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Agency fines Hilcorp Alaska, says company disregards Alaska oil field regulations

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published May 5, 2016

In a strongly worded decision that accused Hilcorp Alaska of an "endemic" disregard for Alaska regulations, a state agency has fined the oil and gas producer $20,000 after it used a blowout preventer to control a well at a North Slope field last year.

The Alaska Oil and Gas Conservation Commission also accused the company of "misleading" the agency.

The blowout preventer was used to shut down a well at Milne Point early last year. No one was hurt and no oil or well fluid spilled. But in an order dated Tuesday, the agency fined the company for failing to test the blowout preventer after it was used and before well work resumed.

Blowout preventers are designed to seal an uncontrolled well to prevent a dangerous release of liquids or gas that could injure workers and lead to a spill.

In a meeting held in February with the commission, Hilcorp had challenged the allegations. The agency, in its decision, agreed to eliminate one of two civil charges and to reduce the fine from $40,000.

In its order, the agency acknowledged that Hilcorp had "initiated contact" with the commission about the use of the blowout preventer. That notification led the agency to drop its allegation that Hilcorp had not notified the agency that the blowout preventer had been used.

But the agency also said that the notification, included in an email sent on May 2, 2015, had "misleading" and "incomplete" information.

The company had claimed that the use of the equipment was part of a planned operation. But emails sent internally in the company show that it was an unexpected event, according to the order, signed by the agency's two commissioners Daniel Seamount and chair Cathy Foerster.

The order restates accusations made by AOGCC in warnings sent to Hilcorp last fall, saying the company has demonstrated a "disregard for regulatory compliance" that is "endemic" to its Alaska operations.

Hilcorp has called that language "inflammatory" and "harsh," and claimed that "virtually all" its operations follow the rules, the order notes.

But the commission's decision shoots back with a three-page list of 25 "noncompliance" incidents involving Hilcorp Alaska dating back to 2012, including a violation that led to a $115,000 fine in 2013 when the company failed to test a test a blowout preventer after its use in well-control operations at a Cook Inlet field.

"The noncompliance history even triggered at least one unprecedented meeting with Hilcorp field operations staff at their Kenai field office (in 2013) to emphasize AOGCC's concerns and elaborate on AOGCC expectations for regulatory compliance," the Tuesday order said.

Privately owned Hilcorp Alaska was founded in 1989 by Jeffery Hildebrand, a billionaire from Texas.

Hildebrand did not return a call to his office in Houston on Wednesday.

Hilcorp has made much of its money in shale fields in the Lower 48, but a large chunk of the company's oil and gas portfolio is based in Alaska, where Hilcorp has expanded rapidly since arriving in 2011.

It is the dominant oil and gas company in Cook Inlet, producing 30,000 barrels of oil daily there and at properties on the North Slope it acquired last year from BP. The North Slope properties include partial ownership at Milne Point.

Lori Nelson, manager of external affairs at Hilcorp Alaska, said in a statement that the company is cooperating with the state agency and is "doing everything we can to ensure that our ongoing and future activity is executed responsibly."

Milne Point is the same field where the agency, in a separate proposed enforcement action in November, said three workers were temporarily knocked unconscious after nitrogen replaced oxygen in the trailer where they working.

The incident, in September 2015, was part of an improper and unauthorized operation, when workers pumped nitrogen gas into a well during a cleanout, the agency said.

The agency had proposed a $720,000 for alleged violations relating to that incident, but it was unclear on Wednesday whether that case is still open.

Commission officials could not be reached for comment on Wednesday.

Regarding the violation involving the blowout preventer used at Milne Point, Hilcorp Alaska in February argued that the manager of the drilling rig Nordic Rig 3 had provided proper notice about the blowout preventer's use, after sending an email to agency staff.

The company has also asserted that the use of the blowout preventer was planned, and that the blowout preventer was not used to control the well, so it did not need to be re-tested.

Hilcorp claims it asked agency staff if it needed to create a report about the use of the blowout preventer, and was told it did not need to do so.

But the agency realized after reviewing internal company emails that Hilcorp did not initially provide critical information that it was aware of, and that showed that the event was unexpected.

"All of the information Hilcorp failed to provide was critical to AOGCC's determination of whether a report was required," the agency said. "Because that information points to a well control event instead of a planned activity, Hilcorp would have been required to report its use of the (blowout preventer equipment) had it provided the missing information."

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