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Deep Creek on hold pending Hilcorp sale Alaska Division of Oil & Gas, Cook Inlet Region Inc., agree to delay discretionary contraction until 6 months after sale or Sept. 1 Kristen Nelson Petroleum News
The Alaska Department of Natural Resources’ Division of Oil and Gas and Cook Inlet Region Inc., which jointly manage Union Oil Company of California’s Deep Creek unit, have agreed to delay any “discretionary contraction” of the unit “for a reasonable period of time after close of the pending asset sale between Union and Hilcorp Energy Alaska, LLC.”
Division Director Bill Barron told Union in a Nov. 23 letter that because of the pending sale he will delay any discretionary contraction of the unit until six months after the closing of Union’s sale of its Cook Inlet assets to Hilcorp or Sept. 1, 2012, whichever occurs earlier.
The ninth plan of development for the Deep Creek unit is due Dec. 31, and Barron said he is extending the expiration date of the eighth plan for the unit to coincide with the discretionary contraction delay, making the ninth plan due the earlier of six months after closing of the sale or Sept. 1, 2012.
Sale announced in July The sale of Union Oil’s Cook Inlet assets was announced July 19. Union Oil Company of California parent Chevron and Hilcorp did not disclose financial terms, but said in a statement that the transaction was expected to close by year end pending customary regulatory approvals.
Assets in the sale include Union Oil contracts and interests in the Granite Point, Middle Ground Shoals, Trading Bay and MacArthur River fields; interests in 10 offshore platforms; interests in onshore gas fields including the Ninilchik unit and the Beluga River unit; and two gas storage facilities.
The sale also includes interests in the Cook Inlet Pipe Line Co. and Kenai Kachemak Pipeline LLC.
Unit formed in 2001 The 20,000-plus acre Deep Creek unit is on the southern Kenai Peninsula, some five miles inland from Ninilchik, and produces natural gas from the Happy Valley participating area in the northern part of the unit. The division and CIRI approved the formation of the unit effective Dec. 31, 2001. Union Oil is 100 percent working interest owner in the unit. The division and CIRI approved formation of the Happy Valley participating Area Nov. 4, 2004.
Alaska Oil and Gas Conservation Commission records show gas production began in 2004; current production is from seven completions.
In its eighth plan of development, submitted in December 2010, Union said it had no plans for any exploration drilling in the unit, but said it planned to continue efforts to farm out southern Deep Creek exploration acreage.
Barron said a ninth plan of development “must provide for the exploration of the unitized area and for the diligent and expeditious drilling necessary for determination of the unit area or areas capable of producing unitized substances in paying quantities in each and every productive formation. The plan must be as complete and adequate as necessary for timely exploration and development of the remaining unit area outside the Happy Valley Participating Area, and must specify the number and locations of any wells to be drilled and the proposed order and time for such drilling.”
Several potential accumulations In a December 2004 decision denying a request by another leaseholder to expand the unit, the division said “Unocal’s initial interpretation indicated that the unit area may encompass several potential hydrocarbon accumulations and exploration to date has confirmed the presence of the Happy Valley reservoir in the northern unit area.”
The 2004 decision said that since the formation of the Deep Creek unit, the company drilled 10 wells and acquired 105 miles of proprietary seismic data. ConocoPhillips previously acquired five seismic lines over the unit area.
Current Alaska Oil and Gas Conservation Commission records show 13 Happy Valley wells drilled between 2003 and 2009; two of the 13 are showing as suspended.
The division said it “agrees with Unocal’s assessment that the Deep Creek Unit may contain multiple accumulations,” but said in its 2004 decision that the only confirmed commercial production is from the Happy Valley reservoir.
It said “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,” and said that the company had planned to drill two wells from a new pad to evaluate the prospect, and in March 2004 requested approval of a plan to build a road and construct the Happy Valley Middle Saddle Pad.
Neither the road nor the pad was constructed and no Middle Happy Valley well was drilled.
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