Explorers Preview: Fate of Eni’s Nikaitchuq North uncertain

Company misses initial deadline for spudding follow up well in Arctic OCS; has been working to increase production from Nikaitchuq

Eric Lidji

for Petroleum News

Eni US Operating Co. Inc. designed its facilities at the Nikaitchuq unit to handle 40,000 barrels per day. With some tinkering, they could be expanded to 50,000 barrels per day.

But right now, after 11 years of productive life, the offshore unit in the coastal waters of the Beaufort Sea north of Oliktok Point is averaging some 17,000 barrels of oil per day.

To fill the gap between production and capacity, the local arm of the Italian major has been pursuing a range of projects in recent years. It has added multilaterals to existing wells, improved well design, repaired and maintained wells, and tested new sands.

Throughout, the company has also been pursuing expansion projects, including two projects to step out development to the east and the west, within its unit boundaries. But its most ambitious project involves a block of leases to the north, beyond the unit.

The multiyear Nikaitchuq North exploration program is targeting an unidentified seismic anomaly in federal waters of the Outer Continental Shelf, north of the existing state managed Nikaitchuq unit. The company drilled an initial well in the 13-lease Harrison Bay Block 6423 Unit in 2018 and 2019 and initially planned to return to the area to drill a follow-up well this winter. The company had not drilled the well by early April 2022.

Aside from drilling locations, and other details included in permitting documents, the company has kept many of the details of the program private for now. But in a presentation to the Alaska Resource Development Council in 2017, Eni suggested that the Nikaitchuq North project could “double recoverable reserves and replace decline.”

Eni SpA is one of the largest oil companies in the world. It employs some 33,000 people in more than 70 countries and produces nearly 2 million barrels of oil equivalent daily.

Alaska represents a small percentage of that global operation, but it has become a stable and predictable source of production and revenue for the company over the past decade.

Eni actually began its life in Alaska in the 1960s, when an earlier subsidiary conducted activities in Cook Inlet. Its current tenure dates to the mid-2000s when the company acquired onshore exploration acreage in the central North Slope and then partnered with Armstrong Resources to pursue promising nearshore acreage off the North Slope coast.

Eni began developing the Nikaitchuq unit in 2008 and brought the unit online in January 2011. To date, the company has spent more than $2 billion developing the unit. The development includes an onshore facility at Oliktok Point and an offshore facility at Spy Island, as well as independent processing facilities and a sizable drilling program.

The Nikaitchuq North project emerged during a transitional period at the unit.

Eni suspended development drilling at Nikaitchuq in May 2015 during a downturn in oil prices. The decision came as the company was considering its options for expansion.

After completing its initial drilling program for the Oliktok Point Pad in October 2012, Eni shifted to a campaign to projects that would extend field life. It sidetracked existing wells in 2013 and 2014 and appraised an undeveloped nearby N sand target in 2014.

Continuous drilling began at the Spy Island drill site in November 2012. The company expanded the program in early 2013 with its first multilateral well and expanded the program again in late 2013 by adding laterals to all new Spy Island production wells.

The company conducted the West Extension Project at Spy Island between the third quarter of 2014 and early 2015 and launched the East Extension Project in 2015, before suspending all drilling activities at the unit and putting Doyon Rig 15 in cold stack.

Eni emerged with a new direction in 2017. The company released the Nabors 245 rig in late 2017 and contracted the new Nordic Calista Rig No. 4 for workover activities. It also announced Nikaitchuq North, its first Alaska exploration venture since drilling wells at the onshore Rock Flour and Maggiore prospects in the central North Slope in 2007.

The Nikaitchuq North project is technically ambitious.

Instead of building a new artificial island, Eni proposed ultra-extended reach drilling from its existing Spy Island drill site. NN01 would have a vertical depth of 8,131 feet and a measured depth of 34,150 feet. NN02 would have a vertical depth of 8,329 feet and a measured depth of 38,173 feet. Proposed sidetracks would measure about 1,000 feet.

To accommodate those extreme angles, the company requested upgrades of Doyon Rig 15, increasing the top drive torque to 72,000 foot pounds from 63,000 foot pounds and also increasing the pressure rating for the drilling mud manifold, according to Eni.

On the administrative side, Eni acquired ADL 393175 in a state Beaufort Sea lease sale in late 2016. Sandwiched between the state unit and the federal unit, it provided “some protection acreage, should there be any future development opportunities involving the Nikaitchuq North Exploration Project,” the company explained in its development plan.

NN-01 faced numerous obstacles and setbacks.

Eni spud the well in late December 2017 using Doyon Rig 15, but “unforeseen impacts to the drilling schedule” delayed drilling activities until February 2018. The company was aiming for a target around 34,000 feet but ultimately suspended the ultra-extended reach well in August 2018 at a total depth of 30,010 feet, “as a result of drilling complications.”

The company resumed drilling operations at NN-01 in January 2019. But in April 2019, unidentified complications once again forced the company to suspend operations.

The delays forced Eni to defer plans for a sidetrack. With summer approaching, the company was facing seasonal drilling restrictions off the coast of the North Slope.

NN-02

In a subsequent plan of development, Eni turned away from NN-01 and toward a second well, NN-02, targeting the same seismic anomaly. The plan called for spudding the well in the second quarter of 2020 and reaching a target depth by the third quarter of the year.

But drilling plans were stalled again after working interest partner Shell “elected to go non-consent in the drilling of NN-02 well therefore causing Eni to temporarily postpone drilling plans,” Eni wrote in a report to the U.S. Bureau of Ocean Energy Management.

The U.S. Bureau of Safety and Environmental Enforcement ultimately granted Eni a two-year suspension of its program, giving the company until April 2, 2022, to drill NN-02.

In early March 2022, U.S. Bureau of Safety and Environmental Enforcement Press Secretary Sandy Day told Petroleum News that Eni had neither drilled the NN-02 well nor filed for a suspension of operations, or SOO. Under the terms of the SOO, simply spudding the well would automatically extend the leases, even if operations were immediately suspended. The “original SOO for Eni was effective for two years starting April 3, 2020. The SOO will expire on April 2, 2022, unless some other action is taken. To date, there have been no conversations with Eni regarding another SOO,” Day said.

Without drilling activities to automatically extend the leases, Eni would need to negotiate with BSEE or the U.S. Bureau of Ocean Energy Management on new leasing terms.

Eni is using Doyon Rig 15 both for the Nikaitchuq North exploration project and for ongoing development activities at the Spy Island drill site of the Nikaitchuq unit.

Ongoing development drilling is important, as Eni is facing an upcoming contraction.

State regulations give companies 10 years of sustained production before automatically contracting a unit down to its productive leases - meaning leases included in a participating area, leases under plans of exploration or development, or leases actively or indirectly being developed. The window is intended to give operators enough time to gradually expand production while discouraging companies from “warehousing” productive leases that could possibly be developed more quickly by another company.

Eni asked the state to defer a pending contraction of six leases near Spy Island, north of Oliktok Point. The leases were added to the unit as part of an October 2007 expansion.

The acreage is believed to contain potentially commercially recoverable reserves in the Cretaceous Schrader Bluff and the Triassic Sag River formations - too small to be developed independently of Nikaitchuq but large enough to be worthwhile for Eni.

For those reasons, and given the recent delays caused by the coronavirus pandemic, the state approved the deferral, giving Eni until the end of September 2022 to test the leases.

Aside from the general information about depths and locations found in its permitting documents, Eni has provided little information about its target at Nikaitchuq North.

To date, Nikaitchuq unit development has been limited to the OA sands of the Schrader Bluff formation. The company tested the potential of the N sand over the past decade.

Given the relative heaviness of Schrader Bluff oil, it would require considerably technical assistance to flow and would appear to be an unlikely target for the project.

Using the geometry of the well as a clue, it would appear Eni is targeting Jurassic Alpine sands at the Nikaitchuq North leases. Before Eni came onto the Nikaitchuq unit, operator Kerr-McGee and its partner Armstrong had publicly discussed the possibility of testing the Jurassic Nuiqsut sandstone and the Triassic Sag River sandstone north of the unit.

For a time, it seemed that Eni might be moving into exploration in Alaska.

Eni acquired several significant assets when Caelus Natural Resources Alaska LLC left the state in 2018 and 2019. Eni acquired 70% interest of the Oooguruk unit, giving it complete working interest and operatorship of the nearshore Beaufort Sea oil field.

Through its deal, Eni also acquired some 350,000 acres of undeveloped leases in the eastern North Slope. Sitting between the Prudhoe Bay unit and the Point Thomson unit, the block was relatively near several pieces of crucial North Slope infrastructure: the city of Deadhorse, the Dalton Highway and the trans-Alaska oil pipeline.

Given that proximity to infrastructure, Caelus had believed it could economically produce plays smaller than 100 million recoverable barrels - small by North Slope standards.

Caelus never drilled exploration wells in the acreage, but it acquired 175 square miles of new 3D seismic data and reprocessed another 275 square miles of existing 3D data.

The seismic data and information from surrounding legacy wells “confirm deeper petroleum system elements and de-risked shallower Brookian reservoirs and hydrocarbon charge and phase within the area,” Caelus said in statements. Those prospects had mostly been ignored, according to Caelus, until the Pikka and Horseshoe discoveries in the central North Slope renewed interest in the shallow Brookian Nanushuk formation.

Eni initially expressed enthusiasm with the opportunities in the eastern North Slope, saying it planned to “apply its business model and experience,” involving “fast-track exploration” and “a short time to market” for the “potential new discoveries.”

But Eni surrendered the acreage in July 2021. Asked why it relinquished the property, the company told Petroleum News: “Eni completed its exploration studies on the area the leases covered and the prospectivity of the area didn’t meet Eni’s economic metrics.”

For Eni, the primary benefit of the Caelus deal was gaining complete working interest in the offshore Oooguruk unit. The state-managed unit is located immediately to the west of the Nikaitchuq unit. Eni had already been a 30% minority owner in the unit since Pioneer Natural Resources Alaska Inc. brought it into production in 2008.

The three big moves of the past few years - the Oooguruk acquisition, the eastern North Slope relinquishment, and the move into Nikaitchuq North - suggest that Eni is prioritizing its existing developments over wildcat exploration. But those moves also indicate that Eni is willing to pursue ambitious exploration work in Alaska that has the potential to significant extend the productive life of its first and still primary asset.

There are successful North Slope models for this approach, most notably ConocoPhillips’ decades-long push to extend development to the west of the Kuparuk River unit. It will be interesting to see where Eni goes next, regardless of the success of Nikaitchuq North.