This week, a company drilling for natural gas in the Cook Inlet announced it was filing for bankruptcy, leaving a plethora of questions in the minds of many about who we open our doors to as more and more small developers vie to enter the state’s resource development.
Buccaneer Energy, an Australia-based company with subsidiaries based in Asia, entered the Alaska energy playing field in earnest in 2012, bringing with it the jack-up rig Endeavor and plans to drill throughout Cook Inlet. Right away, however, there were issues with the rig, and it lingered at the Homer dock all winter after initially saying it expected to stay only a few weeks.
Some in the region were happy to see any activity to invigorate the natural gas industry as Anchorage looked down the barrel of a potential future shortage.
In Homer, feelings were mixed. Some people were unhappy about the skyscraper-like structure in the middle of the picturesque town’s view of the Spit, while others applauded the revenue the Endeavor’s extended stay provided the city — some $577,000 in port fees and services as well as $181,000 in property tax revenue went a long way to help balance the city’s budget. And some 50 jobs were generated by the work being done on the rig, a city report said.
But there were problems, too. The company got into a legal dispute with the contractor it had hired to do the work on the rig, and the two soon were dueling in court. Meanwhile, some of the contracts Buccaneer had entered into with its rig lapsed, and while it did find gas in several locations in the Cook Inlet, other exploration proved unsuccessful.
In Australia, those watching Buccaneer closely started to see problems. The company’s board was divided and at war with its CEO Curtis Burton, who reportedly was the man behind the interest in Alaska exploration. This spring, his contract was terminated, an action that led to more court action, and a suspension of trading activity of the company stock on the Australian Stock Exchange.
Meanwhile, the company began selling off assets, including its share in the Endeavor and some of its profitable drilling operations. When a fight over gas rights between adjacent leaseholder Cook Inlet Region Inc. in the upper Cook Inlet prompted the Alaska Oil and Gas Conservation Commission to mandate that all of Buccaneer’s profits from that development be put in a trust, the company filed for bankruptcy.
Through it all, the state continued to extend significant tax breaks and incentives to this company. In initial discussions, the state reportedly offered some $25 million in tax credits for being the first company to get a drill rig up and running in the inlet. The company also said it was able to take advantage of other general tax credits, including $9.8 million under Alaska’s Clear and Equitable Share Act for its successful Cosmopolitan No. 1 well in Cook Inlet, and another $3.3 million in a related tax refund. An additional $6 million tax credit came from non-Cosmopolitan exploration.
In fact, the state is one of the top unsecured creditors listed in the bankruptcy filing by Buccaneer – the company owes the state Department of Natural Resources more than $600,000, which according to the lawsuit, may or may not get paid back.
In an interview, the state Department of Natural Resources Commissioner Joe Balash called Buccaneer’s filing for bankruptcy and unfortunate consequence of an eager young company diving into Alaska’s resource world and getting overextended. But others question the state’s oversight and vetting of such companies, especially those who are offered significant incentives with public dollars. There needs to be balance between the state’s drive to encourage development and the need to find companies that will do so responsibly and successfully.
Among the questions raised by Buccaneers extended belly flop in Alaska waters is how capable it would have been of dealing with any accidents caused by its development. Some environmental groups watching the company’s activity in the inlet questioned its practices, and said the company knew little about working in the unique conditions of Alaska. Had an environmental accident of some sort happened, would this company have had the resources to clean it up? How closely is the state monitoring such companies?
The most discouraging part of the story is not the long list of Alaska companies that are out money as a result of this company’s mismanagement. The real disappointment is the state response that fails to own up to the fact that it allowed a company like Buccaneer to make poor use of public resources without heeding the many red flags. If the state isn’t seeing its mistake in this case, there can be little hope it will create policies that will protect Alaskans from a similar story occurring the next time a unvetted company comes calling.
Carey Restino is editor of The Arctic Sounder, where this commentary first appeared.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.