CIRI settles long running dispute over Kenai Loop gas fees

  • Wednesday, February 4, 2015 11:02pm
  • News

The fight over Kenai Loop natural gas appears to be over.

Attorneys for all four parties currently involved in the dispute — Cook Inlet Region Inc., the Alaska Mental Health Land Trust Authority, the Department of Natural Resources, and AIX Energy LLC — signed a joint request for dismissal Jan. 23 of the ongoing hearing in the Alaska Oil and Gas Conservation Commission related to the case.

CIRI Vice President of Land and Energy Development Ethan Schutt said the Southcentral Native corporation had an agreement in place with AIX for a couple weeks.

“We’ve been waiting for a resolution between AIX and the other parties,” Schutt said Jan. 23.

AIX won an October auction to purchase assets of the bankrupt Buccaneer Energy Ltd., which developed the Kenai Loop pad on Mental Health Land Trust property. Of four wells on the pad, two began producing natural gas in early 2012.

Since, CIRI, which owns an adjacent parcel, filed suit against Buccaneer in state court and sought relief through the state commission for gas royalties it was owed for gas drained from its part of the reservoir.

Schutt has said CIRI owns 20 percent of gas produced from the wells and that Buccaneer’s contract was for approximately $7 per thousand cubic feet, or mcf, of gas. Based on AOGCC production records, the gross value of gas owed to CIRI could be in the neighborhood of $10 million or more.

Mental Health Trust Land Office Executive Director Marcie Menefee wrote in a Jan. 28 email to the Journal that her office is still in the process of finalizing lease terms with AIX. However, she wrote that the Mental Health Trust Land Office’s agreement with AIX is independent of DNR and CIRI.

DNR represents the State of Alaska’s interest in the case as the primary owner of the resource. The department also often represents the Mental Health Land Trust.

When Australia-based Buccaneer filed for bankruptcy May 31, 2014, it owed DNR about $605,000 for a combination of Cook Inlet oil and gas lease payments and production royalty payments. Overall, the company owed more than $2.1 million to unsecured creditors in Alaska.

The bankruptcy proceedings are continuing in U.S. Bankruptcy Court for the Southern District of Texas, located in Houston.

South Texas Bankruptcy Court Judge Marvin Isgur approved a settlement order between CIRI and Buccaneer Jan. 27. The settlement released the two from potential liabilities and evaporates CIRI’s $5.75 million proofs of claim filed against Buccaneer in September. The proposed court settlement was filed Jan. 8.

Schutt declined to go into detail about the agreement with AIX, but said CIRI would be in a “more traditional role as a lessor” to AIX.

He said where the money comes from is less important to CIRI than whether or not the company is paid what it is owed. Previously, he had said CIRI could seek payment from the Mental Health Land Trust for royalties it received from CIRI’s gas.

Representatives from AIX would not discuss the deal and said it is confidential.

AIX is a shell subsidiary of Meridian Capital International Fund, which financed some of Buccaneer’s Cook Inlet work. Last April AIX purchased much of Buccaneer’s debt.

In late May, the AOGCC ordered Buccaneer to open an escrow account at an Alaska financial institution and to segregate its Kenai Loop production revenue into the account monthly. That money would be held until either a settlement was reached outside of the commission or an order was handed down by the commission doling out appropriate allocations.

While Buccaneer delayed in setting up the account, by November it had transferred about $8 million into the escrow account, according to court filings. It put $399,639 into the account for December.

The dismissal petition requests the escrow funds be dispersed to AIX in accordance with the multiple settlements between the parties.

Elwood Brehmer can be reached at

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