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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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  • Alaska Should Lead The Nation To Being The #1 Oil Producer In The Country

    Want More Oil in the Pipeline, change the rules, speed up permitting and get serious about exploration on Alaska's North Slope.

    As I watched the President of United States tout our energy production as a good thing, the song I started singing was "North to Alaska..North to Alaska..!"

    But the sad song that is being sung up here now as oil production declines and oil and gas jobs disappear, is an old classic Rock and Roll song, here is how it goes,

    "Another One Bites The Dust, ha ha Another One Bites The Dust... ha ha"

    Sometimes I wonder if anyone is watching the same reports I am and wondering what happens when the oil runs out, or runs from somewhere else. I have been hearing reports that the United States is on its way to being the world's largest producer of oil by 2020.

    Unfortunately, Alaska is heading in the other direction. So we really should be asking ourselves if we are going to be a part of the solution or become part of the problem? Are we going to become importers of energy in a state that has some of the richest resources and one of the smallest populations? Just how did we get here?

    I think I can sum it up in one word, "fear". When the Exxon Valdez accident happened we succumbed to fear, perhaps a little justified, but our reaction was an over reaction. We were all very upset at Exxon (one of the biggest of the "majors") for soiling our great state that we set up a regulatory, permitting and bonding scenario that only the "majors" could meet. Thus we doomed ourselves to working with the very type of company that caused the problem.

    At the same time, we have built our revenue models around oil, even giving our citizens a dividend on the production every year. Almost like taxing cigarettes to pay for healthcare. As the number packs being sold goes down, so does your subsidy. We assumed we were safe with the majors and oil would continue to flow. Well, now oil production was 593,298 barrels on November 12, 2012. Sounds like a lot until you realize that in 1988 the pipeline had over 2 million barrels a day traveling down it.

    Our benefactors, the "majors" seem content to leave the oil in the ground and spend their money on low hanging fruit in someone else's garden. Yet, when smaller players express interest, after looking at our requirements they tend to shy away. Remember that word, "fear", and believe me no independent wants to get hit with a multi-billion dollar fine like BP.

    Under Governor Parnell, the state has done some things right, in the Cook Inlet we have used the ACES program to attract some smaller players like Apache, Armstrong, Buccaneer Energy, Hillcorp, Miller Energy, Linc and a handful of others. We used the Stampede bill to attract some Jack-up rigs and that worked. But on the North Slope we still have that little word stopping us, "fear". Fear of a major spill caused by a small company that cannot afford to clean it up, so we stay with the companies that caused us to be afraid in the first place.

    Here's an idea, let's self-insure and spread the risk. Not to beat a dead horse but Alaska has some sort of spill cleanup fund since 1976, currently it is capped at $50 million and it goes up and down depending on activities. Taking 5 cents off of every barrel produced and suspended when the fund hits $50 million funds it. Now, I am not saying that this is the answer, bond the smaller companies just using the $50 million.

    Let's start streamlining the permitting process around here. In the Gulf of Mexico if you want to drill, you apply for your permits and within 30-60 days you got em. I have heard it is even faster in Oklahoma and North Dakota.

    Alaska can change the rules and bring the smaller independents that drill in the lower 48 here. We can be a big part of what makes the United States the biggest producer in the world, and we could do it as a partnership between the State and the Independents. Let's look seriously at how much would need to be skimmed per barrel to eliminate the need for independent billion dollar bonds and use the 470 fund to clean up spills as they occur. Maybe that needs to be $1 or $2 but it wouldn't take much. Then don't put a cap on it and let it grow. Then if we have a spill take the perpetrators in front of a jury, and if they are at fault make them pay the fund back. If they can't pay up front, make them contribute more from their production but don't run them out of Dodge.

    Lets get this permitting issue under control. Taking the better part of two years and over a million dollars to permit one small gas well on shore is insane. Other states can permit wells in a quarter of the time and have very good environmental and safety records. If we emulate Texas, Oklahoma, Louisiana, even California we can greatly increase our efficiency here.

    Lets create a one-stop oil and gas agency that issues permits but isn't involved in enforcement. Let's have them work with the companies to get the job done, one spill plan that can apply to the entire region. Then amend it when something really changes. Then separately allow for "due process" if someone violates screws up, law enforcement can take action if required. If we are worried about transparency let's put all the hearings on the Internet streaming or put them on TV. By reducing the permitting time period by even a few months, the independents will be able to compete in this market and end the near monopoly the majors have on this state with 700,000 people with 25% of the nations oil. Our nation needs Alaska to get its act together.

    If we make these changes, in addition to the changes we have all ready made the people in SouthCentral Alaska will have more high paying oil and gas jobs and have hope that this massive oil & gas decline will stop and maybe cause an increase in wealth for all the good people of Alaska.

    If these Alaskan investors and smaller oil competitors are not priced out of business they will fill Alaska's near empty pipelines and provide a future where Alaskans don't have to pay the highest fuel cost in the nation and be in fear of a natural gas shortage causing Alaskans to freeze in the cold winter nights.

    End the "fear".

    Feb 13 2:41 PM | Link | Comment!
  • Who's Taking Over The Cook Inlet Of Alaska?

    Looking at the new players in the Cook Inlet you cannot help but run smack dab into Hilcorp. This is a private company and one that none of us had really heard about until earlier this year when they up and bought the Chevron Assets and recently the FTC decided to look into their proposed purchase of Marathon.

    So who are these guys and does anyone really think that trading the sleepy little Marathon oil for a highly untransparent Hilcorp is a good idea? And what is the FTC focusing on? If these guys are going to be controlling the majority of the gas that Enstar is selling to us, I thought I would do a little poking around.

    With its purchase of nearly 165,000 acres in the Cook Inlet from Chevron (CVX) earlier this year, including ten offshore platforms and two onshore fields, Hilcorp became one of the largest Cook Inlet operators virtually overnight.

    "Hilcorp would account for between 60% and 80% of the Alaskan gas market, depending on the season, if it completes the acquisition," said Joe Balash, Alaska's deputy commissioner of Natural Resources. The volume of gas on the market in Alaska fluctuates because some is exported via a ConocoPhillips-owned liquefied natural gas terminal during summer when local demand for the heating fuel declines. Mr. Balash said that he supports Hilcorp's acquisition because he believes the company will invest money to increase production on the fields it acquires.

    Hilcorp is already spending major dollars. The company has a $206 million 2012 budget and plans to spend $150 million per year in both 2013 and 2014. The goal is increasing production from the 14,000 barrels per day produced by Chevron in 2011 to 25,000 barrels per day by 2015. That's a lot of oil and that is on top of controlling our natural gas.

    Hilcorp is the second largest privately held oil and gas company in the U.S. The company has achieved steady growth, averaging 15 percent yearly, through a strategy of revitalizing old producing fields.

    According to their website. "We have a Vision: To be the premier private energy company in the country and a Mission: To efficiently develop energy that would otherwise be lost while providing an enjoyable and challenging work environment where long-term personal wealth can be created for all that set the tone for what we do every day."

    It also seems that Marathon Oil is buying big into the shale boom that's driving much of the industry - paying $3.5 billion to double its acreage in South Texas' Eagle Ford play, and setting a record per-acre price. Ok, so they leave the Inlet to play in their own back yard in Houston.

    Houston-based Marathon said it will buy 141,000 acres in the Eagle Ford from a venture started just a year ago by Houston's Hilcorp Energy and private equity giant KKR - with the potential for acquiring 14,000 acres more through additional rights and leasing.

    All told, Hilcorp is believed to have oil and gas production on the order of 70,000 bpd.

    So who owns Hilcorp?

    The uber-private Hildebrand, 53, is worth an estimated $5.5 billion at Forbes' most recent reckoning and he is the sole shareholder of Hilcorp

    He is the 56th richest American citizen. He was worth $1.9 billion in 2010. Other than the fact he lives in Houston, he is rich and he used to work for Exxon, who knows this guy?

    Well the investment house of KKR definitely does.

    In 2010, K.K.R. paid about $400 million for a 40 percent stake in Hilcorp Resources, the company's roughly 100,000 acres in the Eagle Ford Shale in south Texas. Last June, less than a year later, Hilcorp and K.K.R. sold the assets to Marathon Oil for $3.5 billion. So who is KKR and who owns that company? One Mr. Henry Kravis and George Roberts are listed as Co CEOs of the company.

    So what have we really got here? One guy down in Houston that lives like a king is going to control up to 80% of the Natural Gas Market in Alaska? Didn't the Hunt brothers get in trouble when they tried to take over the silver market back in the age of greed?

    I'm not saying that having a really wealthy guy buy into the Cook Inlet is a bad thing, but I would think we would want our destiny spread around a little. In the early days we had Chevron, Phillips, Marathon, Conoco, Exxon, and a smattering of smaller players all taking a pull on the slot machine called the Cook Inlet. Now we are going to have one guy that owns the gas, the platforms, the pipelines and can effectively control the flow of gas to our homes. Shouldn't he at least live here?

    Nope, he lives here.

    Oct 26 11:06 AM | Link | 3 Comments
  • What I Know About A Little Company Called Buccaneer.

    Lately, like others that follow Buccaneer (BCC on the ASX) I have been reading about the Endeavour, Spirit of Independence as it sits at the Deep-water Dock at the end of the Spur. It is quite a sight, with 400-foot legs and technology just dripping off the deck.

    I like Google alerts, they ping me at all hours and I get to see what people are saying. Some seem to see big problems, not really sure why, I see is opportunity. Some write about huge environmental issues, I see a very stable drilling platform that doesn't seem to move now that the legs are down. Some fear that the legs won't come back up, based on what?

    The George Ferris was a Jack-up rig that stayed near Homer for nearly two years. It was a really old rig and not much fun to work on according to my friends. It had been parked and left and was hoping to get some work some day. Comparing Endeavour to the George Ferris is like comparing a 1970s rusted pickup that's been sitting in the yard for years with a new Ford Ranger the neighbor just picked up.

    But let's get real; Buccaneer Energy entered the Inlet when others were exiting badly. When others were filing bankruptcy like Pacific Energy they were buying Stellar Oil and Gas (Renaissance). Some feel they were being opportunistic, I would say they were stepping up when others were stepping out.

    I've read that this company is referred to as a "foreign company" and yes the company is traded on the Australian Stock Exchange but the people and operations are here. The CPO (Chief Pirate In Charge) Curtis Burton, is a US citizen, has been working in the Industry for 30 plus years. President, Jim Watt, spent the last 20 years working in Alaska. Mark Landt has been running around shaking hands for years. If you look at the website the entire Alaska team has either lived here or worked here. I can only find two people listed on the website that appear to be Australian, so I see an American company that went to Australia to raise money. (Not a bad thing, just a fact. I like money no matter where it comes from)

    I have read several articles that question the company's financial outlook. The reality is that the company trades between 6 and 10 cents on the ASX and has an $80 million dollar market cap (I guess Gordy Vernon can't read a stock summary page). How many of our public companies in Alaska have an $80 million dollar market cap? Better yet how many of those have spent over $50 million in the Cook Inlet. That's not money they owe; they paid that much to us local guys.

    But to characterize these guys as a group that is unprepared and rushing things isn't really giving Buccaneer enough credit. The company was established in 2006 and had production on-line in the Gulf of Mexico beginning in 2007. If they hadn't decided to come spend money in Alaska they would probably still be producing in the Gulf of Mexico. The company has also drilled and produced oil onshore in Texas. This is hardly their first time turning a drill bit. Since records count lets look at theirs. The company has never been sited for any safety or environmental violations according to the Texas Railroad Commission.

    I found out about them when they showed up in the Cook Inlet and I couldn't believe we had Buccaneers on the high seas.

    You could argue that $80 million is small for an oil and gas company but they still managed to get a Jack-up rig from Transocean and transport it to the Cook Inlet. Granted they needed the help of AIDEA and Ezion Holdings to get it done, but the rig is here.

    Questions about safety abound. Will Buccaneer be safe, will Buccaneer be able to handle a spill. Again, lets look at the record. The company has consistently delayed operations in favor of increased safety. The rig remained in Singapore through the summer for additional upgrades. It has continued to be upgraded since it arrived in Homer (I can't imagine how frustrating that must be for guys). To maintain safety the legs were lowered and now the harbormaster says they are going to be paying even higher rent. In my day anytime we were not under way, we were jacked down. That is how the thing works.

    In Kenai the have been producing natural gas since July without incident. Additionally, the company delayed drilling operations at Kenai Loop by a week to install a bigger blow out preventer on the well they are drilling right now.

    As others have come to the Inlet they have imported their workforce. For the most part this company hires locally and provides high paying jobs. I saw one report that said a low paying job was $57k with others getting as much as $175k.

    You can certainly point to the troubles the company had earlier this year paying bills. However, the company has made sure that every vendor in Kenai was paid, even after it's lender exited the market. How many companies do you know that can arrange to replace a $50 million dollar credit line within 30 days? And how many other companies would have gone belly up and reopened as someone else. (I wonder what Escopeta would say about that?)

    Much has been said about what a bad corporate neighbor this group is but I would point out that they take us seriously, when Larry Smith picked up a shell on board they didn't kick everyone off and leave for the well location. They hired URS (I'm thinking that cost a bit) and had the matter thoroughly studied. When the community questioned their actions at West Eagle what did they do? The hired a local consulting firm HDR and scheduled community outreach meetings. (I can only imagine how many of you took the time to come down and yell at them, at least it was therapeutic, right?)

    I really have to laugh when I read Gordy's complaint that the company could not even get to Homer at the end of the summer. Perhaps he didn't notice that ERA had stopped flying that week. I know a lot of people who couldn't get to Homer or Kenai for that matter.

    My point is that if you are going to deride Buccaneer for wanting to do business in Homer you really ought to have a good reason. Pointing to what happened with the George Ferris just isn't going to fly for me. With that kind of logic we would have cancelled the space shuttle program after the first crash.

    Bottom line, Alaska needs the energy. Preferably clean natural gas instead of coal and we cannot wait for expensive renewable energy to be affordable or even productive. Personally I like Homer, I would hate to see you guys put up a sign that says "No New Business Allowed", or if you come to Homer you are "Guilty Until Proven Innocent". You guys are better than that and you should be giving Buccaneer a chance to prove themselves. I bet the next article after the rig leaves will be "Where did all the jobs go?"

    Oct 25 1:00 PM | Link | 3 Comments
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