Hilcorp looks for cost savings, new reserves

Hillcorp Energy’s Cook Inlet oil production is holding steady at about 14,000 barrels per day and the company is now negotiating with Southcentral regional utilities for extension of natural gas supply contracts, Hilcorp president Greg Lalicker told the Resource Development Council conference Nov. 19.

In a briefing on Hilcorp’s activity in Alaska, Lalicker said some new gas supply contracts have been signed out to 2023 and 2024 and others are still being finalized. Hilcorp’s previous supply contracts were through the early part of 2018.

Hilcorp’s entry into Cook Inlet in 2012 and 2013 and the company’s aggressive redevelopment of aging gas fields, as well as oil fields, staved off a looming gas shortage facing utilities in the region.

Lalicker told the RDC that Hilcorp is investing in new Southcentral gas development with a new exploration well planned to be drilled next spring at the producing small Happy Valley field on the Kenai Peninsula.

While Cook Inlet oil production is steady the low price of crude oil is having its effects. Given the high costs of work in the Inlet and low prices, the company can no longer afford certain well workovers and maintenance procedures that Hilcorp has emphasized to sustain and even build per-well oil production rates, Lalicker said.

“We just can’t afford to do some of this work,” he said.

Still, the company remains focused on oil.

“We get to sell it quickly,” Lalicker said, as opposed to gas which is sold to utilities at intervals when there are openings in gas supply contracts. All of Hilcorp’s Cook Inlet oil goes to the Tesoro refinery at Nikiski.

Hilcorp has also invested in new 3-D seismic surveys in the mature MacArthur River and Middle Ground Shoal fields in a hunt for new oil.

“Parts of these fields have never had 3-D seismic before, so we expect to be able to identify a lot more (oil) targets,” Lalicker said.

Three-dimensional seismic is a more intensive and sophisticated method of doing geophysical surveys of underground geologic formations than the older, two-dimensional surveys that were previously done.

On the North Slope, Hilcorp has had less luck holding oil production rates steady at three older producing fields acquired from BP last year, the onshore Milne Point and offshore Northstar and Endicott fields. Production has dropped from about 40,000 barrels per day in December 2014, just after Hilcorp took over the fields, to about 36,000 barrels per day in early November, Lalicker said.

Hilcorp has only had one year as owner and operator of these fields, however, and the company believes its strategies of seeking efficiencies and then investing will still succeed over several years.

Lalicker said big cost reductions have already been achieved in the three producing fields.

“When we took over at the end of 2014 we were spending $15.8 million a month operating these fields,” he said.

Now, a year later, costs are down to $12.5 million a month.

“We don’t focus on eliminating people or services but rather in finding the most efficient ways to do things,” Lalicker said. “It’s a 21 percent cost reduction, but unfortunately the price of what we produce is down 50 percent,” he said.

Despite oil prices, Hilcorp is investing in its North Slope assets. The company has been working on producing wells in the Milne Point field with the Nordic-Calista workover rig and plans to bring an additional, new workover drill to the Slope next fall, for more work at Milne Point.

A workover rig is one that is mostly designed for repair and major maintenance on producing wells in contrast to larger rigs that are built to mostly drill new wells. Workover rigs can sometimes drill wells, however, although these are typically “sidetracks,” or new wells drilled underground laterally an older producing well.

Lalicker said Hilcorp sees potential for new oil from its North Slope fields and particularly Milne Point and the Sag River formation that is there as well as potential oil from tighter rocks and eventually the heavy, large Ugnu deposit.

Hilcorp is operator at Milne Point but BP is still a 50 percent owner. Hilcorp is also in a 50-50 partnership with BP at Liberty, an undeveloped offshore oil deposit, but is also the operator there.

Liberty is in federal offshore waters and Hilcorp has submitted a development plan to the U.S. Bureau of Ocean Energy Management, which was approved by the federal agency on Sept. 18, triggering a 60-day public review period.

The schedule in the application calls for a Record of Decision by the BOEM if the agency grants final approval. If Hilcorp and BP move ahead, engineering would begin in late 2017 and construction would start in 2018. Production would begin in 2020.

In its press release BOEM said its Sept. 18 announcement, “does not mean that the Development and Production Plan for Liberty has been or will ultimately be approved; it merely denotes that BOEM has determined that Hilcorp has submitted the information required,” under the agency’s regulations.

Public “scoping” meetings on the plan are now being conducted by BOEM to craft an environmental impact statement.

Liberty has oil reserves of 80 million to 150 million barrels, according to the BOEM application, which could sustain peak production rates of 60,000 barrels per day to 70,000 barrels per day.

Tim Bradner can be reached at [email protected].

12/02/2015 - 2:14pm