Nuna development delayed by at least a year

  • Activities planned by Caelus as presented to the Alaska Support Industry Alliance in January are seen here, with the major change being the decision to delay development of the Nuna project by at least a year. The company receieved a royalty modification from the state before deciding to sanction the project, with a requirement that first oil begin flowing in 2017. Current low prices have the company seeking to push back the start date. Illustration/Courtesy/Caelus Energy

Caelus Energy is delaying work on its $1.2 billion Nuna oil development and is asking the state to extend a royalty reduction agreement for the project.

Casey Sullivan, a spokesman for the company, wrote in a statement that the central North Slope project has been deferred due to sustained low oil prices and uncertainty regarding the future of the state’s oil and gas tax credit program.

The schedule for first oil from Nuna has been pushed back a year or more from September 2017 to late 2018 or early 2019, according to the Division of Oil and Gas.

Legislation introduced by Gov. Bill Walker to revamp the oil and gas tax credits is working its way through the committee process. The latest version of the bill in the House would reduce some subsidies for Cook Inlet projects but do little to change the tax regime on the North Slope.

Acting Department of Natural Resources Commissioner Marty Rutherford approved a royalty modification request for the project in January 2015 that would reduce the state’s royalty share of production to 5 percent until total revenue from Nuna reaches $1.25 billion. At that point, which company officials have said would likely be about three years after first production, the state royalty would return to the traditional 12.5 percent rate on the project’s five leases.

The modification was contingent upon Caelus sanctioning the project by April 2015, which it did, and sustained oil production commencing by the end of September 2017. Sullivan confirmed the Dallas-based independent has requested an extension to the modification agreement from the department.

According to the Best Interest Finding supporting the original modification, the state would forgo about $66 million in revenue at the temporary 5 percent royalty rate. However, the state is expected to collect more than $1.2 billion over the life of the field and Caelus contends it would not develop Nuna without the royalty reduction.

Adjacent to Caelus’ offshore Oooguruk field unit, the company estimates peak production from Nuna will be 20,000 to 25,000 barrels per day. A 22-acre gravel pad is complete and the first phase of development includes drilling 30 hydraulic fractured wells, 15 each for production and reinjection.

Caelus delayed development work at Nuna this winter to focus on exploring its promising Smith Bay leases in near shore state waters adjacent to the National Petroleum Reserve-Alaska in a remote part of the western Slope.

This winter’s Smith Bay program entailed drilling two exploration wells from a grounded ice pad. Caelus CEO Jim Musselman has said Smith Bay is the company’s biggest prospect on the Slope with “billion-barrel” potential.

The company also holds significant leases on the eastern Slope that it hopes to start exploring sometime in 2017.

Caelus entered Alaska in 2014 when it closed a deal to acquire the in-state assets of Pioneer Natural Resources.

The company is leading development of hydraulic fracturing techniques on the Slope. The expense associated with fracking is among the reasons the royalty modification is needed to develop Nuna, according to Caelus.

Subsequently, the Caelus agreed to share typically proprietary information on the drilling technologies to be employed at Nuna within two years after initial production as part of its agreement with the state.

 

Elwood Brehmer can be reached at [email protected].

 

Updated: 
04/06/2016 - 3:42pm