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A tight situation Buccaneer announces financing & rig purchase after contractor complaints Alan Bailey Petroleum News
Following complaints about unpaid bills due to contractors for work done at the company’s Kenai Loop gas field on Alaska’s Kenai Peninsula, on April 18 Buccaneer Energy announced that it had secured $20 million in project financing and that it had also agreed to the purchase of Marathon’s Glacier No. 1 drilling rig for $7.5 million.
$20 million facility The new $20 million finance facility will enable Buccaneer to pay its vendors and purchase the Glacier rig, in addition to paying some other company expenses, Buccaneer said. The prospective lender is currently conducting due diligence prior to finalizing the deal, the company said, adding that it expects the deal to close in the next 14 to 28 days.
“Putting together a funding facility of this type is a significant milestone for Buccaneer Energy,” said Dean Gallegos, executive director of Buccaneer Energy, when announcing the new financing. “We are pleased to be working with this prospective lender and we appreciate the cooperation of all our stakeholders while we work through the process. Buccaneer is firmly committed to its Alaska strategy and we are looking forward to progress on our Kenai Loop project, including our next well at Kenai Loop and our first offshore well later this year.”
Buccaneer completed its first well at Kenai Loop, near Kenai airport, in May 2011 and, having made a natural gas find, proceeded to develop a gas production facility connected to the Kenai gas pipeline infrastructure. The company also drilled a second Kenai Loop well that turned out to be a dry hole.
The first well, the Kenai Loop No. 1, went into production in January, supplying gas at the rate of 5.1 million cubic feet per day.
Kenai Loop contractors But it has emerged that Buccaneer still owes considerable sums of money to the contractors that have worked on the Kenai Loop project.
Employees of several of these contractors testified during the April 4 meeting of the Kenai City Council — the Kenai Loop surface facilities are located inside the city of Kenai and Buccaneer had asked the city to renew the company’s land use permit which had expired on March 1.
Sagen Juliussen, NANA Construction vice president for business development, told the city council that his company had exhausted the options for coming to terms with Buccaneer and that he was concerned about Buccaneer’s talk of further developments when the company had not yet paid for work already completed.
“If they continue to do business the way they’re doing, they’re going to run out of contractors and venues … in Alaska because people aren’t going to jump on board,” Juliussen said.
On March 30 Nana Construction filed a claim of lien for $5.1 million against Buccaneer for work that Nana had completed for the Kenai Loop project, including the tie-in in of the well head to the gas metering pad and a substantial amount of civil work at the facility.
“We’re not here to shut anyone down,” said a NANA Construction worker who told the council that Buccaneer had at this point paid a bit less that 10 percent of what it owed. “To the contrary we would like to make sure that there is more development in the state. But it needs to be responsible development.”
Need payment Mike Sheppard, district manager for Conam Construction, told the council that Buccaneer owed his company money. Commenting that everyone wants small companies like Buccaneer to progress new developments in the Kenai area, Sheppard said that the community had executed the Kenai Loop project safely and in an exceptionally short time. But the people now need payment, he said.
Representatives from Inlet Drilling said that their company had already paid money into the community as a consequence of its involvement in the Kenai Loop project but that Buccaneer still owed Inlet Drilling a substantial sum of money for the work.
“You could probably more than half fill this room with the people they owe money to,” said one of the company’s representatives.
During a discussion about the renewal of Buccaneer’s land use permit members of the city council expressed sympathy with the contractors’ plight while also saying that the city could not involve itself in a business dispute. Some council members also expressed their desire that Buccaneer’s ventures in the Cook Inlet basin should succeed.
Short-term permit However, concerned about the potential ramifications of a “mechanic’s lien” against property on city land, the council voted to only issue a new special use permit for Buccaneer’s operations up to May 4, rather than for the term of one year that Buccaneer had requested. The idea was to allow some time for the city administration to determine how to protect itself from any financial liability relating to the lien. The council anticipates making a decision on a longer term permit at its May 1 meeting.
In recent months Buccaneer has been describing ambitious exploration and development plans including the drilling of a further well at Kenai Loop; the shooting of a seismic survey and the drilling of an exploration well in the southern Kenai Peninsula; and a program of offshore drilling in the Cook Inlet using a jack-up drilling rig.
In a quote emailed to Petroleum News on April 19, Gallegos said that since the beginning of 2011 Buccaneer had put more than $30 million into the Cook Inlet region and had hired more than 130 vendors for a variety of projects.
“We are currently working with NANA to resolve the issues surrounding their invoices,” Gallegos said. “Senior management has been in discussions with the company and continues to work toward a suitable resolution. We look forward to a speedy outcome, but more importantly to continuing our corporate citizenship with the state and to being a major employer for the citizens of Southcentral Alaska for years to come.”
Glacier rig In announcing the purchase of the Glacier drilling rig, the rig already used to drill the wells at Kenai Loop, Buccaneer says that it anticipates being able to lease the rig to other companies as well as using the rig for its own drilling projects.
“The purchase of the Glacier rig is a significant milestone and key component of our onshore Alaska strategy, as it will allow us to immediately secure enabling assets in the Cook Inlet,” Gallegos said. “The purchase of the rig ensures timely drilling of our Kenai Loop project and also assists in the control of costs associated with the project.”
The jack-up rig that Buccaneer plans to use for its offshore drilling has been purchased by a joint venture between Buccaneer and Ezion Holdings Ltd. involving a public-private partnership with the Alaska Industrial Development and Export Authority, or AIDEA. AIDEA is contributing up to $24 million to the jack-up rig acquisition.
AIDEA spokesman Karsten Rodvik told Petroleum News April 16 that AIDEA’s only involvement with Buccaneer concerns the deal to obtain the jack-up rig. The rig is currently in a Singapore shipyard undergoing upgrades, in preparation to set out for Alaska in the late spring, he said.
“We’re looking forward to it getting to Alaska and commencing work in the Cook Inlet this summer,” Rodvik said.
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