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Vol. 14, No. 37 Week of September 13, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Pacific Energy IDs buyers

State of Alaska considers asset purchase but backs off, figuring to inherit property

Wesley Loy

For Petroleum News

The State of Alaska briefly considered buying some of the remaining Cook Inlet assets of imploding California oil and gas producer Pacific Energy Resources Ltd., but ultimately decided against it.

Kevin Banks, director of the state Division of Oil and Gas, said officials initially thought it might make sense to acquire the assets as a means of holding them together as a working unit, increasing their value.

But on reflection, officials decided much of the property would eventually land in state hands anyway should Pacific Energy abandon them, Banks said. Also, he said the state might be able to cooperate with private landowners such as Cook Inlet Region Inc. to find an interim operator for the assets.

“We’re keeping our options open,” Banks told Petroleum News on Sept. 9. All the landowners hosting Pacific Energy properties are “interested in seeing a successful outcome,” he said.

For months, Pacific Energy has been looking to sell off its Cook Inlet oil and gas assets as part of its Chapter 11 bankruptcy proceedings in Delaware.

Its effort to sell perhaps its most valuable producing asset — a minority stake in the Chevron-operated offshore Trading Bay unit and field — was unsuccessful and the company has abandoned the property.

Now Pacific Energy is concentrating on disposing of a grab bag of remaining properties.

The collection includes the Pacific Energy-operated West McArthur River field, the West Foreland field, and the Redoubt Shoal field with its Osprey offshore platform and Kustatan onshore facility. Also included are interests in the Three Mile Creek field, which Aurora Gas operates; some exploration properties; and a 50 percent stake in Cook Inlet Pipe Line Co.

Sale options

On Sept. 2, Pacific Energy filed a notice in the Delaware bankruptcy court identifying four potential buyers of the assets, one of them being the state.

The notice said the company had yet to select a buyer or work out a “definitive purchase and sale agreement” with anyone.

As of mid-day Sept. 10, no further notice had been filed in court saying any sale had been consummated.

Another court hearing was scheduled for 3 p.m. Eastern time Sept. 11 in Delaware.

The four potential buyers Pacific Energy listed include:

• New Alaska Energy, an Alaska limited liability company, offering $1.33 million plus assumption and payment of contract cure obligations and environmental liabilities.

• Cook Inlet Energy, another Alaska limited liability company, offering $500,000 plus assumption and payment of contract cure obligations and environmental liabilities.

• NTP Oil Corp., home base unknown, offering $500,000 plus assumption and payment of contract cure obligations.

• The State of Alaska, offering “nominal consideration” plus assumption and payment of contract cure obligations.

All four purchase offers excluded the Cook Inlet Pipe Line stock, according to the Pacific Energy court filing.

Lawyers for the state informed the court on Sept. 9 it would not be a buyer.

Pacific Energy, based in Long Beach, Calif., also filed papers seeking permission to abandon office leases in Anchorage and in Bakersfield, Calif., as company executives proceed with “winding down their business operations.”

Pacific Energy’s fall

Pacific Energy entered the Alaska scene in 2007, buying the assets of Forest Oil Corp. for $464 million.

The company filed for bankruptcy reorganization on March 9 citing the steep drop in oil prices toward the end of 2008. The Mount Redoubt volcano also hurt the company, with eruptions halting oil production earlier this year on the west side of Cook Inlet.

Faced with mounting losses on its Alaska holdings, Pacific Energy sought to sell its Alaska assets as well as its oil and gas properties in California. The California sale efforts are ongoing.

A big worry for the state is what happens to Cook Inlet wells, pipelines, shore-based production facilities and the Osprey platform should Pacific Energy simply abandon the properties. Lawyers for the state have cited the potential for pollution, saying it could cost the state tens of millions of dollars to safeguard or decommission the properties.

Pacific Energy has said it was carrying out a proper shut-in of the properties, and Banks told Petroleum News he believes most all the assets are now idle and not producing oil.

Even if abandoned, Banks said state officials believe many of the assets eventually will end up in state hands. For example, the state probably would inherit the Osprey platform because it represents an improvement to a state lease, he said.

Objections pending

Others are unhappy with the situation.

Chevron on Sept. 8 filed an objection saying Pacific Energy’s proposed sale of the remaining assets “does not adequately protect” Chevron’s rights.

Chevron wants assurance that any buyer has the financial strength, permits and insurance to properly abide by an existing facilities agreement to use of the Trading Bay air strip, barge landing, roadways and pipeline rights of way in support of the Pacific Energy properties.

Chevron also complains Pacific Energy hasn’t provided a list of precisely which assets it aims to sell. The list is needed to make sure no Trading Bay assets are sold “inadvertently or otherwise,” Chevron’s lawyers argue.

Dan Donkel, who says he owns an overriding royalty interest in the Redoubt leases, also has filed an objection arguing, in part, that Pacific Energy didn’t do an adequate job of marketing the properties. He wants assurance that his royalty interest is protected in the event of either a sale or abandonment.

In support of his objection, Donkel filed an affidavit from a former Alaska attorney general, Charlie Cole. The two-page affidavit says Cole is himself a long-time oil and gas investor, and that he believes the firm Pacific Energy hired to market its assets, Lazard Freres & Co., had made an “abysmal” effort, failing to “consult those individuals who routinely invest in the Alaskan oil and gas market.”

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