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Vol. 18, No. 48 Week of December 01, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

North Fork gas field sold

Cook Inlet Energy to buy unit for $65 million; new Sword oil well pleases

Wesley Loy

For Petroleum News

Cook Inlet Energy LLC said it has a deal to acquire a small natural gas field on Alaska’s Kenai Peninsula.

Concurrently, the company announced encouraging results from its newly drilled Sword well on the inlet’s west side.

The nearly $65 million deal to acquire the North Fork gas field from a partnership led by Denver-based Armstrong Oil and Gas Inc. is expected to close by March 1.

Anchorage-based Cook Inlet Energy is a subsidiary of publicly traded Miller Energy Resources Inc. of Tennessee.

“The successful completion of the Sword No. 1 well and the acquisition of the North Fork unit are nothing short of transformational for Miller,” the company’s chief executive, Scott Boruff, said in a Nov. 25 press release.

North Fork deal

The North Fork field is on the southern Kenai Peninsula, east of the community of Anchor Point.

The field currently produces about 7 million cubic feet of gas per day, Cook Inlet Energy said.

The purchase agreement includes six wells and a leasehold of about 15,465 acres, the company said.

The sellers include the field’s current operator, Armstrong Cook Inlet LLC, and partners GMT Exploration Co., Dale Resources Alaska LLC, Jonah Gas Co. and Nerd Gas Co.

The sale price includes $59.975 million in cash and $5 million in Miller preferred stock.

Under the agreement, Cook Inlet Energy must pay a deposit of $3 million. The company could forfeit the deposit plus another $10 million if, under certain circumstances, the deal falls through.

The purchase will include Anchor Point Energy LLC, which owns and operates nine miles of gas transmission pipelines supporting the North Fork field.

Cook Inlet Energy also will pick up a multiyear gas sales contract with Enstar, the main gas utility serving Anchorage and outlying areas.

Aspects of the pending sale are subject to Regulatory Commission of Alaska approval.

The purchase and sale agreement was filed with the U.S. Securities and Exchange Commission.

Big development plans

The North Fork gas field was discovered long ago, with a well Standard Oil of California drilled in 1965.

The field wasn’t brought into production, however, until March 2011. Armstrong had acquired the North Fork unit in 2007.

Armstrong’s development efforts included reworking the original discovery well, and drilling some new wells.

Cook Inlet Energy said it sees big potential to more fully develop the field with up to 24 additional wells.

North Fork will become the company’s first operating field on the east side of Cook Inlet.

On the west side, Cook Inlet Energy operates the Osprey platform in the offshore Redoubt unit, and the onshore West McArthur River oil field.

Cook Inlet Energy accounts for the bulk of overall production for parent Miller Energy, which trades on the New York Stock Exchange.

Miller said its production now exceeds 4,000 barrels of oil equivalent per day.

Sword’s initial success

Cook Inlet Energy spud its Sword No. 1 exploratory well on June 19 using Patterson-UTI Drilling Co.’s rig 191.

The well was drilled from a site adjacent to the West McArthur River pad, and reached a final measured depth of 18,475 feet. The directional, extended-reach well angles out to a bottomhole location beneath the inlet.

Cook Inlet Energy said it brought the completed well online on Nov. 18. The well was placed on artificial lift and has entered a flowback period.

Initial production averaged 883 barrels of oil equivalent per day over a 96-hour period, the company said.

The well completion incorporated three targeted pay zones: the Hemlock oil sands, the Tyonek G oil sands and the Tyonek gas sands.

The well currently is producing only from the Hemlock oil interval, the company said.

“Over the next month, the company plans to test the Tyonek G oil sands and then the shallower Tyonek gas sands,” a Nov. 25 press release said.

The company said it plans to drill a second Sword well. In the meantime, the rig has been moved 30 feet to begin drilling a West McArthur River unit development well.

Sabre upcoming

“Initial results from the Sword No.1 well have exceeded our expectations,” said David Hall, Miller’s point man in Alaska. “As the currently producing Hemlock zone is in the process of cleaning up and there are two more zones yet to perforate, we believe the well will continue to outperform the previously estimated 750 boepd production number.”

What’s more, Hall said, the Sword No. 1 well has provided valuable data for the company’s Sabre prospect, which is adjacent to Sword with nearly three times the acreage.

“We plan to begin drilling our first Sabre well in the summer of 2014,” he said.

Cook Inlet Energy launched as an Alaska operator in late 2009, after acquiring a collection of westside assets out of the bankruptcy of Pacific Energy Resources Ltd. of California.

Beyond its producing properties, Cook Inlet Energy holds exclusive exploration rights across 580,147 state acres in the Susitna basin, located north of the inlet.

Parent company Miller has taken on considerable debt to push its aggressive Alaska agenda.

Miller CEO Boruff said the new Sword production and the North Fork acquisition “will open the company up to materially improved financing options.”

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