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State expands Ninilchik unit PA Recent drilling activity convinced Hilcorp to expand Falls Creek participating area; state agreed with conclusion Eric Lidji For Petroleum News
The state has agreed to expand the Falls Creek participating area.
In a May 16 decision, Division of Oil and Gas Director Chantal Walsh approved the expansion, adding 11 tracts and removing three from the participating area at the Ninilchik unit. The unit is located along the coast of the northern Kenai Peninsula.
The expansion accommodates new information that Hilcorp gleaned about the gas accumulations at the northern end of the Ninilchik unit through recent drilling activities.
Toward the end of 2016, Hilcorp asked the state to expand the Ninilchik unit as well as the Falls Creek participating area within the unit. The state approved the unit expansion in early March 2017 but saved the participating area expansion for a separate decision.
The original application would have expanded the Falls Creek participating area “to areas where presence of hydrocarbons is unlikely,” according to the state. Hilcorp agreed and modified its application, revising its boundaries to include more realistic accumulations.
Recent activities Standard Oil Company of California discovered the Falls Creek gas field in April 1961 but decided it was uneconomic. The company formed the Falls Creek unit but never pursued development. Over the following 35 years, only two wells were drilled at the field. Socal drilled the Falls Creek 43-06 well in 1973 with poor results. Marathon Oil Co. drilled the Corea Creek Federal 1 well in 1996 and later flow tested six intervals.
Marathon returned to the field in the early 2000s, drilling three directional wells from the Falls Creek No. 1 pad between 2001 and 2004 and starting production from the field.
During those years, the state also agreed to merge the Falls Creek unit into the nearby Ninilchik unit and to create three participating areas: Susan Dionne, Grassim Oskolkoff and Falls Creek. The state reduced the royalty rate on Falls Creek production for the first 10 years of operations. The reduction ended in 2013, after Hilcorp had acquired the unit.
Since acquiring the Ninilchik unit from Marathon in 2013, Hilcorp has drilled three wells at the Falls Creek participating area. Information collected from those three wells convinced the company that the boundaries of the participating area should be extended.
The Frances No. 1 well from late 2013 primarily targeted oil in the Hemlock and West Foreland Formations, with a secondary gas target in the Tyonek “G” sands. The oil shows were minor, but the well encountered three productive gas intervals. The Falls Creek No. 5 and Falls Creek No. 6 well from 2014 both encountered gas. Although the two wells were less productive than previous wells in the area, they confirmed that the Falls Creek field extended to the south and to the north of the existing participating area boundaries.
Methodology The division received four comments on the proposed expansion, three from private mineral interest owners near the Ninilchik unit and one from Paul Craig, who is associated with two companies that hold an overriding royalty on a lease at the unit.
The state responded to the comments with a thorough analysis of the methodology Hilcorp used to determine the proper boundaries of the Falls Creek participating area.
Hilcorp initially used the Lowest Known Gas method, which tries to create a map of an underground accumulation using seismic data and hydrocarbon shows from various wells in the area. Hilcorp decided to use only wells and not seismic. The state questioned the results, agreeing with the decision to set aside seismic but questioning the decision to use two dry holes - Falls Creek No. 1 and Corea Creek Federal 1 - for creating the map.
Instead, the state proposed using the “circle and tangent method,” which draws overlapping circles centered on well bores in a given area and uses the rounded outer boundary of all the overlapping circles to define a particular accumulation. The method allowed Hilcorp to use the dry hole while accommodating the concerns of the state.
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