Homer Alaska - News

Story last updated at 12:35 PM on Monday, December 17, 2012

Endeavour drilling contractor fired for 'non-performance'

By Brian Smith
Morris News Service - Alaska

Buccaneer Energy last Thursday fired the company charged with operating the $100 million Endeavour-Spirit of Independence jack-up rig after watching it sit in Homer delayed for months, missing the summer drilling window and racking up a large bill in harbor fees.

Jay Morakis of JMR Worldwide, Buccaneer's public relations office, said Buccaneer officials decided to sever ties with Archer Drilling Co. on Dec. 14 after hearing the company was not paying local subcontractors for work on the rig and for "non-performance."

Buccaneer is a partner with, and the manager of Kenai Offshore Ventures — a joint venture project that owns the Endeavour with Ezion Holdings and the Alaska Industrial Development and Export Authority. Morakis said Buccaneer acted in the best interest of the partnership.

"The issue is for work performance between KOV and Archer," he said.

Calls and emails placed to Archer Drilling seeking comment were not returned as of Monday.

Morakis said the dispute should not "in any way impede the timeline of the rig at all."

Work on the Endeavour is mostly complete, Buccaneer said in a press release Monday. Archer had been working on upgrades and repairs of the jack-up rig, including correcting work done in the Keppel Fels shipyard in Singapore.

An inspection by the American Bureau of Shipping last week showed one minor door replacement and some paperwork requirements, Dean Gallegos, director of Buccaneer Energy Ltd., said in Monday's press release. After ABS confirms completion of that work, Buccaneer will proceed with a U.S. Coast Guard inspection. Buccaneer also is waiting on issuance of a land-use permit by the Alaska Department of Natural Resources to move the Endeavour to the Cosmopolitan oil and gas permit site offshore of Anchor Point. The move is anticipated to be sometime in January, Gallegos said.

On Friday afternoon Morakis said Kenai Offshore Ventures had entered into a letter of intent with Spartan Offshore Drilling to take over operating the Endeavour.

In a release through Morakis, Paul Butler, president and CEO of Spartan Offshore, said the company expects contracts to be signed in the next few days.

"I think our experience operating the Spartan 151 in the Cook Inlet over the last 18 months makes us uniquely qualified to take on this challenge and we look forward to a very active 2013," Butler said in the release.

Representatives of Spartan and Buccaneer were to meet in Homer today to implement the handover of rig management duties. Spartan's experience in Cook Inlet will benefit Buccaneer, Gallegos said.

"(Spartan) has established proven operating procedures within Cook Inlet and established supply lines with local industry partners," he said. "The company believes the Endeavour's operations will be enhanced by having this established base from which to operate, and expects some operating and financial synergies will result from two operating rigs."

In a statement last Friday, Karsten Rodvik, AIDEA spokesperson, wrote that the group was aware of the situation and that its "first concern and main priority is for Alaska workers and businesses to be promptly paid."

"We are pleased that our partners are responding quickly and responsibly, and we are confident in their ability to resolve this matter as soon as possible," Rodvik wrote in an email. "AIDEA will continue to monitor the situation during this transition process, to assure that obligations are met."

Initial rumors that Archer had first walked away from the rig because they could not pay their local contractors as a result of a billing dispute with Buccaneer did "not surprise" Morakis, he said.

However, Morakis said KOV and Buccaneer consider themselves "paid in full" to Archer "with the exception of some disputed amounts for work that has been done." Morakis could not provide details on that debt.

Buccaneer will work to make sure Homer-based contractors and others who worked on the rig who are owed money by Archer are paid for their services, Morakis said.

In early April, three Kenai-based contractors testified to the Kenai City Council that they and other area contractors had not received timely payment from Buccaneer for work at its Kenai Loop gas field, according to meeting minutes.

Mitch Mahurin, operations manager for Inlet Drilling Alaska in Kenai, said Buccaneer was late on payments to his company. Inlet Drilling was eventually paid in full for the work they performed, Mahurin said, but the company is not currently doing business with Buccaneer.

"Hopefully Buccaneer has realized that non-payment to the contractors is not acceptable and that's what made their decision to get rid of Archer easier," he said.

Mahurin said he can "clearly" sympathize with Homer workers who were not paid by Archer.

"In this industry you have pretty high invoices that come in and we have to pay our employees regardless of if we have gotten paid on those invoices or not," he said. "It is certainly disheartening coming from a small company when no payments are being made."

Morakis said what happened in April with delayed payments to Kenai contractors is "totally different" than the current situation. At that time, Morakis said the company had "a short-term liquidity issue because its primary lender literally left the market."

Homer Port Director and Harbormaster Bryan Hawkins said he watched an exodus of workers loading up and leaving the rig, which he described as "a little bit depressing and definitely concerning."

Hawkins said Archer called to inform him they were pulling workers off the rig because they "no longer have a contract" with Buccaneer. However, when Hawkins asked for details, Archer wouldn't elaborate, he said.

"There is still a skeleton crew on board making sure that the rig is safe and warm making sure we don't have any damage due to the freezing conditions and things like that," he said.

Hawkins estimated about 50 construction workers, pipefitters, welders and other contractors were employed on the rig. He said he hoped they would be put back to work — likely many of those same people who left — sooner rather than later.

"There's only so many qualified people," he said.

Homer City Manager Walt Wrede said the announcement got the city's attention and prompted a Friday morning teleconference with Buccaneer officials. Wrede said he had initial concerns about the status of those rig workers and who would be left to look after a giant piece of infrastructure the city had no way of moving otherwise.

"They seemed very, very motivated to make sure all the contractors got paid," he said.

Buccaneer isn't current with its payments to the city, Wrede said. However, the city is not concerned that it won't get paid, he added.

"Buccaneer has been paying us. They've sent us some pretty large checks recently," Wrede said. "We are confident they are going to pay."

Wrede said he came away from the conference feeling it was just a "short term shake-up." He said the rig's prolonged presence had not turned away any commerce at the port and that the city was, for the most part, happy for the additional business it has brought in.

"It is usually a slow time of year here in Homer so it was good to have hotels filled and restaurants filled and people getting a paycheck," he said.

Wrede said he encouraged Buccaneer officials to get busy drilling for gas in light of recent news of looming area shortages. Hawkins echoed a similar sentiment.

"The reality is that we have a rig and it is right there and all of us have an interest in seeing that it is successful in its venture, which is to bring more gas online," Hawkins said. "Sometimes I find that some things just come harder than others. I don't know why, but they just do.

In other news regarding the Endeavour, Buccaneer said in its latest press release that:

• It anticipates DNR will approve its plan of operations in mid January. The comment period ended Dec. 3 on that application.

• Buccaneer has applied for a gas-only determination for the Cosmo project with the Alaska Oil and Gas Conservation Commission. Galegos said it understands the commission has made a gas-only recommendation to the Alaska Department of Environmental Commission, but Buccaneer has not heard from DEC.

• A revised contingency plan, or C-Plan, for the Cosmo site has been filed. Buccaneer received a C-Plan for its Southern Cross and North West Cook Inlet projects, and has filed a revised plan for Cosmo based on that C-Plan. Public comments for that revised C-Plan end Jan. 7.

Brian Smith can be reached at brian.smith@peninsulaclarion.com. Michael Armstrong of the Homer News contributed to this article. He can be reached at michael.armstrong@homernews.com.