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Vol. 19, No. 29 Week of July 20, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Explorers 2014: Hilcorp is aiming to rejuvenate two Alaska basins

A recent acquisition of BP properties on the North Slope follows extensive activities in the Cook Inlet

Eric Lidji

For Petroleum News

Hilcorp Energy Co. is the dominant company in the Cook Inlet basin. And with a recent acquisition of some BP properties, Hilcorp is now an important player on the North Slope.

The privately held Houston-based independent exploration and production company gained its Cook Inlet dominance by acquiring the assets of Union Oil Company of California in 2011 and Marathon Oil Co. in 2012. With a business model of “acquire and exploit,” the deal excited policymakers worried about declining investment in the basin.

“Hilcorp is enthusiastic about the opportunities it sees in Alaska, and it has an aggressive plan to invest in required well maintenance and in-field drilling to restore and increase production from existing fields, as well as pursue the many exploration targets it has identified around the Cook Inlet basin,” Sen. Tom Wagoner, R-Kenai, said in a statement after news of the 2011 acquisition broke. “Hilcorp’s entry into Alaska is further confirmation of the fact that tremendous oil and gas opportunities remain in the basin.”

Asked at a Commonwealth North meeting in December 2012 if Hilcorp planned to conduct exploration activities in the Cook Inlet, Senior Vice President John Barnes said the company had come to Alaska with an eye toward development and did not have an exploration budget for 2013. That said, Barnes also acknowledged the exploration potential of the basin and anticipated pursuing those opportunities in the future.

On the west side of Cook Inlet, Hilcorp operates the Lewis River, Pretty Creek, Stump Lake and Ivan River units. In the northern Kenai Peninsula, Hilcorp operates the Birch Hill, Swanson River, Beaver Creek, Sterling, Cannery Loop and Kenai units, as well as the Wolf Lake and West Fork fields. In the southern Kenai Peninsula, Hilcorp operates the Deep Creek and Nikolaevsk units. Offshore, Hilcorp operates the Granite Point field, South Granite Point unit, Trading Bay unit, North Trading Bay unit, North Middle Ground Shoal field, South Middle Ground Shoal unit, Kasilof unit and Ninilchik unit.

Through the two acquisitions, Hilcorp also acquired associated platforms, oil and natural gas pipelines and storage facilities, as well as minority interests in the ConocoPhillips-operated Beluga River unit and the XTO-operated Middle Ground Shoal oil field.

To date, Hilcorp has focused mainly on increasing production from the 20-odd fields in its portfolio, but the company has also launched two exploration projects inside existing units: the Deep Creek unit in the southern Kenai and the Ninilchik unit along the coast.

In April 2014, Hilcorp acquired a stake in four BP Exploration (Alaska) Inc.-operated fields on the North Slope. The estimated $1.25 billion deal gave Hilcorp operatorship of the Endicott, Northstar and Milne Point fields and a 50 percent stake in the Liberty field, which will now move forward after long delays. “We are excited about this acquisition,” Hilcorp Senior Vice President of Exploration and Production John Barnes, said in a statement. “Our ability to bring new life to mature basins is a great fit for these assets.”

The Deep Creek unit

Hilcorp started its exploration activities at the Deep Creek unit.

Standard Oil Company of California discovered the field in 1958 with the Deep Creek Unit No. 1 well, but never developed it. Unocal returned to the field in the early 2000s.

The Alaska Department of Natural Resources and Cook Inlet Region Inc. formed the Deep Creek unit at the end of 2001 and formed the Happy Valley participating area in November 2004. The unit covers some 20,000 acres located about five miles inland.

After acquiring seismic and drilling exploration wells, Unocal announced a discovery in November 2003. The discovery justified extending the Kenai Kachemak Pipeline.

Unocal brought the unit online in 2004 at 3 million to 4 million cubic feet per day and drilled some 13 wells between 2003 and 2009, but investment flagged. In an eighth plan of development, from December 2010, Unocal offered no plans for further exploration, but said it was looking to farm out exploration acreage at the southern end of the unit.

Division of Oil and Gas Director Bill Barron required the ninth plan of development to include plans for exploring parts of the unit outside the Happy Valley participating area.

The unit is believed to contain additional accumulations.

“Unocal’s interpretation of the data also indicates a potential accumulation south of the Happy Valley reservoir that Unocal refers to as the Middle Happy Valley Prospect,” the division wrote in a 2004 decision concerning the unit. Unocal took steps toward exploring the prospect, but the plans never materialized. A 2007 report from Netherland, Sewell & Associates estimated probable reserves of 22 billion cubic feet for the unit area.

By the time Hilcorp acquired the unit, the landowners were on the verge of contracting it.

Instead, they extended the eighth plan of development to give Hilcorp time to make plans for the unit. The extension gave the company until February 2013 or six months after closing, whichever came first, to file a ninth plan of development with exploration plans.

New wells

To start, Hilcorp drilled three wells at the unit: The Happy Valley B-14, Happy Valley B-15 and Happy Valley B-16. The program discovered commercial quantities of gas in the Sterling and Beluga formations, shallower than the producing Beluga/Tyonek pool.

The 2,005-foot B-14 exploration well tested the Sterling formation shallower than the existing participating area. The 3,069-foot B-15 exploration well tested the Upper Beluga formation, also shallower than the existing participating area. The 4,857-foot B-15 development well targeted the Beluga formation, but “rig limitations” prevented it from reaching its target depth, the company said in filings with the Division of Oil and Gas, and Hilcorp plans to take another stab at the exploration target at the end of this year.

In early 2013, Hilcorp acquired nearly 50 square miles of 3-D seismic over the unit.

Speaking in June 2013, Barnes said the field was “making more now than it was shortly after Unocal discovered and developed it” and estimated that the resource at Happy Valley is “probably three to four times larger than the current participating area.”

With the successful program, Hilcorp said it would expand its exploration activities for two years and has asked the state to defer contraction of the unit until the end of 2015.

Hilcorp also grabbed acreage around the unit at May 2012 and May 2013 lease sales.

Hilcorp eventually asked the state and CIRI to expand the unit to include CIRI leases to the south, but Hilcorp withdrew the request, calling the discussions “unsuccessful.”

The current plan calls for completing the B-16 well, potentially using a sidetrack, and drilling two exploration wells from a newly constructed C pad. The 6,000-foot Happy Valley C-17 well and the 5,000-foot Happy Valley C-18 well would both target the Sterling and Beluga formations outside the Happy Valley participating area. If successful, the exploration program would likely justify a new participating area, Hilcorp has said.

Hilcorp also plans to drill Middle Happy Valley No. 1 well in 2015. The exploration well would target the Sterling, Beluga and Tyonek formations. The program would require a new road and pad, plus associated facilities and pipelines to access state and CIRI land.

The Ninilchik unit

Hilcorp turned its attention to the Ninilchik unit in 2013.

Chevron discovered a Tyonek gas field at the unit in June 1961 with the Falls Creek Unit No. 1 well, and Marathon discovered two additional fields at the unit in 2001 and 2002.

After picking up a share of the coastal unit through the Unocal acquisition, Hilcorp grabbed the remaining interest and the operatorship through the Marathon acquisition.

In addition to development work, Hilcorp completed a four-well exploration program in 2013: the Susan Dionne No. 8, Paxton No. 5, Frances No. 1 and Falls Creek No. 5.

Surprisingly the program included oil exploration in addition to expanding existing gas production. “We do have plans that include oil development in that area,” External Affairs Manager Lori Nelson said. “True to Hilcorp’s prior success we intend to leave no stone unturned within our existing asset base in order to maximize production. The Cook Inlet basin as a whole is a world-class asset that we are excited to revitalize and develop.”

In early 2013, Hilcorp sought to amend its plan of operations for the Susan Dionne pad at the unit to accommodate a 12,000-foot oil exploration well, with the potential for a second well if the first proved to be successful. While previous operators had drilled at least six oil exploration wells at the unit, including one that encountered minimal oil shows, the Hilcorp well would be the first to do so in many years, according to Nelson.

Hilcorp drilled the Susan Dionne No. 8 toward the middle of the year, but the well was non-commercial for oil. The company completed it for gas production from the Tyonek formation in the Susan Dionne participating area and from the Beluga on a tract basis.

The results led Hilcorp to drill the Frances No. 1 well later in the year from the new Bartolowitz pad. The well was also non-commercial for oil, but showed “strong potential” for gas production from the Beluga and Tyonek formations. Hilcorp now plans to test the well toward the middle of the year with the aim of starting production in the third quarter. The company expects to form a Falls Creek participating area next year.

Hilcorp drilled both wells using the Saxon 147 drilling rig.

The Paxton No. 5 well was a shallow well from the Paxton pad. Hilcorp completed the well as a producer from the Beluga formation and is considering additional activities. The company expects to form the Susan Dionne/Paxton Beluga participating area next year.

The Falls Creek No. 5 well encountered gas in the Tyonek and Beluga, and now Hilcorp plans to conduct additional testing this year to gauge the way forward for development.

The 2013 program convinced Hilcorp to continue exploration activities through 2015, and the company is asking the state to defer unit contraction until December 2015.

Six wells planned

This year, Hilcorp is planning a six-well exploration program at Ninilchik.

The 10,000-foot Frances No. 2 and Frances No. 3 wells would target the Tyonek and Beluga formations. The former would be east of the Falls Creek participating area and north of the Bartolowitz pad. The latter would be south of the Falls Creek participating area and east of the Bartolowitz pad. Hilcorp has described both wells as “appraisal.”

The 9,000-foot Falls Creek No. 6 would follow up on the Frances No. 2 well to further appraise the Tyonek and Beluga formations in the area north of the Falls Creek pad.

The 10,000-foot Paxton No. 6 and Paxton No. 7 wells would also target the Tyonek and Beluga formations. They would both be south of the Paxton pad. Paxton No. 6 would be an “appraisal” well and Paxton No. 7 would “follow up” on the results of Paxton No. 6.

Hilcorp is also permitting Paxton No. 8 and Paxton No. 9 wells.

Hilcorp is currently permitting an expansion of the Paxton pad and is planning a noise abatement study of the pad. It is also considering construction of a Bartolowitz gas facility to support Frances No. 1 gas production. The facility would in turn require boring a pipeline under the Sterling Highway connecting to the existing Kenai-Nikiski Pipeline.

The 6,500-foot GO No. 8 would target the Sterling and Beluga formations above the existing Grassim Oskoloff participating area in the area west of the existing GO pad.

Other opportunities

A recent slate of Hilcorp news suggests additional exploration opportunities.

*Hilcorp is considering an exploration well at the Cannery Loop unit targeting oil in the Hemlock and West Foreland formations encountered in a 1987 well. Hilcorp described the zones as having “large amounts of risk associated with reservoir productivity.”

*The state approved a plan in early 2012 for abandoning the lighthoused Baker platform at the North Middle Ground Shoal field, but Hilcorp amended the plan later in the year, saying that it had decided to reactivate the platform to accommodate gas exploration.

*Hilcorp is conducting a comprehensive field study of the Ivan River unit and evaluating a “grass roots well or sidetrack” to further develop the Sterling and Beluga reservoirs.

*Hilcorp recently acquired the remaining 50 percent working interest in two Buccaneer Alaska LLC leases at the former Southern Cross unit in the waters of the Cook Inlet.

*If and when the sale closes, Hilcorp is almost certain to announce some exploration, appraisal or development activities at its newly acquired assets on the North Slope.

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