Hilcorp Energy’s oil and gas development program in Alaska’s Cook Inlet basin slots into the company’s objective to double in size between 2011 and 2015, John Barnes, Hilcorp Alaska’s senior vice president, exploration and production, told Commonwealth North’s Energy Action Coalition on Dec. 7. Since acquiring Chevron’s Cook Inlet assets at the beginning of this year, the company has been moving forward with aggressive plans to breathe new life into the aging oil and gas fields of the basin. The company is also in the process of purchasing Marathon Oil Co.’s Cook Inlet assets.
Aging assetsThe company’s mode of operation is to invest significant capital into the aging assets that it acquires, to grow the company by boosting production and reserves. And the company is spending a significant amount of money in the Cook Inlet basin, as it tries to turn around the sagging fortunes of fields, most of which first came on line several decades ago.
“We’ve got the cash flow to do that and really drive the assets where we want to go,” Barnes said.
Hilcorp places particular emphasis on top-notch reservoir engineering, coupled with the hard work of drilling and well remediation, recognizing that the Cook Inlet fields that it is operating are well past their initial bloom of youth.
“Initial production can actually be pretty forgiving, but when you’re late in the life of the field you really have to work hard to get that extra bit of oil and gas out of the ground,” Barnes said.
Hilcorp relies on the people working in the fields to use their local knowledge and expertise to reduce operating expenses while working with engineering staff to increase production rates, thus reducing the cost per barrel of products from the fields.
Swanson RiverIn the Swanson River oil field on the Kenai Peninsula, the first major oil field in the basin, with initial startup dating back to 1961, Hilcorp has been operating a drilling rig and using a pulling unit for well remediation, as well as bringing in a workover rig for well work.
“There are a lot of wells out there that need to be fixed,” Barnes said. “We’ve scratched the surface and have a long way to go. … When we took it over it was making about 300 barrels a day and on this morning’s report it was 2,200 barrels a day.”
Hilcorp has recently completed a well that is now producing at more than 1,000 barrels per day, Barnes said.
Offshore oilMost of Hilcorp’s oil production is offshore, where the company has stripped out the old drilling rigs from the offshore platforms, in preparation for the use of modern equipment for much-needed well work. The company has been using a small pulling unit for well remediation as an interim arrangement, prior to obtaining workover rigs.
“We’re having two proper workover rigs built that we’ll use out there to pull wells in a more efficient way,” Barnes said. “Those should be up and running spring of next year.”
When the time is right, Hilcorp will move a modern drilling rig to the platforms to re-drill wells, as necessary, he said.
Hilcorp sees the large McArthur River field, where the company has already increased production by about 8 percent, as having the greatest potential of its Cook Inlet oil fields. Boosting production at McArthur River is a question of re-invigorating the field’s old waterflood process and achieving efficient well completions, Barnes said.
Granite PointThe company also feels very positive about the prospects for its offshore Granite Point field, where production is up about 27 percent.
“Granite Point is a pretty unique opportunity,” Barnes said. “It’s relatively undeveloped. … We’ll be very active out there next year. Actually we’re going to fire up a drilling rig out there as well as perform some workovers and recompletions.”
The offshore Trading Bay oil field has also seen success. Barnes attributed a more than 30 percent jump in oil production at this field to the knowledge and ideas of the people working on the field’s monopod platform.
“Really that monopod rate jump is kudos to them,” Barnes said.
Drift River terminalIn parallel with boosting production from its offshore oil fields, Hilcorp has been engaged in a major initiative to restore normal operations at the Drift River oil terminal on the west coast of the Cook Inlet. Fields such as McArthur River, Trading Bay and Granite Point export their production through the Drift River terminal, shipping the oil by tanker across to the Tesoro oil refinery at Nikiski on the Kenai Peninsula.
In 2009 the terminal’s storage tanks were shut in, following an eruption of the Redoubt Volcano. The Cook Inlet pipeline carries oil from field production facilities on the west side of the inlet to Drift River — since the closure of the terminal, oil been stored at the production facilities and transported through the pipeline direct to tankers at the terminal, bypassing the terminal’s storage tanks.
InefficientBut this arrangement for exporting the oil has proved highly inefficient, with tankers being tied up for several days at the terminal before departing only half full of oil, Barnes said. As part of its restoration of the terminal, Hilcorp has spent more than $18 million raising the height of the berms that protect the tank farm from any mud flows that might come from an eruption at Redoubt.
Barnes said that there have been misconceptions about the risks associated with the proximity of the terminal to the volcano. The terminal is, in fact, 30 miles from the volcano, in a floodplain that impacts the dynamics of water flowing down the valley on the volcano’s side. During the last eruption at Redoubt the berms had successfully protected the tank farm, he said.
Natural gasResults to date from Hilcorp’s Cook Inlet gas fields have been somewhat mixed. Thanks to some remedial work in the fields and some engineering ideas from town, gas production has increased from some small onshore fields on the west side of the inlet. But gas production is down 30 percent in the Hilcorp-operated Trading Bay unit in the offshore.
“That is a very difficult field to work,” Barnes said, adding that Hilcorp anticipates achieving better results in this field in the future.
However, given the high rates of production decline in Cook Inlet gas fields at present, it will take much capital investment to keep production rates up.
“That’s just a given right now,” Barnes said, commenting that Hilcorp’s preference is for 100 percent ownership of fields that it operates, to enable the company to move fast, making development decisions without the need for agreements with joint owners.
Deep CreekIn the 100-percent Hilcorp owned Deep Creek unit on the Kenai Peninsula, Hilcorp has maintained gas production at the Happy Valley gas field through the drilling of two new wells. The company is in the process of drilling a third well, a horizontal well, in the unit. The Happy Valley program involves the exploration and development of some new sand units which have not previously seen production, Barnes said. Hilcorp is planning to conduct a seismic survey around the Deep Creek unit this winter, Barnes said.
Asked if Hilcorp plans any exploration activities in the Cook Inlet basin, Barnes said that the company had entered the basin with a strategy for development rather than exploration and that, with a “full plate” of development plans, the company does not have an exploration budget for 2013. On the other hand, the basin does offer exploration opportunities and Hilcorp anticipates pursuing some of these opportunities at some point, Barnes said.
Meantime, as part of the company’s gas development plans, Hilcorp has been working with Enstar Natural Gas Co. to bring Red Pad, a new gas field on the Kenai Peninsula, online by mid-December.
And moving forward into 2013, Hilcorp’s strategy is to focus on its onshore properties for its gas projects.
“It’s simpler to execute (than offshore),” Barnes said. “The economics are a bit better and, frankly, we think we can move the (natural gas) needle further, faster if we put our energy there.”
Marathon assetsIn early 2013 Hilcorp anticipates completing its purchase of Marathon’s assets, following a court hearing and decision for a consent decree agreed between Hilcorp and the State of Alaska regarding the purchase of the assets. The consent decree resolves a Federal Trade Commission investigation of the purchase, Barnes said.
In terms of the business environment in the Cook Inlet basin, Barnes said that Hilcorp is emphasizing to contractors, in the habit of trying to make money fast during the booms of a boom-bust cycle, that Hilcorp anticipates operating in the region for the long term. The concept is for people to make good money steadily over the long run.
“We’re going to continue, frankly, spending money and the best contractors will play, and those will be the ones that make some money,” Barnes said.