Buccaneer Alaska LLC, a subsidiary of Buccaneer Australia, has backed away from a plan to use $60 million in tax-free financing extended through the state-owned Alaska Industrial Development and Export Authority to purchase a jack-up rig for Cook Inlet exploration wells.
Buccaneer is still working with the authority on other financing options, officials with the company and the state authority said Dec. 15.
Buccaneer plans to use the financing to purchase a jack-up rig in Asia and move it to Cook Inlet. The state of Alaska, separate from AIDEA, is offering generous tax incentives for the first three wells drilled in the Inlet with a jack-up rig.
Company Vice President Mark Landt said there were concerns about limits on flexibility for using the rig that could result with the tax-free financing package.
Buccaneer's prime objective is for the rig to drill prospects on leases in owns in Cook Inlet, but the rig is large enough to also be used elsewhere in Alaska, such as in the Chukchi Sea to drill wells or serve as a standby rig, Landt said.
Landt said consultations with Buccaneer's financial advisors, KeyBanc Capital Markets, led the company to conclude that the interest rate advantage of tax-free compared with taxable bonds to finance the rig purchase is not as important as was earlier thought.
AIDEA spokesperson Karsten Rodvik said the authority had also become concerned that the use of the tax-free money might impose limits.
"Because the rig is mobile it could be used outside the Alaska Cook Inlet region, which is the economically distressed region the tax-free financing is intended to benefit," Rodvik said.
Alaska was given $135 million as an allotment of tax-exempt business and industrial financing under the Recovery Zone Facility bond program, part of the federal stimulus program.
AIDEA is authorized by the Internal Revenue Services to coordinate tax-free bonds programs in Alaska. Typically tax-free financing is for infrastructure projects usually owned by public entities, but the special Recovery Zone Program, intended to spur private business expansion, was available only in 2010 and expires Jan. 31.
There has been criticism of the AIDEA/Buccaneer tax-free financing option. Danny Davis, president of Escopeta Oil and Gas, another independent with Cook Inlet leases, said the deal would help a competitor to his company, which is privately financed.
Buccaneer and Escopeta are both working to get jack-up rigs to Cook Inlet to claim the prize of the state incentives, which are offered through tax credits. Under that program the first company able to get a rig to the Inlet and begin drilling can qualify for $67.5 million in special state tax credits made available for Cook Inlet offshore drilling.
Rodvik said AIDEA will continue to work with Buccaneer and has other financing tools available including a possible equity investment in the rig as a partner with Buccaneer.
There is also conventional AIDEA loan program where the authority can partner with a bank in long-term financing. AIDEA now uses tools in other industrial financing, such as for port and mine development in Alaska, Rodvik said.
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