Vol. 25, No.42 Week of October 18, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Hilcorp gets approvals for gas production, unitization at Seaview

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Kristen Nelson

Petroleum News

Hilcorp Alaska has told state agencies it plans to bring its newest Cook Inlet gas field, Seaview, online Nov. 1, and is gaining regulatory approvals necessary to begin production.

The Alaska Department of Natural Resources’ Division of Oil and Gas issued a partial approval of the Seaview unit application Oct. 7, noting that tracts within the boundaries where mineral rights owners have not agreed to participate are not included in the unit.

The division has also received an application from Hilcorp for a participating area at the unit. The PA defines the area within the unit from which production is expected to occur and is required before production can begin.

And on Oct. 12 the Alaska Oil and Gas Conservation Commission approved production from Seaview No. 8, the field’s first gas well. Because some mineral rights owners have not committed to the unit, AOGCC is requiring Hilcorp to establish and pay into an escrow account the royalties for those mineral rights owners who haven’t signed leases with the company.

In its participating area, or PA, application, the company told the division that it has been actively exploring the Seaview prospect for six years, “conducting seismic, drilling stratigraphic well tests, and performing other confidential surveying of the area.”

Hilcorp used what the division described in its unit decision as an innovative toolbox to map the Seaview area, including airborne gravity gradiometry and magnetic surveys, geologic field work, shallow logged stratigraphic test wells and 2D seismic. The company drilled the Seaview 8 exploratory well in 2018, testing the well for gas in May 2019.

“Seaview 8 encountered commercial quantities of gas in four zones in the Tyonek formation,” AOGCC said, and the company identified several additional prospective gas zones.

Multiple mineral owners

The Seaview prospect is at Anchor Point on the southern Kenai Peninsula and in addition to DNR leases there are hundreds of small mineral rights owners in the unit area. Of total unit acreage of 2,974.9 acres listed by Hilcorp, 86.7% of the acreage, 2,597.3 acres, is held by Hilcorp or individuals which have signed with Hilcorp. Mineral rights owners of the remaining 395.6 acres have not signed.

In an Oct. 7 decision Division of Oil and Gas Director Tom Stokes said: “The Division finds that the formation of the Seaview Unit promotes conservation of all natural resources, promotes the prevention of economic and physical waste, and provides for the protection of all parties of interest, including the State. … However, portions of the proposed unit area have not ratified the Unit Agreement or Unit Operating agreement and cannot be included in the unit area.”

In an Oct. 12 order, AOGCC granted an application from Hilcorp for regular production of the Seaview 8 well, which produces from an undefined as pool.

Participating area

In an Aug. 6 application to DNR for approval of the Clark participating area Hilcorp told the division the proposed 640-acre PA, which encompasses the Seaview 8 well, includes one DNR lease and various private leases, “as well as various unleased private lands.”

A listing of PA tracts and acreage shows that Hilcorp has a 95.05% working interest in the acreage, while 4.95% of the acreage is uncommitted.

The company said the PA “includes all land reasonably known to be underlain by hydrocarbons and known or reasonably estimated through use of geological, geophysical, or engineering data to be capable of producing or contributing to production of hydrocarbons in paying quantities.”

“The proposed Clark PA boundary was determined using all available exploration data and well test data, and heavily relying on the stratigraphic well test data,” Hilcorp said.

The Seaview 8 discovery well is on the Seaview Pad No. 1 on private landowner surface and DNR-owned subsurface.

“The proposed PA includes the governmental section where the Seaview No. 8 discovery well is located,” Hilcorp said, with information from the company’s seven stratigraphic test wells “used to determine gas is present throughout the entire proposed Clark PA,” which includes the Lower Sterling, Beluga and Tyonek reservoirs, depths between 350 and 5,500 feet total vertical depth as shown in the Seaview 8 well.

Commission’s order

In a 2018 order AOGCC allowed temporary production for “less than 15 calendar days” from the Seaview 8 exploratory well “in an Undefined Gas Pool within 1,500 feet of a property line where the owners and landowners are not the same on both sides of the line,” but said Hilcorp could not place Seaview 8 in regular production “absent prior written approval from AOGCC.”

In August, Hilcorp requested an amendment to the 2018 order “to allow regular production of gas” from Seaview 8. Hilcorp sent certified mail notices of the application to 118 owners, landowners and operators “within 3,000 feet of Seaview 8,” AOGCC said.

The commission public noticed the application and set a tentative hearing date, but received no written comments, protests or requests for the hearing, which was vacated because of the lack of request for a hearing and because information from Hilcorp and AOGCC public records provided sufficient information for the commission to make a decision, it said.

In its Oct. 12 order AOGCC said: “Hilcorp has neither requested Pool Rules nor provided a pooling agreement regarding apportionment of the oil and gas to the leases” as part of its application to place the Seaview 8 well on regular production.

Escrow required

“Hilcorp proposes to hold in suspense 100% of the production royalties allocated to nonparticipating owners/landowners and uncommitted tracts within the proposed Clark PA - without deduction of any costs or expenses - until AOGCC issues Pool Rules governing the Seaview Development Area and providing a means of allocating costs and expenses to unleased tracts,” the commission said.

“Hilcorp proposes to allocate production based on the DNR-approved Clark PA allocation schedule,” AOGCC said.

The commission said that in similar situations it has used escrow accounts “for unresolved royalty and ownership issues.”

It is requiring Hilcorp to establish an escrow account for nonparticipating owners/landowners and deposit, no later than the 10th day of each month, an amount equal to the total of nonparticipating owners/landowners interest percentage, multiplied by production attributed to those parcels for the previous month times the 12.5% royalty rate times the prevailing value for Cook Inlet natural gas as published by the Alaska Department of Revenue.

Seaview unit

In the division’s decision on unitization Stokes said Hilcorp has executed leases with most of the landowners in the unit and those leases give Hilcorp the right to seek unitization from the state.

Hilcorp proposed that the division commit all lands to the unit, including those held by owners with whom Hilcorp has not reached agreement on leases.

“The Division does not have compulsory powers, and can only compel a lessee of State lands to join a unit,” Stokes said, which means the division can only approve a unit consisting of state lands, “those who agree to become part of the unit by leasing with Hilcorp and therefore agree to unitization by the state, and those who directly ratify the Seaview Unit Agreement and Seaview Unit Operating Agreement.”

“The State’s evaluation of the subsurface geology supports the configuration of the unit area as proposed. DNR’s review of the geologic information supports the inclusion of all tracts identified in the unit application within the proposed unit area,” Stokes said.

In its initial unit plan of exploration, submitted as part of the unit application, Hilcorp proposed to bring Seaview 8 into production and then drill the Seaview 9 well. Stokes said the division approves the proposed POE through May 31, 2021, with the second POE or first plan of development due 60 days or 90 days, respectively, before the current plan expires.

An approved schedule for allocating unitized production among the tracts is required, Stokes said, “ensuring correlative rights are protected. Unitized development maximizes oil and gas recovery, promotes conservation, prevents waste, and protects all parties of interest.”

“The State has approved for inclusion in the Seaview Unit only those tracts that Hilcorp either represents have been partially or totally leased by Hilcorp or whose owners have ratified the Seaview Unit Agreement and Seaview Operating Agreement. This protects both the interest of Hilcorp and the private mineral and royalty owners who have an interest in production,” Stokes said.

He said the company “provided evidence of reasonable effort to obtain joinder of any property party to the Agreement,” and said Hilcorp has sufficient interest in the area “to give reasonably effective control of operations.”

Tracts approved for inclusion, Stokes said, “include only those covered by a valid lease containing language that transfers the right to unitize to Hilcorp, tracts with mineral owners which have ratified the Seaview Unit Agreement, or State of Alaska leases proposed for inclusion.”


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