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Unit contraction delay
Ninilchik decision delayed on appeals to DNR commissioner, continued drilling
Kristen Nelson Petroleum News
Hilcorp Alaska has received another extension on contraction of its Kenai Peninsula Ninilchik unit, one of the inlet's largest natural gas producers.
Regulations of the Alaska Department of Natural Resources require that 10 years after the beginning of sustained production, a unit will be contracted to lands within approved participating areas and adjacent lands facilitating production.
The July 17 extension approval is through July 31, 2026, and Hilcorp may request another delay if necessary, DNR Division of Oil and Gas Director Derek Nottingham said in the division's decision.
The Ninilchik unit was formed in 2001 and its original operator, Marathon Oil, began production in 2003, which would have put the contraction deadline in 2013.
But in that year Ninilchik was acquired by Hilcorp Alaska, and that company's continued exploration and development work at the field, combined with two appeals in the DNR commissioner's office -- one from January 2008 on a proposal to combine the Susan Dionne PA and Paxton tract operations into the Susan Dionne-Paxton PA and one a 2021 remand from the Alaska Supreme Court over an expansion of the Falls Creek PA -- have resulted in the extensions of the contraction date.
Nottingham said "it would be impractical to contract the unit at this time" because of the ongoing appeals and noted that the Supreme Court's remand of the Falls Creek PA appeal would likely require further review by the division of evidence on the proposed boundaries, possibly resulting in modification of the PA boundaries and that could impact production allocation to royalty owners or result in another appeal.
"The review and decision further may impact either the preservation or termination of various oil and gas leases and generally result in administrative burdens and financial burdens to the operator, private mineral owners, and the State," he said.
This is one basis for the delay in contracting the unit.
Hilcorp's work at Ninilchik The factor receiving the most attention in the decision, however, was Hilcorp's ongoing exploration and development work at Ninilchik, work which the company detailed in its July 8 request for an extension.
That work began with a 2015 aerial gravity and magnetics survey, data which the company said is still being used. In 2016 Hilcorp proposed a unit and PA expansion at Falls Creek based on the prior year's exploration work.
Seven stratigraphic test wells were drilled in 2017 in the Ninilchik unit and its vicinity and four grassroots wells from the Kalotsa pad.
Between 2019 and 2022, Hilcorp drilled five grassroots wells in the Susan Dionne-Paxton PA, followed in 2022 by four wells within the Pearl prospect, resulting in discovery of commercial quantities of gas, with first production in December 2022.
Paxton 12 and Pearl 10 were drilled in April 2023, with both wells online and producing from the Pearl PA.
In June 2023 the company drilled the Pearl 11, currently online and producing from the Pearl PA.
At the end of 2023 the division approved Hilcorp's 2022 application to form the Pearl PA and expand the Ninilchik unit to include the Pearl structure.
In October 2024 several zones in the Blossom 1 well were tested, although Nottingham said in the division's decision that perforations and testing at that well "was unsuccessful and yielded no gas to the surface."
Hilcorp said it drilled three Susan Dionne-Paxton PA wells in 2025, all currently online.
The current plan, approved by the division July 8 (for Aug. 1 through July 31, 2026), includes evaluation of an exploration well in the northernmost portion of the unit in the Clam Gulch area and two development wells in the Paxton-Kalotsa-Dionne and Falls Creek structures.
Nottingham said upon completion of that work and resolution of the administrative appeals, Hilcorp will analyze any necessary reconfiguration of unit and participating area boundaries.
Ninilchik production Operator Marathon, in partnership with Union Oil of California, brought Ninilchik online in 2003. Alaska Oil and Gas Conservation Commission data show annual production peaking in 2008 at 19.11 trillion cubic feet. By 2013, the year of the sale to Hilcorp, annual production stood at 9.1 tcf. Recent peak annual production was 15.78 tcf in 2023, with production in the most recent calendar year, 2024, of 11.76 tcf.
In May, the most recent month for which AOGCC production data are available, Ninilchik ranked third in natural gas production for the Cook Inlet area, averaging 33.14 million cubic feet per day, behind Beluga River at 42.44 million cubic feet per day and North Cook Inlet at 38.44 million. Ninilchik and North Cook Inlet are Hilcorp owned fields; Hilcorp operates Beluga River on behalf of itself and majority working interest owner Chugach Electric Association.
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