The Alaska Industrial Development and Export Authority allocated $60 million in Recovery Zone Facility Bonds to Kenai Offshore Ventures LLC on Nov. 15.
The decision sets the stage for the Australian independent to buy a jack-up rig for Alaska’s Cook Inlet basin.
Kenai Offshore Ventures is a subsidiary of Buccaneer Alaska Drilling LLC, a newly created subsidiary of Buccaneer Energy Ltd., out of Australia. Buccaneer formed the two new companies to buy and operate a jack-up rig on behalf of various third parties looking to drill offshore exploration wells in Cook Inlet, an underexplored part of the basin.
One of those parties would be Buccaneer Alaska, which holds leases in Cook Inlet.
The ruling only allocates a portion of the remaining bonding available for Kenai Offshore Ventures. For the company to actually get the money, the AIDEA board of directors must pass a resolution agreeing to issue the bond. That vote is scheduled for Dec. 3.
Recovery Zone Facility Bonds, or RZFBs, are a tax-exempt bond included in the American Recovery and Reinvestment Act of 2009, also known as the stimulus package.
The bonds gave local municipalities, particularly those in economic distress, a way to offer tax-exempt funding to businesses looking to invest within the community. Because some of the most economically distressed areas in Alaska are not within a recognized municipality, though, the state charged AIDEA with allocating and issuing the bonds.
The bond is essentially a roundabout loan, placing AIDEA and its bonding authority in between a private lender and borrower as a way to provide tax-exempt financing.
While Buccaneer is looking to buy a jack-up rig for Alaska, fellow independent Escopeta Oil intends to lease a jack-up rig for use in the basin. The Houston independent owns and operates the offshore Kitchen Lights unit, the largest unit in Cook Inlet. The State of Alaska put that unit in default in July, a decision Escopeta appealed in September. Extension negotiations are reportedly under way.
The first company to drill a well in Cook Inlet using a jack-up gets significant tax credits from the state, 100 percent of expenses up to $25 million. Smaller credits exist for the second and third wells drilled using the rig, creating an incentive for a company to be first. However, all three subsidized wells must be drilled using the same rig.