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Week of August 26, 2012
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Fortune Hunt Alaska 2012: Newcomers forge ahead in Cook Inlet

Alan Bailey

Petroleum News

The last couple of years have seen substantial changes in the business landscape of Alaska’s Cook Inlet basin, with independents Apache Corp. and Hilcorp Energy purchasing major positions in the basin and subsequently forging ahead with exploration and development plans.

Houston-based Apache, a company with a reputation as an innovative explorer, started purchasing Cook Inlet leases in July 2010, eventually establishing a lease position of some 800,000 acres around the basin. The company has stated its intent to primarily explore for oil, with natural gas as a secondary target.

Seismic acquisition

And, seeing modern high-resolution 3-D seismic data as an essential requisite to drilling in the challenging Cook Inlet geology, Apache has embarked on an ambitious three-year program of seismic data acquisition.

In April and May 2011 the company shot some test seismic on the west side of the inlet, trying out new seismic technology that does not require the laying of seismic cables. And, having met with success in that test, in the fall of 2011 the company embarked on a 3-D seismic survey covering a swath of land near Tyonek, also on the west side of the inlet. Apache is extending that survey out into the offshore and plans to drill two exploration wells on the west side of the inlet, starting in the fall of 2012.

The offshore seismic surveying is taking place between Apache’s onshore survey area and leases held by Furie Operating Alaska in the middle of the inlet.

Deploying nodes

Onshore, the survey technique that Apache is using involves the deployment of seismic recording nodes, each weighing about five pounds and about the size of a large food can. The nodes can be carried to and from location by backpack and, without any cabling required, there is no need to cut seismic trails through forest and other vegetation. Global positioning technology and satellite-based timing enable each node to operate independently when recording seismic signals. After use, the recorded data are downloaded from each node into a computer system for data storage and processing.

Offshore, the nodes are disc shaped, tethered along lines that lie on the seafloor and that are aligned parallel to the tidal currents of the inlet. The exceptionally strong tidal currents, shifting boulders the size of beat-up buses along the seafloor and potentially lifting and moving the seismic nodes, make offshore seismic in the Cook Inlet especially challenging, John Hendrix, general manager of Apache Alaska Corp., told Petroleum News.

Pinpointing targets

Apache is expediting the processing of its seismic, to enable the pinpointing of targets for its initial drilling. The company has lined up some drilling prospects and is starting the permitting and planning for the drilling. It may be necessary to deviate wells drilled from pre-planned gravel drilling pads, once the precise positions of the drilling targets have been established from the seismic. Apache plans to drill to below the Jurassic, underneath the Tertiary strata of the basin, seeking oil in both the Tertiary and the older rocks. That may mean drilling to depths of around 16,000 feet in the prospect areas, although the seismic survey was designed to accommodate drilling down to 20,000 feet, Hendrix said.

In September Apache also plans to start a major 3-D seismic survey on the east side of the inlet, covering a broad area of land on the southern Kenai Peninsula as well as a three-mile offshore fairway, from Anchor Point up to Kasilof. Included in the company’s extensive lease position on the east side of the inlet are some leases at the Cosmopolitan prospect, a known oil accumulation offshore Anchor Point.

Hendrix says that Apache’s large lease position speaks to the company’s commitment to Alaska.

“You don’t come in and buy this much acreage with a short-sighted plan,” Hendrix said. ”We’re not a one-well wonder and we don’t have to bet the farm on one well. … It’s a proven basin and we think it’s been underexplored.”


Hilcorp, a company specializing in finding new opportunities in aging oil fields, entered Alaska in July 2011 by buying all of Chevron’s substantial Cook Inlet assets. Chevron subsidiary Union Oil Company of California owned the Granite Point, Middle Ground Shoals, Trading Bay and MacArthur River fields; interests in 10 offshore platforms; interests in onshore gas fields including the Ninilchik unit and the Beluga River unit; and two gas storage facilities.

In April 2012 came an announcement that Hilcorp was also going to purchase all of Marathon Oil Corp’s Cook Inlet asset, thus making Hilcorp the dominant producer of oil and gas in the Cook Inlet basin. Marathon, a long-time player in the basin, operates gas fields in the Beaver Creek, Cannery Loop, Kasilof, Kenai, Ninilchik, North Trading Bay and Sterling units and owns pipeline assets, including the Cook Inlet Gas Gathering System that runs under the Cook Inlet, the Kenai Nikiski pipeline on the Kenai Peninsula and the Beluga pipeline on the west side of the inlet. Marathon also owns a gas storage facility in the Kenai gas field.

In June 2012 Hilcorp President Greg Lalicker told the Anchorage Chamber of Commerce that Hilcorp buys old fields, like those of the Cook Inlet, to exploit these aging properties with a focus on reservoir engineering; geology and geophysics; and field operations.

Lalicker said that Hilcorp’s immediate focus in the Cook Inlet was on “revitalizing and reactivating and modernizing” equipment to enable drilling to continue over the coming decades. The company is stripping old drilling rigs from the aging Cook Inlet offshore oil platforms and is acquiring a modern rig that can move from platform to platform, drilling and working wells. And in the onshore Swanson River field a workover rig is repairing old wells.

With a remediation program in place across all producing assets and plans to bring old shut-in wells back on line, Hilcorp hopes to raise daily oil production from the old Chevron fields from 15,000 barrels at the end of 2011 to more than 25,000 barrels in 2014.

Substantial spending

Hilcorp has a Cook Inlet capital budget of $203 million for 2012 and anticipates spending around $150 million per year over the next couple of years. However, the company sees a shortage of oilfield services supporting the Cook Inlet oil industry as one of the biggest challenges in its Alaska venture.

Lalicker attributed the service industry shortage to low levels of investment in the Cook Inlet oil industry in recent years.

“No one has been spending a couple hundred million dollars a year in the Cook Inlet for quite a while.” Hilcorp is “working like mad to solve this and we will solve it — but that has been the biggest deterrent to getting things done,” he said.

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