Work on Nikaitchuq oil project to continue through the winter

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By Tim Bradner, Alaska Journal of Commerce

ANCHORAGE, AK — ENI Oil and Gas Inc. has delayed drilling and development on its Nikaitchuq offshore project on the North Slope, although construction of offshore pipelines and insulation of pipe in Fairbanks will continue, contractors said.

An ENI spokeswoman in Italy said the company still plans to complete the project with a 2010 startup.

“We have intentionally scaled down activity from a fast-track approach to ensure we capture any cost decrease in the market to fiurther improve the robust economic returns of this attractive and so far successful project,” the company said in a statement.

Drilling and construction of onshore pipelines, along with work on onshore processing facilities, have been put on hold.

ENI officials in Anchorage said they could not comment on the project delay. However, contractors and state officials said the company had told them the project was being suspended but not cancelled, and plans are to resume drilling and other work next winter.

State Oil and Gas Director Kevin Banks said ENI met with state officials to inform them of the decision.

“They described it as slowing the schedule, and more or less returning to a normal rather than a fast-paced schedule,” he said. “Unfortunately it means laying down the rig for the winter. It’s not a year delay, however. They told us they now hope to get into production in the fourth quarter of 2010, compared with the original schedule of having production earlier in that year.”

Some contractors are being affected by the decision. ASRC Energy Services has been involved in providing support services, as well as H.C. Price, which manages construction of the pipelines.

Dave Matthews, the Alaska manager for H.C. Price, said the continuation of work on the offshore pipeline system would allow him to keep part of his crew working through the winter, although the onshore pipeline work is delayed.

ENI had been drilling development wells at Nikaitchuq with plans of getting the field on production in late 2009 or early 2010. The company was also building an onshore processing plant with a capacity of handling 40,000 barrels per day.

ENI’s plan is to drill 71 wells with about a third drilled from an onshore production pad built near Oliktok Point, on the Beaufort Sea coast north of the producing Kuparuk River field.

The remaining wells would be drilled from an offshore gravel production island that would be built three miles offshore in a planned second phase of the project.

The field has an estimated 180 million barrels of reserves. Much of the oil is viscous, similar in quality to the Schrader Bluff and West Sak viscous oil produced in the nearby Milne Point and Kuparuk fields.

The state of Alaska granted modifications of royalty terms to ENI in 2008 to encourage the company to develop the field. The delay will not affect the agreement to modify the royalty terms, according to Tim Ryherd, a commercial analyst with the state Division of Oil and Gas.

ENI owns 100 percent of Nikaitchuq, as well as 30 percent of a nearby offshore field, Oooguruk, which is in production. Oooguruk is operated by Pioneer Natural Resources Co., which owns 70 percent.

www.alaskajournal.com

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