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Explorers magazine preview: Hilcorp aims to drill in lower Cook Inlet
Despite delay in 3-D seismic survey to late August, lower CI, Iniskin Peninsula and Trading Bay exploration programs on track Kay Cashman Petroleum News
Prior to the 2011 entry of Hilcorp Energy into Alaska, the Cook Inlet basin’s onshore and offshore oil production had declined to 8,900 barrels per day. At the same time, natural gas reserves were projected to soon be insufficient to meet continued local utility demand and aging platform infrastructure was considered to be nearing its functional end of life. Cook Inlet was considered a mature oil and gas province that had reached peak oil production in 1970 and peak natural gas production in 1994.
Fortunately, the privately owned Texas-based independent had a strong track record of entering mature hydrocarbon basins and making the necessary investments to produce more oil and gas.
Initially, Hilcorp’s local subsidiary, Hilcorp Alaska, accumulated a large portfolio of legacy assets in the Cook Inlet region and on the North Slope through separate deals with Marathon Oil Corp., Union Oil Company of California and BP Exploration (Alaska) Inc.
Its focus on development for its first five years in Alaska, Hilcorp only used exploration to expand operations within existing units, particularly at the Ninilchik and Deep Creek units on the Kenai Peninsula. Even a foray beyond unit boundaries was closely tied to work at nearby units.
But the company took a somewhat more expansive approach to its exploration activities in the Cook Inlet region in 2017 by drilling 16 stratigraphic test wells at three prospects in the southern Kenai Peninsula - Pearl, Seaview and Deep Creek SW - during the latter half of the year.
Possibilities for next five years In April through October 2020, Hilcorp Alaska hopes to drill two to four exploratory wells in the untapped federal waters of lower Cook Inlet, pending the results of a 3-D seismic survey 20 miles due west of Homer halfway between Kachemak Bay in the lower Kenai Peninsula.
Potential Cook Inlet exploration and development plans for the next five years from April 1, 2019, through April 1, 2024, are listed in an application Hilcorp filed with the National Marine Fisheries Service for an incidental take authorization (the non-lethal unintentional taking of small numbers of marine mammals incidental to oil and gas exploration, development, and production activities).
The earliest activities described are the 374 square-mile lower Cook Inlet 3-D seismic survey in 2019, pending the receipt of a Bureau of Ocean Energy Management permit. Seismic will be followed by outer continental shelf geohazard and geotechnical surveys in the fall of 2019 or the spring of 2020, with the surveys site specific, determined by the number of potential exploratory drill sites in an area, and covering less than one lease block in a day.
Also slated to occur is the Iniskin Peninsula exploration and development program in both 2019 and 2020, from April through October, and in 2020 a Trading Bay area geohazard survey, followed by the possible drilling of Trading Bay area exploratory wells.
In 2020 and 2021, Hilcorp’s list of planned activities also includes a 2-D seismic survey in the marine, intertidal and onshore area on the eastern side of Cook Inlet from Anchor Point to Kasilof, with an area of interest some five miles on each side of the coastline.
Hilcorp says the methods for acquiring the seismic will be similar to those employed by Apache Alaska Corp. in 2011 and 2012, noting a single vessel can acquire a 2-D source line in some one to two hours, with only a single line acquired in a day, allowing for node deployments and retrievals and intertidal and land zone shot hole drilling. There are up to 10 source lines and the entire operation is estimated to take 30 days to complete, allowing for weather and equipment contingencies.
3-D survey over 8 OCS blocks The 3-D seismic survey tentatively planned for May and June 2019 but in early April was postponed by Hilcorp per an email to Petroleum News that says “our team has made the decision to delay the survey until after the height of fishing and tourist season.” The survey will be over eight of the 14 OCS lease blocks Hilcorp holds in lower Cook Inlet, including blocks 6357, 6405, 6406, 6407, 6455, 6456, 6457 and 6458. The new scheduling by the company suggests surveying will start in late August 2019.
In the application, Hilcorp says it will possibly drill wells to depths of 7,000 to 16,000 feet, depending on the well, each of which will likely take 40-60 days to drill and up to 10-21 days of well testing. If two wells are drilled, it will take some 80-120 days to complete the full program; if four wells are drilled, 160-240 days.
Hilcorp was the only bidder in BOEM’s 2017 OCS Cook Inlet lease sale, taking tracts in federal waters off Ninilchik and Anchor Point, a three-tract block southwest of Anchor Point, and a block of eight tracts farther south and in the middle of the inlet.
In December 2017, Hilcorp applied to BOEM to collect airborne gravity and magnetic data in lower Cook Inlet over an area which generally overlaps the federal OCS waters of BOEM’s lower Cook Inlet planning area, including aerial gravity and magnetic survey of all 14 lease blocks Hilcorp acquired in the 2017 sale.
Hilcorp also planned to have the surveys run over the Iniskin Peninsula. Fixed-wing aircraft were to be used offshore and rotor-wing aircraft onshore, with data collection expected to take two to three weeks. BOEM says the company notified it on Aug. 17, 2018, that the surveys had been completed.
On March 15, 2019, in Kenai, Mike Dunn, Hilcorp’s development manager, said the lower Cook Inlet 3-D survey timelines had slipped from mid-April to May 3 (and since slipped again) because of the federal government shutdown at the end of 2018, but the company still expected to get the survey completed in the shorter timeline.
“If all were to go perfect, we’ll be running about three lines per day; there’s about 90 lines; we should be able to finish in 35 days,” he says. “We’ve got some contingency, there will be some tangles, but the tides are not quite as bad down here as they are in the upper Cook Inlet.”
With anticipated contingencies the entire shoot is likely to take 40 or 45 days, he said.
Possible new platforms, partner Hilcorp will not use either of the jack-up rigs currently positioned in Cook Inlet should it proceed with exploratory drilling.
“The deepest water in that area is about 280 feet; you get to the edges, I want to say it’s at least 180 to 190 feet of water,” Dunn says. “A 300-foot jack-up rig will be able to drill the wells.”
Both the Spartan 151 and the Randolph Yost jack-up rigs - now in Cook Inlet - are limited to a maximum water depth of 150 feet.
The cost of mobilizing a 300-foot jack-up rig to Alaska will raise the bar in terms of the quality of the targets the company must have to justify exploration drilling in the survey area.
“This whole program, including getting the permits, and shooting the seismic, is about $15 million,” Dunn says. “Hilcorp is paying 100 percent of that and we hope to get some partners to help us drill some wells if we do identify some prospects.
“If we make some discoveries, we will do an environmental impact statement and hopefully set a couple of platforms,” he says.
Iniskin Peninsula program Hilcorp says it began baseline exploratory data collection in 2013 for proposed land-based oil and gas exploration and development on the Iniskin Peninsula near Chinitna Bay some 60 miles west of Homer on the west side of Cook Inlet in the Fitz Creek drainage. The 2-D program was proposed over 41 miles between Chinitna Bay and Iniskin Bay.
The lower Cook Inlet and the Iniskin Peninsula area have known oil potential but as yet no commercial discoveries - the region has an active petroleum system, including excellent oil source rocks, but has been only very sparsely explored.
New project infrastructure proposed by Hilcorp for the Iniskin project includes material sites, a 4.3-mile access road, prefabricated bridges to cross four streams, an air strip, barge landing/staging areas, fuel storage facilities, water wells and extraction sites, an intertidal causeway, a camp/staging area and a drill pad, with construction anticipated to start in 2020.
Hilcorp says initial delivery will be by low-draft tug and barge vessels with barge landing/staging areas at Camp Point and Fitz Creek to be used for storage and stockpiling of supplies, equipment and fuel.
An intertidal rock causeway is proposed adjacent to the Fitz Creek staging area to improve accessibility of the barge landing. The causeway will extend seaward from the high tide line some 1,200 feet to a landing area 150 feet wide. Rock fill will be sourced from the Gaikema material site.
“The causeway will enable more consistent use of the Fitz Creek staging area to receive freight and fuel with fewer limitations due to short high tide windows and result in less dependency on the Camp Point staging area,” Hilcorp said in the application, and will also enable quicker response to emergency incidents and reduce the risk associated with materials logistics and fuel deliveries.
When the causeway is no longer needed for the project, rock fill will be removed, allowing wave actions and currents to natural fill and cover the disturbed area.
“The project camp site is located along the historic road alignment at a location where bedrock can be quarried and the pad developed by cutting to grade and utilizing excavated rock for fill,” the company said.
Seaview exploration In fall 2018, Hilcorp received approval from the state of Alaska for a plan of operations for a two-well exploratory program at its new Seaview pad near Anchor River in the upper Cook Inlet basin, just onshore from the Cosmopolitan unit. The company drilled seven shallow stratigraphic tests in the undeveloped area in 2017.
The Seaview pad is on a private parcel off the Old Sterling Highway.
The two new exploration wells were to be the Seaview No. 8 and Seaview No. 9 wells within ADL 392667.
Alaska Oil and Gas Conservation Commission records show the well was completed on Dec. 16, 2018, to a true vertical depth of 10,148 feet and a measured depth of 10,500 feet. The agency later reported testing had been completed.
There was no word as of April 5, 2019 on the results.
According to fall 2018 state documents, both Seaview wells were to be drilled directionally to measured depths of around 10,000 feet. The No. 8 well was to test oil and gas prospects, while the No. 9 well would target gas.
The division says the first 5,500 feet of the Seaview 8 will be perforated to evaluate gas zones, while the bottom-hole location will extend beyond ADL 392667 to explore for oil on fee simple land.
There are three separate stages for each well, beginning with the directional drilling and insertion of surface casing through subsurface of potential hydrocarbon-bearing zones within the Lower Sterling and Beluga formations, with well evaluation including downhole instrumentation. Well control equipment and casing was to isolate gas-bearing zones.
In stage two the well will be deepened beyond the state lease with a lateral horizontal evaluating the Lower Tyonek, Hemlock and deeper formations on fee simple lands.
The third stage will involve evaluating potential hydrocarbon reservoirs by perforating and flow-back testing, following which the well may be temporarily secured or formally suspended while data is evaluated.
Deep oil at North Cook Inlet Hilcorp did not plan any exploration or delineation activities at its North Cook Inlet unit in its plan of development that went through May 2019; nor did it have any planned in the next plan submitted April 1, 2018.
The company is redeveloping the unit, which it acquired from ConocoPhillips in late 2016 and got permission from the state to extend an existing plan of development to June 2018.
A plan of development filed in April 2018 represents the first full plan from Hilcorp since it took over the unit and takes a measured approach to activities at North Cook Inlet.
The company launched a “comprehensive field study” to evaluate the remaining potential of the Beluga and Sterling sands and to determine the need for future wells, sidetracks and perforations.
The most exciting exploration news in the plan: Hilcorp says it intends to study the potential of developing deep oil prospects at North Cook Inlet known as Tyonek Deep or Sunfish, which lie under the natural gas accumulation.
Over the years previous operators and farm-in partners have considered a similar venture, but Hilcorp went one step further by installing an eight-inch diameter subsea oil pipeline to the Tyonek platform, the production platform for the North Cook Inlet gas field, as part of its efforts to extend natural gas transmission across Cook Inlet. The new line enables the movement of oil west to east under Cook Inlet.
Hilcorp says the pipeline will not be used unless it makes an oil development decision. Laying of the oil line at the same time as the gas line presumably saves significant cost relative to laying the oil line separately.
In January 1999, having drilled three wells into the Tyonek Deep oil pool, ConocoPhillips pulled the plug on the project, saying that the project was not viable - oil prices were around $10 per barrel at the time.
In its April 1, 2019, plan submittal Hilcorp says the “initial development plan for the deep oil prospect has been completed. Drilling of the first development well is expected in the 2020 timeframe. This oil development well will be drilled through the top of the Sterling and Beluga gas sands’ structure and so will allow for evaluation of the remaining dry gas development potential.”
Dominant CI producer Hilcorp is the dominant on and offshore oil and gas producer in the Cook Inlet basin, as of Jan. 1, 2019, operating about 19 fields and units - a number that seems to fluctuate each year due to acquisitions, consolidations and terminations.
On the west side of Cook Inlet, Hilcorp operates the Ivan River, Lewis River, Pretty Creek and Beluga River units.
Offshore, the company operates the North Cook Inlet unit (actually in middle Cook Inlet), the Granite Point unit, the Middle Ground Shoal unit, the Trading Bay unit, and the North Trading Bay unit (middle Cook Inlet) and associated McArthur River field.
On the southern Kenai Peninsula, Hilcorp operates the Ninilchik, Deep Creek and Nikolaevsk units. In the northern Kenai Peninsula, the company operates the Birch Hill unit, the Swanson River unit, the Beaver Creek unit, the Sterling unit, the Kenai unit and the Cannery Loop unit.
Active North Slope producer On the North Slope, Hilcorp holds four primary properties, the Milne Point unit, the Endicott field at the Duck Island unit, the Northstar unit and the Liberty project which unlike the other three is not currently producing but it is gaining momentum again after several years of delays under its former operator, BP, Hilcorp’s partner in the development.
Hilcorp expects Liberty to come online between 10,000 and 15,000 barrels per day, peaking at 60,000 to 70,000 bpd within two years. The company also expects the field to produce as much as 120 million cubic feet of natural gas per day. When actual construction will begin was not known as of April 1, 2019.
Although Hilcorp is a strong producer and a very active developer on the North Slope, it has not been an active explorer.
Hilcorp was the third largest oil producer in Alaska in 2018, behind ConocoPhillips and BP.
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