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Hilcorp focus on producing mature fields Company’s Alaska production started below 20,000 boe per day; with addition of North Slope fields now some 60,000 boe per day Kristen Nelson Petroleum News
Hilcorp began acquiring mature Cook Inlet oil and gas fields in 2012, and its early production in the state approached 20,000 barrels of oil equivalent per day. Now, with increased production from Cook Inlet fields and the addition late last year of three North Slope fields, Hilcorp’s Alaska production is approaching 60,000 boepd, 40 percent of the company’s overall production, Greg Lalicker, president of Hilcorp, told Alaska legislators Feb. 24 in a “lunch and learn” session in Juneau.
Hilcorp is a large independent, he said, “about the largest private independent in the U.S.” with a company value of $5-$10 billion, about a fifth the size of companies like ConocoPhillips.
Hilcorp began in 1997 with volumes of a few thousand barrels of oil equivalent a day and has grown to more than 160,000 boepd, with the Feb. 24 rate at 163,542, Lalicker said, growing from a very small to a fairly good sized company over the last 15-20 years.
The Hilcorp model What Hilcorp does, Lalicker said, “is buy mature properties from someone else and then try to figure out how to make more money from the property than what they did.”
The first step, he said, is figuring out how to operate as efficiently as possible.
Then you “start spending money” to find more reserves and generate more rate.
“You’ve got to find ways to produce more oil and gas if you want to make money from these projects that you buy,” he said.
While looking for operating efficiencies and investing to produce more oil and gas, you also look around for fields close by so you can “further enhance the value of these properties to make even more money.”
Lalicker said the company was spending $11 million a month in Cook Inlet in January 2012 when it first took over Chevron’s Cook Inlet properties. Today it is spending some $20 million a month.
In 2012, contractor activity was 1.34 million man hours, growing to 1.67 million in 2013 and some 2 million in 2014.
“This isn’t about spending less money: It’s about spending more money and getting the rate up and creating more value in the long run,” he said.
In 2013 Hilcorp acquired Marathon’s Cook Inlet assets.
For all of Hilcorp’s Cook Inlet properties, the average was one or two wells being drilled prior to Hilcorp; 23 wells were drilled in 2014, he said with the number of workovers also increased.
In November Hilcorp closed on North Slope acquisitions - 100 percent of Northstar, 50 percent of Milne Point and all of BP’s interest in Endicott, about two-thirds of the working interest, plus 50 percent of the rights in Liberty, which hasn’t yet been developed.
Even with the price of oil dropping, Hilcorp will probably spend another $300-$350 million in capital investment and $300 million in operating expense, a total of $600-$700 million dollars spent in Alaska this year, he said.
Work at Milne Lalicker said Hilcorp already has the Nordic 3 drilling rig running at Milne Point, doing workovers on existing wells, and has another workover rig under construction, which the company plans to bring to Milne this summer, “so we can fix even more wells faster and get rates up there.”
He said for the first couple of years he thinks North Slope work will be focused “on the facilities and upgrading those to make sure they can handle additional volumes and on just working over the existing wells.”
Some two-thirds of the focus will probably be at Milne Point because while “Northstar and Endicott have some opportunities as well ... they just don’t have near as many wellbores as what Milne does so just by sheer numbers that’s the one where most of the action will be.”
He said Hilcorp will also be looking at the Ugnu potential at Milne Point and the potential of “some deeper tighter oil,” but that will be focused on working out some “good, low-cost small-scale experiments” to figure out the value of those resources, with no big development of those resources expected in the short term, “either in a high-price or low-price environment.”
The Trading Bay example Lalicker used Trading Bay as an example of the work Hilcorp does.
The monopod platform produces the Trading Bay field from some 30 wells, he said. In the ’60s, production was a high as 30,000 bpd, but by the time Hilcorp bought it, production was 600-700 boe. Such a platform probably becomes uneconomic at 300-400 boe, he said, so the platform was very close to the end of field life.
The field is now producing close to 4,000 boe per day, and should continue to produce for 15 to 20 years, he said.
What did Hilcorp do? It has spent some $73 million on work at the field - not including the purchase price- doing 26 workovers and recompletions, “so we’ve been in almost every well on that facility trying to get more rate out of existing wells.”
Hilcorp has drilled one new well, made 14 repairs to existing wells and done 55 different facilities projects, “everything from improving the shipping pumps to putting in new compression to installing more power generation so we can put in more downhole electrical submersible pumps to boost the fluid better.”
In addition to that $73 million, Hilcorp is spending $800,000 to $1 million a month on operating expenses, including salaries, chemicals, repairs, boats, helicopters - “all the money it takes to keep the field running on a daily basis.”
And Hilcorp isn’t the only one benefitting, Lalicker said.
In 2012, the state got less than $100,000 a month in royalties from Trading Bay.
Through 2014, “before the price started dropping, we were paying about a million dollars a month in royalties from the field.”
The workforce Hilcorp initially had 255 employees in Alaska, 96 percent residents. After the Marathon acquisition that number grew to 316, 97 percent Alaska residents.
At year-end 2014, with the North Slope acquisitions, Hilcorp had 505 employees, 88 percent Alaska residents.
Workforce is a big focus for Hilcorp, Lalicker said.
He said his goal is to get as many Alaska residents on the company’s workforce as possible, “because frankly if someone is flying up working two weeks on and two weeks off and coming from ... Texas or Louisiana or Oklahoma or whatever - they’re just as likely to go to work for the next guy in the Middle East or in West Africa as they are to keep working for me.”
“But someone who’s actually up here, living in Alaska, you know I have my hooks into them a lot deeper.”
In Cook Inlet most of the company’s employees live in and around the facilities, “and I know they’re going to be there for the rest of their careers - or I hope they are.”
A long-term workforce is important, Lalicker said, because Hilcorp wants to keep developing the fields and for long-lived fields “you’ve got to have the people to do that, and the way you do that is you get the right ones, and get your hooks into them and never, never let them leave.”
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