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Heady times for Cook Inlet as oil company plans to spend millions

Alex DeMarban

A company poised to become the largest oil and gas producer in Cook Inlet plans to spend $500 million over the next three years to replace old facilities and ramp up production, another sign of revival for the once-quiet basin.  

Hilcorp Energy, known for squeezing oil and gas from dwindling fields after bigger companies have moved on, plans to spend $200 million in this calendar year alone, officials said. That's about five times as much as Hilcorp predecessor Chevron spent annually in recent years, they said.

It’s been years since a single company has spent that much money in the inlet, said Bill Barron, head of the state's oil and gas division.  

"For someone to spend $200 million or even anything approaching triple-figure millions for the inlet in operational work would be exceptional," he said.

Barron couldn't provide specifics on how much is spent in the inlet each year, saying explorers and producers keep that information private.  

Hilcorp expects the spending -- to modernize wells, pumps, rigs and other facilities -- to boost oil-and-gas production in the inlet from about 16,000 barrel of oil equivalents a day to about 21,000 by the end of the year, said Greg Lalicker, president of the Houston-based company.

"We're fixing all the broken stuff," stripping away and replacing the 1960s "junk" left behind, such as old rigs, said Lalicker, speaking at the Anchorage Chamber of Commerce's weekly luncheon Monday.

Hilcorp bills itself as the nation's second-largest privately held oil-and-gas firm. It's been working in Alaska for just over five months and has quickly built a workforce of 250, mostly Alaskans, according to company officials.

The company acquired Chevron's Cook Inlet operations early this year, including controversial oil storage tanks on the western inlet beneath Redoubt Volcano. It has a temporary permit from the state to use one of those seven 270,000 barrel tanks. Ultimately, it plans to use two to four of the tanks. The company is working to strengthen berms and other safety measures to protect the Drift River Terminal Facility from volcanic mudflows known as lahars, according to the Alaska Public Radio Network. The volcano erupted in 2009, but the tanks weren't damaged.

Hilcorp is also in the process of acquiring much of Marathon Oil Corp.'s Cook Inlet assets, including pipelines. That request is being considered by the Federal Energy Regulatory Commission. If the acquisition is authorized, Hilcorp will produce about 60 percent of Cook Inlet's oil and gas, said Lori Nelson, a spokeswoman.

Making Cook Inlet attractive

New exploration tax incentives and upgraded federal estimates of untapped oil-and-gas reserves have sparked new interest in Cook Inlet, once the state's most significant oil basin before the discovery of the mammoth fields at Prudhoe Bay.

Waning interest and the lack of investment in Cook Inlet over the last several years has produced Hilcorp's biggest challenge in Alaska -- access to new equipment, including rigs. Lalicker said Hilcorp is doing all it can to build up those resources, including trying to persuade out-of-state oilfield services contractors to operate in Alaska.

"That has been the biggest drag,” Lalicker said. “Frankly, no one has been spending a couple hundred million dollars a year (in Cook Inlet) for quite a while.

"We're working like mad to solve it, and we will solve it," he added.

Hilcorp has found that a number of oilfield contractors have moved their equipment to North Dakota, Nelson said. "We're trying to get the message out there (that) we are here for the long haul, and we want to provide them a steady business flow, and we will be busy," she said.

The money Hilcorp plans to spend this year, followed by another $150 million planned for each of the next two years, will help modernize equipment for the next 20 years.

Feeling the investment

Neal Fried, an economist with the state Labor Department, said businesses on the Kenai Peninsula are feeling the increased investment by Hilcorp and other new companies in Cook Inlet. In 2011, the industry in the region directly employed about 1,050 workers with high-paying jobs that have a multiplier effect on the economy as employees spend money at hotels, restaurants, aviation rentals and other services.

"It'd be harder to tell in Anchorage, but on the Peninsula they are very well aware of what's happening," Fried said.     

In Hilcorp's hunt for more oil and gas production in Cook Inlet, the company also snatched up 18 tracts in Cook Inlet this winter, their first foray into exploration in the region.   

"Those are in the long-term development plans," Nelson said. "We won't see action on those (for) the next couple years."

Other notable efforts in Cook Inlet include an extensive seismic program being conducted by Apache Alaska, a subsidiary of the nation's largest independent oil company. The company began that work in fall. Apache is also hoping to drill its first exploration well in the basin early this fall, in an area west of the village of Tyonek. For that effort, Apache will haul up a land-based drilling rig it's been using in Fort Nelson, British Columbia, said Lisa Parker, manager of government relations for the company.

Australia-based Buccaneer, recognizing the shortage of equipment in the basin, is also planning to buy an offshore drilling rig it can use and lease to other companies. A company spokesman in April said the company had invested more than $30 million in Alaska in the previous 18 months. 

Correction: This article originally said Buccaneer spent $7.5 million to buy the land-based Glacier Rig. Those were the company's original plans. However, another company purchased the rig, in a deal facilitated by Buccaneer subsidiary Kenai Land Ventures. 

Contact Alex DeMarban at alex(at)alaskadispatch.com