Buccaneer Energy Ltd. has secured some serious financial backing, and that could mean a more secure future for its oil and gas exploration activity in Cook Inlet. Buccaneer announced last week it had completed a joint venture agreement with EOS Petro Inc. to help cover some -- and in some cases all -- of the operating costs of initial drilling projects at three of the company's leased Cook Inlet units.
In exchange for covering 100 percent of the costs for two initial exploration wells in each unit, EOS Petro will have the right to earn up to 50 percent non-operating interest in Buccaneer's offshore Southern Cross and North West Cook Inlet deep oil rights and its onshore West Eagle Unit. The company will also have an option to earn 50 percent working interest in the North West offshore unit.
Altogether, EOS is expected to contribute $150 to $200 million under the agreement.
And EOS has a current willingness to spend. In January, the company announced it had entered into stock purchase agreement with the GEM Global Yield Fund, formalizing a $400 million commitment for the acquisition of domestic and international gas assets around the world. For Buccaneer CEO Curtis Burton, it made sense to capitalize on that opportunity in Alaska.
“(EOS) is looking for immediate, near-term drill opportunities, which I could characterize all our properties in Alaska as being,” Burton said from Houston Monday. “So it's a good fit.”
EOS Chairman Nikolas Konstant in a statement announcing the deal, “We look for projects with the right risk profile, and have become convinced that Buccaneer’s operations in Alaska will provide that for us. Being able to partner with an established operator on permitted projects that are ready to drill is ideal.”
Having a serious financial backer may also blunt some of the criticism and controversy Buccaneer has faced since arriving in Alaska. Critics have raised concerns the company arrived in Alaska hastily and underfunded in order to take advantage of lucrative state drilling incentives. Since 2010, the company had received $30.5 million in state incentives under the current, outgoing tax regime known as Alaska's Clear and Equitable Share (ACES).
In an interview with trade publication Rigzone, Burton praised the state's financial encouragement. “Alaska is unique in that it has several incentives that encourage drilling on State lands,” he told Rigzone.
Burton admitted that when he was first told about doing business in Alaska in 2009, he did not think it was the best idea. The weather, isolation, and business environment didn't seem to fit. But with a favorable tax structure and incentives that emerged later, that changed.
"Let's face it, it is more expensive to operate and develop in alaska," Burton said. "But with the incentives, it is a very positive business environment."
Since arriving in Alaska, the company has slowly built up and started to work its holdings in the Cook Inlet region, though it hasn't been without hiccups along the way. In January, the company was faced with a $1.3 million tax bill for keeping its $100-million Endeavor jack-up drilling rig docked in Homer. And in July, Buccaneer's board of directors fractured over a shareholder revolt partly centering on its Cook Inlet projects.
In early August, the internal scuffle fell by the wayside after the Sydney, Australia-based company announced “extremely positive” results from a second gas production test done on offshore wells in Cook Inlet. Following that report, the partnership with EOS is more good news for the company.
“Bringing on a partner like EOS is a key component to our long-term strategy one that we have been pursuing for quite some time," he said. "We are very pleased to have accomplished this objective, as it will help us better leverage our assets to continue to provide returns for our shareholders. With a clean balance sheet, onshore operations ramping up and an offshore program that is just beginning, we believe the prospects for Buccaneer are extremely bright -- the remainder of 2013 and through 2014 will be a very exciting time for the company.”
Burton said that he hasn't kept up with the critics, but that the 7-year-old company has remained true to its obligations -- paying all its contractors and taxes in in the Cook Inlet region. Burton said that means $100 million in economic benefits to the region. He noted that it was Buccaneer that managed to bring up the “world-class” jackup rig to the Inlet, something no other company has been able to do. The Endeavour came to Alaska through a joint venture between Buccaneer, Singapore-based Ezion Holdings and the state-backed Alaska Industrial Development and Export Agency (AIDEA), which put up a loan worth $24 million.
“We simply come up and have gone to work,” Burton said. “We've put money into the economy, and we've been people of our word to say what were going to do.”
So what does the new backing mean for Buccaneer's future? Burton said it's always a good idea to drill for hydrocarbons in places where other people have already drilled. Cook Inlet has the gas -- trillions of cubic feet, according to the U.S. Geological Survey -- but for some reason it's been “uncharacteristically underdrilled,” according to Burton.
“Alaska is an emphasis (for Buccaneer),” he said. “We see this as the jewel of our crown.”
Contact Suzanna Caldwell at suzanna(at)alaskadispatch.com