Cook Inlet Energy bags Susitna license

Company now holds exclusive exploration rights on 3 tracts totaling 580,147 acres in lightly explored basin north of Anchorage

Wesley Loy

For Petroleum News

Anchorage-based Cook Inlet Energy LLC’s Alaska land holdings grew considerably on April 1.

That was the effective date for the little independent’s newest exploration license in the Susitna basin, north of Anchorage and west of the Willow community.

The license grants Cook Inlet Energy the exclusive right to explore for oil and gas on 45,764 acres of state land, for a term of five years.

Cook Inlet Energy, a subsidiary of Tennessee-based Miller Energy Resources Inc., now holds three exploration licenses in the Susitna basin, a huge and little explored area.

“We believe our extensive acreage in the Susitna Basin holds excellent potential for Miller, especially for natural gas that sells for a premium in Alaska,” Miller’s chief executive, Scott Boruff, said in an April 13 press release.

The state’s exploration licensing program complements its regular oil and gas leasing program. The idea is to encourage exploration in frontier basins with relatively low or unknown hydrocarbon potential — typically Interior land far removed from the state’s existing oil and gas fields.

The Susitna basin has been lightly explored, a state best interest finding from 2003 says. Nine oil and gas exploration wells and four core holes have been drilled in the region. All the exploration wells were dry holes, though some had minor gas shows.

Cook Inlet Energy has assembled three Susitna basin exploration licenses. The first, which the state designates Susitna basin exploration license No. 2, covers 471,474 acres. Another license, Susitna basin No. 4, covers 62,909 acres. The latest license, Susitna basin No. 5, is south of the other two and is the smallest at just over 45,764 acres.

In sum, the company’s Susitna exploration rights cover about 580,147 acres.

Cook Inlet Energy’s president, JR Wilcox, proposed the third Susitna license with a letter dated April 29, 2011, to the Alaska Department of Natural Resources.

Holding the applicant’s name confidential, the state solicited public comments on the proposal, and invited competing proposals.

State oil and gas Director Bill Barron issued the exploration license on March 27 after Cook Inlet Energy fulfilled certain conditions.

Terms included the company paying a one-time licensing fee of $1 per acre or partial acre, for a total of $45,765. The company made a work commitment of at least $250,000 over the five-year license period, and posted a $50,000 performance bond.

In its press release, Miller said that upon timely completion of the work commitment, Cook Inlet Energy will have the option to convert license acreage to oil and gas leases with a five-year term, a 12.5 percent royalty rate and a $3 per acre annual rental rate.

Cook Inlet Energy is producing oil and gas from a number of properties on the west side of Cook Inlet. The company operates the West McArthur River oil field and the Osprey offshore platform in the Redoubt Shoal field.

Altogether, Miller Energy says it now has nearly 700,000 state acres under lease or license.

“We elected to pursue the new license in the Susitna Basin based on its proximity to our existing acreage and the potential to leverage our onshore drilling program in this area,” Boruff said. “We are currently evaluating the acreage and developing a work program.”

Miller Energy is a small company, with the 1,000-plus barrels per day of Cook Inlet oil accounting for most of its production. Yet Miller’s shares trade on the Big Board, the New York Stock Exchange.

Miller and Cook Inlet Energy executives have touted extensive drilling plans, with a new rig expected to start work soon atop the Osprey platform.

On April 12, Miller announced it had raised $10 million through the issuance of new redeemable preferred stock.

The cash will help meet the company’s immediate capital expenditure needs, Boruff said.