The debate over Buccaneer Energy's jack-up drill rig and related drilling plans in has fallen along predictable lines. Some see Buccaneer as a hopeful sign of good jobs and increased oil and natural gas supplies. Others see Buccaneer as a shadowy, profit-driven Australian corporation lured to Cook Inlet by massive state subsidies, with little regard for local people or our fisheries.
Of course, the truth probably falls somewhere in between. But a recent lawsuit filed by Buccaneer's contractor -- Archer Drilling -- reveals a driving need to put the brakes on Buccaneer's rush to drill, and to ask some pointed questions about its ability to drill safely amid Cook Inlet's prized fisheries.
Buccaneer is a young, independent corporation motivated largely by the considerable subsidies offered by the state of Alaska. Under Alaska's Clear and Equitable Share (ACES) program, Buccaneer can get back 65 cents for every exploration dollar spent and 45 cents for every development dollar. Last year, Buccaneer claimed it reaped $13 million for its Kenai Peninsula work. Additionally, Buccaneer is chasing up to $25 million in tax credits under the so-called Stampede Act, which offers massive inducements to companies drilling new, deep wells in Cook Inlet. Buccaneer routinely boasts of these "highly favorable" tax conditions in its investor communications.
Limited Alaska experience
Aside from the fact these subsidies distort free markets and deny Alaskans the true value of our publicly-owned resources, they also attract companies like Buccaneer with little knowledge of our people and our place, and with few financial resources to address major problems.
Buccaneer raises serious concerns for several reasons. First, it lacks the experience and know-how to operate in offshore Alaska. It's never engaged in offshore exploratory drilling in Alaska's challenging conditions and it's stumbled its way through our permitting process. Furthermore, it has defaulted on its leases in Upper Cook Inlet, and is close to default on onshore leases around Kachemak Bay, for failure to explore as promised.
Next, Buccaneer is a shaky corporate venture. It lost more than $45 million last year. Its stock is currently trading at 5 cents a share, and its market capitalization is a mere $68 million and dropping. One financial website gives Buccaneer a 43 percent chance of bankruptcy. And based on the fact it couldn't pay workers in Kenai on time, and now, according to Archer, owes more than $6 million in unpaid bills for jack-up rig work, its cash flow presents serious concerns.
To make matters worse, our state corporation -- the Alaska Industrial Development and Export Authority -- invested $24 million in the rig and falls second in line behind Chinese investors if Buccaneer goes belly-up. AIDEA is also liable if there's a big spill; according to public documents, "[a]s an owner of a jack-up rig, AIDEA would be liable for a catastrophic event associated with exploratory drilling."
Finally, and perhaps most disturbing, Buccaneer has not been honest with our local community or its investors. When its jack-up rig arrived in Kachemak Bay in August, Buccaneer announced the rig would be gone in two weeks after a short list of repairs. When that time line slipped, Buccaneer cited "unanticipated" problems with alarm systems and other low level issues. Yet reports from workers and allegations by Archer paint a wholly different picture; that Buccaneer knew the rig needed substantial repairs after years sitting off the coast of Malaysia, yet it prematurely pulled the rig from a Singapore shipyard knowing Alaska did not have the shipyard services needed to complete the substantial upgrades. In its legal complaint, Archer sums up the situation: "By favoring wishful thinking over hard facts, [Buccaneer] turned a blind eye to the amount of time, money and effort need to bring (the jack-up) rig up to operational levels."
Archer Drilling is a respected company familiar with operations in some of the harshest drilling environments in the world. In its complaint, Archer asserts Buccaneer is incapable of safely drilling offshore in Cook Inlet. Buccaneer's track record of late and non-payments, it's unfamiliarity with Alaska conditions, and its unwillingness to tell the truth do not lend confidence.
Yet Gov. Sean Parnell, Department of Natural Resources Commissioner Dan Sullivan and other state officials have blindly pressed to get Buccaneer the permits it needs to drill in Cook Inlet, despite huge flashing red warning signs. If we expect to develop our resources in a responsible and ethical manner, it's time to stop the permitting stampede and take a hard look at whether Buccaneer is the type of corporation that can safely drill in our Cook Inlet fisheries.
Bob Shavelson is director of advocacy for Cook Inletkeeper, a nonprofit focused on the waters and fisheries of Cook Inlet. His views are his own.