Oil rig operator wants to drill on Arctic shelf

Posted: Wednesday, December 22, 2010

ANCHORAGE — An oil rig operator that intends to drill in Cook Inlet wants to expand operations to the Beaufort and Chukchi seas.

Buccaneer Energy of Australia originally planned to purchase a jack-up rig for five years of drilling work it had identified in Cook Inlet. On Dec. 14 it announced it intended to allow the rig to be used by its subsidiary, Kenai Offshore Ventures, on the Arctic outer continental shelf, Petroleum News reported.

The Chukchi and Beaufort seas are considered likely to have some of northern Alaska’s largest undiscovered oil and gas reserves.

Buccaneer’s competition, Escopeta Oil and Gas of Houston, plans to have a jack-up rig in Cook Inlet by April.

Buccaneer’s Arctic shelf plans take away a funding source previously considered central to acquiring the jack-up rig — Recovery Zone Facility Bonds. Buccaneer previously applied to receive up to $60 million in these tax-exempt private activity bonds, created by the federal stimulus act in 2009.

The bonds are meant to spur economic activity in distressed areas. Because the Kenai Peninsula Borough is considered a Recovery Zone under federal program, Buccaneer’s project to buy a jack-up rig to drill wells in the Cook Inlet qualified.

However, because the federal outer continental shelf in Arctic waters is not a Recovery Zone, Buccaneer would not be able to use the bonds to buy a rig for use in the Chukchi or Beaufort Seas. Buccaneer said it was looking at alternative funding to replace the Recovery Zone bonds.

Under federal guidelines, the bonds must be issued by the end of the year.

The Beaufort and Chukchi present an opportunity for a rig operator like Kenai Offshore Ventures, especially if the federal government requires the ability to drill relief wells relatively quickly if a blowout occurs.

Last April, ConocoPhillips said it planned to use a jack-up rig for its Chukchi Sea exploration.

Royal Dutch Shell PLC already owns a drill ship for its planned Beaufort Sea and Chukchi Sea exploration.

Drilling in the Arctic shelf presents environmental, regulatory and commercial risks. It’s icy and remote.

Environmental groups and Arctic Natives have challenged offshore exploration. Unlike most of Cook Inlet, which is mainly regulated by state and local governments that want to increase natural gas production, the Arctic shelf is under federal oversight.

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