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Vol. 25, No.15 Week of April 12, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil patch insider: Hilcorp continues to drill; Wulff moves to strengthen Oil Search

Kay Cashman

Petroleum News

One major Alaska oil and gas producer and explorer has not cut the number of drilling rigs it has working in the state. As of April 8, privately owned Hilcorp had two rigs working on the North Slope and one in the Cook Inlet basin.

Furthermore, Hilcorp received approval April 7 from Alaska’s Division of Oil and Gas to drill 11 new development wells and install associated infrastructure on I Pad in the North Slope Milne Point unit. The project is scheduled to start April 13.

A new conductor and well house will be installed for each new I Pad well. The existing pipe rack and pipe header system will be used for the wells.

Portable pipe supports will be added to the pipe rack for the laterals.

Approximately 1,320 feet of new flowlines will be installed to connect the wells to the headers, the division said.

Up to 10 thermosiphons may be installed dependent upon site conditions.

Doyon 14 or Hilcorp’s Innovation drill rig will be used to drill the new I Pad wells. Drilling equipment will include boilers, mud tanks, mud pumps, a rig generator, work trailers, and light plants.

Some rig support equipment and materials may be staged at nearby pads. Infrastructure installation equipment will include an excavator, mini excavator, super sucker, zoom boom, weld truck, and possibly a ground thaw unit, the division said.

Wulff building financial muscle

There is more good news about another up and coming player on Alaska’s North Slope - Oil Search.

Keiran Wulff, the top executive of ASX-listed Oil Search Ltd (OSH), parent of Oil Search Alaska, is taking measures to bolster the company’s financial position in order to weather a possible sustained period of weak oil prices, so that when market conditions improve the company will be ready to move forward.

Early in the week of April 5, Wulff launched a successful share sale that raised approximately $720 million in U.S. dollars, which will be followed later in the week by a sale of shares to retail investors that has been fully underwritten to raise an additional $49.5 million.

In addition to the 2020 capex reductions announced on March 18 that included eight employee layoffs in Anchorage and 92-plus in Sydney, Wulff also extended the maturity on a $300 million loan facility by 10 months to June 2021.

“We had a lot of discussions with our investors and we had a lot of discussions with our own banks, and it was clear to us that in addition to our capital reductions and our operating cost reductions we needed to strengthen the balance sheet so that we were in a strong position and that’s exactly what we’ve done,” he told The Australian Financial Review in an interview that appeared in the publication April 8.

“So, we decided to do it early and decisively and making clear that we were able to position the company for an extended period but also deliver our growth when we come out of it.”

In Alaska where Oil Search has no current production the junior reduced its 2020 development spending from $120-140 million to $110-130 million and decreased exploration and evaluation investment from $220-240 million to $150-170 million, for a total of $260-300 million.

In Papua New Guinea the company reduced its 2020 capital expenditures to $150-180 million, including development, exploration and evaluation, and production.

What the reductions mean for Oil Search in PNG is freezing all activity other than maintaining its current oil, condensate and natural gas production.

In Alaska the reductions translate into no exploration in the winter of 2020-21, and while early development activities in the Pikka unit, including laying gravel roads, will be completed, all further work on the early production system for the Pikka Nanushuk project, including ordering long lead items, is being placed on hold. The company now plans to concentrate on full field development, so that the project is ready to move promptly towards final investment decision “when market conditions improve.”

Another cost reduction: Oil Search’s board and executive team agreed to take a 20% salary cut for the next six months, the company said March 18.

Furthermore, Wulff told The Australian Financial Review that several options would be on the table by the time the Alaska and PNG development projects were moving forward, including a possible sell down of LNG interests in PNG if a proposed deal reflected the quality of the asset.

Another future option is selling a 15% interest in some of Oil Search’s Alaska assets - an action that was put on hold March 18. But the company also said at the time that “discussions are continuing with several parties who, due to the quality of the Alaskan assets, continue to express strong interest in a purchase.”

- KAY CASHMAN



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