Producers 2020: HEX getting to work at Kitchen Lights
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HEX Cook Inlet is taking a pragmatic approach at its new Cook Inlet property
Eric Lidgi for Petroleum News
HEX Cook Inlet LLC became the newest operator in Alaska this summer when it closed on a deal to acquire the assets of Furie Operating Alaska LLC and related companies.
The $5 million acquisition was the culmination of the intense bankruptcy proceedings of Furie and its partners Cornucopia Oil & Gas Company LLC and Corsair Oil & Gas LLC.
The centerpiece of the purchase is the offshore Kitchen Lights unit, which is largest unit in Cook Inlet by area and which has been seen as a source of growth for the basin.
HEX Cook Inlet LLC is a joint venture between HEX LLC (80%) and Rogue Wave AK LLC (20%) founded by longtime Alaska oil industry player John Hendrix.
A native of Alaska with a long history in the region, Hendrix has stated his desire to hire locally. His company quickly switched suppliers to Udelhoven Oilfield System Services.
Fixing what it bought HEX is acquiring an underperforming unit with considerable potential.
The Kitchen Lights unit includes three previously distinct prospects that were unitized and then administratively divided into four exploration blocks: Corsair, North, Central and Southwest. All development activities to date have occurred within the Corsair block.
Furie brought the unit into production from the KLU 3 well in July 2013 and subsequently drilled three more wells - the KLU A-1 well between 2016 and 2018, the KLU A-2A well in September 2016, and the KLU A-4 well in October 2018. The development work involved construction of the new Julius R platform in Cook Inlet.
By the time HEX arrived as the new operator earlier this year, one of those wells was offline, awaiting upgrades and repairs. And the three producing wells were underperforming. The Kitchen Lights unit is currently producing around 13 million cubic feet per day, down from approximately 18 million cubic feet from a year earlier.
In one of its most immediate plans for the unit, HEX is eager to have all four existing wells produce from both the Beluga and the Sterling formations. As a first step toward that goal, the company is applying for a produced water permit from the state, which would allow it to better handle waterlogged gas production from the Sterling formation.
Improved water handling would allow the company to bring the offline well back online and would reduce the likelihood of prior technical challenges recurring at the unit.
It would also allow the company to add Sterling perforations to the three existing wells that are producing from the Beluga formation, thereby increasing overall production.
By late summer, HEX was still awaiting the permit but had attempted repairs on the KLU A-4 well. There were two wireline fish and a tubing plug complicating operations.
“We made attempts to fish A-4 and learned a lot about it,” Hendrix told Petroleum News in mid-August. “Prior to going to the next phase, we went ahead and punched the tubing to ensure production in case future fishing jobs prevented access. A-4 is currently producing about 2.0 MMCFPD. We now have several options in front of us.”
History and future growth Although HEX is currently focused on maintaining existing assets, the Kitchen Lights unit also contains significant growth potential, whenever the time comes.
Following a series of battles over work commitments involving several smaller players in Cook Inlet, the state formed the 83,394-acre unit in 2009 to prevent a legal battle and encourage exploration and development activities at a time of dwindling local supplies.
The unit combined the Escopeta Oil & Gas Co.-operated Kitchen unit, the Renaissance Alaska LLC-operated Northern Lights prospect and the Pacific Energy Resources Ltd.-operated Corsair prospect. A corporate shuffle in 2011 put Furie in charge of the project.
Early plans of exploration for Kitchen Lights established four exploration blocks and required Furie to drill at least one well in each block. The company drilled exploration wells across the unit between 2011 and 2014 before shifting to development, leaving the North and Central blocks underexplored and the Southwest block undrilled, as of yet.
Beyond those aerial possibilities, the unit is also thought to contain deep resources. In previous plans, Furie proposed wells below 20,000 feet to look for deep Jurassic oil.
During the tenure of Furie and its predecessors, the Kitchen Lights unit was a perennial source of drama. After bringing a jack-up rig to Alaska to drill the prospect, the company was hit with a $15 million fine for violating the federal Jones Act, the largest fine ever levied for a violation of the federal law governing domestic and foreign naval vessels.
Furie publicly criticized the state and unilaterally suspended some operations in the 2017 open water season following a dispute with the state over oil and gas tax credits.
The company regularly proposed major exploration and development campaigns for the unit, although it only made minimal progress toward those commitments. The state even put the unit into default in late 2017 for Furie’s failure to meet work commitments.
The company faced technical challenges in early 2019 when frozen hydrate plugs complicated natural gas shipments, leading the company to declare a force majeure event and requiring Enstar Natural Gas Co. to revise gas sales agreements for the unit.
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