Short of a miracle we’ll soon be minus one of the most aggressive oil and gas explorers we’ve seen in Cook Inlet for years.
Buccaneer Energy is not completely kaput, but the fact that this small independent oil and gas company is now in bankruptcy has certainly thrown a wrench into its ambitious plans to explore.
Buccaneer’s problem is mainly that it came to Alaska with thin financing but high hopes. It is a public company listed on the Australian stock exchange, so we know a lot about its successes and failures.
This is a small, entrepreneurial company, and its get-with-it style fits its swashbuckling name. Buccaneer rolled the dice that its luck would be good and for a while it was -- the company can be credited with some important natural gas finds in the inlet. But then bad luck hit when an investor reneged on a promise of funding and there were technical problems at an offshore well, and finally an expensive dry hole at an onshore well.
These things happen in the oil business, and Buccaneer’s problem was that its pockets were not deep enough to ride out bad weather, although something may yet emerge from the bankruptcy reorganization. There were also problems internal to Buccaneer, such as management issues.
Still, let’s give Buccaneer credit for important successes. One was its discovery of new gas on the Kenai Peninsula in 2011 at a time when the large gas fields in the region were being depleted, no one was exploring, and Southcentral Alaska utilities were planning to import liquefied natural gas to keep the heat and lights on.
Buccaneer’s discovery of its small Kenai Loop field was a big confidence-builder for our community because it demonstrated there is more gas to be found in the region. The Kenai Loop discovery was one mile, in fact, from where a major oil company operated a gas field for years.
This is precisely why having small independents is important, because they look for things major companies won’t bother with.
After this success, Buccaneer led another effort with a partner, BlueCrest Energy, to explore Cosmopolitan, an offshore oil find near Anchor Point that larger companies had given up on. Those companies knew there was oil at Cosmopolitan though it was difficult to get at. Buccaneer showed there was also gas, possibly a lot.
The company had to sell its share of the discovery when financing woes hit. BlueCrest is now working to develop Cosmopolitan.
Buccaneer also earlier brought a jack-up offshore drilling rig to Cook Inlet to drill offshore wells. Another jack-up rig was brought a year earlier by Escopeta Oil (now Furie Operating Alaska) but that was committed to drilling Furie’s prospects.
Having jack-up rigs, and more than one, available for Cook Inlet is important because many petroleum prospects are too far offshore to be drilled “directionally” from rigs onshore.
It’s important to have two of these, too, because if one gets into trouble the second can go to its aid. This is something we appreciate after BP’s troubles in the Gulf of Mexico.
The Alaska Industrial Development and Export Authority, the state development finance group, aided Buccaneer and its partners with the jack-up rig (AIDEA still owns a part of it) and while some have criticized this, at the time AIDEA made the decision, it wasn’t clear that Escopeta would be able to pull off moving its jack-up rig north, and there was an urgency to get more exploration in the Inlet. Escopeta pulled it off, luckily, and Furie, its successor, also found gas in the Inlet, possibly a lot.
Now the story gets complicated. While AIDEA helped Buccaneer, other state agencies, the Department of Natural Resources and the Alaska Oil and Gas Conservation Commission, may have unintentionally impaired the company by not moving aggressively enough to sort out a problem in the Kenai Loop field.
A commercial dispute between Buccaneer and Cook Inlet Region, Inc., the Southcentral regional Alaska Native corporation which owns lands adjacent to Buccaneer’s state leases, led to delays in bringing on new gas wells and revenues to the company, and gas supplies to Enstar Natural Gas, the customer. One of the things government regulatory and land agencies are supposed to do is sort out problems that impede efficient development of resources, but there may have been a breakdown in this case.
It’s a complex story, but when Buccaneer tried to form a “unit” of its state leases CIRI objected and the state Division of Oil and Gas denied Buccaneer’s application.
Units are groups of state oil and gas leases administered as one land unit, and they are formed to provide for efficient development by minimizing surface facilities and to protect property rights by fairly allocating underground resources among landowners within the unit area
CIRI complained that gas was being drained from its lands by Buccaneer’s wells, but the creation of the unit, which it had objected to, would have solved this by allocating some of the gas and revenues, to CIRI.
People far more expert in oil and gas law are really scratching their heads over this. Just why the corporation objected isn’t clear, but the Division of Oil and Gas appeared reluctant to approve the unit over the objections. Experts in this area are puzzled as to the division’s rationale in denying the unit.
This decision has been appealed to the Commissioner of Natural Resources, where it has been sitting for a while. DNR Commissioner Joe Balash has a lot on this plate right now, like a gas pipeline, but he should have decided this some time ago.
Meanwhile, the dispute was also bucked over to the Alaska Oil and Gas Conservation Commission, a state regulatory agency charged, among other things, with ensuring fair allocations and efficient drainage when neighboring oil and gas resource owners get into a fight.
Unlike DNR, the AOGCC can order a unit to be formed even if one landowner objects if there is a danger of potential loss of resources due to inefficient development. But there were more delays. After several hearings the commission still has not acted to sort all this out.
However, the AOGCC did order Kenai Loop’s gas revenues be escrowed, which effectively cut Buccaneer off from its main source of revenue, forcing the company to file for bankruptcy.
Buccaneer’s ship may have run aground anyway but this Kenai Loop unit business, while complicated, seems to paint a picture of state agencies delaying action, perhaps hoping the feuding parties would settle, but in this case waiting too long, at least for Buccaneer.
In this case our system may have failed Buccaneer, and indirectly Alaska, because we need more companies exploring in Cook Inlet, particularly entrepreneurial firms like this one.
We can’t allow corners to be cut, but let’s not create unnecessary obstacles, either. We should give people like these a break when we can. Their can-do spirit is needed.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. Tim Bradner is business writer for the Alaska Journal of Commerce.