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Alaska newcomers show serious ambitions Cook Inlet Energy and Tennessee parent outline drilling and workover plans, but need capital; state cool to bonding break Wesley Loy For Petroleum News
A fledgling oil producer operating on the west side of Alaska’s Cook Inlet has extensive development plans, but first the company faces the chore of raising the necessary capital.
That’s the upshot of a quarterly report Miller Petroleum Inc. filed Sept. 13 with the U.S. Securities and Exchange Commission.
Miller is a small, Tennessee-based company doing business under the name Miller Energy Resources. It’s the parent company of Cook Inlet Energy LLC, based in Anchorage.
Miller and Cook Inlet Energy in late 2009 acquired a bargain collection of west Cook Inlet oil and gas properties facing abandonment to the state. The properties had belonged to Pacific Energy Resources Ltd., a California independent that underwent a bankruptcy liquidation.
The package of assets Miller and Cook Inlet Energy acquired included the West McArthur River oil field, the West Foreland natural gas field, the Osprey offshore platform and the Kustatan shoreside production facility.
Since the acquisition, Cook Inlet Energy managers have concentrated on working over idled wells in the West McArthur River field.
At last report, the company was producing about 1,100 barrels per day.
Investment plans The Alaska acquisition has had a profound impact on Miller, which also operates in the Appalachian basin of Tennessee.
The company recently won listing on the Nasdaq stock exchange, and reported oil and gas revenue of nearly $4.8 million for the three months ended July 31. That’s 12 times the revenue the company had for the same period in 2009.
In its SEC filing, Miller said “we plan to drill five new wells in the next nine to 12 months.”
At a New York investment conference on Sept. 13, Miller’s chief executive, Scott Boruff, said the company already had completed a $4.6 million program to restore and enhance production from three West McArthur River wells. He outlined plans for further well workovers and drilling in the field at a cost of $51.5 million.
Boruff also talked of placing a drilling rig atop the idle Osprey platform and working over wells to restore production at a capital cost of $19.5 million, on a timetable extending to December 2011. Farther out, Miller has a $182 million development program for the Redoubt and Sabre fields.
Capital challenges But all of the Miller and Cook Inlet Energy plans apparently hinge on finding the money to pull them off, Miller disclosed in its SEC filing.
“We will need up to $75 million to $100 million to fund the balance of our expansion plans,” Miller said. “We do not have any firm commitments for the additional capital we need to fully fund our operations and there are no assurances the capital will be available to us upon terms acceptable to us, if at all.”
The company continued: “If we are not able to raise the capital as required, we will be unable to fully implement our expanded business model, and the State of Alaska could terminate the leases which comprise substantially all of our Cook Inlet Basin assets. We may also be required to reduce overhead until further capital is obtained.”
Miller and Cook Inlet Energy also are lugging some heavy baggage that came with the Pacific Energy assets they acquired.
According to the SEC filing, Cook Inlet Energy “assumed all liabilities” related to any plugging, abandonment, decommissioning, removal or restoration associated with its wells on the west side of Cook Inlet and the Osprey platform.
“Under the terms of the purchase agreement for the Alaskan assets, these assumed liabilities include approximately $10 million for the onshore assets and approximately $40 million associated with a retirement liability for the Osprey platform, of which approximately $6.6 million is presently on deposit in an escrow fund with the State of Alaska,” Miller said.
The company added: “We are presently in discussion with the State of Alaska to reduce these amounts to levels we believe are more realistic.”
Alaska’s oil and gas director, Kevin Banks, told Petroleum News that it’s fine for Miller and Cook Inlet Energy to ask for a break on the financial guarantees for decommissioning the oil and gas assets.
But that’s not to say the operator will win any concessions from the state, Banks said.
He noted that Cook Inlet Energy, with Miller’s backing, won the assets in a competitive auction, and the state treated all bidders the same with respect to the bonding requirements that came with the properties.
State officials are obliged to make sure the properties, if abandoned again, don’t become a burden for taxpayers, he said.
“If Cook Inlet goes under right now, we’re hosed,” Banks said.
Maybe Miller and Cook Inlet Energy now feel they paid too much for the properties, he said, but the bonding arrangements “are quite fair.”
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