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Vol. 19, No. 48 Week of November 30, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Liberty again

Hilcorp to file new plan for field as acquisition of BP assets completes

Alan Bailey

Petroleum News

Having purchased a large slice of BP’s interests in four BP northern Alaska oil fields, Hilcorp Alaska is going to file a new proposed plan of the development for the Liberty field, offshore in the Beaufort Sea. Hilcorp has acquired a 50 percent interest in Liberty and is now the field operator. Hilcorp has also acquired all of BP’s interests in the Endicott and Northstar fields in the Beaufort Sea, and a 50 percent interest in the Milne Point field in the central North Slope.

During a presentation to the Resource Development Council’s annual conference on Nov. 19, Janet Weiss, president of BP Exploration (Alaska) Inc., said that the deal to sell BP assets to Hilcorp had closed on Nov. 18. The sale of the assets would enable BP to focus its efforts on the huge Prudhoe Bay field, Weiss said.

“It allows us to focus really operationally on what we do best strategically, and that’s giant fields and big gas value chains,” Weiss said, hinting at BP’s involvement in a project to export North Slope natural gas via a proposed gas pipeline from the Slope and a liquefied natural gas plant in Southcentral Alaska.

In reference to the undeveloped Liberty field, Weiss said that Hilcorp has developed “a great concept” that can make the project more competitive than previously thought.

“A little over a week ago we had together approached the regulatory authorities about changing operatorship from BP to Hilcorp for the Liberty opportunity,” Weiss said. “With that transfer of ownership they will be submitting a development and production plan proposal by the end of the year to the regulators, such that we can keep this opportunity moving forward.”

Liberty plan

Hilcorp has confirmed to Petroleum News that the company will be filing a plan for Liberty.

“Hilcorp is now the named operator of the Liberty development,” company spokeswoman Lori Nelson said in a Nov. 24 email. “Hilcorp will be submitting the development and production plan to regulators before the end of the year. We will be working through the initial permitting process during 2015 but no decisions have been made about bringing the project online.”

During his speech to the Resource Development Council’s conference Greg Lalicker, president of Hilcorp Energy, characterized Liberty and other potential new Alaska Arctic ventures, such as the development of heavy oil at Milne Point or conducting new exploration, as of interest to his company but as “add-ons to our basic business.” The company’s core business consists of conducting many small projects in very mature fields, to deliver more oil and gas from those assets, Lalicker said.

Same strategy

Essentially, on the North Slope Hilcorp will adopt the same strategy as it has been employing in the Cook Inlet basin, where as a consequence of a multitude of small development and upgrade projects the company has doubled oil production from the aging fields that the company acquired from Chevron and Marathon.

“It’s going to be literally hundreds of little projects over many, many years,” Lalicker said.

Weiss commented on BP’s confidence in Hilcorp’s capabilities as operator of fields which BP has managed for many years.

“It puts some fields into the hands of a very competent operator that has a great track record … like they’ve done in the Cook Inlet,” Weiss said. “Hearing their plans for Milne we see that they’re already planning additional activity, which should lead to more production down TAPS (the trans-Alaska oil pipeline).”

Weiss said that 200 BP employees have either transferred to Hilcorp or have decided to take early retirement. And, as part of improved efficiencies, there will be 275 job losses from the Prudhoe Bay field.

“We have a smaller footprint moving forward,” Weiss said. “However … that allows us to remain competitive at Prudhoe Bay and continue to attract capital from our co-owners.”

Increased activity

Since 2012 BP has increased its North Slope activity level by more than 50 percent - the company is on track to add an additional drilling rig operation to its operations in 2015, with a further rig due to go into action in 2016, Weiss said.

Projects continue to move forward in new development in the western part of the Prudhoe Bay unit. Work includes additions to field facility capacity, involving, for example, the construction of 25 miles of new oil pipeline for delivering more oil to TAPS, starting in 2017. Pad work includes the development of the first new pad at Prudhoe Bay in more than a decade and the expansion of two existing pads. The Prudhoe Bay western development equates to more than 200 million barrels of additional oil resource and the drilling of more than 115 wells, Weiss said.

In the northern part of the Prudhoe Bay unit BP plans to continue shooting a new 190-square-mile seismic survey that should delineate 50 million barrels of additional oil, requiring the drilling of 30 new wells, she said.

BP is also conducting a project to develop the Sag River formation, a thin and relatively poor-quality oil reservoir above the main reservoir of the Prudhoe Bay field. The company has been testing the use of paired, horizontal injection and production wells in this difficult formation. Testing of the technique has proved successful and, having already drilled a few of the paired wells, BP plans to drill another 12 well pairs in the next couple of years, Weiss said. Further success would provide confidence in the possibility of going after an estimated 200 million barrels of resource in the Sag River reservoir, with the potential for drilling as many as 200 wells, she said.

Stemming decline

Work at Prudhoe Bay focuses on stemming production decline by extracting more oil from the reservoir rocks.

“Our increase in capital (expenditure) from 2013 to 2014 was 25 percent,” Weiss said, commenting that, after for many years of seeing a North Slope oil production decline rate of around 6 to 8 percent, that decline rate had halved in the past couple of years.

And Prudhoe Bay is still North America’s largest oil field, Weiss said. When the field was first delineated, BP estimated that 9.6 billion barrels of oil might be produced from it, she said.

“By October 2012 we produced the 12 billionth barrel and there are billions more to go,” she said.



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Hilcorp: much work and a long-term payout

Since arriving on the Alaska oil scene a few years ago Hilcorp Energy has made no secret of its approach to revitalizing the aging oil and gas fields of the Cook Inlet basin. The approach consists of pushing up production rates through a multitude of well remediation, well drilling and facility improvement projects. And, having completed the purchase of some BP assets in northern Alaska, the company says it is starting to use the same approach to maximizing production from the Arctic fields that it now operates.

On Nov. 19 in a talk to the Resource Development Council’s annual meeting Greg Lalicker, Hilcorp’s president, said that his company has doubled oil production from the Cook Inlet fields that the company purchased in 2012.

And Lalicker described how the company’s strategy has being playing out in one of its Cook Inlet assets, the Trading Bay oil field that produces through a monopod oil platform offshore the west side of the inlet.

The Trading Bay field first came on line in 1967, with oil production peaking a few years later at 30,000 barrels per day. At the time when Hilcorp purchased the field the production had dropped to 600 to 800 barrels per day, with 31 of the offshore platform’s 32 available well slots already in use, Lalicker said. But thanks to an intense remediation effort, production is now up to almost 4,000 barrels per day, he said.

$75 million on projects

Lalicker said that Hilcorp has so far spent $75 million on about 100 individual projects at Trading Bay. Of these projects, 55 have involved upgrading field facilities, carrying out activities such as increasing pump capacities, installing new gas dehydrators and expanding the capacity of the electricity generators. Another 26 projects have involved well workovers, clearing out wells, adding more perforations to the well casings in the reservoir rocks, adding further production zones and changing the oil artificial lift arrangements. Hilcorp has drilled one well at Trading Bay to bring in additional production. And other projects have entailed repairing existing equipment, to keep the equipment up and running.

In addition to the costs of these projects, the field incurs operating expenses of around $800,000 to $1 million per month. Around $300,000 of that consists of labor costs, with the remainder being the costs of the various support services that the field uses, Lalicker said. Royalties paid to the state amounted to about $100,000 per month in 2012 but now average about $1 million per month, he said.

Payback

At this point Hilcorp has recovered about half of what it has paid out since field acquisition three years ago — the field should be paid off over the course of five to seven years, depending on the oil price, Lalicker said.

By comparison, the nearby McArthur River field has proved more challenging, requiring a $200 million spend on projects and having a payback period of nine to 12 years, he said.

“We’re putting money out there and thinking it’s going to take us 10, 15 years ultimately to make money on these investments, but in the long run they turn out to be good opportunities,” Lalicker said.

—Alan Bailey