From the Mat-Su Valley Frontiersman

With $40-$60 per barrel oil, Hilcorp pushing oil production in written-off basin

Not long ago, people were writing off Cook Inlet as a depleted oil producing basin. State agencies were focusing on how to safely shut down the 10 offshore platforms that produce oil.

But things have changed.

Hilcorp Energy, now the owner and operator of the platforms, is finding and producing new oil in the 50-year-old producing fields in north Cook Inlet.

The company’s GP 11-24 well recently drilled to 12,613 feet off the Granite Point platform in Cook Inlet. It is producing 1,100 barrels per day with no water — a very good well for the mature producing basin, Hilcorp’s Alaska vice president, David Wilkins, said Wednesday.

“The last drilling was done in the mid-1990s, between 1992 and 1996 and the wells were mostly disappointing,” Hilcorp spokeswoman Lori Nelson said in an e-mail. “This year’s well was a boomer in comparison. It was ‘way better,” she said.

Based on that well and other new drilling Hilcorp is now gearing up for a multi-year  development program in the Granite Point and MacArthur River fields in the west part of the Inlet, Wilkins said.

“This is a developing play,” he said in an interview. “We expect to find tens of millions of barrels of new reserves in both fields.”

Three new wells were drilled horizontally from the King Salmon and Steelhead platforms in the MacArthur River field and the Granite Point platform into reservoir sections that were not fully developed by Chevron Corp., which owned and operated the fields before Hilcorp took over in 2012. “These are underdeveloped areas,” in both fields, Wilkins said.

Hilcorp drilled nine new oil wells overall in 2017 and expects to increase its overall Cook Inlet crude oil production from about 12,000 barrels per day last January to 15,500 barrels per day by the end of the year, he said. All or Hilcorp’s crude oil, which is “sweet” and high quality, goes to the Tesoro Alaska refinery near Kenai, on the east side of Cook Inlet.

The company also drilled eight Cook Inlet gas production wells in 2017 and has added new production, essentially replacing the gas it has produced during the year, Wilkins said. Hilcorp began the year producing 225,000 mmcfd last January and expects to end up at about the same rate at the end of December, or 225,000 mmcfd.

Gas volumes in storage are more than sufficient for Alaskan winter, he said. “We’re ready for winter – you can turn up the heat!” Wilkins said.

Regional utilities and community leaders in Southcentral Alaska are very sensitive to regional gas supplies. There were worries about declining gas production and reserves before Hilcorp took over Cook Inlet oil and gas fields from Chevron and Marathon Oil in 2012 and 2013. Utilities were making plans to import liquefied natural gas for power generation and space heating until Hilcorp began aggressively reworking old wells and drilling, resulting in a rebuilding of gas reserves.

With its new Cook Inlet and North Slope projects, Hilcorp sharply increased Alaska capital spending this this year to about $320 million, up from $195 million in 2016, according to data Wilkins presented at a Nov. 15 business conference in Anchorage.

Most of the increase was in drilling, which is $210 million in 2017 compared with $75 million in 2016, according to the data.

It wasn’t long ago that Cook Inlet look finished as a producing basin. Not only were utilities making plans to import LNG for regional energy but state officials were discussing plans on how the aged oil platforms would be shut down and lighted, or “lighthoused” for marine navigation safety.

The two large petroleum companies that owned and operated onshore and offshore gas and oil fields in the region, Chevron Corp. and Marathon Oil Co., had ceased exploring for new oil and had cut back on new drilling, which is the most common way to sustain production.

Hilcorp, based in Texas, has made a specialty of acquiring older, declining fields from major companies and reinvesting to rebuild them. Exactly this happened in Cook Inlet when the company purchased Chevron and Marathon’s assets and went about rebuilding them, at first by repairing old wells and then with new drilling.

Cook Inlet oil production had dropped to about 10,000 barrels per day but within a few years, and after a $1.8 billion investment by Hilcorp, production was exceeding 16,000 barrels per day.

This is still a far cry from the heyday of Cook Inlet, in the 1970s, when production peaked at over 200,000 barrels per day. But the fact that production in increasing is encouraging.

The strategy of major companies first discovering and developing a new producing area and then, as the fields mature, selling to an aggressive independent company like Hilcorp, is common. It has also happened in the North Sea, where Apache Oil, a major independent, purchased older producing fields from major companies and rebuilt them.

Hilcorp is now pursuing this on the North Slope where it purchased interest in three older fields from BP.

Independent companies have stumbled in Cook Inlet in past years, however. Forcenergy, an independent based in Texas, came into the Inlet several years ago to develop finds the larger companies had not developed. Problems developed and Forcenergy was acquired by Forest Oil, of Denver. The problems soon engulfed Forest Oil, too. Neither company now exists.

Apache Corp. also came into the Inlet to explore and develop new oil and gas but withdrew after a few years.

Hilcorp appears to now have staying power. Wilkins, its vice president, said the company’s business plan is now based on oil prices in the $40 per barrel to $60 per barrel range.

Unless oil prices collapse again, the company should be able to keep its platforms from being “lighthoused” for at least several years.

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