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New York investors to take over Cook Inlet Energy in bankruptcy deal

  • Author: Alex DeMarban
  • Updated: July 7, 2016
  • Published February 1, 2016

Two New York investment firms will take over ownership of Cook Inlet Energy and affiliated companies now that the U.S. Bankruptcy Court in Anchorage has accepted the oil company's plans for reorganization.

Cook Inlet Energy filed for bankruptcy protection in October, amid a host of troubles that included allegations of fraud by the Securities and Exchange Commission involving its parent company and plunging oil prices that slashed Cook Inlet Energy's operating income.

Documents filed in bankruptcy court in recent months have highlighted the company's financial woes. Among them: Cook Inlet Energy owed dozens of businesses in Alaska and elsewhere about $225 million.

The proceedings also brought to light normally confidential tax credit payments from the state -- so-called "tax credits" that were paid in cash to the company, not taken as tax deductions -- that amounted to more than $20 million last year.

Carl Giesler, Cook Inlet Energy's CEO, said he's "thrilled" the bankruptcy court accepted the reorganization plan on Wednesday.

"We have been held up by lawsuits, debt, the SEC, and now this allows us to get back to work and be productive," he said. "We plan to be pretty unexciting. We'll do our job, manage costs and drill wells safely and efficiently."

Cook Inlet Energy began operating in Alaska in 2009, and joined several other new independents seeking to take advantage of tax credits offered in the Cook Inlet basin. The state reimburses up to 65 percent of costs under the $500 million program, which lawmakers are considering reducing this year to help trim a $3.8 billion deficit.

The program has been lauded for helping revive oil and gas production in Cook Inlet, but it has also led to risk-taking. Buccaneer Energy of Australia filed for bankruptcy in 2014 after it struck out on gas plays in the basin and couldn't secure financing.

Giesler has said Cook Inlet Energy grew too rapidly, an approach that hurt the company when prices fell.

After Cook Inlet Energy struggled to pay its debts last year, Baker Hughes Oilfield Operations and two other companies that were owed $2.6 million by Cook Inlet Energy filed an involuntary petition to force the company into bankruptcy in August. The move contributed to Cook Inlet Energy's decision to file for bankruptcy protection and reorganization.

The company's reorganization plan calls for the New York City investment firms Apollo Investment Corp. and High Bridge Principal Strategies to take ownership of Cook Inlet Energy. The investment firms will also own companies affiliated with Cook Inlet Energy, including parent company Miller Energy of Knoxville, Tennessee, and North Slope oil producer Savant Alaska.

The companies owed the investment firms about $190 million for loans associated with their oil and gas activities.

The New York investment firms will split Slope assets that belonged to Savant Alaska, taking a two-thirds stake in the small Badami field that earned Savant about $850,000 in gross revenue in December. They also will share Cook Inlet Energy's oil and gas assets in the Cook Inlet basin, which earned $2.5 million in gross revenues in December.

Cook Inlet Energy and its affiliated companies will continue to operate the fields. Giesler, who joined Cook Inlet Energy last year, will continue to serve as chief executive, he said.

The reorganization plan calls for Cook Inlet to pay dozens of other companies it owes, including many Alaska contractors, from a $3.5 million creditor's trust account. The account will hold a fraction of the $35 million that Cook Inlet owed the companies before it entered bankruptcy proceedings.

"They will get 10 cents or less on the dollar," Giesler said.

One of the organizations that won't get full payment is the Securities and Exchange Commission. On Jan. 12, the agency penalized Miller Energy $5 million over allegations it had fraudulently inflated the value of its Alaska properties by more than $400 million in 2010.

The penalty was part of a settlement proposed by Miller Energy that said it neither admitted nor denied the allegations.

The agency agreed as part of the settlement to be paid from the creditor's trust account, Giesler said.

At least one company is fighting for its full share.

All American Oilfield, a Kenai-based subsidiary of Chugach Alaska, filed a Jan. 14 claim with the court demanding that Cook Inlet Energy use state tax credits to pay the $268,000 it is owed for drilling services provided in the Inlet basin.

The bankruptcy court has yet to settle residual claims, such as the one involving All American Oilfield, Giesler said.

Records show that since August, the state has paid Cook Inlet Energy $21.2 million in tax credits. Miller Energy has reported the state has also approved about another $4 million in tax credits to be paid sometime this year, according to records in bankruptcy court.

All American said the tax credits boosted Cook Inlet Energy's savings and should be used to pay All American.

"Cook Inlet's bank accounts continue to hold amounts vastly larger than the amount of its debt to All American," said All American's claim.

Cook Inlet Energy reported having $15.6 million at First National Bank of Alaska at the end of December, according to bankruptcy records.

Giesler said expects to have about $5 million to $10 million in the bank after the company pays attorney fees and establishes the trust account.

The reorganization plan will allow the company to hold onto its approximately 110 Alaskan employees, including about 90 in the field who are focused on producing oil and gas.

"This is the right outcome for the state," he said.

Correction: An earlier version of this story said that Cook Inlet Energy was dealt a $5 million penalty by the U.S. Securities and Exchange Commission. The penalty was actually assessed against Cook Inlet's parent company, Miller Energy, to resolve allegations that it had fraudulently inflated the value of its Alaska properties.

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