State regulators fine Hilcorp for more well work violations

State oil and gas regulators hit Hilcorp Energy with two more fines totaling $64,000 to end 2021 for violating well work rules at a pair of its Cook Inlet fields.

The fine orders were issued back-to-back by the Alaska Oil and Gas Conservation Commission Dec. 29 for not meeting the conditions of a drilling permit while drilling a well into the Swanson River field in September and failing to test blowout prevention equipment during a well workover conducted in May at the North Cook Inlet gas field.

The fines of $39,000 for the Swanson River and $25,000 for the North Cook Inlet violations followed a $10,000 fine imposed on the Houston-based producer by the AOGCC on Nov. 30 for a defeated well safety valve system discovered in September by an agency inspector at the large Prudhoe Bay North Slope oilfield.

At Swanson River, Hilcorp workers conducted integrity tests of the casing and shoe of a just-drilled well on consecutive days without giving AOGCC inspectors a chance to witness the tests. Workers then proceeded with additional drilling without also providing the agency with data from the foundation integrity test until AOGCC officials requested it more than a week after the test was conducted, according to the order by the commission.

The AOGCC, led by a panel of three commissioners, regulates the highly technical subsurface aspects of the oil and gas industry.

The Swanson River order states that “Hilcorp’s lack of good faith in its attempts to comply with the clearly stated conditions of the (permit to drill), the potential seriousness of the violation, track record of regulatory non-compliance and need to deter similar behavior in future operations” were weighed against the company in determining the penalty. Conversely, the fact that Hilcorp gained little from the violation and it caused no human injuries or harm to the environment were mitigating circumstances for the three-member commission.

The North Cook Inlet order states that work continued for five days on a well without testing the blowout prevention equipment after activity that could have compromised the blowout preventer’s ability to seal the well bore if a well control incident occurred. The commissioner’s wrote in this case that the regulations for testing blowout equipment are clear and the benefits Hilcorp realized from the violation as well as the potential seriousness of the violation factored into their decision to levy an initial $20,000 fine with an added assessment of $1,000 for each of the five days work went on after the test should have occurred.

AOGCC commissioners generally have wide latitude to issue fines against operating companies. State law allows the commission to levy fines of up to $100,000 for an initial violation and up to $10,000 for each day a violation continues.

AOGCC chair Jeremy Price said in response to questions about Hilcorp’s recent violations that agency officials are concerned with the company’s ongoing compliance issues.

“Small mistakes can lead to big mistakes so we take this seriously,” Price said, adding the company appears to have taken good-faith steps to prevent repeat issues.

The commission issued five enforcement orders with fines in 2021; three of them were issued to Hilcorp.

Hilcorp Alaska spokesman Luke Miller wrote in an emailed response to questions about the orders that the company has taken steps to improve its internal controls as the company has grown in the state and company officials will continue to work with the AOGCC to maintain safe and compliant operations.

“Hilcorp takes seriously AOGCC’s recent orders and is taking proactive measures to ensure similar incidents do not happen in the future, including better contractor management, revising procedures, and dedicating additional resources focused on well integrity,” Miller wrote.

Hilcorp entered Alaska in 2012 with the purchase of several mature Cook Inlet fields and has since grown to become the predominant natural gas supplier to Southcentral utilities as well as the operator of the iconic Prudhoe Bay oilfield on the North Slope. Hilcorp currently has more than 1,400 employees in the state.

The company did not dispute the agency’s findings and informed AOGCC officials in late November that the North Cook Inlet situation had been broached with all of Hilcorp Alaska’s operating and drilling engineers. The situation is also being highlighted in pre-work meetings with all of the company’s drilling rig crews, according to the order.

Hilcorp also AOGCC officials that it would pay what was then a proposed $39,000 fine for the Swanson River drilling permit issues and would advise company personnel on the importance of adhering to permit requirements; hold daily discussions about upcoming steps in drilling work; and clarify the differences in processes between North Slope and Cook Inlet drilling permits to engineering staff, according to that order.

Elwood Brehmer can be reached at [email protected].

01/05/2022 - 8:57am