Explorers Preview: Hilcorp plays it safe and takes risks

Company expands infrastructure at existing assets in Cook Inlet while pursuing future wildcats in Southcentral and Interior Alaska

Eric Lidji

for Petroleum News

You can plot exploration plays along a spectrum, and the plays in Hilcorp Alaska LLC’s portfolio exist at opposite ends of that spectrum, with very little in the middle.

At one end are infrastructure-led plays. These plays use existing production as an anchor for exploration activities. They are relatively cost-effective, low-risk and sustainable.

Over the past few years, Hilcorp has been undertaking these infrastructure-led projects around its onshore developments on the Kenai Peninsula, leading to new developments.

At the other end of the spectrum are wildcats in undeveloped basins. These are far from infrastructure and short on pre-existing information. They can be risky and uncertain. But if they succeed, they can open vast reserves for future exploration and development.

While Hilcorp has generally focused on maximizing existing production through well work and step out projects, it often keeps a few of those wildcat projects on the side.

(Editor’s note: The company is not involved in exploration on the North Slope where it operates mature assets including Prudhoe Bay and several smaller fields.)

Cook Inlet

The company has a system. First it drills several quick and shallow stratigraphic test wells, and then it uses the results to guide a small number of traditional exploration wells.

For example: Seaview.

Hilcorp acquired an aerial gravity and magnetics survey over the southern Kenai Peninsula prospect in 2015 and shot 20.54 miles of 2D seismic in 2016. In the summer of 2017, it drilled seven shallow stratigraphic test wells at the prospect. Using that data, the company completed the 10,148-foot Seaview No. 8 exploration well in late 2018.

The results justified development. Following a slight delay resulting from pipeline construction, Hilcorp brought the Seaview field into production in June 2021.

Shortly after completing its Seaview exploration campaign in late 2018, Hilcorp moved a bit to the north to pursue the Whiskey Gulch prospect on private land north of Anchor Point. (Oil patch veterans may remember the unrelated Whiskey Gulch unit formed on the North Slope by Brooks Range Petroleum Corp. in 2005 and terminated in late 2006.)

“The team is very excited about this one,” Hilcorp Alaska Kenai team lead Jennifer Starck said in February 2021, at an Alliance Kenai digital luncheon. “The thing that’s most exciting about this one is… it’s all on roads, with a very known, feasible connect point for Enstar, which gets that gas right off to market quickly; that being said, you’re still talking about two to three years between right of way, installation, and permitting.”

The Alaska Oil and Gas Conservation Commission issued permits in late 2019 for Hilcorp to drill five stratigraphic test wells at the prospect: Whiskey Gulch 1-B, Whiskey Gulch 2, Whiskey Gulch 3, Whiskey Gulch 7 and Whiskey Gulch 10. In November 2019, Hilcorp drilled four of the five permitted wells - all but Whiskey Gulch 3. The shallow test wells were only about 600 feet deep.

The following year, the AOGCC issued seven additional permits for Whiskey Gulch stratigraphic test wells: Whiskey Gulch 4, Whiskey Gulch 5A, Whiskey Gulch 6, Whiskey Gulch 9A, Whiskey Gulch 11, Whiskey Gulch 12 and Whiskey Gulch 13. In July 2020, the company completed all seven, as well as the earlier Whiskey Gulch 3.

With two seasons of stratigraphic testing completed, Hilcorp transitioned to traditional exploration at Whiskey Gulch. The company proposed a two-well exploration program.

In planning documents, Hilcorp proposed building a 2.75-acre gravel pad on private surface lands at the end of Cape Ninilchik Avenue to support drilling. Construction would begin in mid-March, with drilling in June, with testing through early September.

The 10,000-foot Whiskey Gulch No. 1 well would target oil and gas to the southeast of the pad. The 8,491-foot Whiskey Gulch No. 14 well would target gas to the northeast.

Hilcorp spud Whiskey Gulch No. 1 in August 2021 but has yet to publicly announce results. The company received its final permits for Whiskey Gulch No. 14 in January 2022, but the well had not yet been drilled by April 2022, according to AOGCC records.

In permitting documents for Whiskey Gulch No. 14, Hilcorp said that analysis of Whiskey Gulch No. 1 and wells from surrounding fields “suggests that the Whiskey Gulch Undefined Gas Pool consists of a series of thin, discontinuous, stacked channel sands with a low net-to-gross ratio,” requiring tighter spacing that other fields.

Given the complexity of land ownership in the southern Kenai Peninsula, Hilcorp would almost certainly need to apply for a participating area to develop Whiskey Gulch.

Following the Whiskey Gulch program, Hilcorp turned to Happy Creek.

In September 2021, the company received seven AOGCC permits for stratigraphic test wells, south of its Ninilchik unit: Happy Creek No. 1, Happy Creek No. 4, Happy Creek No. 5, Happy Creek No. 6, Happy Creek No. 8, Happy Creek No. 9 and Happy Creek No. 10. The company had not dilled any wells by April 2022, according to the AOGCC.

Yukon Flats

Doyon Ltd. owns about 1.6 million acres of subsurface lands in the Yukon Flats area north of Fairbanks. The Alaska Native corporation for the Interior region spent years negotiating a land swap in the region with the U.S. Fish and Wildlife Service, which oversees the 10-million-acre Yukon Flats National Wildlife Refuge. When those negotiations failed, Doyon revisited the acreage and came to reconsider its potential.

In December 2019, Doyon and Hilcorp signed an agreement, creating a multi-year framework for the company to conduct exploration activities on the Yukon Flat acreage.

The program called for an airborne gravity survey in 2020 and 2021 to gather information to support a future seismic survey in the area around Birch Creek in 2022 and 2023.

With favorable results, the joint venture would conduct exploration drilling.

Even with the restrictions and uncertainly of the pandemic, Hilcorp was able to conduct the airborne gravity survey in the summer of 2020 and acquire the data it wanted.

In mid-June 2021, the AOGCC issued permits for Hilcorp to drill 15 stratigraphic test wells in the basin: Birch Creek No. 1, No. SE1, No. 3, No. 4, No. 5 and No. 6, Canvasback No. 1 through No. 6, and Saloon Island No. 1XX, No. 2. Between June 23 and July 23, the company completed all but Saloon Island No. 1XX and No. 3XX.

The Birch Creek wells were clustered at 16N/10-11E and 17N/7-8E. The Canvasback wells were at 18N/7-8E. The Saloon Island wells were at 18N/12-13E and 19N/12E.

According to Doyon, all 15 wells were drilled last summer to about 250 feet.

Texaco conducted a 2D seismic survey in the Yukon Flats region in the 1970s. Louisiana Land and Exploration conducted exploration in the adjacent Kandik area in the 1970s.

Exxon was pursuing an exploration program in the Yukon Flats region in the late 1980s in partnership with Amoco, but the Exxon Valdez oil spill in March 1989 prompted the company to withdraw from all wildcat exploration in the state, including Yukon Flats.

Exxon had been targeting source rocks near the Birch Creek, Beaver and Fort Yukon blocks in the central part of the Yukon Flats basin. “Exxon negotiated on a concurrent basis (1) an exploration lease option agreement with Doyon for oil and gas rights, (2) separate surface use agreements with the three villages, and (3) a surface use agreement with Doyon for its surface acreage which ended up mirroring the village agreements on commercial terms,” Doyon Ltd. CEO Aaron Schutt told the Resource Development Council in September 2020. In the winter of 1988-89, “Exxon gathered approximately 280 miles of 2D helicopter supported Poulter type seismic along several widely spaced lines. Between 20-30 percent of the data was gathered on federal refuge lands.”

Doyon returned to the region between 2008 and 2012, conducting a 2D seismic program near Stevens Village at the far western edge of the Yukon Flats basin. A 3D seismic survey, conducted in the winter of 2012 and 2013, was the last exploration in the area.

The land swap negotiations delayed progress for five years. In the meantime, a new USGS gravity survey indicated the presence of a series of sub-basins starting around 8,000 feet. Some of these sub-basins were close to the trans-Alaska oil pipeline.

Petrotechnical Resources of Alaska later estimated the possible existence of 300 million to 1 billion barrels of oil and perhaps 1 trillion cubic feet of natural gas in the basin - essentially an Alpine-sized field located much closer to people and to infrastructure.

Iniskin and Blackbill

The peninsula sits across Cook Inlet from Kachemak Bay, and it is one of those classic Alaska prospects: known to contain oil but hampered by logistical challenges.

Hilcorp revisited the prospect in the 2010s, believing that modern technology could address the low rate of oil flow that hampered exploration in the 1900s, 1930 and 1950s.

The company conducted a 2D seismic survey over the area in 2013. The survey provided the first information about subsurface structure and stratigraphy. The results suggested that previous exploration might have overlooked a deeper crest of an anticline in the area.

The next step would be an exploration well, which the company has yet to announce, although it acquired two tracts in the area in a 2020 lease sale. The physical remoteness of the area would make it challenging to bring both equipment and personnel to the site.

“We don’t like the reservoir, nobody does,” Hilcorp Senior Geologist Dave Buthman told Petroleum News, “but what we like is you’ve got about 9,000 feet of source rock there, right along the Bruin Bay fault in a similar structural position to the largest oil field in the basin which is McArthur River, which made about 650 million barrels of oil so far.”

Hilcorp acquired 14 leases in the outer continental shelf of Cook Inlet in a federal lease sale in June 2017. The company conducted a 3D seismic survey over the leases in 2019 and a geohazard survey in 2021. The program initially included plans for two-to-four exploration wells between 2020 and 2022. The company had not yet drilled those wells by early 2022, perhaps in part due to the economic disruptions of the past few years.

In discussing the project, Hilcorp expressed an interest in bringing the Seadrill West Epsilon jack-up rig to Cook Inlet. The rig is capable of drilling deeper wells than either the Spartan 151 or Randolph Yost jack-up rigs, which are currently in the region.

The proposed Blackbill program would target an oil reservoir encountered by ARCO’s Raven No. 1 well in 1982. The location is due west of Homer, halfway across Cook Inlet.