Buccaneer Energy has been having a run of bad luck in its efforts to explore Cook Inlet, enough that the company has done a shakeup of its Alaska management, replacing top officials.
Things are looking a little brighter now.
Earlier this year Buccaneer and a partner, BlueCrest Energy, discovered gas at Cosmopolitan, a prospect just offshore Anchor Point.
That was good, but problems started to develop. The drilling at Cosmopolitan took longer than expected, which caused Buccaneer to be late in getting its jack-up rig Endeavour to a second prospect in the Inlet, "Southern Cross."
Then things really started to go wrong. One of the Endeavour's steel legs hit unstable soils on the sea bottom. The rig was repositioned to a more stable location nearby, but the delay made it too late to drill the well and complete it safely before the state's cutoff date for summer drilling.
Buccaneer pulled the Endeavour back to Port Graham for storage with plans to go back to Cosmopolitan in December and January to drill a second well at the gas discovery.
However, a wrangle over state permits may cause that plan to be shelved.
Buccaneer may now have to wait until April to bring the rig back to Cosmopolitan, and that may again complicate commitments to drill wells in north Cook Inlet.
What is now complicating this further is that a company that had committed to help finance Buccaneer's exploration has apparently backed out. The commitments, by California-based EOS-Petro Inc., were to help fund offshore Cook Inlet exploration but also some onshore drilling as well, in particular the company's West Eagle natural gas prospect east of Homer.
While there's no immediate effect on the offshore drilling, which wouldn't happen until summer anyway, the funding cutoff has left Buccaneer with a rig mobilized and sitting at the well site east of Homer but no funds to drill the well.
Buccaneer has now terminated its agreement with EOS-Petro.
Some good news, however, is that $6 million in financing advanced by Meridian Capital International Fund, an Asia-based firm that also owns 18.9 percent of Buccaneer, may soon enable drilling to start at West Eagle, Buccaneer spokesman Richard Loomis said.
The effect of all this, however, has caused the company recently to announce a sale of some of its Inlet assets, including its 25 percent interest in Cosmopolitan and its 50 percent share of the Endeavour jack-up rig.
BlueCrest Energy, the 75 percent partner at Cosmopolitan, will now be 100 percent owner, and operator, under the plan. The sale will close sometime in January and that is proceeding as planned, Loomis said.
Ezion Holdings, a Singapore investment firm, was Buccaneer's 50 percent partner in the jack-up rig. It is now 100 percent owner, although Buccaneer will continue to use the rig under a contract to drill a certain number of wells.
If there's a silver lining to this, the $41 million Buccaneer will receive for the sale of the assets will allow the company to pay down debt and give it enough working capital to continue the planned 2014 Cook Inlet drilling.
There are other troubles, though. Buccaneer is now producing from two gas wells at its small Kenai Loop field near the city of Kenai, but production from a third well is held up due to objections by Cook Inlet Region, Inc., which asserts the well is near the boundary of its lands and could drain resources.
Buccaneer had held the acreage under lease but CIRI terminated the lease, although the termination is still being disputed in court. Meanwhile, the Alaska Oil and Gas Conservation Commission, a quasi-judiciary state regulatory agency, has refused to allow the well to be put into production until some form of royalty-sharing arrangement is worked out with the adjacent landowners, which include Cook Inlet Region Inc., the Alaska Native corporation for Southcentral Alaska.
The AOGCC will hold a hearing on the matter on Jan. 30 and could allow the well to begin production with royalty held in escrow.
Amid all of this, Buccaneer has terminated two of its senior managers in Alaska, president James Watt, and Allen Huckabay, vice president for exploration and development. The announcement was made Dec. 16.
Andy Rike, formerly chief operating officer, was named as president to replace Watt. Mike FitzGerald, formerly Buccaneer's chief geologist, is now vice president for exploration and development, taking the position held by Huckabay.
Mark Landt, another Buccaneer vice president who has been with the company since it entered Alaska, remains with the company.
Meanwhile, Buccaneer said the Alaska Oil and Gas Conservation Commission's decision in mid-December to deny the request for a "gas only" determination on the planned Cosmopolitan No. 2 exploration well was disappointing. That decision has thrown a wrench into the plan for winter drilling at Cosmopolitan.
What was requested was an AOGCC finding that the well would penetrate only shallow areas with gas and not reach a lower reservoir interval where oil is present.
Had the finding been made, Buccaneer would have been able to proceed with the drilling without amending its Cook Inlet oil spill response plan that was for summer-only operations.
Even though the Anchor Point area is ice-free through the winter the change in the spill plan would still be required by the Department of Environmental Conservation, which approves the required spill contingency plans by companies.
Applying for a winter exception to the spill plan is a lengthy process that would also require public hearings.
However, the conservation commission refused to the certify the well as "gas only."
In its letter to Buccaneer from AOGCC Chair Cathy Foerster, the commission wrote, "Based on the information reviewed, the AOGCC cannot conclude that the Cosmopolitan State No. 2 will not penetrate a formation capable of flowing oil," in the reservoir intervals down to 5,685 vertical depth, where Buccaneer had planned to bottom the well.
Oil has been found at deeper intervals in previous drilling at Cosmopolitan. However, the commission found that lower portions of the formation Buccaneer would drill to, the Tyonek formation, has sandstone layers in which gas may be in association with oil. The deeper oil is in a separate formation, the Starichkof.
Buccaneer had hoped to persuade the commission that the well would contact only gas-bearing sands, and it has appealed the denial of the gas-only determination.
"We don't see how the evidence we provided allows them to reach that conclusion," Loomis said.
The company has filed an appeal.
If the companies wait until April, when the winter spill plan will no longer be needed, the delay in drilling the well, using the Endeavour jack-up rig, could complicate plans for Buccaneer to use the rig on another well this summer.
By TIM BRADNER
Alaska Journal of Commerce