Hilcorp plans $285 million Alaska investment in 2018

Hilcorp is planning to spend about $285 million in Alaska during 2018, the oil and gas company’s Operations Manager Chad Helgeson told audiences at the Jan. 10 Kenai Peninsula Industry Outlook Forum. This investment will be “holding pretty flat to where we were last year,” Helgeson said.

Of the $285 million, $83 million will be spent on new drilling, $96 million will go to operating expenses, taxes, and salaries, while the largest portion of the planned investment — $106 million — will be spent on infrastructure upgrades, such as replacing compressor control systems in Hilcorp’s pipeline network with modern digital controllers. Currently, some of Hilcorp’s gas compressors use 1960s-era pneumatic and hydraulic control systems, Helgeson said.

Hilcorp has been Cook Inlet’s largest oil and gas extractor since buying many of the local assets of Marathon and Chevron in 2011 and 2012. It has since acquired leases on 20 hydrocarbon fields and 14 of the 16 platforms in Cook Inlet. The privately-owned Texas-based company supplies much of the natural gas that regional utilities use to generate electricity and heat.

In 2017, Hilcorp planned an Alaska investment of about $220 million, Helgeson told the Industry Outlook Forum in 2016. Of the 24 wells it drilled that year in Alaska, half were in Cook Inlet — seven onshore and five offshore, Helgeson said. The others were on the North Slope, where Hilcorp began operating in 2014 after buying a 50 percent share in three fields leased by BP. This year the North Slope will again receive a large share of Hilcorp’s drilling attention — the company is planning 19 new wells there. 17 will be at the Milne Point field, one of those it shares with BP.

Hilcorp plans seven new Cook Inlet wells in 2018. Five will will be offshore wells from its Steelhead platform into the McArthur River field, one of Cook Inlet’s most productive areas, to extract both oil and gas.

McArthur River began producing oil in October 1967 and has since become the inlet’s largest oil source — as of 2011, it had produced 623 million barrels of oil, while its nearest contender, the Swanson River oil field, had produced 230 million barrels. Also as of 2011, McArthur River was one of four Cook Inlet fields to have produced more than a trillion cubic feet of gas. It began gas production in January 1969.

In addition to the new McArthur wells, Helgeson said Hilcorp’s offshore Cook Inlet team has “projected about 15 well workovers — those are we’re going to go in and either fix wells that are broken, or there’s wells where we might find new log analysis, and we want to chase something different in that same wellbore.”

The offshore drilling would begin in April, Helgeson said.

The two to four new onshore wells that Hilcorp plans will include some seeking oil in Swanson River — Cook Inlet’s oldest hydrocarbon field, where oil was first discovered in 1957 — and “possibly some gas exploration,” Helgeson said.

“We’re still working on a lot of permitting and lease acquisitions and development opportunities, so those will be later in the year if we actually get to do some exploration for new gas reservoirs,” Helgeson said.

In the late 2000s, a lack in investment in new drilling and exploration by major oil companies who had shifted investment from Cook Inlet to the North Slope led to local gas shortages and fears of electrical brownouts and heating outages. Though more recent gas developments — spurred in part by the system of state tax incentives that the Alaska legislature ended in 2016 — have averted the immediate threat of shortages, longer-term concerns about Cook Inlet’s gas supply remain.

In April 2017, Hilcorp began a study of its aging west side gas fields to determine which are likely to remain profitable. Hilcorp has since deemed at least one of those fields, Stump Lake, to be no longer economical. In early December, Hilcorp started to plug and abandon the single producing well at Stump Lake, work that the Alaska Department of Natural Resources is requiring it to finish by May 2018 so the field can be offered to potential buyers in the spring 2018 lease sale.

Finding new sources of gas will require drilling into what Helgeson called Cook Inlet’s “complex reservoirs.”

“The focus with our team is to really chase new reserves of gas within the existing fields,” Helgeson said. “… Many of our fields here, there could be, from depths of 3,000 to 10,000 feet, 60 to 80 different sand zones that could have potential gas in them, and not all of them do. Think about braided streams and little rivers — that’s what we’re looking for, these little creek beds. There could be a channel four feet wide, or it could be as wide as the Kenai River. The big ones, the Kenai Rivers, have been found pretty much, we think. But our geologists and our geophysicists are trying to map the little streams as close as we can.”

Reach Ben Boettger at ben.boettger@peninsulaclarion.com

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