Miller reaches tentative deal with SEC

Troubled Alaska operator says it would pay $5 million over three years to settle allegations of fraudulent financial reporting

WESLEY LOY

For Petroleum News

Embattled Alaska oil and gas producer Miller Energy Resources Inc. says it has reached a tentative settlement with the U.S. Securities and Exchange Commission regarding purported fraudulent financial reports.

In an Aug. 20 filing with the SEC, Miller said it would pay $5 million over three years under the agreement reached with SEC enforcement staff. The deal is subject to the commission’s approval, the company said.

Miller said it would “neither admit nor deny the allegations” under the proposed settlement.

The SEC on Aug. 6 announced charges against Miller and certain executives, saying the company had “falsified financial statement information and grossly overstated the value” of Alaska oil and gas properties acquired in late 2009.

Miller Energy overvalued the assets by more than $400 million, boosting the company’s net income and total assets, the SEC said.

“The allegedly inflated valuation had a significant impact, turning a penny-stock company into one that eventually listed on the New York Stock Exchange, where its stock reached a 2013 high of nearly $9 per share,” the SEC said.

Miller’s stock price has since crumbled, and its shares have been removed from the New York Stock Exchange as a result of the company failing to maintain an average market capitalization of at least $15 million.

The SEC enforcement action adds to a myriad of troubles plaguing Miller.

Like many oil and gas companies, Miller is feeling the sting of sharply lower crude prices. The company has had some struggles in the field, including the unsuccessful West Foreland 3 well.

Miller also has seen considerable management upheaval, including the abrupt Aug. 6 resignation of David Hall, the company’s chief operating officer. Hall also was chief executive officer of Miller’s main subsidiary, Anchorage-based Cook Inlet Energy.

Miller’s board appointed Leland Tate, 68, as interim chief operating officer. Tate since March had been serving as senior vice president of operations for Cook Inlet Energy, and from 1969 to 2000 “served in various executive-level roles” at Arco, Miller said.

It was Hall who in 2009 collaborated with Miller Energy to purchase a collection of Cook Inlet assets out of the bankruptcy of the previous operator, California-based Pacific Energy Resources.

Hall had worked for Pacific and was well-acquainted with the properties, including the West McArthur River oil field and the offshore Redoubt unit with its Osprey platform.

These and other assets acquired in 2009 were the properties the SEC contends were overvalued.

Miller executives defended their valuation. But the company in February reached a nearly $3 million settlement with investors who sued alleging the asset valuation artificially drove up the price of Miller’s stock, with investors suffering losses after the fraud was exposed.

In a July 29 earnings release, Miller Energy said it had moved its headquarters from Knoxville, Tennessee, to Houston, Texas.

Miller is a small producer dragging a load of debt.

The company said it had average net production of 3,700 barrels of oil equivalent per day during the quarter ended April 30. Total debt was put at $197.6 million.

Miller said it was working to recapitalize the company, and was considering the sale of its drilling rigs and its stake in the Badami oil field on Alaska’s North Slope.

But the company noted that “substantial doubt exists about its ability to continue as a going concern.”

Carl Giesler, Miller’s CEO, added that “we don’t intend to file for bankruptcy.”

But creditors including Baker Hughes Oilfield Operations, M-I SWACO and Schlumberger Technology on Aug. 6 filed an involuntary petition for Chapter 11 proceedings against Cook Inlet Energy. The petition includes more than $2.6 million in claims.

Miller Energy on Aug. 10 said it was in talks with two of the creditors on possibly dismissing the petition. But as Petroleum News went to press, the case remained alive in U.S. Bankruptcy Court in Anchorage, and was attracting more and more lawyers.