Pacific Energy Resources Ltd., a small Alaska oil producer, plans to sell its Cook Inlet oil and gas assets at auction July 20 in New York City, according to documents filed in U.S. Bankruptcy Court in Delaware.
A bankruptcy judge has approved the sale and the auction is set for 10 a.m. Eastern time in the offices of the company’s New York bankruptcy attorney.
However, at least one company, Unocal — now part of Chevron — has filed a late objection to the sale because of $43.6 million it says Pacific Energy owes for its share of running the Trading Bay oil field.
Pacific Energy, which filed for Chapter 11 bankruptcy reorganization on March 9 citing the fall in oil prices, has been trying to sell its assets in Alaska as well as in California.
In the Delaware court papers, the Long Beach, Calif.-based company discloses millions of dollars in losses on its Alaska operations, as well as substantial debts. It blames its woes partly on eruptions of the Mount Redoubt volcano on the west side of Cook Inlet, which idled oil production earlier this year.
Pacific Energy and its subsidiaries “have incurred, and continue to incur, significant losses with respect to the Alaska assets and are unable to generate sufficient positive cash flow to sustain their ongoing operations,” the papers say.
During the first four months of this year, the average monthly cash loss from assets Pacific Energy itself operates in Alaska was about $500,000, the company says.
“These cash losses have been exacerbated in recent months from the eruption and continuing seismic activity at the Mount Redoubt volcano,” causing the shut-in of the Cook Inlet Pipe Line Co. and Drift River Oil Terminal facilities, “the region’s sole means of bringing crude oil to market.”
“The debtors currently budget a cash loss of $2.5 million for the months of June and July,” the court filings say. “Once the debtors are able to resume sales of crude oil, it is expected that the operated Alaska interests, on a normalized basis, would continue to incur significant operating losses of approximately $700,000 each month.”
The company says it also is losing money on its nonoperated Alaska interests.
Pacific Energy hired an investment banker, Lazard Freres & Co. in Houston, to help sell the Alaska assets. The company says Lazard approached more than 40 potential buyers, with three making site visits to Alaska. None was willing to serve as a “stalking horse bidder,” so the company is now proceeding with the auction.
Pacific Energy is offering two batches of Alaska assets. The first includes assets Pacific Energy itself operates or holds for exploration; interests in production assets that Aurora Gas LLC operates; and the company’s 50 percent stake in Cook Inlet Pipe Line Co. The second batch includes the company’s interests in Chevron-operated production assets.
Pacific Energy bought the Alaska assets of Forest Oil Corp. in 2007 for $464 million.
The company’s holdings include the Redoubt Shoals field with its Osprey offshore oil platform, and the West Foreland and West McArthur River fields. Pacific Energy also owns minority interests in the Chevron-operated offshore Trading Bay and McArthur River fields.
In a May 15 financial report, Pacific Energy said its Alaska production for the first quarter of this year was 3,099 barrels of oil equivalent per day.
Lawyers for Chevron on July 15 filed an objection to the auction, saying Pacific Energy owes at least $43.6 million for its share of production costs, maintenance and other expenses in the Trading Bay field, of which Pacific Energy holds a 47 percent share. Chevron is asking the court for assurance that, if a sale occurs, the debt will be paid. Pacific Energy disputes the amount owed.
The Pacific Energy case has one other wrinkle: A group of overriding royalty interest holders in West Foreland and West McArthur in June sued Pacific Energy seeking protection of, and payments under, the royalty interests.
See story in July 26 issue available online at noon, Friday, July 24 at www.PetroleumNews.com
