The North of Yamal is Our Top Priority

Viktor SavelyevInterview with Viktor Savelyev, Head of Geology and Field Development Directorate, JSC Gazprom Neft
December 2010. Oil&Gas Vertical Journal

Last year, Gazprom Neft's crude output was at 48 mln tons while reserve replacement was 130 mln tons. The company was helped in this by new assets: in 2009, it acquired Serbia's NIS and Sibir Energy, together with NK Magma, as well as STS-Service early this year. Still, most of the additions come from further exploration of fields under development and from reappraisal of reserves.

During the first six months of 2010, the company's additions to recoverable oil reserves from exploration and appraisal drilling were 10% up on the same period a year earlier.

Over the next two years, Gazprom Neft plans to expand its exploration program and increase investments in exploration. This is what Oil&Gas Vertical discussed with Viktor Savelyev, Head of Geology and Field Development Directorate, JSC Gazprom Neft.

- Mr. Savelyev, could you please tell us about the results of exploration in 2009? How much does the company plan to invest in exploration this year?

- Last year, we replaced the reserves in full and achieved 260% of the planned figures. The exploration program was a major contributor to reserve additions. Moreover, exploration efficiency was very high: we invest about RUB 120-130 per ton of added reserves while the average figure for Russia is RUB 180-220. For this reason, we are now more interested in doing exploration ourselves, although we are not against the idea of acquiring assets with explored reserves.

The company launched a three-year exploration program last year. In 2010, investments in exploration will reach RUB 5.5 bln, in 2011, almost 6 bln. This relates to only our 100% assets. Plus, we also have programs for Slavneft and Tomskneft and a separate program for the Messoyakha group of fields in Yamal, estimated at another RUB 1.5-2 bln. Next year, we are launching a new project in the Orenburg Region where we will have another exploration program. Besides, we have an exploration program for Magma.

In addition, approximately RUB 500 mln from the exploration program will be spent on research, including front-end engineering design, studies of new areas such as the offshore zone of the Arctic and Southern seas, basin modeling and others. This year, we have spent RUB 26 mln on these ends.

The exploration structure will be as follows: in 2011-2012, we will complete 3D seismics at all existing fields in operation. We have already completed the bulk of this work, with about 10% remaining. At the same time, we will narrow the scope of 2D seismic operations down to two new areas only. The rest will be exploration and appraisal drilling: in 2011, 21 wells will be drilled. Out of these wells, five will be drilled within the Messoyakha project but we hope to reach agreement with our partner TNK-BP and expand the exploration program to ten exploration wells and seismic operations to 600 sq. km next year.

- What are the priority regions for the company in the coming years?

- All exploration works in the company are prioritized. First of all, we will focus on developing the areas that can be brought into full-scale development within the next one or two years. That is why West Siberia remains a top priority, with further exploration at the Valyntoyskoye and Vorgenskoye fields expected to be brought on stream in 2013.

By this time, we will essentially fulfill our license obligations in geological exploration and will shift the focus to new areas such as Gydan and Messoyakha in Yamal, Kuyumba in East Siberia, and Orenburg. These are also our priorities.

Aside from that, we have unexplored areas around Messoyakha, and we are now doing basin models for Yamal, after which we plan to submit a licensing program for non-licensed adjacent areas to Rosnedra (the Federal Agency for Subsoil Use). We want to perform full-scale prospecting and exploration across the entire area because it is interesting for us. We also expect to expand our resource base here by at least 1 bln tons.

We will be moving to the north of Yamal step by step using the potential of the city of Muravlenko and Noyabrsk District, with their huge technical and human resources capacities.

Our strategic goal is to increase the company's recoverable reserves to 2.2 bln tons, which will allow us to produce about 100 mln toe by 2020.

- Are there any projects where exploration drilling was put on hold last year?

- We had to suspend projects for some fields in remote areas: they are mostly assets in East Siberia, including the Tympuchikansky and Ignyalinsky areas.

The crisis was not the only reason for reduced exploration in this region. In this respect, everything comes down to logistics, and that is why we want to understand the resource potential of our fields first. We are now studying previous research findings and expect to integrate the data by the end of the year. If the economic evaluation of the project is positive, next year we will start investing in East Siberia as a separate project.

- Crude production in the region was supposed to start in 2011-2013. What is the new schedule for implementing the plans?

- We plan to start pilot production at existing wells during these years, without solving the logistics issues.

- What is your opinion about the success of exploration over the last few years?

- Last year, the geological success of our company was 100%. The only other Russian company that can boast the same figure is Slavneft. I think this is the result of our more conservative and systematic approach to selection and feasibility evaluation of drilling locations. First of all, we have ranked the locations; second, their evaluation was based on comprehensive analysis, i.e. we studied possible hydrocarbon migrations and accumulations, presence of reservoirs and caps, etc.

Recent discoveries include Vorgenskoye, Valyntoyskoye, and Ortyagunskoye fields where we are carrying out further exploration.

- New acquisitions in 2009 allowed Gazprom Neft to increase its resource base by 41 mln toe. Does the company prefer assets with explored reserves?

- It would be unwise to focus only on new acquisitions when expanding the resource base because there are not so many attractive assets on the market ready for sale. However, the crisis did oust many smaller companies from the market, which were unable to compete. This February we acquired STS-Service that owns a block of fields in the Tomsk Region. These fields are not large in terms of reserves but are very close to the Shinginskoye field developed by Gazprom Neft-Vostok LLC, and we expect a certain synergy effect from this deal. We are ramping up crude production here and will be developing the Nizhneluginetskoye field next year.

Last year we bought Serbia's NIS, with only 10 mln tons of oil in booked reserves. This year, its reserves grew to 12 mln tons through re-estimation. The resource base of Magma and SPD is approximately 60 mln tons.

We will continue buying new assets in the future. As to non-licensed areas, we are primarily interested in the fields located near the company's licensed areas, particularly in the Muravlenko and Noyabrsk Districts where our production is on the decline. However, since there are no new auctions or tenders for development of the nearby areas, we decided to present Rosnedra our licensing proposals for new unexplored areas.

- What are Gazprom Neft's offshore interests?

- These are strategic interests. Development of the company's resource base is a top priority. We have already completed application documents for four large offshore areas in the Pechora Sea and the Kara Sea and we are going to move on to the Chuckchi Sea.

Besides, we are interested in the Caspian offshore zone. There are, quite understandably, many other interested players; that is why we are now completing our regional studies, which will serve as the basis for our final decision whether to apply or not.

Offshore projects in the Black Sea are not as attractive for the company. Nevertheless, they can also take on new appeal if there are any tax benefits such as those for the northern seas. For this reason, we keep an eye on the Tuapse Depression and other areas of the Black Sea Basin.

I would also like to remind you that the area of our strategic interests in the northern seas and the Black Sea is the same as that of Rosneft. Therefore, we will have to come to an agreement, and we are ready for cooperation with our colleagues in any form, because we understand that offshore areas are a vast territory and offshore projects require huge capital investments. You cannot embrace the bounceless; you can either share it or develop it in partnership.

- Are you looking for partners among foreign companies?

- Yes, and they contact us on their own initiative. Anyway, before we start negotiating our cooperation, we have to have a more or less accurate evaluation of the resources for the offshore projects. This is what we are doing now: the company's research center is making basin models of the Arctic offshore zone to evaluate its petroleum potential. This is another level of research and forecast reliability.

- How is the transition of Gazprom fields going?

- According to schedule; now it is a purely procedural process. As to us, geologists, we decided long ago how the fields would develop. Today, front end engineering design is under way for preliminary projects of field facilities construction, which will make it possible to estimate how much investment is required to develop these facilities. The go-ahead will be given after we receive the license.

- What are the most complex projects in terms of geology?

- These are mostly fields with low-permeability reservoirs. We found a way to deal with them using hydrofracs and reservoir pressure maintenance control at the Priobskoye Field and can now use thermal gas methods.

However, we also have a number of low-permeability fields, such as Novogodneye, where fluids (so-called volatile oil) are neither gas, nor condensate or oil. We do not have any hands-on experience in development of similar fields yet, and we need shared engineering solutions. For this reason, we are ready to invite partners to these complex projects, including Shell and other companies.

- Could you please tell us about new technology the company uses in geological exploration and field development?

- As to exploration, new technology here is used mainly for further exploration and includes an unconventional approach to seismic data processing and re-interpretation. In this respect, we have come a long way over the last two years.

For example, last year we started drilling new wells in Jurassic sediments we could not detect earlier with conventional interpretation and found dozens of new prospective traps. What is more interesting is we do not drill special wells but use the operating wells drilled earlier to other overlying formations; in other words, we deepen the existing wells; this is our know-how.

The results of such an approach were immediately apparent. Using the new exploration technology, we increased output at the Vyngayakha group of fields by 30% last year.

The key basin modeling operations are concentrated in the Noyabrsk and Muravlenko Districts where identification of prospective traps based on paleoreconstruction is now a standard process.

Today, the depletion ratio for our reserves is 40 to 50% (50% to 60% in Noyabrsk, Muravlenko and Tomsk areas) and the water cut ratio is 70 to 80%. Therefore, production technology is a way to enhance oil recovery. It includes introduction of physical and chemical methods and injection of polymers and surfactants at later stages of development.

Our company was the first in Russia to launch a thermal gas stimulation project. Successful introduction of this technology will allow us to achieve a major breakthrough in development of low-permeability reservoirs because more than two thirds of all Russian reserves today are accumulated in these reservoirs.

We are also working on related issues, in particular, the so-called electronic field. Our research center is developing the Iskender Program and Industrial Complex to automatically determine the best well and pump equipment operation modes. This is also a sort of our know-how, and the creation of the product involves a number of defense companies and institutes.