Hilcorp project manager Mike Dunn solicited support for his company’s Liberty project — which would drill wells from an 9.3-acre artificial gravel island six miles offshore in the Beaufort Sea — in a presentation to members of the Kenai and Soldotna Chambers of Commerce on Wednesday.
The privately-owned Houston, Texas-based Hilcorp has been a familiar name locally since it became Cook Inlet’s largest oil producer after buying up leases and facilities of major producers Marathon and Chevron in 2012.
Three years ago Hilcorp ventured into the North Slope by acquiring a 50 percent share in the undeveloped Liberty field from BP. The April 2014 deal with BP also gave Hilcorp a 50 percent share in the Milne Point field and control of the Endicott and Northstar fields — also drilled from artificial Beaufort Sea islands, in a way similar to the Liberty plans, in 1987 and 2000, respectively. BP remains a 40 percent partner in the Liberty project, and the Native corporation Arctic Slope Regional Corporation holds a 10 percent share.
The North Slope purchase was more opportunistic than part of a long-term plan, Hilcorp spokesperson Lori Nelson told KBBI at the time, but operating the older fields is consistent with Hilcorp’s experience. Taking on the undeveloped Liberty field — where BP estimated there were 120 million barrels of recoverable oil after exploring it in the late 1990s — was a new move for the company.
“Traditionally what we do is buy the older oilfields, and we’ll do work-overs, we’ll try to de-bottleneck the facility and manage our cost structure a little bit harder than the majors — we’ll extend the life of the field, and that’s kind of what we’ve done in Cook Inlet,” Dunn said. “What’s unique about this to Hilcorp is it’s a (new) field development.”
Since the mid-1970s, the oil industry has built 18 artificial islands in the Beaufort Sea — most for exploration wells, but presently four hold working production wells. Other drill pad islands are within the state’s three-mile coastal jurisdiction, but at about six miles offshore, Liberty would be the first oil production in federal Arctic waters — making it subject to heavier permitting led by the federal Bureau of Ocean Energy Management.
Hilcorp started the permitting process in fall 2014. Dunn expects the final Environmental Impact Statement, required by the National Environmental Protection Act, to be finished around fall 2018.
If permitted, the island will sit in about 20 feet of water, and to build it Hilcorp plans to spend the winter of 2019 trucking about a million cubic yards of gravel over the frozen Beaufort Sea to pile through a hole in ice. A blanket of linked concrete tiles will wrap around the above-water portions of the island to protect against waves. The next winter, workers would lay a buried pipeline connecting it to shore and ultimately to the Trans-Alaska Pipeline System. If all goes according to plan, oil would start flowing around 2022.
“The reason this oil has been sitting there for 30 years is it’s a marginal oilfield,” Dunn said. “Shell looked at it, BP looked at it originally. We think we’ve brought some ideas and ways to develop it that’s less expensive than some of the alternatives.”
The Liberty project would tap the same underground formation as Endicott, which produced an average 9,100 barrels per day in 2016, according to the Alaska Department of Revenue. Other offshore wells based on artificial islands — Northstar, Nikaitchuq, and Oooguruk — produced a combined 2016 average of 46,500 barrels per day. For comparison, the North Slope’s biggest field Prudhoe Bay produced an average 232,100 barrels per day in 2016.
Liberty’s wells would put out a light oil — “if it were in a bottle here it probably would look like iced tea,” Dunn said — that’s worth somewhat more and requires less force to pump. Drilling from an island would save the cost of drilling more expensive directional wells from onshore.
“The nice thing about putting the island over the reservoir is now you’re drilling conventional wells,” Dunn said. “The simpler the wells, the less risk of an oil spill. The longest well is maybe 18,000 feet, and we drill wells like that all the time.”
One concern among the environmental groups, activists, and others who have opposed Arctic industrial development — and the Liberty Project in particular — is the possibility of an oil spill in the unforgiving Beaufort Sea. U.S Coast Guard Admiral Paul Zukunft has said that responders lack the technical ability to remove spilled oil from rough and icy Arctic waters, and even in less extreme ice conditions repairing infrastructure can be difficult. In Cook Inlet earlier this year, ice cover prevented Hilcorp from repairing a leaking underwater gas pipeline for six months. Hilcorp’s own inexperience with Arctic development is another argument from opponents, though Dunn said many of the Liberty project staff have worked on similar projects. After the 2014 BP purchase, Hilcorp made job offers to about 200 of the BP employees associated with the Endicott and Northstar island wells, according to previous coverage.
The question was economics among the Chamber of Commerce crowd. An audience member asked Dunn what oil price would be required for the Liberty project to make profit or break even. A barrel of North Slope crude was worth around $107 when Hilcorp bought into the field in 2014, and is presently around $58.
Though he said Hilcorp would “be really running the economics” in the middle of next year, Dunn said that with the highest cost estimate, the project “probably doesn’t attract capital” at around a $45 per barrel oil price.
“If I can get those costs down — and we’ve got our geologists and reservoir engineers looking really hard at what we really think we can get out of the reservoir — if I start running that at (an oil price of) $55 or $60 a barrel, it’s the sort of project that will attract capital,” Dunn said. “…The other part of the deal is that it’s a 20-year project, so what’s your oil price forecast in 2022 to 2041? It’s probably going to be a little north of $50 per barrel. Are we ever going to see $90 or $100 a barrel? Personally, I don’t think so.”
When the Liberty facility passes its estimated 20-year economic life, Dunn said Hilcorp would dismantle the facilities, cut and seal off the wells at around 150 feet deep, and strip the island of its steel and concrete protection. The buried pipeline would remain, as would the island’s mound of gravel.
The Bureau of Ocean Energy Management will take comments on the Liberty project’s Environmental Impact Statement until Nov. 19.
Reach Ben Boettger at ben.boettger@peninsulaclarion.com.
