Cook Inlet natural gas producer files for Chapter 11 bankruptcy

For sale: One Cook Inlet natural gas field and an offshore production platform complete with pipelines to shore. Customers for the gas included.

Furie Operating Alaska, a small Cook Inlet natural gas producer, has filed for Chapter 11 bankruptcy protection and listed its assets for sale in an auction scheduled for Oct. 7. A solicitation of interest among potential buyers has been issued by Seaport Global Securities, of New Orleans, which has been retained as an investment advisor to Furie.

“Furie is soliciting bids through its Chapter 11 bankruptcy process to sell substantially all of its operated assets in Cook Inlet,” Lucas Hohnstein, Seaport Global’s director of Investment Banking, said in a notice published Aug. 12.

Furie produces about 16 million cubic feet of gas per day from with three producing wells on an offshore production platform installed in 2015, according to the Alaska Oil and Gas Conservation Commission production data. The company has contracts to supply gas to regional utilities, Homer Electric Association and Enstar Natural Gas Co.

The bankruptcy action was filed in the U.S. Bankruptcy Court for the District of Delaware. Total debts were listed as $450 million with assets having an estimated present value of less than $50 million.

Furie’s bankruptcy and potential sale will have no immediate effect on overall Cook Inlet gas supply situation but the company’s problems are likely to chill interest in the region by other independents, which could dampen exploration. Reduced exploration is a concern to state officials who worry about long-term decline in Inlet gas supplies that support regional utilities state officials have said in the past.

Furie’s financial troubles are broadly rooted in Cook Inlet’s high costs and limited local markets for its gas, mainly the regional utilities, and more directly by the failure of the state of Alaska to pay on investment tax credits which had been promised to exploration companies including Furie.

Investment tax credits were part of a major state development incentive program initiated in 2012 when it appeared Cook Inlet would experience gas shortages due to declining reserves. At the time there was serious worry about a gas supply interruption during cold winter weather. Chugach Electric Assoc., Southcentral’s largest utility, even practices for power “brownouts” to conserve gas. Chugach and other utilities developed contingency plans to import liquified natural gas.

The immediate problem was eased when Hilcorp Energy, a larger Texas-based independent, began a major acquisition and redevelopment program of mature Inlet producing fields that year, purchasing oil and gas fields owned by Chevron Corp. and Marathon Oil Co., and solved the regional gas reserve problem for the short term. However, small explorers like Furie were enticed by the state to do new exploration in Cook Inlet, which geologists believe has substantial undiscovered gas as well as oil.

When world crude oil prices plunged in 2015 and 2016, however, Alaska’s oil-based revenues collapsed, and then-Gov. Bill Walker halted the payments on tax credits to the small explorers to stem a serious financial crisis for the state. Furie was able line up alternative financing through Energy Capital Partners, a Los Angeles-based investment firm to help fund $364 million needed to drill wells, develop the platform and construct pipeline to onshore gas processing facilities.

The state is now working through its overall financial troubles and has promised that it would pay off the delayed tax credit obligations in increments to small explorers like Furie. However, the state did make a payment last year on approximately $700 million owed several companies for the tax credits no funds have been appropriated for the current year, Alaska’s Department of Revenue said Aug. 19 in an email.

Earlier this year a problem in Furie’s pipeline caused a temporary suspension of gas supplies to customers, which worsened Furie’s cash position.

Furie’s largest unsecured creditor is the U.S. Department of Justice, which is owed $7.2 million in a penalty imposed on Escopeta Oil and Gas Co., the predecessor to Furie, after Escopeta brought a U.S.-built jackup to Cook Inlet from the Gulf of Mexico in violation of the U.S. Jones Act.

In an Aug. 12 order bankruptcy Judge Laurie Selber Silverstein, in the Delaware court, granted Furie access to $7 million for interim financing including $3 million for initial budget needs, according to court documents.

The Kitchen Lights gas field, which Furie discovered and is now producing form, has proved gas reserves of 59.6 billion cubic feet, or BCF, and with probable and potential resources of 124 BCF to 216 BCF, according to information provided by Seaport Global. The company is currently selling gas at prices ranging from $6.30 per thousand cubic feet, mcf, to $7.04 per mcf, Seaport Global said. The contracts, which are take-or-pay, meaning the customer pays whether it actually uses the gas, are in place until 2022.