Recovering from Cook Inlet leaks, Hilcorp targets increased production in Alaska

With the discovery of an overlooked pocket of offshore oil, Hilcorp's Cook Inlet production is growing again after leaks this winter caused it to shut down some activity.

"It was awesome," said Chris Johnson, 35 and production foreman at the Steelhead Platform, describing his reaction after oil began flowing from the platform's newly completed well in late May.

The so-called M28 well produced more than 1,000 barrels barrels daily, or about 10 percent of production in the aging basin. Scores of other Inlet wells produce a fraction of that amount, on average.

Finding hidden gems is part of Hilcorp's business plan. The privately held, Houston, Texas-based company rejuvenates old fields after oil and gas production has plummeted.

Arriving in Alaska in 2011, Hilcorp quickly began snatching up Cook Inlet platforms and other properties. Major oil firms built many of them during an oil boom in the 1960s, shortly before the industry turned its attention northward to the much larger Prudhoe Bay discovery.

Today, Hilcorp is the Inlet's dominant producer, owning 15 of 17 offshore platforms in a region where oil and gas production peaked long ago. Hilcorp also elbowed its way onto the Slope, acquiring BP properties in 2014 to become Alaska's fourth largest producer.

Problems have come with the rapid expansion. This winter, an old pipeline Hilcorp bought in 2015 leaked natural gas for months. Divers repaired it in April after temperatures rose and hazardous sea ice melted. Another Hilcorp platform, Anna, lost 3 gallons of natural gas condensate in April, causing sheens on the Inlet and prompting a brief oil production shutdown.

Those are just some of Hilcorp's woes. The Alaska Oil and Gas Conservation Commission has blasted the company for well-safety violations, at times issuing a list of Hilcorp "noncompliance."

More recently, Cathy Foerster, AOGCC chairwoman, says Hilcorp is taking steps to improve under David Wilkins, senior vice president of its Alaska operations since 2015. 

Wilkins wants the agency to immediately call him if inspectors are uncomfortable with any operation, Foerster said.

"I think they are working hard to stay between the lines," she said on Friday.

Wilkins, during a visit to two of Hilcorp's platforms on June 6 accompanied by a reporter, acknowledged the company's missteps. He refused to blame the aging facilities or outgoing companies.

"Before you buy, you do due diligence," said Wilkins. "I expect us to be on our game: No injuries, no releases. I won't blame these incidents on anyone but Hilcorp."

Wilkins rejects the view that Inlet production — crucial to meeting Southcentral Alaska's heating and electric needs — is on its last legs. He believes Hilcorp can operate there for more than 20 years.

As evidence, he pointed to Hilcorp's $75 million project to move oil across the Inlet by subsea pipe instead of tankers. Conservation groups support the idea because it would eliminate an oil-tank farm dangerously located near Redoubt Volcano. The volcano last erupted in 2009, forcing the shutdown of 10 Inlet platforms and active oil tanks. No oil spilled.

[Hilcorp plans $75M project to remove dangers of oil tanks located near Redoubt volcano]

Making back that investment will take years, but it's the best move for the environment, he said. Project permitting efforts should begin soon.

"We're not here to flip this," he said of the Inlet assets.

Finding more oil and gas will help. Former operators left the oil discovered by the M28 well as they pursued larger targets, Wilkins said.

New seismic studies and long-distance horizontal drilling helped Hilcorp strike the oil in a complex reservoir off the Steelhead, where the rocks essentially "do a wave." Drillers used an old well bore but started a new branch.

Wilkins said the well is one of the biggest producers he's seen in his three-decade career.

Hilcorp hopes to repeat its success with the latest well it's drilling at Steelhead. The platform, first operated by Marathon Oil in 1986, rests atop four giant legs that house multiple wells. It's topped with a 150-foot derrick.

At Steelhead on June 6, workers with Doyon Drilling put drilling on hold to perform a regularly required test: Ensuring the blowout preventer will stop a potentially deadly surge of oil or gas. The test was successful, an official said later.

The company hopes to drill 40 wells in Alaska by year's end, spending $350 million and doubling 2016 investment levels. It hopes to boost year-end production to more than 60,000 oil barrels daily, from 53,000.

At the smaller Anna Platform, built in 1965 by Amoco, a handful of Hilcorp workers produce about 750 barrels of oil daily.

Longtime platform workers said Hilcorp is different from previous operators. Each platform sets its own budget and goals, prompting efforts to control costs and reduce waste.

Even small ideas have led to big savings, such as staff and managers taking up kitchen duties to reduce catering bills. Some workers found ways to use technology more efficiently. Shipping expenses plummeted.

"We discovered we can ship a lot of oilfield products for free, on Amazon (Prime)," Wilkins said.

The bottom-up process is the key reason Hilcorp can operate more efficiently than competitors, he said.

"This isn't rocket science," Wilkins said. "It's about paying attention to your business and your employees."