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BlueCrest requests loan changes, cites rig, credit payment delays
BlueCrest Energy Inc. has requested changes to the terms of financing that the company has obtained from the Alaska Industrial Development and Export Authority for the acquisition and set up of the drilling rig for the continuing development of the Cosmopolitan oil field, offshore the southern Kenai Peninsula. The change request comes as a result of a delay in the completion of the rig installation and because of the deferral of payments of tax credits by the state. The AIDEA board was scheduled to decide during its Dec. 1 board meeting on whether to approve the loan changes.
BlueCrest started production from Cosmopolitan earlier this year from an onshore pad near Anchor Point using a converted exploration well that penetrates the offshore oil pool. However, the company has planned to ramp up production through the drilling of extended reach wells that can access the oil reservoir from the onshore drilling and production site. To reach the offshore reservoir with directional wells almost four miles in length, BlueCrest has had to obtain an especially powerful drilling rig, designed for the task.
$30 million loan In April 2015 AIDEA approved a loan for up to $30 million of the estimated $40 million cost of manufacturing the rig, transporting the rig to Alaska, outfitting the rig on site and completing the rig commissioning. As collateral on the loan, AIDEA has taken a lien on the rig. Additionally, BlueCrest undertook to establish a reserve account of $15 million, to cover any shortfall between the loan amount and the potential sale price of the rig. BlueCrest anticipated using state tax credits to fund the reserve account.
The loan term was seven years, involving a line of credit that would last 15 months before converting to a term loan, at which point payments on the loan would commence. Revenues from expanded oil production following the drilling of development wells using the new drilling rig would underpin the loan payments. During the period of the line of credit, BlueCrest would pay interest at 450 basis points above the seven-year U.S. Treasury rate. Once converted to a term loan, the company would pay a 10 percent rate, compounded daily.
Apparently the funding from the loan was issued, and the drilling rig has been acquired and has now been completed. BlueCrest had anticipated starting drilling with the new rig around mid-August of this year, with the first production well to be completed by the end of the year.
Two problems But, according to a document filed with a resolution for board approval of BlueCrest’s request to now change the terms of the loan, two issues have arisen that have compromised the original loan terms: The completion of the drilling rig was delayed, thus delaying the start of development drilling, and the state has deferred payment of BlueCrest’s tax credits. The drilling delay presumably delays the time at which BlueCrest will start earning the increased oil revenues needed to pay off the loan, while the tax credit shortfall inhibits the company’s ability to finance the loan reserve fund.
The proposed changes to the terms of the loan involve delaying the conversion of the line of credit to the term loan from Oct. 24 to Dec. 10 of this year, with BlueCrest having to bear 10 percent interest compounded monthly during that extension period. BlueCrest will start making interest only payments on Jan. 1, with interest and principal payments to start on Dec. 1, 2017. All principal and interest must be paid off by the original date of maturity of the loan.
To deal with the reserve fund shortfall, the proposal is to set the reserve fund at the greater of $5 million or 120 percent of the difference between the principal outstanding on the loan and the distressed sale value of the drilling rig.
- ALAN BAILEY
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