Financially strapped oil and gas producer Pacific Energy Resources Ltd. is proposing to sell part of its Alaska holdings for $8.1 million to a pair of companies registered in the British Virgin Islands.
Pacific Energy found the buyers at a July 20 auction held in New York City.
The company, in a notice filed July 22 in U.S. Bankruptcy Court in Delaware, identified the winning bidders as Ammadon Ltd. and Catherwood Ltd. Pacific Energy said a third company, Leostar Investments Ltd., would act as guarantor.
Pacific Energy also named another company, New Alaska Energy LLC, as a “back-up bidder” that offered $7 million for the properties.
The auction is subject to a bankruptcy judge’s approval, and a hearing is scheduled for July 27 in Wilmington, Del.
The tentative closing date for the sale is Aug. 4, the Pacific Energy court notice said.
Consummation of the sale is not assured, as a slew of corporate, government and Alaska Native interests have lodged objections. Most of them want assurances that Pacific Energy or the buyer will make good on Pacific Energy’s debts. Some are concerned over the company’s suggestion it might simply abandon properties it can’t sell promptly.
The State of Alaska wants proof that whoever operates the company’s oil and gas properties going forward has enough financial muscle and oil field expertise to run them safely.
Two lotsPacific Energy had offered its Alaska assets, all in the Cook Inlet region, in two lots. Only the first lot drew qualified bids, the company said.
The first lot packaged those assets Pacific Energy itself operates or holds for exploration, presumably including the West McArthur River field and the Redoubt Shoal field with its Osprey offshore platform. The lot also included Pacific Energy’s interests in production assets that Aurora Gas LLC operates, plus a 50 percent stake in Cook Inlet Pipe Line Co.
The second lot Pacific Energy tried to auction — and most likely the larger revenue producer of the two asset groups, judging from court filings — included the company’s interests in Chevron-operated production properties including the offshore Trading Bay field.
Pacific Energy’s notice on the auction results provided no further information about Ammadon Ltd. and Catherwood Ltd. A Pacific Energy executive as well as lawyers for the company didn’t return phone calls seeking comment.
State objectsLawyers for the State of Alaska filed a 12-page objection on July 22 asking Delaware Bankruptcy Court Judge Kevin Carey not to approve the auction results unless the winning bidders pass muster with the state Department of Natural Resources, which regulates oil and gas leasing.
At this point, state officials consider Ammadon and Catherwood to be “unqualified to operate these facilities” until the companies can demonstrate they’re financially and technically capable of running Pacific Energy’s properties safely and without waste, and can fund decommissioning when the time comes.
“The state must approve any new operator, and the newly designated operator is required to, among other things, furnish a bond and, in some instances, additional security,” the state’s lawyers wrote.
The winning bidder needs to meet with state officials and fill out a “business questionnaire” before the state will consider transferring Pacific Energy’s leases, they wrote.
The lawyers also noted that Pacific Energy is behind by at least $600,000 on payments to the state under an escrow agreement on potential abandonment costs for the Osprey platform.
Lawyers for Pacific Energy said in their July 22 court notice that terms of the $8.1 million sale include Ammadon and Catherwood assuming all royalty obligations, environmental liabilities, and abandonment and decommissioning liabilities.
Company’s rise and fallPacific Energy is a small oil and gas exploration and development company based in Long Beach, Calif.
Its chairman and chief executive is Vladimir Katic, who earned an engineering degree from the University of Zagreb in Croatia in 1966, according to the company Web site.
His son, Darren Katic, is listed as company president.
In 2007, Pacific Energy bought the Alaska assets of Forest Oil Corp. for $464 million.
Trouble later gripped the company and it filed for Chapter 11 bankruptcy reorganization on March 9 citing “the dramatic decrease in the market price of oil over the past five months.”
Pacific Energy moved to sell not only its Alaska assets, but also its other major group of holdings in California. Court documents show the company aims to hold another auction on July 31 in New York to sell its Beta unit assets, including interests in offshore production platforms near Huntington Beach, Calif., and stock in the San Pedro Bay Pipeline Co.
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.
Volcano blows, production woesIn court papers filed in the days leading up to the Alaska auction, Pacific Energy disclosed millions of dollars in losses on its Alaska operations, as well as substantial debts.
It blamed its troubles partly on eruptions of the Mount Redoubt volcano, which has idled oil production on the west side of Cook Inlet since early April.
Pacific Energy and its subsidiaries “have incurred, and continue to incur, significant losses with respect to the Alaska assets and are unable to generate sufficient positive cash flow to sustain their ongoing operations,” the papers said.
During the first four months of this year, the average monthly cash loss from assets Pacific Energy itself operates in Alaska was about $500,000, the company said.
“These cash losses have been exacerbated in recent months from the eruption and continuing seismic activity at the Mount Redoubt volcano,” causing the shut-in of the Cook Inlet Pipe Line Co. and Drift River Oil Terminal facilities, “the region’s sole means of bringing crude oil to market.”
“The debtors currently budget a cash loss of $2.5 million for the months of June and July,” the court papers said. “Once the debtors are able to resume sales of crude oil, it is expected that the operated Alaska interests, on a normalized basis, would continue to incur significant operating losses of approximately $700,000 each month.”
The company said it also is losing money on its nonoperated Alaska interests.
Pacific Energy hired an investment banker, Lazard Freres & Co. in Houston, to help sell the Alaska assets. The company said Lazard approached more than 40 potential buyers, with three making site visits to Alaska.
Creditors line upIt’s clear from court documents that Pacific Energy has generated some serious financial wreckage. In recent days, creditors have filed objections to Pacific Energy’s Alaska asset sale in hopes of gaining assurances that debt or other obligations will be cured.
One company filing an objection is Unocal, now part of Chevron.
In a July 15 court filing, Chevron’s lawyers said Pacific Energy owes at least $43.6 million for its share of production costs, maintenance and other expenses in the Trading Bay field, of which Pacific Energy holds a 47 percent share.
Chevron is asking the court for assurance that, if a sale goes through, the debt will be paid. Pacific Energy, however, disputes the amount owed.
Cook Inlet Region Inc., in a sale objection filed on July 21, said it could be due close to $2 million in royalties and fees from Pacific Energy natural gas wells and pipeline easements involving CIRI’s subsurface estate.
Marathon Oil Co., in a July 21 objection, said Pacific Energy owes $3.1 million on unpaid invoices for fuel gas delivered this past December, January and February.
Lawyers for Pacific Energy’s downtown Anchorage landlord, Whale Building LLC, also filed an objection, saying Pacific Energy owes more than $38,000 in back rent but had understated the amount due.