Miller Petroleum, Inc. (MILL) & American Oil and Gas, Inc. (AEZ)

In 2010 growth of the oil and gas sector is often hindered by costs beyond those associated with exploration/production. For example, BP’s debacle off the Louisiana coastline may run up to $3 billion or more of clean-up costs. And there are others that will share in the expenditures including market leaders like like Transocean (NYSE: RIG), Anadarko and Haliburton (NYSE: HAL).

It’s no surprise that the oil and gas sector hasn’t fared well lately. The SPDR S&P Oil & Gas Equipment & Services (NYSEArca: XES) is down about 10 percent in the past three months, and the United States Gasoline Fund (NYSEArca: UGA) has slipped about 6 percent over that same period.

Maybe this is the time to look at some of the smaller players in the oil and gas sector — those that are less hampered by costs beyond their control.

Miller Petroleum, Inc. (Nasdaq: MILL): Shares of this Tennessee-based oil and gas exploration company are up about 50 percent in the past three months. In addition to a solid portfolio in the Appalachian Basin in Tennessee, the company is also reporting favorable results from its Alaska operations, recently announcing that it completed a rework of its West McArthur River Unit (WMRU) in 1A well which initially tested at 33 BOED and is now in full production. Miller Petroleum is 3-for-3 in well reworks in Alaska. The company previously completed reworks on the WMRU-5 and WMRU-6 wells from the same field. Miller’s next focus in Alaska is the WMRU-7A well, where workover efforts are already under way. The rework of this well is intended to establish oil production from the currently producing Hemlock formation and natural gas production from the Tyoneck gas sand formation.

American Oil and Gas, Inc. (AMEX: AEZ): Shares of American Oil and Gas, Inc. have been up as much as 72 percent over the past year, thanks in large part to production increases in 2009 over the previous year, and promising projects like Goliath, located in the North Dakota Bakken, an area that has become one of the most actively drilled oil targets in the US. American Oil and Gas, Inc. also commenced drilling the Summerfield 15-15H well in T147n-R96w, Section 15, Dunn County, ND. The Summerfield well is spaced on 640 acres and is designed and permitted as a horizontal Bakken well. The company also sold its Power River Basin, Wyoming projects earlier this year for about $46 million, and currently has about $76 million of cash in the bank. In late April, Rodman & Renshaw initiated coverage on American Oil and Gas, Inc. with a “Market Outperform” rating. A few weeks later, the company announced solid first quarter results — $28,034,714 or $0.46 per share, compared to a net loss of $3,891,363, or $0.08 loss per share. Revenue for the quarter was up 181 percent to $859,971, compared to the same period a year ago.