New Hilcorp Energy oil project expected to cut costs

Hilcorp Energy started up a new cross-Cook Inlet oil pipeline project that is expected to will reduce costs by one third for shipping crude oil from production platforms on the Inlet’s west side to a Marathon Oil refinery on the east side.

“We’re slowly ramping up to our maximum capacity of 14,000 barrels per day,” company spokesperson Lori Nelson said.

The $90 million project reconfigured a 10-inch natural gas pipeline that previously shipped gas east-to-west across the Inlet, reversing it to ship oil from west to east.

Nelson said oil shipments began Oct. 18. Simultaneously, shuttle tanker operations from the Drift River oi terminal on the Inlet’s west side were suspended.

The Drift River terminal has supported the loading of tankers since the heyday of Cook Inlet production in the 1960s and 1970s but shipments from the Inlet to west coast refineries ended as Inlet production dropped. In recent years the terminal used only to support a small tanker shuttling crude across the Inlet to the refinery. The tanker also brings oil to Nikiski from the Valdez Marine Terminal in Prince William Sound.

Reversing the gas pipeline, which required a small amount of new construction, is expected to reduce transportation costs of moving oil from the platforms from about $3 per barrel to $2 per barrel, Hilcorp said in presentations to community groups.

The reduced costs are expected to extend the operating life of aging production platforms on the Inlet’s west side by about 20 years. Although Cook Inlet’s heyday appears to be past, platform operations and support work still provide a substantial number of jobs, which pay well.

“What I think this project ultimately embodies is a very creative use of all the infrastructure — gas lines, oil lines, and a limited amount of new construction for something very cost-effective,” Sean Kolassa, president of Hilcorp’s Harvest Midstream pipeline subsidiary, told community leaders at a ribbon-cutting ceremony held on the Kenai Peninsula, near the refinery.

Company officials said their goal the project is to reduce risks as well as improve costs. The Drift River terminal is near an active volcano and was closed by flooding a few years ago during an eruption.

The project included construction of a six-mile new pipeline section to transport has from the Tyonek Platform in the Inlet. The platform was previously served by the older gas pipeline converted to oil movement.

Richard Novcaski, operations vice president for Hilcorp subsidiary Harvest Alaska, said the company’s contractors used an innovative construction technique to lay the section of new pipeline, said

Pipe sections were assembled in mile-long segments on shore and then pulling the sections into place by barge. For its distance, this method was about half the cost of using a lay barge though Cook Inlet with its strong tides, “Cook Inlet is not an easy place to do business,” Novcaski said.

Production began in Cook Inlet in the 1960s and at its peak the Inlet produced over 200,000 barrels per day. Production dropped over the years to about 12,000 barrels per day in 2012 when Chevron, the former owner of offshore oil platforms, sold the assets to Hilcorp.

Hilcorp invested over several years in platform and well rehabilitation as well as new drilling, and has now rebuilt Inlet production to about 16,000 barrels per day.

Cook Inlet crude oil is sweet and light, and is valued by refiners. However, Inlet production is insufficient to meet all of Marathon’s needs at its Kenai refinery, which requires additional supply from elsewhere, typically the somewhat heavier North Slope oil brought from Valdez.