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Vol 21, No. 21 Week of May 22, 2016
Providing coverage of Alaska and northern Canada's oil and gas industry

The Explorers 2016: Bankruptcy slows Miller Energy’s pace

Ambitious explorer and producer was undercut by falling oil prices


For Petroleum News

As The Explorers was going to press, Miller Energy Resources Inc. was in the final stages of bankruptcy proceedings that will dramatically change its operations in Alaska.

The Houston-based independent is the parent company of two Alaska operators - Cook Inlet Energy LLC and Savant Alaska LLC - as well as transportation subsidiaries.

One of the biggest changes is that Miller Energy will emerge from bankruptcy proceedings as a privately held company after nearly two decades of trading publicly.

Miller Energy was founded in 1967 to focus on the Appalachian basin of Tennessee. The company came to Alaska in December 2009, when it acquired the Cook Inlet operations of California-based Pacific Energy Resources Ltd. through bankruptcy proceedings.

Through its Anchorage-based subsidiary, Cook Inlet Energy LLC, Miller Energy rehabilitated the onshore West McArthur River oil field and the offshore Redoubt unit and its Osprey platform, leading to a large percentage increase in production rates.

Starting in late 2013, Miller Energy increased its focus on Alaska. First, the company acquired the North Fork unit and associated infrastructure from Armstrong Cook Inlet LLC. Then the company acquired Savant Alaska LLC, which operates the Badami unit on the eastern North Slope. Finally, the company divested its Lower 48 holdings.

Each of those four development properties also included exploration opportunities nearby. Additionally, Miller Energy held several exploration licenses in regions away from the traditional development basins of the North Slope and the Cook Inlet.

The expansion occurred as global crude oil prices were drastically declining. Combined with some poor drilling results, low prices stressed company finances to a breaking point, which came when Miller Energy filed for Chapter 11 bankruptcy in October 2015.

Prior to the proceedings, Miller Energy was discussing various exploration opportunities across its properties. That portfolio might be important for the reorganized company.

West side projects

In addition to its existing developments, Cook Inlet Energy acquired a bundle of leases scattered across the west side of Cook Inlet. The leases contained numerous prospects, including Tutna, Tazlina, North Alexander, Stingray, Olsen Creek and Otter.

Of those, only the latter two culminated in drilling.

Cook Inlet Energy drilled the 5,680-foot Otter No. 1 exploration well in mid-2012 at the north end of the west side of Cook Inlet, near the Pretty Creek and Lewis River units.

Although the company expressed excitement about the results, and a third-party engineering reserve report estimated 45 billion cubic feet of natural gas at Otter, the state initially rejected an application to form an Otter unit, saying that the company had failed to prove it had a viable reservoir and should proceed with exploration lease-by-lease.

After some negotiations, the state formed the four-lease Otter unit and required Cook Inlet Energy to post a $1.2 million bond and provide drilling dates, surface locations and bottom-hole locations. Cook Inlet Energy met those requirements by November 2013.

An initial plan of exploration called for two wells. The first could be either a new exploration well or a deepening of the existing well by March 31, 2014. Cook Inlet Energy met the requirement by completing the 7,021-foot Otter No. 1A sidetrack in December 2013. The second well was a delineation well due by March 31, 2016.

That second well was initially delayed by logistical problems, as Cook Inlet Energy sought a larger drilling rig and a pad expansion to accommodate the larger rig. With the bankruptcy proceedings, Cook Inlet Energy missed the March 31, 2016, deadline.

The fate of the Otter unit remains unclear.

The Olsen Creek prospect is some seven miles northeast of Otter, on a combination of state acreage acquired in the purchase and new Alaska Mental Health Trust acreage.

Cook Inlet Energy initially planned to drill an exploration well at Olsen Creek in late 2012 but pushed the schedule to mid-2013. The company drilled the 7,500-foot Olsen Creek No. 1 well in June 2013 and the Olsen Creek No. 2 follow-up well in late 2014.

Although the company had previously touted the potential for a 24-well development program at Olsen Creek that could produce as much as 84 billion cubic feet of gas, the actual wells proved to be disappointments and required a $13.4 million write off.

Sword and Sabre

Otter and Olsen Creek were wildcat wells near infrastructure operated by other companies. Cook Inlet Energy was also pursuing exploration prospects near its existing operations at the West McArthur River unit, specifically the Sword and Sabre prospects.

The company already held a 70 percent interest in the prospects and farmed in the remaining 30 percent interest from Hilcorp Alaska LLC in September 2012.

Cook Inlet Energy drilled the 18,475-foot Sword No. 1 well in June 2013. The extended-reach directional well targeted an offshore structure adjacent to the West McArthur River unit thought to contain some 800,000 barrels of recoverable oil, according to the company. After bringing the well online in November 2013, the company proposed developing additional intervals and perhaps even drilling a Sword No. 2 follow-up well.

Instead, Cook Inlet Energy turned its attention to the nearby Sabre prospect, which the company has described as a potential six-well development program with the first extended reach well costing as much as $30 million. The program never came to fruition.

An administrative change in early 2015 brought the Sword and Sabre prospects into the West McArthur River unit boundaries. Since then, plans for the two prospects have been repeatedly delayed. As of a January 2016 plan of development, Cook Inlet Energy said it would drill a second Sword well by April 30, 2018, “if appropriate to increase recovery, and if economic conditions warrant.” The company also said it was currently focusing on lower risk developments targets and would be more likely to resume grassroots exploration work such as Sabre after it had “more fully developed its proven prospects.”

North Fork

Through Miller, Cook Inlet Energy acquired the North Fork unit from Armstrong Cook Inlet LLC and its four independent partners for nearly $65 million in late 2013.

Despite the interest of various players over the decades, North Fork remained undeveloped after Standard Oil of California discovered gas at the southern Kenai Peninsula field while searching for oil in 1965. Armstrong and its partners acquired the property, completed a drilling campaign, built a pipeline to Anchor Point, arranged a supply contract with Enstar Natural Gas Co. and brought the unit online in March 2011.

With North Fork, Cook Inlet Energy acquired six wells and 15,465 associated acres, the transmission subsidiary Anchor Point Energy LLC and the existing Enstar contract.

Both short-term and long-term programs for North Fork focused predominately on working over existing wells and drilling new wells to increase gas production. But Cook Inlet Energy also saw the potential for oil exploration and claimed to have had “encouraging preliminary results” from an evaluation of the oil potential in the deeper Hemlock formation at the field, conducted while working over an existing gas well.

The NFU No. 41-35 discovery well tested minor amounts of oil in the Hemlock but not enough to convince Socal to develop the reservoir. Armstrong came up empty-handed when it extended one of its natural gas wells to test the oil potential of the Hemlock.

Since taking over, Cook Inlet Energy has drilled two new North Fork wells and permitted two additional wells, but all four were classified as development wells targeting gas.

Exploration licenses

Cook Inlet Energy inherited a 471,474-acre Susitna Basin Exploration License No. 2 when it acquired its initial package of properties from Pacific Alaska Energy LLC.

Looking to expand its opportunities in the Susitna region, the company subsequently acquired the Susitna Basin Exploration License No. 4, a 10-year license covering 62,909 acres with a $2.25 million work commitment, and the Susitna Basin Exploration License No. 5, a five-year license covering 45,764 acres with a $250,000 work commitment.

All three licenses remain current, according to Alaska Division of Oil and Gas records, although as of early 2016 Cook Inlet Energy had yet to drill in any of the three areas.

In early 2013, Cook Inlet Energy proposed a two-well exploration program at the Kroto Creek prospect in Susitna Basin Exploration License No. 2 and later expanded the program to include a third well at the Moose Creek prospect, farther west. Having met its spending requirements through road and pad construction, Cook Inlet Energy converted some of the license area to leases. The following year, the company expanded the program again to include a fourth well at the Kahiltna prospect in Susitna Basin Exploration License No. 4. The state approved the Kahiltna exploration program in early 2015 but as of early 2016 the company had yet to drill any of the four exploration wells.

Through a relatively rare auction, where one company can propose better terms for an exploration license proposed by another company, Cook Inlet Energy made a $1.5 million work commitment in return for an exploration license over 168,581 onshore and offshore acres in the Iniskin Bay region of the Alaska Peninsula in August 2014.

The currently undeveloped area is among the earliest sites of exploration activity in Alaska, with observable oil seeps recorded as early as 1853 and a well drilled in 1902.

As of early 2016, the state had yet to finalize the license. With the fall in oil prices, Cook Inlet Energy moved the project to its list of “long-term” exploration opportunities.


In early 2014, Miller acquired Savant Alaska LLC for some $9 million.

The acquisition gave Miller a 67.5 percent working interest in the Badami unit and its associated pipelines as well as an assortment of nearby exploration acreage.

“We’re excited about that acquisition,” then-Cook Inlet Energy CEO David Hall said at the time. “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.”

The initial work program called for sidetracking existing wells in the unit. The company was also touting exploration acreage south of the ExxonMobil-operated Point Thomson unit to the east, although the decline in oil prices scuttled those plans in the near term.

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