ANCHORAGE, Alaska, March 3 - Italian oil company Eni is delaying work on its $1.5 billion Nikaitchuq oil development on Alaska's North Slope, a decision likely due to the slump in crude prices and poor economic conditions, said an official with the Alaska Division of Oil and Gas.
The project was on track to start producing oil late in 2009 or early in 2010 but work has been scaled back, likely resulting in a delay of six months to a year, said Kurt Gibson, deputy director of the division.
Eni informed the division of its change in plans last week, Gibson said.
"What they've said is they're re-pacing the development plan, which just means they're adjusting their short-term plan for development," he said.
"I would characterize it as a kind of predictable adjustment to the development schedule that is undoubtedly tied to the change in the price environment for oil and gas," Gibson added.
The Nikaitchuq project, an offshore field with an estimated 180 million barrels of recoverable oil, is 100 percent owned by Eni. The company had planned to drill numerous wells this winter and construct facilities that would allow production of 40,000 barrels a day.
Gibson said Eni remains committed to Nikaitchuq.
"The good news is they're not abandoning the project," he said. "Their intentions are to continue with the project. Their intentions are still full field development, but they're just adjusting the plan in a way that makes sense for them."
Eni's change in plans comes as other companies are delaying or cutting back work in Alaska and elsewhere, Gibson said.
"Things look different in a $140-a-barrel (world) than they do in a $40-a-barrel world," he said. "They're certainly not alone."
The state has sought to improve Nikaichuq's economics by granting Eni's request for royalty concessions on the field, Gibson said. Those concessions, granted a year ago, allow royalties to drop to as low as 5 percent from the normal 16.67 percent during the early years of production if crude oil prices are low, he said.
The company successfully argued that the Nikaitchuq's heavy oil posed economic challenges, he said.
That royalty break, Gibson said, provided "considerable risk-mitigation tools" and likely has been an important factor in Eni's loyalty to Nikaitchuq.
Word of postponed work at Nikaitchuq reached oil-field contractors last week, said Paul Laird, executive director of the companies' trade association, the Alaska Support Industry Alliance.
Hundreds of contractor jobs have been lost because of the work delay, Laird said.
Specific tasks that have been postponed include drilling, module fabrication and onshore pipeline installation, he said. Contractors report that Eni is going ahead with offshore flow-line installation, he said.
The Nikaitchuq postponement follows similar news from other companies that have delayed work or reduced planned spending, Laird said.
"Apart from work that's being deferred, there's a lot of pressure on contractors' margins right now," he said.
Eni is a newcomer to Alaska, having picked up its first leases in 2005. In addition to its Nikaichuq property, it is a part owner of the Pioneer Natural Resource -operated Oooguruk field.
Even large oil producers are focused on trimming Alaska spending.
ConocoPhillips intends to spend 20 percent less on Alaska capital investment Alaska this year than it did last year. BP may make some changes in this year's Alaska capital plan, which in December was announced at $1.2 billion.
"BP, in Alaska as elsewhere, is reviewing project plans in light of today's dramatically different economics. We may adjust the scale and pace of some projects," company spokesman Steve Rinehart said in an email Tuesday.
"We want to maintain activity, but in a lower cost structure," he said.
The project was on track to start producing oil late in 2009 or early in 2010 but work has been scaled back, likely resulting in a delay of six months to a year, said Kurt Gibson, deputy director of the division.
Eni informed the division of its change in plans last week, Gibson said.
"What they've said is they're re-pacing the development plan, which just means they're adjusting their short-term plan for development," he said.
"I would characterize it as a kind of predictable adjustment to the development schedule that is undoubtedly tied to the change in the price environment for oil and gas," Gibson added.
The Nikaitchuq project, an offshore field with an estimated 180 million barrels of recoverable oil, is 100 percent owned by Eni. The company had planned to drill numerous wells this winter and construct facilities that would allow production of 40,000 barrels a day.
Gibson said Eni remains committed to Nikaitchuq.
"The good news is they're not abandoning the project," he said. "Their intentions are to continue with the project. Their intentions are still full field development, but they're just adjusting the plan in a way that makes sense for them."
Eni's change in plans comes as other companies are delaying or cutting back work in Alaska and elsewhere, Gibson said.
"Things look different in a $140-a-barrel (world) than they do in a $40-a-barrel world," he said. "They're certainly not alone."
The state has sought to improve Nikaichuq's economics by granting Eni's request for royalty concessions on the field, Gibson said. Those concessions, granted a year ago, allow royalties to drop to as low as 5 percent from the normal 16.67 percent during the early years of production if crude oil prices are low, he said.
The company successfully argued that the Nikaitchuq's heavy oil posed economic challenges, he said.
That royalty break, Gibson said, provided "considerable risk-mitigation tools" and likely has been an important factor in Eni's loyalty to Nikaitchuq.
Word of postponed work at Nikaitchuq reached oil-field contractors last week, said Paul Laird, executive director of the companies' trade association, the Alaska Support Industry Alliance.
Hundreds of contractor jobs have been lost because of the work delay, Laird said.
Specific tasks that have been postponed include drilling, module fabrication and onshore pipeline installation, he said. Contractors report that Eni is going ahead with offshore flow-line installation, he said.
The Nikaitchuq postponement follows similar news from other companies that have delayed work or reduced planned spending, Laird said.
"Apart from work that's being deferred, there's a lot of pressure on contractors' margins right now," he said.
Eni is a newcomer to Alaska, having picked up its first leases in 2005. In addition to its Nikaichuq property, it is a part owner of the Pioneer Natural Resource -operated Oooguruk field.
Even large oil producers are focused on trimming Alaska spending.
ConocoPhillips intends to spend 20 percent less on Alaska capital investment Alaska this year than it did last year. BP may make some changes in this year's Alaska capital plan, which in December was announced at $1.2 billion.
"BP, in Alaska as elsewhere, is reviewing project plans in light of today's dramatically different economics. We may adjust the scale and pace of some projects," company spokesman Steve Rinehart said in an email Tuesday.
"We want to maintain activity, but in a lower cost structure," he said.
