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Deep Creek contracted
Hilcorp wants more time; state refuses to further extend beyond producing area
Kristen Nelson Petroleum News
The Alaska Department of Natural Resources’ Division of Oil and Gas has denied a request from Hilcorp Alaska for another extension of contraction of non-participating area portions out of the Cook Inlet Deep Creek unit. Units contract to the area contained in producing participating areas 10 years after production begins, subject to DNR commissioner discretion.
Deep Creek is jointly managed by DNR and Cook Inlet Region Inc., both of whom own leases included in the unit.
The Deep Creek unit was formed in 2001; sustained natural gas production from the Happy Valley participating area began in November 2004, which put the 10-year mandatory contraction date in November 2014.
In late December 2011, as the sale of Union Oil Company of California’s Cook Inlet properties to Hilcorp Alaska was closing, the division and CIRI agreed to delay any “discretionary contraction” of the unit “for a reasonable period of time after close of the pending asset sale between Union and Hilcorp Energy Alaska LLC.”
Hilcorp’s request Since the 2011 agreement, Hilcorp has requested and the division has granted, delay of contraction of the unit.
On July 2, however, division acting Director Jim Beckham denied a request from Hilcorp to delay contraction of the unit.
In a May 1 request, Hilcorp Alaska said it was requesting another extension, this until May 31, 2021, “in order to support the continued exploration efforts for the DCU.”
Hilcorp said in 2017 it completed two of six planned stratigraphic test wells “in the vicinity of the DCU.” It said those two tests, with other data the company had already obtained, “significantly progressed our exploration and development efforts.”
But unexpected high-water flow rates from the Sterling formation encountered in drilling the stratigraphic test wells, and unusually muddy conditions, prevented the company from drilling two of the four stratigraphic test wells planned in 2017, Hilcorp said.
The company planned to continue the stratigraphic test well program in 2018, but due to “unanticipated high costs of drilling the stratigraphic test wells in the DCU area,” the company decided not the drill the remaining four stratigraphic tests in the DCU area.
“The high costs associated with drilling the stratigraphic test wells in this area made it very difficult to justify the economics of the test well project,” Hilcorp said, but noted it had already “made a substantial investment in exploring the DCU” including completion of a 3D seismic program/data processing in 2013; completion of remote sensing data/data processing in 2015; completion of 2D seismic program/data processing in 2016; and completion of two of the six planned stratigraphic test wells in 2017.
Hilcorp’s plans The company said results of its 2016-18 exploration drilling programs in the area tempered its 2019-20 plans for Deep Creek.
Hilcorp said it drilled and evaluated the Greystone No. 1 0.6 miles south of DCU in 2016-17 and drilled and evaluated the Seaview No. 8 well 12 miles southwest of DCU in 2018.
“Both these new field wildcats changed our ideas about successful trap types and reservoirs,” the company said, and based on that, the company plans to continue exploring Deep Creek by re-processing and analyzing seismic “using potential field’s data” and by drilling one or two shallow 2,500-foot exploratory wells targeting the Lower Sterling and Upper Beluga formations.
“The planned shallow exploratory well will be done using new technology, and the details of the proposed drill wells are confidential,” the company said, but indicated it would provide details at the request of DNR and/or CIRI.
“The proposed exploration plans will not be completed until at least the end of 2020, requiring Hilcorp to request this delayed contraction until May 31, 2021,” the company said.
State’s rejecting In rejecting the request to delay mandatory contraction, the division cited both Hilcorp’s 2019 plan of development for Deep Creek and the request to delay contraction, and said it was denying Hilcorp’s request and contracting Deep Creek to the existing participating area effective June 1. All production from the unit is allocated to the Happy Valley participating area, the division said.
While Hilcorp described long-range plans, it made “no firm commitments to further explore or develop the DCU,” the division said, and noted that in the 2019 POD for Deep Creek Hilcorp stated that it had not completed planned work from the 2018 POD and had no short-term plans to continue exploration or development at Deep Creek.
“The public has an interest in diligent exploration and development of the State’s resources,” and the division said Hilcorp’s plans “do not further exploration or development in the DCU outside of the Happy Valley Participating Area.”
Hilcorp has 20 calendar days from the July 2 date of the decision to appeal to the DNR commissioner.
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