Alaska: Kenai Offshore to Use Potential Investments to Acquire Jack-up Rig

Buccaneer Energy Limited announces that its executive team has made a series of presentations to the Alaskan Industrial and Development Export Authority (“AIDEA”) and directly to the AIDEA board in respect to AIDEA making a direct equity investment into the Company’s wholly owned subsidiary Kenai Offshore Ventures, LLC (“Kenai Offshore”).

The AIDEA board are expected to meet on December 3, 2010 (US time) to further consider and vote on the proposed investment.

It is proposed that any direct equity investment made by AIDEA would be in the form of preferred equity for an amount of between US$20.0 – US$30.0 million. This investment would supplement and be additional to the proposed issue of up to US$60.0 million in bonds under the US Federal Governments Recovery Zone Facility Bond (“RZFB”) program.

If AIDEA proceed with the proposed investment and the RZFB’s are placed to US investors, Kenai Offshore will have access to up to US$80 – US$90.0 million to advance its business plan.

Key Banc Capital Markets, Inc based in Seattle have been retained as Placement Agents to advise on the placement of the RZFBs.

The RZFBs and any preferred equity investment by AIDEA will be used by Kenai Offshore to acquire a Mobile Offshore Drilling Unit (“MODU”) i.e. jack-up rig to operate in the Cook Inlet. It is the intention that Kenai Offshore will lease the MODU to an Operating Company as a commercial stand alone venture, and the Operating Company will contract drilling services to third party lease operators in the Cook Inlet. This will include Buccaneer Alaska, the holder of the Company’s leases in the Cook Inlet.

The AIDEA board also approved the following at the board meeting held yesterday:

– A resolution to conduct due diligence on the proposed investment by AIDEA. The due diligence has a budget of US$150,000 which the Company has agreed to reimburse; and

– A resolution ratifying Kenai Offshore’s eligibility to the RFZBs.

Transaction Background

The Cook Inlet in Alaska is considered a mature hydrocarbon basin however it is widely acknowledged as being significantly under explored. There has not been a jack-up rig in the Cook Inlet since 1994 and therefore new exploration wells, appraisal wells, infill and development drilling opportunities and plugging and abandonment work has not been undertaken.

The acquisition of a jack-up rig and mobilisation to the Cook Inlet is considered opportune for several reasons as follows:

– The State of Alaska is providing significant incentives through the Alaskan Clear and Equitable Share (“ACES”) to lease operators for drilling in the Cook Inlet virtually assuring rig utilisation;

– The main population area around the Cook Inlet (including Anchorage) is facing potential natural gas shortages as early as 2012 and there is no existing capability of importing natural gas. Additionally building a pipeline from the North Slope to the main population centres in the south is also not considered as economically viable at the current time with many environmental, commercial and timing issues;

– Due to these impending shortages recent natural gas trades sold via contract to local utilities with a floor and cap of US$7.00 / mcf and US$10.00 / mcf, respectively. This compares to a spot price of approximately US$4.00 / mcf in the Lower 48 states;

– Kenai Offshore has identified 5 years of work for a jack-up rig with potential customers ranging from mid-sized operators to major international companies;

– Identified work includes new exploration wells, appraisal wells, infill and development drilling opportunities and plugging and abandonment work;

– The location of a jack-up rig in the Cook Inlet is estimated to have the potential of adding over 300 jobs to the Kenai Peninsula Borough;

– The global jack-up rig market is in a cyclical downturn making it an ideal time to acquire a suitable jack-up to operate in Alaskan conditions;

– Several leading industry players, including Alaskan native corporations, would commit to operate and/or provide services to the jack-up rig.

Buccaneer Energy Limited

Buccaneer Energy’s  wholly owned subsidiary Buccaneer Resources is based in Houston, Texas and is an upstream oil and gas company. It specialises in the development and expansion of behind-pipe proved and probable reserves and low-risk exploration plays with growth potential.

Buccaneer’s growth strategy is focused on the progressive expansion of oil and gas production and reserves by acquiring significant working interests in low-cost, low-risk development properties that possess significant undeveloped upside.

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Source: Bucaneerresources, November 29, 2010: