When Eni Petroleum was deciding whether to sanction the Nikaitchuq unit, in 2007, the state of Alaska agreed to reduce the royalty rate during periods of low oil prices. That relief helped convince the Italian major to pursue the offshore North Slope project, which surpassed 30 million barrels of cumulative oil production earlier this year.
The basic trigger price for the reduction was $42.64 per barrel, which seemed hard to imagine at the time. The average spot price of Alaska North Slope crude oil was about $85 per barrel in late 2007, on its way to a record high of more than $140 per barrel.
Over the past two years, oil prices have sometimes hovered just above the trigger for royalty relief and sometimes fallen far below it. Even with the occasional assistance, Eni suspended drilling at the unit and reduced its workforce by 10 percent in 2015 “due to the current oil price environment” and kept its rigs idle for most of 2016. The company is planning to resume its drilling operations in early 2017, “with hopes of a more favorable oil prices environment,” the company told state officials in a recent plan of development. As described to the state, the 2017 program would include six wells from the Spy Island drill site: one producer (SP03-FN9), two injectors (SI02-SE5 and SI06-FN8) and four laterals (SP33-W3L1, SP30-W1L1, SP16- FN3L1 and SP27-N1L1) added to existing wells. A future phase of the project could convert as many as eight wells to multilaterals.
According to Alaska Oil and Gas Conservation Commission records, Eni drilled 13 wells at Nikaitchuq in 2014, 10 wells at the unit in 2015 and none in 2016 through September.
Even with the decline in drilling, production remains strong. At the start of 2014, the Nikaitchuq unit had produced some 9.8 million barrels. By the start of 2015, production was up 8.3 million barrels to 18.1 million. By the start of this year, production was up 8.9 million barrels to 27 million. In the first six months of 2016, the unit produced 4.5 million barrels. If the unit keeps pace in the second half, production will rise over 2015.
ExpansionsThe suspension came as the Nikaitchuq unit was beginning a transition. Eni is nearly finished with its initial drilling program and has been studying ways to improve or increase production rates through geographic expansion and more efficient well design.
Eni has been developing Nikaitchuq from two pads - the onshore Oliktok Point pad and the offshore Spy Island drill site. The company completed its initial drilling program at Oliktok Point in October 2012 and began a continuous drilling program from Spy Island in November 2012 using Doyon rig 15. The Spy Island program continued until the company suspended drilling operations in December 2015, due to low oil prices.
When the company resumes development, one of its tasks will be to finally complete the initial Spy Island program and formally wrap up its initial development work at the unit.
Between late 2012 and late 2015, though, Eni also started some new ventures.
Starting in mid-2013, Eni began adding laterals to existing wells. The campaign lasted through May 2014 and added eight laterals to select existing Oliktok Point pad wells. The laterals increased the amount of drainage from the OA sands and included “alternating undulations through the OA1 and OA3 sand layers as compared to the original laterals.”
And in early 2013, Eni drilled the first multilateral well at Nikaitchuq. The SP22-FN1 from the Spy Island drill site had four laterals with lengths between 1,600 and 2,000 feet.
Starting in the third quarter of 2013, Eni began incorporating a second lateral into all new production wells being drilled from the Spy Island drill site, which yielded five dual lateral wells by the time the company suspended drilling operations at the end of 2015.
While those efforts sought to improve production at existing wells, Eni was also attempting to increase production by expanding into under-developed corners of the unit.
In the third quarter of 2014, Eni launched the West Extension Project to target a specific area west of the Spy Island drill site. The company drilled two dual lateral producers and two single lateral injectors before completing the extension project in 2015. The company launched the East Extension Project in the third quarter of 2015, but only completed one dual lateral producer before suspending development activities a few months later. The remainder of that East Extension Project remains on the docket for the 2017 program.
And earlier this year, federal officials confirmed that Eni was evaluating a North Nikaitchuq project, which would use extended-reach exploration wells to target leases in the federal outer continental shelf, north of the state-owned leases at Nikaitchuq. The company is the owner or partial owner of 29 leases in the outer continental shelf in the areas, and those leases are set to expire at dates between July and December 2017.
Other formationsWhile those three projects would expand development aerially, or already have, Eni has also been considering a project that would add more intervals and formations to the unit.
Eni sanctioned Nikaitchuq based entirely on the potential of the Schrader Bluff OA sands but early on the company saw an opportunity to develop the shallower N sands. After preliminary studies suggested between 40 million and 100 million barrels of “contingent resources” in the N sands, Eni launched an appraisal program. The company drilled a pilot well in 2013 and hopes to return this year to test a new completion technique.
In previous years, Eni also floated the possibility of developing the Sag River formation at the unit. Sag River oil is deeper and generally lighter than Schrader Bluff oil, but the formation is “plagued with poor quality reservoir rock” and would be “marginal at best unless there are significant advances in stimulation or enhanced oil recovery technology,” according to the company. In a July 2014 plan of development, Eni said it intended to submit a proposal for a Sag River development to upper management within 18 months. But the company left the Sag River out of its 2015 and 2016 plans for development.