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Vol. 22, No. 25 Week of June 18, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

Facilities restart issue

DO&G holds back 2 Hilcorp Cook Inlet PODs over inaction on facilities restoration

Eric Lidji

For Petroleum News

The state recently asked Hilcorp Alaska LLC to provide more information about its plans to restore production at three persistently dormant facilities in the Cook Inlet basin.

In separate decisions issued earlier this year, the Division of Oil and Gas asked the company to provide more information about its plans for the Stump Lake unit and initially rejected a development plan the company had prepared for the Middle Ground Shoal unit. The state later approved a revised version of the Middle Ground Shoal plan, after the company explained the reasoning behind its delays at reactivating two platforms.

At the Stump Lake unit, the state specifically asked Hilcorp to provide more detailed information about its plan to return the unit to production by the third quarter of the year.

The Stump Lake unit is one of four units Hilcorp operates in the northern corner of the west side of Cook Inlet, along with the Ivan River, Lewis River and Pretty Creek units.

To date, the company has devoted far fewer resources to reviving those four units than it has to other properties it operates in the Cook Inlet basin, such as the much larger Swanson River unit. While three of the units are currently in production, albeit at low rates, mechanical issues forced the company to shut-in the Stump Lake unit back in 2012.

In its 2016 plan of development, Hilcorp said its recent acquisition of the nearby Beluga River unit created opportunities for reviving Stump Lake. But without a “critical mass” of projects in the region, “the economic life of the Stump Lake unit has likely passed.”

In its 2017 plans of development for the four units, submitted to the state in March 2017, Hilcorp said that future development of the region depends, in part, on the results of a comprehensive regional study planned for this year. After completing an earlier study of the Stump Lake unit, Hilcorp “concluded that the conventional life of this legacy field has reached its economic limit.” Even so, the company included Stump Lake in its regional study and committed to restarting production by the third quarter of this year.

If the company was unable to restore production at Stump Lake, the company told the state it would plug and abandon the SLU 41-33RD well during the 2018 planning year.

As of mid-June 2017, Hilcorp had yet to provide the additional information.

Middle Ground Shoal

The Middle Ground Shoal unit presents a more complicated situation.

Through its initial acquisitions of Cook Inlet properties, and a more recent targeted acquisition in the region, Hilcorp assumed ownership of the South Middle Ground Shoal unit, the North Middle Ground Shoal field and the Middle Ground Shoal field. Upon request from the company, the state recently agreed to combine those three neighboring offshore fields into a single administrative entity called the Middle Ground Shoal unit.

The combined unit is home to four offshore platforms. The A and C platforms - at the former Middle Ground Shoal field - are responsible for all of the recent production from the new unit. The Baker and Dillon platforms - at the former North Middle Ground Shoal field and South Middle Ground Shoal unit, respectively - are both currently offline.

Hilcorp has recently discussed the possibility of restoring both platforms.

In its 2016 plan of development for the North Middle Ground Shoal field, before unit consolidation, the company announced plans to return the Baker platform to production in 2017. But the company did not include the project in its 2017 development plan. And in its 2016 plan of development for the South Middle Ground Shoal unit, also before consolidation, the company announced plans to conduct a comprehensive reservoir study with the goal of returning the unit to production in 2018, presumably through the Dillon platform. But the company did not mention the project in its 2017 development plan.

“In questions after submission of the 2017 POD Hilcorp stated ‘Hilcorp has no present or near term plans to return these specific platforms to production,’” Division of Oil and Gas Director Chantal Walsh wrote to the company in an April 17 denial decision.

According to the decision, the promise of restarting production from the two dormant platforms was one of the “key reasons” the state approved the unit consolidation.

In its decision to expand the unit, issued in late September 2016, the state required Hilcorp to add a section to any future Middle Ground Shoal unit plans of development detailing how the company intended to restart production from the two platforms.

Concerns about the future of Baker and Dillon were enough to led Walsh to reject the development plan, despite apparent pleasure with the proposed A and C work programs.

Disruptions

In a revised plan of development submitted in late May 2017, Hilcorp said that it had suspended the Baker and Dillon programs, as well as other work plans, after a unit-wide gas pipeline disruption prompted it to suspend production and launch a maintenance review. “At present, all efforts are focused on taking steps necessary to return Platforms A and C to production,” the company wrote in the revised plan of development.

Hilcorp told the state that it still intends to revive the Dillon platform. But fueling the platform requires an active supply line from A platform. And producing from the platform involves a pathway connecting Dillon platform to C platform to A platform to shore. On top of those technical problems, the company also has economic concerns.

Hilcorp is unlikely to revive the Baker platform, even after the technical issues are resolved. “During project engineering and evaluation, it became apparent that overall project economics had not improved enough to warrant platform reactivation at this time. Our forecast to restore and reactivate the platform is no longer realistic given the current economic climate. Therefore, Hilcorp deferred these expenditures and focused on exploitation activities on Platforms A and C to enhance recovery,” the company wrote.

The interconnected nature of the three Middle Ground Shoal fields - both geologically and in terms of infrastructure - supports continued unitization, according to Hilcorp.



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