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 Energy reported company revenue and production records in its Q2’14 earnings release on December 10, 2013. Year-over-year revenue increased by 74% ($18.8 million from $10.8 million) and is backed by a 147% increase in net production (193,261 BOE from 78,145 BOE). At its current pace, MILL believes it can double 2013’s fiscal revenue of $34.8 million and increase cash flow in the process. Adjusted EBITDA for the quarter was approximately $5.9 million, compared to a loss of $1.3 million in Q2’13. Loss before income taxes in Q2’14 declined to $9.8 million, down from Q2’13’s total of $10 million.
The company achieved its goal of producing more than 4,000 BOEPD by year-end 2013. Approximately 4,015 BOEPD were being produced by November 2013, primarily through its two rigs on its Alaska assets. The stated properties account for 95% of MILL’s net production, with the remainder coming from its Tennessee properties.
Miller added 7 MMcf/d (1.1 MBOEPD) in production by acquiring the North Fork Unit in Alaska on November 25, 2013. A total of six natural gas wells, 15,464 net acres, and production and processing equipment were purchased for $59.975 million in cash. Since MILL’s Q2’14 quarter ended on October 31, 2013, the North Fork assets did not contribute to the quarterly earnings. The company anticipates the new properties will contribute $20 million in annual revenue and expects the transaction to close before the end of fiscal 2014.
Discussions with Tesoro Corporation (ticker: TSO) to build a pipeline across the Cook Inlet are in progress. The29-mile pipeline would have a capacity of 62.6 MBOPD and construction, pending an agreement, is expected to start in mid to late 2014.
Operations Highlights
MILL invested $51.1 million in development opportunities for the quarter and brought online two gas wells and three oil sidetracks. The additional production resulted in $31.8 million in revenue for 1H’14, a 66% year-over-year increase from $19.1 million in 1H’13. Lease operating expenses decreased to $19 per BOE compared to $47 per BOE in Q2’13.
The company also brought online its Sword #1 well after the end of fiscal Q2’14. The well had an initial production rate of 883 BOEPD. The WMRU-8 well was spud on November 28, 2013 and is expected to reach total depth within 90 days. In addition to the wells already in production, the company plans to finish drilling five additional wells in fiscal 2014 and ultimately achieve a production rate of at least 6 MBOEPD by year-end.
MILL increased its asset base in a report released on December 12, 2013. Four new wells in the Ryder Scott area combined for total recoverable reserves of approximately 3.9 MMBO and a PV-10 value of $218.5 million.
Excluding the North Fork acquisition, the company’s total proved developed PV-10 has increased by 808% ($297.8 million from $32.8 million) since its last reserve report on April 30, 2013. Total proved MBOE also increased to 6.1 total proved MMBOE from 1.6 MMBOE, an increase of 280%. Pro forma for the North Fork, the company’s total proved developed PV-10 is $365.8 million with roughly 8.4 total proved MMBOE.
Guidance
MILL believes the North Fork holds 24 additional well locations, according to a conference call on December 12, 2013. Management will decide whether or not to deploy a rig to the area before the end of fiscal 2013. Currently four of the six available wells are producing, and the company anticipates the rig would be used to work over the existing wells in addition to drilling the identified locations. MILL anticipates it can drill four wells per year, and the company has successfully reworked 11 of 12 wells to date.
Management approved $297 million in capital expenditures for fiscal 2014 and has currently spent $132 million to date, including $65 million for the North Fork acquisition. Wells in the region are estimated to cost between $7 million and $8.5 million apiece with an estimated ultimate recovery of 2 Bcfe to 5 Bcfe per wellbore.
Pro forma for the acquisition and wells placed into service, MILL’s production is expected to increase to more than 7 MBOEPD by year-end fiscal 2014.
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