Curtis Burton spends a lot of his time accomplishing things
other folks claim can’t be done. In the early 90’s, much to
everyone’s amazement he took a small 10-man executive team and led
the entire oil and gas industry in a world class R/D program called
DeepSTAR. The DeepSTAR concept was intended to provide the oil/gas
industry with a practical way to commercially develop the deepwater
basins of the world. Lots of folks said a cooperative effort would
never work and that deepwater was un-economic – but deepwater is
economic and the DeepSTAR approach did work – the rest, as they
say, is history. Curtis eventually put all 26 multi-national
operators and 65 of the service contractors into DeepSTAR – even
managing to sell the program to the US Energy Department and the
Minerals Management Service.
For the past few years he has focused his efforts on opening
another frontier - the Alaskan land and shallow offshore for small
independents. Once again he heads a relatively small team to
achieve his objectives, this time it is a small oil/gas independent
listed on the Australian stock exchange called Buccaneer Energy
(BCC). For the past 6 months, Buccaneer has been focused on how to
bring a suitable shallow water jack-up to the Cook Inlet – a
drilling basin that hasn’t seen a drill rig for 16+ years. We
recently caught up with Curtis and had a few questions for him.
World Energy - Having been in the offshore drilling rig business
in the past, we were curious to determine why you decided to buy a
rig as opposed to taking the more conventional route of leasing
one?
Curtis - Initially we looked at working with one of the rig
companies based here in Houston to lease a rig. However, the Cook
Inlet presents certain challenges that make it un-attractive
economically for most rig operators. However, after looking at the
numbers it became obvious that not only is a rig needed but it
creates an excellent business opportunity as well. Few oil and gas
companies are aware of the economic incentives offered by the State
of Alaska for drilling and operation in Alaska. Even fewer rig
companies are aware of these incentives and even if they were aware
only oil/gas operators can take advantage of the financial terms.
So, with my background, it was an obvious choice to combine the
best of both worlds to make the economics work to get a rig to
Alaska.
Governor Sean Parnell has worked with the chairmen of the Senate
Resource Committee, Senators Joe Paskvan and Tom Wagoner, together
with the House Chairperson Mia Costello, to put in place a basket
of incentives and tax breaks to attract operators to the region.
Between the rebates of $25 million, $22.5 million and $20 million
and the ACES program that can bring you up to 65% of your drilling
costs back, the stage is set to bring smaller operators to Alaska.
Now all that was required was an equally good plan to bring the
right rig.
Our thought was to develop a plan with the State of Alaska to
create a JV that could bring the right rig to Alaska; one that was
fit for purpose and that any area operator in the region could use.
We worked with AIDEA (Alaska Industrial Development and Export
Corporation) to attract the right partners. AIDEA is perfect for
this type of enterprise because its reason for being is to work
both public and private sector issues to create jobs, tax bases and
opportunities in Alaska. We’ve now been at this for about 6 months
with AIDEA and believe we are very close to completing the
transaction.
World Energy - What were the main features you were looking for
in a rig intended for use in the Cook Inlet?
Curtis – The Cook Inlet is a unique environment - as is most of
the Alaskan offshore. In the Cook Inlet we find relatively shallow
water depths that range from 18 feet to 300 feet. The wells tend to
be fairly highly pressured and may require drilling to depths of
18,000 feet or more. The area is prone to ice flows and heavy
currents. The Cook Inlet is also home to a variety of sea life that
requires our attention and protection. This unique environment led
us to create an outline of capabilities that were required before
we would take the risk associated with having a rig drill our
prospects.
The rig needed to be safe and versatile. This meant we needed it
to be comfortable in 18 feet but be capable of working in 300 feet
of water. To meet water depth requirements, we elected to use an
industry standard 116C design - that got us well over the 300-foot
limit for safe operation. Having a suitably designed blow out
prevent system was also a key concern. To this end, although some
of the properties to be drilled could have been drilled with a
lower rated blow out preventer system, we elected to take a more
conservative path and locate a rig that had a blow out preventer
system that could operate at the maximum pressures we felt could be
encountered – 15,000 psi. The hull also needed to be strong, strong
enough to withstand potential ice flows and strong currents so we
opted for hulls with -10 degree steel. The rig also needed to be
able to drill deep – up to 18,000 feet for some of the target
zones, with all of the associated drill pipe and equipment. To
avoid having to load and unload the rig it had to have a high
variable deck load, something exceeding 8,800,000 pounds.
The rig we selected can do all these things, and more, making it
easier to attain the permits we are required to have in order to
drill.
World Energy - With this in mind, where did you begin looking
for the rig?
Curtis – Traditionally 116C class rigs have been used in the
Inlet so we started with that as a minimum. However, since this rig
needed to be suited to drill any prospect in the Inlet our first
criteria was that it needed to drill in up to 300 feet of water.
This greatly reduced the number of possible rigs. More than just
stand in 300 feet of water it needed to be able to withstand heavy
currents and potential ice flows. A good model for a similarly
challenging environment was the North Sea. If a rig has been
operated successfully in the North Sea it was generally seen as
being able to withstand anything the Cook Inlet could dish out. Of
course since we were going to be taking the rig to Alaska we also
wanted to avoid any conflicts with the Jones Act, meaning we wanted
the rig to be in a foreign port and relatively close to Alaska.
This took us to the Pacific Rim. We also wanted a rig that could be
used not only to drill exploration wells but could also do
workovers and to perform plug and abandon operations. This meant
the rig had to be tall enough to be elevated over existing
platforms.
World Energy - Why was the North Sea experience so
important?
Curtis - When you compare basins around the world it is hard to
find one that is as harsh as the North Sea. Sitting in Houston and
looking at the rigs in the Gulf of Mexico it is hard to imagine the
kind of environment North Sea or Cook Inlet rigs operate in. The
North Sea has similar currents and air temperatures as those found
in the Cook Inlet and other offshore areas in Alaska. This meant
that any rig that operated there would have been built to a more
rigorous standard than a rig being deployed elsewhere
World Energy - Explain the importance of –10 degree rated steel
in the hull.
Curtis - Being in Houston where it is warm and the water is
calm, it might be difficult to imagine, but the Cook Inlet of
Alaska has frequent Ice Flows and when steel gets cold it gets
brittle. When cold steel meets hard ice it has a tendency to bend,
crack and even buckle. This can be particularly bad around some of
the best drilling locations in the Inlet. The legs and hull are
particularly susceptible and the ABS, the American Bureau of
Shipping, requires such steel rating in the North Sea. Some of the
best locations in the Cook Inlet are in areas that could
potentially have unexpected ice flows earlier or later than
normally expected and we want to minimize any risk to our
employees, rig and the environment. So, in addition to the cold
weather rated steel, strong legs that are designed for 300’ of
water depth (the rig we’ve selected actually has 400’ long legs)
should withstand any unexpected ice or other floating debris in the
Inlet without damage. This will also extend our drilling window to
take maximum advantage of the limited number of drilling days in
the season.
World Energy - How did you end up in Singapore to buy a rig?
What are some of the advantages associated with this location?
Curtis - The oil industry is a global industry and the equipment
tends to follow the best projects. This rig was moved to the
Pacific Rim after years of service in the North Sea. Of course
looking at a map it is relatively easy to see that coming from
Singapore the rig can be towed in a straight line and avoids being
towed around other continents or moved through expensive
canals.
World Energy - Are you satisfied that the rig and previous owner
have operated successfully? Your rig has two blow out preventers,
why?
Curtis - The previous owner of the rig is one of the largest rig
operators in the world and we have looked at their maintenance
records and safety records and, suffice it to say, this rig has
been well maintained and operated. As for the BOP’s after the
disaster in the Gulf of Mexico I think anyone who doesn’t take the
need for strong and well certified BOP’s on a rig is taking an
unnecessary risk and certainly not one that we as stewards of the
environment are willing to take on. When we look at the average
pressure in the wells drilled in the Cook Inlet you can see that it
varies from 8k to 13k so having the right piece of equipment to do
the job is critical. One of the attractions to this rig was that it
had the appropriate safety equipment already installed, meaning
that there was no need to upgrade, retool, or re-plumb the rig.
Having stood on the deck of rigs in the North Sea drilling high
pressured reservoirs you really don’t want to skimp on anything
that might make the rig safer, taller legs, better steel, stronger
BOPs, etc.
World Energy - Your rig can operate in water depths from 18 feet
to 300 feet, how much of the Inlet is open to you?
Curtis - Well if you look at the prospects being developed in
the Cook Inlet I think you will be hard pressed to find one that we
couldn’t potentially drill. One of the issues of working with one
drilling contractor is that you are limited to only the equipment
they have. The Inlet has been without an operating rig for 16+
years. In our case we wouldn’t even consider bringing one into the
market that couldn’t drill all or at least the majority of what is
out there. Additionally, being an operator in the Inlet, we
wouldn’t want to risk using a rig that was not up to par. The
environmental risk would just be too great. Knowing that we would
be using the rig for our company put us in the unique position of
being able to ask, would we use this rig? If the answer was no we
moved on.
World Energy - What does bringing a rig to the Cook Inlet mean
for the State of Alaska?
Curtis - In three words, Jobs, Revenue, and security. Alaska is
facing some real challenges when it comes to maintaining industry,
generating revenue and making sure that it has enough gas to power
and heat the homes in the area. Stories appear in the Anchorage
Daily News, Peninsula Clarion, and the Petroleum News outlining the
gravity of the problem. For a very long time the Cook Inlet
operated with a surplus of gas and the Alaskan Pipeline has brought
high-grade crude oil to the United States. Today the Cook Inlet is
facing a shortage of natural gas and is at times paying as much as
$9 an mcf and the pipeline has never had such low transport rates.
Oil is trading at over $100 per barrel because we are not
developing our domestic resources and in the lower 48 natural gas
is sub $4. There has not been a rig in the Inlet for over 16 years;
this greatly limits the ability of industry to discover new sources
of both commodities. Because Buccaneer has drillable prospects
identified we are in a unique position to help with these issues.
The rig itself will bring jobs, servicing the rig means jobs,
finding natural gas will mean jobs for the community. Developing
the discoveries left behind by the majors will mean energy security
for the United States and needed revenue for the State of
Alaska.
World Energy – Another Houston-based oil company, Escopeta,
claims to be taking a rig to Alaska. Are you concerned about
competition?
Curtis – Buccaneer makes it a policy NOT to comment on other
entities’ corporate undertakings. Our philosophy is that Alaska is
a big place with lots of oil and gas opportunity for all. Buccaneer
intends to go to Alaska with this rig, a rig that far exceeds the
operational capability of any rig taken there or proposed to be
taken there. Buccaneer will observe the laws and regulations that
are in place and be successful in operating a rig there for the
benefit of all.
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