“The experience we’ve built up in offshore development is unique”

Production worldwide is increasingly moving offshore. Russia too is successfully increasing offshore reserves and production — the most promising uncharted part of which being the Arctic. The first Russian company to start production there was Gazprom Neft, five years ago, at the Prirazlomnoye field. Andrey Patrushev, Deputy CEO for Offshore Development, Gazprom Neft, talked to Kommersant about progress on implementing that project, new discoveries, and plans for development.

—Offshore development is now increasing worldwide. Experts say that, thanks to modern technologies, offshore projects can be profitable even under the current oil price. How do you see Russia’s ability to expand offshore development — hasn’t activity here decreased as a result of the fall in the global oil price?

— According to data from international organisations, global offshore production now accounts for about 30 percent of total hydrocarbon output. Until quite recently companies were, against a background of falling oil prices, putting off taking investment decisions on offshore projects: but today we are seeing oil and gas producers once again prepared to bring these into operation. If you look at the dynamics in investment decisions being taken in global hydrocarbon production since market conditions stabilised, 70 percent have been in favour of offshore projects.

We’re also seeing an increase in exploratory drilling offshore. This has led to the number of discoveries — onshore and offshore — equalising in 2017–2018. Added to which, if offshore production was previously held back by high CAPEX costs, then the cost differential between onshore and offshore field development has recently been reduced, and the corresponding investment volumes are, all in all, comparable.

This is mainly being achieved due to the fact that the size of the prize offshore can be significantly greater. Apart from which, technology is constantly developing, leading to these gradually becoming cheaper and the economic viability of offshore projects improving overall. If we’re talking about the opportunities and outlook for Gazprom Neft’s production growth in the foreseeable future, then our company’s offshore discoveries have, for the second year in a row, been among the top-10 most significant oil and gas discoveries worldwide. So the discovery of the Neptune field on the perimeter of the Ayashsky block in 2017 was the fourth largest oil or gas discovery in the world. And taking into account the discovery of a second field — Triton — at the same block, among the top-20 most eagerly awaited discoveries of 2018, we have, thanks to these two offshore discoveries, increased the company’s reserves by more than 500 million tonnes.

— According to your forecasts, which of Russia’s regions are likely to offer the main growth points for Gazprom Neft in terms of offshore production?

— Given the discovery of the Neptune and Triton fields, the new growth point in offshore production will, without a doubt, be Sakhalin, where the company is developing a new production centre. Russian oil workers are already experienced in working offshore from Sakhalin, which is an indisputable advantage of the region, given its developed infrastructure, the accessibility of contractors and services, and the availability of qualified personnel.

At the end of November we won an auction for development rights to the Yuzhno-Obsky block, where company specialists provisionally estimate reserves in place be in the order of 400 million tonnes of oil. This block is directly adjacent to the Novoportovskoye field (being developed by Gazpromneft-Yamal — ed). The obvious synergy of these projects is a further driver for both the company’s offshore projects and its production cluster at Novy Port.

—Who might Gazprom Neft partner with in developing the Ayashsky block and other new fields?

— The next three years will see us continuing geological prospecting activities on Sakhalin. The amount of financing needed will be determined on the basis of prospecting outcomes, and an assessment of likely production. International practice indicates that only 10 percent of offshore projects are developed by companies independently. We are looking for ways to establish mutually profitable long-term relations with both Russian and international companies. Added to which, of course, we’ll be guided by the economic viability of the terms proposed by potential partners. If such terms turnout to be less attractive than working independently, we can implement the projects under our own steam. In the Arctic, for example, we’re continuing exploration activities at our own expense.

— Is domestic R&D helping in offshore investigations and evaluations in the light of sanctions-driven limitations on accessing technology?

— Insofar as the Russian continental shelf — covering an area of about five million square kilometres — has, thus far, been poorly researched, exploration technologies are of particular value. There are, certainly, specific limitations in involving foreign technologies and equipment in seismic works. In which context, we are undertaking systemic activities on import substitution in this sector. The company, in cooperation with our partners and supported by the Government of the Russian Federation, has already implemented several such projects. Commercial testing of new domestic equipment, designed to replace foreign technologies, is ongoing. This means, predominantly, Russian-produced gel-filled seismic streamer, seafloor seismic surveying stations, marine Christmas Trees (an assembly of valves, spools and fittings used to operate a wellhead) and ESPs (electric submersible pumps — ed.). A Christmas tree and pumps are already in operation at the Prirazlomnaya offshore rig, in no way falling short of international alternatives in terms of quality and performance. These have to be used with various oils and lubricants produced by Gazprom Neft and used, instead of imports, on the rig.

— Is everything going to be replaced with Russian equipment, essentially? Isn’t it often cheaper to buy readymade, turnkey solutions?

— On the one hand, work on import substitution is now in hand, at the state level, in Russia: but, at the same time, our company isn’t trying to develop everything independently — we’re buying services on the market, where suppliers are competing with each other. And, of course, if we see that a Russian contractor is competing for one of our contracts, we bear that in mind. At the same time, nationality isn’t an ironclad guarantee that a company offering Russian content is going to be selected. All things being equal we will, without a doubt, make a choice in favour of a domestic contractor, but that contractor’s offering has to be competitive.

— Commercial production started at the Prirazlomnoye field in the Pechora Sea exactly five years ago. How does the company view the outcomes of implementing that project?

— Yes, indeed — production at Prirazlomnaya started on 20 December 2013. Development of that project is still ongoing today. We see the development of the Prirazlomnoye field as a successful project, without a doubt. It was the first to be launched on the Russian Arctic Shelf. Total cumulative production at Prirazlomnoye to date already stands at more than nine million tonnes of oil. Sixteen of the planned 32 wells have already been commissioned. Oil is being shipped from the rig all year round, including under icebound conditions in winter. “Arco” oil from the Prirazlomnoye field is in high demand because its unique properties and composition are ideally suited to deep refining at European oil refineries. Added to which, effective oil-logistics management means there is no increase in price.

— Was the project adjusted or corrected in any way during its implementation?

— The key project parameters remain unchanged. But, in line with the development of modern technologies we are, for example, engaged in the “digitisation” of the platform and implementing the “Poseidon” project. This project envisages creating a digital model of the rig and the field. With the help of this integrated model it will be possible to optimise equipment operation and reservoir management. Used together, this will make it possible to put the best solutions forward, leading to production, CAPEX, and OPEX being optimised.

— Will it be possible for the experience gained at Prirazlomnoye to be transferred to future projects?

— We are constantly developing our competencies at Prirazlomnoye. The production experience we are gaining here is unique. We are fine-tuning safety technologies, as well as methodologies in rig management, production, and ice-bound conditions. For example, spring this year saw the most challenging ice conditions in the entire history of shipments around the Prirazlomnoye area. In order to ensure the safe and continuous operation of shuttle tankers we engaged the powerful Vladivostok icebreaker for the first time. With its help Gazprom Neft began developing practical techniques for managing ice-conditions around the Prirazlomnaya platform. The outcomes of this now form part of a system for managing ice conditions put in place by Gazprom Neft which are ensuring the safe and effective implementation of the company’s projects in ice-bound seawaters. We will be using these and other best practices in implementing our offshore projects, going forward. I would also point out that Gazprom Neft is, probably, the only company with reasonably serious experience in geological prospecting, and in fitting-out and operating production facilities in the freezing waters on the Arctic Shelf.

— You have led the Offshore Development Division since its inception. What are the division’s objectives, in the short term?

— First and foremost, the key objective is the further development of the Prirazlomnoye project, and taking this to target capacity. Secondly, continuing geological investigations at the company’s existing offshore blocks — the number of which has seen a significant increase since the division was established. We have acquired the Ayashsky license block, and won the licensing round for subsoil development rights at the Yuzhno-Obsky block. We drilled two wells at the Ayashsky license block in 2017–2018, discovering the Neptune and Triton fields. We are continuing planned investigations at our Arctic blocks, as a responsible subsoil user. We completed 5,125 square kilometres of 3D field seismic works at the Severo-Zapadny license block in 2017–2018, and 5,123 linear kilometres of 2D seismic at the Severo-Vrangelevsky block in 2018. The data obtained will allow informed decision making, in the future — that is, in terms of the production programme.

In terms of organisation, the company took a decision on the digital transformation of the division, which should be complete by the middle of next year. This transformation is directed at optimising the management system, allowing the bureaucratic element to be reduced and reducing the number of management levels. A management team will be established within Gazprom Neft Shelf, which will be the decision making centre and the strategic centre for the management and implementation of offshore projects. This updated structure will include specialist companies for operating offshore oil and gas facilities and for geological prospecting, as well as an offshore competency centre. This is necessary because each area has its own specific needs and characteristics.

— How far have requirements changed regarding the skills needed by specialists working in the company, or those planning to start work? What’s most important for today’s oil industry — technology per se, or the people with the ability to work with such technology?

— Implementing technically challenging offshore projects demands unique competencies and expertise beyond standard educational programmes. We are putting partnerships in place with specialist Russian and international higher educational institutions: we are supporting a joint international MSc programme between the Gubkin Russian State University of Oil and Gas and Norway’s Stavanger University on offshore oil and gas field development. We recently launched a joint educational programme, “Procurement and Logistics in Offshore Projects in the Oil and Gas Industry” with Murmansk State Technical University. We are also implementing our own educational and continued professional development (CPD) programmes directed at further developing talent pool. A competency development programme, “Operational Activities and Infrastructure” is being developed at the Gazprom Neft Corporate University. In addition to which, every year we select employees to study under the “OffshoreProject” programme, based on Russian and international experience in developing offshore fields. These and other initiatives are directed at personnel development, and offer the opportunity to study everything at the cutting edge, so that we are constantly ahead of the curve — because the development of the Russian continental shelf is a major strategic area for us. We have every confidence that offshore is going to play an increasing role in the company’s activities. In today’s environment professional talent is becoming an ever more valuable resource, and developing human capital is an overriding priority for us. Because any technology starts to make sense only thanks to humans.