Invest money, do work Hilcorp executives describe the company’s strategy for Cook Inlet oil and gas Alan Bailey Petroleum News
In a hydrocarbon basin such as that of Alaska’s Cook Inlet, where oil and gas production has declined significantly over the years, there are only two ways to up the production figures: explore for undiscovered resources or redevelop existing oil and gas fields, John Barnes, Hilcorp Alaska vice president for exploration and production, commented at a “lunch and learn” session of the Alaska House Resources Committee on Feb. 25.
And Hilcorp specializes in that second approach, breathing new life into old fields through new development programs involving significant investment, Barnes said.
“We’ve increased our capital investment,” Barnes said. “We’re spending over $300 million a year in capital.”
Hilcorp spokeswoman Lori Nelson told Petroleum News in a Feb. 26 email that Hilcorp expects to spend more than $350 million in Alaska in 2014.
Attracted to the basin Hilcorp first entered the Cook Inlet oil and gas industry in 2011 when it purchased Chevron’s Cook Inlet assets. In 2012 the company acquired Marathon’s Cook Inlet oil and gas fields. Barnes said that Hilcorp had been attracted to the Cook Inlet by the existence of some aging but large oil and gas fields; access to land through the State of Alaska leasing system and through private ownership; the effective rule of law; and a stable state fiscal policy.
The Cook Inlet has seen a surge of new activity in recent years with several companies, in addition to Hilcorp, operating in the basin, exploring and developing new resources.
Increased production And Hilcorp’s development approach has been paying off. The company’s oilfield development activities, in combination with other field development by Cook Inlet Energy Inc., another Cook Inlet oil producer, have resulted in a sharp rise in oil production from the basin, from a plateau of a little over 10,000 barrels per day in 2012 to a figure of around 20,000 barrels per day recently.
“Activity gets oil and gas production up, and that’s what we’re all about,” Barnes said.
A star performer in this trend has been the Swanson River field, the first field to go into production when oil started flowing from the Cook Inlet basin in 1958 — production from Swanson River has increased from several hundred barrels per day when Hilcorp took over the field to 2,500 barrels per day recently, Barnes said. The Trading Bay field on the west side of the inlet has seen production increasing from 600 or 700 barrels per day to more than 3,000 barrels per day, while production from other fields is also rising.
Tearing things apart Successful field development involves “listening” to the day-to-day performance of the field reservoir, which is hidden deep underground, analyzing that performance to apply reservoir engineering, and then tearing that performance apart before putting it back together with a brand new understanding, Barnes said.
“That’s where it starts,” he said, adding that the next step is to “tear apart” the old wells, to bring those wells back into effective production. Some of the wells are nearly 50 years old, with many mechanical issues and with a need to run tools and install new downhole equipment. In fact, unlike some major oil companies, Hilcorp sees an old well as an asset ripe for redevelopment, rather than a liability, Barnes said. But it is also essential to also drill new wells, he said.
It is also necessary to repair or upgrade the surface facilities to support the new production, he said.
And all of that costs money, the money that must be invested to achieve the production turnaround.
“You have to know the game you’re getting into,” Barnes said. “You can’t come into a field and try to redevelop it by pinching pennies.”
Decimated support industry A major challenge that Hilcorp has had to face is the weak state of the decimated oilfield support industry in the Cook Inlet region. When Hilcorp set up shop in Alaska there was insufficient local skilled labor for the work required, and little or no availability of the type of drilling rigs, specialized tools and modern equipment required to support new work, Barnes said.
However, a number of service companies have been working with Hilcorp to revive the Cook Inlet industry. And Hilcorp has increased its capital expenditure, drilling more wells and obtaining new equipment. The company has brought in two “pulling units” for refurbishing wells on offshore platforms, and two modern drilling rigs for onshore drilling. In 2013 Hilcorp drilled about 10 new wells and performed workovers on upwards of 70 existing wells, Barnes said.
The importance of cost But everything reverts to cost — drilling a well in an old Cook Inlet field might now cost 20 times what that well would have cost when the field was young. But the oil production rate from the modern well in the aging field reservoir would typically be a fraction of the flow rate from an early well, thus driving a need to tightly manage drilling costs.
“You have to be fixated on cost. You really have to look at that,” Barnes said. Hilcorp can spend $50,000 to $80,000 per day running a pulling unit, and several hundred thousand dollars per day operating an old drilling rig on a platform, he said.
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