Buccaneer planning ambitious 2012

Local independent wants to drill as many as eight wells in Cook Inlet next year, but access to capital remains a major hurdle

Eric Lidji

For Petroleum News

Buccaneer Alaska LLC plans to drill as many as eight wells in the Cook Inlet region in 2012, an ambitious program that hinges on access to capital, the company said recently.

The local subsidiary of an Australian independent plans to drill up to four wells at its onshore Kenai Loop prospect, one well each at its onshore West Eagle and West Nicolai prospects, and one well each at its offshore Southern Cross and Northwest Cook Inlet prospects, company executives said during a conference call on Dec. 7. Buccaneer also plans to shoot or acquire 3-D seismic at all three of its onshore prospects next year.

While weather and equipment could determine if the company can do all that work, Finance Director Dean Gallegos said the ability to get cost-effective financing at a time of volatile capital markets is “the key risk associated with the company going forward.”

To fund its operations, Buccaneer is using a combination of sources, including revenue from its first productive well in Alaska, public and private financing and a recently announced line of credit that uses State of Alaska exploration tax credits as a guarantee.

Although acknowledging that the company is not currently in any discussions, Buccaneer executives expressed a willingness to partner with other independents in the region, particularly those players that could use a jack-up rig to explore their offshore holdings.

Buccaneer bought a jack-up rig this year in part because it saw an opportunity to compete for third party business. “That’s an important part of the business plan,” Gallegos said.

Buccaneer did not mention any companies by name, but CEO Curtis Burton referred to “two new independents that arrived on the scene in Alaska,” both noted for “being fast-track type development people.” That suggests either Apache Corp. or Hilcorp Energy Co. By the nature of its permitting progress to date, Burton said Buccaneer is 12 to 18 months ahead of “our competition in the region.” Plus, Burton said, “We have the only drill rig that can move over the whole of the inlet and the various water depths.”

Up and down at Kenai Loop

The schedule is ambitious for any player, let alone a small independent, but Buccaneer has moved quickly since arriving in Alaska in early 2010, drilling two wells this year.

The first well, Kenai Loop No. 1, tested at an initial rate of 10 million cubic feet per day. The company is currently installing associated pipelines and facilities and expects to bring the well online by the end of the year. The second well, Kenai Loop No. 3, was a dry hole, but Buccaneer is currently conducting assessments to see if it can put the well to good use in the future, although the company declined to discuss potential options yet.

It “was not quite frankly the results we had hoped for, but that’s part of what we encounter in the oil and gas business,” Burton said.

In a perfect world, the company wants to drill four wells at Kenai Loop, but as Burton noted, “If we have other developments then we may slow that pace somewhat.”

Buccaneer is aiming to get production up to 25 million cubic feet per day. That would bring in around $42.5 million in projected annualized cash flow, Burton said, but because the company can only sell up to 15 million cubic feet per day to Enstar Natural Gas Co., under its existing contract, Buccaneer would need to find a market for the remaining supplies. The company is eying soon-to-be-available storage, regional sales to utilities and even a reboot of the significantly declining liquefied natural gas export market.

Considering the unused capacity of that plant, “even a substantial discovery, in one of a number of directions, we believe can be absorbed into that market,” Burton said.

At the West Eagle prospect, a nearly 50,000-acre block of leases in the southern Kenai Peninsula, Buccaneer plans to interpret existing 3-D seismic information, complete permitting and spud a well by the third quarter of 2012 “if at all possible,” Burton said.

At West Nicolai, a prospect on the west side of the Cook Inlet, Buccaneer also plans to interpret 3-D seismic information, complete permitting and spud a well next year.

Two offshore prospects

Through a joint venture with Ezion Holdings Ltd., and a public-private partnership with the Alaska Industrial Development and Export Authority, Buccaneer recently purchased a jack-up rig from Transocean Ltd. that it is now calling Endeavour—The Spirit of Alaska.

The rig is currently being modified and upgraded in Singapore, and Buccaneer expects it to arrive in Cook Inlet by “midyear 2012.” The company plans to drill first at the Southern Cross unit and then move the rig north to the Northwest Cook Inlet, if weather permits. Buccaneer is also looking to acquire 3-D seismic at Northwest Cook Inlet.

But Buccaneer is not the only independent eying offshore Cook Inlet acreage.

Furie Operating Alaska Co., previously Escopeta Oil Co., recently suspended work for the year after drilling halfway to it total depth at its Kitchen Lights unit. Following the work, the company announced a major discovery, 3.5 trillion cubic feet of gas in place.

Asked whether a discovery of that magnitude would disrupt the market against Buccaneer, Gallegos declined to discuss other companies specifically, but said, “From a general perspective, I think any new gas discoveries in the Cook Inlet, and especially large ones, underline the prospective nature of the whole basin.” Any discussion of supply and demand in the region must consider infrastructure, he added. With Southern Cross and Northwest Cook Inlet near existing platforms, he said, “Our time to market is going to be a lot less than anyone who will have to build a platform from scratch.”

Furie believes it can bring natural gas to market “as early as 2013.”

Furie is drilling at Kitchen Lights using the Spartan 151 jack-up rig, capable of drilling in 150 feet of water. The Endeavour is capable of drilling water depths up to 300 feet.