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Geothermal drill rig sold in foreclosure Creditor Baker Hughes makes complex offer to buy Naknek Electric rig; it likely will be resold to a Cook Inlet oil and gas operator Wesley Loy For Petroleum News
Oilfield services firm Baker Hughes acquired a drilling rig at a recent foreclosure sale in Anchorage.
The National 1320 rig belonged to Naknek Electric Association, a small rural cooperative serving villages in the Bristol Bay region of Southwest Alaska. The rig was used on a problem-plagued geothermal drilling project that ultimately drove the co-op into bankruptcy.
Baker Hughes was involved with the co-op’s geothermal well, and was one of its major creditors. It was the only bidder for the rig at the court-approved foreclosure sale Oct. 2.
That was not a surprise, as Baker Hughes was in a unique position as a potential buyer. Its offer included dropping a $4.5 million lien claim, paying $500,000 to other lien holders, and putting $500,000 in escrow to help pay for plugging and abandoning the geothermal well, said Erik LeRoy, bankruptcy attorney for Naknek Electric.
What happens next? The rig remains at the remote site of Naknek Electric’s geothermal well, outside the village of King Salmon.
It will remain there until spring, when it will be used to plug and abandon the well in April, LeRoy said.
After that, the rig will be barged to Cook Inlet, he said.
Papers filed in U.S. Bankruptcy Court in Anchorage have mentioned two companies potentially interested in acquiring the rig from Baker Hughes: Cook Inlet Energy LLC and NordAq Energy Inc. Each sent people to examine the rig.
A Baker Hughes spokeswoman failed to respond to a Petroleum News request for comment on the company’s plans for the rig.
Shattered dream Like many electric power companies in rural Alaska, Naknek Electric has struggled with the escalating cost of diesel to run its generators.
With the volcanic Katmai National Park and Preserve nearby, Naknek Electric decided to embark on a campaign to establish a geothermal power alternative. It purchased the rig with an eye toward drilling multiple wells and building a geothermal power plant.
But the co-op ran into severe financial and technical difficulties with its first and only well, known as G-1. The well never flowed correctly, due to drilling mud that clogged the hole, court papers said.
Government grants didn’t come through as expected, and state drilling regulators required the co-op to take extra safety precautions, the co-op said.
By Sept. 29, 2010, when it filed for Chapter 11 bankruptcy protection from creditors, Naknek Electric said it had incurred some $40 million in debt that was “in one way or another associated with the geothermal project.”
The sale of the rig means the co-op’s geothermal dream is now effectively shattered.
“They’re not happy,” LeRoy said. “They wanted to find a way to redrill that geothermal well.”
But selling the rig to Baker Hughes yields important benefits for the co-op, not the least of which is money to plug and abandon the well, he said. The co-op otherwise would have needed two years to save enough for that operation.
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