There might only be one jack-up rig in Cook Inlet this summer.
The Alaska Industrial Development and Export Authority is considering several changes to a proposed agreement with Kenai Offshore Ventures LLC that would push back the timeline for exploration activities by a year, but aim to strengthen the financial structure between the public corporation of the State of Alaska and the private joint venture.
Kenai Offshore Ventures, or KOV, is currently a joint venture between the Australian independent Buccaneer Energy Ltd. and the marine company Ezion Holdings Ltd.
In a unanimous vote on April 1, the AIDEA board gave its staff the go ahead to partner with KOV by spending up to $30 million toward the cost of a jack-up rig. To finalize the deal, AIDEA and KOV need to execute a joint ownership agreement that sets out the terms of the financial agreement. AIDEA is now considering many amendments to that JOA, and needs board approval because at least four could be considered “material.”
The AIDEA board scheduled a vote on the amended agreement for May 20, after Petroleum News went to print, but according to documents AIDEA posted on its website in advance of the meeting, the board considered four major changes to the JOA:
• Drilling would begin in spring or early summer 2012, rather than this summer.
•The parties would begin buying back AIDEA’s ownership stake in the project and paying AIDEA regular dividends starting on Jan. 1, 2013, rather than Jan. 1, 2012.
•A previously agreed-upon lien on Buccaneer’s worldwide holdings would go into effect once the deal closes, rather than in the event Buccaneer defaults on its payments.
•AIDEA would join KOV alongside Buccaneer and Ezion, using its newly granted authority to join limited liability corporations. AIDEA said its lawyers recommended submitting to Delaware law for the sake of joining a Delaware-formed corporation, but added that any disputes would still be handled in Alaska Superior Court in Anchorage.
AIDEA blamed the delays on a “lengthy and tough negotiation process, necessary to ensure that Authority’s interests are protected,” but said extra time offers “the side benefit of allowing for a more orderly process for acquisition, refitting and commissioning of the Rig.” KOV is looking to buy the Transocean Adriatic XI, or an equivalent rig.
Under its business model, Buccaneer would use the rig to drill four wells on its own offshore properties — the Southern Cross and North West Cook Inlet units — and lease the rig out to other Alaska operators, both in the Cook Inlet and in the Arctic Ocean.
AIDEA said the other changes bring the agreement more in line with its goals and interests. The agreement includes numerous other changes not considered “material.”
Escopeta still aiming for MayIf AIDEA approves the changes, it would mean that the only chance for having a jack-up rig in Cook Inlet this year lies with Escopeta Oil. The Houston company is currently shipping the Spartan 151 rig to Alaska, and expects it to arrive in Homer on May 25.
That makes Escopeta the most likely candidate to receive a one-time state tax credit created last year that pays up to $25 million of the cost of the first well drilled to a certain depth in Cook Inlet using the jack-up rig. The credit allows for two other operators to collect subsequently smaller credits by using the same rig to drill at other properties.
By using a different rig, Buccaneer would be ineligible for that credit, but could still claim credits offered to all explorers under the state’s oil and gas production tax, Alaska’s Clear and Equitable Share.
AIDEA previously said that its business model does not depend on receiving the one-time tax credit, and that it believes the Cook Inlet market can support two jack-up rigs.