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Explorers 2011: Chevron sells Cook Inlet assets to Hilcorp Long-term player retains North Slope interests; Hilcorp ready to invest in production, exploration Kristen Nelson Petroleum News
As this issue of Explorers goes to print, the handoff between Chevron and Hilcorp Energy in Cook Inlet is moving forward. On Oct. 10 Hilcorp said it has named John Barnes senior vice president for Hilcorp in Alaska.
Barnes, formerly with Marathon in Alaska and most recently senior vice president of operations and maintenance services for CH2MHill, brings both producer and contractor experience to his new position, Hilcorp said.
The fate of the Cook Inlet properties has been in question since Chevron acquired Union Oil Company of California in 2005. Both companies have long histories in Cook Inlet, but production was long past its peak.
The Cook Inlet struggle John Zager, Chevron’s general manager in Alaska, told the Alaska Legislature in March 2006 that the company’s Alaska team had worked hard to convince Chevron of the value of the Cook Inlet assets. That effort had been successful, he said, and the company planned a multiyear investment in Cook Inlet.
“With our partners’ approval, we could invest $200 million over four years in just the oil part of our Cook Inlet business,” he said.
Investments were made and wells drilled, but with mixed results.
Then came the 2008 recession and in March 2009 the eruption of Mount Redoubt volcano and the resulting shutdown of the Drift River Terminal on the west side of Cook Inlet, hampering deliveries of oil from west side platforms.
In November 2009, Chevron said it was laying off an estimated 25 of its Cook Inlet operations and maintenance staff, citing “decreased operational activity and difficult economic conditions associated with its Cook Inlet oil assets.”
The company said it had grown its Cook Inlet operations and maintenance workforce over three years, but factors external to the company were forcing cutbacks, specifically an accelerated production decline due to field shut-ins following the Redoubt eruption and the bankruptcy of Pacific Energy Resources, a 50 percent partner in the Drift River Terminal and in the Cook Inlet Pipe Co., owner of the line carrying oil to the terminal.
The final blow Last October Chevron said it was putting its Cook Inlet assets up for sale, those owned by Union Oil Company of California and those owned by Chevron U.S.A. Inc., including the Granite Point, Middle Ground Shoals, Trading Bay and MacArthur River fields; interests in 10 offshore platforms; interests in onshore fields including the Ninilchik unit and the Beluga River unit; and two gas storage facilities. Chevron said it was also divesting interests in the Cook Inlet Pipe Line Co. and the Kenai Kachemak Pipeline LLC. Approvals for those transfers of interest are before the Regulatory Commission of Alaska and the companies told the commission that approval of those transfers is a condition of the sale.
Cook Inlet discoveries the companies have made illustrate their histories in the basin. Chevron discovered the Falls Creek (1961), Beluga River (1962), North Fork (1965) Ivan River (1966) and Stump Lake (1978) fields. Unocal discovered the Kenai (1959), Sterling (1961), Trading Bay (1965), McArthur River (1965) and Pretty Creek (1979) fields.
North Slope interests retained Chevron will retain its North Slope interests including a 1.36 percent interest in the trans-Alaska oil pipeline; a 10.52 percent working interest in the Endicott participating area at the Duck Island unit (acquired with the Unocal purchase); a 4.95 percent working interest in the Kuparuk River unit (also from the Unocal purchase); a 25.14 percent working interest in the terminated Point Thomson unit, under litigation between the companies and the State of Alaska; a 1.16 percent interest in the Prudhoe Bay field; and leases in the Arctic National Wildlife Refuge, where Chevron was a partner in the KIC well.
The company has disposed of its North Slope exploration acreage, including White Hills where it drilled in the winters of 2008 and 2009.
Who is Hilcorp? Hilcorp Energy Co., founded in 1989, is one of the largest privately held independent oil and natural gas exploration and production companies in the United States, with 700 employees.
On its website Hilcorp describes the company’s beginnings “as the proverbial ‘three guys and a telephone’ trying to make a living in the oil and gas business.”
In a CEO message on Hilcorp’s website, Jeff Hildebrand, the company’s founder, president and CEO, cited “world-class employees, legacy assets and a strong balance sheet,” as the reasons for the company’s success.
“We focus on what we do well,” he said, listing the company’s core competencies as engineering and geological expertise and operational excellence.
Hilcorp’s mission, Hildebrand said, is “To efficiently develop energy that would otherwise be lost while providing an enjoyable and challenging work environment where long-term personal wealth can be created.”
The company operates across the United States and said in the joint statement with Chevron that it “continues to grow by actively acquiring and exploiting conventional assets while expanding its footprint into a number of new resource plays.”
Hilcorp has been recognized for its progressive culture, values and ethics.
Development, exploration When the sale was announced in July, Sen. Tom Wagoner, R-Kenai, said in a statement that he received a call from Hilcorp representatives notifying him of the acquisition.
“Hilcorp is enthusiastic about the opportunities it sees in Alaska, and it has an aggressive plan to invest in required well maintenance and in-field drilling to restore and increase production from existing fields, as well as pursue the many exploration targets it has identified around the Cook Inlet basin.”
In an application to the Regulatory Commission of Alaska for transfer of Union Oil’s Cook Inlet pipeline assets, Hilcorp said it “has identified the Cook Inlet basin as a region holding significant potential for continued oil and gas exploration and development opportunities, and, consistent with its overall corporate mission, upon completion of the acquisition, Hilcorp intends to pursue a maintenance and development program at existing fields, as well as a comprehensive exploration program.”
Hilcorp said it “is poised to begin making substantial investments in its newly acquired Cook Inlet assets over the next several years,” and said the investment “is anticipated to lead to increased production from the underlying oil and gas assets, which should increase the useful life of these pipeline assets,” while benefitting “the broader economy in Southcentral Alaska as well by creating jobs and stimulating economic activity.”
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