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Buccaneer doubles down on its Cook Inlet oil and gas bet

Alex DeMarban

Hoping to capitalize on overlooked oil and gas riches in Cook Inlet, an Australian firm says it will acquire a second drilling rig to speed up its own production in the region and cash in on exploration efforts by other operators.

The two rigs -- one onshore and one offshore that it owns in part -- will give Buccaneer Energy a chance to earn long-term rental income in the reawakening-but-remote oil-and-gas province that lacks drilling facilities.  

Helping spark interest in Cook Inlet are high oil prices, the potential for sizable finds and generous state tax incentives. Those and other factors have helped lure at least five new companies north in the last couple years, including Apache Corp., one of the world's largest independent oil and gas companies.

So far, Alaska has worked out well for Buccaneer. The first well it drilled -- on land near the city of Kenai at the Kenai Loop field -- has been a success, said a company spokesman. The well began producing natural gas earlier this winter that's helping warm homes in Southcentral.

On Thursday, Buccaneer expanded its plans, saying it would buy a land-based rig called Glacier Rig for $7.5 million from Glacier Drilling Company, a subsidiary of Marathon Oil.

Buccaneer initially plans to operate the rig for its own purposes, which include drilling 10 wells at the field near Kenai known as Kenai Loop, said company spokesman Jay Morakis. It can then lease the rig. The purchase is expected to be finalized in early June.

In a written statement, Buccaneer said it's already fielding requests and expects "high demand" from other operators.

"There is a shortage of high-capability rigs on the Kenai Peninsula and we expect to be able to sign leasing deals with third parties while still protecting our interests,” Buccaneer director Dean Gallegos said in the statement.  

The purchase is another sign of Buccaneer's confidence in Cook Inlet, where it’s invested more than $30 million and hired some 130 vendors during the past 18 months, said Morakis. The company prides itself on employing locals, he said.

Also prompting industry's recent interest in Cook Inlet is last summer’s US Geological Survey report that estimated 600 million barrels of oil and 19 trillion cubic feet of natural gas remain undiscovered. Some believe that most operators left Cook Inlet years ago to focus on the elephant fields of the North Slope.

Buccaneer also hopes to employ its rig-for-lease strategy offshore. With partial financing from the Alaska Industrial Development Authority, it has partnered with a Singapore company called Ezion Holdings to buy the Endeavour jack-up rig for about $70 million.

That's a large rig with deepwater drilling capabilities -- it's 400-feet by 400-feet square -- allow it to operate in the Beaufort and Chukchi seas, if needed. The rig is currently in Singapore being outfitted for Alaska's harsh conditions, and is scheduled to arrive for work in Cook Inlet later this year, said Morakis.

Like the land-based Glacier drilling rig, the offshore Endeavour will give Buccaneer control of its drilling schedule. Buccaneer believes its offshore leases potentially contain large quantities of oil, said Morakis. One unit alone, the Southern Cross Unit in the central Inlet, is thought to hold 170 million barrels of oil.

That's about $17 billion of oil at $100 a barrel, below Thursday's price for Alaska crude of $120 a barrel. That's also about the amount of oil that travels through the trans-Alaska pipeline in 10 months.

The new jack-up rig can expand drilling opportunities for all Inlet operators, said Morakis. It can also operate year-round for Buccaneer, because the company, in partnership with Texas company BlueCrest Energy II, recently acquired two leases at an undeveloped oil-and-gas prospect in the ice-free shallow Inlet waters near Anchor Point.   

The company hopes to begin drilling there – at what was formerly known as the Cosmopolitan Unit -- for oil and gas late this year, according to another written statement from the company.

Furie Operating Co. operates the only other jack-up rig in the inlet, the Spartan 151. A smaller rig, it sat out the winter in Port Graham.