Miller Energy Resources, Inc. (ticker: MILL) is an oil and natural gas exploration, production and drilling company operating in multiple exploration and production basins in North America. Miller’s focus is in Cook Inlet, Alaska and in the heart of Tennessee’s Appalachian Basin.
Miller Adds 7 MMcf/d from Acquisition
Cook Inlet Energy LLC (CIE), a subsidiary of Miller Energy Resources, announced the purchase of the North Fork Unit in Alaska from privately-held Armstrong Cook Inlet, LLC, on November 25, 2013. MILL will pay $59.975 million in cash in exchange for six natural gas wells, 15,464 net acres, and production and processing equipment. The company will also receive Anchor Point Energy, LLC, the owner and operator of nine miles of twin, four-inch natural gas transmission pipelines. The sale is expected to close in Q1’14.
Current production in the North Fork is approximately 7 MMcf/d (1,167 BOEPD). A multi-year firm natural gas sales contract is currently in place with ENSTAR, the largest natural gas utility in Alaska. There is approximately 4.8 Bcf remaining of a 10 Bcf commitment to ENSTAR at a price of approximately $7.00 per MCF. CIE will commence full field development of up to 24 additional wells and expects an extra $20 million in annual revenue from the assets.
|Ryder Scott PV-10 reserve report on the North Fork (October 1, 2013)|
|Proved and probable||$186.1 million|
|Proved, probable and possible||$334.7 million|
Pipeline Discussions Underway
CIE is in discussions with Tesoro Corporation (ticker: TSO) to build a pipeline across the Cook Inlet offshore Alaska. The proposed 8-inch pipeline across the Inlet, according to a November 22, 2013 article in the Alaska Journal of Commerce, would have a capacity of 62.6 MBOPD. David Hall, Chief Executive Officer of CIE, said negotiations for financing and ownership is in progress. A TSO spokesman confirmed the report but said a final decision has yet to be reached.
In a Q3’13 release on October 31, 2013, MILL’s Alaska operations reported 3,200 BOEPD of production in August 2013. The company successfully reworked 11 of 12 wells in the region and sold 200 MBO, a company record.
The project would allow CIE to move its crude oil through a 29-mile pipeline to TSO’s refinery on the west side of the Cook Inlet. It currently ships its oil via shuttle-tanker, but the product must visit another terminal before arriving at TSO’s refinery. The Alaska State Pipeline Coordinator is currently reviewing the application and TSO and CIE hope to begin construction in mid to late 2014, pending an agreement. The safety and efficiency of the project has received the support of local community and conservation groups.
MILL believes there is potential for new oil on the west side of the Cook Inlet and a pipeline is the best long-term solution for transportation. Approximately 2.1 MBOPD are being produced at CIE’s Osprey offshore platform and an additional 700 BOEPD comes from onshore operations. An estimated 130 jobs would be created, with 12 intended for running the pipeline. Total cost is estimated at $15 million for materials and $35 million for construction. Operation and maintenance is estimated at $5.2 million annually.
Alaska is currently the fourth-highest oil producer by state and generated 13,270 MMBO in August 2013. According to the EIA, no Alaskan crude oil has been exported since 2004 due to government restrictions. Instead, produced oil has gone to refineries in Alaska, California, Hawaii, and Washington.
2013 Exit Rate Target Achieved
MILL also announced IP rates on its Sword No. 1 well of 883 BOEPD on November 25, 2013, above the company’s initial estimate of 750 BOEPD. The well was brought online November 18, 2013, and has three targeted pay zones. The Hemlock crude oil interval is currently the only zone in production, while the Tyonek-G oil sands and the Tyonek gas sands may also be exploited.
Pro forma for the acquisition and Sword No. 1, MILL has already exceeded its 2013 exit rate target of 4 MBOEPD.
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