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David Hall and Cook Inlet Energy: relishing fifth year as oil and gas operator.

A press release issued in December 2009 declared: "Alaska has given birth to a new oil and gas company named Cook Inlet Energy."

It was an easy announcement to overlook. Oil and gas startups don't warrant much notice in a state dominated by the likes of BP, ConocoPhillips, and ExxonMobil.

Now, nearly five years later, Cook Inlet Energy looks to be for real.

The Anchorage-based company has brought a collection of abandoned assets back to life. And it's pursuing an ambitious slate of projects that could make serious waves in the Cook Inlet basin.

"We want to be as aggressive as we can and be one of the top producers, if not the top producer, in the Cook Inlet," says David Hall, the company's chief executive.

Cook Inlet Energy operates two main producing properties on the inlet's west side: the Osprey offshore platform and the West McArthur River oil field.

In February, the company expanded to the east side, adding the North Fork natural gas field on the Kenai Peninsula.

Cook Inlet Energy has big plans for all the properties, aiming to grow production quickly. To carry out the work, company executives have borrowed heavily and pulled together a fleet of drilling rigs.

Cook Inlet Energy is a subsidiary of Miller Energy Resources, Inc., a publicly traded company headquartered in Knoxville, Tennessee. Most of Miller's production comes from Alaska through the work of Hall's team.

The story of Cook Inlet Energy is, to a large degree, Hall's story.

Spotting Opportunity

Hall, forty-five, is a veteran of the inlet oil scene. Working for the previous owners, he gained hands-on knowledge of Osprey and West McArthur River.

"I started out in the field with my tools," Hall says.

He went from electrician to lead operator to production foreman, learning all aspects of running an oil and gas production facility. He also has an engineering background.

Hall was there in 2000 when the hulking Osprey platform, built in South Korea, was floated into the inlet and set in place. He spent the night on the platform before it had power and lights.

"It was pretty lonely and quiet," he says.

The company that conceived the Osprey project, Forcenergy, Inc., would merge with Forest Oil Corporation.

In 2007, a California-based company, Pacific Energy Resources Ltd., bought Forest Oil's Alaska assets.

Hall persevered through all the ownership changes, becoming vice president and general manager of Alaska operations for Pacific Energy.

When low oil prices and other troubles hit Pacific Energy, ultimately forcing the company into bankruptcy in March 2009, Hall saw an opportunity.

Hall knew it would be tough for Pacific Energy to survive. The company was also struggling to make a go of some offshore California properties it had acquired prior to the Alaska purchase.

Production in Alaska suffered. Hall recalls how output from Osprey dwindled to "a whopping twenty barrels a day." The West McArthur River field was managing a little over one hundred barrels per day.

Seeing Pacific Energy's challenges, Hall and another former Pacific Energy employee formed a new Alaska company, Cook Inlet Energy LLC.

He candidly told his bosses at Pacific Energy he would like to take over the Cook Inlet assets. And he set about trying to raise capital at a time when loans were hard to come by.

Eventually, Pacific Energy would shutter and abandon its Cook Inlet operations. This was a huge worry for the state, which faced enormous caretaking costs for the properties.

Hall kept working with Pacific Energy, bankruptcy officials, and the state for a deal. Ultimately, Cook Inlet Energy would win the properties in a November 2009 auction.

Finding a Backer

It wasn't just Hall and Cook Inlet Energy that made the deal happen.

Hall had been in New York City, talking with money people, when his broker told him about a small Tennessee company that could possibly help. Hall flew down to Knoxville for a meeting with "the Miller folks," including Scott Boruff, chief executive of Miller Energy.

"We just hit it off and developed a bond right out of the chute," Hall says.

Miller Energy would help finance the $4.47 million deal to acquire the Cook Inlet assets. As part of the deal, Cook Inlet Energy became a Miller subsidiary.

Hall says he saw a "huge upside" in his risky pursuit of the abandoned properties. But the journey was tough.

"It was not without a lot of stress, a lot of doubt, a lot of prayer," he says. "Many times, I thought about throwing in the towel, walking away"

The acquired properties included the Osprey platform; the Kustatan production facility that processes oil piped ashore from Osprey; the West McArthur River oil field; and an assortment of other assets such as the West Foreland gas field and land leases.

Miller crowed that it had scored a tremendous bargain, including oil and gas reserves worth more than $325 million.

Hall and sidekick JR Wilcox, the president of Cook Inlet Energy, set about the sizeable task of restoring production from Osprey and West McArthur River wells.

Several of Osprey's wells had collapsed casings and other problems. Cook Inlet Energy has been repairing these wells with a new drilling rig custom built in Texas at a cost of more than $18 million.

The company plans to drill new wells from Osprey and started the first one in March. It also has pursued new wells in or adjacent to the West McArthur River field, including a pair called Sword and Sabre.

Osprey is the newest and southernmost of the sixteen platforms in Cook Inlet. It taps the Redoubt Shoal field.

The platform had been a disappointment under previous owners, with crude oil production lagging expectations. By November 2013, Cook Inlet Energy had driven production from Redoubt Shoal to an average of 2,009 barrels per day, state records show.

At the West McArthur River field, average daily oil production reached 1,214 barrels during this past January.

Miller's Rise

These aren't big numbers, relatively speaking, for Alaska oil producers. But they're a far cry from the near zero production Cook Inlet Energy inherited.

Aside from oil production, the company also has achieved enough natural gas production to support sales to buyers such as Chugach Electric Association.

The acquisition of the Cook Inlet oil and gas assets would lift the Tennessee parent company, Miller Energy, to a much higher profile.

Miller previously had been a penny stock trading on the OTC Bulletin Board. The company jumped to the Nasdaq exchange and then to the New York Stock Exchange, where it's listed today. Miller was trading at more than $5 a share in early April and had a market capitalization of about $230 million.

Miller's rise has been somewhat messy. Investors sued the company in 2011, claiming Miller executives had fraudulently overstated the value of the Alaska acquisition. Miller executives dispute that, and the case remains unresolved in Tennessee federal court.

More recently, a group called Concerned Miller Shareholders demanded management reforms at the company. Among their complaints was that Miller executive were overpaid. The group and Miller management reached a settlement in March.

In April, a big name was elected to Miller's board of directors: Bill Richardson, the former New Mexico governor and US energy secretary.

Boom on the Kenai

Cook Inlet Energy has numerous other projects on its plate.

It's exploring several natural gas prospects, including some in the vast Susitna basin north of the inlet.

At the newly acquired North Fork gas field, Cook Inlet Energy aims to grow production by drilling up to twenty-four additional wells.

Finally, the company is working with Tesoro toward construction of a $50 million subsea pipeline across Cook Inlet. The pipeline could provide a cheaper and more reliable alternative to tankers for moving westside crude to Tesoro's Nikiski refinery, Hall believes.

Hall and his wife, Tina, make their home in Nikiski. During the week, he's typically at the company office in Anchorage. Three sons work in the field for Cook Inlet Energy, which has about fifty employees, not counting contractors.

Originally from Louisiana, Hall believes Alaska offers the country's best return on investment. For example, he says, the state provides generous financial incentives for Cook Inlet oil and gas exploration and development.

Part of what makes this an exciting time, Hall says, is the economic revival in his home community of Nikiski.

Rick Roeske, executive director of the Kenai Peninsula Economic Development District, concurs. A resurgent oil and gas industry, led by companies such as Hilcorp and Cook Inlet Energy, is driving a building boom and even rush-hour traffic jams along the Kenai Spur Highway, Roeske says.

He's impressed by what he's seen and heard from Cook Inlet Energy.

"Nothing less than spectacular," Roeske says. Hall is soft-spoken, he says, but the "calm assurance of how he projects dollars into action is amazing."

Journalist Wesley Loy writes from Anchorage.
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Title Annotation:OIL & GAS
Comment:David Hall and Cook Inlet Energy: relishing fifth year as oil and gas operator.(OIL & GAS)
Author:Loy, Wesley
Publication:Alaska Business Monthly
Geographic Code:1U9AK
Date:Jun 1, 2014
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