Hilcorp leads the way at ‘modest’ Cook Inlet lease sale

Hilcorp Energy submitted the only bids Wednesday in the state’s annual Cook Inlet area-wide lease sale. The company acquired eight tracts near existing oil and gas producing fields that it operates.

There were no bids, meanwhile, for state lands on the Alaska Peninsula, an area in southwest Alaska that was also offered on Wednesday. Both onshore and offshore state leases were offered but there were no takers.

In Cook Inlet Hilcorp offered up $298,799.76 for the eight parcels, which covered about 16,000 acres, according to a preliminary total by the state Division of Oil and Gas, which conducted the sale.

The bids per acre ranged from $16 per acre to $25 per acre, which was near the state’s minimum asking price of $15 per acre, but they were below the per-acre bids in recent Cook Inlet sales.

In its areawide sales the state offers all unleased acreage in a region and about 2.6 million acres of state offshore and onshore, Cook Inlet lands were made available in Wednesday’s sale, but only a small portion attracted offers.

There are about 500,000 acres now under lease in the Inlet.

Chantel Walsh, director of the division, said two tracts picked up by Hilcorp, both offshore, are in north Cook Inlet near the Trading Bay Unit and represent an effort by the company to explore extensions of known producing formations.

Hilcorp is planning to drill four new offshore wells, all targeting small oil deposits bypassed earlier, from the Steelhead platform in the Trading Bay Unit, according to information supplied by the Division of Oil and Gas.

Six other tracts acquired Wednesday by Hilcorp, all of them onshore, are in the southern Kenai Peninsula near the company’s existing Ninilchik gas field, which is producing, and further south on lands near Cosmopolitan, a small offshore oil field now being produced by BlueCrest Energy, a Fort Worth, Texas based independent, Walsh said in a briefing following the lease sale.

Hilcorp is planning to build a new drilling pad in this area, near Anchor Point, in mid-2018. Walsh said the Kenai Peninsula tracts are along a broad, gas-prone geologic trend stretching northeast-southwest along the peninsula.

Although the bidding was modest, “we’re still encouraged that Hilcorp is interested in exploring new oil and gas plays,” Walsh said.

The company is now the dominant producer in Cook Inlet and has been aggressive in developing new gas supplies for the regional utility market, she said. “Thanks to Hilcorp’s efforts we have enough gas supply confirmed through 2023 and 2014,” she said.

The company isn’t alone in exploring and developing new gas, however. Furie Operating Alaska, another Texas-based independent, is working to further develop its Kitchen Lights gas field in North Cook Inlet. This year the company plans to begin producing from a second well and to do a “workover” on its currently producing well to enhance production. Furie produces gas from a small production platform in the Inlet and sells to utilities in the region.

Other small companies are active including Cook Inlet Energy, which is producing oil from its small Redoubt and West MacArthur River fields on the west side of the Inlet, and Aurora Exploration, which plans new drilling for gas in the small Nicolai Creek fields, also on the west side.

For many years Alaska state and community leaders worried about declining gas production to meet power generation and space heating needs and in 2010 were making plans to begin imports of liquefied natural gas.

But in 2012 and 2013 Hilcorp purchased Cook Inlet properties owned by Chevron Corp. and Marathon Oil and began an aggressive new investment program, which resulted in new gas and oil discoveries.

Shortly after, an innovative state exploration incentive program aimed particularly at stimulating exploration for gas in Cook Inlet encouraged Furie and other companies to explore, resulting in new gas discoveries at Kitchen Lights and Cosmopolitan.

The state has had to wind down its incentive program due to state budget pressures. “We’re pleased to see work continuing,” Walsh said.

The lack of bids for the Alaska Peninsula region was no surprise. The area is offered every year along with the Cook Inlet unleased lands but has not attracted any bids in years. Still, the region has oil and gas potential, state geologists have said.

It is adjacent to the Bristol Bay basin, which has geology similar to that in Cook Inlet. The remote location and political opposition to exploration from local fishing groups have tended to discourage industry interest, however.