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Nikiski LNG plant to continue buying gas Buccaneer to potentially sell Kenai Loop supplies into Conoco owned facility over the winter; collects ACES credits Eric Lidji For Petroleum News
Adding another twist to a strange year for the liquefied natural gas export facility in Nikiski, Buccaneer Energy and ConocoPhillips recently announced a new contract allowing the independent producer to deliver short-term supplies to the aging facility.
The contract begins when Buccaneer’s Kenai Loop No. 1 well comes online later this year and runs through April 30, 2012, or when Cook Inlet Natural Gas Storage Alaska LLC brings its Kenai Peninsula storage facility into production, whichever comes sooner.
Once the storage operation comes online, Buccaneer will sell gas into that facility through a contract with Enstar Natural Gas Co. negotiated and approved earlier this year.
While the ConocoPhillips contract does not require Buccaneer to sell gas to the plant, it gives the independent an opportunity to begin regular sales in the months before the Enstar storage contract begins. Previously, Buccaneer could have only been able to make sales intermittently on the daily auction that Enstar holds during peak local demand.
In addition to increased cash flow, “the ability to flow the well continuously will give us the opportunity of assessing the reservoir performance prior to the commencement of the Enstar gas contract in April 2012. If the reservoir performs as testing has indicated, it will give us the ability to increase the production rate from the anticipated minimum of 5 million cubic feet per day,” Director Dean Gallegos said in a prepared statement.
The ConocoPhillips contract is for up to 2.5 billion cubic feet of gas, and Buccaneer described the pricing as being “consistent with recently executed gas contracts.” The contract does not require the approval of the Regulatory Commission of Alaska.
LNG expansion in Alaska? Although the contract provides merely a short-term option, it creates a precedent for a larger LNG option Buccaneer hopes will evolve across Alaska. Earlier this year Buccaneer and a private player LNG Central proposed trucking LNG to Interior utilities and converting the Alaska Marine Highway System to run on natural gas, in addition to restarting regular exports, as a way to expand the market reach of Cook Inlet natural gas.
In addition, Buccaneer has publicly pointed to the LNG export terminal as a potential buyer of natural gas should regional utilities find they have all the supplies they need.
The contract is a fitting end to perhaps the strangest year in the 42-year history of the pioneering facility. Co-owners ConocoPhillips and Marathon announced plans in February to shutter it this spring, but preserve the plant for future use. With Asian demand on the rise, particular as Japan is replacing nuclear power with LNG, though, the companies kept the facility through to make four shipments over the summer, and then delayed the closing again to accommodate an additional shipment in October.
Around the time of that last delivery, ConocoPhillips bought out Marathon’s 30 percent interest in the facility, giving it sole ownership over the plant and export terminal.
Buccaneer gets ACES credits As a small company with big ambitions, Buccaneer is eager to earn cash and the company got a small boost when the Alaska Department of Revenue recently approved the first tax credit for the company under Alaska’s Clear and Equitable Share, or ACES.
The $2.85 million ACES credit comes from exploration work that Buccaneer conducted this year at Kenai Loop, its onshore natural gas field north of the city of Kenai.
The company said it applied for a total of $13.5 million in credits from its exploration efforts in Alaska, and expects the remainder to be approved in several tranches next year.
For proprietary reasons, the State of Alaska does not detail tax credits by recipient.
Once the funds arrive, Buccaneer said it would repay a portion of its $50 million credit facility with Centaurus Capital LP. “The ACES incentive program underpins the unique commercial appeal of our Alaskan projects. This first rebate demonstrates the compelling project economics that exist at our Kenai Loop project, which are awarded based on Company expenditure regardless of well success,” Gallegos said. “Our innovative funding program, of which the Centaurus bridging facility is a part, significantly reduces the amount of capital Buccaneer needs to develop its Alaska leases.”
The company wants to drill as many as eight Cook Inlet wells in the coming year.
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