Clearing a hurdle toward paying down its debt, and setting the gears in motion to direct more money toward Alaska, Pacific Energy Resources Ltd. successfully sold the first of two pieces of its onshore California asset base, the company announced July 10.
The California-based independent brought in $101 million by selling its assets in the Los Angeles basin. Pacific Energy hopes to close the remaining piece of the deal before the end of the month by selling its assets in the San Joaquin basin for $34 million.
Pacific Energy announced the sale to an unnamed company on May 21.
The influx of cash not only allows Pacific Energy to pay down between 20 and 30 percent of its debt by the end of the year, but also sets up a new pool of money the company will use toward projects in California and Alaska.
The company is also involved with a participation agreement on a prospect in Wyoming.
The sale positions Pacific Energy to go after its goal of producing 20,000 barrels of oil per day within three years from its core assets in California and Alaska, as well as run a vigorous exploration program based around the Corsair unit in the Cook Inlet.
Pacific Energy produced around 4,000 barrels of oil equivalent per day in 2007, but expects that to more than double this year with the inclusion of its assets in Alaska.
Alaska operations in ‘07
Pacific Energy bought the Alaska assets of Forest Oil Corp. in August 2007, becoming the operator of several units and the owner of non-unitized acreage around the state, a stake in the Cook Inlet Pipeline Co. and around 5,900 boe of net daily production.
That transition has been quick, but not always smooth for Pacific Energy.
The company has spent much of the past year wrangling with the state over timelines and work commitments, and trying to get a long-elusive jack-up rig to Alaska.
The company believes that this is the year for moving forward, according to Chief Financial Officer Jared Creed.
“Our goal is essentially to have a very comprehensive drilling program for all of our assets,” Creed said.
How those drilling programs unfold depends on money, though.
While some of the proceeds from the Los Angeles basin sale will go toward working capital, most will help pay down the company’s debts. The $34 million expected from the sale of the San Joaquin basin assets will go toward capital projects like those planned for Alaska.
The Alaska work program for the coming year is focused around developing and exploring the company’s offshore assets in the Cook Inlet.
Return to Redoubt Shoal
Pacific Energy hopes to start development work at the offshore Redoubt unit from the existing Osprey platform this year.
“We’re doing the upfront planning work to drill this year,” Creed said.
Previously, Pacific Energy announced a five-well program to further develop the Redoubt Shoal field. Creed said permitting for the wells is under way, but the bigger hurdle is planning the best spot and the best time to drill.
The Redoubt Shoal field was discovered in 1968, but didn’t go into production in the early part of this decade. Through the end of 2006, the Redoubt unit produced about 2 million barrels of oil and nearly 1 billion cubic feet of natural gas, according to 2007 figures from the state Division of Oil and Gas.
The state believes the field could be a small, but steady producer for the next 20 years.
Getting a jack-up to Alaska
Pacific Energy is also faced with the major task of getting a jack-up rig to Cook Inlet.
The company signed a three-year contract with Blake Offshore to bring the highly sought after rig to northern waters, but now needs to arrange to actually get the big piece of machinery to Alaska from its current location working in the Gulf of Mexico.
A jack-up rig is a mobile unit well suited for shallower offshore drilling, and is seen by many companies as the lynchpin of several proposed exploration ventures in Alaska. Without the rig, many previous ventures have been delayed or abandoned.
Should Pacific Energy successfully get a jack-up rig to Alaska, the rig will most likely be used to drill several different leases and units in the area.
“Essentially, everyone up there needs a jack-up rig,” Creed said.
But the rig will start its Alaska stint at Corsair, the prospective offshore unit owned and operated by Pacific Energy. The company is currently working to hold on to a series of leases around the unit, which the state has decided to take back because of disuse.
Originally, Pacific Energy suggested that Corsair might not be economic without the expansion acreage, but Creed said a jack-up would make the unit viable.
The issue now is about objective: the company believes the leases within the unit could be used to drill for gas, while the leases outside the unit could be used to drill for oil.
If Pacific Energy fails to convince the state, the leases will go up for bid again next year, but, Creed said, no one would be able to drill on the leases without a jack-up rig.
“Who’s going to buy (the leases) without access to a jack-up rig?” Creed said.
Benefiting from Chevron work
Pacific Energy will also benefit from a multi-year development program Chevron plans to start soon on acreage partly owned by Pacific Energy in Cook Inlet.
The work involves upgrading platforms and rigs and drilling new wells either late this year or early next year.
“Conservatively, it’s going to be the first quarter of next year,” Creed said.
Pacific Energy maintains a 46.8 percent working interest in the McArthur River field and the Trading Bay field, both operated by Chevron.
