Producers 2020: Hilcorp nears 10 years in Cook Inlet

First decade included increases, consolidations and expansions across the basin

Eric Lidgi

for Petroleum News

As it nears its first decade in the Cook Inlet basin, Hilcorp Alaska LLC can claim several victories. The company has increased or maintained production at several legacy fields. It consolidated or suspended some of its smaller, dying fields. And it may soon be doing something it is not generally known for doing: expanding development into new areas.

The largest privately held oil company in America arrived in Alaska through major acquisitions of Cook Inlet properties from Union Oil Company of California and Marathon Oil Corp. in 2011 and 2012. Today, it operates some 20 fields in the basin, a figure that changes annually as the result of acquisition, development, and consolidations.

Those properties can be divided into four groups: 1) onshore west side properties, 2) offshore properties, 3) northern Kenai properties and 4) southern Kenai properties.

Onshore west side

The units in the region are actually divided into smaller clusters. Hilcorp became the operator of Lewis River, Ivan River, Pretty Creek and Stump Lake as part of its early acquisitions in the region. The company undertook areawide field studies, although the effort yielded few results. The Stump Lake unit was eventually terminated in 2017.

The subsequent acquisition of the major Beluga River unit created the possibility of integrating the three smaller fields to the north with the much larger field to the south.

The Lewis River unit includes two participating areas, Gas Pool No. 1 and Gas Pool No. 2. The unit produced exclusively from the LRU C-01RD well in Lewis River Gas Pool No. 2 in 2019, totaling 185.6 million cubic feet - an increase of 28 percent from 2018.

The company performed one workover operation on the well in September 2019, adding perforations in the Tyonek F5 sand to address production and pressure issues in the well.

The company said it was not planning any drilling projects at the unit for the development year running through May 31, 2021, aside from unplanned maintenance.

Hilcorp did not conduct any drilling or workover projects at the Ivan River unit in the 2019 development year and did not plan any for the current year, running through May 31, 2021. The Ivan River unit produced 146.7 million cubic feet in 2019, down from 184.9 million cubic feet in 2018. The Ivan River unit also includes two disposal wells - IRU 14-31 and IRU 13-31- utilized by Hilcorp for all its west side Cook Inlet fields.

At the Pretty Creek unit, Hilcorp did not conduct any drilling or workover projects in the 2019 development year and did not plan any for the current year, running through May 31, 2021. The unit produced exclusively from the Beluga participating area, reporting 47.3 million cubic feet in 2019. The Pretty Creek unit also includes a gas storage operation from the PCU No. 4 well. The company injected 41.9 million cubic feet into the well in 2019 and withdrew 176.9 million cubic feet.

Offshore

The company acquired North Cook Inlet from ConocoPhillips in late 2016 and launched a field study to determine the state of the unit and to guide development opportunities.

Although the company has yet to drill any wells at the unit, it began working over existing wells during its most recent development year, which ran through June 2020.

In its previous plan. Hilcorp proposed workover operations on the NCI-A-03 and NCI-A-09 wells. But after completing the NCI-A-03 project, the company determined that the NCI-A-09 project was not currently needed to access the target, according to Hilcorp.

For the coming year, running through June 2021, Hilcorp is not planning any drilling activity but expects to work over the existing NCI-A-04, NCI-A-07 and NCI-A-16 wells.

The company is continuing its field study of the Beluga and Sterling sands and advancing its plans to drill a development well sometime around 2022 to test deep oil prospects.

In the meantime, natural gas production is declining. The North Cook Inlet unit produced 5.1 billion cubic feet in 2019, down approximately 19% from the previous year.

Granite Point produces from three offshore platforms: Granite Point, Anna and Bruce.

Hilcorp proposed a two-to-three well sidetrack program at the Granite Point platform for 2019, depending on Cook Inlet ice conditions. The company completed the GP-53RD sidetrack, resulting in more than 1,100 barrels per day of oil. The company drilled the GP-55RD sidetrack but did not complete the project “due to hole instability in the coals overlying the target sands.” The company did not undertake the third sidetrack project.

The company is not proposing any drilling or workover projects at the Granite Point unit this year, although it is planning a pilot water injection test at the GP-24-13RD2 horizontal well to test injectivity in horizontal wellbores. The company is also evaluating the effectiveness of multilateral sidetracks at the Anna and Bruce platforms using coiled tubing drilling. The company has already undertaken these evaluations on wells at the Granite Point platform.

The Granite Point unit produces oil and natural gas. The unit produced 956,000 barrels of oil in 2019, down slightly from 1.027 million barrels in 2018. The unit produced 1.02 billion cubic feet of natural gas in 2019, up slightly from 1.004 billion cubic feet in 2018.

The Trading Bay unit includes two fields: Trading Bay and McArthur River.

In its 2019 development year, Hilcorp completed workover projects at the A-31 and A-03RD wells at the Trading Bay field. Both projects had been scheduled for 2018 but were delayed by a year. The company also drilled the A-10RD sidetrack to evaluate the Hemlock and Tyonek G-zone sands. The well was a dry hole and was not completed.

For the coming year, the company plans to work over the A-15RD2 well at the Trading Bay field to restore production from the Hemlock zone at the McArthur River field.

The Trading Bay field experienced declining production in 2019. The field produced 506.8 million barrels of oil in 2019, down 89,000 barrels from 2018. The field also produced 1.148 billion cubic feet of gas in 2019, down 229 million cubic feet from 2018.

In its 2019 development year, Hilcorp repaired an electric submersible pump at the G-33 well at the McArthur River field. The company is planning two workovers this year.

The McArthur River field also experienced declining production in 2019. The field produced 1.704 million barrels of oil in 2019, down 51,000 barrels from 2018. The field produced 8.347 billion cubic feet of gas in 2019, down 1.406 billon cubic feet from 2018.

The current development plan at the North Trading Bay unit is the first since the Division of Oil and Gas terminated the unit in in May 2019 and then reinstated it in March 2020.

The state agency said at the time that it had terminated the unit because there “currently are no diligent operations to restore production.” But Hilcorp successfully appealed the decision, allowing it to proceed with activities intended to guide future operations.

In its earlier 2019 plan, Hilcorp announced plans to return the unit to production by sidetracking the A-10RD well. But the well did not encounter pay, setting efforts back.

The company is currently revising its plans using the results of the A-10RD project. The company expects to identify potential targets this year and undertake drilling in 2021.

Hilcorp operates four platforms at the Middle Ground Shoal unit. The unit currently produces from Platform A and Platform C. The Baker and Dillon platforms are shuttered.

Although the company originally did not propose any drilling or workover projects at the unit for the 2019 development year, the company reported five workover projects and announced plans to complete four additional projects before the end of the year.

Even with these workover projects, Hilcorp reported declining production for the year, with the exception of a notable bump in natural gas production at Platform C.

Platform A averaged 170,000 cubic feet per day of natural gas in 2019, down 72,000 cubic feet per day from 2018. The platform also averaged 839 barrels of oil per day in 2019, down 140 barrels per day from 2018. Platform C averaged 80,000 cubic feet per day of natural gas in 2019, up 18,000 cubic feet per day from 2018. The platform also averaged 420 barrels of oil per day in 2019, down 30 barrels per day from 2018.

The company is not planning any drilling or workover activities this year, aside from possible maintenance activities to repair electric submersible pumps as needed.

Northern Kenai Peninsula

Hilcorp operates four producing fields in the area: the Kenai unit, the Cannery Loop unit, the Swanson River unit and the Beaver Creek unit. The Birch Hill unit is not currently producing, according to the state. The Sterling unit was terminated in late 2017.

The Kenai unit is the oldest producing field in the region, responsible for launching the modern Alaska natural gas industry. The field produced 11.5 billion cubic feet in 2019.

The company drilled the KU 24-05B production well from the Kenai Unit Pad 41-07 in August 2019. The well was completed into the Tyonek D4, D3 and D2 sands.

For the current development year, running through March 2021, the company plans to maintain production by drilling the KU 24-32 well from the Kenai Unit Pad 34-31 targeting the Upper Tyonek and Beluga formations and by conducting workover projects.

At the Cannery Loop unit, Hilcorp drilled the CLU No. 14 well into the Beluga MB-8A and LB-4 sands, reporting initial production of some 4.5 million cubic feet per day. As of early 2020, the company was completing work on the CLU No. 15 well, targeting the Upper and Middle Beluga formations with a secondary target in the Sterling formation.

The results of the two wells will provide Hilcorp with information about the size and shape of the eastern flank of the Beluga and Tyonek structure at the Cannery Loop unit.

Hilcorp also reported eight workover projects at Cannery Loop during the 2019 development year. The company added perforations in the Upper Beluga UB-1 sands to the CLU No. 8 well, adding some 3.8 million cubic feet per day of incremental production. A pair of projects at the new CLU No. 14 well added no production, and neither did projects at the CLU No. 1RD CLU No. 5RD or CLU No. 13 wells.

Even with these drilling and workover projects, Cannery Loop production declined. The unit produced 1.77 billion cubic feet in 2019, averaging about 4.8 million cubic feet per day - down from 2.9 billion cubic feet in 2018, according to figures from the state.

The Birch Hill unit is currently offline, awaiting a major decision. Either Hilcorp can plug and abandon its well, or it can propose a plan for resuming oil and gas development.

The decision currently turns on access.

Hilcorp would prefer to access the site using a new gravel road from the north. The company believes this option would be shorter and less environmentally disruptive and would involve fewer land management challenges than a road coming from the south.

Construction of the so-called North Road depends on prior construction of the proposed Kenai Spur Highway extension project. The Kenai Peninsula Borough had originally expected to complete that highway extension this year, but it has since delayed the project until 2021, leading Hilcorp to request a corresponding delay for its North Road.

Even though it prefers the North Road, Hilcorp is still considering a plan to access the site by helicopter. The company is reluctant to use helicopters for the project, citing safety concerns. A proposed snow and gravel road from the Swanson River unit to the south “are now no longer viable options,” due to economic and environmental reasons.

The road could also support future development at Birch Hill.

Hilcorp and minority partner CIRI Production Co. (20%) have been searching for third parties to develop the oil and gas resources at Birch Hill. A pair of meetings with an unnamed partner has not yielded firm arrangements. Hilcorp believes that the certainty provided by delaying the road project to 2021 would make it easier to find partners.

At the same time, Hilcorp has been working with civic and Native governmental authorities to permit plugging and abandoning the Birch Hill Unit No. 22-25 well.

The company plans to ask federal authority to extend the “plug or produce” deadline for BHU No. 22-25 until May 1, 2022, to better align the project with the highway work.

At the Beaver Creek unit, Hilcorp drilled a sidetrack of the BCU-04 well in the 2019 development year and conducted workover operations on the BCU-01B, BCU-09 and BCU-07A wells, but details of all four projects were redacted in its development plan.

For the coming year, running through March 2021, the company plans to drill the BCU-19RD sidetrack and workover the BCU-04RD well, plus other unnamed projects.

Natural gas production at the Beaver Creek unit declined in 2019 to 2.73 billion cubic feet, compared with 3.57 billion cubic feet in 2018, according to the AOGCC. Oil production increased to 129,888 barrels in 2019, compared with 74,998 barrels in 2018.

Southern Kenai Peninsula

The southern Kenai Peninsula was an anomaly in the Cook Inlet region for decades. Its leases were underexplored, its prospects were under-developed, and its communities were unable to participate in the local natural gas supplies enjoyed by northern communities.

But increased investment by Hilcorp, as well as landmark projects by Glacier Oil & Gas and BlueCrest Energy, have revived interest in the region in a small but important way.

At all three of its properties in the region, Hilcorp has been trying to balance its desire to focus on existing assets with expanding into undeveloped corners of its lease holdings as a way to avoid various contraction deadlines that it inherited in one form or another.

The Ninilchik unit produced 37.5 million cubic feet per day in 2019, up around 30% from 2018 production rates, according to figures provided by Hilcorp.

The increases came from one drilling project and several workovers across the unit.

The Kalotsa No. 6 well into the Beluga BLG-134 sand in October 2019 added about 3.1 million cubic feet per day. Perforations in the Tyonek T-4, T-8 and T-10 sands at the Kalotsa No. 3 well in August 2019, adding 1 million cubic feet per day. Perforations in the Tyonek T- 65 sand at the Kalotsa No. 4 well in January 2020, adding some 14 million cubic feet per day.

Perforations in the Beluga BLG-53 sand at the Paxton No. 9 well in January 2020 added about 200,000 cubic feet per day. The company also repaired the Paxton No. 2 well.

Perforations in the Beluga BLG-58/58A and 59 sands at Falls Creek No. 6 in October 2019 added about 100,000 cubic feet per day. Hilcorp also worked on Falls Creek No. 3.

The company also planned additional projects the Grassim Oskolkoff No. 8 and Susan Dionne No. 8 well during the development year but has not yet reported results.

The plan for the current development year, running through July 2021, involves drilling the Kalotsa No. 5 well and possible targets in the Grassim Oskolkoff participating area.

The company expects its workover activities to continue this coming year, including possible work on the Frances No. 1 well. Hilcorp made no firm commitments, though.

In the near term, the company is considering plans to drill the Blossom No. 1 sidetrack and the Pearl No. 2A delineation well and is evaluating its new Abalone prospect.

The Deep Creek unit produced 4.56 million cubic feet per day in 2019, according to Hilcorp. The unit produces from both the Happy Valley participating area (3.47 million cubic feet per day) and from two wells on a tract basis (1.09 million cubic feet per day).

Although the company had expected to maintain or increase production, rates fell from the year prior, in 2018, when Deep Creek produced 5.11 million cubic feet per day. But production diversified last year. The 2018 production came entirely from the Happy Valley participating area without any tract production outside of the participating area.

In mid-2019, after years of negotiations and deferrals, the Division of Oil and Gas contracted the Deep Creek unit down to its participating area and producing leases.

The contraction was initially scheduled to occur November 2014, based on the statutory timeline requiring mandatory contraction 10 years after sustained production. The state and Cook Inlet Region Inc. agreed to extension in December 2011, when Hilcorp acquired the unit. The extension gave the new owner time to evaluate the property.

Even though Hilcorp had a record of seismic acquisition and exploration drilling in the area, the state wanted to see more immediate plans for developing those leases.

The previous development plan was limited to a few drilling and workover projects.

Bottlenecks in the Kenai Beluga Pipeline delayed the planned HVB No. 18 well this past year. The company is looking to drill the well in early 2021, although the project depends on market conditions. The results of HVB No. 18 will determine whether Hilcorp drills the proposed HVB No. 19 well or other wells targeting the Middle/Deep Tyonek sand.

In the coming development year, running through July 2021, Hilcorp expects to maintain production rates, largely through its planned workover activities. Those projects include recompleting the HVB No. 16 well to produce from the Sterling A sand, adding an Upper Tyonek perforation to the HVB No. 13 well, and returning HVA No. 1 to production.

A workover on the HVA No. 10 well in the previous development year added perforations into the T1 and T2 sands without any significant change in production rates.

The Nikolaevsk unit produced 476,000 cubic feet per day in 2019, down from about 500,000 cubic feet per day in 2018, according to figures provided by Hilcorp.

The company proposed no development activities at the unit last year and again proposed no activities for the current development year, running through July 2021. Although the plan was submitted in May 2020, the state had yet to approve or deny it by August 2020.

Nikolaevsk produces entirely from a single well, the Red Well No. 1. A stimulation campaign in early 2017 yielded a notable bump in production rates. But the effect was short-lived. The well had returned to pre-stimulate levels by early 2018. The company had hoped to add as much as 3 million cubic feet per day from the stimulation work.

Without justification for investment, Hilcorp turned its attention to other projects.

Hilcorp began exploring the Seaview prospect in 2015.

The work yielded the successful Seaview No. 8 well in 2018, which made a discovery in the Tyonek. The company is working to construct a pipeline to connect the Seaview pad to a nearby Enstar Natural Gas Co. Bailey Street Station, some two miles from the pad.

Hilcorp said it plans to drill the Seaview No. 9 well late this year or early next year.

The company is aiming to begin natural gas production by November. The current plan calls for delivering into the regional system in winter and storing supplies in summer.

As it moves toward development, Hilcorp asked the state to combine two state leases and un-leased state, borough, Native and private interests into the 2,975-acre Seaview unit.