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Gazprom Neft upbeat over Arctic oil as prices recover

Gazprom Neft upbeat over Arctic oil as prices recover

London — Russia’s vast but challenging Arctic offshore oil resources have regainedtheir appeal due to the oil price recovery and, given time, are likely todevelop into the country?s key oil-producing region, according to GazpromNeft’s official responsible for Arctic projects.

S&P Global Platts

The state-run oil company operates Russia’s only producing Arctic offshore oilfield, Prirazlomnoye in the Pechora Sea, and continues to explore at fourother Arctic licenses.

Gazprom and Rosneft , the two other state energy giants with rights to developRussia’s Arctic resources, shelved survey works on many licenses in the regiona few years ago amid low oil prices and sanctions blocking western companiesand technology from the area, and halted a number of projects.

But with breakeven economics of around $50/b, Gazprom Neft estimates that mostArctic projects could now easily turn a profit at current oil prices of $75/b,said Andrey Patrushev, the company?s deputy CEO for offshore projects.

“They are economically viable at the moment, no doubt,” he told S&P GlobalPlatts in an interview.

Russia’s Arctic offshore holds 585 million mt of crude and 10.4 Tcm of gas inABC1+C2 reserves, equivalent to proven, probable and possible reserves underinternational classification, according to the natural resources ministry?s2016 estimate, while hydrocarbons resources are believed to be many timeshigher.

While East Siberia, where Gazprom Neft plans to launch several fields in themid-term, is to become a key region for the company?s output growth until2030, offshore projects, including in the Arctic, hold the next big productionpotential after that, Patrushev said.

“We believe that technology and infrastructure development, including in theArctic region, will allow for profitable hydrocarbons production there,” hesaid.

Arctic offshore plansOil production at Prirazlomnoye is set to grow by 33% on the year to 3.5million mt, or about 71,000 b/d, this year, before hitting the 5 millionmt/year plateau in 2021-2022, Patrushev said. Plateau production is expectedto hold for three-four years “for sure,” he added.

Gazprom Neft is also considering the field’s next development stage throughtapping the field?s deeper Silurian-Devonian geological layers, he said. Thisproject, drafted for 2024-2026, can add 1.1 million mt/year to the field?sproduction , according to the company?s preliminary estimates.

Gazprom Neft plans to shoot new 3-D seismic over 500 sq km of the area thisyear, the outcome of which will define further prospects and inform decisionson drilling targets at the layers, Patrushev said.

The company also expects to complete a review of a 3-D seismic survey at theDolginskoye field and Severo-Zapadny block by the end of this year, he said.Both licenses are located in relative proximity to Prirazlomnoye, in thePechora Sea.

Gazprom Neft initially planned to launch Dolginskoye in 2019 but three yearsago pushed the date to 2031, citing the need to reconfigure the field’sgeological model after drilling the first well in the northern part of thefield in 2013.

Two other licenses with tougher geographical and weather-related challengesremain a prospect for much more distant future, Patrushev said. These includethe Kheysovsky block, located 1,000 km offshore in the Barents Sea andSevero-Vrangelevsky block lying partly in the East-Siberian Sea and partly inthe Chuckchi Sea in the eastern part of the Russian Arctic.

"They are geographically very large, very distant areas, and very littleknown. But they have very large potential and may hold large resource there,"he said.

Sea of OkhotskDespite the Arctic’s huge potential, Gazprom Neft plans to see its nextoffshore barrels from the Far Eastern Sea of Okhotsk due to well-developedinfrastructure in the area, Patrushev said.

The company plans to launch the Neptune field it discovered last year offshoreSakhalin Island in 2025, he said. The company estimates the field’shydrocarbons production at 6 million mtoe/year at plateau.

The Sakhalin cluster is an “understandable” conventional region for thecompany with developed infrastructure and available contractors and services,Patrushev said. Also, sufficient geological information about the regionallows better estimates of the future projects’ efficiency, as opposed toprospective but little-explored distant Arctic areas, he said.

Gazprom Neft is also continuing talks to attract foreign partners “mainly butnot exclusively from the Asia -Pacific region” to its offshore projects.

Last month, the company signed a memorandum of understanding with Japan’sMitsui on cooperation at the Ayashsky license, which includes Neptune. It alsohas an MOU with India’s ONGC Videsh on potential offshore cooperation inRussia and third countries, signed last year.

The shape and terms of both MOUs remain to be defined but do not rule outjoint ventures, Patrushev said.