Hilcorp hopes for 2018 approval for billion-dollar new slope oil project

ANCHORAGE — Hilcorp Energy said it expects to receive final regulatory approvals late next year, and make a go/no-go investment decision on its proposed $1 billion Liberty offshore project in the Beaufort Sea in northern Alaska.

Construction could begin in 2019 with production beginning in 2022, Mike Dunn, Hilcorp’s manager for the project, told the Alaska Support Industry Alliance in a briefing last Thursday.

Hilcorp is in the final stages of a federal environmental impact statement process that is led by the U.S. Bureau of Offshore Energy Management, a federal agency. Public comment period on the draft EIS will close in mid-November and a final EIS and Record of Decision are expected in late 2018.

If it proceeds, and Dunn said he is optimistic, construction would employ 200 to 300 workers for five years and operations would require about 20 to 30 production staff, with an additional number of people employed in support.

Liberty’s production is now estimated at 70,000 to 80,000 barrels per day, which is up from 50,000 barrels per day in estimates by BP, previously the Liberty developer, Dunn told the Alliance. Eight to 10 wells would be drilled at Liberty, about half of them to produce oil and about half as “injector” wells, to inject gas and water into the underground reservoir.

Hilcorp owns 50 percent with BP still owning 40 percent and Arctic Slope Regional Corp., an Alaska Native development corporation, owning 10 percent.

“We think we can get costs down and build this for a price that is something north of $50 (per barrel),”, Dunn said.

Hilcorp, which is also a major Cook Inlet operator, has a long track record in parting costs and is pursuing a different development strategy for Liberty than that of BP, which was the operator before Hilcorp purchased half of Liberty.

Dunn said Hilcorp will likely rely on smaller production modules that can be built in Alaska and trucked to the North Slope rather than large modules built in the Lower 48 and barged to the North Slope, which BP did for its offshore Northstar project in 2001, a project similar to Liberty in scope.

“We’re finding that it is less expensive to build in smaller packages,” that can be linked together at the site rather than build large plant units that are moved in one piece, Dunn said.

Dunn also acknowleged, however, that Liberty will be Hilcorp’s first new development project. Previously, the company has specialized in purchasing and redeveloping mature producing assets, as it has done on the U.S. gulf coast and in Alaska’s Cook Inlet and the North Slope.

Hilcorp now operates Northstar field as well as the Endicott, another offshore producing field northwest of Prudhoe Bay, as well as the onshore Milne Point field, all purchased from BP.

Liberty would be a virtual twin to Northstar. Both are in very shallow water, about 30 to 40 feet, and just north of the Alaska coast, five miles offshore for Liberty and six miles for Northstar. Northstar produces from an artificial gravel island with oil sent ashore through a buried pipeline. The Liberty project plan is similar, Dunn said.

Conservation groups are raising concerns about offshore development in Arctic waters as they did on Shell’s exploration in the Chukchi Sea, but Dunn said oil has been produced safely for three decades from Endicott, 17 years from Northstar and several years for two other offshore projects, Oooguruk, owned and operated by Caelus Energy, and Nikaitchuq, owned operated by Eni, with no mishaps.

Liberty would be the fifth producing field in the “nearshore” Beaufort Sea, Dunn said.

A major concern by conservation groups, and regulators, is that the winter polar icepack, which moves, could pose a hazard to offshore oil facilities. Most of the existing Alaska Arctic offshore fields, all built on gravel islands, are protected from the moving icepack by barrier islands. Northstar, which is exposed to the moving ice, has not encountered problems, although there is some seasonal erosion of gravel at the edges of the island, which is replaced annually, according to BP, which previously operated Northstar.

Although Liberty is in federal waters and not subject to Alaska royalty or taxes, the project will still pay taxes on portions of infrastructure that are built on state lands, such as pipelines, and will also contribute a flow of oil to the Trans Alaska Pipeline System. The additional oil will lower transportation costs, to some extent, for all other oil flowing through the trans-Alaska Pipeline, which will increase the value of that oil on the North Slope, resulting in more royalty and taxes paid to the state.