For three decades, the overarching story of Alaska’s big North Slope oil fields has been one of decline, with production gradually sinking as companies pumped out the most easily-accessible crude.
But over the past few years, at one of the basin’s oldest developments, something unusual happened: Production actually increased, and not just by a little. In 2018, the Milne Point field pumped slightly less than 21,000 barrels a day. In January, it was up to nearly 32,000 barrels daily — a difference that, at today’s prices, is worth an extra $3.5 million a week.
The architect of that turnaround is Hilcorp, the privately-owned oil company that bought a 50 percent stake in Milne Point in 2014. Now the company is poised to acquire a much bigger prize as part of its $5.6 billion deal with BP: a piece of the massive Prudhoe Bay field.
[Read more: BP moves to exit Alaska, relinquishing role as operator of Prudhoe Bay]
The oil industry is the biggest private-sector driver of Alaska’s economy, and the source of one-third of the state’s revenue. That means observers of the industry will be closely watching to see if Hilcorp can engineer the same turnaround at the much larger Prudhoe Bay field as it did at Milne Point — where it says it created hundreds of jobs and invested more than a half-billion dollars.
“This is a big leap for a company of this size,” said Mark Myers, a former Alaska natural resources commissioner.
Myers, a petroleum geologist, said that redevelopment opportunities exist at Prudhoe Bay. But because of the “size of the prize” there, Prudhoe Bay’s owners have been more aggressive about extracting oil, he added, compared to the history at Milne Point before Hilcorp took over.
“Prudhoe has been worked a lot harder. So I think those opportunities are going to be more difficult,” he said. “They’re bigger in scale, but they’re more difficult.”
Prudhoe Bay is the largest field on the North Slope and remains one of North America’s most productive, pumping about 230,000 barrels of oil daily. When the deal closes, Hilcorp will assume BP’s 26 percent stake in the development and take over as operator.
It’s too soon to say whether the company will be able to boost production at the field, said Jason Rebrook, Hilcorp’s president. But he noted that Prudhoe Bay’s geology and structure are similar to Milne Point’s, which gave the company confidence in striking its deal with BP.
“We’re in the process of looking at the field hard. But our goal is always the same,” Rebrook said in an interview. “It is the biggest legacy field that we know of. And our goal is to come in there and extend the field life.”
Both Prudhoe Bay and Milne Point have been producing oil for more than 30 years, making them attractive targets for Hilcorp.
The major companies that built those fields have higher overhead costs and more layers of management, which can be helpful in bringing a big new project online on schedule and under budget. But those same qualities can make it harder to efficiently deliver the smaller projects and incremental improvements needed to wring more oil from fields where production has already peaked.
Hilcorp, a so-called “independent” oil business, has become known for reviving aging infrastructure that’s no longer attracting investment from its original developers. In its first Alaska business deal, in 2012, it bought out Chevron assets in Cook Inlet, near Anchorage, that included decades-old offshore oil platforms.
Two years later, Hilcorp announced it was buying its first North Slope projects, which included a 50 percent stake in Milne Point and interests in three other fields.
Milne Point, about 25 miles northwest of Prudhoe Bay, was developed in the mid-1980s, with BP taking over as operator in 1994. Within a few years, the company was pumping more than 50,000 barrels a day. But decline quickly set in by the mid-2000s, with production down by more than half over the following decade.
A BP spokeswoman declined to comment. But the company has, in the past, described technical challenges at the field, like poor pump performance in some of its wells. It has also said that some of the projects contemplated for Milne Point wouldn’t have paid off well enough to merit investment.
For Hilcorp, BP’s challenges presented an opening.
“It’s a large field. It hadn’t had as much capital spent on it,” Rebrook said. “We had a pretty good sense that there was a lot of upside there.”
Hilcorp has drilled new wells, reworked existing ones and ultimately created a new drilling platform called Moose Pad.
Hilcorp says the pad was the first one built at the field since 2002, and took half the time and cost one-third as much as traditional pads on the North Slope.
BP, having kept a 50 percent stake in the field, also invested in those projects, saying that Hilcorp’s leaner business model made the proposals more attractive.
“We saw them deliver a new pad faster, more efficiently and more effectively than, frankly, we would have — or than we did for many years,” Damian Bilbao, a BP executive, said at a legislative hearing last month.
While Hilcorp has tested unconventional extraction techniques at Milne Point and focused on different pools of oil, its overall strategy at the field was not especially innovative, according to industry experts and its own executives.
Much of Hilcorp’s success there comes from the basics: drilling new wells and building the new pad. Between 2006 and 2013, BP drilled 30 wells, according to data from the Alaska Oil and Gas Conservation Commission. Hilcorp has drilled 61 in the past five years, including 24 in 2019.
“The biggest impact has been with the drilling of new wells, and developing the reservoir into areas that hadn’t been developed,” said Steve Moothart, an Alaska Department of Natural Resources petroleum geologist.
Hilcorp’s work at Milne Point has brought money and jobs to the state: The company says it has spent $700 million at the field, and grown the workforce to as many as 400 from 90 when it took over.
Hilcorp has more pads planned at Milne Point, and the company expects production to reach 40,000 barrels a day by the end of the year, up from some 32,000 in January.
“We feel pretty confident that we can maintain that, and look to grow that over time,” said Rebrook, the president.
Next, the company will turn its attention to Prudhoe Bay. Hilcorp will be working with two other partners in ExxonMobil and ConocoPhillips, which each own a roughly one-third stake in the field.
Those companies will have to agree to pay their share of any of Hilcorp’s proposed projects.
ExxonMobil didn’t respond to a request for comment. In a prepared statement, ConocoPhillips spokeswoman Natalie Lowman said the company is looking forward to working with Hilcorp.
“Hilcorp has a reputation and strong track record in Alaska of reducing operating costs and increasing production in older fields,” Lowman said. “We will be working with Hilcorp, much as we did with BP, to manage the field and develop investment opportunities.
Rebrook, Hilcorp’s president, said Prudhoe bay will take time for the company to study, and he noted that its deal with BP still hasn’t been approved by regulators. But the company does aim to boost the number of drilling rigs working there, he added.
“Our goal is to come in there and extend the field life,” he said. “We obviously think there’s a lot more opportunities to drill and develop.”
