Buccaneer Energy Limited (ASX:BCC) Executed Gas Sales Contract with ENSTAR Natural Gas Company

Sydney, Aug 15, 2011 AEST (ABN Newswire) - Buccaneer Energy Limited (ASX:BCC) is pleased to advise that it has executed a gas sales contract with Alaska Pipeline Company ("APC"), APC and ENSTAR Natural Gas Company ("ENSTAR") are both wholly owned subsidiaries of SEMCO Energy, Inc. and regulated in the State of Alaska., and regulated entities in Alaska. ENSTAR is the largest gas utility in Alaska, supplying approximately 100% of residential and 95% of the commercial users in South Central Alaska.

The gas sales contract was lodged with the Regulatory Commission of Alaska ("RCA") for approval on 12 August, 2011. Approval of the contract is expected to allow gas sales to commence once pipeline and facilities construction is completed, which is expected in December 2011.

Gas Pricing

The annual weighted average price under the gas contract is US$6.03 / MCF. ENSTAR will be responsible for transportation costs after the receipt point and absorb the current US$0.21 / MCF pipeline tariff, thus giving Buccaneer a gross floor price of US$6.24 / MCF.

The pricing of the gas sales contract is split seasonally. The summer season (March - November) is priced at a floor of US$5.96 / MCF including the pipeline tariff. The winter season (December - February) is priced at a floor of US$7.06 / MCF including the pipeline tariff.

A price ceiling of US$10.00 / MCF applies to both season pricing. Price changes between the floor and ceiling are based on NYMEX Gas Futures. Floors and ceilings prices are adjusted quarterly for inflation starting in 2012.

The weighted average price of US$6.24 / MCF compares with a US$5.71 / MCF used by Ralph E Davis in its recent Kenai Loop reserve report, it also compares against previous management guidance of ~US$7.00 / MCF. The Company sought to maximise and provide certainty of volumes delivered in the short term and as such accepted a weighted price below the guidance price.

Contract Commencement

ENSTAR's commitment to acquire gas at contract rates commences when the Cook Inlet Natural Gas Storage facility ("CINGSA") is completed. SEMCO has confirmed that CINGSA is on track for a 1 April 2012 commencement.

Prior to the commencement of contract sales, Buccaneer expects to sell gas on a non firm basis in a daily auction to supply gas for peaking demand requirements in the December 2011 - March 2012 period.

In the 2010 / 2011 peaking months, the average daily additional demand was ~ 5.0 MMCFD with the average price paid of ~US$9.00 / MCF.

Firm Contract

Firm Contract Period 1 Buccaneer has committed to delivery of a minimum of 5.0 MMCFD and maximum of 15.0 MMCFD (1,875 BOEPD1) commencing when CINGSA has been completed, which is expected to be 1 April 2012.

Firm Contract Period 2

6 months after commencement of Period 1, Buccaneer has the option to increase gas deliveries to 15.0 MMCFD (1,875 BOEPD1) as more wells are drilled at Kenai Loop and reservoir performance is monitored.

This step-up delivery ability significantly lowers Buccaneer's delivery risk. At the same time it allows for substantial upside expansion upon the successful development of the Kenai Loop field.

In aggregate, Buccaneer has committed an initial delivery target of 12.0 BCF (1.5 MMBOE1) and up to an additional 19.5 BCF for a total of 31.5 BCF (3.9 MMBOE1) under contract. This amount is equivalent to the current Proved Reserves.

Drilling Commitment

As part of the contract, Buccaneer has committed to spudding the second well at Kenai Loop by 1 November 2011 and a third by 1 November 2013.

Buccaneer is currently on track to spud its second well at Kenai Loop this quarter and anticipates drilling a third well in April / May 2012.

Commentary

Director of Buccaneer Energy, Dean Gallegos said:

"This is another major milestone for Buccaneer. This gas contract represents the first such contract executed by ENSTAR to supply their reserve capacity in the new CINGSA facility. Importantly, it provides Buccaneer with cash flow certainty in the near term, which will under pin the development of the Kenai Loop field.

South Central Alaska suffers from a shortage of gas. The problem is only expected to deteriorate over the next 2 - 3 years. Buccaneer looks forward to playing a major role in alleviating part of this shortfall."

For the complete Buccaneer Energy announcement, please view:
http://media.abnnewswire.net/media/en/docs/68981-ASX-BCC-644216.pdf

Contact

Mr Dean Gallegos Executive Director Buccaneer Energy Limited Mob: +61-416-220-007 Tel: +61-2-9233-2520 http://www.buccenergy.com