The Explorers 2021: Hilcorp flips the script

The company has used its development knowledge to become an explorer

Eric Lidgi

for Petroleum News

Hilcorp Alaska LLC often blurs the line between exploration and development.

The company is best known for reviving aging oil and gas fields. But that doesn’t mean it has been content to work exclusively within the boundaries of its existing properties.

Over the past 10 years, the Alaska unit of the large privately held Texas-based independent has increasingly pursued opportunities beyond its existing developments.

Sometimes this work has investigated promising prospects long-since abandoned by previous operators. Sometimes Hilcorp has followed-up on its own theories and ideas.

Hilcorp initially looked just beyond its units, but it is increasingly sniffing further afield.

Over the past 25 years, many new companies have come to Alaska with an urge to explore. The lucky ones make a discovery, and the diligent ones shifted to development.

In some sense, Hilcorp moved in the opposite direction.

It spent years studying the underlying geology of Alaska through development work, and then it applied that knowledge to its holdings to seek out possible exploration prospects.

Case in point: its study of drainage anomalies.

Through its initial acquisition of Alaska properties, Hilcorp became the operator of the legacy Swanson River oil field. Soldotna Creek circles an important producing section of the field. “It’s hard to avoid seeing the importance of drainage anomalies when you see this,” Hilcorp Senior Geologist Dave Buthman said. “A full half of the production of Swanson River has come from this circular drainage anomaly.” The company found similar anomalies where Deep Creek flows at the Happy Valley field and around the Anchor River at the new Seaview field.

It can sometimes be difficult to determine which Hilcorp’s projects are exploration and which are development. Only eight of the 767 Alaska Oil and Gas Conservation Commission drilling permits issued to Hilcorp have been listed as “exploratory” by the agency, with another 28 listed as “stratigraphic test” and one listed as “unclassified.”

But when you look at the activity on the ground, a lot of the projects Hilcorp has undertaken in Alaska have the spirit of exploration: searching, without any guarantees.

To date, these exploration-like projects have generally been in the Cook Inlet, where Hilcorp started its Alaska career. But the company is also sniffing around exploration opportunities on the North Slope, including one of the big legacy projects in the basin.

Ninilchik

Included in the original Unocal acquisition was the Ninilchik unit. The onshore field runs along the coastline south of the city of Kasilof in the southern Kenai Peninsula. Chevron discovered natural gas in the Tyonek formation in June 1961. Marathon discovered two other nearby fields in 2001 and 2002 and subsequently pursued a development program.

The state formed the Ninilchik unit in 2001 and expanded it to include the former Falls Creek unit in 2003. At that time, the state also formed three Ninilchik participating areas: Falls Creek, Grassim Oskolkoff and Susan Dionne. Susan Dionne was expanded in 2007.

Ninilchik was one of the first big projects Hilcorp undertook in Alaska. The company drilled four wells at the southern end of the unit under its 2013 plan of development.

Although the AOGCC only listed three of those wells as exploratory, all four were part of the same campaign: an effort to learn more about the existing gas fields and to explore the potential for oil. The oil exploration was non-commercial. But the results of the gas wells convinced Hilcorp to consider expanding participating areas and building new pads.

The overall results of the program encouraged Hilcorp. The company initially proposed a six-well exploration program in its 2014 plan and later expanded the program to 11 wells.

As before, the AOGGC classified the entire program as “development,” although Hilcorp described the drilling as exploratory. The results of the program once again prompted the company to expand its existing development infrastructure by building new drilling pads.

With its 2015 plan, the nature of the work had shifted. Hilcorp was now describing its upcoming plans as development and delineation work, which has been the case since.

Deep Creek

Contraction was pending at unit when Hilcorp acquired it. Around the time of the closing of the deal, the state Division of Oil and Gas and Cook Inlet Region Inc. gave Hilcorp six additional months to follow through on its predecessor’s exploration commitments.

Existing data suggested the presence of a Middle Happy Valley prospect, south of the producing Happy Valley reservoir. A 2007 report from Netherland, Sewell & Associates estimated probable reserves of 22 billion cubic feet for the entire unit area, suggesting undiscovered reserves in the south. The state wanted exploration on those leases.

Union Oil Company of California brought the Deep Creek unit online in 2004 and drilled some 13 wells between 2003 and 2009. But the company soon lost interest. It included no exploration plans in the final plan of development it submitted for the unit, and the state was requiring exploration activities to be included in whatever unit plan was filed next.

Hilcorp made Deep Creek one of its early priorities. The company drilled three wells and worked over another four wells, added several producing horizons. A 3D seismic survey conducted over 50 square miles of the unit suggested that the resources at Happy Valley were “probably three to four times larger than the current participating area,” Senior Vice President for Alaska John Barnes told the Anchorage Energy Task Force in June 2013.

Following the initial development work, Hilcorp shifted to exploration.

After unsuccessfully attempting to expand the unit to include nearby CIRI leases, the company proposed an exploration program from a newly constructed C pad in 2014 and a Middle Happy Valley No. 1 exploration well in 2015. Those projects would have satisfied work commitments, but the company delayed its plans, citing market conditions.

Greystone and Seaview

Although located on acreage outside any existing unit, the Greystone well supported unit development. The results convinced the state to defer a contraction at Deep Creek.

“Based on the Greystone well results, Hilcorp is narrowing its focus in the Middle Happy Valley area to target Undefined Sterling and Beluga formations,” Division of Oil and Gas Director Chantal Walsh wrote in December 2016, in a decision to defer contraction until June 2017. “Hilcorp now plans to drill six to eight stratigraphic wells to shallow depths in the winter of 2017 in an attempt to better understand the formations’ structure. All the stratigraphic wells will be drilled to the south of the Happy Valley Participating Area.”

The appraisal program came the following year, when Hilcorp drilled seven stratigraphic test wells at the Seaview prospect, south of Anchor Point and the Cosmopolitan unit.

Hilcorp had actually been interested in the area for a while. The company acquired an aerial gravity and magnetics survey in 2015 “in order to understand dry holes in the area,” as the company later revealed, and also 20.54 miles of 2D seismic shot in 2016.

Following the shallow stratigraphic program, Hilcorp built the Seaview pad on private land and planned two 10,000-foot directional exploration wells. The Seaview No. 8 well targeted both oil and natural gas, and the Seaview No. 9 well targeted only natural gas.

The company described the wells as having three phases: a directional section through the Lower Sterling and Beluga formations; a deeper lateral through the Lower Tyonek, Hemlock and deeper formations; and perforation and flow-back testing on the wells.

Seaview No. 8 discovered commercial quantities of gas in four zones the Tyonek formation, leading Hilcorp to shift toward development activities at the prospect.

The company later explained that the shallow stratigraphic wells were a way of triangulating the ideal location for a deeper well. “We logged them, correlated them, mapped them, and we drilled our discovery well: Seaview No. 8,” Hilcorp’s Buthman told the Alaska Geological Society after the season.

Hilcorp originally intended to bring Seaview into production in November 2020, but construction delays on an associated 2-mile pipeline pushed the startup to this summer.

Hilcorp followed the Seaview program with two stratigraphic test wells near Deep Creek - Deep Creek SW 3 and Deep Creek SW 4. But the results of the Greystone and Seaview programs had made Hilcorp think differently about Deep Creek. “Both these new field wildcats changed our ideas about successful trap types and reservoirs,” the company told the state. Instead of pursuing traditional exploration, the company wanted to combine seismic with shallow exploration in the Lower Sterling and Upper Beluga.

The state was unconvinced by the plan. In mid-2019, after years of deferrals, the Division of Oil and Gas contracted the unit down to its participating area and producing leases.

Seaview was among the first instances where Hilcorp applied its overall philosophy to a standalone Alaska exploration target. Buthman said Hilcorp had used modern airborne gravity gradiometry and magnetic surveys, along with geologic field surveys, drainage anomaly studies and seismic surveys to optimize well locations. In his talk, he said that the company would be considering other exploration opportunities such as the Blackbill prospect in the lower Cook Inlet, as well as possible opportunities in Iniskin Bay.

Whiskey Gulch

“The team is very excited about this one,” Hilcorp Alaska Kenai team lead Jennifer Starck said on Feb. 19, at an Alliance Kenai digital luncheon. “The thing that’s most exciting about this one is … it’s all on roads, with a very known, feasible connect point for Enstar, which gets that gas right off to market quickly; that being said, you’re still talking about two to three years between right of way, installation, and permitting.”

The state Division of Oil and Gas approved a plan of operation for the project in mid-March 2021. The plan includes a pad and two wells at ADL 392664 and ADL 392666.

Under the plan, Hilcorp would build a 2.75-acre gravel pad (300-foot by 400-foot) this April, drill the first well in May with testing in June and the drill the second well in July with testing in August, following by suspension of the wells and general demobilization.

The 10,000-foot Whiskey Gulch No. 1 well would target oil and gas to the southeast of the pad. The 10,000-foot Whiskey Gulch No. 14 well would target gas to the northeast.

The project should not be confused with the Whiskey Gulch unit formed on the North Slope by Brooks Range Petroleum Corp. in 2005 and terminated late the following year.

Iniskin Peninsula

Despite surface indications of oil in the area, exploration drilling in the early 1900s, the 1930s and the 1950s all failed to make a commercial discovery. The problem was low rate of oil flow, a challenge that Hilcorp now suspects could be alleviated by technology.

Hilcorp brought modern exploration to the area in 2013, when it conducted a 2D seismic survey, providing the first information about subsurface structure and stratigraphy.

The survey suggested to Hilcorp that previous drilling might have missed a deeper crest of an anticline in the area. The earlier drilling reached a higher section of the anticline.

Compensating for the low flow rate is the nature of the rock. Current considerations are focusing on two sections - 1,292 and 300 feet thick - of the Middle Red Glacier formation of the Jurassic Tuxedni group, which sources most of the Cook Inlet oil fields.

Those rock sections are within the thermal window for oil and also have fractures consistent with fluid transport. They share characteristics with the Wolfcamp shale in the Permian basin of Texas, opening the possibility of a tight oil development at the Iniskin Peninsula. The company is also interested in various sandstone formations in the area.

The Iniskin Unit Zappa No. 1 well drilled by Alaska Consolidated Inc. in 1958 had large gas shows and tested between 100 and 400 barrels of oil per day from the Tuxedni.

The next step for Hilcorp is an exploration well. While drilling in the area would be straightforward, moving equipment and personnel would present a logistical challenge.

“We don’t like the reservoir, nobody does,” Buthman explained, “but what we like is you’ve got about 9,000 feet of source rock there, right along the Bruin Bay fault in a similar structural position to the largest oil field in the basin which is McArthur River, which made about 650 million barrels of oil so far. That was our analog there.”

Cook Inlet OCS

The company acquired 14 leases in the lower Cook Inlet southwest of Kachemak Bay in a June 2017 sale and has recently been permitting exploration over some of the acreage.

The U.S. National Marine Fisheries Service granted early permission for a multiyear program including a 3D seismic work, site clearance and drilling over several years.

Hilcorp conducted the offshore 3D seismic program in the summer of 2019, revealing a 65,000-acre, four-way closure with the oil discovery at the top. The company received a Bureau of Ocean Energy Management permit in May 2020 to conduct a geohazard site clearance survey over 11 leases in the area, covering approximately 88 square miles.

The work was ultimately delayed by the restrictions brought about during the coronavirus pandemic. Earlier this year, the company applied for a new permit for this summer.

The next step is using the Seadrill West Epsilon jack-up rig to drill between two and four exploration wells in the coming years. Although the Cook Inlet basin is currently home to two jack-up rigs - Spartan 151 and Randolph Yost - both are apparently restricted to drilling in shallower waters, whereas Seadrill West Epsilon can stand in nearly 400 feet.

The Blackbill prospect, as Hilcorp is calling it, would follow-up on the Raven No. 1 well drilled by ARCO Alaska in 1982. The prospect sits due west of the town of Homer.

Blackbill sits in a Cretaceous reservoir within the Mesozoic sequence and would be the first commercial production from a Cretaceous reservoir in the Cook Inlet basin.

Buthman described the four-way structure as “beautiful” but noted that the reservoir is shallow, “and that’s why ARCO really didn’t develop it at the time,” he said.

OCS exploration is somewhat rare in Alaska and has been even rarer in Cook Inlet.

Blackbill lies considerably south of the current terminus of producing fields in the region - the Cosmopolitan unit and the Seaview unit. But it is north of the Augustine-Seldovia Arch, which serves as a geologic dividing line in the region. South of the arch, the Tertiary strata underlying the producing Cook Inlet fields begins to thin out.

The program is currently involved in some litigation.

The company applied in 2018 for National Marine Fisheries Service authorization under the Marine Mammal Protection Act to take marine mammals by harassment caused by noise generated by oil and gas activities, including 2D seismic exploration in Cook Inlet and drilling exploration and development wells from a rig to be transported by tugboats.

The program covered drilling in the lower Cook Inlet and the Trading Bay region.

Cook Inletkeeper and the Center for Biological Diversity challenged the approval, saying that it violated several federal laws, including the National Environmental Policy Act.

In late March, U.S. District Judge Sharon L. Gleason upheld the authorization but required some additional mitigation measures to account for noise cause by the tugboats.

North Slope

Through the two stages of the sale, Hilcorp acquired operatorship of the Prudhoe Bay unit, the Milne Point unit, the Northstar unit and the Liberty unit, as well as major interests in the ExxonMobil-operated Point Thompson unit and exploration leases in the 1002 area of the Arctic National Wildlife Refuge - plus a range of midstream assets.

As with Cook Inlet, Hilcorp has been focusing on reviving existing assets, particularly those at Milne Point and to a lesser extent Northstar and Duck Island. And with the recent acquisition of acreage in and operatorship of the Prudhoe Bay unit, Hilcorp’s workload increased considerably.

The most notable exploration prospect to come from the acquisition is ANWR.

When Congress created the 19 million acre refuge in 1980, it marked 1.57 million acres of coastal plain for resource development, known as Area 1002, after a section of the law.

To date, only one well has been drilled in the area. Chevron and BP partnered in the mid-1980s on the 15,193-foot KIC No. 1 well, drilling the $40 million well over two winter seasons on a 92,000-acre lease of Native land in the 1002 area. Arctic Slope Regional Corp. owns subsurface rights at the lease and local village corporation Kaktovik Inupiat Corp. owns surface rights. The KIC well was named after the village corporation.

In the three decades since, the KIC No. 1 well has become mythic for its secrecy. Only select people at Chevron, BP and ASRC, as well as a few State of Alaska geoscientists, are believed to have seen the well results. A slightly larger group of companies - BP, Chevron, Anadarko, ConocoPhillips, ExxonMobil, Hess, Marathon, Murphy, Oxy, Shell and Total - have also seen the results of a 2D seismic survey conducted over the area.

When the two companies renewed the KIC No. 1 lease in 1999, executives vaguely touted the quality of the prospect. In a press release at the time, then-Exploration Vice President for BP Exploration Alaska Neil Ritson said, “ANWR offers the greatest potential for a world-class oil discovery on the North Slope,” while then-Exploration Manager for Chevron Dave Birsa said, “The ANWR coastal plain … is on trend with the prolific oil fields of the central North Slope and has significant geological potential.”

Over the course of its existence, the ANWR coastal plain has become a symbol in the debate over American energy and environmental policy. Some see ANWR as a major source of domestic energy and jobs. Others see it as a plunder of wild lands at a time when the world should be shifting away from extracting hydrocarbons for energy.

Those opinions are increasingly aligned with parties. Today, it is generally understood that Democratic administrations will limit ANWR development while Republican administrations will advance it. The needle moved toward extraction in the mid-2000s, during the Bush administration, and again in recent years, during the Trump administration, and away from it during the Clinton, Obama and now the Biden administrations.