Buccaneer has incorporated a wholly owned subsidiary Buccaneer Alaska Drilling. Subsequently, Buccaneer Drilling incorporated a wholly owned subsidiary Kenai Offshore Ventures.
It is the intention that Buccaneer Drilling and its wholly owned subsidiary Kenai Offshore will be the Company's corporate entities that will acquire a Mobile Offshore Drilling Unit (MODU) i.e. jack-up rig. It is the intention that Kenai Offshore will operate the MODU in the Cook Inlet as a commercial stand alone venture, contracting drilling services to third party lease operators in the Cook Inlet. This will include Buccaneer Alaska, the holder of the Company's leases in the Cook Inlet.
On November 9, 2010 Kenai Offshore made an application to the Alaskan Industrial and Development Export Authority (AIDEA) for an allocation of US $60.0 million in bonds under the US Federal Governments Recovery Zone Facility Bond (RZFB) program. AIDEA is the issuing authority within Alaska for the RZFB program.
The main feature of the RZFB is that it allows companies, with an allocation, to issue them to investors with the income from the bonds being exempt from US federal taxes. The coupon rate paid and term of the RZFBs is a commercial negotiation between issuer and investor.
On November 16, 2010 Kenai Offshore was informed by AIDEA that its application was successful and it had been allocated the full US $60.0 million in RZFBs. This allocation gives Kenai Offshore the ability to issue up to US $60.0 million in RZFBs, Kenai Offshore is not required to issue the full allocation and will consider the most appropriate funding structure in conjunction with its financial advisors. The allocation of RZFBs must be utilized by the December 31, 2010.
A key point of Kenai Offshore RZFB application was that the acquisition and mobilization of a jack-up rig to the Cook Inlet would create significant job opportunities within the Borough of Kenai which has suffered heavily during the economic downturn.
The Cook Inlet in Alaska is considered a mature hydrocarbon basin however it is widely acknowledged as being significantly under explored. There has not been a jack-up rig in the Cook Inlet since 1994 and therefore significant exploration and development targets have not been drilled.
The acquisition of a jack-up rig and mobilization to the Cook Inlet is considered opportune for several reasons as follows:
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