Buccaneer Alaska is in the hunt for a jack-up rig.
The local subsidiary of Australian independent Buccaneer Resources plans to ask the Alaska Industrial Development and Export Authority for a loan to bring the rig to Alaska.
On Oct. 14, Buccaneer Alaska executives met with Kenai Peninsula leaders, including Speaker of the House Mike Chenault, staff from Sen. Tom Wagoner’s and Rep. Kurt Olson’s offices and representatives from the City of Kenai to discuss drilling plans. The discussions touched on both onshore activities planned near the Kenai Municipal Airport as well as offshore activities planned for two exploration areas in the upper Cook Inlet.
Drilling exploration wells in those offshore areas would require a jack-up rig — a mobile unit for drilling in relatively shallow waters, like those of Cook Inlet. Jack-up rigs are expensive and in short supply, and bringing one to Alaska adds logistical challenges.
To ease those challenges, Buccaneer plans to ask AIDEA for help funding the drilling program. That funding could come through one of two channels, either with a traditional AIDEA loan, or by AIDEA granting Buccaneer some unused federal stimulus money.
“We are in discussions with AIDEA and some other groups concerning the funding for a jack-up rig,” Mark Landt, vice president of land and administration for Buccaneer Alaska, told Petroleum News on Oct. 19. Landt said more information about the proposal should be available soon, as applications for the stimulus funds must be made by Nov. 8.
Support neededThe Kenai Peninsula Borough received $7.315 million from the American Recovery and Reinvestment Act of 2009, and transferred some of that to the City of Kenai, but didn’t use its full allocation. The unused portion returned to the state, and is administered by AIDEA through Recovery Zone Facility Bonds, a tax-exempt private activity bond.
An initial step in the application process is getting support from the original recipients of the federal stimulus dollars, the various municipalities on the Kenai Peninsula. On Oct. 20, the Kenai City Council passed a resolution to support using those unused funds to help Buccaneer Alaska “and possibly other companies” get a jack-up rig. The Kenai Peninsula Borough Assembly is expected to consider a similar resolution on Oct. 26.
The loan would likely only defray, but not cover, the cost of mobilizing a jack-up rig.
The well planned near the Kenai Municipal Airport refers to a plot of Alaska Mental Health Trust Authority and Cook Inlet Region Inc. land that Buccaneer recent leased.
Race for tax creditsIf Buccaneer gets the loan and gets the rig, it could create an unexpected funding cycle.
The Alaska Legislature created a significant new tax credit created earlier this year to help bring a jack-up rig to Cook Inlet. The credit pays 100 percent, up to $25 million, of the first offshore well drilled to “the pre-Tertiary zone” in Cook Inlet, 90 percent up to $22.5 million of the second well and 80 percent up to $20 million of the third well.
The same rig must be used for all three wells, which could encourage coordination among the various Cook Inlet leaseholders looking to explore offshore targets.
The company or companies must repay must 50 percent of the credit upon production.
Therefore, Buccaneer could get a loan from the state through AIDEA that would be repaid by the state through the tax credit, at least until a well went into production.
For years, exploration companies have been trying unsuccessfully to bring a jack-up rig to explore several prospects in the upper Cook Inlet. Those include Buccaneer’s proposed Southern Cross and North West Cook Inlet units, and Escopeta’s Kitchen Lights unit.
Escopeta came closer to securing the rig than any other company over the past decade, but the Houston independent never successfully arranged a drilling program. Kitchen Lights is currently in limbo, though, because Escopeta recently appealed the Alaska Department of Natural Resources’ decision this past July to put the unit in default.
Other companies with offshore Cook Inlet leases include ConocoPhillips, Chevron (which recently announced plans to sell its Cook Inlet assets), Cook Inlet Energy, Marathon and Apache Corp., the large Houston independent that just arrived in Alaska.