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Currently, sitting on my portch. In the beginning, spent 16 years with drilling company starting out as a roughneck and rising through the positions of drilling manager, operations manager and finally Executive Vice President and CBW (Chief Bottle Washer). I have worked with a variety of... More
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  • Is SB21 Going To GET The JOB Done?

    So SB 21 has passed…and we anticipate that this will shift over a billion dollars back to the oil and gas companies operating on the North Slope. The hope is that they will decide to begin drilling for new resources and begin to add new oil into TAPs before the flow runs so low that a pipeline won't work.

    The Governor thought this was a great idea; the Senate passed it so they liked it as well, and of course the House rounded it out by passing the bill, now we are going to find out what the people think about it. Next time around we will be voting on this bill. I would imagine if you are a major producer of oil and gas you like the idea of getting rid of the progressive tax, but all of us are asking, will it make you drill?

    I notice that it has been widely reported that there is "no guarantee" of more drilling associated with this and no penalty if the majors don't drill or produce more oil. However, I don't think I ever heard of an oil company making drilling decisions based on the taxes on production by itself. I mean, I cannot imagine that Exxon, BP or Shell will now be saying "Wow, that really changes the economics, lets drill".

    If you have reserves ready to be produced behind pipe that you are not producing, something that we call spare capacity, then it might get you to open the spigot, or buy a bigger compressor, or rework an existing well that might need some attention. However, these will not produce a great deal of "new" oil badly needed to replenish the pipeline.

    But what really does, if you are tired of siting on the North Slope with "lower" returns and higher scrutiny from the State and NGOs you might now have an excuse to put your assets on the market and sell them to what we in the business like to call "the greater fool".

    Recently we saw a large independent, Pioneer, do a deal with a very small independent in just such a move. Now mind you they reported they took a haircut on that investment. It is also obvious that they have a history with this company and my guess is that all parties are going to make out like bandits. However, the company that is taking over those assets is a smaller PRIVATE company. Meaning, very little transparency and while they managed the transaction they only have two employees on their website. And of course, they will be taking advantage of those tax breaks.

    So it could be said that the lower taxes do make the assets more attractive, but will it get the job we want done, done? I look at the history of the North Slope and I don't see any independents that have gotten in there and made a profit. For those wondering there have been scant few that have entered the Cook Inlet and made a profit.

    When ACES was put in place it was done with an eye of making "new drilling" more economical for the explorer. I remember the discussions back then were about how could we make drilling in Alaska economics become more aligned with drilling in comparable basins around the world. The source of the funds would be from currently producing oil companies. The idea was interesting, if you want to keep some of your taxed dollars or get them back from the State you needed to drill.

    It was also supposed to help the smaller independents become more active in the Inlet and ultimately move in on the North Slope. We want the kind of company that would go after the smaller less economically attractive prospects, and be willing to bring new technology to bear. Those nimble risk taking independent oil companies that are willing to go out on limb to find oil and gas need the help on the front end and were not overly concerned about the taxes on the back end. Those backing the proposal also pointed out that the majors could have the same credits, but it still didn't make them drill.

    So I guess the question needs to be asked if ACES is working? If it is why would you change it so drastically? If it isn't, why? ACES was started in 2007, a period when very few independents were even contemplating Alaska. Today, we see Pioneer, Armstrong, Great Bear, Brooks Range, Savant, Apache, Pacific Energy (now Cook Inlet Energy), Buccaneer Energy (ASX:BCC) and Hilcorp. So that appears to be a good thing, they are coming. When we started this, did anyone think to ask how long it would take these guys to produce some oil? No, because we were pushing them on finding natural gas for the Inlet which was "about to run out and we were going freeze in the dark".

    Now let's look at the other end, what have the majors done since SB21 passed? Shell has announced that it will delay its exploration activities until 2015. ConocoPhillips suspended its Chukchi exploration program. Shell has suspended their program for 2013 and it remains to be seen if they will start up again next year. Pioneer has sold out. Down in the Cook Inlet Chevron has sold out, Marathon has sold out and the above listed scattering of independents is making a go of it.

    Then we have Hilcorp. Some of you may recall an article I did some time ago mentioning that we had just given 80+ percent of the control of the Cook Inlet to a guy that lives down in Texas and as a private company doesn't really need to tell us what he is doing. At the time the FTC and others were looking into the deal it was decided that the Cook Inlet was in such dire straights that this wouldn't matter. Let them come in and drill.

    OK, scroll forward. Hilcorp takes over and suddenly all of the supply problems in the Cook Inlet are solved. It seems Marathon wasn't doing a very good job squeezing the hydrocarbons out. Now with this issue solved, what happens to the rest of the new comers, are they supposed to head back to wherever they came from and let this "PRIVATE" company control our destiny? I read a piece from Curtis Burton, Chief Pirate In Charge (OTC:CPIC), pointing out that unless smaller producers are allowed to sell their gas somewhere they will be changing their focus. My guess is they will be changing their address.

    Will this very small company from Dallas, after buying the Pioneer assets, have the same results with assets on the North Slope? Will those wells suddenly spring back to life and begin producing massive amounts of oil? Maybe…at least in the beginning, and what would that actually mean?

    But I digress, is SB21 going to really solve our problem of less oil and natural gas flowing into the Alaskan economy? The reality is that the problems surrounding oil are very different than those that surround natural gas in SouthCentral. Most of the oil is located North Slope and while it has been discovered and is on production not much in the way of new exploration has been done. So these fields are in a slow decline and nothing the USGS says can really change that. By lowering the taxes we actually incentivize more of the same activity. Now what remaining production there is will be produced over time, with less tax and more profit to the producer. Don't get me wrong, they own the assets and I don't begrudge anyone profit, but tax breaks alone will not move the ball down the court. Having drilling incentives didn't move them forward. Those incentives lowered the cost of new drilling, the progressive tax was an excuse they used not to do it. The added production possible up there hasn't been enough to move the majors forward and we will have to wait and see if it is enough to move the independents, and once moved will to buy, will valuations be low enough to allow for a purchase.

    The situation in the Cook Inlet is very different. There we have been under crisis mode for years. Enstar and the legislature have been scared to death we were running out and only recently have independents arrived to fill the demand. Notice I said demand. In the past we had very low natural gas prices and we added lots of demand. As our resources were depleted (without new development) that demand went away, another reason the explorers to stayed away.

    So in the Cook Inlet, now that Hilcorp has come to save us we could decide we are just done. I am sure Jeff would appreciate a slowly increasing demand on his resources since his floor price (where he will begin to negotiate every year) is close to seven dollars. So lets just look out over the next three years, do you really think it's going to get cheaper? Is SB21 going to get enough drilling done in the Cook Inlet and up on the North Slope to make any real difference?

    There are those that want to repeal the tax and replace it with a more tailored program to the independents with a mix of incentives, tax breaks and liability coverage. They even have a catchy tag line, the 777 plan.

    I think I will throw my two cents into the pot. The real place that we need to get to busy is applying incentives to get the majors to farm out acreage they have been hanging on to for years. Let the independents drill em up. We need permitting reform for smaller companies so that it doesn't take years to get the permits approved this will allow the smaller guys to get in and drill. We need consistency in the application of the laws surrounding units. An independent needs to have as much of a chance of getting a unit approved as a major. We need some market reforms so that one gas provider cannot effectively cut the little guys out of the market.

    We do that and we might actually see some activity, even up on the sleepy North Slope. Activity will breed success, success will attract more participants the way a slot machine that is paying off attracts white haired grandmothers and we will actually see resurgence around here.

    So now that it is up to us, lets send a clear message. Drill or sell your assets and get moving.

    Nov 08 2:21 PM | Link | Comment!
  • We All Love The “Blame” Game, But Who Really Stalled Buccaneer Energy's Endeavour(S).

    We all love the "Blame" game, but who really stalled Buccaneer Energy's Endeavour.

    Recently I had the opportunity to sit with one of the guys that Archer let go and I got to hear the story of how the Endeavour got stuck. It seems that Archer was hired because they knew a lot about how to refurbish rigs, well maybe someone over there does but not the crew that worked on this one.

    When he was hired he was told the rig would be moving into the Inlet in about three weeks with just a couple of remaining items on board to "adjust" when it got to the Cook Inlet. Now my guy has been working on equipment for a very long time, but mostly on platforms, so he knows when something is done and when it isn't. He was telling me about the day that the rig arrived and he was just walking around doing a mental checklist of things to be done and things to be checked. Well let's just say that by the end of the day even he knew it wasn't the short list he had been told about.

    It seemed the deeper they got into it the more stuff they uncovered and it just got worse and worse. Of course every time he brought up that this was supposed to have been done already he was told just to soldier on and not to bring that up to the company man. It seemed the Archer boys were all about covering up. Now eventually that catches up with you, you know someone has to pay the bill and the rig has to go out and drill. Eventually even the Pirates were going to notice.

    Now that the rig has been moved on site and it looks like things are going to start happening I decided to look into why the Pirates keep getting tripped up by deadlines and extensions while constantly saying something was just about to happen. I get the rig delay but it seems they constantly make this mistake. I know its Alaska and we expect everything to take a long time, so why did Buccaneer think they were going to be different?

    I suppose its all relative, but I decided to look into some of the past announcements from the company and see just who is driving this. Nothing new there of course, we see our Chief Pirate in Charge (Curtis Burton) and his first mate Dean Gallegos but neither is really an Alaska guy and while Burton may be great at making deals he certainly doesn't appear to be a land man.

    So what has been holding these guys up? They entered the Inlet in 2010 and got first production on line in 2012, not terrible but it doesn't match the timeline. Well, who is in charge of watching over that part of the business (timing)? I did find a bunch of video done about the company, pretty good stuff, and I find that that's not Curtis, that's this Jim Watt fellow, President of Buccaneer Alaska. A veteran according to him, so certainly he would have warned Curtis and Dean that everything moves slowly around here and even the very best plans experience delays. Then I came across some old video from the World Energy guys featuring Jim. And there he is in all his glory telling the reporter about the difficulties and the reputation Alaska has. He says things have changed and that they are going to drill… in 2010?

    http://www.youtube.com/watch?v=fbwoDs5lmfg Don't take my word for it, watch the video.

    Sometimes you can forgive a couple of "deal" guys for getting the numbers wrong (If they are close) or using the "best guess" that they like, but Jim ought to know better. If he told the Buccaneers that he could do a deal with them in April and be drilling by the end of that year (2010) he would have needed a boatload of permits in his pockets. He says he has spent over 15 years of his career working up here, but what has he done. At one point in the 90s he developed the Alpine field. I would guess that had a little bigger budget and a whole lot more bodies were thrown at it, because since then most of what he has done is buy leases and trade leases. That is until the Buccaneer's came to the Inlet. The Pirates must have been salivating over the lease position and believing in his ability to deliver quick.

    Jim doesn't stop there he tells us in the video that he brought with him all the guys that know how to get this done. He even suggests that there are stacked rigs he can get by snapping his fingers. I think after 15 years in the Inlet he would know very well that anything that's been stacked for any period of time is going to be pretty much useless.

    Now don't get me wrong, I love the Buccaneer story and I have written about it numerous times. (especially like the name) I like the acreage position they have, I like the pluck they have shown in getting in early, buying a couple of rigs (I guess the stacked ones didn't work) and getting down to business at Kenai Loop. From my perspective they did a pretty good job, but I didn't set the expectations back in 2010 that they would be drilling that year. Trust me, up here nothing moves like that and he should have known it. So why tell management and others that they could do it?

    Well I thought this was interesting so I began to dig a little deeper, made some calls and dug into some of the bios on the website. If you look at the staff he brought with him they are mostly geologists with one engineer thrown in there. Now that would have been a red flag to me and I'm not sure why the CPIC (Chief Pirate In Charge) didn't pick up on that. Although I am sure, that like he does in the video Jim would have told him that everyone would be available to work once the gas was located and all he needed was a GEO team. But that also meant he wasn't bringing anyone who could counter the story or might bring up that these deadlines might be hard to meet without production guys in the wings.

    Now I see that Buccaneer has added a bunch of people to back fill these guys. I guess they don't want to wait anymore, or perhaps Curtis has realized that Jim will tell him anything he wants to hear and not what he needs to hear. I can only imagine what would have happened in my day if I kept telling my CEO that we were going to have something done by xxx date and he reported it to the market and we continuously missed the deadline. He'd have had our heads.

    I know with the Jack-up rig the guy was telling me that as one of the workers it was blatantly obvious that Archer hadn't done what they were supposed to do in Singapore and that now that company consultant was gone and Rike was directly working on this, the shit was hitting the fan every day. When they would tell him, just 10 more days he would get hotter and hotter. Once even saying this is the longest 10 days I have ever seen and it's becoming Ground Hog day around here.

    Perhaps that is what we see here. Archer thought they could slide one under the rails and Jim over sold the Pirates on what he could deliver, but once he got started on Kenai Loop he got himself a reprieve. Then his "great" team steps over the fault and screws up on KL 3 and drills on the wrong side of the fault.

    CPIC orders extensive seismic and brings in new people to evaluate it and the next well is successful, it even goes on production when they said it would. I looked at the new website and I see this video of Jim is not featured anywhere. Nice presentation from Curtis, but this Jim guy is only seen on the people page with an ever-increasing number of "others".

    In reality there is always a learning curve when companies come to the Inlet. Some don't survive long enough to get through the process, for instance Pacific Energy came in with big plans, but they over bought and were pretty much blasted out of the water by a Volcano. So from where I am sitting the Buccaneers have had a pretty good run, even if they were obviously painted a very different picture of what life is like up here. This doesn't take away from the fact that the Buccaneers got in early, they secured an excellent position and have bought the right stuff since, they brought the assets in that are needed and they have managed to get production on line.

    I have to give Burton some credit here, even when the sky was falling last year and the vendors were screaming they needed money he still managed to keep the company going, others would have said screw it and gone home. I wonder what he said to Jim when he was told that they really didn't have any projects to drill in 2010. For that matter, I wonder what the conversation with Archer was like when he told them to get stuffed. Of course we get a peek into the ramifications for misleading Curtis by reading the lawsuit. That's gonna be fun.

    I guess in the end if you can make it through the learning curve and begin to figure out who is telling you the straight story you can do great things in Alaska. Production and sales tend to fix the problem over time, lets hope our band of Pirates can survive long enough to get their bounty.

    Apr 11 5:43 PM | Link | 1 Comment
  • Facebook For Companies...huh?

    I guess I am new to the social media scene. I have a twitter account that I constantly forget that I have, but why does a company need a facebook account?

    I find i curious that Apache (NYSE:APA), Shell Oil, Linc energy, ConocoPhillips (NYSE:COP) and even Buccaneer Energy (BCC:ASX) would need a facebook account.

    I rather like the look of the Buccaneer page, and I see that it is new and gaining followers, but who has the time for such things? Personally, if Buccaneer Energy needs some ideas of what to put on their page I would like a virtual tour of the Endeavour.

    I guess it is all in the eye of the beholder, I like to get my Google alerts, I like to get press releases, I guess a facebook update could be one more way to get information. Perhaps we could get Steve Ferris at Apache to come on Facebook and answer questions. That would be fun for the Pirates as well, where is our CPC (Chief Pirate in Charge) Curtis Burton. Since his trip to Alaska last year I haven't seen him. Apparently it is more important for him to be in London, Singapore and Australia than up here freezing in the winter.

    For that matter, since those brief presentations I haven't seen any Buccaneers running around. I talked to some of my contacts that suggest that management is hunting money (reason for London), Jim Watt has been on a constant vacation and Mark Landt has been so busy chasing permits that he hasn't been able to get to the office. I find it interesting that the people in Kenai are more familiar with Andy Rike and Curtis Burton than they are with Jim Watt and Alan Huckabay.

    This is where Alaska really needs to help these new comers out, if they spend all of their time chasing permits, no oil or gas ever get's produced.

    I talked to one of the boys over at Shell, he didn't even know they had a facebook account. His own is dedicated to the family and trying to stay connected with his kids from the previous and keep up with antics of the current.

    One has to wonder how this tool really relates to a companies communication strategy. Companies really don't have kids, but hey do have employees and shareholders. Sometimes those could be considered as such.

    Well, looking for comments here..Does anyone have any ideas whether a facebook page helps or hurts a company?

    Mar 24 3:05 PM | Link | Comment!
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