The shareholders of Buccaneer Energy Ltd. split the difference on July 2, re-electing two of the four existing directors of the company and adding three new directors to the board.
CEO Curtis Burton retained his seat on the board of the company he founded, as did Finance Director Dean Gallegos, but shareholders voted to remove Chairman Alan Broome and Director Frank Culberson from the board of the Australian independent.
The shareholders also appointed Nicholas Davies, Clinton Adams and Shaun Scott, who had been nominated by the two Hong Kong-based shareholders who called the meeting.
Also on July 2, Buccaneer appointed Brian Moller to be a non-executive director and Gallegos to become its new chairman of the board, both “effective immediately.”
Earlier this year, the Buccaneer shareholders Pacific Hill International Ltd. and Harbour Sun Enterprises Ltd. requested the meeting to replace the entire board of the company, accusing the existing board of having “lost is way,” particularly in Alaska. The vote called for removing the four-member board and appointing the three members chosen by Pacific Hill and Harbour Sun. The existing board urged shareholders to reject all seven resolutions, saying the company was finally poised to execute on its ambitious portfolio, which includes one producing field and six exploration prospects, and two drilling rigs.
By giving a nod to each side, the shareholders created the possibility for future disputes as Buccaneer decides on how best to proceed on its operations in the Cook Inlet basin.
With the subsequent appointment of Moller, an Australian, each side would appear to now have three allies on the six-member board. To complicate matters further, Buccaneer announced several days before the vote that the venture capital firm Meridian Capital International Fund had acquired a 19.99 percent stake in the company. The deal allows Meridian to appoint a nominee to the board, a right the firm has yet to exercise.
The privately held Pacific Hill International and Harbour Sun Enterprises have no websites or listed phone numbers, and could not be reached for comment by press time.
A big push
Leading up to the vote, the previous directors made a big push for their cause.
They sent letters to shareholders making the case for maintaining the current business plan. They posted video appeals on the Buccaneer website. And Burton hosted a rare conference call for investors to ask specific questions about the company. “We’re at an execution phase,” he told them, “and if we interrupt this now, we may lose many of these opportunities we’ve worked so hard to put within shareholders’ and the company’s reach.”
The call featured harsh criticism for Pacific Hill and Harbour Sun, as well as an assessment of the challenges Buccaneer has faced and continues to face in Alaska.
The two companies have called Buccaneer unfocused, suggesting the directors were pursuing too many opportunities in Alaska without having a reliable source of funding.
At the June 27 call, Burton accused the two shareholders, which together held 8.6 percent of Buccaneer, of being unprepared to successfully take the company in a different direction. Specifically, he said the two shareholders had not provided fellow shareholders with a business plan and showed no understanding of the peculiarities of Cook Inlet.
After Pacific Hill and Harbour Sun made the request for a vote, Burton said he and his fellow directors offered “multiple times” to allow the two companies to “put someone on the board,” but said the companies consistently rejected the offer, choosing instead to go for a total turnover of the existing directors. “If you want a board working on behalf of all the shareholders, it’s not necessary to have total control of that board,” Burton said.
Creative funding
The shareholders had questions for Buccaneer, though.
Asked how Buccaneer planned to remedy being underfunded, Burton said, “We’ve always worked to fund the next stage of what we’re doing.” The company is open to numerous options, he said, from selling its share of the Endeavour jack-up rig, to taking on a partner, to funding activities in a piecemeal fashion by using successful development drilling to pursue “reserves-based” lending at a lower cost of capital. “What I would say to shareholders is that we will continue to explore all the options and we will be open to creative funding, just like we’ve been open to creative funding to get this far,” he said.
The jack-up rig is the keystone of Buccaneer’s Alaska program, giving the company access to its four offshore ventures: the Cosmopolitan prospect, the Southern Cross and Northwest Cook Inlet units and the deep oil rights at the ConocoPhillips-operated North Cook Inlet unit. Burton said Buccaneer never claimed it needed to own the rig, only that it needs regular access to it, and is willing to sell the rig if it can control where it drills.
Asked about the value of the rig, Burton declined to offer specifics, but said a third-party valuation made within the past two weeks came up with numbers “much higher than the amount of money that’s been spent on it.” The partners in the project initially set aside $85 million to buy, modify and move the rig. “It could be a very attractive piece of that overall funding program for the near term,” Burton said about selling Buccaneer’s share.
Kenai Offshore Ventures LLC currently owns the rig. The joint venture between Buccaneer and Ezion Holdings Ltd. is funded primarily through loans from the Alaska Industrial Development and Export Authority and the Singapore-based OCBC Bank.
Commenting before the vote about the possibility of Buccaneer changing hands, AIDEA spokesman Karsten Rodvik told Petroleum News, “Regardless of who owns the company, all of Buccaneer’s obligations to AIDEA, including their commitment to drill four wells in Cook Inlet, are clearly and contractually defined, and must be fulfilled. In short, even if Buccaneer ownership changes, AIDEA’s interests are protected.”
Responsibility?
After arriving in Alaska in August 2012, the rig spent months docked in Homer while Kenai Offshore Ventures and former rig operator Archer Drilling LLC sparred. The two companies are currently in court, each claiming millions in damages against the other.
Asked who was “responsible” for the cost overruns and permitting delays on the rig, Burton said, “Ultimately, the buck stops here. I’m the CEO and it’s always my fault, no matter how you got there. So, short answer, yes, I take responsibility for that.” That said, Burton claimed to have significant previous experience around shipyards, and added, “I have never in my career seen a vessel go into a shipyard and not have cost overruns.”
While saying this was “not an excuse,” he asked his fellow shareholders to “focus on what we managed to do in the end. … Buccaneer, working with the state of Alaska, even with the cost overruns, managed to get that asset into Alaskan waters and working.”
That said, from a legal standpoint, Buccaneer’s “official position” is that it paid Archer appropriately, Burton said, and even covered some of the rig operator’s outstanding bills to local contractors “because we were trying to take care of the little guys.” That point is in dispute, and remains a major component of the legal battle between the companies.
Cosmo development options
The rig is currently drilling the Cosmopolitan prospect.
Asked how long it might take to bring Cosmopolitan online, Burton said any plans would depend upon whether Buccaneer finds a commercial discovery at the offshore field near Anchor Point. Buccaneer could likely begin production in nine-to-18 months using “surface piercing,” he estimated, but would need longer than 18 months if it decided to build a “full-scale platform.” Buccaneer is also considering a subsea completion strategy to reduce costs, speed up construction time and preserve the coastal view, Burton said.
“That could be a very attractive solution,” he said.
Asked whether Buccaneer could meet its initial plans to drill seven wells in Alaska this year, Burton said, “What we drill is going to be directly related to the amount of capital that we have.” So far, Buccaneer is on its second well of the year. It brought the onshore Kenai Loop No. 4 online in February and is currently drilling the Cosmopolitan No. 1.
Several of the wells Buccaneer planned for this year are offshore, which will require the company to work against the inevitable arrival of winter conditions to meet its goal.
Even onshore, though, Burton admitted Buccaneer is running behind schedule, but he called the delays prudent. “I insisted that we slow down and we go look at all that data, and indeed do a regional survey to see how the data that we saw in (Kenai Loop No.) 4 squared up,” he said. “That’s cost us a couple of months in the drilling program.”
On June 28, Buccaneer announced a deal where the China-based venture capital group Meridian Capital International Fund had acquired 19.99 percent in the company. The $15.452 million raised through the transaction will allow Buccaneer to fund eight wells across its portfolio over the coming year, according to the company. The same day, Buccaneer also announced a second stock issuance designed to raise another $7.9 million.
If Burton is right, the money could allow Buccaneer to drill at all its prospects this year.
In addition to its four offshore prospects, Buccaneer also operates three onshore prospects: the producing Kenai Loop field near Kenai, the West Eagle prospect in the southern Kenai Peninsula and the West Nicolai Creek prospect across the Inlet.
Unfocused, or super-focused?
Asked whether Buccaneer was stretched too thin, which was the primary complaint of the two Hong Kong shareholders, Burton said, “The short answer there in my mind is no.”
“We’ve painted a big vision from the day we (made our Initial Public Offering), and we’ve said we can achieve big results, but we’ve tried to do that systemically,” he said.
The only thing Buccaneer misjudged, Burton said, was the market. Buccaneer thought its successes in Alaska would increase its stock value. The opposite occurred, which is why the company recently hired Canaccord Genuity (Australia) to evaluate its portfolio.
Pacific Hill and Harbour Sun want Buccaneer to focus its resources on the lowest risk assets in its portfolio, but Burton said Alaska requires boldness, not downsizing.
“If you don’t drill some of these offshore properties that constitute the lion’s share of your very substantial portfolio up there, you’re going to lose those leases. It’s just that simple. If you don’t drill some of the land things, you’ll lose those leases,” he said.
ACES inner-workings
Asked about the exploration tax credits in the ACES program, Burton said Buccaneer has received $16 million in rebates to date, with another $21 million in rebates pending.
Claiming there is “a bit of an art” to applying for the credits, Burton said the company has received “99.96 percent” of all the credits it has claimed, and has typically received its rebates within six to 12 months of filing. The wait can be as long as 16 months, Burton said, but the additional length usually comes from filing at the wrong time of the year.
