Endeavour leaving Cook Inlet

In a delicate operation about as slow as watching the tide come in, on Monday the 765-foot heavy lift vessel Zhen Hua 15 loaded the jack-up rig Endeavour-Spirit of Independence in preparation for its transit to South Africa. Workers with Spartan Offshore Drilling and Kenai Offshore Ventures, the rig’s owner, will finish securing and loading the rig this week. It will take about 45 days for the Zhen Hua 15 to move the jack-up rig across the Pacific Ocean and around the Horn of Africa to South Africa for use in offshore exploration.

The Alaska Industrial Development and Export Authority will sell its stake in Kenai Offshore Ventures, or KOV, for $25.6 million, the authority announced in a press release last Friday. 

Buccaneer Alaska brought the Endeavour to Cook Inlet in August 2012 as part of an ambitious oil and gas exploration and development program. Delays in repairing and refurbishing the rig kept it at the Homer Deep Water Dock until March 2013. During that stay, the city of Homer made $577,000 in port and harbor revenues and $181,000 in state oil property taxes paid to the city.

The Zhen Hua 15 arrived in Homer on Nov. 11, said Homer Harbormaster Bryan Hawkins. Hawkins said he sat in on a meeting on Nov. 13 with the Zhen Hua 15 captain, a rig mover and other crew to discuss the loading of the Endeavour and offer advice on local weather conditions, such as easterly winds that blow off glaciers.

On Monday the Zhen Hua 15 pumped ballast water into its hull tanks, sinking the cargo deck and ship about 20 feet so that only the bow and stern were above water. Three tugboats maneuvered the Endeavour into position over the Zhen Hua 15’s deck. Later on Monday, the heavy lift vessel purged its tanks, raising the cargo deck back up. It is scheduled to leave Friday.

The U.S. Coast Guard inspected the Zhen Hua 15 when it arrived last week and verified that it did a ballast water discharge and exchange at least 200 miles off shore of Alaska, said Lt. William Albright of USCG Marine Safety Detachment Homer. The exchange is done to prevent invasive species from getting in United States and Alaska waters. Ballast exchanges done this week would have been from North Pacific Ocean and Kachemak Bay waters. 

The ship also was required to have
antifouling paint to prevent the growth of organisms. The Coast Guard did not find any issues with the Zhen Hua 15, Albright said.

AIDEA has a preferred share of the Endeavour. Under an operating agreement, the jack-up rig had to stay in Alaska and drill a minimum of four exploratory wells. Kenai Drilling, a subsidiary of Buccaneer Alaska, drilled several wells at the Cosmopolitan site off Stariski Creek north of Anchor Point before being moved to Port Graham, where it had been until Sunday. 

Buccaneer’s charter with the Endeavour ended when Buccaneer filed for bankruptcy in May. Buccaneer also sold its 50 percent share in Kenai Offshore Ventures to Ezion Holdings Ltd. for $23.9 million in January. Ezion’s subsidiary, Teras Investments, also is a partner in the rig.

AIDEA bought into Kenai Offshore Ventures as a preferred investor for $23.6 million in 2011. Before investing in the Endeavour, AIDEA did due diligence in considering the prospect, said Karsten Rodvik, an AIDEA spokesperson. 

“It was an exciting venture,” he said.

The Endeavour’s work “helped spur a renaissance of exploration in Cook Inlet, and was key in the discovery of a major oil and gas find in the Cosmopolitan unit. The rig’s presence in Alaska promoted significant job creation and economic activity in Cook Inlet,” AIDEA Executive Director Ted Leonard said in a release.

Cook Inletkeeper, a Homer-based environmental watchdog group, had been critical from the start of Buccaneer.

“The state of Alaska investing in a company that had no experience in Alaska waters or drilling in the most sensitive fish habitat in Cook Inlet — I think we got very lucky,” said Bob Shavelson, the Inletkeeper.

Shavelson criticized Leonard’s claim of a discovery at Cosmopolitan.

“To suggest this rig sparked a discovery off Anchor Point is hard to swallow,” he said. “We’ve known there have been resources there since the late 1960s.”

In August 2013, Buccaneer said it had identified two gas zones at the Cosmopolitan site, one at 4,300 feet and another at 5,500 feet that it said could produce 16 million cubic feet of natural gas a day.

The loss of a charter to Buccaneer led to selling AIDEA’s interest in the Endeavour. After Buccaneer went bankrupt, KOV no longer had a charter for the rig and could not secure another long-term commitment, Rodvik said.

“In order to avoid a loss for all parties, KOV had to move the rig,” he said. “For them to be able to move the rig, they had to buy out AIDEA.”

Rodvik said the sale price includes the original investment and a remaining dividend due to the authority. AIDEA also received more than $4 million of dividends in 2013 and 2014. Rodvik said AIDEA will clear about $5 million when the sale closes on Jan. 31, 2015.

The state development authority is a self-supporting enterprise that pays an annual dividend to the state of Alaska. AIDEA’s investment in KOV and the Endeavour came out of AIDEA’s accounts and not directly from the state, Rodvik said. AIDEA pays dividends and has paid more than $345 million to the state general fund since its creation in 1967.

AIDEA Director of Asset Management Jim Hemsath said AIDEA is in discussions about the potential of new oil and gas facilities and bringing a new drill rig to the Inlet.

“We remain bullish on Cook Inlet,” Hemsath said.

Shavelson said the experience with the Endeavour and Buccaneer should be a lesson for doing oil development right.

“It was nice that the rig brought revenues to the city of Homer. It produced some work,” he said. “If we’re going to be open for business, let’s be open for responsible business, and not just some Outside investors with not enough money who push the risk on the public.”

Michael Armstrong can be reached at michael.armstrong@homernews.com.