Monday, March 25, 2013

Miller Energy Resources (MILL) for Oil and Gas

Miller Energy Resources (MILL) is one of those energy companies that I probably shouldn't review.  A glance at Yahoo Finance shows me how their two years of net losses, three years of declining retained earnings, and three years of negative FCF all fall short of my fundamental value criteria for an investment.  Their CEO and President are investment bankers rather than petroleum engineers.  These are all indicators that the company will have a hard time delivering shareholder value.

It shouldn't be so hard.  Miller is producing oil at Cook Inlet, Alaska and can explore for shale gas at Appalachian Basin, Tennessee.  The problem with making it all work is that the company's delayed delivery of the rig they needed in Alaska meant they couldn't drill for months.  This is the kind of contingency that experienced petroleum hands can avoid with enough planning and due diligence.

Investment bankers are useful for obtaining distressed assets, which is part of Miller's story.  What Miller needs now are petroleum engineers who can unlock whatever reserves remain in the previously producing wells Miller owns.

Full disclosure:  No position in MILL at this time.