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Vol. 14, No. 21 Week of May 24, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Nikaitchuq oil in 2010

Missed sealift last year led to delays; company expects modules next year

Eric Lidji

Petroleum News

Eni US Operating Co. Inc. expects to start producing oil from an offshore North Slope unit in December 2010, according to new information from the Alaska Division of Oil and Gas.

Earlier this year the local subsidiary of Italian oil major Eni delayed development work at the Nikaitchuq unit, citing the fall in world oil prices and the weak economy. The company originally planned to start producing oil from the unit by the end of 2009, but a top state oil official said Eni would instead delay development by six months to a year.

In mid-March, Eni asked the state for more time to develop Nikaitchuq. The state approved that request on May 13, extending the terms of the unit agreement by almost two additional years, to April 1, 2011, from the current expiration date of April 30, 2009.

In its decision, the state said Eni decided to delay development not only because of the weakened economy and the drop in oil prices — which fell from a high of nearly $150 a barrel last summer to current levels around $50 a barrel — but also because the company missed the window to barge “processing and operations modules” to the North Slope.

Eni was building those facilities in Louisiana, not Alaska, and according to the state, Hurricane Ike caused a “work stoppage” at the Louisiana fabrication yard where the construction was taking place last September. Because of the seasonal restrictions, companies have a brief window each summer to sealift material to the North Slope.

2010 sealift for modules

According to the state, Eni now plans to “fully complete the production modules in Louisiana with a sealift date of 2010,” and will finish drilling early production wells once those modules have been installed. Eni already drilled one production well at the unit.

Eni is developing Nikaitchuq with both onshore and offshore facilities, drilling up to 26 wells from Oliktok Point, and more than 50 additional wells from an offshore site near Spy Island. The company plans to connect the two sites with an underwater pipeline.

The facilities will be the first on the slope not owned by BP, ConocoPhillips or Exxon.

The missed sealift helps reconcile a contradiction surrounding the delays.

Reports suggested low oil prices played a large role in the decision to delay development, but the state planned for that contingency by modifying its royalty structure on several leases at Nikaitchuq. The change allowed Eni to pay lower royalty rates to the state if Alaska North Slope crude oil fell below an inflation-adjusted price of $42.54 per barrel.

ADL 391283 gets reprieve

The state also agreed to extend the deadline for including one lease in the unit — ADL 391283 — in a participating area by one year, to Oct. 5, 2010, from Oct. 5, 2009.

The acreage contained in the lease was originally part of the Kuparuk River unit, added through expansions in the mid to late 1980s. But the Kuparuk River unit owners farmed out some of the acreage to Eni in 2007, and the state called the new lease ADL 391283.

The addition of ADL 391283 to Nikaitchuq came as part of a 2007 state decision to expand the Nikaitchuq unit to include the leases of the neighboring Tuvaaq unit.

The Nikaitchuq unit covers some 33,870 acres spread across 18 state oil and gas leases.



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