Buccaneer Energy Limited (ASX:BCC) Jack-Up Rig Acquisition Funding In Cook Inlet Alaska

Sydney, Nov 17, 2010 AEST (ABN Newswire) - Buccaneer Energy Limited (ASX:BCC) (PINK:BCGYF) is pleased to announce that it has incorporated a wholly owned subsidiary Buccaneer Alaska Drilling, LLC ("Buccaneer Drilling"). Subsequently, Buccaneer Drilling incorporated a wholly owned subsidiary Kenai Offshore Ventures, LLC ("Kenai Offshore").

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 9 November 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 16 November 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 utilised by the 31 December 2010.

A key point of Kenai Offshore RZFB application was that the acquisition and mobilisation 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.

Further releases in respect to the acquisition of a MODU and other financing arrangements regarding this acquisition will be made as they are finalised.

Transaction Background

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 mobilisation to the Cook Inlet is considered opportune for several reasons as follows:

- The State of Alaska is providing significant incentives through the Alaskan Clear and Equitable Scheme ("ACES") to lease operators for drilling in the Cook Inlet virtually assuring rig utilisation;

- The main population area around the Cook Inlet (including Anchorage) are facing natural gas shortages as early as 2012 and importing natural gas is not an economically attractive solution. Additionally building a pipeline from the North Slope to the main population centres in the south is also not considered economically viable at the current time with many environmental, commercial and timing issues;

- Due to these impending shortages recent natural gas trades sold via contract to local utilities with a floor and cap of US$7.00 / mcf and US$10.00 / mcf, respectively. This compares to a spot price of approximately US$4.00 / mcf in the Lower 48 states;

- Kenai Offshore has identified 5 years of work for a jack-up rig with potential customers ranging from mid-sized operators to major international companies;

- Identified work includes new appraisal wells, infill and development drilling opportunities and plugging and abandonment work;

- The location of a jack-up rig in the Cook Inlet is estimated to have the potential of adding over 300 jobs to the Kenai Peninsula Borough ;

- The global jack-up rig market is depressed making it an ideal time to acquire a suitable jack-up to operate in Alaskan conditions;

- Several leading industry players, including Alaskan native corporations, would commit to operate and/or provide services to the jack-up rig.

About the Alaskan Industrial and Development Export Authority ("AIDEA")
http://www.aidea.org

To promote, develop, and advance economic growth and diversification in Alaska by providing various means of financing and investment. AIDEA fulfils its mission by providing Alaskan businesses with long-term commercial and development financing at a reasonable cost.

AIDEA was created in 1967 and funded in the early 1980s with a $166 million loan portfolio and $23 million cash, which provided initial funding for what is now known as the Loan Participation Program. In the mid-1980s, to assist in the development of the Red Dog Mine, the Development Finance Program was created and AIDEA received a loan portfolio and cash totalling $143.5 million to finance the DeLong Mountain Transportation System.

AIDEA has issued over $1.1 billion in conduit revenue bonds and over $800 million in loans since its inception

About the Recovery Zone Facility Bond Program

Recovery Zone Facility Bonds (RZFB) are a new type of tax-exempt private activity bond created by the American Recovery and Reinvestment Act, passed by Congress in February 2009. They may be used to finance certain kinds of business development activities in areas of significant economic distress.

On June 11, 2010, Governor Parnell signed Senate Bill 269, giving the Alaska Industrial Development and Export Authority (AIDEA) the authority to administer the RZFB volume cap and to adopt rules by which to do so. AIDEA's goal in administering RZFB allocations is to make the process as accessible and transparent as possible.

RZFBs may be used in certain types of businesses to finance the purchase of depreciable business property within a Recovery Zone, provided the taxpayer acquires the property after the area has received the Recovery Zone designation.

The total allocation for the state of Alaska is US$135 million in RZFB issuing authority. A total of US$15 billion was earmarked for issue under the program across the USA. That total has been subdivided by the Treasury Department into allocations for boroughs and census areas by a formula based on employment declines in each jurisdiction compared with employment declines for the state as a whole during December 2007 through December 2008.

If a borough does not plan to use all of its allocation, under AIDEA's regulations; the allocation may be waived and released to AIDEA to be reallocated to other jurisdictions and projects. AIDEA will track projects and monitor bond issuances to ensure that each jurisdiction and the state as a whole are able to make use of the state's total allocation and that we do not exceed the total allowable amount of bond issuing authority.

About the Alaskan Clear & Equitable Share (ACES)

In 2007 the Alaskan Government introduced the ACES program to incentivise new entrants to explore within Alaska. This program takes the form of a rebate of between 45 - 65% of direct exploration costs and up to 55% on development costs. This is a significant incentive and substantially reduces the commercial discovery threshold.

On the 19 April 2010 the Alaskan Legislature approved a significant amendment to Alaska's ACES program. The Governor signed this legislation into law on May 10, 2010.

Most significantly, the statutory amendments enacted with this legislation will establish a tax credit of up to US$25 million for new wells drilled into the pre-Tertiary strata of the Cook Inlet with a jack-up drilling rig.

The new incentive provides for the following:

- If Buccaneer drills the first well in the Cook Inlet using a jack-up rig, it will be eligible to claim up to US$25 million of all drilling costs (including rig mobilisation costs). If it drills the second well, the claim will be US$22.5 million, and if its drills the third well, it is entitled to claim US$20 million. A company is eligible for only one of these incentives and is required to repay one-half (50%) the incentive equally over 10 years but only if hydrocarbons are successfully produced.

- On any subsequent well Buccaneer will still be eligible for the standard ACES incentive of 45 - 65% of drilling and development costs.

- Buccaneer has a substantive acreage position in the Cook Inlet and is positioned to move forward with exploration drilling plans later this year.

Contact

Dean Gallegos Mob: +61-416-220-007 Tel: +61-2-9233-2520 http://www.buccenergy.com