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Cheap oil challenges Badami plans; Miller says sale of field possible
A decline in oil prices has led Miller Energy Resources Ltd. to pause an enthusiastic drilling program for the Badami unit and even consider selling the North Slope field.
The Tennessee-based independent acquired Savant Alaska LLC in 2014 for some $9 million. The acquisition gave Miller a 67.5 percent working interest in the unit, which equaled some 600 barrels per day of net oil production, as well as pipelines and facilities.
Miller was initially optimistic about Badami, seeing an opportunity to grow existing production, create a base of operations to support future exploration and become a key player in the expansion of North Slope development to the east, including Point Thomson and opportunities beyond it. “We’re excited about that acquisition,” said Chief Operating Officer David Hall. “I think it gives us a good launch pad for the North Slope. We’ve been eying that field for a while and think there’s lots of room for growth within the Badami field and also, too, some of the exploration acreage that comes along with the acquisition.”
This year, Miller planned to sidetrack the existing B1-14 and B1-28 wells, at a cost of some $15 million each. The company estimated the wells contained some 2 million barrels of recoverable oil reserves between them. After closing on the acquisition in December 2014, the company proposed drilling two new Badami wells this summer.
Changing plans Declining oil prices over the final months of 2014 changed those plans. “Given the continued pressure on oil prices, we’re redirecting our drilling effort towards lower-risk and predominantly gas wells,” Chief Executive Officer Carl Giesler said in December 2014. “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.”
In a February 2015 presentation, Miller said it was “actively exploring” joint venture opportunities for Badami. The company said it wanted to develop the nearby Sourdough prospect in the near term but also listed Badami as a potential “sell-down” opportunity in the long term. In March 2015, Miller placed its activities at Badami “on hold” for the season and said it would look for “well enhancements” opportunities “in the interim.” At the time, the company listed Badami as a potential joint venture, farm-out or sell-down.
In its most recent presentation, in April 2015, the company said it was implementing reductions to its lease operating expenses but was still considering a joint venture or a sale. The company might conduct hydraulic fractures and workovers later this year.
Despite all this, Miller is continuing to pursue a strategy of acquisition, looking for opportunities near its existing Cook Inlet and North Slope operations. For Badami, that meant anything near the unit that would utilize capacity at Badami infrastructure.
The slowdown has had at least one ripple effect already. The company recently asked regulators to increase shipping rates on the Badami Pipeline, saying that the current rates were based on throughput projections using the two wells, which were never drilled.
- Eric Lidji
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