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Hilcorp cuts costs, BlueCrest moves ahead Independents tell legislators state’s oil and gas tax credits promote investment, also review activities under way in Cook Inlet Kristen Nelson Petroleum News
House and Senate Resource committee members met in Kenai June 17 for a review of state oil and gas tax credits, and also got updates from three independents. Caelus Alaska announced acquisition of NordAq acreage in Smith Bay, and plans to drill exploration wells next winter (see story in June 21 issue). BlueCrest Energy reviewed its progress at Cosmopolitan. Hilcorp reviewed production growth in fields Cook Inlet and reduced operating costs.
All three independent operators said the state’s tax credits influenced their decisions to invest in Alaska.
Oil first, then gas J. Benjamin Johnson, president and chief executive officer of BlueCrest Energy Inc., told legislators he grew up in Kenai and worked his way through college on Cook Inlet platforms and on the North Slope. A petroleum engineer, Johnson worked for ARCO, including at the Kuparuk River and Prudhoe Bay fields.
He told legislators that when privately held BlueCrest was put together they looked all over the U.S. for places to go, and said what made the company look at Alaska was the tax credit program.
The company’s single focus is Cosmopolitan and Johnson said BlueCrest has 30 people working for the company in Alaska, but during construction later this year that number will grow to some 200.
There is no severance tax on Cook Inlet oil, he said, but royalty paid to the state will be some $300 million over the project’s first 10 years, and some $600 million over the life of the project, plus $20 million in property taxes over the first 10 years.
BlueCrest plans to spend $80 million for the remainder of 2015 and $120 million in 2016, he said, has spent $144 million since it acquired Cosmopolitan in 2012 and has received $21 million in tax credits and rebates.
The company drilled in 2013, the first offshore vertical well at Cosmopolitan in almost 50 years, and found a lot of gas and a lot of oil in addition to what was already known, he said.
Cosmopolitan lies some 3 miles offshore Anchor Point, Johnson said, and oil will be developed from onshore. He said the company is bringing in one of the largest rigs in Alaska - currently under construction. Facilities are under construction and BlueCrest plans to be in production in April 2016 with its first well, drilling additional wells for several years thereafter, at an investment of some $619 million through 2019.
Johnson said the gas was another story, with gas zones too shallow to reach from onshore, so gas will be developed offshore using small platforms.
BlueCrest’s money is focused on oil, he said, and the company is working with WesPac Midstream, an LNG company, to develop the natural gas. Gas development will begin in 2016, he said, with gas production by early 2018 at a time there could potentially be a shortfall in Cook Inlet natural gas supply. Johnson said WesPac will fund gas development 100 percent and initially receive 100 percent of gas production, but BlueCrest will operate and eventually increase its gas ownership to 80 percent.
And, he said, WesPac has committed that as long as Alaska needs the gas, it will be committed to Alaska.
Hilcorp John Barnes, senior vice president for Hilcorp Alaska, told legislators that the company is incredibly cost conscious. Operating costs in Alaska are too high, he said, and Hilcorp wants its Cook Inlet business to be competitive with the Lower 48. And right now, he said, the company’s Cook Inlet operating costs are competitive with the Lower 48. The goal now, he said, is to get the North Slope operating cost structure in line with the Lower 48.
Hilcorp began operating Cook Inlet fields formerly operated by Chevron in 2012 and by Marathon in 2013 and last year began operating three North Slope fields formerly operated by BP - Endicott, Milne Point and Northstar.
Barnes said while the focus is on operating costs, contractors deserve to make a fair return.
The money saved from operating costs, he said, is put into new wells and capturing adjacent opportunities.
In 2014, Hilcorp spent $374 million, 90 percent of that in Cook Inlet, where, he said, there are a lot of old, broken wells. The company’s 2015 Alaska investment is forecast at $340 million, he said.
Hilcorp’s Cook Inlet oil production has grown from 6,000 barrels per day when the company took over to almost 13,000 bpd, he said, and production from its North Slope operations has remained flat, where it had been at a 15 percent decline.
Barnes said Hilcorp has commissioned a small automated service rig this year for the North Slope so the company can change wells out without moving big rigs.
He said Hilcorp has almost doubled Cook Inlet royalties to the state and has also about doubled property taxes.
Since its acquisition of Cook Inlet properties, he said, Hilcorp has invested some $300 million a year, where previous producers were investing about $70 million a year. As a result, Cook Inlet production has increased, whereas Hilcorp projects it would have dropped off under the previous investment level.
Barnes told legislators that the state needs to decide whether it wants a tax structure that works for or against investment.
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