AIDEA modifies BlueCrest loan; price rout spurs interest-only year
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The Alaska Industrial Development and Export Authority board unanimously approved a loan modification for BlueCrest Energy Inc. during a special meeting March 27.
The modification allows for a forbearance of principal payments for 12 months, effective as of the April 1, 2020, payment date through the March 1, 2021, payment date. Following the interest-only payment period, the amortization period and maturity date for the loan will be extended for one year.
The request was made by BlueCrest to allow the company flexibility in weathering the recent severe downturn in crude oil pricing, specifically Alaska crude, which benchmarks off of Brent, AIDEA said, adding that Brent has traded below $30 per barrel, representing a more than 55% decline in the oil price since the start of the year.
“We end up paying more interest on the loan; we just defer paying off the principal on the loan,” J. Benjamin Johnson, BlueCrest Energy CEO and president, told Petroleum News April 1. “But we already paid the loan way down to a very low number relative to the value of the rig. This is good for both parties.”
The investment committee and the AIDEA board reviewed the loan in July 2019 and the board approved a modification to the loan allowing for the release of its $6.1 million reserve account as a negotiated pre-payment of the loan, AIDEA said. The principal balance of the loan has been reduced from $22.9 million in July, to $13.2 million as of the last payment date March 1, 2020.
Alan Weitzner, AIDEA chief investment officer, said the total amount of deferred principal payments over the year “would be effectively $4.8 million.”
“In that prepayment they have already put us in a position of a lower principal balance than it would otherwise have been at this point in time, to include this period of forbearance on the principal payment,” Weitzner said, adding that the loan would be fully paid July 1, 2023, rather than July 1, 2022, as per the original terms.
AIDEA mission bolstered by BlueCrest loanOne of the cornerstones of AIDEA’s mission to promote economic growth is to bolster employment opportunities for Alaskans, and BlueCrest’s contribution was noted in the staff recommendations.
“This action will support the retention of the existing 10-person operation staff and lead to the employment of over 150 persons with the continued development of the field by BlueCrest later this year per the plan of development,” the authority said.
Johnson said he and his investors were diligently working to finance the company’s 2020 drilling program, which would multiply jobs at the company’s lower Kenai Peninsula Cosmopolitan field exponentially.
“We’re still working with our investors to figure out when we will do it; we’ve designed it, and we’re working on permits but it’s just really a function of what happens in the market in the short term here,” he said. “When we drill, we easily bring on another 150 jobs running that big rig with all the projects and all the service companies that work with it.”
BlueCrest intends to use a trident configuration, which involves the drilling of three fishbone wells into the Hansen oil pool from a single wellbore drilled 3 miles out and 1.5 miles down from the company’s shore-based pad situated north of the city of Anchor Point.
“It’s really nothing new, what we’re doing is just tripling what we’ve done before - that has worked well,” Johnson said. “It’s no new technology, but it’s just an extension of the existing proven technology that we’ve already developed.”
BlueCrest’s activities are also paying into the coffers of the state and the Kenai Peninsula Borough through taxes and royalties.
Tom Boutin, AIDEA CEO and executive director, said the authority had reviewed those payments while working with BlueCrest during 2019.
“It was substantial, the amounts that were paid to the borough and the state by BlueCrest,” Boutin said.
BlueCrest ‘extremely diligent’ in AIDEA paymentsThe AIDEA staff recommendation noted that BlueCrest has been “extremely diligent in its payment obligations to AIDEA.”
Weitzner told the board that BlueCrest has successfully navigated very difficult conditions in the oil patch since the loan was originated, largely due to the abrupt veto of oil tax credit reimbursements under the Walker administration.
“They had initial issues relative to the reduction of tax credits ... that significantly affected their financial position; they’ve been working with us since that point in time and they have shown commitment to the state of Alaska with the development of the field,” Weitzner said.
Board member Bernie Karl, as a small business operator, reacted positively to the good track record of BlueCrest.
“Being a borrower myself, and knowing how tough times can be, I love the good faith that they’ve shown to this point, and obviously it’s your belief that that good will is going to continue; they’re asking for us to give them a little hand,” Karl said “I’m going to vote in favor of helping them, as they’ve requested.”
Johnson likewise acknowledged the authority’s work to smooth the bumps in the road.
“We appreciate the relationship that we have had with AIDEA. We have worked hard to fulfill all of our obligations over time, and we appreciate AIDEA’s responsiveness to work with us in times of market distress, like we are right now,” he said.
“It’s slow in the entire world oil industry right now,” Johnson said. “The good news is that we are producing and we’re generating revenues. A lot of the other producers around the U.S. in particular are having to shut down.”
Exogenous factors create challenge for AIDEA, borrowers“This is a difficult situation brought to Alaska and BlueCrest by exogenous factors and this is a relatively easy answer given the difficulty of this situation,” Boutin said. “We’ll be bringing other workouts to the board case by case and the answers won’t always be as easily reached as the staff ... we think this one is and we strongly recommend that this particular workout be approved in the way we’ve proposed it.”
Dana Pruhs, AIDEA board chair, cautioned that exogenous factors may well make the board’s job increasingly difficult in the coming weeks, particularly if the state’s visitor industry is hit hard by the coronavirus pandemic.
Pruhs noted that in excess of $50 million had been committed by the authority for relief so far in the board meeting that day.
“Two million or 4 million doesn’t sound like a lot today, but I’m here to tell you that when there’s 50 people standing at the door - or 100 - the next thing you know we’re not going to have the ability to do anything,” Pruhs said.
Pruhs said the authority needed to have the ability to swiftly determine what each forbearance will mean to AIDEA’s cash flow, to establish a floor and keep close tabs on it.
“When we do get a request for a loan modification we immediately know what the effect is to the organization,” he said.
AIDEA’s collateral for the loan - originated in December 2016 - is the BlueCrest Rig No. 1, a 50-person man camp and associated pipe, equipment and tools.
- STEVE SUTHERLIN