Buccaneer moved two steps closer to bringing a jack-up into Cook Inlet on Nov. 22.
The Alaska Industrial Development and Export Authority agreed to consider owning a piece of the rig and determined that the project was eligible for tax-exempt financing.
Buccaneer Alaska, a local subsidiary of the Australian independent, is looking to buy a jack-up rig by interlocking a series of public funding mechanisms.
To buy the rig, Buccaneer wants to use up to $60 million of Recovery Zone Facility Bonds and wants AIDEA to invest between $20 million and $30 million. Then, to offset those costs, Buccaneer would take advantage of a new tax credit that pays 100 percent of the drilling expenses, up to $25 million, for the first offshore well drilled with a jack-up.
The AIDEA board approved two resolutions that advance that cause on Nov. 22.
The first allows AIDEA to conduct a feasibility study to decide whether owning a portion of the rig is a good business decision. The second allows Buccaneer to get reimbursed for certain expenses if it is ultimately allowed to use the Recovery Zone Facility Bonds.
Exploration companies have been trying to bring a jack-up rig to Alaska in recent years to drill in underexplored corners of the basin, but haven’t been able to arrange a program.
Houston independent Escopeta Oil wants to bring a rig to Alaska next spring using a traditional approach: accumulating private financing to mobilize, rent and use the rig.
Buccaneer took a different approach in recent weeks. The company believes that a depressed rig market, one-time bond opportunities and the number of underexplored prospects in Cook Inlet making buying a rig a better idea than renting one.
Under an intricate plan, Buccaneer created two new companies to own and operate the rig: a consortium called Kenai Offshore Ventures LLC and a new operating company called Buccaneer Alaska Drilling. Kenai Offshore Ventures would own the rig and generate revenue by leasing it to Buccaneer Alaska Drilling. Buccaneer Alaska Drilling would then charge a day rate to local exploration companies for drilling services.
Buccaneer said that Seahawk Drilling Inc., a Houston-based offshore driller, would physically operate the rig on behalf of the new consortium and operating companies.
Buccaneer said it is in negotiations to buy a cold-water rated jack-up rig. The company said that if the financing goes through, it plans to finalize the contract, winterize the rig at its current location in Malaysia and have it bound for Alaska by next spring. Under that timeline, the jack-up rig would be in Alaska and ready to start drilling by July 2011.
Buccaneer wants AIDEA’s help in two ways to finance the acquisition.
The first is by issuing up to $60 million in Recovery Zone Facility Bonds, a tax-exempt bond included in the American Recovery and Reinvestment Act of 2009, also known as the stimulus package. Kenai Offshore Ventures recently announced that it plans to work with Key Banc Capital Markets on the placement of the Recovery Zone Facility Bonds.
Buccaneer’s second request is for AIDEA to invest between $20 million and $30 million in the rig. At the meeting, Buccaneer predicted an 8 percent return for AIDEA, as well as a “first out” provision allowing AIDEA to recover its investment before other investors.
One of the recently approved resolutions allows AIDEA to spend up to $150,000 studying whether Buccaneer’s proposal is a good business decision. AIDEA expects that evaluation to be completed by its next board meeting, scheduled for Dec. 3. The Recovery Zone Facility Bonds expire if not issued by the end of the year. (See related Escopeta story on page 1.)