Interview with Alexander Mandel, advisor to the CEO of Gazpromneft Shelf LLC
Alexander Mandel, advisor to the CEO of Gazpromneft Shelf LLC, answers our questions
We’re striving for maximum reach
— Alexander Yakovlevich, let’s start with the Prirazlomnoye project. Why is the Prirazlomnaya platform, and the start of production at the Prirazlomnoye field, important to Russia’s oil and gas industry?
— The USSR and, subsequently, Russia, have accumulated considerable experience of working in the Arctic — through arctic expeditions and work on the Northern Sea Route, as well as the year-round operation of the sea port of Dudinka, and so on. Apart from this, comprehensive geological site surveys and ice management investigations — on the Prirazlomnoye and Shtokman projects, the Taz estuary and the Gulf of Ob (Kamennomysskaya, Severo-Kamennomysskaya) — have been undertaken in these regions, in conjunction with the Arctic and Antarctic Research Institute (AARI), the Krylov State Research Institute, RusHydro (the B.E. Vedeneev All-Russia Research Institute of Hydraulic Engineering (VNIIG), and others.
As a result, we have deepened our understanding of the subtleties of glacial conditions, and of wind- and wave-impact loads — that is, we have studied the climatic and environmental conditions prevalent in our license areas, as well as reservoir surveying. On which basis, the main significance of the Prirazlomnoye project, in my view, lies in the fact that we have proved our readiness to work on the Arctic Shelf — in both engineering and operational terms.
— What presented the greatest difficulty in field development — geology or technology?
— That’s a difficult question. Appropriate technologies and equipment were selected, taking the hydrological and geological models of productive strata into account, as well as the importance of ensuring environmental and industrial safety. It was also essential to select technologies delivering the optimum oil recovery factor (ORF).
The productive stratum is far from straightforward. We studied other companies’ experience in developing geologically similar fields (for example, the Haryaginskoye) and, taking this into account, began implementing the technological plan for developing the Prirazlomnoye field.
— Was horizontal drilling envisaged right from the start?
— Yes, you can’t do otherwise offshore. But we develop productive strata concurrently with pipe-conveyed logging, in order to reach as far as possible into productive deposits.
After drilling three or four wells, the drilling programme can be amended to take lessons learned into account, and to ensure maximum inflow.
In future, as production at certain operating wells declines, we plan to drill lateral branch holes in production wells, changing the direction of the hole; this allows us to improve the drainage of the stratum and, accordingly, oil recovery.
— Does that turn out cheaper?
— Obviously this will be cheaper than drilling new wells.
— This will be in late 2015 — early 2016, I think?
— Yes, as soon as we have enough information, and where necessary, following adjustments to planned field development. But any decision on drilling lateral branch holes will be taken at a later stage. Apart from which, we’ll be drilling dual-bore wells at Prirazlomnoye. Using technology to increase oil production allows us to improve the ORF — we’ve set ourselves the task of matching best international standards here.
— And what would those be, specifically, offshore?
— Offshore, about 50 percent — that’s a very good outcome. The Norwegians have just about achieved this, at a few of their fields. But that level of success is unlikely to be repeated. Results are typically lower. And we’re talking here not just about technology, but economics.
— So we could, if required, produce more, but this would be more expensive, and the operational costs too high?
— Yes. Better ORF and profitability are interrelated. Technology costs in improving the ORF should not compromise the economic performance of a project. Apart from which, it’s not just a matter of extraction, but also of maintaining reservoir pressure — and that has an impact on production levels. Our header (collecting line) is calciferous, and fissured: so pressure-maintenance technology — that’s very precise work.
A rig — and a laboratory
— Tell us how the platform is put together
— The Prirazlomnaya ice-resistant fixed platform is made up of a load-bearing supporting structure, and a deck or “topside”. The supporting structure protects the facility from wind and wave impacts, and from ice loads — which, in the Pechora Sea, can be up to tens of thousands of tonnes. The load-bearing structure consists of a double-hulled concrete-filled metal construction, more than three metres thick. Laminated (or “clad”) steel is used in those places which might come into contact with ice. The top part of the load-bearing structure is fitted with a wave deflector.
The load-bearing structure has proved very reliable. The oil storage facilities are located there, with oil stored using the “wet” storage method. This means that any space not filled with oil is always filled with water, which prevents any explosive atmosphere or conditions from being able to develop. There are twelve tanks — crude storage tanks, completely independent of each other. We can, where necessary, transfer oil from one tank to another empty one. The load-bearing structure also contains the water-intake ballast system, and so on. Anode and cathode controls are mounted within this, as well as 86 sensors, which measure any impacts on the facility, monitor conditions on the platform, and monitor the status of the structure in relation to the sea bed, etc. These sensors have been developed by the Norwegian Geotechnical Institute (NGI) in association with the Rubin Central Design Bureau for Marine Engineering — a Russian engineering design centre with extensive experience in developing submarine constructions. These sensors take readings of all loads and impacts on the platform, in real time; these statistical data are important for future developments. So the ice-resistant offshore platform is also a laboratory.
— Have you ever worked out how much cheaper this platform might have been, roughly speaking, if you’d had all this information when you were designing it?
—I would say this: at the design stage we did everything we could to optimise the costs of the platform. On the basis of the data collated at that time, building the platform more cheaply, without compromising reliability, simply was not possible.
— The Pobeda field has been discoverd, quite close to Prirazlomnoye. Do you expect production there to be more straightforward, or the reverse?
— Every area of the Arctic Shelf is very distinct — in terms of its environmental and climatic conditions — from any other. The Barents Sea, around the Shtokman field, is characterised by strong wind and wave loads during the autumn and winter. Broken drift ice (prevalent for two months of the year), can be up to 70 centimetres thick. Added to which, there are icebergs.
The ice-free period In the Pechora Sea lasts five to seven months; first-year ice can be up to 1.5 metres thick. The Kara Sea, in turn, is characterised by pack ice (built up over many years) with extensive keels (below the surface). The ice-free period here lasts up to three months. So, in terms of the natural environment — the climatic and geological conditions, water depth (the transition zone, with average depth of
Generally, the thicker the ice, the greater the demands on platform construction. In my view, in ice conditions at depths of more than 60 metres you have to consider underwater technologies. Every field demands separate, individual examination, in order to find the most effective solution to ensure optimum ecological and industrial safety, maximum oil recovery, and minimal environmental impact. Added to which, a project also has to be economically viable.
— What’s your view on involving foreign companies in Arctic projects?
— I don’t think you can rely solely on foreign companies. We have to, ourselves, fathom in detail all questions relating to the development of offshore fields — developing new technologies and technical solutions, and relying on domestic and international experience, to the full. Foreign companies have been working offshore for a long time, and have accumulated colossal experience, particularly in engineering support and maintenance. They have at their disposal modern, innovative technologies, equipment and marine technology, as well as considerable production capacity (Singaporean, South Korean shipyards and other producers of the high-quality geophysical, drilling and technical equipment, etc., necessary for such technologies) which can be easily adapted to deliver the technology and equipment essential for operating under Arctic conditions.
Wide-ranging collaboration (particularly on complex projects, that demand high capital investment), reduces risk and leads to a good outcome. Sharing knowledge and experience is always beneficial.
Obviously, the Russian Arctic Shelf has considerable potential and significant hydrocarbon resources, which are attractive to international companies. Geological prospecting of the shelf thus far amounts to only five to 10 percent of it — and the likelihood of discovering and subsequently developing major deposits is very high. So I understand foreign companies’ interest in Arctic projects.
— Are there any technologies which, while they might not yet have delivered the desired outcomes, nonetheless have major potential?
— At the end of the 1990s, when I was working at JSC Sakhalinmorneftegaz, we were working on and planning the use of underwater technologies at one of the fields; and came to the conclusion that they were not cost effective. Now, after 10 to 15 years, the cost of such technologies and equipment has reduced about three-fold, while technical and operational features have significantly improved.
— And the oil price has gone up.
— Yes. If you look at it globally, there’s a plethora of cutting-edge technical solutions; for example, we are now moving from metal to composites. Such materials do not rust, tolerate harsh environments better, and they’re cheaper. Conditions change, new experience comes to light — and our views change in favour of one technology of another. You know how many wells Gazprom Neft has drilled at the Arctic Shelf over the past 10 to 15 years?
— How many?
— All together, it amounts to about 30 wells, mainly geological prospecting and exploratory wells. At the Pechora Sea this means the Prirazlomnoye, Varandey, Medynskoye and Dolginskoye fields. At the Taz estuary and the Gulf of Ob, the Kamennomysskoye, Severo-Kamennomysskoye, Aderpayutinskoe, Chugorehinskoe fields, and others. The Sakhalin III project covers the Kirinsky block (the Yuzhno-Kirinsky and Kirinsky fields). And then there’s the Shtokman field, the Kharasavey field in the Kara Sea, and others.
The future of offshore
— And how did offshore development start, essentially?
— Well, here we need to take a little trip back in time. Outside of Russia, offshore development started quite early, about 50 years ago. We had, at that time only just discovered the most significant fields in Western Siberia — and there just wasn’t any need to work on more complex offshore fields.
There was a colossal amount of onshore experience, and part of that could be used at offshore fields. New technologies and equipment were developed.
I remember when I was working on a rig as a drilling foreman, specialist research engineers started arriving, and began trying out new developments — boring heads, drilling agents, downhole drilling motors, and so on. But from then on — given the huge volumes of (and easily accessible) West Siberian oil — investment in new developments gradually declined, resulting in a decrease in the development of new technologies and equipment.
Fortunately, in the 1970s, the Chairman of the Soviet Council of Ministers, Alexei Kosygin, insisted that offshore work was essential in order to gain experience in the light of the extensive work required in developing offshore fields abroad. In other words, we were working for the future.
A Central Directorate was established within the Ministry for the Oil and Gas Industry, as well as production associations specialising in offshore operations: Chernomoneftegaz, Articmorneftegaz, Sakhalinmorneftegaz, Kaliningradmorneftegaz, Kaspmorneftegaz, together with geophysical enterprises and design institutes redeployed by the Minisudprom, and so on.
About 600 offshore (marine) facilities had been designed and built by 1990 — drill ships, rigs, specialist vessels, drilling platforms. This technology was built at both domestic and international plants. So offshore operations were coming to the boil.
Following the collapse of the Soviet Union, offshore operations came to a halt for about 10 years — something that caused considerable damage, and was a major loss to the oil and gas industry.
It should also be remembered that throughout the 1980s, the Ministry for the Oil and Gas Industry, together with Zarubezhneft, Vietsovpetro, Sakhalinmoreneftegaz, Chernomorneftegaz and others, brought the Bach Ho (White Tiger) oilfield in offshore Vietnam into development, achieving production levels in excess of 14 million tonnes per year. Many branches of Soviet industry were involved in this process, supplying drilling, extraction, technological and other equipment. Platform fabrication was located within Vietsovpetro, initially staffed by Soviet specialists, who were gradually replaced with Vietnamese.
Machinoimport and Italian company TNL, together with the Sakhalinmorneftegaz production association and its Sakhalinskaya jack-up rig, undertook geological prospecting works in the Persian Gulf on the Iranian continental shelf, developing the major South Pars gas condensate field.
Over the course of 15 to 20 years, marine associations, under the direction of various ministries, undertook extensive operations on the continental shelf of the USSR (the Barents and Kara seas, the Black Sea, the Sea of Azov, and the White Sea), as well as the continental shelf of Vietnam, laying the foundations for more extensive offshore development.
In Vietnam, Sakhalinmorneftegaz mobilized some of the floating drilling rigs and vessels for use in the inter-navigational period, i.e., that time of year subject to difficult ice conditions on the continental shelf around Sakhalin, allowing available capacity to be used all year round, and allowing professionals’ specialist skills to be maintained.
— How did our oil and gas industry end up working in offshore Vietnam?
— Vietnam had always dreamed of developing its own hydrocarbon resources. Prior to ourselves, foreign companies worked there, although they didn’t make any major discoveries. Then Soviet geologists reviewed certain materials and announced that there was some potential. That country was also interesting to us because conditions there are conducive to year-round working. In fact, the autumn—winter season is subject to major storms, and during these four or five months things don’t really work out well. Part of the Sakhalinmorneftegaz fleet, together with floating rigs, were mobilised for offshore work, as well as facilities built by order of Vietsovpetro. All work was undertaken by Vietsovpetro as operator on the project, together with Sakhalinmorneftegas and Chernomorneftegaz, recruited to the project by Zarubezhneftegaz.
—So, for the Soviet Union, this project was an opportunity to gain experience offshore?
— Quite the reverse: we passed our experience on to the Vietnamese, as we developed it.
Composites and petrochemicals
— If we’re talking about improving the profitability of upstream projects, what areas would you suggest?
— The cost of a platform is driven by the weight and dimensions of equipment and materials. So, for every kilogramme of equipment you have to have in place four to six kilogrammes of supporting metal structure, as well as utilising high-technology and high-performance equipment to optimise (and reduce) project costs. Firstly, the use of composite materials and components reduces both CAPEX and OPEX. Secondly, you have to develop oil and gas refining facilities, where the value-added cost can be three to four times higher.
— Do you think traditional producers of pipes and various parts will come together in using composites for construction?
— Of course. After all, metal corrodes sooner or later, if it’s not treated. All the more so offshore. Composites are more durable, and easier to use and build with.
Project management in engineering is of paramount importance in resolving the many issues that arise in offshore development. Companies, from the top down, throw themselves into the job in hand — into preparation, organising production, extraction, and so on. And engineering stands alongside this, looking to the future: understanding the specifics of production and its requirements, organising research and development (R&D), implementing new technology, and so on. Looked at in the global context, more flexible manufacturing is essential. You can’t just live for today. A proportion of income has to be directed at research. Allocate at least five percent of any income to research. Even if 100 R&D initiatives lead to success in 10 — that’s a good outcome.
A real-life example. Stringent environmental conditions were introduced regarding geological prospecting in the Gulf of Ob. The flora, fauna and natural environment there are unique. So I needed a drilling fluid (mud-flush agent) fully compliant with environmental standards. I put this task to the Ufa State Petroleum Technological University. They suggested a polyglycol-based drilling agent. We signed an agreement, and as early as six months later the drilling fluid was ready for use. Drilling the first well was hard — the fluid met the brief in terms of environmental standards, but in terms of technology — it didn’t entirely do the job. We went back to the university three times — by the end of which, the product was perfect. A long time? Maybe. But worth it? Yes.
— So you have to restore the system in which production is driven by science?
— Absolutely. That principle is still partly in operation today. Doing otherwise isn’t possible. Science and production have to go hand-in-hand, because conditions in the laboratory, and in production, are very different.
— How far is science in Russia ready for such collaboration, in your experience?
Completely ready, you just have to set the task. There are good specialists, they just need to be brought together and supported; you need to educate and develop promising young professionals, working in engineering ...
— If we’re talking about working offshore, what sort of state is our shipbuilding industry in?
— We have kept some shipbuilding, but it does need to develop to meet the demands of Arctic conditions and current realities. There are some promising developments, but we need to go further.
— And what’s being built at the moment?
— We were recently discussing the question of energy — an important issue for remote fields: well developed infrastructure is far away, as are energy supply, reliable communications, and air services. We would like to use a nuclear-powered underwater block, with a rechargeable capacity of 30 years. We’re moving towards this. We can produce drilling vessels and tankers powered by nuclear energy, which need to be recharged only once every eight years. New reactors are already appearing, and being put to use.
— Yes. With weight and size reduced by about 40 percent, and generation capacity 30 percent greater. This development is already in place on new icebreakers currently being built by Atomflot in St Petersburg at the Admiralty Shipyards. Existing icebreakers can negotiate ice up to 2.1 metres thick. Around the New Siberian Islands the ice can be up to 2.5 metres thick, and new icebreakers with these reactors will be able to get through this. Special low-temperature steel is used in building these vessels. This allows them to be used year-round on the Northern Sea Route.
You know, previously a ship would remain stable in waves of up to four metres, and today you can carry on working in waves of up to eight.
— Ships have become heavier, most likely.
— Correct. The bigger the vessel and the greater the submersion, the more stable a ship is. And there is, moreover, a dynamic positioning system, and energy generation facilities whose capacity can be increased two- or three-fold while remaining the same overall size and weight. All of this, together, gives a good result. A turret mooring system is also essential: when the ship is moored, stability is increased, allowing it to operate under difficult ice conditions.
— The size of production facilities at remaining enterprises doesn’t give you a problem?
— Theoretically, we can successfully use any of the plants we own that have deep-water and docking facilities. We now need to scope out a road-map and coordinate work across enterprises, develop a common approach and, through extensive collaboration, develop deck modules onto which production equipment is already installed, as well as drilling ships and platforms. Working together delivers economies of scale. We need to educate shipbuilders better on the oil and gas industry, so that they understand what equipment we need, what for, and what we do with it.
—Who, geographically, do you think it would make sense for us to strengthen cooperation with, in terms of technology and equipment?
— Given you should never put all your eggs in one basket, I would strengthen cooperation with South Korea and China. It’s a completely different China today, compared with 30 years ago. Yes, and Vietnam and Singapore as well. But continuing to work with other countries wouldn’t hurt us. The most important thing is to get the right mutual cooperation in place.
— Where, in your opinion, would be worth developing upstream projects on our continental shelf, currently?
— The Barents and Kara Seas. They’ve not been badly prospected. But the Laptev Sea, the East Siberian Sea, the Bering Sea — those have untouched fields, which might have large and, thus far, unknown reserves; but then environmental conditions are difficult, and logistics complicated.
I should stress: the development of the Russian Arctic Shelf now depends on the development of universal solutions (platform types, shops), in order to bring them on-stream. Production at the moment is just piecemeal — and piecemeal production is always expensive. Apart from which, we have to pay the closest possible attention to underwater technologies, and base 70 percent of such production in Russia.
— And how many years do you think it will take to get such universal standards in place?
— About five years. That will require the establishment of a comprehensive programme, including a regulatory regime, and greater production. We’ve all got to work towards this.