Economics set the paceHilcorp executive says Alaska oil and gas economics determine development rate ALAN BAILEY Petroleum News
Oil and gas economics, in particular the price of oil, the level of state taxation and the demand for Cook Inlet natural gas, will determine the rate at which Hilcorp Alaska LLC’s new development projects will move ahead, David Wilkins, Hilcorp Alaska’s senior vice president, told a meeting of the Alaska Support Industry Alliance on Oct. 13.
While Hilcorp anticipates operating in the state over the long term, the pace of projects is tied to economics, he said. With the company seeking a reasonable rate of return over a period of five to 10 years from its projects, the project economics are currently very thin. And state taxes constitute a cost that will factor into decisions on whether to move forward with project activities, Wilkins said.
“We’re going to be here for a long time,” Wilkins said. “The pace at which we do projects is what we will alter, based on the economics of the day.”
Hilcorp operates multiple oil and gas fields in the Cook Inlet basin and oil fields in the North Slope region.
In Cook Inlet, the company is considering new developments in the Middle Ground Shoal and Granite Point fields, while also hoping to carry out a major well workover program in the company’s offshore fields. On the North Slope Hilcorp has built a new drilling rig, initially for a planned new development project in the Milne Point field.
Re-invigorating old fields After entering the Cook Inlet oil and gas industry in 2012, Hilcorp re-invigorated the various oil and gas fields that it acquired, doubling oil production from the region and boosting gas production to meet local demand. Drilling activity peaked in 2014, mainly as a result of the drilling of gas wells to support market needs. But now, with the Cook Inlet gas market stabilized, gas well drilling has slowed, Wilkins said.
“Once we got to a point where we sustained and stabilized the gas market, we backed off some of that drilling, because we don’t need to drill for gas wells on such an active pace,” Wilkins said. “We maintain our gas production to meet market demand.”
However, Hilcorp does have a sizable inventory of gas wells on the Kenai Peninsula and will drill wells when the gas market requires, he said.
With the slowdown in gas well drilling, coupled with a recent fall in oil industry costs, Hilcorp’s investment level in Alaska has dropped over the last couple of years. However, the company anticipates an uptick in its drilling program next year, while also continuing to spend money to ensure the necessary maintenance to its pipelines and equipment.
“We are still a responsible operating company here in Alaska,” Wilkins said.
Growing the base Both in the Cook Inlet basin and on the North Slope Hilcorp has projects that can grow its oil production base. The company is using the Kuukpik 5 drilling rig for a five-well Cook Inlet drilling program that will continue into early 2017. The wells being drilled as part of this program are targeting geologic zones and concepts that could create follow-up potential, Wilkins said.
“We are also very excited about our Granite Point field redevelopment, with a horizontal drilling program that we’re hoping to start in 2017,” Wilkins said.
And then there is the well workover program, lined up for the Cook Inlet offshore.
“It’s sitting on the shelf, waiting for project economics, to continue,” Wilkins said.
Middle Ground Shoal The 2015 purchase by Hilcorp from XTO Energy Inc. of the offshore Middle Ground Shoal field A and C platforms is also opening up some new Cook Inlet development opportunities. With Hilcorp already owning the mothballed Baker and Dillon platforms, the entire field now, for the first time, has a single operator, Wilkins said. In 2015 Hilcorp shot 3-D seismic across the field, with that being the first seismic data obtained for some parts of the field.
“We’re currently processing that seismic and working projects for Middle Ground Shoal,” Wilkins said. “I’m very excited about what we’re seeing.”
Despite the field’s complex geology, there seem to be multiple drilling opportunities and new development possibilities, he said. Hilcorp has also been able to reduce field operating costs, mainly by consolidating what had been two separate helicopter and support boat operations under two operators. Those cost savings can extend the economic life of the field, thus adding to the field oil reserves, Wilkins commented.
Hilcorp has some planned drilling activity to re-activate the Baker and Dillon platforms. But initiating that activity will depend on the economics of the drilling projects, Wilkins said.
Kenai Peninsula Activity onshore the Kenai Peninsula mainly revolves around gas production and development. Hilcorp has been conducting 2-D and 3-D seismic surveys and continues to conduct exploration, seeking large gas fields.
“We’re still optimistic that we will find some more,” Wilkins said.
Meanwhile, Hilcorp is upgrading the compressor capability at its Kenai gas field. The idea is to de-bottleneck the gas storage facility in the field, to enable faster delivery of gas when needed. Also, the company has been moving ahead with the Kalotsa pad, a new pad in the Ninilchik gas field, where the company hopes to start drilling by the end of November.
Hilcorp is particularly proud of its achievements in the Swanson River field, which will be 60 years old next year. With an oil production rate of just 475 barrels per day when the company took over the field in 2012, a series of drilling and well workover projects has lifted that production to 2,750 barrels per day, Wilkins said. Having re-instituted a gas flood in the field, Hilcorp anticipates drilling anywhere from five to 10 more wells in the next couple of years. The company also plans to start a gas well in the Swanson River field in the spring of 2017, to bolster the company’s gas supply capabilities.
North Slope oil Hilcorp saw a large jump in its overall Alaska oil production in late 2014 when the company completed the purchase of some BP oil assets on the North Slope. The company purchased a 100 percent interest in the Endicott and Northstar fields, and a 50 percent interest in the Milne Point field. Hilcorp also acquired a 100 percent interest in the proposed Liberty oil field, offshore in the Beaufort Sea. Hilcorp operates all of these fields.
The new drilling rig, called the Innovation rig, which Hilcorp had built for use in its North Slope assets, is a 1,200 horsepower electric rig, capable of drilling to a depth of 16,000 feet. Able to move on five tire-mounted modules, the rig, the lightest modular rig on the North Slope, could be used in any of the Hilcorp-operated fields. The rig can access wells on 10-foot spacing, Wilkins said.
Hilcorp is initially targeting the rig for development drilling in a planned expansion in the Milne Point field, drilling from a new pad, the Moose pad, in the northwest of the field. Depending on the project economics, this field development might be accomplished in two to three years, with the drilling of 24 horizontal wells and 16 injection wells in the Schrader Bluff formation and the Kuparuk sands. Depending on the pace of development, Hilcorp anticipates peak production of 10,000 to 15,000 barrels per day from the new pad, Wilkins said.
Liberty development The Bureau of Ocean Energy Management is currently preparing an environmental impact statement for Hilcorp’s proposed development of the Liberty field in federal waters of the Beaufort Sea. Rather than trying to re-invent the wheel, Hilcorp is proposing using established safe, environmentally sound techniques to develop the field, Wilkins said, citing the Endicott and Northstar fields, both operating from gravel islands in the Beaufort Sea, as examples of how an offshore development in the Beaufort can be conducted effectively and in an environmentally sound manner. Hilcorp anticipates oil production rates of 60,000 to 70,000 barrels per day from Liberty, with a 15- to 20-year life and a total oil recovery of some 50 million barrels, Wilkins said. Hilcorp expects to hear from BOEM, with the findings of the EIS, in May 2017, he said.
Wilkins also commented that December will mark the 15th anniversary of the start of production from the Northstar field. To date the field has produced more that 169 million barrels of oil and contributed $2.2 billion to state revenues, he said.
“BP did a beautiful job of constructing and implementing this project,” Wilkins said. “This is the kind of project we need more of in the state.”
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