Jack-up rig gets closer to inlet: AIDEA allocates $60 million to finance venture

Posted: Wednesday, November 17, 2010

A state corporation has allocated $60 million of bond volume cap for the purpose of potentially financing a jack-up rig for use in Cook Inlet to drill exploration wells.

The Alaska Industrial Development and Export Authority has said it may also consider participating financially with Kenai Offshore Ventures LLC, a company formed by Houston-based independent, Buccaneer Alaska according to Karsten Rodvik, spokesperson for AIDEA.

The company applied to AIDEA for $60 million in Recovery Zone Facility Bond allocation as a way to issue tax exempt bonds to partially finance the purchase of a jack-up rig -- a portable offshore drill rig -- which would be moved to Cook Inlet and used for exploration.

The IRS allocated $135 million to the state in the form of tax-exempt volume cap, as part of the federal stimulus package.

Local municipalities, including the Kenai City Council and the Kenai Peninsula Borough Assembly, have endorsed that move, both having passed resolutions this fall supporting Buccaneer's plans to acquire funding from AIDEA.

Rodvik said AIDEA has authorized allocation for Recovery Zone Facility Bonds for other projects in Fairbanks and Wasilla.

The bonds will need to be sold privately or by public issuance and must be out the door by Dec. 31 under federal rules.

Buccaneer has been working with KeyBank Alaska on an agreement to purchase the bonds, according to company vice president, Mark Landt, who spoke in Kenai last week.

A separate, though related, piece of Kenai Offshore's finance puzzle may be filled by AIDEA as well, though the authority's Development Finance Program.

Rodvik said AIDEA is in the very early stages of researching a potential Development Finance Project.

Kenai Ventures is looking to buy a rig in Asia and move it to the inlet as soon as next year, according to Landt.

The company has identified two offshore prospects it would drill on leases it holds in the inlet, and has said that it has enough other prospects to keep the rig working over five summer seasons.

Other companies would also make use of the rig, he said.

Seahawk Drilling Inc., of Houston, would operate the jack-up rig and would also have an equity stake in Kenai Ventures, Landt said.

Buccaneer is a relatively new player on the Cook Inlet scene, and has acquired assets from what was previously known as Renaissance Alaska LLC and Stellar Oil and Gas, both companies that Landt was associated with.

Landt said if the company is able to bring the rig up, it would expect to employ about 80 people for drilling operations and to create an additional 80 to 90 jobs through service companies.

He said as well the company would be looking to locate its office in Kenai.

Sen. Tom Wagoner, R-Kenai, said he expects the financing to "put Buccaneer right on the money."

"I think there's a real strong possibility we'll see a jack-up rig in the inlet early this spring as soon as the ice is gone," he said.

Wagoner said he sees the development as both a vindication that legislation he introduced last spring to spur development in the inlet is working as he hoped, as well as being timely for the region.

"In a few years we will be in a critical position on natural gas production in Cook Inlet, and anyplace you find oil you'll find gas," he said. "If the price is right we'll see some associated gas that ought to be sold, and anything that comes up will help us with our gas supplies."

Wagoner also said he was confident the rig would find use from other companies once it arrived, saying the basin is ripe for exploration.

"If you look at the inlet compared to most major oil producing fields you will find there have been very few wells drilled," he said. "The problem is they're very expensive when you get out in the water, so hopefully we'll see some action, and if we don't I've shot my best shot I don't know what else we could do to spur development."

Tim Bradner of the Alaska Journal of Commerce contributed to this story.

Dante Petri can be reached at dante.petri@peninsulaclarion.com.

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