Vol. 25, No.31 Week of August 02, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Exploration not forte, but …

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Hilcorp appears to be advancing Whiskey Gulch, Lower Cook Inlet exploration

Kay Cashman

Petroleum News

Hilcorp is best known for employing modern tools to increase output from mature oil and gas fields, giving fields past their prime the attention they need to continue producing at optimum levels.

Hilcorp’s modern exploration toolbox is seldom pulled off the shelf but with the company’s strategy of having little middle management, its individual asset teams have creative license to chase ideas, an approach that paid off in late 2018 with a natural gas discovery in the Seaview No. 8 discovery well in the southern Kenai Peninsula.

Near Anchor Point, Seaview is slated to go online in late 2020.

Among other things, Hilcorp’s exploration tool chest includes airborne gravity gradiometric and magnetic surveys, along with geologic field surveys, drainage anomaly studies and seismic surveys to home in on more optimized well locations in its search for more gas to serve Cook Inlet area markets.

Hilcorp has also been doing preliminary exploration in the lower Cook Inlet and on the west side of Cook Inlet on the Iniskin Peninsula, looking at the oil and gas potential of those areas.

Two things could upset the pace of the company’s exploration plans: Covid-19 restrictions and the challenge of securing funds for oil and gas exploration and development.

Seeking partners

Both Hilcorp and the Alaska Department of Natural Resources had booths at NAPE in early February 2020, before the oil price crash and before much was known about the coronavirus. DNR Commissioner Corri Feige, who spent time at Hilcorp’s booth discussing the company’s Cook Inlet and North Slope prospects, talked to Petroleum News after the annual prospect conference and expo.

Among other things, “We talked about as cold as this winter has been they have been producing all out so they’re very excited about new Cook Inlet gas prospects,” she said, as well as “the new prospects they have down in the southern waters in Lower Cook Inlet.”

Feige said Hilcorp officials are “feeling very bullish about both oil and gas down there. They were actively talking to people visiting their booth about it.”

On hand in the Hilcorp booth were four geoscientists and landmen knowledgeable about opportunities in Alaska: Kevin Tabler, Jim Shine, Dave Buthman and Steve Dietz.

“We’ve seen a shale mania craze at the last several NAPEs, but now we are seeing a shift. Companies are looking for ways to balance their portfolios … to get conventionals back in the mix … and Alaska has an abundance of those,” Feige said.

Looking at Hilcorp’s various agency filings, the company’s next Cook Inlet basin exploration well will most likely be onshore near Anchor Point at Whiskey Gulch, but the company has other more distant opportunities, such as the Iniskin Peninsula, outer continental shelf leases in Lower Cook Inlet and the 1002 area of the Arctic National Wildlife Refuge where the KIC well and Native leases it shares with Chevron give Hilcorp valuable insights on the area’s potential.

Iniskin Peninsula

With a huge geologic anticline clearly visible from the air and associated surface oil seeps, the Iniskin Peninsula across Cook Inlet from Kachemak Bay seems an obvious target for oil exploration. But, since wells drilled in the early 1900s, in the 1930s and in the 1950s failed to make a commercial oil discovery in the area, the peninsula has remained dormant from the perspective of petroleum exploration.

Until, that is, 2013 when Hilcorp signaled its interest by shooting a 2D seismic survey there, a survey that for the first time revealed some information about the Iniskin Peninsula’s subsurface structure and stratigraphy.

On May 23, 2017, during the Association of American Petroleum Geologists Pacific Region annual conference, Hilcorp geologist David Buthman said the company is encouraged by what it has seen on the peninsula and would be interested in drilling an exploration well there in the future.

The drilling conducted in the ’30s and ’50s had reached depths of 8,775 to 11,231 feet in the “up-plunge” or higher section of the anticline on the peninsula. Although oil was encountered, the flow rates were deemed to be too low for viable development, Buthman said. But modern development techniques open the area’s possibilities of development, he said, noting the large thicknesses of the rock units with oil potential compensate for the poor rock permeability.

55,000-acre prospect

The Iniskin prospect consists of a 55,000-acre structural closure, with two potential oil and gas reservoirs, 1,292 feet and 300 feet thick, in the Middle Red Glacier formation, part of the Jurassic Tuxedni group that sourced most of the oil in the Cook Inlet oil fields. These are mud-rocks within the thermal window in which oil may be generated - they could provide tight oil targets.

The rocks have fractures that follow characteristic orientations and could transport fluids. And the nature of the rocks seems similar to the Wolfcamp shale, a tight oil source in the Permian basin of Texas, Buthman said. In addition, there are known to be numerous oil-saturated, low permeability, low porosity sandstones in the region of the Iniskin Peninsula that could make other targets.

Volcanic breccia and sandstones within the Lower Red Glacier formation also appear to provide highly prospective conventional targets.

Offset crest

Moreover, Hilcorp’s seismic data on the Iniskin Peninsula indicate that the anticline on the peninsula has a surface crest offset to the west relative to the crest of the deeper structure. Consequently, the wells that were drilled into the structure many years ago missed that deeper crest, Buthman said.

He also commented that live oil was observed in eight of the seismic shot holes that were drilled on the crest of the surface structure in conjunction with Hilcorp’s seismic survey.

Asked about the prospects of further investigation, Buthman said drilling on the peninsula should be straightforward but that moving the equipment and personnel to the remote location, negotiating the Cook Inlet tides at the landing point with a barge, would be difficult.

Survey approved

Of seemingly more interest to Hilcorp is its nearby acreage in the federal waters of the Lower Cook Inlet, southwest of Kachemak Bay

On May 1, 2020, the Bureau of Ocean Energy Management announced that it had issued a permit allowing Hilcorp to conduct a geohazard site clearance survey the area. The approximately 88 square-mile survey area covers portions of 11 of 14 OCS leases that Hilcorp obtained in a June 2017 federal OCS lease sale. A geohazard survey of this type is an essential prerequisite to the drilling of offshore exploration wells. Federal regulations require a hazard evaluation to be conducted over the entire area within about 1.5 miles of a well site.

BOEM said that Hilcorp expects to begin the surveying in late summer 2020 and that the survey operations must be completed by Oct. 31, 2020. The exact length of the survey timeframe will depend on the weather and on any schedule adjustments needed to accommodate the protection of marine mammals, the agency said.

A geohazard survey vessel will conduct the operation, with data being collected using equipment mounted on and towed behind the vessel. In addition to using shallow seismic equipment such as sidescan sonar, Hilcorp anticipates collecting water and seabed sediment samples, while also collecting cores from the seabed, BOEM’s approval document said.

Trained observers on the vessel will monitor for marine mammals, to ensure that appropriate measures can be taken to avoid wildlife disturbance.

Environmental assessments

BOEM said that it had originally conducted an analysis of the potential environmental impacts of Hilcorp’s likely activities, including the geohazard survey, when preparing an environmental impact statement for the 2017 Lower Cook Inlet lease sale. The agency determined that this analysis was sufficient to enable approval of Hilcorp’s survey permit application without further review.

In July 2019, the National Marine Fisheries Service issued a letter of authorization for the unintended disturbance by Hilcorp of marine mammals during the company’s anticipated oil and gas activities throughout the Cook Inlet over the following five years. Those activities include conducting a 3D seismic survey in the Lower Cook Inlet in 2019 or 2020; conducting an OCS geohazard survey in the Lower Cook Inlet in 2020 or 2021; and drilling two to four exploratory wells between February and November in 2020 through 2022.

Each well would take 40 to 60 days to complete and would require a jack-up rig, the letter of authorization said. The newly approved plan for the geohazard survey encompasses five potential well locations.

Seismic, jack-up

Hilcorp conducted its planned offshore 3D seismic survey during the summer of 2019.

In March 2019, Buthman said Hilcorp was working to bring the Seadrill West Epsilon jack-up rig to Cook Inlet for the drilling. There are two jack-up drilling rigs currently stationed in the Cook Inlet region: the Spartan 151 and Randolph Yost. But both rigs are apparently limited to maximum water depths of 150 feet.

Mike Dunn, Hilcorp development manager, said that the West Epsilon rig can drill to subsurface depths of 25,591 feet in water depths up to about 393 feet.

Highly prospective

Although some distance south of most of the producing Cook Inlet oil and gas fields, the area of the planned drilling is north of the Augustine-Seldovia arch, a geologic structure to the south of which the thick Tertiary rock sequence hosting the producing fields of the region thins out.

The successful Cosmopolitan oil field lies under the nearshore waters of the Inlet immediately to the northeast, near where Hilcorp is planning to develop its new Seaview gas field. Underneath the Tertiary sequence lies a thick sequence of Mesozoic strata that also have known oil potential.

Buthman said Hilcorp is particularly interested in what it refers to as the Blackbill prospect, an oil prospect penetrated by ARCO’s Raven No. 1 well in 1982. The prospect, about halfway across the inlet, due west of the town of Homer, contains a known oil resource in a Cretaceous reservoir within the Mesozoic sequence, Buthman indicated. He said that Hilcorp’s 2019 3D seismic survey had revealed a 65,000-acre, four-way closure with the oil discovery at the top.

Anchor Point gas fever

While Hilcorp employs a host of modern high tech and traditional exploration techniques, its study of drainage anomalies on the Kenai Peninsula led the way to the Anchor Point area.

The Swanson River field discovery by Richfield in the late 1950s is credited with sparking the modern oil industry in Alaska, which in turn built the case for statehood.

Soldotna Creek wraps around the main producing part of the Swanson River field, Buthman said in a March 17, 2020, presentation.

“It’s hard to avoid seeing the importance of drainage anomalies when you see this,” Buthman said. “A full half of the production of Swanson River has come from this circular drainage anomaly.”

Happy Valley has a nosing drainage anomaly where Deep Creek flows that reveals a surface expression of the structure, he said.

“The discovery we just made at Seaview, you see the same sort of thing with the Anchor River,” he said. “We don’t have outcrops there, but we still see the same nosing.”

Over the last few years, Hilcorp has been securing mineral rights around the Anchor River from the state as well as from private mineral holders and public entities.

The company has drilled several stratigraphic test wells at Whiskey Gulch on the southern Kenai Peninsula just north of Anchor Point, including some in June 2020.

Petroleum News sources indicate Hilcorp is in the process of finalizing a location to drill its first Whiskey Gulch exploration well; something the company is hoping to do in 2021. Hilcorp would not confirm that information.

ANWR 1002 area

Through its 2020 purchase of all BP’s upstream oil and gas assets in Alaska, Hilcorp has unique access to valuable geological data regarding the ANWR 1002 area, which is a 1.57-million acre strip of coastline that was set aside because of its petroleum potential by Congress in 1980 when the 19 million-acre wildlife refuge was created.

Operator Chevron and BP were 50-50 partners in the KIC No. 1 well, which was drilled in the mid-1980s and remains the only well in the 1002 area. The well was drilled over two winter seasons to a depth of 15,193 feet at a cost of more than $40 million. It is on 92,000 acres of Native land within the 1002 area that the partners leased from Arctic Slope Regional Corp., which owns the subsurface oil and gas mineral rights, with the village corporation in the area, Kaktovik Inupiat Corp., owning the surface; hence the well name KIC.

The BP acquisition also means Hilcorp is part of a consortium of companies that have access to 2D seismic data in ANWR, along with Chevron, Anadarko, ConocoPhillips, ExxonMobil, Hess, Marathon, Murphy, Oxy, Shell and Total.

In addition to BP, Chevron and ASRC, a handful of state of Alaska geoscientists have been able to see KIC well data.

When BP and Chevron renewed the 92,000-acre Native lease in 1999, Neil Ritson, then-exploration vice president for BP in Alaska, was quoted as saying, “ANWR offers the greatest potential for a world-class oil discovery on the North Slope.”

Quoted in the same press release Dave Birsa, then Chevron’s exploration manager for Alaska, said what state geoscientists have continued to echo: “The ANWR coastal plain … is on trend with the prolific oil fields of the central North Slope and has significant geological potential.”

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