State of Alaska cuts Nikaitchuq royalty

In its final finding and determination on the matter, the state Department of Natural Resources modified the royalty requirements of 11 leases in the Nikaitchuq Unit, as of Jan. 11.

The decision follows a 30-day comment period that failed to draw any response.

Eni US Operating Co. Inc., as operator of the Nikaitchuq Unit, requested the modification back in October, asking for the state to reduce the royalty rate on 12 of the 18 leases in the unit.

Calling the economics of the offshore project “marginal” under the existing royalty structure, Eni asked for minimum allowable royalty, 5 percent. The company got its wish on all but one lease.

The state maintained the 12.5 percent royalty and 30 percent net profit share on ADL 391283.

Previously, the royalty rate on the 11 other leases had been 16 and two-thirds percent.

The 5 percent royalty goes into effect during periods of lower oil prices, when ANS crude oil delivery prices drop past a federal threshold for modifying royalties on deepwater oil leases in the Gulf of Mexico.

That threshold starts at $42.64, according to DNR estimates, and will be adjusted annually for inflation.

The 5 percent royalty will be adjusted annually, up to the original 16 and two-thirds percent, based on the price of oil, except when the monthly production on the leases falls below 4,000 barrels of oil per day at any point during the next decade.

The royalty modification will remain in effect for 25 years following sustained production on the leases.

As part of the ruling, Eni is required to sanction the project by Feb. 28 and after sanctioning the project, must notify the state within 30 days.

Eni officials did not return a call for comment on when the company plans to sanction the project, but Eni recently requested 400,000 cubic yards of gravel from a North Slope mine site near the Nikaitchuq Unit.

The ruling also requires Eni to spend $822 million in the first six years of the project and $1.398 billion in the first 11 years of the project.

—Eric Lidji