Aurora Gas LLC wants to liquidate its assets to pay its creditors.
In a plan filed with the U.S. Bankruptcy Court in Anchorage in early April and amended toward the end of the month, the local independent producer proposed selling off its assets, including its properties on the west side of Cook Inlet, to pay its creditors.
Aurora believes a sale could come close to recovering the nearly $1.5 million it owes creditors. The proposed liquidation sale would run through the end of October 2017.
Aurora decided to liquidate its assets because its owner, Rieck Oil Co., “has been unable to attract new investors and has therefore declined to invest additional funds,” according to the company. Over the past year, four prospective buyers have evaluated Aurora, according to the company, and one made a purchase offer in January 2016, “but it was declined as inadequate,” Aurora noted in its amended plan. “However, that company and several others continue to express an interest in the debtor or its producing assets, and debtor believes that the most value can be obtained in this manner,” Aurora noted.
Up and down
Aurora Power Resources Inc. and Orion Resources LLC created Aurora Gas in 1999 as a vehicle to pursue small natural gas fields in Cook Inlet overlooked by larger companies.
Aurora eventually developed five fields - Nicolai Creek, Lone Creek, Moquawkie, Kaloa and Three Mile Creek. The company also drilled 17 wells, re-entered four existing wells and worked over another 10 wells. Today, the company operates 19 wells, including 10 producing wells. The company also owns three miles of flowlines and 21 miles of gathering lines. The company has produced 29 billion cubic feet since 2001.
In early 2002, after bringing the Nicolai Creek unit into production, the owners of Aurora sought out a partner to help fund a range of development work throughout the west side of Cook Inlet, and eventually signed a deal with the Tulsa-based Kaiser-Francis Oil Co.
Kaiser-Francis agreed to invest $25 million for acquisitions, drilling, workover and other investments. Between 2003 and 2005, Aurora produced more than 4 billion cubic feet gas per year, with production peaking in November 2003 at 20 million cubic feet per day.
“After 2005, the lower-risk, high volume opportunities based on existing data were exhausted,” leading to less productive opportunities, according to the amended plan.
As a result, in 2007, Kaiser-Francis began to market its stake in the company. But several negotiations fell through over the following few years. Aurora sold the deep rights on certain leases to Apache Alaska Corp. in 2012, but Apache never developed the leases.
A pair of unsuccessful development wells in 2013 prompted Kaiser-Francis to stop investing any significant capital into Aurora and to try once to sell its share of the company. In early August 2015, Rieck Oil Inc. acquired Aurora Gas LLC outright.
Two projects
In its amended plan, Aurora blamed its financial troubles on two recent projects.
The first involved disposing of cuttings from the two 2013 wells. According to Aurora, Kaiser-Francis was responsible for these costs, under the terms of the sales agreement.
A delay in the project nearly tripled its estimated $300,000 price to $870,350.19, although subsequent deals over the course of the closing and bankruptcy proceedings have reduced the total amount to $415,000. According to Aurora, Kaiser-Francis is withholding payment until a related matter with Cook Inlet Region Inc. is resolved.
The second project involved working over the Kaloa No. 2 well. Aurora began the $1.065 million project shortly after Rieck Oil acquired the company in mid-2015. A group of creditors filed an involuntary bankruptcy petition against Aurora in early May 2016.
According to Aurora, both projects should have been eligible for state tax credits totaling some 40 percent of the amount of the outstanding invoices. The company applied for the credits in April 2016. “However, the State subsequently asked for proof of payment of some of these costs, which Aurora was unable to provide. Thus, Aurora withdrew the application before it was rejected on the grounds of non-payment, with the plan to resubmit it when a payment plan was in place,” the company wrote in its plan. “Tax credits which are owed by the State of Alaska were not paid in 2016 and their timely payment in the future is doubtful due to state budget issues and political complications.”
Since filing for bankruptcy protection, Aurora has been operating at a loss. In addition to its financial problems, Auroras has been encountering various technical problems at its properties over the past six months, leading to declines in production. To meet its contractual obligations, the company bought gas from Furie Operating Alaska LLC.
As of late April 2017, Aurora was producing between 1 million and 1.5 million cubic feet per day, which was enough to meet a 1 million cubic feet per day commitment to Tesoro.
In the most recent internal estimates, from February 2017, Aurora had 3.2 billion cubic feet in gross reserves, which could result in an additional 500,000 to 1 million cubic feet per day increase in production, pending some $850,000 in various maintenance work.
In addition to its producing properties, Aurora leases a small amount of acreage throughout the Cook Inlet region. The recent financial difficulties prevented the company from making its annual payments on the leases. The status of these leases is unresolved.
Aurora also owns 439 miles of 2-D seismic data over its acreage and other acreage nearby and 24 square miles of 3-D seismic data over Nicolai Creek and Moquawkie. The company also owns licenses to more than 3,100 miles of 2-D seismic data in the region.
