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Vol. 22, No. 47 Week of November 19, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

The Producers 2017: Hilcorp continues Cook Inlet dominance

The leading player in the Cook Inlet region is facing different situations at different areas in its portfolio

Eric Lidji

For Petroleum News

Hilcorp Alaska LLC has been the dominant producer in the Cook Inlet basin since it arrived in Alaska five years ago, and its dominance seems to increase with each year.

The local subsidiary of the Texas-based independent currently operates about 20 fields and units - a number that occasionally fluctuates due to acquisitions and consolidations.

On the west side of Cook Inlet, Hilcorp operates the Ivan River unit, the Lewis River unit, the Pretty Creek unit, the Stump Lake unit and the Beluga River unit. Offshore, the company operates the North Cook Inlet unit, the Granite Point unit, the Middle Ground Shoal unit, the Trading Bay unit and the North Trading Bay unit and associated McArthur River field. In the southern Kenai Peninsula, the company operates the Deep Creek unit, the Ninilchik unit and the Nikolaevsk unit. In the northern Kenai Peninsula, the company operates the Birch Hill unit, the Swanson River unit, the Beaver Creek unit, the Sterling unit, the Kenai unit and the Cannery Loop unit. Some of those properties are inactive and the company is in the process of determining whether to revive or relinquish them.

Operating such a large number of properties has allowed Hilcorp to connect certain fields in new ways, leading to regional stories throughout the basin. On the west side, the company is looking for ways to maintain production from marginal properties near one of the most important field in the basin. Offshore, the company is consolidating neighboring properties to create efficiencies. In the southern Kenai Peninsula, the company is using exploration to expand existing development. In the northern Kenai Peninsula, the company is steadily working to revive some of the oldest active fields in the basin.

All those stories fall within a larger story. In recent years, Hilcorp has scaled back its development activities across the Cook Inlet basin in response to the economic climate.

The extent of those holdings have also allowed Hilcorp to consolidate certain midstream initiatives in Cook Inlet. The company recently asked the Regulatory Commission of Alaska for permission to ship oil from west to east, beneath Cook Inlet. The $75 million Cross Inlet Extension Project would bypass the Drift River oil terminal, allowing the company to reduce the use of oil tankers in Cook Inlet.

West side

By taking over operatorship of the Beluga River unit from ConocoPhillips Alaska Inc. in early 2016, Hilcorp created an opportunity for employing a new strategy at its west side properties.

The four other units that Hilcorp operates in the region - Ivan River, Lewis River, Pretty Creek and Stump Lake - are all marginally economic, according to the company, and have received the lowest investment of any region in the Hilcorp portfolio in Cook Inlet.

The company did not drill any wells or conduct any workover activities at the units in 2016 and is not planning any development work for the current year. For some time, the company has been planning a comprehensive study to determine the future of the region.

The Ivan River unit produced some 450 million cubic feet of gas in 2015, some 320 million cubic feet in 2016 and more than 130 million cubic feet in the first half of 2017, according to figures provided by the Alaska Oil and Gas Conservation Commission.

Cumulative production through June 2017 was 85.9 billion cubic feet.

The Lewis River unit produced 336 million cubic feet in 2015, 130 million cubic feet in 2016 and 66.2 million cubic feet in the first half of 2017, according to the AOGCC.

Cumulative production through June 2017 was 15.3 billion cubic feet.

The Pretty Creek unit produced 0.85 million cubic feet of gas in 2015, 0.32 million cubic feet in 2016 and 1.5 million cubic feet in the first half of 2017, representing a noticeable production increase. Cumulative production through June 2017 was 9.5 billion cubic feet.

The regional study will have the greatest impact on the Stump Lake unit.

Hilcorp suspended operations at the unit in 2012, when the company encountered mechanical issues as it was attempting to add perforations to the SLU 41-33RD well.

When it assumed operatorship of the Beluga River unit, Hilcorp told the state that the larger unit created new opportunities for reviving production the Stump Lake unit. Without such a “critical mass” of projects in the region, “the economic life of the Stump Lake unit has likely passed,” the company added at the time. But after completing a state-mandated field study at Stump Lake, Hilcorp “concluded that the conventional life of this legacy field has reached its economic limit,” according to a March 2017 plan of development.

Even so, the company decided to include the Stump Lake unit in its regional study and committed to restarting production from the unit by the third quarter of this year. “If unit production is not resumed by said date, Hilcorp commits to plugging and abandoning of SLU 41-33RD” in the 2018 plan year, the company wrote in its plan of development.

The state Division of Oil and Gas determined that the Stump Lake unit plan of development was incomplete as written and asked the company for more detailed information about its plan to restore production by the third quarter of the year.

Even if the company decides to permanently end operations at Stump Lake, the comprehensive study also presents opportunities for the three remaining units.

Hilcorp conducted a workover program at the Beluga River unit in 2016, temporarily bringing the 244-04 well online to diagnose a range of maintenance requirements and evaluating the 224-34 and 214-26 wells as candidates for artificial lift in the future.

The company did not drill any wells or sidetracks at Beluga River during its first year as operator and has not made any firm drilling plans at the unit for the coming year.

The Beluga River unit produced 21.2 billion cubic feet of gas in 2015, 18.0 billion cubic feet in 2016 and 7.7 billion cubic feet in the first half of 2017, according to the AOGCC.

Cumulative production through June 2017 was 1.34 trillion cubic feet.

Offshore

Hilcorp currently operates six offshore fields and 12 offshore platforms in four clusters throughout the waters of Cook Inlet. The extent of these assets has allowed the company to consolidate neighboring properties and potentially to restart suspended oil platforms.

Several months after taking over as operator at the Beluga River unit from ConocoPhillips, Hilcorp closed on ConocoPhillips’ offshore North Cook Inlet unit and its Tyonek platform.

By the time of the closing, ConocoPhillips had already submitted a plan of development for North Cook Inlet for the year. Hilcorp submitted an update to the state in April 2017.

Under the updated program, Hilcorp would not drill any wells or sidetracks nor would it perform any workover operations at the North Cook Inlet unit this year. But the company would conduct a comprehensive field study for future activities, including oil production.

The North Cook Inlet unit has traditionally provided natural gas for the ConocoPhillips-operated Kenai liquefied natural gas facility, which is currently semi-idle and for sale.

The North Cook Inlet unit produced 7.3 billion cubic feet of gas in 2015, 5.9 billion cubic feet in 2016 and 3.4 billion cubic feet in the first half of 2017, according to the AOGCC.

Cumulative production through June 2017 was 1.9 trillion cubic feet.

To the south, Hilcorp has combined the Granite Point field and the South Granite Point unit into the Granite Point unit with three platforms - Granite Point, Anna and Bruce.

The company did not drill at Granite Point in 2016 but plans to drill three sidetracks this year - the GP-11-24RD, GP-24-13RD2 and MUCI-02RD sidetracks, according to the most recent plan of development, from March 2017. All three sidetracks would target the Tyonek C7 sands from the Granite Point platform. At the Alaska Oil and Gas Association annual conference on May 31, Hilcorp Alaska Senior Vice President David Wilkins described the wells as a horizontal redevelopment program, scheduled to start in June.

The Alaska Oil and Gas Conservation Commission issued a permit on July 12 for the company to drill the Granite Point State 22-13RD3 into the Middle Kenai oil pool.

The company performed a workover on the AN-11RD well in 2016 but was unable to return the well to production. The company is planning no workovers at the unit this year.

Hilcorp suspended operations at the Anna platform for several days in April 2017 after personnel discovered a small leak of natural gas condensate from a gas flaring system.

Granite Point produced some 804 million cubic feet of gas in 2015, 791 million cubic feet in 2016 and 323 million in the first half of 2017, according to the AOGCC.

Cumulative gas production through June 2017 was some 135.8 million cubic feet.

Granite Point produced some 0.92 million barrels of oil in 2015, 0.92 million barrels in 2016 and 0.39 million barrels in the first half of 2017, according to the AOGCC.

Cumulative oil production through June 2017 was 152.7 million barrels.

Hilcorp has also consolidated the North Middle Ground Shoal field, Middle Ground Shoal field and South Middle Ground Shoal unit into the Middle Ground Shoal unit.

In requesting consolidation, the company argued that it would maximize operations at Platforms A and C and promote opportunities at the shut-in Baker and Dillon platforms.

The company is planning no drilling or workover activities at Platform A this year but could sidetrack three Platform C wells - C23-26RD, C33-26RD and C34-26RD - later this year or in 2018. The company is planning no work at the Baker or Dillon platforms.

The company reported a notable increase in production from the unit between 2015 and 2016, likely the result of eight workover projects. The company added perforations at the A11-01, A12A-01 and A24-01LE wells at platform A, and performed a variety of projects at C21-23, C22-26RD, C13-13LN, C31-26RD and C42-232 at platform C.

Hilcorp processed a 2015 3-D seismic program last year and plans to continue analyzing the results this year with the plan of identifying future drilling or workover projects.

Middle Ground Shoal produced 0.69 million barrels in 2015, 0.68 million barrels in 2016 and 0.14 million barrels in the first half of 2017, according to the AOGCC.

Cumulative oil production through June 2017 was 203.1 million barrels.

The future of the shut-in Baker and Dillon platforms remains a point of uncertainty.

In its 2016 plans of development for North Middle Ground Shoal and South Middle Ground Shoal, before the units were consolidated, Hilcorp announced plans to restart North Middle Ground Shoal production from the Baker platform to production in 2017 and to conduct a comprehensive reservoir study of the South Middle Ground Shoal unit with the goal of restarting production in 2018, presumably through the Dillon platform.

The company removed both projects from its 2017 plan of development. When the state asked for details, the company said it had no immediate plans to revive the platforms.

For that reason, Division of Oil and Gas Director Chantal Walsh denied the most recent plan of development and forced the company to provide updated plans for the platforms.

In a revised plan, Hilcorp explained that it suspended the Baker and Dillon programs after a gas pipeline disruption upended operations across the entire unit, requiring the company to divert all its resources at the moment toward Platform A and Platform C.

Even so, while plans to restart Dillon platform production remain on-track, albeit hampered by technical and economic problems, the company no longer believes the plan to restart Baker platform production is viable and is diverting those resources to A and C.

The company argued that the interconnectedness of the three Middle Ground Shoal fields justified the decision to consolidate, regardless of the Baker and Dillon platforms.

To the south, the Trading Bay unit and McArthur River field and the North Trading Bay unit remain distinct fields, although their operations and administration are interrelated.

In its most recent plan of development for the Trading Bay unit, from March 2017, Hilcorp announced plans to sidetrack the A-04RD well from the Monopod platform into the nearby North Trading Bay unit. The sidetrack would target the Hemlock and Tyonek G-zone. If successful, the sidetrack would restore production at North Trading Bay.

The plan would require some administrative changes, such as a revision of the unit boundaries or metering requirements, and it leaves open the question of what to do with the shut-in Spark and Spurr platforms at North Trading Bay. There were discussions in previous years of dismantling the platforms. Hilcorp does not believe it is economic to restart production from the two platforms, but does believes that they have value “to support ongoing evaluation and analysis” of potential development opportunities.

The company sidetracked the A-27RD2 well in 2016 but deferred plans for drilling the A-20RD2D and A-26RD wells pending a further review of seismic information. The company also deferred three of the four workover projects it had planned for 2016.

The Trading Bay unit produced 1.8 billion cubic feet of gas in 2015, 1.2 billion cubic feet in 2016 and 512 million cubic feet in the first half of 2017, according to the AOGCC.

Cumulative gas production through June 2017 was 79.9 billion cubic feet.

The Trading Bay unit also produced 1.1 million barrels of oil in 2015, 0.8 million barrels in 2016 and 0.32 million barrels in the first half of 2017, according to the AOGCC.

Cumulative oil production through June 2017 was 107.3 million barrels.

In its most recent plan of development for the McArthur River field, in March 2017, Hilcorp announced plans to drill as many as three grassroots wells and four sidetracks over the current development year. The three wells - M35, M36 and M37 - would target the upper West Foreland formation from the Steelhead platform. The four sidetracks - K-06RD2, K-24RD3, K-03RD2 and K-26RD2 - would be at King Salmon platform wells.

Through the first seven months of the year, the company drilled the K-03RD2, K-06RD2 and K-24RD3 sidetracks and the M-06RD, M-28RD and M32RD wells at the field.

The company sidetracked the shut-in K-10RD well, the K-06RD well and the K-10RD well in 2016. A plan to sidetrack the K-25RD well was cancelled due to low quality rock.

The company also worked over one well at the Dolly Varden platform, four wells at the Grayling platform, two wells at the Steelhead platform and three wells at the King Salmon platform. The work mostly involved replacing electric submersible pumps.

The McArthur River field produced 8.9 billion cubic feet of gas in 2015, 7.3 billion cubic feet in 2016 and 3.1 billion cubic feet in the first half of 2017, according to the AOGCC.

Cumulative gas production through June 2017 was 1.2 trillion cubic feet.

The McArthur River field also produced 2 million barrels of oil in 2015, 1.79 million barrels in 2016 and 0.7 million barrels in the first half of 2017, according to the AOGCC.

Cumulative oil production through June 2017 was 641.9 million barrels.

The southern Kenai Peninsula

At its properties in the southern Kenai Peninsula, Hilcorp is using exploration to expand production at existing developments and to protect acreage from automatic contraction.

The company operates three active units in the area: Deep Creek, Ninilchik and Nikolaevsk. The company recently terminated the offshore Kasilof unit after considering and then rejecting a proposal to consolidate its operations into the coastal Ninilchik unit.

The company also operates a considerable number of un-unitized state and private leases throughout the southern Kenai Peninsula, including a cluster south of Anchor Point where the company recently permitted several stratigraphic tests wells at the new Seaview prospect.

In its most recent plan of development for Deep Creek, Hilcorp announced plans to drill between four and six stratigraphic test wells over the coming development year. The results would guide exploration in the Sterling and Beluga formations for 2018 and 2019.

In the plan, Hilcorp once again deferred a project to build the Middle Happy Valley pad or C pad at the unit. “Hilcorp continues to progress plans to drill at Middle Happy Valley and C-Pad (within the Happy Valley PA), but cannot commit to drilling until the operational and economic risk associated with such exploratory efforts is reduced.” The company also deferred plans to drill a Middle Happy Valley exploration well in 2016.

As proof of its commitment, Hilcorp noted that it conducted seismic programs in 2013 and 2016 and a remote sensing data program in 2015 in the southern end of the unit.

The state has previously threatened to contract the unit unless Hilcorp explores the area.

In its 2016 development year, the company added perforations to the existing HVB-17 well, with production beginning in May 2016. The company also overhauled compression facilities at the existing Happy Valley A and Happy Valley B pads.

The Deep Creek unit produced 2.4 billion cubic feet of gas in 2015, 2.2 billion cubic feet in 2016 and 1.1 billion cubic feet in the first half of 2017, according to the AOGCC.

Cumulative production through June 2017 was 33.5 billion cubic feet.

In its most recent Ninilchik plan of development, Hilcorp announced plans to drill the Kalotsa No. 3 and No. 4 wells at the new Kalotsa pad and later announced plans to drill the Pearl No. 2 well from a new Pearl pad to be built on private leases beyond the unit boundary. If successful, Hilcorp would build Pearl production facilities in early 2018.

The Alaska Oil and Gas Conservation Commission issued a drilling permit for the Kalotsa No. 3 well on March 8, 2017, and the Kalotsa No. 4 well on May 2, 2017, and issued permits for the Pearl No. 1A, Pearl No. 2, Pearl No. 3, Pearl No.4, Pearl No. 5, Pearl No. 6 and Pearl No. 7 stratigraphic test wells in late June and early July 2017.

In September 2017, Hilcorp asked the AOGCC to expand the Ninilchik Beluga/Tyonek gas pool to include the deeper intervals - known as the sub-T142 sands - the company has been testing over the past year with the Kalotsa No. 3 and Kalotsa No. 4 wells.

The Ninilchik unit produced 13.9 billion cubic feet of gas in 2015, almost 11. 5 billion cubic feet in 2016 and 6.1 billion cubic feet in the first half of 2017, according to the AOGCC. Cumulative production through June 2017 was 195.1 billion cubic feet.

The Nikolaevsk unit remains in a holding pattern.

Hilcorp is not planning any new drilling activities at the unit but plans to hydraulically fracture the Tyonek formation in the existing Red well and expects that the workover project will increase unit productivity by 1 million to 3 million cubic feet per day.

The Nikolaevsk unit produced 80.8 million cubic feet of gas in 2015, 54.5 million cubic feet in 2016 and 89.5 million cubic feet in the first half of 2017, according to the AOGCC. Cumulative production through June 2017 was 875.9 million cubic feet.

The northern Kenai Peninsula

At the northern end of the Kenai Peninsula, Hilcorp operates a series of older onshore units that are predominately overseen by the U.S. Bureau of Land Management.

In its most recent plan of development for the Swanson River unit, Hilcorp announced plans to drill one well and perform one workover during the year ending March 2018.

The company plans to drill the SRU 241-33 well and perform a workover on the SCU 44-33 well during the third quarter of this year. (The Swanson River unit and the Soldotna Creek unit started as separate administrative entities but have been managed together since 1963, and some well names at the unit still reflecting those earlier designations.)

The company is currently working on a field-wide shallow gas survey at the Swanson River unit. The goal is to identify remaining reserves above the Hemlock formation. A list of sidetrack candidates “will be vital for economically reaching these smaller/less economic targets” and could influence development activities in the near future.

In the 2016 development year, Hilcorp drilled two wells - SCU 322C-04 and SCU 31B-04 - and completed workover projects at SCU 33-33, SRU 14B-27 and SCU 41A-08.

In its most recent plan of development for the Kenai unit, Hilcorp announced plans to drill as many as six wells in the year ending March 2018, including at least four wells into the Deep Tyonek participating area and two wells into the Beluga/Tyonek gas pool.

The company is also considering two other well projects.

The upcoming development program also includes as many as 25 workover projects at the unit. The program includes as many as 10 coil tubing workovers, five rig workovers and 10 e-line recompletions with an emphasis on restoring older wells to production.

The program is a large increase over activities in the development year ending March 2017, when the company conducted 12 workover projects and did not drill new wells.

The Swanson River unit produced 0.9 million barrels of oil in 2015, 0.74 million barrels in 2016 and 0.32 million barrels in the first half of 2017, according to the AOGCC.

Cumulative oil production through June 2017 was 234 million barrels.

The Swanson River unit also produced 1.9 billion cubic feet of gas in 2015, 3.1 billion cubic feet in 2016 and 2.6 billion cubic feet in the first half of 2017, according to the AOGCC. Cumulative gas production through June 2017 was 2.87 trillion cubic feet.

To the north at the Cannery Loop unit, Hilcorp plans to sidetrack the CLU-10 well this year to the Upper Tyonek and workover the CLU-05RD well to the Upper Tyonek.

Hilcorp is not planning any wells or sidetracks at the Beaver Creek unit this year but expects to conduct a rig workover targeting the Sterling B3 interval at the BCU-25 well.

The company also did not drill any wells or sidetracks at the Beaver Creek unit in 2016 but performed one rig workover targeting five Tyonek intervals at the BCU-23 well.

The Beaver Creek unit produced 6.2 billion cubic feet of gas in 2015, 4.5 billion cubic feet in 2016 and 2.4 billion cubic feet in the first half of 2017, according to the AOGCC.

Cumulative production through June 2017 was 232.3 billion cubic feet.

The Birch Hill and Sterling units are currently suspended.

Hilcorp is planning to restart production from the Birch Hill unit, although the project depends upon completing construction of a surface infrastructure program at the unit.

The program revolves around a plan to remove a plug from the existing Birch Hill 22-25 well, conduct a workover and conduct various well tests. The project requires construction of a snow road and mobilization of a workover rig and testing equipment.

If the well proves to be non-commercial, Hilcorp would plug and abandon the well. If the test is successful, Hilcorp would build a production facility and gas gathering lines to bring the unit into production. The project would take between six and 12 months, with half devoted to planning, permitting and design and the rest going toward construction.

But the entire project, including both the test and the potential development, is dependent on “gas market requirements and favorable winter weather conditions,” Hilcorp wrote.

In its most recent plan of development for the Sterling unit, Hilcorp proposed a sequential process of plugging and abandoning four existing wells. The process would start with the suspended SU 23-15 well and the shut-in SU 41-15RD well in the third quarter of this year. After plugging and abandoning those two wells, the company would contract the federal, state and privately held acreage from the unit and voluntarily relinquish the leases associated with that acreage, leaving only Cook Inlet Region Inc. leases within 1,500 feet of the remaining two wells at the Sterling pad - SU 43-9X and SU 32-09 - for future production. (A fifth well at the unit - SU 43-09 - remains an active disposal well.)

But the BLM has said it would prefer to terminate the unit, given the inability of Hilcorp to restore production over the past three years. The state did not object to termination.



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