Hilcorp says it now has gas, but skeptics ask how much

Hilcorp Energy is bringing on new supplies of natural gas in Southcentral Alaska and says it hopes to maintain steady production from current wells and the recently acquired Marathon Oil Co. gas fields over the next few years.

“We’re very encouraged,” Hilcorp spokeswoman Lori Nelson said.

Utilities in Southcentral Alaska were very worried this winter about shortages of gas, but once Hilcorp was able to get control of Marathon’s producing properties Jan. 31, when the Marathon acquisition was completed, “a simple reactivation of certain wells brought on some additional gas (production) rate almost immediately,” Nelson said.

Hilcorp is now negotiating gas contracts for 2013 with Enstar Natural Gas Co. and others, she said.

“Once we get 2013 contracts completed we’ll be working on contracts for 2014 and 2015,” Nelson said.

Hilcorp president Greg Lalicker told state legislators in a recent briefing in Juneau, that, “we have more gas than people are asking for.”

However, Jim Posey, manager of Anchorage’s city-owned Municipal Light and Power, is a skeptic. He said gas supplies are indeed plentiful now because the weather is warmer but he is concerned about next winter and how much investment Hilcorp will make in developing new natural gas.

Posey said he is worried about this because Hilcorp has just informed ML&P and ConocoPhillips, the ML&P partner in the Beluga gas field, that Hilcorp will not pay its full one-third share of 2013 capital costs.

“They have told us they are going to put their money into chasing oil, not gas,” Posey said.

Hilcorp, ConocoPhillips and ML&P, the city utility, each own a third of the Beluga field, one of the region’s largest gas fields, with ConocoPhillips being the operator.

“If the $65 to $70 million in new drilling and compression for Beluga is not made, the current 17 percent annual decline in gas production from the field will accelerate,” Posey said. “All the years that we (ML&P) have owned a share of Beluga we have never failed to pay our share of the capital budget, even in years when we didn’t need the gas.”

Posey said if Hilcorp doesn’t pay for the field development work, the two other owners could cover what funds Hilcorp will not contribute. That creates unusual problems, Posey said, including the allocation of gas production among the owners.

As for its new Marathon assets, Nelson said Hilcorp is encouraged by what it is seeing in the Kenai gas field. The Kenai field was the largest in the Marathon portfolio and one of the three large gas fields discovered in Southcentral Alaska.

Hilcorp acquired Chevron Corp.’s Cook Inlet properties in 2012, which include oil-producing and gas-producing assets, but the Marathon properties were mostly gas.

“Before we had the opportunity to look behind the curtain at what we were acquiring from Marathon we were as concerned as anyone,” about the regional gas supply,” Nelson said. “Now we’re encouraged, and aggressively engaged, in reactivating the wells.”

Hilcorp acquired about 157 wells from Marathon, but about 50 of those were idle and not producing for various reasons

In the Juneau briefing, Lalicker said, “we were able to bring three or four of the Marathon wells back on right away, and we got half a million to a million cubic feet (per day) from each one.

“The point is that a larger company (like Marathon) won’t mess around with a well producing half a million (cubic feet) and that’s why they were turned off. But for us (Hilcorp), if we can get 20 wells like these producing 20 million cubic feet a day, it’s significant.

“The combined Hilcorp and Marathon production is about 60 billion cubic feet of gas per year of the 92 to 94 billion cubic feet used in the Inlet each year. We feel we can maintain that for the next five years. I feel pretty good about that.”

Posey said he has been told the same thing by Hilcorp but that he will feel more comfortable when the company actually signs contracts to deliver the gas.

“I’ve heard them say they hope to deliver 60 billion a year but at this point they are not willing to sign a contract for any year later than 2014,” he said.

Meanwhile, Hilcorp has stepped up its activity in 2013 with plans to invest $300 million to $350 million, up from $238 million in 2012, Nelson said.

The company is bringing two land drilling rigs to Alaska and is having two specialized “workover” rigs, which are designed mainly for well-maintenance, built to do work in Cook Inlet. In the Juneau briefing Lalicker said one of the land rigs will arrive in April or May, and the second in June or July.

Posey said HIlcorp’s activity, which is mostly focused on oil, may not alleviate the regional utilities’ long-term concerns for gas supplies. ML&P is part of a group studying the possible imports of liquefied natural gas or compressed natural gas.

ML&P, Enstar Natural Gas, Chugach Electric Association, Matanuska Electric Association and Donlin Gold, a company seeking gas to develop a large gold mine, are members of the group.

A decision in which option to pursue was to have been made in March but will now be made in April or May, Posey said.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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