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Struggling Miller Energy closes on Savant Tennessee-based firm reports disappointing Alaska wells, will focus on safer targets with immediate production, cash flow potential Wesley Loy For Petroleum News
Miller Energy Resources Inc. announced Dec. 12 it had closed its acquisition of Savant Alaska LLC, giving Miller control of the small Badami oil field on Alaska’s North Slope.
The deal, however, is one of the few bright spots for Miller, which lately has struggled in the field and on Wall Street.
In a Dec. 10 investor conference call, Carl Giesler, Miller’s relatively new chief executive officer, spoke candidly about the company’s challenges. He allowed that Miller perhaps shouldn’t have pursued two drilling projects that resulted in disappointment - one in the company’s offshore Redoubt unit in Cook Inlet, and the other at a natural gas prospect called Olsen Creek on the inlet’s west side.
“Simply put, our operational credibility is low at best and we get that,” Giesler said.
Miller announced it was writing down the book value of its Redoubt field by $265 million, mainly due to the decline in crude oil prices.
The company also is writing off the exploratory Olsen Creek No. 2 well, in the amount of $13.4 million, due to the lack of a commercial find.
Badami takeover Miller Energy is a small company based in Tennessee and listed on the New York Stock Exchange. Recently, Miller sold its legacy Tennessee assets to become a pure Alaska play.
The company has operated in Alaska through its Anchorage-based subsidiary, Cook Inlet Energy LLC.
Miller announced it closed its Savant acquisition for a net cash price of $6.5 million. Miller said the acquisition would boost its net production by about 600 barrels of oil per day.
Savant was the operator of Badami, the easternmost producing field on the North Slope. BP originally developed Badami, which has proven over its history to be a poor performer.
Miller now has a 67.5 percent interest in the Badami unit, with ASRC Exploration LLC holding 32.5 percent.
In a Dec. 10 press release, Miller said it “expects to drill an additional two wells during the summer of 2015 at Badami.”
As part of the deal, Miller also picked up a controlling interest in the 25-mile Badami pipeline, which could be a strategically important asset as new fields are developed on the eastern North Slope. The Badami pipeline ties into the network that feeds Slope oil into the large, southbound trans-Alaska pipeline.
Drilling refocus “Given the continued pressure on oil prices, we’re redirecting our drilling effort towards lower-risk and predominantly gas wells,” Giesler said in the press release. “We’re fortunate — and we think unique - as a company to have a solid inventory of gas wells and the ability to sell gas at a price greater than $6 per mcf. Because of the closed-loop nature of the Cook Inlet area in which we operate, gas trades for north of $6 per mcf and the state of Alaska shares via cash tax credits in 35 percent to 65 percent of our well costs.”
The drilling refocus comes after some notable drilling disappointments.
In November, Miller announced a new well known as RU-9, drilled off the Osprey platform in the Redoubt unit, had entered production. The company had said the well was “intended to capture oil reserves from a large four-way structure” located about 2.5 miles southwest of the platform.
Output from the well reached only about 100 barrels of oil per day prior to an electrical failure with a pump, taking the well offline.
Giesler, in the conference call, said the well had not gone as planned. “In retrospect, we perhaps took on too much risk with RU-9,” he said.
The company plans hydraulic fracturing operations to further develop Redoubt, Giesler said.
Miller in February acquired the North Fork natural gas field on the Kenai Peninsula, and the field figures prominently in the company’s shift to “lower-risk drilling projects with immediate production and cash flow potential.”
“Management plans to steadily grow production and cash flow by drilling its inventory of gas wells at North Fork,” Miller said, noting company rig 37 was actively drilling in the field.
In the Redoubt unit, the company said it would target “lower-risk sidetracks” and proved undeveloped reserves.
Stock swoon The drilling refocus would appear to mark an exploration hiatus for Miller.
Lower oil prices, management upheaval and other factors have combined to hammer Miller’s stock price.
Miller shares closed Dec. 17 at $1.35 a share, down more than 70 percent since late September.
Financial statements showed Miller’s average daily production for the three months ended Oct. 31 was 3,273 barrels of oil equivalent per day. The company has been experiencing significant operating losses.
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