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Hilcorp seeks more time at two units, Deep Creek and Ninilchik
Hilcorp Alaska LLC is continuing to advance two Cook Inlet exploration ventures designed to prevent the state from contracting underutilized acreage from existing units.
The local subsidiary of Houston-based Hilcorp Energy Co. has asked the state to defer any contraction of leases at either the Deep Creek unit or the Ninilchik unit for another year as the company works to continue, and in some cases finalize, exploration activities.
The two units are in the southern Kenai Peninsula.
Deep Creek The biggest remaining challenge at the Deep Creek unit involves drilling the Middle Happy Valley No. 1 well, which Hilcorp has deferred several times in recent years.
The well would target potential accumulations in the southern half of the onshore unit.
To date, all existing developments have occurred in the northern half of the unit, within the Happy Valley participating area. The state believes the southern half could also contain considerable resources and has been trying to spur exploration for many years.
Following up on a 1958 exploration program by Standard Oil Company of California, Union Oil Company of California brought the Deep Creek unit online in 2004 at 3 million to 4 million cubic feet per day and drilled some 13 wells between 2003 and 2009.
Investment subsequently flagged, and in a December 2010 plan of development Unocal said it was through exploring but wanted to farm out acreage in the south of the unit.
A series of studies had convinced the state of the potential value locked in those leases.
“Unocal’s interpretation of the data also indicates a potential accumulation south of the Happy Valley reservoir that Unocal refers to as the Middle Happy Valley Prospect,” the state wrote in a 2004 decision concerning the unit. A 2007 report from Netherland, Sewell & Associates estimated probable reserves of 22 billion cubic feet for the unit area.
Eager for a company to explore those leases, the state required any future development plan to propose exploration activities outside the Happy Valley participating area.
Hilcorp acquires unit in 2012 By the time Hilcorp acquired the unit in January 2012, the state and fellow landowner Cook Inlet Region Inc. were on the verge of contracting the unit to make the southern leases available to other players in a future sale. Instead, the landowners extended the existing plan of development to give Hilcorp more time to determine its plans.
A three-well exploration program targeted opportunities in shallower formations within the physical outline of the Happy Valley participating area and an associated 3-D seismic survey covered more than 40 square miles of the region. Even though the program failed to target leases in the southern half of the unit, it was technically outside the existing participating area, and so the state decided to defer contraction until at least November 2014.
The program convinced Hilcorp to expand its exploration activities into 2015 and ask the state to defer any contraction of the Deep Creek unit until the end of 2015. A 2014 plan of development called for drilling two exploration wells from a newly constructed C pad in 2014. It also called for drilling the Middle Happy Valley No. 1 well in 2015 to target prospects in the southern end of the unit, beyond the participating area borders.
Permitting for new pad Hilcorp began permitting a Happy Valley C pad and an accompanying four-well appraisal program in June 2014 to target a shallow gas accumulation. By early 2015, the project had yet to move into operation. In a 2015 plan of development, Hilcorp said it would extend the program. The state deferred contraction until May 31, 2016, but only if Hilcorp completed the Middle Happy Valley exploration project during that time.
The state approved a plan of operations for the Middle Happy Valley well in November 2015 and CIRI provided associated permits for operations on its land. But Hilcorp ultimately deferred the program earlier this winter, “in part due to delays associated with permitting,” the company told state officials in a March 2016 plan of development.
“Hilcorp remains committed to building the road and pad required to drill the Middle Happy Valley well, but cannot commit to drilling this exploratory prospect under the current economic and market climate,” the company said the plan of development.
Instead of drilling, Hilcorp plans to commission a 2-D seismic survey in the southern end of the unit for the second quarter of this year. Combined with existing 3-D seismic, the survey could allow Hilcorp identify other opportunities in the southern end of the unit.
The company asked the state and CIRI to defer contraction until May 31, 2017.
With Middle Happy Valley on hold, Hilcorp instead spud the Happy Valley B-17 well in late November 2015. The directional well started within the participating area but extended beyond its northern boundary. The company expects the well to sustain commercial production, although final testing and completion depends on administrative matters currently under review with the Alaska Oil and Gas Conservation Commission.
If the well is commercial, Hilcorp might drill a B-18 well to further delineate the region.
Ninilchik The exploration program at Ninilchik has been much larger than the Deep Creek program, and over time it has increasingly resembled a development program.
After acquiring the unit in 2013, Hilcorp proposed drilling exploration wells from existing drilling pads and building several additional pads in under-developed areas. The company drilled at least 10 exploration wells at the unit between 2013 and 2014.
The proposed drilling program for 2015 included three wells: a 12,000-foot GO-8 well from the existing Grassim Oskoloff pad, a 12,000-foot Blossom No. 1 well from a new Blossom pad just north of the Grassim Oskoloff pad and a 9,000-foot Kalotsa No. 1 development well from a new pad between the existing Paxton and Susan Dionne pads.
Hilcorp completed the GO-8 well and drill the Blossom No. 1 well, although the latter still requires “further testing and analysis” before the company can bring it into service.
Unspecified “permitting issues” delayed construction of the Kalotsa pad, which is now planned for 2016. This year, the company is also planning a GO-9 well, which is being described as a “high angle development gas well” targeting the Upper Tyonek formation.
As a result of its exploration activities, Hilcorp wants to change the vertical size and geographic scope of the existing participating areas at the Ninilchik unit. The company has said it plans to complete fieldwork under the current development plan, at which point it would propose changes to the Falls Creek participating area. A similar effort would occur next year for the Grassim Oskoloff and Susan Dionne-Paxton participating areas. As such, the company wants the state to defer any contraction until May 31, 2017.
- ERIC LIDJI
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