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Russia develops a new oil blend from West Siberia’s “tight” reserves

MOSCOW, 14 May 2019 RIA NOVOSTI NEWS AGENCY — PRIME, Alexandra Kryzhanovskaya. Some years ago the United States delivered a revolution in oil production, succeeding in producing significant volumes of shale oil — a form of hard-to-recover or “tight” oil — through hydraulic fracturing technology. In Russia, future technologies for tight reserves are being developed at a test-facility at Gazprom Neft’s Bazhenov Technology Centre, which is working on oil at the Bazhen Formation. Kirill Strizhnev, CEO of Gazprom Neft’s Bazhenov Technology Centre, talked to us about the possibility of new revolutions, the outlook for developing domestic technologies, and plans to develop a new oil blend, in this interview with RIA NOVOSTI NEWS AGENCY — PRIME Business News Agency.

Kirill Strizhnev, CEO of Gazprom Neft’s Bazhenov Technology Centre

— Kirill Vladimirovich, in your view, how fast does technology for developing hard-to-recover oil need to be developed in order for Russia to pull off its own shale revolution?

— The Bazhen Formation, like other sources of tight oil, could give a second wind to Russia’s oil-producing regions, where production of traditional hydrocarbons is declining. And one of the key objectives in developing the Bazhen Formation concerns extending the life of existing fields by loading up existing infrastructure. So the word “revolution” isn’t so appropriate here. It’s more a case of “evolution”. Added to which, developing the Bazhen Formation — the most important source of unconventional hydrocarbon reserves in the world — is also the solution to quite a wide range of social issues in West Siberia’s cities, as well as extending exploration and production potential for the next 30–50 years.

Russia is currently producing about 600,000–800,000 tonnes of oil a year from the Bazhen Formation. We see scope — for the country, as a whole — to increase this figure to 10 million tonnes of oil per year by 2025. Gazprom Neft’s share in this figure will amount to about 2–2.5 million tonnes. And reaching plateau production in Bazhenov oil — up to 50 million tonnes per year, which today would mean almost 10 percent of Russia’s total oil production — could happen as soon as 2030.

— Have you been able to cut the production costs of Bazhenov oil in implementing this project?

— The first tight oil from Russia’s Bazhen Formation cost about $95 a barrel: the company has since been able to reduce that cost to about $60. By 2021 we expect to have developed an industrial exploration and production technology that will get the production cost down to $40 per barrel. That figure includes total cumulative production against capital expenditure — that is, all costs incurred in production. I can say that an acceptable level of profitability will correlate to a production cost in the order of about $30–40 per barrel, under a market oil price of about $50 per barrel.

— So oil production at the Bazhen Formation is profitable at an oil price of $50 per barrel?

— Yes, we’re working on those figures. Developing a viable commercial technology for producing Bazhen-Formation oil, and getting its production costs down to $30–40 per barrel, is planned for 2025.

— What’s Bazhenov oil like in terms of quality?

— Bazhenov oil is of very high quality. It’s light, low-sulphur, and of low-viscosity. I’m confident that these characteristics will allow it to stake a claim in developing its own commercial blend. Reserves at the Bazhen Formation are colossal — reserves in place, according to various estimates, stand at 18 to 60 billion tonnes. According to our estimates, its real potential stands at more than one billion tonnes. Recoverable reserves at those license blocks currently in our portfolio exceed 400 million tonnes of Bazhenov oil.

— What sort of investment is Gazprom Neft making in the project as part of its Bazhen development strategy?

— We’re planning to allocate more than RUB25 billion to developing the Bazhen Formation over the next three years.

One of the most important areas for investment will be developing and testing production technologies for Bazhenov oil — something that is currently being undertaken at the Palyanovskaya test-site at the Krasnoleninskoye field in the Khanty-Mansi Autonomous Okrug. Concurrently with this, we are involved in preparations for developing other Gazprom Neft license blocks with non-traditional hydrocarbon reserves — Domanic and Paleozoic deposits. Once technologies have been developed for the viable production of Bazhenov oil, we’ll be rolling these out at other assets.

— Is it true you’re working towards getting Federal status for the Bazhen project?

— Precisely so. At the behest of Deputy Prime Minister Dmitry Kozak and Minister of Energy Alexander Novak, the passport for the “Developing Western Siberia’s Bazhen Formation” Federal Project has already been put together. Raising its status and moving towards a new level will help those involved in implementing technological projects receive targeted support. Added to which, the project will be curated by the Deputy Prime Minister, which will make inter-agency collaboration (and four ministries at once will be taking part in this project) more effective.

— Did the centre take anything from foreign colleagues in developing the test site — and if so, on what issues?

— We studied international experience and cutting-edge practices in developing non-traditional hydrocarbon reserves, looking at Norwegian test-sites, shale-sands test sites in Canada, and shale projects in North America — which has meant the best international models being adapted to Russian conditions and the specific characteristics of the Bazhenov Formation.

The experience we gained has also become one of the preconditions for initiating work with the Ministry of Natural Resources on introducing changes to the Subsoil Law. The amendment put forward by us introduces the concept of the “technological test-site”. These can be established both at open acreage, and under existing licenses. It’s a new type of subsoil usage for Russia, the objective of which is — not exploration and production, but the development and testing of new technologies.

Work on a test-site basis is already being put in place at the Palyanovsky site at the Krasnoleninskoye field in the Khanti-Mansi Autonomous Okrug. It is precisely there that we plan, together with our partners, to develop hypotheses, test technologies, and conduct industrial experiments.

— What stage is the draft law on creating such test-sites for developing technologies for hard-to-recover oil reserves at?

— The draft law will be put forward in the spring session of the Duma. We expect it to be passed. And, accordingly, from 2020 we’ll be able to redraft our licenses and move these onto the technological test-site format.

— Is a partnering pool being put together on this project?

— We’ve got lots of partners. I would classify them into three groups: higher educational establishments and R&D organisations; teams from private innovation companies; and oil service and vertically integrated oil companies. We’ve now got more than 20 agreements signed with partners on technology projects in hand, with a further 30 about to be launched.

— And what sort of technologies are we talking about?

— We’ve only got a few specific individual projects being implemented in fracking — the key technology in developing unconventional reserves. First and foremost, we’re committed to developing a new frac fleet that involves new chemicals, materials and equipment, as well as software for calculating and justifying optimum programmes for improving fracking efficiency. Considerable attention is being paid to developing new equipment and technologies in well completion.

One important change we want to implement concerns moving over to a new market model — a separate, independent service for managing technological operations in fracking. We expect to launch the pilot project this year. The fact is that the level of technological development at Gazprom Neft means we can fulfil a whole range of operations independently.

We have our own software products for fracking, buy in our own proppant, and have qualified engineers and a methodology. But on today’s market, services are only sold on a “turnkey” basis, and we have to buy them as a package. Our job is to break fracking up into its component parts and develop competition between service companies, in every sector. That was the situation on the drilling market a few years ago. The result of that technological revolution was a 50-percent cut in operating costs.

— Which of these technological achievements are unparalleled abroad?

— Gazprom Neft has developed a globally unique fracking-simulation software product unparalleled anywhere in the world. It was, just recently, presented at one of the most important energy conferences, CERA Week, in Houston. Our solution attracted considerable interest from all international partners. Its USP is an algorithm that makes it possible to simulate new high-tech fracking with a highly developed fissure system.

Concurrently with this, work is in hand on a system of thermo-chemical well treatment equipment and technologies with no competitors worldwide. The key feature of this solution involves injecting supercritical water into strata. Supercritical water is the next aggregate state — the next physical state — after superheated steam; water in that state has unique properties, and is an excellent solvent and heating medium.

Supercritical water technology is designed to impact the actual solid organic matter of the oil-source rock and, as a result of high temperatures and high pressure, give rise to new light, mobile hydrocarbons. Herein lies the new resource potential of the Bazhen Formation, which will mean a significant increase in oil recovery. On which basis, we’re talking about a renewable energy source, located underground.

— What rights does a partner have in using joint technology?

— We take an open approach. If we develop a technology with a partner, then both parties have equal rights to replicate it. The more new solutions go onto the open market, the faster it develops — and that wider dissemination of technology leads to a lower product cost, including for us too.

— You ended 2018 with some good results in terms of production. Have you been able to maintain that pace in Q1 2019?

— Results for the first few months show we’ve made progress on several fronts. One of the most important results here being the completion of seismic works at the Palyanovsky test-site, which will allow our partners to obtain the most up-to-date information on the geological model for this block.

Added to which, the Bazhenov Technology Centre has been able to construct a record-breaking horizontal well for the Bazhen Formation, running to 1.5 kilometres, without using a rotary steerable system. The importance of this lies in the fact that this equipment is only produced by western companies.

We’re also undergoing some major organisational changes: a branch of the Bazhenov Technology Centre subsidiary is to be established within the Skolkovo Innovation Centre, due to open in summer 2019.