Producers 2016: Hilcorp working slowly and steadily on the North Slope

Operations to date have focused largely on reviving and improving Milne Point

ERIC LIDJI

For Petroleum News

When Hilcorp Alaska LLC expanded its operations to include a package of North Slope properties, the company intended to develop the Arctic the same way it had been developing Cook Inlet: reducing operating costs, revitalizing fields on a nearly well-by-well basis and drilling wells in and around existing units when opportunities existed.

The local subsidiary of the Texas-based independent has started that process. And while the company was expecting the Arctic to be a costlier and more difficult place to operate, a period of low oil prices has preventing the company from seeing the gains it expected.

“We have a long ways to go before we’re coming anywhere close to making the money that we hoped to make when we originally made that investment a year and a half ago,” Hilcorp Energy Co. President Greg Lalicker said at the Resource Development Council’s annual conference in mid-November 2015. And while the company was working on the problem, he added, it wasn’t expecting an increase in oil prices to come to the rescue.

After months of negotiations, Hilcorp closed on its acquisition on four BP Exploration (Alaska) Inc. properties on the North Slope in late 2014. Through the deal, Hilcorp became owner and operator of the Northstar unit, operator and majority owner of the Duck Island unit, the operator and 50 percent working interest owner of the Milne Point unit and a 50 percent working interest owner of the offshore BP-operated Liberty field.

Milne Point

Hilcorp believes Milne Point contains considerable resources, from light oil in deep reservoir rocks to heavy oil in the shallower Ugnu formation. But accessing those resources is a slow and steady process, according to Lalicker. “It isn’t one big project that makes this happen,” he told lawmakers at an informal meeting in February 2016. “It’s lots of little things all the time. That’s what you do with properties late in their life.”

So far, the Milne Point program has been diverse. Hilcorp has expanded infrastructure, proposed administrative changes, repaired existing wells and begun drilling new wells.

Over the course of 2015, working under an existing BP plan of development, Hilcorp brought five wells back into operation but nevertheless saw a slight decline in total unit production, which the company blamed on a large backlog of workovers to complete.

Under its current plan of development, which runs through the end of July 2017, Hilcorp proposed drilling eight new wells at five pads targeting three of the four formations present at the unit, conducting workover operations on as many as 16 existing wells, potentially undertaking a new Moose Pad Development Project at the western end of the unit and expanding other unit infrastructure to accommodate increased oil production.

BP drilled seven wells at Milne Point in 2014, although many of those were multilateral wells, accounting for 14 penetrations altogether. While Hilcorp drilled only three wells at the unit in 2015, it had already drilled eight wells through the first nine months of 2016.

Comparing those programs shows some of the differences between the companies. Aside from a single well at L pad, the BP drilling program in 2014 occurred exclusively at F pad. So far, the Hilcorp program in 2015 and 2016 has been more diverse. The 11 wells included four at L pad, three at J pad, two at B pad, one at K pad and one at C pad. While BP exclusively targeted the Kuparuk formation, Hilcorp was primarily targeting the Schrader Bluff formation (aside from a single Kuparuk well at K pad and a single Sag River well at C Pad). Also, the BP program was mostly a collection of laterals and sidetracks of existing well while the Hilcorp program has been exclusively single wells.

Finally, while BP often used new technological applications to improve production, Hilcorp seems to prefer maintenance activities. Hilcorp only completed three wells at Milne Point in 2015 but conducted workover operations on 54 existing wells - 29 in the Kuparuk formation, 23 in the Schrader Bluff formation and two in the Ugnu formation.

In addition to working over and drilling wells, a large portion of the Milne Point program this year focused on administrative and infrastructure programs. One example is a series of permitting projects to improve injection at the unit by expanding the physical boundary of the unit, modifying an existing underground injection control Class I permit, building a Milne Point Unit Grind and Inject Facility at the pad to accommodate 40,000 cubic yards of materials each year and expanding the associated Milne Point B pad.

Also in 2016, Hilcorp asked the state for permission to add some 1.66 acres to existing L pad to accommodate a proposed five-well development program and to add some 1.59 acres to E pad to accommodate a proposed eight-well development program.

By the start of 2014, BP had produced 314.8 million barrels of oil at Milne Point, according to the Alaska Oil and Gas Conservation Commission. The unit produced 7.1 million barrels over that year, for a cumulative total of 321.9 million by the start of 2015.

With Hilcorp as operator, production declined to 6.8 million barrels in 2015, for a total of 328.7 million by the start of this year. In the first six months of 2016, the unit produced 3.5 million. If that rate continues for the second half of the year, Milne Point would produce slightly more this year than last year and slightly less than it produced in 2014.

Duck Island, Northstar, Liberty

At both units, Hilcorp has been working over existing wells. The company drilled no new wells or sidetracks at either unit in 2015 and has no plans to do so this year, either.

Hilcorp conducted 11 workover projects at Duck Island between July 2015 and April 2016 and five workover projects at the Northstar unit over the same time. The company is proposing five projects at Duck Island and three at North Star over the coming year.

By the start of 2014, the Duck Island unit had produced 476.4 million barrels of oil, according to the AOGCC. The unit produced 2.7 million barrels of oil that year, for a cumulative total of 479.1 million by the start of 2015. Production declined slightly in 2015, to 2.5 million barrels for the year and a cumulative total of 481.6 million by the start of this year. In the first six months of 2016, the unit produced 1.3 million barrels.

Cumulative production at the Northstar unit was 159.6 million barrels by the start of 2014, according to the AOGCC. The unit produced 3.2 million barrels that year for a total of 162.8 million by the start of 2015. Annual productions declined to 2.2 million barrels in 2015, for a total of 165 million by the start of this year. The unit produced 1 million barrels in the first six months of this year, suggestion a slowdown in the decline rate.

The Liberty project remains in the permitting stage.

After cancelling an earlier proposal for the field, BP handed the reins of the project over to Hilcorp, which filed a new development proposal with regulations in late 2014.

The U.S. Bureau of Ocean Energy Management officially began reviewing the new proposal in mid-September 2015 and twice extended a public commenting deadline on the initial scoping portion of the environmental review. Under the Hilcorp proposal, the companies would develop the Liberty field from a new gravel island in the Beaufort Sea.