After struggling for more than four years to make its financial abilities match its ambitions for the Cook Inlet basin, Buccaneer Energy Ltd. has filed for bankruptcy.
The small Australian independent filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas on May 31. The filing covers Buccaneer Energy and its eight subsidiaries: Buccaneer Resources LLC, Buccaneer Royalties LLC, Buccaneer Alaska LLC and Kenai Land Ventures LLC, as well as Buccaneer Alaska Drilling LLC and its wholly owned subsidiary Kenai Drilling LLC, and Buccaneer Energy Holdings Inc. and its wholly owned subsidiary Buccaneer Alaska Operations LLC. The court has agreed to consider the proceedings of all nine companies together.
As part of the filing, Buccaneer said it has reached an agreement in principle with a secured lender to sell “substantially all” of its assets. The move would allow Buccaneer “to satisfy obligations owed to its principal secured lender and other secured creditors, and will conclude in an outcome that could result in some recovery for the company’s unsecured creditors,” according to a June 2 press release from the company.
Among the other initial motions filed in the proceedings, Buccaneer asked the court for permission to “continue to operate and oversee its assets during and throughout the restructuring process” and also to continue to pay wages and benefits to its remaining employees. The company claimed to have 33 employees as of May 30, but said it laid off 10 employees on May 31 and another three on June 2. Of the remaining 20 employees, one is on unpaid leave and another is on “personal paid leave,” according to Buccaneer.
Buccaneer filed for bankruptcy protection the day before an Alaska Oil and Gas Conservation Commission deadline to establish an escrow account for all its net revenues from production at its Kenai Loop gas field. The account was a step toward resolving a dispute among landowners around the Cook Inlet field, including the State of Alaska.
One of the parties to that case, Cook Inlet Region Inc., has asked the bankruptcy judge to guarantee that Buccaneer will continue to deposit proceeds from production into escrow.
The two rigsIn addition to its outstanding loans and credit facilities, Buccaneer and its subsidiaries are continuing to accrue debt daily on the Glacier No. 1 onshore drilling rig and the Endeavour jack-up rig. Buccaneer is asking the court to end its contracts on those rigs.
After using the Glacier rig to drill at its Kenai Loop field, the newly formed Buccaneer subsidiary Kenai Land Ventures LLC signed a three-year contract with Teras Oilfield Support in May 2012, with an option to buy the rig for $7.32 million after six months.
While the rig allowed Buccaneer to explore its onshore properties, the company also wanted to acquire a jack-up rig to use at its offshore Cook Inlet properties. Through a subsidiary called Kenai Offshore Ventures LLC, Buccaneer began pursuing such a rig, and ultimately purchased the Endeavour in partnership with the Singapore-based Ezion Holdings Ltd. and the Alaska Industrial Development and Export Authority.
Under a November 2011 deal, Kenai Offshore Ventures owned the rig and the Buccaneer subsidiary Kenai Drilling LLC operated the rig under a five-year agreement. But in December 2013, after drilling one well with the rig, Buccaneer sold its interest in Kenai Offshore Ventures for $23.95 million to the wholly owned Ezion subsidiary Teras Investments Pte Ltd. and used part of the proceeds to pay down debts on the rig.
The two rigs were potential revenue sources for Buccaneer, but both are “presently inactive and accordingly represent significant liabilities without providing any offsetting benefits,” the company wrote in its filings. Those liabilities include the daily lease rates, insurance and property tax payments, staffing costs and maintenance and repair costs.
While saying it was “disappointed” to learn about the bankruptcy filing, AIDEA also said its business plan for the Endeavour rig was “both unique and strong and promised development in Cook Inlet.” In a statement, AIDEA also noted that while Buccaneer has an exclusive charter on the rig, it no longer holds an interest Kenai Offshore Ventures, which owns the rig. “The KOV partners are committed to keep the rig in Cook Inlet and Alaska and believe there is a need for this rig with its deep water and cold temperature capability to continue the necessary exploration of Cook Inlet for both oil and gas. KOV is currently in discussions with a potential new rig manager and operator,” AIDEA said.
According to the bankruptcy filings, Buccaneer and its subsidiaries owe Kenai Offshore Ventures more than $18.5 million and owe Teras Oilfield Support Ltd. nearly $1.5 million, making those two companies among the largest unsecured creditors in the proceedings. Buccaneer owes the Louisiana-based Frank’s Casting Crew and Rental Tools Inc. nearly $1.2 million, the Washington-based Ocean Marine Services more than $600,000, the Kenai-based All American Oilfield Associates LLC some $600,000 and the Alaska Department of Revenue some $600,000, according to the bankruptcy filings.
Other companies listed among the 30 largest unsecured creditors include many Alaska contractors, as well as the parties in three pending lawsuits. The former Endeavour operator Archer Drilling LLC continues to seek $6 million in damages against Buccaneer for claims related to the work on the rig. Crystal Capital Partners LLP is seeking nearly $3 million and Scott Bernstein is seeking an unknown amount from Buccaneer.
Too many prospectsBuccaneer was founded in 2006, raised $17 million in an initial public offering in late 2007 and pursued opportunities in Texas and Louisiana before acquiring 57,600 gross acres in Cook Inlet and a six-man management team from the Texas-based independent Stellar Oil and Gas LLC in March 2010. The deal included the offshore Southern Cross prospect, the offshore Northwest Cook Inlet prospect and the onshore West Eagle prospect in the southern Kenai Peninsula. Buccaneer subsequently acquired the West Nicolai Creek prospect on the west side of Cook Inlet, the onshore Kenai Loop prospect near the city of Kenai, the offshore Cosmopolitan prospect off the coast of Anchor Point and deep oil rights at the ConocoPhillips-operated North Cook Inlet unit.
Although Buccaneer quickly established natural gas production at Kenai Loop, the basic work commitments for the remaining projects required far more money than the field generated. The two rig deals, particularly for the Endeavour, added to the financial strain.
Buccaneer had hoped to make a large discovery at either Southern Cross or Northwest Cook Inlet, but the company missed several state-imposed deadlines for activities and ultimately relinquished both properties late last year without drilling. The company made intriguing discoveries at Cosmopolitan, but sold the field to its majority partner BlueCrest Energy Inc. late last year to help balance its books. A dry hole at West Eagle and the ongoing dispute over correlative rights at Kenai Loop only made the outlook grimmer.
Alongside those problems, and ongoing lawsuits, Buccaneer faced turmoil at the corporate level. A pair of institutional shareholders tried to oust the board of directors last summer, but only succeeded in splitting it between new and old members. The new members later resigned without explanation. And recently, CEO Curtis Burton resigned after the board suspended him, with pay, while it considered its options for the future.