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Vol. 18, No. 7 Week of February 17, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

The takeover completes

Hilcorp’s acquisition of all of Marathon’s Cook Inlet assets finally concludes

Alan Bailey

Petroleum News

Hilcorp Alaska has completed its takeover of Marathon Oil Co.’s Cook Inlet oil and gas assets, Hilcorp spokeswoman Lori Nelson confirmed to Petroleum News in a Feb. 12 email. The purchase transaction completed on Jan. 31, Nelson said.

The assets that Hilcorp has purchased include 10 fields in the Cook Inlet basin, three gas storage facilities, two gas pipelines and the remaining interests in two other gas pipeline systems. In total Hilcorp has acquired 157 Marathon wells, 75 of which are actively producing, Nelson said. Marathon was primarily a gas producer in the basin.

April agreement

Hilcorp originally announced its agreement with Marathon over the purchase of Marathon’s assets in April 2012, but an investigation by the Federal Trade Commission and the State of Alaska into competitive concerns over the purchase delayed purchase completion — with Hilcorp already having purchased Chevron’s Cook Inlet assets, Hilcorp was set to become the dominant gas producer in the basin.

With something of a hiatus over new gas development in Marathon’s fields while the sale was in progress, Southcentral Alaska power and gas utilities, already hard pressed to find adequate gas supplies from the aging Cook Inlet gas fields, became concerned about the length of time that the deal was taking to complete. Marathon, with its gas fields earmarked for sale, was not in a position to move forward on new field developments, while Hilcorp was reluctant to negotiate new supply contracts before its purchase of the Marathon assets was finally secured.

However, a consent decree agreed in November between the state and Hilcorp paved the way for the purchase of the Marathon assets to proceed. That consent decree puts a price cap on Hilcorp gas sold for local Southcentral Alaska use over the next five years and prohibits Hilcorp from selling gas for export as liquefied natural gas unless all local gas supply needs are met.

Aggressive strategy

Hilcorp has adopted an aggressive strategy for developing oil and gas resources in its Cook Inlet properties. In November Greg Lalicker, president of Hilcorp Energy, described to the Resource Development Council’s annual Alaska Resources Conference how Hilcorp’s refurbishment of the Cook Inlet assets that it had obtained from Chevron and the company’s efforts in new in-field drilling had started to reverse the fortunes of the company’s decades-old oil fields. Oil-field production increases ranged from 8 percent at McArthur River to 122 percent at Swanson River during the first nine months of 2012, Lalicker said.

At that point the company had seen more mixed results in the gas fields where it had an ownership interest. But the company has said that it anticipates chasing improved gas production in the same manner that it is pursuing oil. In December Hilcorp began production from a new gas field at Red Pad on the Kenai Peninsula, delivering much needed utility gas into Enstar Natural Gas Co.’s pipeline system.

“Providing a reliable energy source for Southcentral is a priority for Hilcorp,” Nelson said, with reference to Hilcorp’s newly acquired Marathon assets. “We’re committed to a long-term capital investment plan that aims at slowing decline and increasing production from Cook Inlet’s existing, aging fields.”



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