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Cook Inlet Energy sees oil price rise New sales contract shifts to pricing based on Alaska North Slope crude rather than West Texas Intermediate, parent company says Wesley Loy For Petroleum News
In a March 12 conference call with investors, an executive with Miller Energy Resources Inc. mentioned the company was achieving a higher price for its Cook Inlet crude oil thanks to a new pricing arrangement.
Since then, the company has provided further details on the matter in a filing with the U.S. Securities and Exchange Commission.
Miller, whose shares trade on the New York Stock Exchange, is the Tennessee-based parent company of Cook Inlet Energy LLC, based in Anchorage.
In the March 15 filing with the SEC, Miller said its subsidiary had entered into a sales agreement with “an independent refiner and marketer of petroleum products” under which the refiner had agreed to purchase all of Cook Inlet Energy’s crude production, subject to a minimum of 200 barrels a day and a maximum of 24,000 barrels a day.
The filing then laid out this pricing formula:
“The price for each delivery of oil shall be equal to the simple arithmetic average of the published daily New York Mercantile Exchange (“NYMEX”) Settlement Prices for Light Sweet Crude Oil delivered at Cushing, Oklahoma (WTI) for the applicable front month NYMEX Contract published each business day in the calendar month of delivery, subject to certain adjustments: (i) If the ANS Index Midpoint Price is at least $2.285/barrel greater than the WTI Index Price, then the price shall be equal to the ANS Index Midpoint Price less $4.00/bbl; (ii) If the ANS Index Midpoint Price is equal to or less than the sum of the WTI Index Price plus $2.285/barrel, then the price shall be equal to the WTI Index Price less $1.715; (iii) less a deduction for the Cook Inlet Spill Plan Response Inc. (“CISPRI”); (iv) less a deduction for transportation through the Kenai Pipeline; (v) less a deduction for transportation and shipping, and; (vi) less a deduction adjusting for Redoubt Shoal quality. Non-Redoubt Shoal will have an additional adjustment.”
Translation On March 21, Miller Energy issued a press release that provided a simpler explanation of the new contract, which the company says has resulted in a substantially higher price for the company’s Alaska oil.
“The previous contract priced the oil based on the NYMEX Settlement prices for West Texas Intermediate (WTI), less certain transportation, quality, and other deductions,” the press release said. “The new contract provides for pricing based on West Coast Alaskan North Slope (ANS) crude oil, so long as the ANS price exceeds the WTI price by at least $2.285. Similar deductions are in place for transportation, quality, and other costs. Currently, ANS is trading approximately $15 above WTI.”
Cook Inlet Energy operates the West McArthur River oil field, plus the Osprey platform in the offshore Redoubt Shoal field.
The company’s president, David Hall, indicated during the March 12 investor conference call that Cook Inlet Energy’s oil production stood at about 1,040 barrels a day.
Buyer not identified Miller didn’t identify the buyer under Cook Inlet Energy’s new oil sales contract. A copy of the contract was filed with the SEC, but this document blanked out the buyer’s name.
But Hall has said in the past that Tesoro was the buyer for his company’s oil. Tesoro operates a refinery at Nikiski on the east side of Cook Inlet, opposite Cook Inlet Energy’s west side operations.
“We are pleased to be receiving ANS pricing for our Alaskan oil. ANS tracks Brent crude oil prices very closely,” said Scott Boruff, Miller’s chief executive. “We expect this will result in Miller receiving approximately $14 more per barrel at today’s prices. If the pricing differential between ANS and WTI continues, Miller would expect this contract to add approximately $1.1 million per quarter to Adjusted EBITDA for every 1,000 barrels of oil production per day in our Alaskan operations.”
EBITDA means earnings before interest, taxes, depreciation and amortization.
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