The Alaska Industrial Development and Export Authority could soon own a jack-up drilling rig.
The board of the state corporation voted unanimously Friday to enter into a deal with Australian independent Buccaneer Energy Limited and Ezion Holdings Limited to jointly acquire a rig.
AIDEA will invest up to $30 million to buy, outfit and ship a jack-up rig -- so long as Buccaneer and Ezion meet 15 conditions over the next few months.
The deal requires Buccaneer and Ezion to:
• Contribute at least $5 million to the project;
• Secure a term loan for the remaining $50 million needed to fund the $85 million drilling venture; and
• Contract to buy a jack-up rig from Transocean Limited and contract to upgrade the rig for use in Alaska.
The deal is also conditioned on Buccaneer committing to drill four wells in Cook Inlet with the rig.
If those conditions aren't met, AIDEA is not obligated to fund its portion of the project.
The agreement also includes six conditions that Buccaneer and Ezion must meet later to keep the deal from going into default. Those include contracting a company to bring the rig to Cook Inlet, drafting organizational and management documents and getting permits for its drilling program by Aug. 31, 2011.
The deal requires that AIDEA be repaid within six years and "establishes other conditions to protect (AIDEA's) investment and interests" in the rig.
The AIDEA board voted on the deal after spending an hour in executive session.
While the board voted unanimously to move forward and praised the work of AIDEA staff in negotiating the deal, several members noted the riskiness of the venture. "I'm suitably uncomfortable, and that's probably good," board member Gary Wilken said.
The vote increases the competition between two independent oil companies looking to bring a jack-up rig to use in Cook Inlet: Buccaneer and Escopeta Oil, a privately funded U.S. company.
"Escopeta is currently transporting a jack-up rig to Cook Inlet and we intend to make it available to companies that are interested in using it in drilling for oil or gas," Steve Sutherlin, a contractor for Escopeta, told the board during a public comment period. (Sutherlin is a former Petroleum News writer and minority owner in the company.)
Escopeta President Danny Davis has said he worries that his firm will be a direct competitor, in a limited market, with a state agency that has "deep pockets."
The board expressed concern that Escopeta did not have a suitable waiver under the federal law that regulates vessel traffic between American ports.
Sutherlin said Escopeta received a waiver in 2006 that is not rig specific and is looking to get a "fresh waiver" from federal authorities. He noted that when a previous operator brought a jack-up rig to Cook Inlet without a waiver, it simply paid a fine.
By ERIC LIDJI and KAY CASHMAN
Petroleum News