OIL & GAS

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Hilcorp

Point Thomson’s New Operator

Hilcorp Alaska brings its efficiency expertise to North Slope gas

By Tasha Anderson

The corporate neighborhood on the North Slope has changed significantly in recent years. Long-term anchor residents BP, ExxonMobil, and ConocoPhillips formed an exploration and production foundation that held steady for decades as other oil and gas entities moved in— and more often than not moved out. These three international oil giants held the major interests in Prudhoe Bay and Alyeska Pipeline Service Co., and over the years have paid millions upon millions of dollars to the state in royalties and taxes.

Nothing lasts forever.

BP marked forty years of operating Prudhoe Bay in 2017, celebrating the milestone with a goal to “go forty more,” and in early 2019 BP crews were approximately halfway through a 455-square-mile seismic survey in Prudhoe Bay to “help really sustain a longer-term drilling program,” said then-BP Alaska President Janet Weiss. The long-term was quite a bit shorter than BP was publicly sharing at the time, as in August 2019 it announced its intentions to sell its Alaska assets to Hilcorp.

Founded in 1989 in Texas, Hilcorp took its first step into the far north in 2012 in Cook Inlet, acquiring assets from Chevron and adding assets acquired from Marathon to its Cook Inlet portfolio the following year. Hilcorp continued to build its Alaska assets in Cook Inlet and on the North Slope over the last ten years, and today its profile includes nearly 1 million gross acres, more than 1,700 producing wells, and more than 1,500 employees, all of which contribute to delivering more than 340,000 gross barrels of oil per day. The company invested $340 million in the state in 2019 alone and paid almost $160 million in state taxes and royalties in that same year.

BP accepted $5.6 billion in exchange for its Alaska assets, and the agreement included Hilcorp taking over operations of Prudhoe Bay, which it did in June 2020. Roughly half of BP’s employees accepted positions with Hilcorp at the time of the transition.

Two years later and Hilcorp has once again taken on employees from another North Slope player and operations of an additional site: Point Thomson.

As of January, Hilcorp is operating Point Thomson, which holds an estimated 8 trillion cubic feet of natural gas and 200 million barrels of natural gas condensate. At present, gas condensate is the only product exported from Point Thomson; a 22-mile pipeline connects the field to TAPS, which then carries approximately 10,000 barrels per day of gas condensate south to Valdez. The site’s onshore facilities also produce natural gas, but it’s stranded—there’s currently no way to deliver it to market.

Instead, two injection wells work in tandem with a production well to cycle 200 million cubic feet of natural gas per day. The condensate is shipped out; the gas is reinjected into the reservoir.

ExxonMobil began producing gas condensate at Point Thomson in 2016 (after developing the site at a cost of approximately $4 billion) and was the field’s operator until January. Even as it leaves operatorship behind, ExxonMobil is retaining its 62 percent ownership stake in the field. Hilcorp already owns a portion of Point Thomson, acquiring a 37 percent stake in the field as part of its acquisition of BP’s Alaska assets (for those doing the math, other parties collectively own less than 1 percent).

Operations are changing hands, but the ownership split is remaining the same, and neither party is paying or receiving cash as part of the agreement. ExxonMobil’s Point Thomson employees were offered opportunities with Hilcorp, which many took.

So if there’s no cash payments, no change in ownership, and an additional cost in payroll, why is Hilcorp taking on the responsibility of operations? The short answer is it’s what Hilcorp does. Examining the company’s portfolio, it has very few assets that it owns and doesn’t operate, and for good reason, considering its legacy of smart operations. “At Hilcorp, we pride ourselves on enhancing production and driving efficiencies of the legacy oil and gas assets we take over,” says Luke Saugier, senior vice president of Hilcorp Alaska.

Hilcorp has demonstrated that skill multiple times in Alaska since it moved in. In 2012, approximately half of its $230 million Cook Inlet investment was spent on remediation, repair, and replacement of old equipment, and in its first year Hilcorp was able to boost oil production from its fields by 36 percent. In 2020, Hilcorp was able to double production at Milne Point, a field it acquired in 2014. At the time of the announcement about the accomplishment, Hilcorp Energy Company President Jason Rebrook said, “By empowering our employees closest to the wellhead, driving efficiencies, and innovating, we’re increasing production at Milne Point and putting more oil in TAPS. Our goal is to apply these successes at Prudhoe Bay and beyond.”

Is Point Thomson that “beyond”? According to Saugier, “The handover of Point Thomson operatorship has gone smoothly, and we are excited about the future opportunities at the field.”

A Future for Natural Gas

What are the opportunities at Point Thomson? It’s a different asset than the oil platforms in Cook Inlet, the Milne Point field, or even Prudhoe Bay, which have clear and established routes to get their commodity to market. While gas condensates have value and Hilcorp may have plans increase their production, or at least produce them more efficiently, the real potential for Point Thomson is its massive gas reserves. But that natural gas, for the last eight years, has been stranded on the North Slope, subject to an endless cycle of moving above ground just to be shoved back down.

According to the Progress Report and Plan of Development for January

Providing safe and reliable gas service to Alaskans requires a diverse workforce. From construction to customer service, ENSTAR has a job for just about any interest or skill.

Engineering Construction Mechanics Plumbing Welding Right-of-Way/ Environmental Information Technology (IT) Risk & Safety Accounting Customer Service Human Resources Communications Legal

Point Thomson is only the newest operation for Hilcorp in Alaska; it operates other units on the North Slope, such as Prudhoe Bay.

Hillcorp

1, 2022 to December 31, 2023 (filed by ExxonMobil in late 2021), “the preferred future development for the [Point Thomson] Unit is an MGS [Major Gas Sale] project, such as the Alaska LNG [liquified natural gas] Project or the Qilak LNG Project. The Unit will continue to evaluate the facility modifications and development activities necessary to support any MGS project.”

Alaska LNG (AK LNG) is a pipelinebased LNG export project under development by the Alaska Gasline Development Corporation (AGDC), which has recently announced two positive reports. An update to a 2016 report by research firm Wood Mackenzie delivered to AGDC in February predicts that AK LNG can, in fact, be profitable.

At the time of the 2016 report, AK LNG had an estimated cost of $11.70 per metric million British thermal until (mmbtu); however, at that report’s recommendation, AGDC reworked the project’s financing structure to reduce the cost to $6.7/mmbtu. The February update predicts that LNG prices in Japan will be $8/mmbtu, allowing AK LNG to earn a profit under its new financing structure. Even better, the $6.7/mmbtu price point is lower than peer projects in the Gulf of Mexico, which have higher shipping costs to markets in Asia, making it even more competitive.

AGDC also released Greenhouse Gas Lifecycle Assessment: Alaska LNG Project, a report that documents how AK LNG would reduce greenhouse gas emissions in Asia by providing a cleaner source of fuel than coal. According to an AGDC release about the report, “eliminating 77 million metric tons of carbon emissions is the annual equivalent of taking nineteen coal-fired power plants offline or 16.8 million passenger cars off the road for a year.” It continues, “The report also compares Alaska LNG emissions to equivalent LNG projects in Louisiana and Australia that have undergone similar lifecycle analyses, and documents that the production and delivery of Alaska LNG provides 50 percent lower greenhouse gas intensity compared to these projects.”

It's all good news that will hopefully attract investors to the project, which still has an estimated capital cost of $38.7 billion.

An alternative proposal from Qilak LNG would export LNG directly from the North Slope, building a liquefaction facility offshore and loading LNG directly onto ships for transportation to Asian markets. Because this proposal avoids constructing an 800mile pipeline, the estimated costs is significantly lower at about $5 billion. However, since the project announced its intentions in 2019, there’s been little released as to its status, though the Point Thomson Plan of Development states that the field’s operator engaged in confidential discussions with Qilak LNG and received periodic updates from Qilak LNG on the status of project feasibility studies in 2020 and 2021.

The Wood Mackenzie update delivered to AGDC forecasts peak LNG demand in 2040, but that there will be a global shortfall of LNG supply in 2028. Were either of these projects to move forward, they would be able to take advantage of those potential gas markets. Of course, they aren’t the only ones eyeing these windows of opportunity, and other projects that are further along in development or funding may secure supply contracts before either project liquifies a single drop of gas.

While it’s no sure thing that stranded North Slope gas will ever find its way to Japan or other Asian markets, Point Thomson, under the operatorship of a company known for finding efficiencies and opportunities, sure has a lot of potential. As Saugier says, “Our roughly 1,550 Hilcorp Alaska employees are focused on operating safely and responsibly and driving economic growth for decades to come.”