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Movers and Drillers in Cook Inlet

Movers and Drillers

in Cook Inlet Hilcorp dominates, BlueCrest innovates

By Isaac Stone Simonelli

88 | September 2019 H ilcorp Energy continues to dominate the oil exploration scene in Cook Inlet—it’s the only company to put in a bid on the State of Alaska’s annual Cook Inlet basin oil and gas lease sale for the third consecutive year.

Alaska Business The Houston-based company that specializes in mature fields spent $190,350 on three lease tracts totaling 10,286 acres earlier this year, according to the Alaska Department of Natural Resources (DNR), Division of Oil and Gas.

“We are pleased to see bid activity in the Cook Inlet lease sale,” DNR Deputy

www.akbizmag.com Commissioner Sara Longan said in a prepared statement earlier this year. “We recognize the focus of investment has been on the North Slope in recent years. Nevertheless, significant investment is made to sustain current Cook Inlet production, while exploration activities continue to inform and support future development.”

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Diagram of a multi-lateral well, which allows access for production to several pools of oil with a minimal surface footprint.

SOURCE: Alaska Department of Natural Resources

“Each new trident fishbone well can now provide the same amount of reservoir contact as up to twenty-five wells individually drilled from the surface. And it allows more wells to be drilled in a shorter time.”

Benjamin Johnson, President and CEO, BlueCrest Energy

www.akbizmag.com Within the last ten years, previous major players, such as ConocoPhillips, Chevron, and Marathon Oil, pulled out of Cook Inlet, explains Larry Persily, former head of the federal office for Alaska North Slope natural gas pipeline projects.

“They walked away because it was a very mature field with a limited market and it’s just not what they put millions of dollars into investment,” Persily says. “The implication was that the big, easy stuff was found decades ago and it was going to take a lot of capital and work for smaller returns, and they said, ‘Hey that’s just not our business model,’ so they bailed.’”

However, for others the business model works.

“I like to say we recycle old oil fields,” Hilcorp Senior Vice President Dave Wilkins said in a presentation at the Kenai Peninsula Economic Development District’s Industry Outlook Forum earlier this year. “When other companies are done with assets, we come in and we put new capital into it and reinvent it—extend the life of those oil and gas assets.”

Hilcorp jumped on the assets in Cook Inlet following the state issuing “a lot” of tax credits, Persily explains. However, plans to rein in the tax credit program for exploration and development work was reportedly the primary reason that the state received no lease bids for its oil basin for the first time in 2016. The next three years, Hilcorp was the only company to bid on Cook Inlet leases. “They [Hilcorp] figured they could make good returns and that’s where it kind of stands,” Persily says.

With the $90 million Cook Inlet oil pipeline project wrapped up last year, Hilcorp is now reportedly looking at investing in more drilling in the region. “We run things year to year fairly steady,” Wilkins said in his presentation. “We don’t like wild swings… in 2019,

we’re going to drill more wells.”

Hilcorp, however, isn’t the only company still drilling wells in Cook Inlet.

“BlueCrest is doing some interesting work; technically, it’s a challenging field. They’ve figured out how to do it,” Persily says.

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BlueCrest Energy onshore production facilities pictured at sunset.

© BlueCrest Energy

“Over 400 million barrels of oil and 200 billion cubic feet of natural gas have now been confirmed to exist in the underground Cosmopolitan deposits, although the percentage of the oil and gas that will ultimately be recovered will depend on the long-term development activities over the next several decades.”

Benjamin Johnson, President and CEO, BlueCrest Energy

92 | September 2019 BlueCrest Energy took over assets in Cook Inlet with the Cosmopolitan leases in 2012. Pennzoil, ConocoPhillips, and Pioneer had all conducted limited exploration work in the area since 1967. They were able to confirm the presence of some oil reservoirs, but they were never brought to commercial production.

Pioneer had a plan laid out to develop the oil field, but instead decided to refocus its energy on assets in Texas, explains BlueCrest Energy President and CEO Benjamin Johnson.

“Pioneer was successful in acquiring a lot of leases in West Texas. And those were very, very good leases,” Johnson says. “They literally diverted their investment. Instead of spending money in Alaska, they decided to spend money in Texas.”

BlueCrest reached out to Pioneer as soon as they realized the company was pulling out of Cook Inlet, as

Alaska Business Cosmopolitan—situated about 80 miles south of the nearest developed field in the region—was essentially an untapped resource.

“When we looked at the data, we thought there could even be more oil than Pioneer thought,” Johnson says. “By drilling a new exploratory well in 2013, we found additional oil and gas they didn’t know about.”

BlueCrest is currently producing around 1,300 to 1,400 barrels of oil and about 6 million cubic feet of gas per day.

“Over 400 million barrels of oil and 200 billion cubic feet of natural gas have now been confirmed to exist in the underground Cosmopolitan deposits, although the percentage of the oil and gas that will ultimately be recovered will depend on the long-term development activities over the next several decades,” Johnson says. “The oil deposits are found in deeper sands, and

www.akbizmag.com the dry gas reservoirs lie in shallower sands above the oil reservoirs.”

One of the challenges of tapping into the deposits at Cosmopolitan was the necessity of having onshore drilling platforms tap into small pockets of offshore reservoirs.

“BlueCrest’s plan for development of the oil reservoirs involves state-of-theart, extended-reach drilling technology that allows the oil deposits under the Cook Inlet to be safely contacted through wells drilled from an onshore surface location about three miles away,” Johnson explains.

BlueCrest completed a 38-acre onshore drilling/production facility a few miles north of Anchor Point and began first production of the field in 2016. The facility is connected to the gas pipeline, but recovered oil must be transported by truck to the Marathon processing facility.

The system developed by BlueCrest

www.akbizmag.com to tap into the potential of the Cosmopolitan oil deposit is known as the “fishbone” method.

“If the Cosmopolitan oil had been located in an old onshore basin such as West Texas, instead of beneath the Cook Inlet, a conventional development of this type of oil deposit would have simply utilized individual wells drilled from many different locations on the surface. Each individual vertical well would penetrate and provide access to all of the individual oil sand layers. Due to the large size of the Cosmopolitan oil deposits, that would require more than 100 individual wells,” Johnson says.

Many modern wells, such as those routinely drilled on Alaska’s North Slope and in other basins around the world, are initially drilled downward from a surface location and then turn horizontally to pass through the reservoir, opening up paths for the oil to flow out of the sands contacted by the wellbores. After the horizontal wells are drilled, hydraulic fracturing is then commonly employed in those wells to create limited paths for the oil to flow from other nearby sands into the horizontal wellbores. But BlueCrest has taken a more innovative approach to development of the Cosmopolitan resources.

“BlueCrest’s new concept involved drilling a complex formation of wellbores through the rock that provides one long horizontal ‘mainbore’ along the bottom of the oil zone. Multiple other full-diameter wellbores are drilled upward from that mainbore to penetrate all of the individual productive oil sands,” Johnson says. “The completed configuration results in a finished well structure that resembles a fishbone, with multiple ‘ribs’ that flow down into the mainbore along the bottom that then connects to the surface. Each one of these ‘fishbone’ wells essentially provides the same reservoir penetration as six to eight traditional wells that might have been individually drilled from the surface.”

Johnson points out that people have done similar drilling to the fishbone wells BlueCrest put in, but those wells had small branches coming off the sides of a mainbore. They were not drilling up through the bottom of the shale layers that divide oil-rich sands in

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areas such as Cosmopolitan.

Later this year, BlueCrest plans on tripling down on the fishbone design with the first-ever “trident fishbone.” The design allows the drilling of three fishbone wells from one single wellbore that flows to the surface onshore drilling site.

“This saves substantial time and cost associated with drilling the longreach wells from the onshore drilling location to the offshore reservoir for each fishbone,” Johnson says. “Each new trident fishbone well can now provide the same amount of reservoir contact as up to twenty-five wells individually drilled from the surface. And it allows more wells to be drilled in a shorter time, bringing new Alaskan oil production online sooner.”

The oil field BlueCrest is tapping into sits below an unrelated, “huge gas” field,

Johnson says, noting that there are some gas zones within the deeper oil deposit, as well.

“There is a gas zone within the oil sands that we just discovered,” Johnson says. “It’s not a major gas field, but the one above it is.”

BlueCrest has yet to develop its primary gas field at Cosmopolitan. Persily points out that the limited market for Cook Inlet natural gas plays an essential role in the rate the fields are being developed.

“If you found a huge amount of gas in Cook Inlet, you’d have no one to sell it to,” Persily says, noting that Cook Inlet utilities and ENSTAR are the primary buyers of gas in the region. “It’s not like Texas where if you find gas you can put it in a pipe and sell it in Chicago.

“Most of it the market is held by Hilcorp that has multi-year contracts…

you could hope that when Hilcorp’s contracts come up for renewal you could under bid them, but who wants to spend a lot of money to find gas to sell it on the cheap to underbid the market—that’s not a winning investor strategy.”

Persily notes that further down the line incremental increases in the natural gas market are plausible. One such market is Fairbanks and the Interior with their LNG goals.

“Volume-wise, you’re talking tens of millions to hundreds of millions [of cubic feet of gas]. So, it’s not a mega new demand; it’s an incremental increase in demand. Again, it’s not like they’re saying they need some tomorrow,” Persily says.

Johnson is more optimistic about the gas market in the region but also takes the long view.

“I like to say we recycle old oil fields. When other companies are done with assets, we come in and we put new capital into it and reinvent it—extend the life of those oil and gas assets.”

Dave Wilkins, Senior Vice President, Hilcorp

www.akbizmag.com “Cook Inlet will need gas for many decades into the future,” Johnson says. “In Southcentral Alaska there are new industrial developments—mines basically—coming online. We’re also looking at ways to liquefy the gas in small quantities and ship that out to villages out across the state.”

BlueCrest’s aim is to be able to replace diesel fuel consumption in villages by barging one or two small containers of LNG to rural communities, providing cleaner-burning energy.

“That’s what we’re starting to look at developing for the villages—that’s down the road a ways,” Johnson says, before also noting that the expansion of the gas market into the Interior is also promising.

“And, of course, at some point, we may see the AKLNG project come to pass. We’re pipeline connected into the gas system there,” Johnson says. “The other thing we’re looking at is to use excess gas from our gas field and inject it back into the oil reservoirs to help recover additional oil.”

The same method was used for the Swanson River Oil Field, which was discovered in 1957 and came into production around 1961.

The field had the same type of rock and geological formations as seen in Cosmopolitan, explains Johnson.

“Their wells performed very much like ours: started producing and declined really quickly,” Johnson says. “What they did was pretty innovative. They had a lot of gas that was developed in the nearby Kenai Gas Field—and there was no market for that gas in the ’60s—so they bought that gas and injected it into Swanson River reservoirs. And they have had literally one of the best successes in the entire world for recovering oil out of an oil reservoir.”

The idea to recreate the method used at Swanson River, however, is just now

in the planning stage.

“There is a lot of studying and analysis that has to be done before we start a project like that: special testing and

trial injections to see how it performs,” Johnson says. “We’re very optimistic. At this point, we believe there is a good chance of success with it.”