Denis Sugaipov, Head of the Major Projects Directorate at Gazprom Neft’s Upstream Division and CEO, Gazpromneft-Razvitiye, on the key principles and objectives driving the development of major upstream projects
— The most important event for Gazpromneft-Razvitiye in recent years has been the commissioning of the Arctic Gates terminal at the Novoportovskoye field. Vladimir Putin even took part in the launch. Why is it so important?
— In terms of developing the Novoportovskoye project it’s a major milestone, since launching the terminal opens up the possibility of transporting 8.5 tonnes of oil a year from Yamal — meaning full-scale commercial production can now commence.
Generally speaking, we have three key technological infrastructure outposts in the Artic allowing us to develop that region: the Prirazlomnaya offshore rig; the Arctic Gates terminal; and the Zapolyarye-Purpe trunk pipeline. The Prirazlomnaya project was launched in conjunction with Gazprom. The laying of the pipeline involved both the government and Transneft. So only construction of the terminal was brought to fruition by Gazprom Neft, from start to finish. Which means it’s also a major milestone for the company.
Although the emergence of the Arctic Gates could also become an industry milestone, since it opens up the possibility of oil production from all fields in eastern Yamal, at the very least.
— What was the limit on oil exports prior to this — before the terminal?
— 300,000 tonnes per year, 400,000 maximum.
— Eight and a half million tonnes — is that the maximum planned production at Novoportovskoye?
— It’s the maximum we’ve set ourselves, based on our optimum plan for field development. So far, only one infrastructure facility corresponds with that level — the Arctic terminal itself. The others — the central gathering facility, the pipeline, the transfer and acceptance point (TAP), and the power station — all of these mean we can currently produce just over one million tonnes. Construction of the next infrastructure facilities, which is currently ongoing, will allow us to increase production volumes to
— This is in addition to the Umba storage tanker?
— Yes, the Umba is moored in the Kola Bay, near Murmansk — we transport oil in sea tankers as far as that tanker, from where it is despatched to the end-client. But higher-deadweight tankers can’t get through the Gulf of Ob to within 100 kilometres of Cape Kamenny, where the terminal is located. We used to operate like that, in principle, for summer shipments, with oil shipped from the TAP by river tankers, and reloaded onto sea tankers at Cape Trekhbugorny. Now though, production volumes mean we won’t be using river tankers (which have volume of
— The southern part of the Novoportovskoye field is currently being developed: do you plan to move further north?
— The northern part of the field will be developed next, in what we’re calling phase three of development. Any decision on this phase will be taken once we achieve intermediate peak production of 5.5 million tonnes. If the decision is in favour, construction of a booster pumping station, water treatment and discharge facilities, as well as an oil pipeline running from the north of the field to the south, are also planned. Infrastructure design and planning has already started.
— Is everything clear regarding technology for development?
— It’s a complex field, so there’s no limit on technological improvements. The upper — that is to say, the Novoportovskoye strata — are simpler, but the Jurassic strata lie at a depth of three kilometres, and have a high degree of uncertainty. Cutting-edge technologies are being utilised in order to increase efficiency — including horizontal drilling of bilateral wells, and multi-stage fracking.
— Today’s technologies, as a rule, are expensive technologies. Have the worsening economic conditions and market situation taken their toll on the implementation of our Arctic projects?
— Of course we started implementation of these projects at a somewhat different time, macro-economically, and did not take our final investment decisions until 2014. But by the end of 2015 the projects were at a point at which halting their implementation would have meant a pointless loss on investment.
Our Arctic projects do have a strategic advantage, however, in exemptions from export duties and mineral extraction tax, so they produce a higher income per tonne than our traditional assets, in the Noyabrsk region, for example.
Apart from this, we are constantly — and very actively — involved in optimisation. Construction of facilities that don’t directly impact company revenues from oil production are being postponed. Projects are designed and phased in such a way as to minimise risks. The most obvious reserves are brought into production as a priority and, where elimination of any uncertainty requires additional investment, we go in later: profits on oil sales from first-phase development can be invested in developing new blocks. This is a gigantic field in terms of reserves, and putting in place anchor infrastructure such as the Arctic terminal and the Zapolyarye-Purpe pipeline means it can be introduced in stages.
— Apart from the Arctic, the Russian oil industry has yet another promising production centre — Eastern Siberia. Does Gazprom Neft not attach the same expectations to this as it does to the Arctic?
— Eastern Siberia, and, in particular, our development of the Chonskoy group of fields, has proved less fortuitous than Novy Port and Messoyakha. Market conditions worsened just as we got to the point of pilot operations. So these had to be somewhat extended over time and that, of course, can impact the lead time in bringing a field into development.
— Will this project also be implemented in phases?
— Yes, we’re trying to take a still less risky approach here than in Yamal since the Eastern Siberian fields are more complex from a geological perspective. There aren’t the massive prepared reserves here that there are, for example, at Novoportovskoye, where Gazprom had undertaken 3D seismic, and drilled more than 100 exploratory wells. So there’s no point in waiting for quick wins at Chona. We’ve dug ourselves in, settled in for the long term, and everything else depends on the outcome of pilot operations.
Another Eastern Siberian project — the development of the Kuyumbinskoye field — is at a more advanced stage: pilot works are now reaching completion, with an “early oil” programme, expected to start supplying the Kuyumba—Taishet pipeline as early as end-2016. The investment programme, though, will reflect the results of well development under pilot operations, of optimising infrastructure solutions, and of securing concessions on export duties.
— Well that’s a precise reflection of implementing project management principles — phased investment to mitigate the challenges of the worsening economic situation. Can you yet draw any conclusions as to how far that methodology was correctly developed from the start, and how well it was adapted to Gazprom Neft’s circumstances?
— Basically, the concept of phased investment just confirmed its effectiveness yet again. Although the methodology just needs to be corrected to reflect our moving away from developing major fields towards working with average-sized assets and smaller fields.
As a result of which, phases overlap: for example, commercial production can begin while a field is still not fully developed. Accordingly, you have to involve various specialists — as well as various business units and functions — at any one time.
— And your education programme, Prodvizheniye (Moving Forward — read more about this in Siberskaya Neft No. 130, April 2016) has been developed precisely to facilitate that sort of integration?
— One element of it — PROconcept — is directed at that. That programme definitely envisages the collective cross-functional education of managers and specialists, although there haven’t been that many complex tasks addressed through it as yet: training is based on cases that, more or less, fit with the project concept. The project lets people build their project experience on field development — albeit theoretical — fast. That sort of experience is very important.
Some companies — world leaders in running major projects — manage people with experience of developing five or six fields. We’re lucky if people have experience of one or two. So we train these people, and actively engage in rotating staff between assets. People working on Messoyakha, for example, need to know what’s worked well at Badra, and vice versa.
— Have you got any practical examples of that sort of rotation?
— Of course. We recently sent a very good specialist, who’d been on the PROconcept course, as it happens, from Novy Port to Romania, where NIS is involved in geological prospecting — and in a more senior role. Many people, some time ago, moved to work at the Novoportovskoye field. There’s currently a lot of movement between the Badra and other projects in Kurdistan.
— Speaking of which, what’s happening with our projects in the Middle East?
— In terms of production, it’s not going badly at Badra at all. Production is increasing, and we’ve completed construction of all oil-treatment infrastructure. The next job will be commissioning gas infrastructure, which we plan to bring online, as a priority, before the end of this year, and after that — completing facility construction and supplying gas to the pipeline.
We’ve seen very good performance in drilling. Whereas the first well drilled took almost 600 days, today drilling a single well takes just over 200. Well construction costs have decreased accordingly. The second phase of construction of a workers’ residential complex is nearing completion. Badra, in general, has, over the past year, been rightly recognised as the best of the Upstream Division’s major projects.
— Has the situation in country impacted implementation of this project?
— The region is certainly challenging. This project spent the whole of last year ready to evacuate, since DAESH (a terrorist organisation banned in Russia) was approaching Baghdad. We don’t have that problem now, but the country is beset by political crisis. There are also specific problems in our collaboration with our partners, with questions over the contract. But, thanks to our efforts, none of this has impacted the project, and all works are going according to plan.
— What about the situation in the Kurdistan Region of Iraq (KRI), where the company also has several projects?
— That too has not been without its difficulties, of course, but we have seen a major achievement on this asset this year, becoming operator on the Sarqala field. We’ve got all regulation in place, and have been training personnel. Next we plan to drill an exploratory well at Sarqala, as well as undertaking prospecting operations.
So the main challenges today, I suppose, lie in developing other fields in the region, and in negotiations to acquire more mature assets.
— The company is paying particularly close attention to the issue of safety currently. Badra is being developed by an international consortium — does this project differ from Russian assets in terms of HSE?
— Management of workplace safety at Badra has been put in place by specialists coming to us from our joint venture, Salym Petroleum Development: in other words, people with first-hand knowledge of how to do it, and with extensive experience in working in Russia with management from Shell. In my view, everything has worked out, and Badra will now become a testing ground for many HSE practices in terms of their applicability to the company’s other projects. Specifically, we began rolling out our “Steps” strategy in Badra as early as two years ago. They were more ready for this there than anywhere else thanks to the extensive use of EPC contracts with major western contractors, putting in place their own HSE management systems. It’s written into the contracts that we’re paying not just in terms of work done, but also based on safety. This has worked, and the Steps programme is now being applied throughout the company.
— What key challenges, specifically, does the Major Projects Directorate face now?
— The number one objective at the moment is bringing the Messoyakhskoye field into commercial production and increasing infrastructure capacity at Novoportovskoye to 5.5 million. These tasks are far from simple, but in terms of the company’s viability they are extremely important. Added to which, we have to develop not just production but also social infrastructure — which is another key objective in the short term.
And there’s yet another very important area, concerning optimising the project portfolio. It’s important to make the right assessment, or ranking, in order that revenues generated now are put to maximum use. And — concurrently with this — you have to work at reducing operating costs: something of particular relevance in the current environment.