Good news and bad news surrounded the Endeavour jack-up rig in Homer this week.
The good news: Buccaneer prepared to move off the dock Tuesday to head for its first drilling assignment at the Cosmopolitan Unit of Cook Inlet.
The bad news: The Endeavour lost points in its property assessment for lingering so long at the dock. That marked it down when state petroleum assessors looked to assess its tax value. Plus, bad weather delayed its plans.
Choppy seas and freezing spray on Monday calmed down on Tuesday, and rig operators notified Harbormaster Bryan Hawkins that the Endeavour would leave at Tuesday afternoon, but weather concerns lingered. Tugs were lashed to the Endeavour and it was packed up for travel. Not all of the certifications are in place, but Buccaneer got the green light to get to the Cosmo Unit in Cook Inlet and put its 400-foot-long legs down. Eventually, Buccaneer asked for another “day or so” at the dock hoping the weather would improve.
The Kenai Peninsula Borough released the Endeavor’s tax assessment this week. Finance Manager Craig Chapman said figures were based upon a preliminary assessment of $40.2 million. The following tax revenue amounts would be recognized for tax year 2013:
• The Homer portion would be 4.50 mills equaling $181,087.
• The Kenai Peninsula Borough portion would be 4.50 mills equaling $181,087.
• The South Hospital would be 2.30 mills equaling $92,556.
Purchase price $68 million
“Something to keep in mind is that unless the Endeavour is stored at the City of Homer dock next winter, the additional tax revenue for the City of Homer would more than likely only be for one year,” Chapman said.
The purchase price of the Endeavour was $68 million when it was bought in Malaysia by a partnership between Buccaneer, Ezion Holdings and the Alaska Industrial Development and Export Authority. AIDEA is a for-profit state agency that invests in economic projects, and its portion of the investment was $24 million. In December, AIDEA paid a $20.7 million dividend into the state general fund for fiscal year 2014.
The Spartan 151 jack up rig, owned by Furie Operating Alaska with interest held by its original purchaser, Escopeda, was valued at $17.6 million.
In 2012, the rig paid the South Peninsula Road Service Area $6,500 and a total of $21,000 according to the borough. Spartan spent the 2012 season drilling in the Kitchen Lights Unit, up the Inlet, so its tax payments were shared between service areas.
Market for jack-up rigs 'complicated'
All of the rigs that are used for exploration are assessed by the state petroleum assessor. That’s James Greeley’s job at the Department of Revenue. He answers the question of why a rig’s price tag is different from the valuation when it comes to being assessed for taxes.
“The rig is valued under exploration – its standard of value isn’t what they paid. It’s market value,” Greeley said. “The market for jack up rigs in Alaska is a complicated one. Basically you don’t see market participates acquiring these rigs. They spend less than that because of the incentives by the state. These rigs arrived in Alaska after the statutory provisions were created.”
The assessment also looks at three types of depreciation that ratchet the valuation down. Greeley looks at the physical property, looks at its functional obsolescence and its external obsolescence. Part of the equation asks whether additional capital is required to get the rig ready for work. Both the Spartan and the Endeavour suffer from needing additional capital investments. The fact that it’s been tied to the dock the past seven months, didn’t help the Endeavor’s value.
“When we look at its external obsolescence, we ask how much it’s being used? If it’s sitting around instead of being used, depending on what causes the down time, the rig is depreciated,” he said. “That rig is suffering from functional and external elements.”
The evaluation took place in January and February.
Naomi Klouda is a Homer Tribune reporter. Used with permission.