Gazprom Neft geologists are now estimating the company’s production potential beyond 2030

Interfax

Alexei Vashkevich, Head of Geological Exploration and Resource Base Development Directorate, talks to us about the outlook for geological prospecting at Gazprom Neft.

Interfax

— Gazprom Neft pays considerable attention to geological prospecting — crises, the changing oil price, and the OPEC+ deal notwithstanding. What level of geological prospecting have you managed to maintain?

— A quite high one. For example, 2017 was, for Gazprom Neft geologists, not just good, but one of the best — across all metrics — in recent years. Twenty seven new prospecting wells were drilled across the Gazprom Neft Group, including our interests in joint enterprises and international assets. Based on assessments of these wells, and on the basis of seismic works undertaken (amounting to more than 3,500 square kilometres in total), the company has secured a reserve-replacement ratio of 115 percent, with total hydrocarbon production of approximately 89.7 million tonnes of oil equivalent (mtoe).

Major discoveries have been made as a result of geological prospecting works, the most significant of which is the Zapadno-Zimniy licence block. A new field is to be named in honour of Alexander Zhagrin (the former Head of Gazprom Neft’s Production Directorate, who died at the end of 2017 — Interfax). The Yuzhny Hub (Southern Hub) project, being implemented under a joint venture with Shell — Salym Petroleum Development — is showing good results, having, in fact, been awarded “Best Geological Prospecting Project of the Year” within Gazprom Neft. As is well known, the major Neptune field was discovered by Gazprom Neft offshore in the Sea of Okhotsk. There have also been achievements at international assets.

Looking back over the outcomes of the last three years — and in geological prospecting it makes more sense to take this as a basis (one year in preparation, a year for seismic, a year for drilling) — over that period we have been able to accumulate potential production volumes of at least 11 mtoe. That’s approximately 10 percent of the target production level — of 100 mtoe — to be achieved under company strategy by 2020.

— And what ambitious plans for geological prospecting can you lay claim to in 2018?

— We are significantly increasing both our investment programme, and our drilling plans. While Gazprom Neft’s investment in geological prospecting in 2017 stood at RUB11 billion, approximately RUB30 billion (excluding offshore investments) has been approved for 2018. Last year we drilled 27 wells; this year 46 have already been approved. We might even exceed that plan. Added to which, investment is increasing in excess of drilling volumes, as wells become more complex and high-tech.

The main regions we’re going to be investigating in Russia in 2018 include: Orenburg Oblast, the Khanty-Mansiysk Autonomous Okrug, Eastern Siberia, the unconventional reserves of the Bazhenov Formation and the Achimovsky strata. Internationally, the main prospecting works are scheduled in the Balkans, where we plan to initiate drilling programmes. Additional investigations will generally be ongoing In the Middle East. If we’re talking about new wells then we expect to complete drilling of the Shakal-1 well in the Kurdistan Region of Iraq (KRI), allowing us to take a decision on investing in the further development of that project.

In addition to this, the company is undertaking major work on technological developments in geological prospecting, and we are constantly increasing investment here. The key objective in 2018 will be developing a comprehensive and inclusive digital strategy within the Upstream Division, as well as launching our own “Digital Studio”.

— What do you forecast the RRR to be at the end of 2018?

— We expect this figure to be between 102 and 105 percent. That’s our strategic ballpark figure. The programme for improving the quality of the resource base allows us to strike a balance, to look into options for improving the reserve portfolio — for example, in terms of geological prospecting, by selling “tailings ” — which is something we did, selling licence blocks around Noyabrsk in 2017. Selling unpromising assets allows reinvestment in more interesting areas.

— How do you see company policy on geological prospecting in the short term — what do you plan to focus on?

— I’ll start with the geography of the regions we operate in. This has already been clearly delineated, and we don’t plan to change anything here. Added to which, we still have major projects abroad, in the Middle East and the Balkans. In Russia, we’re deliberately consolidating our position in key target areas — the Khanty Mansiysk Autonomous Okrug, the Yamalo-Nenets Autonomous Okrug, and the Orenburg Oblast.

If we’re talking about project structure, in geological prospecting this breaks down to pure exploration, and projects in active development. Gazprom Neft intends to focus on the former, strengthening the exploratory component, specifically — we’re currently in the process of investigating more than 10 such options. That’s our overriding objective, which also takes into account the company entering new areas for exploration.

We bear all potential methods of acquiring new exploratory blocks in mind — auctions, licensing rounds, potential partnerships, acquisitions, and so on.

New scientific and technical capacity has been developed within Gazprom Neft in recent years, meaning new prospecting assets can be discovered more quickly. This gives us a genuine competitive advantage, through which we hope, over the next few years, to expand our portfolio, and increase the value of our reserves.

We will continue working with existing resources throughout 2018. The methodological basis for the further investigation of existing reserves now stands at a very high level. The technological element, software, greater employee skills and competencies — all of this has, collectively, led to a situation in which our portfolio of opportunities for organic growth has increased not just by a few percent, but several-fold. Speaking of which, in 2014 we had 20, maybe a maximum of 30, geological prospecting options: today that number is certainly in excess of 100. Which gives rise to healthy competition as to the best options to finance, as well as giving us the opportunity of choosing the best sites for investment.

— Major projects now mean the company is showing good production growth. So will Gazprom Neft geologists be able to create a level of reserves that will allow this high rate of production growth to be maintained after 2020 — 2025?

— At the moment we are prepared to state that the company has created an adequate resource base, and that this will remain in balance for the next five years. In other words, even if Gazprom Neft doesn’t have any major discoveries over the next few years, in the absence of any external constraints, the company has the opportunity of achieving the strategic level of 100 mtoe by 2020.

But geological prospecting also includes long-term projects, not just for five or six years ahead, but for 10 to 15. And that’s objective we’re currently working towards — developing scenarios as to how Gazprom Neft can ensure stable production at a level of 100 mtoe or higher beyond 2030.

— And what growth areas do you see in that long-term perspective?

— That depends on a number of factors. The key one of which, perhaps, is how fast and effectively we can bring unconventional reserves into development, and also how fast we can implement plans to develop our offshore projects. That means — enormous resources, which we’re depending on, in the future.

— Gazprom Neft is the initiator behind the “Bazhen ” initiative in the Khanty Mansiysk Autonomous Okrug, which has been awarded the status of a national project. Have potential partners taken any decisions on this? Is anyone — apart from yourselves — willing to invest in this project?

— First of all, we work very closely with the government of the Khanty Mansiysk Autonomous Okrug here. The region has adopted legislation on property tax concessions within the framework of implementing the national Bazhen project. Secondly, Gazprom Neft has embarked on establishing a legal entity to which the licence for the Palyanovsky licence block — the technological test site for the Bazhen project — will be transferred. And thirdly — collaboration with potential partners is really starting to take shape. We are, already, expecting to enter into approximately 20 technological partnerships by the end of 2018.

Of the vertically integrated oil companies, most active collaboration is currently ongoing with RITEK (the research and development arm of LUKOIL), and we’re holding seminars on sharing experience with RussNeft. We’re also collaborating with potential technology developers, institutes and universities. Productive activities are ongoing with ROSATOM, with whom the Bazhen national project has been designated a priority area of cooperation between our two companies.

— How is ROSATOM going to help in tight oil extraction? What’s their interest in that? And will ROSATOM be making any financial investment, given that Gazprom Neft’s partners in the Bazhen project were supposed to be co-financing it?

— ROSATOM is a leader in developing new technological solutions in oil-related industries. That means various kinds of sensors, and new kinds of geophysical research instruments based on nuclear-magnetic elements.

Having gained an insight into ROSATOM’s work in progress, we saw a number of obvious areas for cooperation. Several joint projects have already been implemented last year, on an individual basis. This has now moved forward to become a strategic partnership, with 10 priority areas identified. The document covering our two companies’ partnership on the Bazhen project was signed in September 2017.

Our colleagues from ROSATOM have a unique scientific background. The national Bazhen project could prove to be a good testing ground for assessing their new technologies and ideas. We, for our part, value very highly the opportunity to collaborate with such a powerful industrial partner. As regards the issue of co-financing the Bazhen project — that question is currently being worked out.

— Gazprom Neft has yet another interesting new project in the Khanty Manskiysk Autonomous Okrug — the joint venture with Repsol, Evrotek-Yugra. How much did Gazprom Neft pay to acquire its 25.02-percent interest in that joint venture? When do you plan to increase your interest to 50 percent? Do you yet have any plan in place for joint development of this asset?

— As agreed with our partner, we’re not going to disclose the price of this transaction. We have the option of taking a decision on increasing Gazprom Neft’s interest to 50 percent until 2022. Gazprom Neft’s investment in this project to the end of 2019 will be in the order of RUB2.5 billion. We expect that this will allow us to complete geological prospecting as early as 2020.

Initially, the main work will be undertaken at the Ourinskoye field, with the next phases of the project involving satellites. Over the next two years we plan to re-commission (de-mothball) two wells, as well as drilling one new technologically complex horizontal well — which we expect to start in Q1 this year.

According to Gazprom Neft’s estimates, by 2025 the joint venture could reach a production plateau in the order of 4.5 million tonnes of oil.

— There have been reports of Gazprom Neft and Repsol planning to expand their joint activities in Russia and abroad...

— Gazprom Neft and Repsol have built up a good working relationship, of which we are very proud. We hold regular technical sessions to discuss opportunities for cooperation. Details of this project are still too early to be made public; I can only say that a reasonable number of specific areas have been worked out. And there is clear and unequivocal interest in further joint activities, on both sides. We are actively discussing all areas of cooperation — both in Russia, and abroad.

— Let’s turn to Gazprom Neft’s collaboration with its main shareholder. The oil company sees some potential in expanding its reserves through assets belonging to Gazprom; which of the parent company’s assets strike you as the most promising?

— Our starting point is that we’re part of the Gazprom Group, so it’s usually more operational activities than strategic. The basis for cooperation has, in principle, already been determined — it’s a matter of licence blocks being transferred from Gazprom to Gazprom Neft, as was the case with the Zapadno-Yubeleinoye, Severo-Samburgskoye and other fields, or a case of Gazprom Neft acting as operator on Gazprom assets, as is the case at the Chayanda, Pestsovoye and Zapolyarnoye fringe-oil accumulations.

It was recently decided that Gazprom Neft, again as operator, will also investigate the Achimov deposits at the Yamburgskoye field. On the one hand, this offers Gazprom Neft the prospect of gaining access to a colossal volume of reserves — more than one trillion tonnes of hydrocarbons. On the other hand, it’s an extremely complex task — considerable depths, low permeability, and abnormally high pressures. But we believe that — in terms of technical feasibility and economic viability — this project is within our capabilities. Having gained quite specific expertise in working at the Severo-Samburgskoye field, we hold the keys to a complex project like the Yamburgskoye field.

As regards the Chayanda, Pestsovoye, Zapolyarnoye and En-Yakhinskoye fringe-oil accumulations, we currently undertaking pilots works on these, which will be completed around 2019–2020.

In addition to this, we have a project involving the investigation of hard-to-recover reserves at the so-called “Yubileiny cluster” — the Zapadno-Yubileiny block having been transferred from Gazprom. In the event that we are successful here we will also be looking at other adjacent blocks, in order to develop a regional model for developing these reserves.

— So Eastern Siberia could become a new cluster for Gazprom Neft?

— I’d put it another way. For the Gazprom Group, including Gazprom Neft, Eastern Siberia is definitely a strategic cluster. Gazprom Neft, together with Gazprom, has, over the past two years, been undertaking joint operations on forming a collective strategy for development in this region. And we see an obvious benefit in such a partnership, since all of the fields are either oil and gas fields, or gas—oil fields. Our two companies, complementing each other, are in a position to put up the funds necessary for effective development. And it’s from precisely that perspective that we view Eastern Siberia.

— Gazprom Neft is implementing the Chona project in Eastern Siberia. Why is the company delaying bringing this into operation? Have decisions been taken on potential project partner?

— Chona has always been a complex project, from the geological point of view. In order to eliminate any uncertainty regarding development the “early oil” phase is now just starting here, to be completed during 2019–2020. We’ll be drilling a second horizontal well at that project this year, launching a de-mothballing programme, and undertaking fracking of the strata. That means the project will be moving into pilot development, and the next two to three years will be conclusive in terms of the speed of developing this field.

The process of finding a strategic partner for joint development of the Chona project is reasonably well in hand — that is, representatives from the Asia—Pacific. I think we’ll come to a decision by the end of the year, one way or another, since negotiations are already at an advanced stage.

— Iraq has nine oil and gas fields up for tender — will Gazprom Neft be taking part in any of these?

— We’re currently at the investigation stage, and are engaging in a general assessment of our company’s interest in these. No decision has been taken, as yet, and a great deal depends not just on us, but also on the tender process, specifically. We’re involved in that process.

— The KRI Ministry of Natural Resources has offered Gazprom Neft a range of new blocks for geological prospecting. Were you able to identify any blocks of interest?

— Gazprom Neft continues to be involved in evaluating blocks — there’s a whole team working here. No concrete decisions have been taken thus far, but we are in constant dialogue with the ministry in question, locally.

— Gazprom Neft has sent the Iranian authorities a technical proposal on developing the Cheshmeh-Khosh and Changuleh fields. Has there been any response to your proposal, from Iran? And are you interested in other projects in Iran?

— As regards Cheshmeh-Khosh and Changuleh, Gazprom Neft has received additional information from Iran, and the normal process of aligning our positions is now ongoing. Technical sessions are held from time to time. The next step should be from Iran, which is considering several proposals on Cheshmeh-Khosh and Changuleh, from other potential bidders. As regards information on other assets in Iran, I can’t make any comment.

— You also cited the Balkans as one of the priority regions for Gazprom Neft.

— Yes, Serbia — where the Gazprom Neft subsidiary NIS operates — remains an area of heightened activity for us. We plan a major investment programme in the Balkans to 2025 — of up to $2.2 billion. We’re also seeing very good outcomes in Romania. We drilled our first well last year, and opened up nine payzones — both oil and gas. We’re now stepping up operations under our concessions, and plan to drill a further three wells in 2018. And we see great prospects for this project, in the near future.