Lack of Cash Puts Pacific Energy's Alaska Deal in Deep Freeze

WILMINGTON, Del. (Dow Jones Newswires), Aug. 6, 2009

Pacific Energy Resources Ltd.'s efforts to sell its Alaska holdings are foundering because of the lack of deal financing, company attorney Ira Kharasch said Tuesday.

Potential financiers backed away from two successful bidders to emerge from an auction for a group of Alaska pipeline and drilling interests, leaving the company without a buyer, Kharasch said at a U.S. Bankruptcy Court hearing in Wilmington, Del.

There isn't a buyer for a second parcel of Alaska assets, and Pacific Energy called off the auction for its more valuable California holdings, said Kharasch, who is with the Pachulski Stang Ziehl & Jones firm.

"We are here with no sales to go forward today," he told Judge Kevin Carey, who is presiding over Pacific Energy's Chapter 11 proceedings.

The hunt for money and a buyer continues, but Pacific Energy is prepared to walk away empty-handed from its Alaska interests, which are "challenged" by potential environmental liabilities, Kharasch told Carey.

Pacific Energy's second package of assets includes the Trading Bay operation it runs with Union Oil, a Chevron Corp. (CVX) affiliate.

"We are hopeful this will end up in a deal," said Union Oil attorney Richard Epling, who is with Pillsbury Winthrop Shaw Pittman.

However, he said, Union Oil needs to know whether it will have a partner when operations at Trading Bay resume.

A planned Friday auction for Pacific Energy's California holdings was pushed off because of the lack of qualified bidders.

Unlike the troubled Alaska holdings, the pipeline and offshore drilling interests in California are "almost self-supporting," the lawyer said. Friday's auction was adjourned and will be re-opened if a buyer steps forward for the assets, which are in Southern California.

However, Pacific Energy's secured lenders, Goldman Sachs Group Inc. (GS) and hedge fund Silver Point Capital, may end up owners of the California drilling operation.

Pacific Energy owes the lenders $361.1 million. They could get ownership of the assets just by offering to cancel some of the debt.

The company, based in Long Beach, Calif., filed for Chapter 11 bankruptcy protection in March after defaulting on its senior loans. Pacific Energy blamed the drastic fall in the price of crude oil for its need to seek bankruptcy protection.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)  

Copyright (c) 2009 Dow Jones & Company, Inc.