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Hilcorp pushes on with Alaska program While the oil price, market and fiscal uncertainty are causing concern the company also sees exciting opportunities in the state ALAN BAILEY Petroleum News
Hilcorp is continuing to push ahead with its efforts to revitalize oil and gas fields in the Cook Inlet basin and on Alaska’s North Slope, Greg Lalicker, president of Hilcorp Energy, told the Resource Development Council’s annual conference on Nov. 19. The company is also pursuing some new development and exploration opportunities in the Cook Inlet region, and is entering the environmental review phase of the proposed development of the Liberty oil field in the Beaufort Sea. And the company has purchased the Cook Inlet Middle Ground Shoal field from XTO/ExxonMobil, Lalicker said.
But Lalicker also cautioned that projects need to make economic sense.
“There’s plenty of places to spend your money in Alaska with good resource potential, as long as you have confidence you’re going to get an adequate return on your investment,” he said. “And that’s what we’re looking at and thinking about every day going forward.”
Current uncertainties Lalicker said that his company is still figuring out its Alaska plans for 2016 but is currently looking at a possible total spend of about $250 million in the state during that year. He commented that current commodity price uncertainty, local gas market uncertainty, the state fiscal situation and uncertainty over support services during the economic downturn are all eroding confidence in the ability to make adequate financial returns in Alaska, thus making it difficult to keep up the past rate of investment in the state. On the other hand, the state continues to present plenty of opportunity.
“There’s a lot of things I see in Alaska that in the long term that I’m very excited about,” Lalicker said.
Lalicker said that Hilcorp had originally been attracted to Alaska because the company liked the state’s fiscal system, including the tax system, royalty arrangements and tax credits. He declined to comment on the current debate over state tax credits other than saying that clarity is needed. He said that he would not offer an answer to the questions that have been raised.
“Just tell me what the answer is, and I’ll tell you what I’m going to do next,” Lalicker said.
Expanding in Alaska After arriving in the state in 2011, Hilcorp purchased Chevron and Marathon’s Cook Inlet oil and gas field assets, thus becoming the dominant oil and gas producer in the Cook Inlet basin. And in December 2014 the company entered the North Slope oil industry after purchasing interests in a number of North Slope assets from BP and, in the process, becoming operator of the Milne Point, Northstar and Endicott fields, as well as becoming operator for the proposed Liberty development. Hilcorp now has 520 employees working in Alaska, Lalicker said.
Hilcorp Energy also reached its latest five-year target of doubling in size, an achievement which resulted in a total payment of more than $110 million in bonuses to its employees, Lalicker said.
And, following the company’s mantra of re-invigorating aging oil and gas fields, Hilcorp has been conducting an aggressive campaign to improve the performance of its Alaska assets.
Cook Inlet production Cook Inlet oil production has risen steadily to a level of some 14,000 barrels of oil per day, Lalicker said. However, a production plateau in 2015 reflects the low oil price environment, with it becoming uneconomic to repair some wells that had broken down, he said.
And Hilcorp has spent a lot of money developing new Cook Inlet gas reserves, turning around a situation where the region’s gas production was in decline while enabling the extension of gas supply contracts with Southcentral gas and power utilities. The company had been using two rigs for its gas related drilling, but is now down to one rig for proving out new gas reserves, Lalicker said.
Initially the company extended gas supply contracts with most of its customers by three or four years. Now, with increasing confidence in the gas reserves situation, the company has gone back to those customers, offering gas supply contracts through to 2023-24, Lalicker said.
“We’ve signed one of those (contracts) recently and a couple more are still in progress, but we remain very confident in our ability to deliver the gas supply to Southcentral Alaska,” he said.
The North Slope Oil production from Hilcorp’s North Slope operations over the past year has not shown the upward trend that the company normally expects, although the production profile has been impacted by a normal softening of production levels during the summer, Lalicker said.
“We haven’t put up the rate yet, which is what I always wanted to be doing, but we’re remaining focused on that,” he said.
Hilcorp’s focus during its first year on the Slope has been working on field infrastructure, particularly at Milne Point, and the repair of a backlog of broken wells, Lalicker said. While the company has brought in a custom-built workover rig for the repair work, a Nordic Calista rig has also been doing a great job for the company, he said. Hilcorp is building a custom rig that it hopes to bring to the Slope by the end of next summer - that rig will enable more drilling at Milne Point as well as accommodating the very tight well spacing in the Northstar and Endicott fields, Lalicker said.
Operating costs And Hilcorp has remained intent on an objective to bring down operating costs in its North Slope fields.
“On the Slope the first battle has been to get the cost structure to where it is sustainable,” Lalicker said.
So far, the company has reduced operating costs for its fields from $16 million to $12.5 million per month. But, although the process of cost reduction has been painful for everyone involved, this cost reduction of 21 percent only partially compensates for the concurrent fall in the oil price.
“We have a long ways to go before we’re coming anywhere close to making the money that we hoped to make when we originally made that investment a year and a half ago,” Lalicker said, adding that his company was not counting on a price revival and was continuing to work the problem.
Future growth And, having spent $3.2 billion so far on its Alaska ventures, Hilcorp expects future Alaska production growth. The Liberty field is an exciting prospect. And last summer the company acquired 3-D seismic across the McArthur River and Middle Ground Shoal fields in Cook Inlet - that seismic data will create more development opportunities, Lalicker said. The company continues to explore for new gas opportunities on the Kenai Peninsula and plans the drilling of an exploratory well at Happy Valley on the peninsula late this year or early in 2016, he said.
On the North Slope, the Milne Point field has plenty of resource remaining in the ground, ranging from light oil in deep reservoir rocks to heavy oil in the shallower Ugnu formation, Lalicker said. There are many opportunities to exploit, he said.
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