Officials expect other companies will make use of Buccaneer drilling rig

Pat Forgey

JUNEAU -- An expensive jack-up drill rig brought to Alaska by bankrupt Buccaneer Resources will likely keep producing for the state despite the company's troubles, officials say.

The rig, called the Endeavour, was financed by the Alaska Industrial Development and Export Authority and a Chinese bank, but has had trouble since the beginning and contributed to Buccaneer's downfall.

Now AIDEA is saying that the Buccaneer bankruptcy filing may prove beneficial to Alaska because that may make the rig available to work in Cook Inlet exploring for gas and oil. That's something troubled Buccaneer hasn't been able to do.

"Buccaneer has had problems with financing, they haven't been out drilling," AIDEA Deputy Director Jim Hemsath told the board of directors Wednesday.

The bankruptcy filing is likely to make that happen, he said, although he couldn't say when, or what impact Buccaneer's financial problems might have on this summer's drilling season.

And Hemsath had additional bad news: The Endeavour needs additional maintenance and repair work that may take more than three months. Buccaneer was supposed to do that work during the winter but didn't, he said.

"Buccaneer did not have finances to do work," Hemsath said.

Even though there are companies that would like to use the rig this summer, he said it's not clear how long it will take to resolve legal, financial and mechanical issues.

Board members wanted to know what happened with Buccaneer and whether AIDEA will better vet companies with which it does business in the future.

"Yes," Hemsath said in response to the vetting question. He also defended the decision to do business with the company.

"Buccaneer was coming in with leases that were real leases and had very good prospects in Cook Inlet in terms of deliverability," he said.

Buccaneer Energy Ltd. is an Australian company that was traded on that country's stock exchange until recently, but did all of its business in the United States, where its subsidiary, Buccaneer Resources, is based. That company is headquartered in Texas, where it filed for bankruptcy protection on Saturday.

AIDEA is in the process of retaining Texas bankruptcy counsel to protect its interests.

The business dealings of Buccaneer and AIDEA are complicated and a federal bankruptcy judge approved special "complex case" provisions for dealing with the bankruptcy proceedings.

The Endeavour is owned by an Alaska-registered limited liability company called Kenai Offshore Ventures. That company is mostly owned by Singapore's Ezion Holdings, though AIDEA's stake in the Endeavour is through its minority share in Kenai Offshore Ventures.

It was a Buccaneer subsidiary that formed Kenai Offshore Ventures. Buccaneer also held an ownership stake at one point, but it sold that stake off to Ezion to raise badly-needed operating funds.

Buccaneer also raised money by selling off a Cook Inlet gas and oil field it found with the Endeavour, and natural gas it found with its onshore drill rig, gas the company then sold to the Anchorage utility Enstar.

But that wasn't enough to cover the company's costs, some of which stemmed from unexpected repair work the Endeavour needed after it was purchased that prevented its immediate use.

Hemsath said AIDEA began to have suspicions about Buccaneer's finances recently, and worried about the company's unwillingness to talk about finances.

"Buccaneer was not at this point answering phones, emails or certified letters, so we thought there might be a problem coming up," he said.

But the deal may still work out for the state, the board was told. There's a need for Endeavour's services, and at least two leaseholders in Cook Inlet are hoping to use the jack-up rig this summer and early fall.

It will take approval of the bankruptcy court for Buccaneer to get out of its contract for one of its subsidiaries to operate the Endeavour.

The Endeavour is valued at $127 million according to a recent appraisal, with Alaska's investment in it valued at about $24 million. The remainder came through Ezion and the Overseas Chinese Banking Corp.

When Alaska legislators became concerned that Cook Inlet was running out of natural gas, they approved millions of dollars worth of financial incentives to boost production and proven reserves of new gas.

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