Buccaneer Energy Limited Jack-Up Rig Acquisition Funding In Cook Inlet Alaska

Buccaneer Energy Limited announced that it has incorporated a wholly owned subsidiary Buccaneer Alaska Drilling, LLC (“Buccaneer Drilling”). Subsequently, Buccaneer Drilling incorporated a wholly owned subsidiary Kenai Offshore Ventures, LLC (“Kenai Offshore”).

It is the intention that Buccaneer Drilling and its wholly owned subsidiary Kenai Offshore will be the Company’s corporate entities that will acquire a Mobile Offshore Drilling Unit (“MODU”) i.e. jack-up rig. It is the intention that Kenai Offshore will operate the MODU in the Cook Inlet as a commercial stand alone venture, contracting 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.

On 9 November 2010 Kenai Offshore made an application to the Alaskan Industrial and Development Export Authority (“AIDEA”) for an allocation of US$60.0 million in bonds under the US Federal Governments Recovery Zone Facility Bond (“RZFB”) program. AIDEA is the issuing authority within Alaska for the RZFB program.

The main feature of the RZFB is that it allows companies, with an allocation, to issue them to investors with the income from the bonds being exempt from US federal taxes. The coupon rate paid and term of the RZFBs is a commercial negotiation between issuer and investor.

On 16 November 2010 Kenai Offshore was informed by AIDEA that its application was successful and it had been allocated the full US$60.0 million in RZFBs. This allocation gives Kenai Offshore the ability to issue up to US$60.0 million in RZFBs, Kenai Offshore is not required to issue the full allocation and will consider the most appropriate funding structure in conjunction with its financial advisors. The allocation of RZFBs must be utilised by the 31 December 2010.

A key point of Kenai Offshore RZFB application was that the acquisition and mobilisation of a jack-up rig to the Cook Inlet would create significant job opportunities within the Borough of Kenai which has suffered heavily during the economic downturn.

Further releases in respect to the acquisition of a MODU and other financing arrangements regarding this acquisition will be made as they are finalised.

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 significant exploration and development targets have not been drilled.

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 Scheme (“ACES”) to lease operators for drilling in the Cook Inlet virtually assuring rig utilisation;

– The main population area around the Cook Inlet (including Anchorage) are facing natural gas shortages as early as 2012 and importing natural gas is not an economically attractive solution. Additionally building a pipeline from the North Slope to the main population centres in the south is also not considered 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 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 depressed 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.

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Source: AbnNewswire, November 17, 2010: