Miller completes two North Fork gas wells

Company’s first two wells at recently acquired field, NFU No. 24-26, NFU No. 42-35 come in quicker, at lower cost, than expected

Kristen Nelson

Petroleum News

Miller Energy Resources said March 3 that it has drilled, completed and brought into production two new natural gas wells at the North Fork unit. North Fork, on Alaska’s Kenai Peninsula east of Anchor Point, is operated by Miller’s Alaska subsidiary, Cook Inlet Energy.

The field was acquired by Miller in early 2014 from a partnership led by Denver-based Armstrong Oil and Gas for just under $60 million in cash plus $5 million in Miller preferred stock. Miller said at the time that North Fork was producing some 7 million cubic feet per day of gas with an estimated 4.8 billion cubic feet remaining on a 10 bcf commitment to Enstar, the Anchorage-based Southcentral Alaska gas distribution company.

In February, Cook Inlet Energy was in the middle of a three-well development program at the field, its most activity there since acquiring the field. After spending much of 2014 analyzing existing seismic and well data, Cook Inlet Energy told the state in December that it intended to drill three wells - NFU No. 24-26, NFU No. 42-35 and NFU No. 31-3 - all from the existing North Fork pad using its recently purchased Glacier Rig 1, now known as Rig 37.

The two completed wells are NFU No. 24-26 and NFU No. 42-35.

Cook Inlet Energy told the state in the 50th plan of development for the unit that drilling of the NFU No. 24-26 began in late December, with drilling of the 42-35 expected to begin before the end of March. The company told the state it might “defer or substitute” NFU No. 31-3 based on analysis of information collected from the field.

In its March 3 press release Miller said combined production from the two wells was more than 2 million cubic feet per day, with the first productive zone at the 24-26 producing at some 1.65 mmcf per day. The company said once production rate from the first zone stabilizes, it “plans to open and sequentially flow-test two additional zones in that well.” Miller said NFU No. 42-35 was producing at some 350 thousand cubic feet per day, “and also continues to increase as drilling fluids diminish.”

“The drilling and completion of our first new wells at North Fork Field has been accomplished quicker than originally anticipated,” David Hall, Miller Energy’s chief operating officer, said in a statement. “We were able to deliver two new wells and put them online within a few week’s time from our original expected date to deliver just one well. Additionally, we have been able to come in under budget for both, averaging well below the $9 million per well in expected gross cost.”

Carl Giesler, Miller’s CEO, said the company is “encouraged by the results so far, particularly at NF 24-26. Even without additional production from the zones yet to be tested, NF 24-26 will provide greater than 20% IRR at current flow rates given our contracted sales prices of more than $6.50 per Mcf.”

He said Miller would “continue to exercise capex discipline by incorporating the field and well data we have gathered here together with that from the incumbent North Fork wells before taking next steps in this field. We believe focusing on lower-cost and lower-risk gas drilling at North Fork is a viable and the most capital-responsible path forward for Miller Energy in this current oil price environment.”

Miller also said that it had received some $21.2 million in early February in cash tax credit payments from the state of Alaska and expects an additional cash tax credit payment of $20.6 million later in March, both payments related to operational activities in calendar 2014.