HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS PAY HERE

Providing coverage of Alaska and northern Canada's oil and gas industry
June 2019

Vol. 24, No.25 Week of June 23, 2019

State terminates unit

Hilcorp appeals North Trading Bay unit plan of development denial, termination

Kristen Nelson

Petroleum News

The state has terminated a small unit in Cook Inlet, citing regulations which require “diligent operations … to restore production” in a unit where production has ceased.

In a May 30 letter to operator Hilcorp Alaska LLC, Jim Beckham, acting director of the Alaska Department of Natural Resources’ Division of Oil and Gas, said that because there “currently are no diligent operations to restore production” the North Trading Bay unit has automatically terminated; because the unit is terminated, Hilcorp’s 2019 plan of development for the unit has been denied.

In a June 18 letter, Hilcorp appealed the termination.

The timeline for work is an issue, with the state wanting the company to get the unit back into production. Hilcorp’s drilling plan, a well from a non-unit platform which would bottomhole in non-unitized acreage adjacent to the existing unit, is also an issue. Hilcorp says it wants to expand the unit, dependent on the success of the well; the division is focused on the resumption of production from the existing unit.

Division’s decision

The North Trading Bay unit has three state oil and gas leases and contains two platforms, Spurr and Spark, both built in 1967 by Marathon Oil Co.

Production from the unit ceased in September 2005. Marathon made “minor efforts to restore production” and then made plans for abandonment, Beckham said, with a long-term conceptual abandonment plan proposed in 2008. That plan was not implemented and from 2009 through 2013 the platforms were the subject of litigation, including the Pacific Energy Resources Ltd. bankruptcy proceedings, in state and federal courts.

In 2013, Hilcorp took over from Marathon as unit operator, and Beckham said the division “determined it was in the best interest of all parties to give the new operator an opportunity to review the unit and potential resources.”

But in 2017 the division “began giving Hilcorp written notice as part of the POD approval that the unit may terminate without operations to restore production.”

Platforms

The Spurr and Spark platforms are in “lighthouse” mode and while cranes and helidecks are functional the crew facilities are not and there are no active wells, Beckham said.

In its 2017 POD Hilcorp said it wouldn’t be economic or technically feasible to return either of the platforms to production and said it had no plans to do so, he said, but in both its 2017 and 2018 PODs, Hilcorp proposed a sidetrack from the Monopod in the Trading Bay unit in an attempt to restore NTB unit production. Beckham said the division approved those PODs “and concluded that Hilcorp had proposed diligent operations to restore production. But this well was not drilled and no other operations were conducted during those years,” he said.

Under state regulations if a unit isn’t producing it automatically terminates unless the operator is “actively conducting diligent operations to restore production,” Beckham said, adding that the regulation does not consider promises of future work - the work must be “in progress.”

He said the notice of automatic termination is effective with the May 30 date of the decision.

2019 POD

The 2019 POD, denied because the unit has been terminated, again proposed a well from the adjacent Trading Bay unit. “However,” Beckham said, “this well will not enter the productive interval within the NTBU. The potential accumulation is within a lease adjacent to the NTBU that Hilcorp recently acquired in the May 9, 2018 lease sale and is not part of the unit.”

He said Hilcorp has said it hopes that if the well is successful the accumulation under the adjacent lease would reach into the North Trading Bay unit.

“Hopes about the extent of the potential accumulation are not enough to consider this activity outside the unit to be diligent operations to restore the unit to production,” Beckham said.

There is a 20-day appeal period to the decision.

Hilcorp’s appeal

Hilcorp appealed the decision to DNR Commissioner Corri Feige on June 18.

The company said it disputes the division’s findings that previous PODs “proposed diligent operations to restore production, but Hilcorp did not conduct the operations,” and that, “the 2019 POD does not propose operations for the NTBU.”

The company called the division’s decision “premature.”

It cited the division’s approval of the 2018 POD which it said “deemed Hilcorp’s intent to return the NTBU to production by delineation of the North Trading Bay Field (NTBF) and expansion of the NTBU as diligent operations.”

(Approval of the 2018 POD, a decision signed by Beckham for then-Division Director Chantal Walsh, said: “Hilcorp’s planned well from the Monopod platform is a reasonable step to returning the NTBU to production.”)

Extension issue

In its 2018 POD, as revised, Hilcorp described the well it proposed as a sidetrack to the A-10 well, and said: “If successful, Hilcorp will apply for unit expansion of the North Trading Bay Unit to include the newly producing acreage.”

In its approval of the 2018 POD the division noted that Hilcorp had proposed a sidetrack from the Monopod into the NTBU in its 2017 POD, but that well was not drilled. A well was proposed in the 2018 POD and the division said the “sidetrack will target the Tyonek G and Hemlock sands, reservoirs that formerly produced inside the NTBU and may extend outside the current unit boundary.”

In its appeal Hilcorp said its 2019 POD proposed a potential target in ADL 18776, “which is a NTBU unitized lease,” and said that while its “proposed operations fall outside of the NTBU boundary, they are consistent with those requirements of the NTBU Agreement.”

A portion of ADL 18776 is within the unit boundary; the well would be drilled to a target east of the existing unit boundary.

Hilcorp said it has continued to acquire acreage outside the North Trading Bay unit boundaries “in conjunction with its plans to expand the NTBU.”

The company said it proposed the A-04 well in its 2017 POD and substituted the A-10RD sidetrack “to maximize ultimate recovery,” and said delays in drilling that well “are necessary in conducting operations as a prudent operator.”

“Hilcorp’s 2019 POD proposed operations require expansion of the current unit boundary, similar to the approved 2018 POD proposed operations,” the company said.

Hilcorp said its 2018 POD covers July 1, 2018, through June 30, 2019. It began work on the sidetrack under the 2018 POD, the company said, because it was necessary to “decomplete” the A-10 well before sidetracking. Those operations began in late April this year, prior to expiration of the 2018 POD, the company said.

As for the well location, Hilcorp said it filed a permit to drill with the Alaska Oil and Gas Conservation Commission on May 14, with the bottomhole of the A-10RD on ADL 18776. That lease, the company said, accounts for 28.5% of NTBU unitized acreage.

Hilcorp said that based on previous approvals from the division the company internally approved the project and set aside $15 million for the work. The company said it has spent more than $5.7 million to date, $2.2 million in October of 2018 when the Monopod Rig 56 was upgraded to ensure it was capable of drilling the well, and an additional $3.5 million this spring to decomplete and set up the A-10 well for the sidetrack drilling operations.






Petroleum News - Phone: 1-907 522-9469
[email protected] --- https://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)Š1999-2019 All rights reserved. The content of this article and website may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law.