Sydney, Australia-based producer Buccaneer Energy Ltd. has signed a contract to supply natural gas to ConocoPhillips’ liquefied natural gas (LNG) facility on Alaska’s Kenai Peninsula, about 10 miles northwest of Buccaneer’s 100% owned Kenai Loop project. The deal gives Buccaneer the flexibility to flow gas from its Cook Inlet drilling while it awaits the completion of a nearby gas storage facility.

The contract with ConocoPhillips commences when Kenai Loop No. 1 starts production, which is expected this month. The contract is expected to conclude on April 20, 2012, with the potential to end earlier if construction of the Cook Inlet Natural Gas Storage facility is completed before then (see Daily GPI, Sept. 7, 2010).

Once the storage facility is online, Buccaneer has a gas sales contract in place with Enstar, the largest gas utility in Alaska (see Daily GPI, Aug. 16). Enstar will purchase the Kenai Loop gas and inject it into storage for use at a later date.

“With secured contracts for the gas produced at Kenai Loop No. 1 from the time of first production and the flexibility to be able to sell into the peak demand daily auction market, places Buccaneer in a strong position with substantial cash flows from December 2011 rather than April 2012,” said Buccaneer Director Dean Gallegos.

“Further, the ability to flow the well continuously will give us the opportunity of assessing the reservoir performance prior to the commencement of the Enstar gas contract in April 2012. If the reservoir performs as testing has indicated, it will give us the ability to increase the production rate from the anticipated minimum of 5 MMcf/d.”

Buccaneer is not obligated to sell any gas under the ConocoPhillips contract; however the contract gives the company flexibility and surety as it will allow the Kenai Loop No. 1 well to flow continuously from the commencement of production, while being able to sell gas either into the ConocoPhillips gas contract or the daily auction to supply local peak winter demand requirements. The daily auction to supply gas does not provide guaranteed daily volumes.

Buccaneer has the ability to sell up to 2.5 Bcf to ConocoPhillips under the contract. The pricing as part of the gas sales contract is consistent with recently executed gas contracts, Buccaneer said.

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