July 2017, Vol. 244, No. 7

Features

Hilcorp Looks Ahead after Inlet Incidents

Hilcorp Alaska leaders are ready to look ahead after a rocky start to 2017.

The company has two drilling rigs working in Cook Inlet, on the Steelhead and King Salmon platforms, and just announced a $75 million plan to ultimately reduce oil tanker traffic in the Inlet.

Hilcorp found itself making unwanted headlines starting in early February when it reported a natural gas leak from one of its subsea pipelines in the central Inlet Middle Ground Shoal oil field offshore from Nikiski. The company took significant heat from environmental groups for not having a plan to immediately fix the gas leak, particularly because Cook Inlet is home to its own distinct population of endangered Beluga whales.

Hilcorp representatives said the damaged gas line – in about 80 feet of water – could not be repaired because the loose sheets of ice that drift through Inlet waters each winter put dive crews in unacceptable danger. Additionally, gas flows in the formerly oil-carrying 8-inch pipeline could be reduced but not completely cut off to keep the line from depressurizing and potentially allowing residual oil to escape and compound the problems.

As a result, natural gas bubbled to the surface for more than two months until divers installed a temporary repair clamp in the pipe April 13.

Had it been an oil leak, the line could have and would have been shut in almost immediately, Hilcorp Alaska Senior Vice President Dave Wilkins emphasized in an interview. In the end, a sofa-sized rock rubbing on the pipeline was identified as the culprit of the leak; it wore a 3/16-inch by 3/8-inch hole in the line, according to the Alaska Department of Environmental Conservation.

The DEC issued its final situation report on the gas leak May 22. Divers finished permanent repairs to the pipeline May 19 and divers conducting an inspection of the repair the following day found no further bubbles or leaks, the report states.

In a separate incident on April 1, less than two months after the gas leak was confirmed, Hilcorp workers on the Anna oil platform sent word that something struck the platform and a small slick was spotted on the water’s surface below.  It was originally thought to be an oil spill, but the sheen dissipated quickly.

The company concluded that a large pan of river ice struck the northern Cook Inlet platform, causing about three gallons of natural gas condensates that had gathered in a gas flare fuel line to spill over into the water, Wilkins said.

“When the jar happened – there’s an 8-gallon capacity in that flare gas line and there were five gallons that drained from the system,” Wilkins said. “My instructions were ‘do a full investigation.’”

The fact that the sheen disappeared – likely evaporated – lends credence to the conclusion it was gas condensate, not oil from an unknown source, according to Wilkins. He said the company has taken steps to ensure condensates won’t collect in flare lines in the future.

And despite the criticism and prolonged attention Hilcorp has received over the past few months, Wilkins said he would have his folks do it all the same again.

“I’m very proud of the way Hilcorp responded. We did the right thing in both incidents,” he said. “Our indication was (the gas leak) was a low-risk, very minimal event. First and foremost, we’re not going to put people’s lives at risk, so we were making the right decision saying, ‘we can’t get in the water.’ We acted appropriately, in my opinion.”

It’s believed the gas line could have started leaking in late December, but the exact date is unclear. Hilcorp first identified a problem when employees noticed gas meter readings didn’t add up. The line supplies fuel gas between the Middle Ground Shoal platforms, so the company’s utility gas customers weren’t missing product.

At that point, Hilcorp began flyovers of the area looking for the methane bubbles, which it finally found on Feb. 7 to confirm the problem.

“Keep in mind, this is a system –four platforms, multiple pipes. That’s what made it difficult,” Wilkins said. He said the company is still gathering data and working to apply lessons learned to ensure there is no repeat down the road.

Hilcorp has an extensive diving season planned this summer to survey its subsea pipeline network.

The Middle Ground Shoal leak and the fact that much of the Inlet’s oil and gas infrastructure — owned and operated mostly by Hilcorp – is 40 years old or older, has spurred efforts to evaluate the resiliency of the complex system. The Cook Inlet Regional Citizens’ Advisory Council, in concert with the DEC, is prepping to conduct a comprehensive review of the Inlet’s offshore infrastructure.

Congress established the Cook Inlet Regional Citizens Advisory Council (CIRCAC) and an identical body for Prince William Sound in 1990 in response to the 1989 Exxon Valdez grounding to act as an objective oversight group aimed at preventing future petroleum spills.

CIRCAC Executive Director Mike Munger said that Cook Inlet’s ever-changing weather, nearly unmatched tidal currents and fluctuations, and shifting winter ice can severely hamper spill response efforts, making prevention even more paramount.

Hilcorp Alaska spokeswoman Lori Nelson said the company supports CIRCAC’s assessment.

“(We) opened our doors to them,” Nelson said. “We’re going to be one of the primary information providers as far as what’s out there.”

Wilkins said the company, which bought its way into Alaska through a series of purchases from Marathon and Chevron in 2012 and has spent more than $4.5 billion since, has a strong history of managing mature fields. The company’s spending has included $1.8 billion in acquisitions, $1.3 billion in investments and $1.4 billion in operating costs.

Its infrastructure-inspection program is robust and often goes beyond state and federal requirements, he said.

“Pipes will last a long time if they’re cared for. Just because something is old doesn’t mean it’s useless,” Wilkins continued. “We’re a company that operates old assets, so we understand how to do it and we train our people how to do it. Am I guaranteeing nothing will happen? No, but we are well-trained to maintain and respond, as you’ve seen, if something does happen. We strive to get better every day.”

A similar Inlet pipeline risk assessment commissioned by the council in 2005 concluded the infrastructure was, at least then, mostly in good shape due in large part to the fact that it was designed for capacity well beyond production levels at the time of the study.

While Hilcorp’s business model in Alaska to date has been to rejuvenate old fields cast aside by oil majors, the company is gearing up to spend $75 million laying new pipelines on the Cook Inlet floor and converting some existing lines from gas to oil carriers to allow it to close the Drift River oil terminal.

When the project is complete – which Hilcorp hopes will happen late next year – oil will flow from its west Inlet Granite Point facility under the Inlet directly to Tesoro’s Nikiski refinery via what is now the Cook Inlet Gas Gathering System.

Repurposing the existing cross-Inlet gas line will mean installing a new gas line from the Tyonek platform to tie into the large Beluga gas transmission line on the west side of the Inlet. Also, oil flow that now goes from Granite Point south to the Trading Bay processing facility and on to the Drift River storage and tanker loading terminal will be reversed.

The Drift River tank farm, with capacity in excess of 1 million barrels of oil, feeds the offshore Christy Lee tanker-loading platform via pipeline. Its location in the shadows of Mount Redoubt, an active volcano, has long made it an environmental concern. The Drift River facility was partially flooded by snowmelt-ash sludge in April 2009 after Redoubt erupted. Then operated by Chevron, the tank farm was shut down as a precautionary measure. Hilcorp restarted the then-40-year-old terminal in late 2012.

Hilcorp has been investigating the prospect of a subsea oil transmission line – a lower spill risk option to tanker traffic – for some time, according to Wilkins. Its purchase of the Tyonek platform and associated pipelines last year from ConocoPhillips gave the company what it needed to make the project economic.

“Now that there’s a pipeline system, we can utilize the existing infrastructure and do a project like this cross-Inlet pipeline project for far less than it would’ve cost another company, or to build new,” he said.

The project should help Hilcorp produce from Alaska’s original oil and gas fields for another 20, 30 or 40 years, Wilkins said. If his predictions prove true, some of the fields could approach the century mark for production.

“We feel this cross-Inlet pipeline will extend the life (of Inlet infrastructure), run it efficiently and be environmentally safe and responsible,” Wilkins said.

Moving to the North Slope, Hilcorp is expecting to see the first draft of an environmental impact statement for its offshore Liberty oil prospect in the next month or so from the federal Bureau of Ocean Energy Management. About 6 miles offshore in the Beaufort Sea, the company plans to build a gravel island in the shallow water similar to how other nearshore North Slope oil discoveries have been developed.

Hilcorp, which bought into Liberty in 2014 as part of a $1.25 billion deal with BP, estimates the long-awaited project could produce up to 70,000 bpd of oil at its peak.