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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2017

Vol. 22, No. 21 Week of May 21, 2017

Hilcorp committed to Alaska investments

Wilkins says his company is operating in the state for the long haul; planning several new development projects

Alan Bailey

Petroleum News

In a talk to the Resource Development Council on May 4 David Wilkins, Hilcorp Alaska senior vice president, emphasized the significance of Hilcorp’s Alaska investments to his company.

“Overall, Alaska is important to Hilcorp,” Wilkins said. “We’ve invested quite a bit of money. We believe it’s a good place for Hilcorp to invest money.”

Hilcorp entered the Cook Inlet oil and gas industry in 2011 and embarked on a program of rejuvenating the aging oil and gas fields of the region. In 2014 the company expanded its Alaska operations by purchasing some North Slope oil field assets from BP.

Wilkins said that since coming to the state Hilcorp has paid $1.8 billion for its Alaska assets, has injected $1.3 billion into new projects for driving up oil and gas production, and spent $1.4 billion on the operation and maintenance of its various facilities.

“This is not a strategy to come and leave. We’re here for decades to come,” Wilkins said.

Asked about the potential impact to Hilcorp’s operations of any changes to Alaska’s oil and gas production tax system, Wilkins said that tax increases could delay future oil and gas production.

“What increased taxes will do to us is we’ll reduce capital projects,” Wilkins said. “We will cut drill wells from the budget.”

However, Wilkins said that he appreciates the difficult situation that the legislators in Juneau find themselves in.

“But, from Hilcorp’s perspective, if we leave the rules the same, I think we go forward. I think we increase production. I think we drill more,” Wilkins said.

Rejuvenating old fields

Wilkins recounted that prior to Hilcorp’s arrival in Alaska, there had been looming natural gas shortages in Southcentral Alaska, with the Cook Inlet producers preparing to leave the region.

“We came up with a business model that said let’s come to Alaska and invest in an old tired, basin and rejuvenate it,” Wilkins said.

In the years since then there have been no gas supply interruptions in Southcentral; gas supply agreements with utilities have been moving from very short-term contracts to agreements covering timeframes well into the next decade; and long-term planning between Hilcorp and he utilities has become possible, Wilkins said.

This success has resulted from Hilcorp’s investments in Alaska, he said.

“After this year we will have drilled in Alaska over 100 wells, and we’re not stopping,” he said. “I’m proud to tell you that we currently have four drilling rigs running in Alaska and we are the most active driller in Alaska at this time.”

Given that the company had drilled sufficient wells in the Cook Inlet basin to support the current gas market in the region, Hilcorp slowed its rate of drilling during the last couple of years. However, this year the company has increased its Alaska spend, increasing its drilling rate on the North Slope and offshore in the Cook Inlet.

“We plan on drilling 40 wells this year,” Wilkins said.

In addition to drilling wells, Hilcorp has increased its investment in upgrading the old infrastructure that it owns, to ensure that the company’s pipelines, platforms and wells can continue to perform effectively for a long time into the future, he said.

North Slope projects

On the North Slope Hilcorp has started construction on the Moose Pad, on the western side of the Milne Point unit. Drilling should start next year. With, eventually, 70 production and injection wells drilled into the Schrader Bluff and Kuparuk formations, ultimate recovery from the project will be 30 million to 50 million barrels of oil, with first production by the fourth quarter of 2018 and peak production rates of 12,000 to 18,000 barrels of oil per day, Wilkins said.

This year’s construction season at Moose Pad has been successfully completed and pre-ordering is underway for next winter’s season. Construction during the coming season will involve the completion of the access road, work on the pad and the start of facility construction. For the drilling, Hilcorp will bring in a brand new drilling rig, which is already located on the North Slope, Wilkins said.

Hilcorp is also planning to develop the Liberty oil field, offshore under the Beaufort Sea, and sees the field coming on line in five years or so, with peak production of some 70,000 barrels per day and a 20- to 30-year field life. The total development cost would be more than $1 billion.

“We’re full go in our mind,” Wilkins said.

Hilcorp expects to move forward with Liberty after the completion of the project’s environmental impact statement, which should be issued in mid-summer.

Pipeline leak

Reflecting on recent news about Hilcorp’s gas pipeline leak in the Cook Inlet and questions over the condition of the company’s Cook Inlet infrastructure, Wilkins said that his company is passionate about the integrity of its systems and about its management philosophy.

“We have a very robust integrity and management program on all our facilities and all our lines,” Wilkins said. “We go above and beyond what is required from the regulators.”

He said that, although a full investigation is underway, looking into the cause of the gas leak, it appears that the leak resulted from the gas line rubbing against a rock on the seafloor, with the rock wearing a hole in line.

Wilkins said that Hilcorp is looking to the use of new technologies for its facility inspection programs. The company is planning to use drones, starting next year, for annual inspections of its offshore platforms for mechanical and structural integrity. The drones will enable the gathering of data more quickly and safely, without the need to have people descending using ropes, as at present, to inspect the platform exteriors.

Hilcorp is already using inertial mapping, a technology that uses a precise gyroscopic navigation system, to detect small pipeline movements, to rapidly obtain pipeline data. The company also uses inline inspection tools, known a smart pigs, to monitor the condition of pipelines - these devices are often custom made. The company plans to expand its use of multi-beam sonar, a technology that enables the external inspection of pipelines in the murky waters of the Cook Inlet, where divers experience difficulties in conducting visual inspections.

Hilcorp also uses a risk-based safety program in its operations, applying money, time and effort to safety issues that need to be addressed, Wilkins said. For example, in the Cook Inlet region the company is upgrading the fire and gas systems on its aging infrastructure, he said.

Cook Inlet oil transportation

As reported in the May 14 issue of Petroleum News, Wilkins also announced a plan to transport crude oil direct to the Tesoro oil refinery by pipeline from oil fields on the west side of the inlet. The idea is to eliminate the use of the Drift River terminal on the west side of the inlet, the oil terminal that is used to load tankers for the shipment of oil to the Tesoro refinery.

The $75 million project would involve converting one of the twin pipelines of the existing Cook Inlet Gas Gathering System for the carriage of oil and building a new subsea gas pipeline across the northern part of the inlet from the Tyonek platform to Ladd Landing, north of Tyonek.

For a number of years the Drift River terminal has been a cause of concern because of its proximity to the Redoubt volcano. In 2009 an eruption of the volcano forced an evacuation of the terminal and an emergency drawdown of oil stored at the terminal site.

Long-term commitment

Wilkins commented that Hilcorp’s new pipeline proposal demonstrates his company’s long-term commitment to Cook Inlet.

“We see much more development in the Cook Inlet. Many more drill wells. And we see decades worth of production in the Cook Inlet and we’re going to re-invest in the Cook Inlet,” Wilkins said.

Citing the Swanson River oil field on the Kenai Peninsula as an illustration of how the life of an aging field can be prolonged, Wilkins commented that after 60 years in operation this field is still delivering more than 2,000 barrels per day of oil. Hilcorp is still drilling in the field and the company estimates there are more than 7 million barrels of recoverable oil remaining to be produced. With the use of new technology, the field could continue operating into the next century, Wilkins said.






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