Eni Offshore Project Positive for Future Oil Development in Alaska
Juneau – Members of the legislature were briefed today about Eni’s recently announced Nikaitchuq oil field project at a presentation hosted by the Senate Republican Minority.
Kevin Banks, Acting Director, Division of Oil & Gas, described the Italian based international company Eni as “a major oil company” and the project as “sizeable, with 73 wells, a 3.8 mile subsea pipeline, a 14 mile above ground pipeline and a separate dedicated processing facility. Production is expected to peak in 2010 at 40,000 barrel’s per day.”
Senator Tom Wagoner, R-Kenai, noted that, “the State’s royalty modification program successfully attracted Eni to develop its first producing oil field in Alaska. With a capital spending program of $1.45 billion, this project will add jobs to the Alaska economy during construction and expected 25 year operating life.”
Senator Therriault also observed that “with expected future declines in TAPS through-put rates, Eni’s 40,000 barrels per day is material, alone it will not save the day, but it will improve the TAPS through-put over the next 25 years.”
Mr. Banks explained that “Eni will get a royalty reduction when oil prices drop below $42.64 dollars a barrel during the first 25 years or if production rates fall below 4,000 barrels of oil per day from the field. This gives them an important down-side risk assurance that helps make their project economic in times of low oil prices or declining production and it also protects the state. When prices are higher the state continues to receive its full royalty rate.”
According to Mr. Banks, to apply for the royalty modification companies must provide detailed confidential economic modeling that proves that a royalty modification is justified.
Senator Gary Wilken, R- Fairbanks, noting that Eni will build it’s own processing facility, rather than rely on another producer’s facility, questioned if Eni has plans for the facility beyond the Nikaitchuq productive life. According to Mr. Banks, Eni has other property offshore so it could be expecting to use the facility for additional oil development projects.
Senator Gene Therriault, R-North Pole, said in comments after the briefing, “we were told during the Special Session on ACES that we were taxing Alaska out of the competitive market and would lose our oil and gas investors. Eni’s sizeable investment in Alaska is clear evidence to the contrary and shows that major oil companies still want a position in Alaska as part of a balanced global portfolio.”