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Hilcorp requests Milne Point gas offtake rate for 3rd party sales
Kristen Nelson Petroleum News
Milne Point field operator Hilcorp Alaska is asking the Alaska Oil and Gas Conservation Commission for authority to sell some of the natural gas produced at the field to third parties, initially to Alaska CNG LLC. In a May 17 request, the company said it is negotiating to provide Alaska CNG LLC with Milne Point gas, which would be delivered at the Milne Point facility custody transfer meter and then "transported to customers across the North Slope," with initial deliveries expected to begin in July.
Hilcorp said it may "enter into additional gas sales contracts with other entities for the same or similar purposes."
Citing its authority under AS 31.05.030(e)(1)(F) to regulate for purposes of conservation the rate at which oil or gas are withdrawn from a well or field, AOGCC tentatively scheduled a public hearing on the matter for 10 a.m. June 27 at the commission's Anchorage offices. The call-in number for the hearing is 907-202-7104 conference ID 433 773 304#.
AOGCC said in a May 23 public notice that if no timely requests for the hearing are received, it may issue an order without a hearing, and said to learn if the hearing will be held, call 907-793-1223 after June 12.
The Milne issue Hilcorp said most pool rules do not address the offtake issue, but because of the commission's statutory authority to regulate offtake for conservation purposes, it is seeking approval for gas sales "on the grounds that this offtake is consistent with good oilfield engineering practices and conservation purposes."
Hilcorp said gas produced from the oil pools at Milne Point -- Kuparuk River, Schrader Bluff, Sag River and Ugnu -- is processed through the Milne Point facility where gas is separated from oil and water. At Milne, the gas "is used for fuel gas for power generation, gas lift, and compressed natural gas for in-field fuel for trucks."
The company said processed gas totals some 40 million cubic feet per day, of which some 15 million cubic feet is reinjected.
Water injection provides the "overwhelming majority of pressure support" at Milne, Hilcorp said, with some 120,000 barrels of water injected daily. It said available water could easily make up the loss of the amount of natural gas proposed for sale.
"Thus, diverting up to 1,500 mscfd of gas from injection to gas sales will not have a measurable impact on production or ultimate recovery of oil from the Milne Point Field oil pools," the company told AOGCC.
Hilcorp is requesting approval to sell up to 1.5 million cubic feet per day of natural gas offtake allowables beginning this July.
In its public hearing notice AOGCC said selling natural gas from Milne Point will reduce the amount available for reinjection at the field for pressure maintenance and enhanced oil recovery, "which has the potential for reducing ultimate recovery from the field," and noted Hilcorp's assertion that the loss of gas could easily be made up by increasing water injection, the main fluid used for pressure maintenance and EOR at Milne Point.
While gas offtake issues haven't been prominent recently, in the past AOGCC was heavily involved in gas offtake issues related to the volumes which could be removed from Prudhoe -- where natural gas is reinjected to increase oil production -- when a major natural gas pipeline was under consideration. Oil is a more valuable commodity than natural gas and the issue was how large a volume of natural gas could be sold off from Prudhoe without decreasing ultimate recovery of crude oil.
In its application, Hilcorp noted that "most existing pool rules do not address" gas offtake.
A big exception is Prudhoe, where pool rules limit gas offtake. A maximum offtake rate of 2.7 billion cubic feet per day was established in 1977 when the commission first adopted pool rules for Prudhoe.
A natural gas pipeline from the North Slope had been recognized as a way to monetize the natural gas from early on, with some expectation that a natural gas pipeline -- initially expected to run south through Canada to the Lower 48 -- would follow shortly after completion of the oil pipeline.
In discussions of natural gas pipeline proposals in the early 2000s, the commission undertook studies to determine whether the existing allowable offtake was still reasonable.
In a 2005 draft report, the commission said that of the existing 2.7 bcf a day limit, some 700 million cubic feet are used for fuel, field operations, production of saleable natural gas liquids, enhanced oil recovery and minor local sales, leaving approximately 2 bcf for sales gas.
Studies were done based on changing conditions and the Prudhoe offtake rate was ultimately revised to 3.6 bcf a day in 2015.
--KRISTEN NELSON
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