Hilcorp Alaska is targeting Nov. 1 for the start of natural gas production from the Seaview No. 8 exploratory well at its Seaview field south of Anchor Point on the Kenai Peninsula.
The company has applied to the Alaska Oil and Gas Conservation Commission to amend a 2018 conservation order which allowed it to drill, complete and test the Seaview No. 8 well, but didn’t allow it to produce the well without written permission from AOGCC.
The commission set a potential hearing date on the application for Sept. 22 and said if it does not receive a timely request for a hearing and if information from Hilcorp is sufficient it may issue an order without a hearing.
In the Aug. 11 application to AOGCC Hilcorp said it applied to the Alaska Department of Natural Resources for the Seaview unit on July 31, and on Aug. 6, applied to DNR to form the Clark participating area within the Seaview unit. The company said the Clark PA includes one DNR lease and various private leases as well as unleased private lands, a total of 640 acres.
Hilcorp said DNR is reviewing the unit and participating area applications.
Hilcorp told the commission that, subject to approval from the commission and DNR, it plans to bring Seaview 8 online Nov. 1, allowing delivery of gas for winter use and for storage in the summer.
In its DNR participating area application the company said it has been actively exploring the Seaview area for six years, with seismic, stratigraphic well tests and “other confidential surveying of the area.”
The discovery well, Seaview No. 8, was drilled in 2018, resulting in the discovery of commercial gas volumes.
Hilcorp told DNR’s Division of Oil and Gas that it anticipates drilling a second delineation well in the fourth quarter of this year or the first quarter of 2021.
In its current AOGCC application the company said productive depths are between 350 feet and 5,500 feet total vertical depth shown in the Seaview No. 8 well, including gas reservoirs in the Lower Sterling, Beluga and Tyonek.
2018 AOGCC decision
AOGCC received no comments, protests or requests for a hearing in response to Hilcorp’s 2018 request, and said while it was approving the company’s request to drill, “Seaview 8 may not be placed on regular oil or gas production absent prior written approval from AOGCC.”
The commission said its order is premised on Hilcorp having “valid leases for all properties through which the wellbore passes,” and said the company was to notify AOGCC “within 30 days whenever the status of any uncommitted property changes.”
There is a state oil and gas lease at Seaview, but the prospect includes private owners with subsurface rights, more than 100 properties within 3,000 feet of Seaview No. 8’s anticipated productive interval.
Hilcorp told the commission in 2018 that it “has made, and is continuing to make attempts to lease all uncommitted tracts within Seaview Prospect area. However, a number of landowners have yet to be located, or are unwilling to participate in our exploration efforts.”
The company’s PA application to DNR includes a list of mineral owners and the tract percentage attached to each property in the Clark participating area. Hilcorp’s tract percentage at the PA is the largest at 31.25%; the company has leases covering just over 95% of the tract acreage, with just under 5% of mineral owners uncommitted. Hilcorp is the 100% working interest owner at Seaview.
Correlative rights
AOGCC’s duties, as described on its website, include overseeing “oil and gas drilling, development and production, reservoir depletion and metering operations on all lands subject to the state’s police powers.”
The commission also “acts to prevent waste, protect correlative rights, improve ultimate recovery and protect underground freshwater.”
While most of the state’s major North Slope fields are developed on land where the state is the only or the major subsurface owner, Seaview is being developed on acreage where there are multiple subsurface owners. This is where correlative rights come in.
The commission is charged with ensuring that when production occurs, it is allocated between owners of the subsurface from which it is produced.
“Hilcorp understands there are complex ownerships involved in the Seaview Field,” the company told the commission in its 2020 application, “and AOGCC is tasked with protecting all parties’ correlative rights. With this in mind, Hilcorp commits to allocating production in accordance with the proposed Clark participating area schedule, or in accordance with DNR’s decision on the Clark PA, if different.”
“All leased interests will be allocated production and royalties based on their tract allocation percentage, mineral ownership, and lease royalty,” Hilcorp said.
Production and royalties will be temporarily held for unleased mineral owners and uncommitted tracts “until there is written order by AOGCC that determines how to handle unleased interest and uncommitted tracts,” the company said.
Temporary allocations
Hilcorp said it would “submit an application to AOGCC that incudes a detailed outline and methodology for how unleased interests and uncommitted tracts should be allocated production,” allowing it to bring the Seaview No. 8 well online “and ensure the seasonal deliverability of gas in the winter and storage of gas in the summer, while compensating the landowners who have leased their lands, and accounting for interests of the landowners who have not yet chosen to participate.”
The company said it does not believe this temporary allocation “is a fair and equitable long-term option,” but said it would allow production to begin while details of production allocation to the unleased tracts are being worked out.
Hilcorp said it or its affiliates have provided leased and unleased landowners an opportunity to participate by leasing and joining the unit and said all available resources have been exhausted to find contact information for affected parties.
“Hilcorp is committed to locating and contacting all landowners within the Seaview Unit as new information come available.”
The company said it has sent a cover letter and a copy of the current application to all landowners within 3,000 feet of “Seaview No. 8’s anticipated productive interval within the Undefined Gas Pool,” in accordance with AOGCC regulations.
Hilcorp noted that in its 2018 application it committed to submitting applications for a participating area and for pool rules prior to production of the Seaview No. 8.
The PA application, noted above, is to DNR.
The pool rules application is to AOGCC and the company said that it is going to forego “applying for pool rules at this time, due to the anticipated delays.”
The company said it will apply for Seaview field pool rules following the application to amend the 2018 conservation order to allow production from the field. The current application would allow production in the undefined gas pool at Seaview.
