Pushing for growth
Hilcorp increases oil production in its newly acquired Cook Inlet fields
Since acquiring Chevron’s Cook Inlet assets at the beginning of the year, Hilcorp Energy has been forging ahead with ambitious plans to breathe new life into the aging oil and gas fields of the Cook Inlet basin.
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“We got the keys tossed to us on Jan. 1 and we’ve been up and running ever since,” Greg Lalicker, president of Hilcorp, told the Resource Development Council’s annual Alaska Resources Conference on Nov. 14. Lalicker said that oil production has increased from the oil fields which Hilcorp operates in the Cook Inlet basin since his company’s takeover of the Chevron assets.
Business modelHilcorp’s business model revolves around the squeezing of additional oil and gas from old fields, with those fields often being bought from major oil companies, Lalicker said. He likened his company’s business model to a hamster wheel with a rim consisting of a cycle of property acquisition, property development and efficient field production. The speed with which the hamster wheel turns determines the rate of company growth, although the company likes slow but steady growth at around 15 percent per year, Lalicker said.
“That’s why we’re in the Cook Inlet,” Lalicker said. “We’ve bought the properties and now we’re starting to deploy capital against them and we’re running round that little circle.”
Lalicker said that, in terms of reserves, production rates and value, Hilcorp had doubled in size between 2006 and 2010, with the company having a target of doubling again by 2015. And having given each of its employees a new car as a reward for achieving that first five-year growth objective, the company has committed to pay each employee $100,000 if the objective for 2015 is met, Lalicker said.
$230 millionAnd as part of its efforts to achieve its expansion goals Hilcorp will have invested $230 million dollars in the Cook Inlet basin by the end of 2012. Around half of that investment has gone into new development projects, with much of the remainder — about 38 percent of the total — paying for a major refurbishment of the old Chevron assets.
“A lot of our energy has gone into just fixing broken stuff, and frankly that will be the future for the next several years — there’s still a lot more broken stuff to be fixed,” Lalicker said, adding that this type of refurbishment is typical of what is involved in taking over big, old fields.
Examples of refurbishment include Hilcorp’s re-activation of the Drift River oil terminal on the west side of the Cook Inlet, an effort that has resulted in the resumption of normal operations for the shipping of oil from the west side to the east side of the inlet. Other refurbishment has included the fixing of shut-in wells.
About 2 percent of Hilcorp’s expenditure has paid for the disposal of what Lalicker characterized as “old junk,” including the old drilling rigs on the offshore platforms, some of which date back to the 1960s.
“We spent a fair bit of time scraping that stuff off this year and are working on getting the right equipment up here, so that we can do more drilling and workovers on those platforms to get the production up,” Lalicker said.
About 8 percent of total expenditure went on what Lalicker called “watching other people work,” in other words the oversight of activity at fields that Hilcorp co-owns but does not operate.
Increased productionHilcorp’s efforts have already borne fruit in terms of increased oil production in the fields that the company operates, Lalicker said. From January to early November production was up 8 percent at the McArthur River field; up 27 percent at Granite Point; up 36 percent at Trading Bay; and up 122 percent at Swanson River, according to a production graph that Lalicker presented.
The picture has been less rosy for natural gas production, with Hilcorp’s share of production down 11 percent at the Beluga River field; down 33 percent at Trading Bay; and down 6 percent at Ninilchik. Hilcorp operates Trading Bay, but not the Beluga River or Ninilchik fields. Gas production is up 102 percent at the Hilcorp-operated Deep Creek field, and is up 39 percent across an aggregate of smaller Hilcorp fields, most of them on the west side of the inlet, Lalicker said.
Marathon assetsHilcorp is in the process of acquiring Marathon’s Cook Inlet assets, an acquisition that would bring the Trading Bay and Ninilchik fields to an effective 100 percent ownership by Hilcorp, Lalicker said. (Editor’s note: Marathon also operates the large Kenai gas field on the Kenai Peninsula, as well as gas fields in the Cannery Loop, Kasilof and Sterling units).
Marathon agreed on the sale of its assets to Hilcorp in April but the sale has yet to complete.
“We are slogging through the approval process for that and we hope to have it closed either late this year or early next year,” Lalicker said.
Plans for 2013Hilcorp expects to spend $150 million to $200 million in 2013 on the Cook Inlet assets that it already owns and another $50 million on the Marathon assets, assuming that the Marathon purchase goes through, Lalicker said. The focus in 2013 will be oil production offshore and at Swanson River. The company also recognizes the urgent need for new gas production from the Cook Inlet basin and, given the longer execution time typical of offshore projects, has several onshore gas projects lined up.
“We’re feeling the pressure of getting gas … and we’re working right now on it,” Lalicker said. “That’s why we’re focusing on the onshore side, because that’s where we can do it a deal faster than we can on the offshore side.”
Overall, Hilcorp feels excited about the opportunities it sees in the Cook Inlet.
“It has truly world-class reservoirs present … that were huge producers 20 or 30 years ago, but really haven’t been worked that hard in recent years,” Lalicker said.
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Hilcorp applies for Deep Creek survey
Hilcorp Alaska has applied to Alaska’s Division of Oil and Gas for a permit to conduct a 3-D seismic survey in and around the Deep Creek unit near Ninilchik on Alaska’s Kenai Peninsula. Deep Creek is a gas field that Hilcorp acquired in January as part of the company’s purchase of Chevron’s Cook Inlet assets.
The planned survey would cover an area of about 32,000 acres, including 19,000 acres of Deep Creek oil and gas leases. The survey area includes land owned by the State of Alaska, Cook Inlet Region Inc. and private landowners. In its permit application, Hilcorp says that it hopes to start the survey at the beginning of December and that it anticipates the survey taking 120 days to complete.
However, the public comment period for the permit application does not end until Dec. 21.
“All project operations will occur onshore, outside of marine and tidal environments, and during the winter season when frozen ground and/or snow cover will provide protection of environmental and other resources in the area,” the application says. “Access will be via existing roads and trails, where possible, and via helicopter where land access is restricted.”
The project will conclude by May 15, the application says.
Access straightforwardThe survey will involve detonating small, underground explosive charges at depths of about 30 feet, with the charge holes plugged to prevent blowout and surface disturbance. Because of extensive logging and previous 2-D seismic surveying in the area, Hilcorp anticipates access to much of the area being relatively straightforward, although the company expects to have to clear some brush and small trees at some locations.
Track-mounted drilling rigs will drill the holes for the explosive charges, while access to the survey area for setting charges and laying geophones, the devices used to record subsurface echoes from the detonations, will be by tracked vehicle, helicopter and foot. Geophones will be laid at 220-foot intervals. Hilcorp anticipates using existing gravel pads for staging equipment and for fuel storage, the application says.