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Explorers 2011: Cook Inlet Energy jumps out quickly Fledgling producer notches early successes, aims to boost production when Osprey rig working Wesley Loy For Petroleum News
While its parent company has been battered on Wall Street recently, Anchorage-based Cook Inlet Energy LLC has made steady strides over its short history as an Alaska oil and gas producer.
The fledgling company, organized in January 2009, has restored production from idled wells on the west side of Cook Inlet, and has brought an offshore platform back from the dead.
And that’s just the start for a company that sees plenty of opportunity in the state’s mature No. 2 oil and gas province.
“We’re moving full steam ahead,” chief executive David Hall told Petroleum News in early August.
The month would prove to be record setting for Cook Inlet Energy, with 46,882 barrels of oil shipped for an average of 1,512 barrels per day. That’s significant in a basin that averaged 11,991 bpd overall in August.
The company has its sights set on raising its output significantly come 2012, once its new drilling rig is in place atop the Osprey platform. The National 1320 model rig, put together in Houston, was due for delivery in Alaska in mid-October.
Cook Inlet Energy expects to put the rig to work right away drilling sidetracks off existing but damaged Osprey wells tapping the Redoubt Shoal field.
Funding for the $19.5 million rig came from a two-year, $100 million borrowing arrangement struck with New York-based Guggenheim Corporate Funding LLC and other lenders.
Spawned out of bankruptcy Cook Inlet Energy launched as an oil and gas producer in December 2009, when the company took over assets that formerly belonged to Pacific Energy Resources Ltd., a California company that had filed for bankruptcy.
The two top executives at Cook Inlet Energy, Hall and company president JR Wilcox, previously had worked for Pacific Energy, Hall serving as the firm’s vice president in charge of Alaska operations.
Cook Inlet Energy emerged from a stable of bidders for the west Cook Inlet properties. It had backing from a small Tennessee firm, Miller Energy Resources Inc., which put up $4.47 million to buy the assets. Cook Inlet Energy became a Miller subsidiary as part of the transaction.
Miller, in a press release, said it had acquired reserves worth $327 million, including $119 million in proven reserves and $208 million in probable or possible reserves.
The sale assets included the West McArthur River unit, the West Foreland gas field, the Redoubt unit with its Osprey platform, and the Kustatan onshore production facility. Cook Inlet Energy also picked up a 30 percent interest in the Three Mile Creek gas field, plus extensive exploration acreage.
Straight to work Hall and Cook Inlet Energy immediately set about hiring back employees who had lost their jobs due to the Pacific Energy shutdown.
Hall’s initial strategy was to restore production from the West McArthur River field by repairing a couple of its “champion wells.”
Within seven months of the purchase, Cook Inlet Energy was able to restore three West McArthur River wells plus a gas well at Kustatan, bringing production to more than 1,000 barrels of oil equivalent per day.
Cook Inlet Energy has had plenty more business to tend to.
Just as the company began operations, Cook Inlet Pipe Line Co. proposed a steep rate increase to transport crude. Cook Inlet Energy challenged the increase and ended up with settlement that reduced the rate hike significantly.
In September 2010, the state Division of Oil and Gas granted Cook Inlet Energy a three-year extension of its Susitna basin exploration license in exchange for $750,000 in work commitments. The license, which the company picked up as part of the Pacific Energy purchase, gives Cook Inlet Energy exclusive exploration rights on 471,474 acres in the Susitna basin north of Cook Inlet, near the Willow community.
To target shallow gas prospects around the west side of Cook Inlet, the company brought up Miller rig 34 from Tennessee. It’s a truck-mounted Atlas Copco RD20 model.
Reviving Osprey Cook Inlet Energy has turned much of its attention to the Redoubt unit and the Osprey platform, which was in “lighthouse mode” and in jeopardy of becoming a ward of the state when Cook Inlet Energy acquired it.
The company has reworked three Osprey wells, and in early June achieved the first production from the platform since mid-2009.
Osprey is the newest and southernmost of the 16 platforms in Cook Inlet. Forcenergy Inc. completed installation in 2000, but production from the platform proved a serious disappointment.
Cook Inlet Energy, however, sees a bright future for Osprey.
One problem was that wells on the platform had design problems, with casings that were too light for the formation pressure, said Hall, the company CEO. As a result, the casings collapsed.
Hall intends to sidetrack four wells, which should restore the 2,000 bpd that the original wells once produced, he said.
The new rig brought up from Houston will drill the sidetracks. Hall also envisions drilling a dozen or more new wells on the platform.
Stock slide, lawsuits Beginning in July, parent company Miller Energy Resources began to encounter serious turbulence including the crash of its stock price and legal accusations of stock fraud.
After its Alaska acquisition in late 2009, the small Tennessee company’s star began to rise rapidly. Miller’s shares migrated from the OTC Bulletin Board to the NASDAQ exchange and finally the New York Stock Exchange. The company’s stock price went from around 30 cents through much of 2009 to as high as $8.02 on July 15.
By early August the stock had plunged to $2.36 after online reports suggested Miller Energy had overstated the value of the Alaska assets, and after the company advised the U.S. Securities and Exchange Commission that it would need to correct errors in some financial statements.
The stock slide precipitated the filing of several lawsuits in Tennessee against Miller Energy. The suits generally claim that Miller’s stock traded at artificially inflated prices due to false statements by the company, and investors were hurt when the price fell.
Miller Energy has stood by the valuation of its Alaska assets, saying their worth was independently verified. Miller said it hired global law firm DLA Piper to defend the lawsuits.
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