Interview with Marat Atnashev, Head of the Major Projects Directorate of JSC Gazprom Neft
March 2011. FSU Energy (Argus Media)
Gazpromneft is establishing a new production hub in the Yamal-Nenets district of west Siberia, where it plans to produce more than 400,000 b/d of oil equivalent in 2020. Upstream director Marat Atnashev outlined the company's plans during a recent interview with Argus
Gazpromneft is operator of the Messoyakh group of fields. What are the main challenges?
Messoyakh is comparable to Rosneft's Vankor field in terms of reserves. With estimated resources of up to 1bn t, this is arguably the largest undeveloped field left in Russia after Vankor. In Yamal-Nenets, nearly all fields contain oil, gas and condensate. This is a new situation for us, because we need to think about a transport solution — not just for crude, but also for gas and condensate. The Messoyakh blocks contain a combination of heavy and light crude, as well as considerable gas and condensate reserves.
At Messoyakh we face three main challenges. First, we need to continue with exploration to add more proven reserves, which currently stand at 790mn t of C1+C2 reserves of oil equivalent. Secondly, we need to come up with three transportation solutions for these fields. We are working closely with Transneft and other oil companies to ensure that the Zapolyarnoye-Purpe pipeline will be built in time for our project.
We believe that the complex resources in this region can only be developed efficiently though partnerships and industrial co-operation. Being part of the Gazprom group, we think that we have a competitive advantage in this region and have a lot to offer our partners in terms of competence, logistics and commercial solutions.
And finally, we need to get ready for development of the fields, which have a complex reservoir in terms of the crude quality that it contains. Messoyakh is a huge field and we will be developing it in stages, but we have to determine which blocks we will develop first and which are more risky and will have to be left for later. We will drill five new exploration wells this year in a bid to add reserves.
How is your partnership with TNK-BP developing in this project?
TNK-BP has a very constructive position on the project and is actively involved. We see the fact that two companies are involved as an advantage for such a capital-intensive project. TNK-BP has experience in this region — through its involvement in projects such as Russkoye, Suzun and Rospan — and this experience can be applied at the Messoyakh group.
What sort of quality is Messoyakh crude?
There are two groups of layers — the shallower ones contain heavy oil and the deeper ones light oil. We have a good structural understanding of the sections containing heavy crude. Our focus has now switched to increasing the light crude reserve base through an active and well-defined exploration programme.
We are not afraid of producing heavy oil — and we do not view this as something that could bring the project to a halt. All the necessary technologies are available for us to produce, process and transport this type of crude. But the aim is to properly assess the overall potential of this giant project and calibrate the future infrastructure properly. We would not want to duplicate or be forced to rebuild the on-site infrastructure.
When do you plan to begin pilot production and how much will you invest in the project?
We will start preparation for pilot production next year, with a view to launching in 2013. An increasing amount of investment will start flowing into the project next year. Investments this year will be $130mn, rising to more than $300mn in 2012 and to more than $1bn in 2013. These are the overall costs that will be split between Gazpromneft and TNK-BP. Overall estimated investment in the Messoyakh project stands at $20bn.
What are the geological characteristics of the fields?
We work more in the eastern part, but we see the eastern and the western blocks as one complex. If the geological structure is the same, the approach to development should be the same as well.
How will you link the fields with the planned Zapolyarnoye-Purpe pipeline?
There will be a pipeline link from Messoyakh to Zapolyarnoye — around 100km. The link will be constructed by the field's licenceholder as part of the development project.
What are your production estimates?
When we launch commercial production, we will be looking at producing 2mn-5mn t in 2015-17. Peak crude production is expected to reach around 20mn t/yr. And gas output will peak at 10bn m³/yr.
What kind of tax regime do you anticipate and how will this affect development of Messoyakh?
Under the existing tax system, the project is difficult, as are most of the greenfield projects in Russia. We are making an effort to optimise expenditure on infrastructure and improve the economics. But to develop this project at full scale, a new tax environment will be needed. We expect that by 2013-14 we will have a new tax regime to stimulate greenfield development.
Messoyakh is an anchor field for the region and is meant to offset Gazpromneft's declining west Siberian production. This is one of the best assets in the region, and this gives us grounds for optimism that with a new tax regime we could make it an efficient long-term investment.
Do you see any prospects for further expansion in Yamal-Nenets?
We believe that there are blocks to the north of the Messoyakh fields that could contain hydrocarbons as well. This is something for us to look into after Messoyakh is up and running.
Before embarking on the development of Messoyakh, Gazpromneft is supposed to bring on stream the Novoportovskoye field on the Yamal peninsula, which it received from parent company Gazprom. What are the most immediate issues to address at this project?
The main problem is transport. Novoportovskoye is on the Yamal peninsula, which is very distant from any infrastructure and a long way from the planned Zapolyarnoye-Purpe pipeline. There are two main players in this region, our parent company Gazprom and Novatek, our strategic partner in several projects, so any transportation solutions will be worked out in dialogue with Gazprom or Novatek.
These two companies are considering building transportation routes on the Yamal peninsula, although neither of them is likely to make a decision soon. The transportation solution for Yamal liquids will be found eventually.
Given this dependence on Gazprom or Novatek, how can Gazpromneft be confident that it is able to bring Novoportovskoye on stream in 2013?
We decided that the only option that will work for now will be the seasonal delivery by water of a certain volume of crude. From 2014, we aim to produce 350,000-500,000 t/yr, which is a reasonable volume for a full-scale pilot production programme. This gives us a chance of not having to wait seven or eight years until Gazprom and Novatek launch their own massive Yamal projects.
The profitability of the pilot project is marginal under the current tax regime, but it provides critical information and helps us to evaluate the technology that will be needed for full field development. In the longer term, we expect that Novoportovskoye will be developed under a different tax regime.
Have you factored expected taxation changes into the economic model for new projects?
Across all of our new fields, we plan for development under the existing tax environment and test our expectations for a new tax regime and possible oil price changes in a second model. We have not made a final investment decision on either of the two projects so far. But more clarity will be needed when the time comes to make final investment decisions — $10bn-15bn for Messoyakh and $5bn-6bn for Novoportovskoye.
Gazpromneft last year became a shareholder in Severenergia through its joint venture with Novatek. What are Gazpromneft's expectations for this project?
Severenergia is a strategic investment for us. Novy Urengoi is a region where gas is traditionally produced from the Cenomanian layers, which are technically easier to develop and yield higher well flows. But the Valanzhin and Achim layers there contain colossal reserves, and are also blessed with condensate reserves and oil rims. As production from the Achim and Valanzhin layers is the next stage of Novy Urengoi region development, the question arises of what to do with the crude and how to produce it.
At Severenergia we formed a strategic partnership with Novatek, one of the strongest players in this region. And we get a very attractive asset in terms of liquids and gas reserves, located close to the main industrial and transport infrastructure, making it a strong candidate for faster growth.
Our strategy envisages long-term sustainable growth, so we need assets that have substantial growth potential. Severenergia fields will yield first gas in 2011-12, with potential peak production of 25mn-35mn t of oil equivalent (toe). Gazpromneft's share will be 6mn-8.5mn toe/yr.
How do you plan to transport condensate and crude from Severenergia fields?
We expect no problem with condensate transportation, given that we have the right partner in Novatek. The crude from Severenergia is likely to go into the Zapolyarnoye-Purpe pipeline. Pilot crude production is expected in 2013-14, ahead of full field development. Condensate can be produced earlier, but the shareholders have yet to decide what to do with it. Severenergia management and its shareholders are evaluating different options to maximise the value of the asset for all shareholders.
What is the expected share of Yamal projects in Gazpromneft's overall production in 2020?
The Messoyakh field could give us over 10mn toe/yr, while Novoportovskoye could give us 5mn-6mn t/yr and our Severenergia share should yield us 6mn-8mn t/yr in 2020. This is a significant share, considering Gazpromneft's current level of production.
Will the Barents Sea Prirazlomnoye field be awarded to Gazpromneft soon?
We have agreed with Gazprom that Gazpromneft will be the operator of this project, although this does not mean that we will get the licence as well. We are monitoring the status of the development. But for the time being, we are focusing on the Novoportovskoye and East Orenburg fields, because these are the first assets that will be transferred from Gazprom to Gazpromneft.