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Vol 21, No. 21 Week of May 22, 2016
Providing coverage of Alaska and northern Canada's oil and gas industry

The Explorers 2016: Hilcorp stepping beyond development

Greystone project would be first exploration project outside units

ERIC LIDJI

For Petroleum News

Hilcorp Energy Co. came to Alaska to develop and has only drilled exploration wells when it needed to expand the size and scope of its existing development operations.

But in March 2016, Hilcorp Alaska LLC began permitting a standalone exploration project in the southern Kenai Peninsula. If the subsidiary of the Houston-based independent proceeds, it would be its first exploration venture outside of existing units.

The proposed Greystone pad would be on Cook Inlet Region Inc. leases between the Deep Creek and Nikolaevsk units, which are both producing fields operated by Hilcorp.

A public notice from the Alaska Department of Environmental Conservation said Hilcorp would begin construction on Greystone in the second quarter and drill at least one well.

Aside from Greystone, Hilcorp has continued to pursue exploration opportunities at two southern Kenai Peninsula properties: the Deep Creek unit and the Ninilchik unit.

In both cases, Hilcorp has been pursuing exploration activities outside of existing participating area to prevent the state from contracted un-used acreage from the units.

Hilcorp also operates the Milne Point, Northstar and Duck Island units on the North Slope, although its program to date has not yet included any exploration activities.

Deep Creek

The Deep Creek exploration program has partially been an attempt to avoid a long-threatened contraction of the unit by proving up resources at its southern leases.

Following up on a 1958 exploration program by Standard Oil Company of California, Union Oil Company of California brought the Deep Creek unit online in 2004 at 3 million to 4 million cubic feet per day and drilled some 13 wells between 2003 and 2009.

Investment subsequently flagged. In a December 2010 plan of development, Unocal announced plans to farm out acreage in the south of the unit. The state required any future development plan to propose exploration activities outside the Happy Valley participating area. By the time Hilcorp acquired the unit in January 2012, the state and fellow landowner Cook Inlet Region Inc. were on the verge of contracting the unit to make the southern leases available to other players. Instead, the landowners extended the existing plan of development to give Hilcorp more time to determine its plans.

A three-well exploration program targeted opportunities in shallower formations within the physical outline of the participating area and an associated 3-D seismic survey covered more than 40 square miles of the region. The program increased natural gas production at the unit and convinced the state to defer contraction until November 2014.

The successful program convinced Hilcorp to expand its exploration activities into 2015 and ask the state to defer any contraction of the Deep Creek unit until the end of 2015.

A 2014 plan of development called for drilling two exploration wells from a newly constructed C pad in 2014 and drilling the Middle Happy Valley No. 1 well in 2015 to target prospects in the southern end of the unit, beyond the participating area borders.

Hilcorp began permitting a Happy Valley C pad and an accompanying four-well appraisal program in June 2014 to target a shallow gas accumulation. By early 2015, the project had yet to move into operation. In a 2015 plan of development, Hilcorp said it would extend the program. The state deferred contraction until May 31, 2016, but only if Hilcorp completed the Middle Happy Valley exploration project during that time.

The state approved a plan of operations for the Middle Happy Valley well in November 2015 and CIRI provided associated permits for operations on its land. But Hilcorp ultimately deferred the program earlier this winter, “in part due to delays associated with permitting,” the company told state officials in a March 2016 plan of development.

“Hilcorp remains committed to building the road and pad required to drill the Middle Happy Valley well, but cannot commit to drilling this exploratory prospect under the current economic and market climate,” the company said the plan of development.

Instead of drilling, Hilcorp plans to commission a 2-D seismic survey in the southern end of the unit for the second quarter of the year. Combined with existing 3-D seismic, the survey could allow Hilcorp identify other opportunities in the southern end of the unit.

The company has asked the state and CIRI to defer contraction until June 2017.

With Middle Happy Valley on hold, Hilcorp instead spud the Happy Valley B-17 well in late November 2015. The directional well started within the participating area but extended beyond its northern boundary. The company expects the well to sustain commercial production, although final testing and completion depend on administrative matters currently under review with the Alaska Oil and Gas Conservation Commission.

If the well is commercial, Hilcorp might drill a B-18 well to further delineate the region.

Ninilchik

The exploration program at Ninilchik has been much larger than the one at Deep Creek. And the Ninilchik program increasingly resembles development drilling.

After acquiring the unit in 2013, Hilcorp proposed exploration wells from existing drilling pads and proposed several additional pads in under-developed areas. The company drilled at least 10 exploration wells at the unit between 2013 and 2014.

The proposed drilling program for 2015 included three wells: a 12,000-foot GO-8 well from the existing Grassim Oskoloff pad, a 12,000-foot Blossom No. 1 well from a new Blossom pad just north of the Grassim Oskoloff pad and a 9,000-foot Kalotsa No. 1 development well from a new pad between the existing Paxton and Susan Dionne pads.

Hilcorp completed the GO-8 well and drilled the Blossom No. 1 well, although the latter still requires “further testing and analysis” before the company can bring it into service.

Unspecified “permitting issues” delayed construction of the Kalotsa pad, which was pushed into 2016. The company is also planning a GO-9 well, which is being described as a “high angle development gas well” targeting the Upper Tyonek formation.



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