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Producers 2024: Eni hands over the reins to Hilcorp
Oooguruk and Nikaitchuq will fall under the auspices of Alaska's top producer Eric Lidji for Petroleum News
Eni US Operating Co. Inc. is in an unusual position.
The domestic subsidiary of the Italian major recently submitted its annual plans of development for the two North Slope units it operates -- Oooguruk and Nikaitchuq.
Earlier this year, Eni negotiated a sale of those two units to Hilcorp Alaska LLC. As this edition of The Producers was going to print, it appeared that the sale had closed. If that's true, Oooguruk and Nikaitchuq plans of development would almost certainly be revised.
Under those plans, Eni would have drilled five new wells and one lateral at the two units.
At the Oooguruk unit, Eni would have drilled the ODSN-05 and ODSN-09 producers and would have worked over the ODSDW-44 disposal well. The company would have also advanced its Oooguruk Tie-in Pad Partial Gas Processing project. Delays associated with the Partial Gas Processing project prevented Eni from completing the wells in 2024.
At the Nikaitchuq unit, Eni would have drilled three new wells and one lateral from the offshore Spy Island drillsite and would have expanded the Schrader Bluff participating area. The program calls for an N-sand pair, the SI44-S5 injector to support production from the existing OP14-S3 and OP10-09, and the SP05-FN7 lateral well.
In addition to these drilling plans, Eni would have advanced its Electrical Power Sharing project between Oooguruk and Nikaitchuq. The company had expected to conduct a major review in the coming year after completing engineering and receiving bids.
Now, all those plans are up in the air.
Since arriving in Alaska more than a decade ago, Hilcorp has been in this position several times: inheriting plans that are quickly suspended and revised to reflect a new strategy.
Given the uncertain short-term outlook for Oooguruk and Nikaitchuq, it makes the most sense to use this space to review the two-decade history of these landmark properties.
Oooguruk A headline in the July 28, 2002, edition of Petroleum News read: "A winning package."
The article described efforts by Armstrong Resources LLC to advance its three-well Kuparuk-Thetis exploration prospect, following an Exxon lead from the mid-1990s. The company had acquired the acreage in a statewide lease sale the previous October.
The arrival of the small Denver-based independent seemed at the time to mark the beginning of a new era of North Slope operations. In the immediate aftermath of the Charter for the Development of the Alaska North Slope, here was a nimble, ambitious independent eager to explore a promising play considered too small for the Big 3.
(Longtime readers of Petroleum News might recall that our annual publication "The Explorers" actually began in November 2002 under the name "The Independents.")
A ballot agreement at the Kuparuk River unit in July 2002 gave Armstrong access to some existing North Slope infrastructure. It was seen at the time as a major validation of the Charter but proved to be much more complicated over time, as the project developed.
By that fall, Armstrong had convinced the large Dallas-based independent Pioneer Natural Resources Co. to join the project. Pioneer acquired a 70% interest in the 14,000-acre prospect, which it began describing as the Northwest Kuparuk prospect.
Pioneer talked about bringing an "independent model" to Alaska.
"The independent model is to quickly turn investment into cash flow," Executive Vice President of Worldwide Exploration Chris Cheatwood said in early 2003. The idea was to reduce to "cycle time" of acquisition, exploration, development, and production.
The Alaska oil patch is naturally wary of big promises, but this one worked out.
The state approved the Oooguruk unit in July 2003. The 20,394-acre unit covered 11 leases (and part of a 12th) in the nearshore waters of Harrison Bay of the North Slope.
Subsequent exploration drilling justified a $500 million project, including construction of a 6-acre gravel island and pipeline connections back to the Kuparuk River unit, as well as new drilling. The state provided royalty relief to improve the economics of the project, although a major run-up in oil prices above $130 per barrel also helped the project.
Over the next few years, Pioneer became a symbol of industry frustration with the perpetual changes in the Alaska fiscal regime for oil productions. Those accusing the state of instability noted that Pioneer had started exploring at Oooguruk under one tax structure, permitted the project under a second and developed the project under a third.
Pioneer brought Oooguruk online in June 2008, becoming the first independent operator in North Slope history. Almost immediately, the company had to suspend production to accommodate planned maintenance at Kuparuk River Unit Central Processing Facility 3.
At the time, Pioneer estimated that Oooguruk would produce between 70 million and 90 million barrels of oil equivalent over 25 to 30 years of field life. After more than a year of development, the company upped the estimates to between 120 million and 150 million.
Despite general enthusiasm about Alaska, Pioneer quickly shifted its priorities toward development. The company dropped nearly 150,000 exploration acres in 2009. In early 2011, the company also sold its Cosmopolitan project in the southern Kenai Peninsula.
Throughout the remainder of 2011 and into 2012, Pioneer focused on expanding the Oooguruk unit, first through the addition of a third pool -- Torok, in addition to the existing Kuparuk and Nuiqsut -- then by pursuing the 50 million barrel Nuna satellite.
By focusing on Oooguruk, and expanding its holdings there, Pioneer made the unit attractive. In the first quarter of 2014, the company sold its Alaska subsidiary to Caelus Energy Alaska LLC for $300 million. The players behind Caelus had a track record of entering complex basins, making notable discoveries, and selling to larger players.
Caelus spent much of its first year pursuing royalty relief for the Nuna project. The company received that relief in January 2015 and sanctioned the project that April, beginning activities that summer. The following April, though, the company suspended Oooguruk drilling, postponed Nuna, and laid off 25% of its workforce, blaming "the prolonged depression in oil prices and uncertainty in Alaska's oil tax system."
Although it investigated acreage in other areas of the state, Caelus never bounced back from the suspension at Oooguruk. The company sold its share of the unit to minority partner Eni in early 2019 and sold the Nuna project to ConocoPhillips in June 2019.
Nikaitchuq In some ways, Eni was the logical operator of Oooguruk.
For the previous decade, Eni had a front-row seat for the story of Oooguruk.
In the summer of 2003, a year after announcing its Kuparuk-Thetis prospect, Armstrong announced plans for a three-well exploration program at its nearby Northwest Milne prospect offshore near Spy Island -- also known as the proposed Nikaitchuq unit.
In early 2004, Armstrong brought the large Oklahoma-based independent Kerr-McGee Oil & Gas onto the project, just as it had brought Pioneer onto the Oooguruk project the previous year. The companies drilled two exploration wells that winter, announced a notable oil discovery, and formed two neighboring units: Tuvaaq and Nikaitchuq.
Kerr-McGee and Pioneer flirted with the idea of forming a joint venture to cover all their discoveries but ultimately decided to operate independently. For a time in the summer of 2005, a race was underway: which would be the first independent producer on the North Slope? Even though Kerr-McGee was second to start, it was proposing a faster schedule.
Eni joined the conversation in August 2005 when it acquired Armstrong Alaska's assets, including its 30% minority stakes in the Oooguruk and Nikaitchuq units.
Progress on Nikaitchuq was complicated in late 2006, when Anadarko Petroleum acquired Kerr-McGee for $24.3 billion. The acquisition was focused on opportunities in the deepwater Gulf of Mexico and the Rockies. Anadarko CEO Jim Hackett said at the time, "There are no sacred cows," meaning the company would sell non-core properties.
Taking advantage of the opportunity, Eni acquired the remaining majority 70% interest in Nikaitchuq in early 2007, giving it total ownership of the offshore unit.
After spending the rest of the year expanding Nikaitchuq to include the neighboring Tuvaaq unit and successfully requesting royalty modification from the state, Eni officially sanctioned a $1.45 billion Nikaitchuq development project in early 2008.
The project envisioned two drilling pads, one onshore at Oliktok Point and the other on an artificial offshore island near Spy Island. In a notable change from the Kerr-McGee proposal, Eni announced it would build a 40,000-barrel-per-day standalone production facility rather than negotiate access to existing BP or ConocoPhillips facilities.
Eni estimated that Nikaitchuq contained 180 million barrels of recoverable reserves and announced plans to drill 73 development wells by 2011 with first oil planned for 2009.
Eni became a producer in June 2008 through its minority stake in Oooguruk. Amid a historic downturn in Alaska North Slope crude oil prices in late 2008 and early 2009, Eni announced a slow down to its Nikaitchuq timeline, delaying start-up to 2010 or later.
While low oil prices were cited at the time, the explanation was unsatisfying, given the royalty modification at the unit. It was later revealed that the company had missed the winter barge season on the North Slope due to Hurricane Ike work delays in Louisiana.
Eni announced start-up at Nikaitchuq in February 2011. The company said at the time that it expected the unit to produce for more than 30 years, peaking at 28,000 barrels per day, and estimated that the field contained 220 million barrels of recoverable reserves.
In the decade since completing its initial development program at Nikaitchuq in late 2014, the company has been working on Phase II to expand production at the unit.
The expansion efforts included numerous initiatives.
Eni added dual laterals to select wells and later drilled the first multilateral well at the unit. The company looked beyond the reach of its existing drilling pattern with the West Extension Project and East Extension Project and later with the more ambitious North Nikaitchuq project in the Arctic OCS. Eni appraised the potential of the Schrader Bluff N sands at the unit after restricting Phase I development to the Schrader Bluff OA sands and floated the idea of conducted a Sag River formation development at the unit.
With its acquisition of the majority stake in the neighboring Oooguruk unit in 2020, Eni seemed to be reuniting the two units that had emerged from the same exploration wave in the early 2000s. In addition to new drilling, the company was beginning to undertake infrastructure projects design to improve efficiency and reduce redundancy at the units.
Hilcorp When they were first discussed in the early 2000s, Oooguruk and Nikaitchuq were promoted as a new era in North Slope operations: midsize fields for midsize players.
The reality was winding, involving two large independents, a small independent, and one of the largest majors in the world, before arriving in the portfolio of Hilcorp.
In some ways, Hilcorp makes sense. The company has always been most interested in maximizing existing development projects, rather than pursuing wildcat adventures.
The difference here is age.
Until now, Hilcorp has largely pursued legacy Alaska projects, including some of the oldest and most enduring oil and gas plays in the state. Oooguruk and Nikaitchuq were discovered less than 20 years ago and brought online only about 15 years ago.
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