 151 jack-up rig for Cook Inlet

Eric Lidji

For Petroleum News

Adding another twist in the race to bring a jack-up rig to Alaska, Escopeta Oil announced Dec. 7 that it plans to buy the Spartan 151 rig headed for Cook Inlet next year.

The Houston independent made the announcement in a letter to the Alaska Industrial Development and Export Authority, a public corporation of the state of Alaska, that is currently considering whether to invest up to $30 million to help another independent purchase a jack-up rig.

Escopeta previously planned to lease the Spartan 151 to drill at its offshore Kitchen Lights unit in upper Cook Inlet. In late November, when Escopeta executed an amended contract with Spartan Offshore Drilling to lease the jack-up, the companies also negotiated a 120-day option for Escopeta to buy the rig outright. Now, Escopeta plans to take advantage of that option.

“We should have something in writing before the end of the year,” Escopeta President Danny Davis told Petroleum News Dec. 8. Spartan President and Spartan CEO Paul Butler confirmed that his firm had begun working with Escopeta on the sales contract.

If successful, Escopeta would first use the jack-up rig to drill its own prospects and then lease it out to other Cook Inlet operators. Spartan, a drilling company based out of Louisiana, recently placed ads in several Alaska newspapers looking for rig workers.

Plan similar to Buccaneer’s

Buccaneer Alaska, another independent Cook Inlet operator, is also looking to purchase a jack-up rig for use in Cook Inlet, both for its own offshore acreage and then for lease to other oil and gas companies.

Buccaneer Alaska, the local subsidiary of an Australian independent, recently asked AIDEA to invest between $20 million and $30 million in the purchase of the rig, and to issue $60 million in Recovery Zone Facility Bonds, tax-exempt private activity bonds created by the American Recovery and Reinvestment Act, the federal stimulus bill.

AIDEA is evaluating that proposal and is expected to discuss the matter soon. (Under federal guidelines, AIDEA has until the end of the year to issue the RZFBs.)

In his letter to AIDEA, and a similar letter to Anchorage Mayor Dan Sullivan on Dec. 2, Davis framed the race for a jack-up rig as competition between public and private dollars, saying that while Escopeta wasn’t scared to compete with Buccaneer as one private company against another, it was scared to compete against the State of Alaska, “because once the state has an equity or debtor’s interest in our competition, we don’t know how the state might proceed to further protect or enhance that interest, taking advantage of and possibly mistreating other companies and leaseholders in the Cook Inlet Basin.”

Escopeta: No public assistance

Escopeta said it does not plan to seek public assistance for its project, other than various State of Alaska tax credits offered for jack-up rig drilling and other exploration work.

Buccaneer also plans to apply for those credits, if it is successful in bringing a rig north.

If both companies successfully bring jack-up rigs to Alaska, only the first to drill would get a special tax credit created this year that pays up to $25 million of the first offshore well drilled to a certain depth in Cook Inlet. (The credit also pays significant amounts for the next two wells, but only if all three wells are drilled using the same jack-up rig.)

Escopeta told state Division of Oil and Gas officials that it would have its rig in Alaska by April 2011. Buccaneer previously outlined a target date of July 2011 for its rig.

Having two rigs operating in Cook Inlet would theoretically bring down the day rate for other companies looking for time on the rig, although Escopeta has already said it plans to offer a rate that is low compared to those offered in other offshore oil and gas provinces.

Several companies hold offshore Cook Inlet leases, although none have publicly said they would use a rig if it were available.

Buccaneer pushing forward

Buccaneer doesn’t see the public-private divide as sharply as Escopeta.

“The proceeds from the issue of the RZFBs is being sourced from private funding so this project will be majority funded by private and not state funds,” Dean Gallegos, finance director for Buccaneer Energy, the Australian parent company of Buccaneer Alaska, told Petroleum News Dec. 7. “Under the terms of the RZFB program the income paid on these bonds by Buccaneer’s subsidiary will be tax free in the hands of the U.S. taxpayer.”

Because AIDEA is simply the agency responsible for allocating the RFZBs set aside for Alaska, Gallegos described AIDEA’s involvement as “administrative and not financial.”

Concerning the proposed direct investment by AIDEA, a quasi state agency, Gallegos added, “AIDEA’s basic mandate is to invest in Alaska and as far as I am aware anyone can approach AIDEA to ascertain if they would invest directly into a project that is of benefit to the state and people of Alaska.”

Asked whether the bonds and loan would be enough to fund both the rig acquisition and the drilling program, Gallegos wrote, “Buccaneer is engaged in discussion regarding funding. Until we have finalized these discussions we do not have any comment.”

Asked if the Escopeta proposal threatened the Buccaneer proposal (by bringing down the day rate for time on a rig, for instance), Gallegos wrote, “Our development of a business plan for deployment of an Alaskan rig allowed for a number of contingencies. We believe our plan adequately covers all scenarios and we have proceeded accordingly.”

—Kay Cashman contributed to this story

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