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Alaska co-op rig remains in limbo 2 oil and gas explorers, Cook Inlet Energy, NordAq, show interest in rig used in Naknek Electric’s failed geothermal effort Wesley Loy For Petroleum News
Two companies involved in oil and gas exploration in the Cook Inlet basin are showing interest in acquiring a rig used in a failed geothermal drilling effort in Southwest Alaska.
The rig, a National 1320 model, belongs to Naknek Electric Association, a small power cooperative serving villages in the Bristol Bay region.
The co-op is operating under Chapter 11 bankruptcy protection from creditors, due to cost overruns and other problems associated with the geothermal project.
The co-op used the rig to drill one problematic well outside the village of King Salmon. It remains on site as lawyers for Naknek Electric and its creditors attempt to arrange a sale, proceeds from which would be used to settle some of the co-op’s debts.
Prospective buyers go look In recent weeks, the co-op proposed to sell the rig to oilfield services company Baker Hughes, which was involved in the geothermal drilling project and which has a $4.5 million lien against the rig.
Under a new, more complex proposal Naknek Electric filed Aug. 29 in U.S. Bankruptcy Court in Anchorage, Baker Hughes still would get the rig and then resell it, most likely to a Cook Inlet explorer.
Two oil and gas companies appear to be potential buyers: Cook Inlet Energy LLC and NordAq Energy Inc.
People with both firms have traveled to King Salmon to examine the rig and associated inventory, and Cook Inlet Energy has “expressed interest” in acquiring the assets for $7.5 million, the court papers say.
Co-op to abandon well Naknek Electric embarked on the geothermal exploration effort in hopes of finding a cheaper alternative to burning diesel to generate electricity.
The drilling of its one and only well, known as the G-1 well, went badly, and now the co-op to trying to settle its debts and maintain service to its members.
On Aug. 14, the co-op applied to the Alaska Oil and Gas Conservation Commission, which regulates drilling, for clearance to plug and abandon the well.
The complex “collateral disposition and settlement agreement” now before the bankruptcy court would involve a foreclosure sale of the rig. Baker Hughes would be entitled to credit bid, while others “will need to cash bid and start at $7,500,000,” the court papers say.
At the conclusion of the proposed transactions, Baker Hughes “will end up owning the rig assets free and clear of all liens, claims and encumbrances,” the papers say.
While the co-op “is not happy that it is losing the drill rig,” it will lose the rig anyway and the negotiated proposal now on the table at least offers some substantial benefits, Naknek Electric told the court.
One major benefit is that Baker Hughes would provide $500,000 and some in-kind services toward plugging and abandoning the well. The abandonment costs currently are beyond the co-op, which would have to spend two years raising money before it could complete the operation, court documents say.
The proposal also would spare the co-op the expense of trying to market the rig itself, the papers say.
Time pressures Certain factors are complicating the rig sale.
All involved would like to use the rig to plug the well this fall, before delivering the machine to new owners. That could be tough to accomplish, however, before the winter freeze prevents barging the rig out of the region.
The court papers say creditors with liens against the rig could foreclose their liens to force a sale of the rig. But the co-op cites a state regulation, 20 AAC 25.105, that “may require that the well be plugged and abandoned before the rig can be moved.”
If the plugging and abandonment can’t be completed in time to barge the rig to Anchorage by Oct. 15, then the operation will be performed “as soon as practicable” in spring 2013, the court papers say.
A major hearing is set for Sept. 11 in the bankruptcy court in Anchorage.
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