Beleaguered Alaska oil and gas producer lays out plan to stay alive

Hoping to avoid bankruptcy, Miller Energy Resources is looking to sell its stake in a North Slope oil field and repay more than $170 million in debt, the company's CEO said Monday.

The Tennessee-based company's survival plan also includes selling other "non-core assets," refinancing its debt, and receiving millions of dollars in state tax credits that the company has been awaiting since May for wells drilled in Cook Inlet last year.

The path to solvency was explained Monday by Carl Giesler, the company's new chief executive, in a wide-ranging conversation with Alaska Dispatch News in which he spelled out the negative consequences of a Miller Energy bankruptcy.

The state is rethinking its tax-credit program after Gov. Bill Walker announced July 1 he had vetoed $200 million in tax-credit payments, saving money this year though those payments would ultimately have to be made.

Giesler said the company's tax credit was rightfully earned before the state's discussion over the credits began this summer. He's now worried the state will not quickly pay Miller Energy, though the company needs the money soon to repay creditors, prevent bankruptcy, and continue the company's efforts to drill for oil and gas in the Cook Inlet region.

A bankruptcy would hurt everyone, he said. "It hurts our company, it hurts our employees, it hurts our vendors, it hurts their employees, and it hurts the state from an employment and an oil and gas perspective," he said.

"This is empirical. It is not a scare tactic by Cook Inlet Energy," he said.

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Miller Energy, parent company of Cook Inlet Energy, has faced a cascade of woes in recent weeks.

After its value plunged too low, the company's stock was delisted from the New York Stock Exchange days ago. The stock is now worth pennies on the over-the-counter market after it was valued at $9 a share in 2013.

On Thursday, the U.S. Securities and Exchange Commission brought a civil complaint alleging Miller Energy Resources improperly inflated the value of Cook Inlet property it purchased in 2009, leading to fraudulent financial reports.

Adding to the woes that day, Baker Hughes Oilfield Operations and two other companies that are claiming they're owed $2.6 million by Miller Energy filed an involuntary bankruptcy petition against Miller in U.S. bankruptcy court in Anchorage. It's a move that can force a company into bankruptcy.

Miller has until Aug. 27 to respond to the filing.

The petition involved money owed for unspecified "goods, materials and services" and claimed that Baker Hughes is owed $1.4 million. M-I, SWACO, a division of Schlumberger, is owed $478,000; Schlumberger Technology Corp is owed $742,000.

The collection agent for Baker Hughes who signed the petition, Chris Ryan, said he would not comment Monday.

Miller Energy, though based in Knoxville, Tenn., has shifted nearly all its focus to Alaska in recent years, after divesting many of its Tennessee holdings. It produces oil and gas in Cook Inlet and has a two-thirds stake in the Badami field on the North Slope, where daily production is about 1,100 barrels.

Miller's subsidiary, Cook Inlet Energy, has been touted as one of the companies that have contributed to a "natural gas renaissance" in Cook Inlet, where falling production levels had sparked fears of a dangerous winter brownout in the most populated region in Southcentral Alaska.

A generous tax credit program was designed in part to help increase natural-gas production in the region.

Giesler, who joined Miller Energy in September 2014 to help redirect the company's course, reached out to Alaska Dispatch News to explain that the company is working aggressively to repay creditors and wants to continue operating in Alaska.

He said news coverage of the SEC filing could have left people with the wrong impression of a company founded in 1967.

"The narrative that that state is paying a lot of (tax-credit) money to fraudsters is not accurate," he said.

He said the SEC is not being unreasonable by probing past actions at the company. "And I don't think we are going to be unreasonable by trying to effect a settlement that makes sense so the company can go on doing what it should be doing," he said.

The SEC has set a hearing before an administrative law judge for Sept. 3 in Washington, D.C., but Giesler hopes a settlement is reached before then.

Giesler said Miller has changed since 2009, and now consists almost entirely of new management. Only executive chairman Scott Boruff, a former Miller Energy chief executive who is not named in the SEC's complaint, remains from that earlier period.

However, Giesler pointed out that David M. Hall of Anchorage, former chief operating officer for Miller and chief executive for Cook Inlet Energy, resigned Friday after he was charged by the SEC with violating anti-fraud provisions of U.S. securities laws.

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Also charged in the case was Miller Energy's former chief financial officer, Paul W. Boyd, who worked for the company until 2014, as well as Carlton W. Vogt III, from New York, a former independent auditor who the SEC alleges produced a deficient 2010 audit of the company's financial statements.

Leland Tate, vice president of operations for Cook Inlet Energy since March, has been named to replace Hall at Cook Inlet Energy. Tate's annual base salary is $350,000 plus other benefits, according to an SEC filing by Miller Energy announcing the change.

Giesler said Miller Energy had overextended its obligations even when oil prices were high, above $100 a barrel. The plunge to $50 and below since last summer has made the problem worse.

But he said Miller Energy does not need to go into bankruptcy. "Our assets are worth more than our liabilities, economically," he said, referring to oil and gas reserves in the ground as well as well as physical property, such as four drilling rigs owned by the company, including three in Alaska.

Giesler said he and other new employees are working to repay Miller Energy's debts. He said Miller Energy since late January has repaid more than $40 million owed to Key Bank, leaving less than $4 million owed to the bank.

It owes $176 million to its largest creditors, Apollo Investment Corporation and Highbridge Principal Strategies, and is seeking to refinance that debt. "They are happy enough with our progress that they haven't exercised their rights to force us into bankruptcy," he said.

Miller Energy is hoping to convince Baker Hughes and Schlumberger to revoke their petition, Giesler said.

The company has also lined up a prospective buyer for the Badami oil field on the North Slope, Giesler said. Miller Energy purchased a two-thirds stake in the field for $6 million, when it acquired Savant Alaska in a deal announced last summer.

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Miller said the company is hopeful the state will pay the $27 million in credits as soon as possible, money that helps pay the company's obligations and allow drilling to continue in Cook Inlet. He said the state issued certificates -- essentially a bond committing the state to the payment -- for the credits in June. Payment is usually made within a week or two, but not this time, he said.

Though Walker vetoed $200 million in tax credits owed to the oil industry for refundable expenditures, the state still plans to pay $500 million in tax credits this year.

Those approved tax-credit payments, including for valid expenses incurred by companies last year, could be issued starting as early as Tuesday, said Ken Alper, director of the state's tax division. The budget was passed and signed into law this summer, opening the door for the $500 million to be moved into a fund so payments can be made. That transfer was finalized last week, he said.

Alper said the state's confidentiality law regarding oil and gas tax credits prevented him from specifically saying whether Cook Inlet Energy will receive its payment. Whether the state can withhold payment for a company facing an SEC claim and a petition for involuntary bankruptcy would require a legal determination, he said.

"We're a little bit in uncharted territory," he said.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

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