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Vol. 12, No. 46 Week of November 18, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

THE EXPLORERS 2007: Eni moving forward with Nikaitchuq

Beaufort Sea project sanction expected by end of 2007, first oil 2009; Maggiore, Rock Flour undergoing evaluation

Kay Cashman

Petroleum News

The signs are good that Eni will move forward with development of its Nikaitchuq unit offshore Alaska’s North Slope in 2008.

On Oct. 5, 2007, the Houston-based affiliate of Italy’s Eni SpA received State of Alaska approval on its application to expand the Nikaitchuq unit, more than doubling its size from 12,968 to 33,870 acres.

On Oct. 16, Eni took another step closer to development when it applied for state royalty modification on Schrader Bluff and Sag River production for 12 leases in the expanded 18-lease unit, which lies north of the Kuparuk River unit in the shallow waters of the Beaufort Sea.

On Oct. 26, Kelly Woomer, human resource manager for Eni US Operating Co. Inc. out of Houston, confirmed that company officials recently told state Division of Oil and Gas officials that Eni expects to sanction the project “by year-end.”

If sanctioned, Nikaitchuq will likely be in production by 2009, Eni said in recent paperwork filed with the division.

Acting Division Director Kevin Banks told Petroleum News Oct. 12 that unit expansion was a “good sign” that Eni will move into development of Nikaitchuq. “It looks like things are moving ahead,” he said.

First production facilities

Eni plans to build Nikaitchuq’s processing facility at Oliktok Point.

If the Nikaitchuq unit were still operated by one of its first three owners — independents Armstrong Alaska, Kerr-McGee or Anadarko Petroleum — then Nikaitchuq would earn the distinction of being northern Alaska’s second independent-operated oil field and its first oil field with an independent-operated processing facility. (Nearby Oooguruk is operated by independent Pioneer Natural Resources, and due to go into production in 2008. But ConocoPhillips will process Oooguruk oil at its Kuparuk River unit facilities.)

Nikaitchuq will not earn the distinction of having northern Alaska’s first independent-operated processing facility because in 2006, a mega-major, Eni, became its majority owner and operator.

About a year after Eni acquired Armstrong’s assets — including a minority position in Nikaitchuq — the Italian major acquired Anadarko’s majority position in the Nikaitchuq and Tuvaaq area leases. Anadarko had just acquired Kerr-McGee, which bought its majority interest in Nikaitchuq from Armstrong, just before drilling the Nikaitchuq discovery well.

So, if Eni does sanction Nikaitchuq development, it will gain the distinction of being the only major oil company that does not own a piece of the trans-Alaska pipeline system to operate both an oil field and production facilities in northern Alaska. Majors BP, ConocoPhillips and ExxonMobil own the biggest slice of all existing processing facilities on and offshore Alaska’s North Slope; each has an affiliate that owns a large chunk of the trans-Alaska oil pipeline that stretches from Prudhoe Bay to Valdez.

Tuvaaq, Kigun leases in expansion

The unit expansion added 10 leases to Nikaitchuq’s existing eight leases, seven of which composed the Tuvaaq unit and three additional leases, ADL 390615, 390616 and segment 2 of ADL 355024.

ADL 355024 was committed, in part, to the Kuparuk River unit in 1985 and in 1988 was committed in its entirety to the KRU in that unit’s third expansion. There are two aerially differentiated segments of this lease, the division said, and the southern portion of the lease was not part of Eni’s application.

Kuparuk working interest owners previously agreed to a farmout of segment 2 to Eni as 100 percent working interest owner. Segment 2 is commonly referred to as the Kigun portion of the lease. It received a new ADL, 391283, was contracted from Kuparuk and committed to the expanded Nikaitchuq unit.

As a result of assignments of working and royalty interest shares, Eni holds 100 percent of the interest in each lease in the expanded Nikaitchuq unit.

Schrader Bluff, Sag River

There are two different formations at Nikaitchuq, heavy oil at the shallower Schrader Bluff formation and light oil at the deeper Sag River.

The division said in its decision that “potentially commercially recoverable reserves” have been tested in both the Cretaceous Schrader Bluff and the Triassic Sag River formations.

Kerr McGee drilled six wells in the Nikaitchuq and Tuvaaq units between 2004 and 2005. Three of the six tested oil from the Schrader Bluff or Sag River formations; Kerr McGee drilled two additional Schrader Bluff wells in 2006.

The Nikaitchuq No. 4, the Tuvaaq No. 1 and the Kigun No. 1 all penetrated the Schrader Bluff formation, the division said. Only the first was tested: using an electric submersible pump to aid in production of the 16-17 degree API crude, the well tested at rates of up to 1,200 barrels per day.

The Nikaitchuq Nos. 1 and 2 encountered both Schrader Bluff and Sag River formations. The Nikaitchuq No. 3 had some 1,834 feet of net pay in the Sag River sandstone in a 3,000-foot horizontal section.

The No. 1 production tested at more than 960 bpd of 38-degree API crude in the Sag River and the No. 3 tested, with a pump, a range of 1,327 bpd to 760 bpd, of 32-degree API oil. The No. 2 was not tested.

Eni drilled two additional wells from Oliktok Point in the 2006-07 winter season.

Horizontal wells planned

The division noted that Eni has stated its intention to develop the Nikaitchuq Schrader Bluff formation with horizontal wells, and said there are some five years of Schrader Bluff well performance from initial completions at the Milne Point and Kuparuk River units. Eni “appears to assume” its development at Nikaitchuq will improve on previous Milne Point and Kuparuk River Schrader Bluff completions “by using the latest technology — horizontal and multilateral completions,” the division said.

Sag River has been developed on a standalone basis at Milne Point and those “wells consistently show initial flush production followed by steep decline within the first year to less than 50 percent of the initial rate” the division said. Tests done by Kerr McGee “showed similar initial production rates and comparable if not more pronounced decline,” the division said, adding that stimulation and innovative enhanced oil recovery techniques might improve recovery from the Sag River at Nikaitchuq.

Future exploration possible

Eni said in its exploration plan that it conducted an “on-ice seismic experiment” in the vicinity of Nikaitchuq with Shell Offshore “at a cost of several million dollars.” The results of the experiment “may result in substantial benefit to the Nikaitchuq unit and other state offshore leases in shallow waters by allowing parties to acquire seismic data on such leases during the winter season in a manner that should have greater stakeholder acceptance.”

Following the expected submittal of a plan of development to Eni’s management for project sanction prior to the end of 2007, Eni said it would approach the state soon after sanction for approval of the plan of development and one or more participating areas.

Eni said the schedule is to use results of the on-ice seismic to develop a plan by July 2008 for “potential 3-D seismic acquisition covering parts of the expanded” unit with approximately 74 square miles of 3-D seismic to be acquired by September 2010.

Eni also said it would closely monitor improvements in drilling technology over the next few years “to determine if additional areas can be reached for development from then existing facilities.”

Newly acquired seismic would be used — along with prior seismic and drilling information — to develop future exploration plans by October 2011.

Development benchmarks

The Nikaitchuq development includes construction of a gravel pad with drilling, gathering and production facilities on Oliktok Point near the ConocoPhillips seawater treatment plant; construction of a gravel drilling island near Spy Island tied back via a 3.8-mile subsea flow line and utility bundle to Oliktok Point for fluid processing; construction of an approximately 14-mile pipeline from Oliktok Point to a tie-in near Kuparuk drill site 1Y for connection to the Kuparuk Transportation common carrier pipeline; and future modifications as required to accommodate actual results of well performance.

Initial drilling would be from a 313,000-square foot pad at Oliktok Point. The small gravel island would be constructed shoreward of the barrier islands for future drilling.

Because Nikaitchuq has a “producible resource” that has been delineated, the division proposed — and Eni agreed — to a series of development benchmarks.

The division said in its Oct. 5 decision that requiring formation of a participating area by 2009 commits Eni to development of the expansion leases.

On Oct. 5, 2009, any portion of ADL 391283 not committed to a participating area would be segregated and the portion not committed would automatically contract from the unit unless that area is covered in an approved plan of exploration or plan of development.

Other leases would contract out of the unit on Oct. 5, 2011, and Oct. 5, 2012, unless committed to a participating area covered by an approved plan of exploration or plan of development.



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Eni’s other Alaska exploration hot spots

Eni picked up its first Alaska leases — some 273,000 net acres — from Armstrong Alaska in late August 2005, and shortly thereafter opened an Anchorage office and hired Chester (Chet) Paris to manage its Alaska operations.

Strong interest in Beaufort

Eni said it acquired leases in Alaska after conducting an internal evaluation and regional studies that showed the North Slope and adjacent Beaufort Sea as areas with exploration potential for new oil and gas finds. It said its emphasis in Alaska would be of consistent growth, and that it was particularly interested in the Beaufort and Chukchi seas.

By late 2006, Eni’s net acreage in northern Alaska had grown to 400,000 acres.

In November of that year, Eni announced it had reached an agreement with Shell to “exchange working interest” in 64 Eni and Shell leases offshore northern Alaska and “begin joint exploration activities” on the leases with Shell as the operator. The leases are in the federal waters of the Beaufort north of the Oooguruk, Kuparuk, Nikaitchuq, Northstar and Kuparuk units extending east to mid-way above the Prudhoe Bay unit.

Exploration activity included 3-D seismic acquisition and drilling a well by 2010, Eni said.

If exploration is successful Eni will have the option of taking over operatorship of the joint acreage, an Eni executive told Petroleum News.

The 64 blocks at the time were 60 percent owned by Eni and 40 percent owned by Shell.

In September 2007, Spanish oil major Repsol TYP joined the partnership, buying a 20 percent interest in the 64 blocks from Eni.

Shell’s spokesman in Alaska, Curtis Smith, told Petroleum News the “objective of the partnership is to acquire 3-D seismic with a view toward identifying future drill sites.”

In its press release Repsol said “exploration activities” could start in 2009-10.

Evaluating Rock Flour, Maggiore

Shortly after entering Alaska in 2005, Eni applied to form the Rock Flour unit which, when approved at the end of that year, would include five, 100 percent Eni leases purchased from Armstrong.

The Rock Flour unit is along the southeast corner of the Kuparuk River unit just a few miles west of the Prudhoe Bay unit.

In March 2006, Eni acquired more onshore North Slope acreage, bidding $5.62 million at a state areawide lease sale for a block of 11 tracts southeast of Kuparuk and southwest of the Prudhoe Bay unit in an area near Rock Flour.

A state official at the sale said Eni was obviously consolidating its central North Slope lease position where the company appeared to be targeting Brookian plays — the lower Cretaceous unconformity at the base of the Brookian sequence lies at a depth of around 10,000 feet in the area of the Eni leases.

The nearby State Pipeline No. 1 well revealed some interesting Brookian Cretaceous sands, state geologist Paul Decker said at the time.

In the winter of 2006-07, Eni drilled two Rock Flour wells and another well at a prospect a few miles south called Maggiore.

In October 2007, Kelly Woomer, human resource manager for Eni US Operating Co. Inc., told Petroleum News that, “the company is undergoing post well analysis and evaluation of the (Rock Flour and Maggiore) area for future plans.”

According to Rock Flour’s unit plan of exploration it does not have to drill another well at Rock Flour until the winter of 2008-09. Since the Maggiore operations were conducted under a lease plan, another well is not required to hold the leases in that prospect.