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Arctic Drilling Dead? This Company Hopes To Prove That Wrong

Hilcorp Energy Co., known for its innovative ways to extract oil, has decided that there’s more than one way to tap the resources beneath the Arctic Ocean’s Beaufort Sea.

So far efforts to get at offshore Alaskan oil have ended in failure, most prominently for Royal Dutch Shell, the Anglo-Dutch energy giant that twice has been forced to abandon exploration efforts. In 2012, in the Gulf of Alaska south of the state, Shell’s rig was run aground by a winter storm.

Shell’s second effort earlier this year was in the Beaufort’s neighboring Chukchi Sea. Not only were the company’s plans targeted by environmental activists in the United States and Britain, its vessels were beset by protesters as they moved north in the Pacific Ocean towards their destination. Shell drilled an exploratory well, found it disappointing, and abandoned its Arctic efforts “for the foreseeable future.”

The failed effort had cost Shell more than $7 billion, and gained it nothing. It wasn’t surprising, then, that many observers concluded that Arctic drilling was dead.

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But enter Hilcorp, the company with an eccentric streak that recently made headlines by giving each of its nearly 1,400 employees a $100,000 year-end bonus for their roles, no matter how small, in helping the Houston-based company double its energy output in the past five years despite the low cost of oil.

Hilcorp’s eccentricity isn’t limited to the generosity of its founder, owner and CEO, Jeffrey Hildebrand. He’s also known for seeing profit in energy fields that his competitors believe are played out, especially in Alaska.

Hilcorp Alaska LLC, a Hilcorp subsidiary, wants to build a 23-acre island out of gravel as a stable platform for at least five wells six miles off Alaska’s north coast in Foggy Island Bay, about 15 miles east of Prudhoe Bay, the northern terminus of the Trans-Alaska Pipeline System.

The U.S. Bureau of Ocean Energy Management (BOEM) is now assessing the potential environmental impact of Hilcorp’s Liberty Reservoir project, as it is called. And if the plan is approved and drilling is productive, it would mean the first successful effort to extract oil in U.S. federal Arctic waters.

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Hilcorp says its proposed Liberty Island is comparable to four other man-made islands in the neighborhood, including Endicott Island, which, along with BP, it uses for oil production. It will include facilities for all aspects of drilling and supporting staff based there. It will be connected to Alaska’s mainland via a subsea pipeline.

The site was originally owned by BP Exploration Alaska, which in 1997 discovered an estimated 120 million barrels of recoverable oil there. At the time, the British oil major considered building its own artificial island there to extract the oil using “ultra-extended reach drilling,” but decided that option wasn’t technically feasible, according to Hilcorp spookeswoman Lori Nelson.

In 2014, Hilcorp bought up 50 percent of the oil lease from BP and will use conventional oil wells that will drill vertically from Liberty Island into the oilfield. “It’s proven to be a safe and effective means for oil and gas development in the Arctic,” Nelson told The Associated Press by email.

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Drilling advocates, including Alaska’s political leaders, are welcoming the Hilcorp project. After Shell’s failure, “the importance of Liberty Reservoir project has only increased,” Gov. Bill Walker said in an Oct. letter to the BOEM supporting the plan.

Environmentalists have condemned Hilcorp’s plans. Kristen Monsell, a lawyer for the Tucson, Ariz.-based Center for Biological Diversity, said producing even more oil would only add to the global climate change that already is destroying the habitat of Alaskan wildlife. “The impacts of an oil spill on top of that could be devastating and would be nearly impossible to clean up,” she said.

So far, though, it’s not clear whether Hilcorp will face the kind of resistance that beset Shell.

By Andy Tully of Oilprice.com

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