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January 2016

Vol. 21, No. 2 Week of January 10, 2016

Miller Energy works to confirm bankruptcy reorganization plan

Miller Energy Resources Inc. is approaching a very important date in its quest to smoothly emerge from Chapter 11 bankruptcy proceedings.

A hearing is set for 9:30 a.m. Jan. 27 in U.S. Bankruptcy Court in Anchorage to consider confirmation of Miller’s latest plan of reorganization.

That plan, filed on Dec. 17, lays out how the company aims to deal with its heavy debt and other matters and continue as an Alaska oil and gas producer. The plan was formed after “extensive negotiations” with Miller’s lenders and other creditors, who support the plan, court papers say.

Ultimately, holders of claims and equity interests will vote on whether to accept the plan.

After consummation of the plan, Miller will be a private company, no longer publicly traded as it is now.

Rise and fall

Miller’s board of directors considered liquidating the company, but concluded that a restructuring “would likely result in a distribution of greater values to creditors than would a liquidation.”

As a company, Miller is rooted in the Appalachian basin of Tennessee, but is now headquartered in Houston.

The company entered the Alaska oil and gas arena in December 2009, when it acquired the Cook Inlet operations of California-based Pacific Energy Resources Ltd., which itself was in bankruptcy.

The newly acquired properties included the West McArthur River oil field and the offshore Redoubt unit and Osprey platform.

Miller, operating through its Anchorage-based subsidiary, Cook Inlet Energy LLC., set about rehabilitating the properties, reworking wells and drilling new prospects. Company management aggressively pursued financing and acquired more properties, including the North Fork natural gas field on the Kenai Peninsula and the small Badami oil field on the North Slope.

The company also worked to elevate the company’s investor profile, taking the small company to listings on the Nasdaq stock exchange and ultimately the New York Stock Exchange.

But controversy dogged Miller as some investors, as well as the U.S. Securities and Exchange Commission, accused the company of overvaluing the Alaska oil and gas assets it acquired in 2009.

The main factor leading to Miller’s bankruptcy appears to be low oil prices, coupled with some disappointing results in the field. In court papers, Miller said it “does not have the capital to continue a well drilling program to develop its proven undeveloped oil and gas reserves or the liquidity sufficient to pay its operational expenses and debt service obligations.”

Miller shares, which have crashed in value, are no longer listed on the New York Stock Exchange.

Plan elements

A disclosure statement, filed in court along with the reorganization plan, offers great detail concerning the many troubles plaguing Miller, as well as the challenges it would face after emerging from bankruptcy proceedings.

The disclosure statement shows that some claimants, under the reorganization plan, would be paid in full, while the “general unsecured claims” class would recover only about 10 percent.

Miller has debt of $189.7 million under its major credit agreement, the court papers say.

The papers outline the status of several lawsuits and other claims pending against Miller, and discuss some proposed settlements under the reorganization. In one settlement, Cook Inlet Energy would transfer its working interest in a lease in the Three Mile Creek gas field to Aurora Gas LLC.

In another settlement, Cook Inlet Energy would transfer its working interest in the Point Thomson unit to ExxonMobil in return for ExxonMobil’s payment of $1 and “assumption of all liabilities associated with the working interest.” The deal would have no effect on the Point Thomson pipeline tie-in with the Badami pipeline, the court papers say.

Tax credits, aircraft sale

Miller filed a voluntary petition for Chapter 11 bankruptcy reorganization on Oct. 1, 2015. Prior to that, some creditors had filed an involuntary bankruptcy petition against Miller’s subsidiary, Cook Inlet Energy.

State of Alaska tax incentive programs have been an important lifeline for Miller.

The court papers say the state historically has reimbursed the company in cash for approximately 35 to 65 percent of its drilling and completion costs in the Cook Inlet area, regardless of well success. During the bankruptcy proceedings, Miller has received about $18 million in tax credits, court papers say.

Miller has pursued asset sales, and on Dec. 17, U.S. Bankruptcy Judge Gary Spraker signed an order granting the company authority to sell its Hawker Siddeley jet airplane for $100,000.

“Historically, the airplane was used in debtors’ operations, primarily in the lower 48 states, outside of Alaska,” Miller said in a Nov. 13 motion. “However, the debtors have determined that the airplane is no longer necessary for their operations and have been seeking to sell the airplane since July 2014.”

- WESLEY LOY






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