Huntsville, Tenn.-based Miller Petroleum stakes claim in Alaska

Scott County company acquires oil, gas assets

Scott Boruff, CEO of Miller Petroleum, stands next to one of the company’s oil pumps in Huntsville, Tenn., on Feb. 4. In December, Miller Petroleum acquired the properties of Pacific Energy Resources in Alaska’s Cook Inlet through a Chapter 11 bankruptcy proceeding.

Photo by Wade Payne

Scott Boruff, CEO of Miller Petroleum, stands next to one of the company’s oil pumps in Huntsville, Tenn., on Feb. 4. In December, Miller Petroleum acquired the properties of Pacific Energy Resources in Alaska’s Cook Inlet through a Chapter 11 bankruptcy proceeding.

Editor's note: a previous version of this story incorrectly identified the location of company headquarters

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There's a new player in the Alaskan oil market - and it's headquartered in Scott County.

Miller Petroleum - a Huntsville, Tenn.-based company that deals in oil and natural gas exploration, production and drilling mostly in Tennessee - is now operating more than $300 million worth of assets in Alaska's Cook Inlet, about 70 miles southwest of Anchorage, after acquiring the properties from Pacific Energy Resources through a Chapter 11 bankruptcy proceeding in Delaware.

It was Miller's third - and largest - deal since Scott Boruff took over as CEO in 2008. And it's something that will give the local company national exposure, he said. Production in Alaska already is exceeding projections.

"We're one of the fastest growing companies that nobody knows about," Boruff said. "It's kind of a nice little story. We've had year-over-year growth of over 200 percent shareholder value. We're just an undervalued, high-growth company."

The acquired oil and gas assets were originally bought by California-based Pacific Energy for $464 million in 2007 and were valued by independent auditors at $327 million in 2008. Miller paid less than $5 million for the acreage, oil platforms and production facilities - $2.25 million for the properties and $2.2 million to cure contract obligations and cover bonding and other requirements for operating the assets. Pacific Energy had filed for bankruptcy amid the economic downturn, in which the company became highly indebted, and was unable to find a buyer. It ultimately abandoned the properties in September 2009 and walked away.

Miller worked to bring the case back into bankruptcy and negotiated with each creditor - there were hundreds - before the deal was finalized in a Delaware court in December.

"The competition was stiff and with bankruptcy laws it's an open game, but literally this was a deal we had been looking at for nine months," Boruff said. "I basically lived in Delaware, spent weeks in Alaska and pretty much got the blessing of the judge to get the whole team of people up and running.

"It was timing, it was being at the right place at the right time," he added.

The asset package specifically included total reserves of more than 13.2 million barrels of oil and 15.5 billon cubic feet of natural gas. In addition, Miller acquired onshore and offshore production and processing facilities, an offshore energy platform, more than 600,000 net acres of land with thousands of acres of 3-D geologic seismic data, miscellaneous roads, pads and facilities, all of which originally cost almost $300 million to build and install over a period of five years.

"The major difference between us and the Pacific deal is Pacific bought these assets, built these assets and had $460 million worth of debt on these assets," Boruff said. "We bought these assets, we sold equity on our public company, so we had zero debt. To me, that's a major difference."

Miller will operate the facilities through its 100 percent owned subsidiary, Cook Inlet Energy LLC. The company also brought back about half the former Pacific employees. David Hall, who was the vice president of Pacific's Alaska operations, was named CEO of Cook Inlet, and JR Wilcox, another Pacific Energy employee, was tapped as president.

"2009 was probably the hardest year imaginable to pull something like this together, given the state of the financial markets," Wilcox told the Petroleum News in December. "But we've received tremendous support and encouragement from a lot of people. We've been working closely with the Department of Natural Resources since June in an effort to ensure as smooth a transition as possible and really appreciate their efforts to help us get people back to work."

Production in Alaska began almost immediately after the deal was finalized - within a week, Boruff said.

Production now is under way. Boruff estimates the new Alaska assets will produce more than 1,100 barrels a day of petroleum by the end of the year, and operations are already ahead of schedule. The company recently announced that one of the wells had been successfully reworked and tested at a flow rate of 578 barrels a day, allowing the company to beat its projected goal of 800 barrels a day by the end of the first quarter 2010.

Initial production was estimated at 280 barrels of oil a day. Production at more than 1,100 barrels daily by the end of the year would generate more than $30 million annually in gross revenue for Miller, company officials said in a statement.

Liz Engel is a freelance contributor to the News Sentinel.

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Comments » 1

ElvisKin writes:

Good news for an East Tennessee company. Keep the ball rolling.

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