Explorers 2015: Hilcorp exploring at two Cook Inlet units

Although primarily interested in development, some units are thought to contain undiscovered accumulations

Eric Lidji

For Petroleum News

Hilcorp Alaska LLC amassed much of its Alaska leasehold through three purchases: acquiring the Cook Inlet assets of Union Oil Company of California in 2011, the Cook Inlet assets of Marathon Oil Co. in 2012 and a large portion of the North Slope assets - not including the massive Prudhoe Bay field - of BP Exploration (Alaska) Inc. in 2014.

To date, the Texas-based independent has been focused on revival. The company has been repairing existing development wells and drilling new development wells to either improve production rates at producing fields or restore production at suspended fields.

That strategy has left little time for traditional exploration activities.

But previous operators appear to have underinvested in some fields, leaving Hilcorp with the opportunity to conduct exploration work within existing units and near infrastructure.

In terms of exploration, Hilcorp has been most active at two Cook Inlet units in the southern Kenai Peninsula - the Ninilchik unit and, to a lesser extent, the Deep Creek unit. The company closed on its acquisition of the North Slope properties in late 2014 and had yet to present any firm exploration plans by the time The Explorers went to print.

Ninilchik in 2013

The unit follows a section of coastline between Clam Gulch and Ninilchik. The slender unit currently includes three non-overlapping participating areas with accumulations in the tertiary Tyonek formation: Falls Creek, Grassim Oskolkoff and Susan Dionne-Paxton.

In June 1961, Chevron discovered a Tyonek gas field in the area, which became the Falls Creek unit. Marathon discovered two nearby fields in 2001 and 2002 and pursued development. The state formed the Ninilchik unit in 2001 and expanded it to include the old Falls Creek unit in 2003. Also in 2003, the state formed the three participating areas.

The unit currently includes eight drilling pads with plans in the works for a ninth.

Hilcorp drilled four exploration wells at the Ninilchik unit under its 2013 plan of development: Susan Dionne No. 8, Paxton No. 5, Frances No. 1 and Falls Creek No. 5.

The 12,000-foot Susan Dionne No. 8 well was the first explicit attempt at oil exploration at the unit in decades. Although Hilcorp ultimately deemed the well as non-commercial for oil, the company completed the well as a producer from both the Tyonek formation within the Susan Dionne participating area and from the Beluga formation on a tract basis. Paxton No. 5 was a shallow well from the Paxton pad to the south of the Susan Dionne pad. Hilcorp completed the well as a producer from the Beluga formation on a tract basis. Given the Beluga production from the two wells, Hilcorp told the state it planned to form the Susan Dionne/Paxton Beluga participating area sometime this year.

Those activities took place in the southern end of the unit. Toward the end of 2013, Hilcorp also conducted exploration work on leases at the north end of the unit.

Inspired by its efforts at Susan Dionne, Hilcorp built the Bartolowitz pad just south of the Falls Creek pad in August 2013 and later drilled the Frances No. 1 well to look for oil.

As with Susan Dionne No. 8, the well was non-commercial for oil, but showed “strong potential” for gas production from the Tyonek and Beluga formations. The Falls Creek No. 5 well encountered gas in the Tyonek and Beluga. Hilcorp brought both wells into production from an undefined Tyonek reservoir in the second and third quarters of 2014 and intends to expand the Falls Creek participating area to include the Beluga formation.

Ninilchik in 2014

The initial program called for two wells at the Paxton pad. The 10,000-foot Paxton No. 6 and Paxton No. 7 wells would target the Tyonek and Beluga formations, south of the Paxton pad. Paxton No. 6 would be an “appraisal” well and Paxton No. 7 would “follow up” on the results of Paxton No. 6. The expanded program added an 11,000-foot Paxton No. 8 to test the structural apex of an undefined Tyonek formation northeast of the pad.

The company completed Paxton No. 7 in November 2014 and Paxton No. 8 and No. 9 in January 2015, according to Alaska Oil and Gas Conservation Commission records.

The expanded program also called for building a Kalotsa pad this year to support a two-well exploration program. The Kalotsa No. 1 and Kalotsa No. 2 exploration wells would test the Tyonek and Beluga formations between the Susan Dionne and Paxton pads.

At the other end of the unit, the 2014 program included the 10,000-foot Frances No. 2 and Frances No. 3 “appraisal” wells targeting the Tyonek and Beluga. The former would be east of the Falls Creek participating area and north of the Bartolowitz pad. The latter would be south of the Falls Creek participating area and east of the Bartolowitz pad.

The 9,000-foot Falls Creek No. 6 would follow Frances No. 2 to further appraise the Tyonek and Beluga formations area north of the Falls Creek pad. The expanded program included a second well with the name Falls Creek No. 6, this one described as an 11,000-foot “delineation” well to prove up a Beluga reservoir north of the Falls Creek pad.

Hilcorp permitted a Falls Creek No. 6 well in October 2014 and completed the 9,060-foot gas development well before the end of the year, according to AOGCC reports.

While those wells and proposed wells all expanded upon exploration activities Hilcorp launched in 2013, the expanded 2014 plan also called for work in the vicinity of the Grassim Oskolkoff participating area, between Susan Dionne-Paxton and Falls Creek.

The initial program included plans for drilling a 6,500-foot GO No. 8 well to target the Sterling and Beluga formations above the existing, west of the existing GO pad. The expanded program called for building a Blossom pad just north of the existing Grassim Oskolkoff pad to support a 12,000-foot Blossom No. 1 exploration well. The state approved the pad and a two-well gas exploration program toward the end of 2014.

In its 2015 plan of development, filed in March 2015, Hilcorp proposed three grassroots wells for the Ninilchik unit: a 12,000-foot Blossom No. 1 (originally planned for 2014), a 12,000-foot GO-8 (deeper than the 2014 proposal) and a Kalotsa No. 1 development well.

The Deep Creek unit

Following successful exploration by Standard Oil Company of California in 1958, Unocal brought the unit online in 2004 at 3 million to 4 million cubic feet per day and drilled some 13 wells between 2003 and 2009. Then, investment flagged. In an eighth plan of development, from December 2010, Unocal offered no plans for further exploration but said it wanted to farm out exploration acreage in the south of the unit.

Believing the unit to contain additional accumulations, Alaska Division of Oil and Gas Director Bill Barron required the ninth plan of development to include plans for exploring parts of the unit outside the Happy Valley participating area. By the time Hilcorp acquired the unit, the state and CIRI were on the verge of contracting it. Instead, they extended the eighth plan of development to give Hilcorp time to make plans for the unit. The extension gave the company until February 2013 or six months after closing, whichever came first, to file a ninth plan of development with exploration plans.

To start, Hilcorp drilled three development wells at the unit: The 2,005-foot Happy Valley B-14 tested the Sterling formation shallower than the existing participating area; the 3,069-foot Happy Valley B-15 tested the Upper Beluga formation, also shallower than the existing participating area; and the 4,857-foot Happy Valley B-16 well targeted the Beluga formation, although “rig limitations” prevented it from reaching its target depth. In early 2013, Hilcorp acquired some 50 square miles of 3-D seismic over the unit.

The program discovered commercial quantities of gas in the Sterling and Beluga formations, shallower than the producing Beluga/Tyonek pool. Speaking in June 2013, Senior Vice President John Barnes said the field was “making more now than it was shortly after Unocal discovered and developed it” and estimated that the resource at Happy Valley is “probably three to four times larger than the current participating area.”

With the successful program, Hilcorp said it would expand its exploration activities for two years and has asked the state to defer contraction of the unit until the end of 2015.

The 2014 plan called for completing the B-16 well, potentially using a sidetrack, and drilling two exploration wells from a newly constructed C pad. The 6,000-foot Happy Valley C-17 well and the 5,000-foot Happy Valley C-18 well would both target the Sterling and Beluga formations outside the Happy Valley participating area. If successful, the exploration program would likely justify a new participating area, Hilcorp has said.

The plan also called for drilling the Middle Happy Valley No. 1 well in 2015. The well would have targeted the Sterling, Beluga and Tyonek formations and would have required a new road and pad, plus associated facilities and pipelines to access the area.

Ultimately, Hilcorp drilled none of those wells last year. However, the company processed preliminary data from the seismic survey between March and October 2013 and conducted “pre stack depth mitigation” processing in 2014. As of March 2015, “interpretation of the 3-D data is in progress and will be used to establish the Deep Creek unit’s exploratory and development drilling program throughout 2016,” according to the most recent plan of development. The plan also proposes drilling the Middle Happy Valley No. 1 well, which would require the construction of a new drilling pad at the unit.

In July 2014, Hilcorp proposed construction of a Happy Valley C pad and an accompanying four-well appraisal program to prove up and possibly develop a shallow natural gas accumulation. If successful, Hilcorp said it would initially develop the pad using existing facilities at B pad and potential construct new facilities at the C pad.