Alaska News

Hilcorp pays $115,000 penalty for drilling violations

Hilcorp has paid a $115,500 civil penalty for the latest in a string of enforcement actions drilling regulators have taken against the company during its brief time as an oil and gas operator in Alaska.

The Alaska Oil and Gas Conservation Commission says Hilcorp has drawn more than a dozen enforcement actions.

The most recent case centers on an oil development well known as Soldotna Creek Unit 44-33. The Soldotna Creek unit is associated with the Hilcorp-operated Swanson River field.

Hilcorp failed to notify the AOGCC of changes to an approved permit to drill. And the company failed to test blowout prevention equipment after it was used to control the well, the commission said.

The agency suggested the company's vigor since arriving in Alaska had been a problem.

"The aggressiveness with which Hilcorp is moving forward with operations appears to be contributing to regulatory compliance issues," said an April 10 decision and order from the commission. "Since Hilcorp commenced rig work in Alaska in April 2012, AOGCC Inspectors have observed rig crews unable to perform required BOPE component tests, rig crews not trained in use of well control equipment, and rigs with missing required equipment. Hilcorp's compliance history from April through December 2012 -- including this enforcement action -- shows 13 separate enforcement actions of varying severity since April 2012."

The order continued: "Many of these actions were due to a failure to understand regulatory requirements. Strong evidence indicates that Hilcorp has not adequately prepared its personnel for operations in compliance with AOGCC regulatory requirements. Left unaddressed and uncorrected these and similar violations will be repeated."


All three commissioners -- John Norman, Dan Seamount and Cathy Foerster, the chair -- signed the four-page order.

Hilcorp spokeswoman Lori Nelson on June 11 told Petroleum News the company had asked the AOGCC for reconsideration but the request was declined.

The company has paid the $115,500 penalty, she said. The agency confirmed it.

Nelson provided a general statement on the commission's order, particularly the part about Hilcorp's aggressive approach:

"Hilcorp acknowledges AOGCC's decision and has taken the appropriate actions to address the issues in this matter. We continue to maintain an open and collaborative relationship with the AOGCC and all other regulatory agencies.

"Hilcorp's investment in Alaska's resources has certainly brought an increased level of activity to Cook Inlet, but we believe we're on the right path forward and remain committed to operating safely and responsibly."

Hilcorp is headquartered in Houston. Founded in 1989, Hilcorp describes itself as one of the nation's largest privately held independent exploration and production companies with more than 1,000 employees.

The company operates locally as Hilcorp Alaska LLC and has quickly become the dominant player in Cook Inlet.

Hilcorp made its Alaska entry in July 2011, when Chevron announced Hilcorp would buy its Cook Inlet assets, including interests in several oil and gas fields, 10 offshore platforms, pipelines and the Drift River oil tanker terminal.

In January, Hilcorp completed a deal to buy Marathon's Cook Inlet properties.

The AOGCC said the number of prior violations, the need for deterrence, and the need to "trigger a substantial change in Hilcorp's approach toward regulatory compliance" factored into its decision to penalize the company.

Soldotna Creek Unit 44-33 was actually a sidetrack from a suspended Swanson River well, the April 10 order said.

Hilcorp was granted approval to drill the sidetrack on Oct. 3, 2012, and drilling commenced eight days later using Doyon Rig 1, also known as the Doyon Arctic Fox.

The drilling encountered an overpressured zone, which required the closure of the upper pipe rams to control the flow of formation fluids, the order said. Hilcorp provided notice to the AOGCC of its use of the blowout prevention equipment.

"Receipt of Hilcorp's notice initiated a review of the approved drilling permit and a request for additional information, including daily drilling reports," the order said. "In response, Hilcorp revealed that the SCU 44-33 sidetrack was started at a depth approximately 500 feet shallower than approved and the drilling mud weight was not increased prior to commencing sidetrack drilling operations as required. Hilcorp drilling reports also indicate that the drilling assembly was tripped to surface on October 13, 2012 after BOPE was used to control SCU 44-33 and re-run in the well on October 14, 2012 without testing the used BOPE components."

Regulations state that "if any BOP equipment components have been used for well control ... the components used must be function pressure-tested before the next wellbore entry."

The order said Hilcorp's failure to comply was the result of either a lack of attention to regulations, or a lack of understanding of "clearly worded expectations."


During an informal review, Hilcorp explained it didn't think its changes to the approved permit were significant enough to warrant notification to the AOGCC, the order said.

"No explanation was offered for failure to test BOPE as required," the commission said.

The AOGCC said it considered mitigating factors in taking its enforcement action.

Hilcorp did not act in a "willful or knowing manner," there was no injury to the public, the company didn't derive "tangible benefits" from the violations, and Hilcorp stated its commitment to correct regulatory deficiencies, the order said.

The commission added that since issuing a notice of proposed enforcement action against Hilcorp, the company has performed mandatory bi-weekly BOPE tests "in an acceptable manner."

The commission's order said Hilcorp had accepted responsibility for the violations and was making changes.

The bulk of the $115,500 civil penalty, or $75,000, was for "the initial violation -- failure to increase the drilling fluid weight prior to milling the casing window" as required in the permit to drill.

The penalty also included $7,500 for each day, Oct. 14 through Oct. 17, 2012, that the blowout prevention equipment went untested after use.


The commission also ordered Hilcorp to take a number of corrective actions. It gave the company two weeks to provide a complete root cause analysis of the violations and to submit "a detailed written description of its regulatory compliance program."


Petroleum News

Wesley Loy

Wesley Loy is a former reporter for the Anchorage Daily News.