In an interview with Energy Intelligence, Aydar Sarvarov, head of Gazprom Neft’s directorate for large projects and general director of Gazpromneft-Development (Gazpromneft-Razvitie), spoke about the impact of the pandemic on the development of these projects and their prospects.
—What key projects are currently being implemented by Gazprom Neft Razvitie?
—We are currently working on a number of projects at different stages of implementation, both in Russia and abroad. One of the important areas is the development of fields under the long-term risk operatorship agreements (DRODs) with the parent company [Gazprom]. These are large-scale projects for the development of the Neocomian-Jurassic deposits of the Kharasaveyskoye and Bovanenkovskoye fields, the Achimov deposits and oil rims of the Urengoyskoye and Achimov deposits of the Yamburgskoye fields. As part of the DROD, we have already started commercial production from the oil rims of the Chayandinskoye, Pestsovoye, En-Yakhinskoye and Orenburgskoye fields. Gazprom Neft’s own flagship projects in Russia include the Tazovsky project and Gas of Yamal project, linked to the expansion of the gas transmission system of the Novy Port field. Gazprom Neft Razvitie also oversees the development of the Sarqala field at the Garmian Block in the Kurdish Autonomous Region of Iraq. Today, the fourth production well is being drilled there, which in the future will allow us to sustain production plateau on the field. At the same time, the infrastructure for utilization of associated petroleum gas is being built at Sarqala
—How has the market situation caused by the pandemic and falling energy prices affected the development of large projects?
—The pandemic demanded unprecedented measures to ensure the safety of employees’ health and to build systems to prevent the spread of the virus. The main test for the business was the economic consequences of Covid-19 pandemic and the collapse of the Opec-plus deal, which caused a decline in hydrocarbon consumption and a sharp drop in their value. All this required a serious revision of budgets, which were formed in other economic realities. These processes could not but affect the investments and the pace of implementation of some of our projects. At the same time, we were able to continue the development of most of the assets from our portfolio according to the original schedule. First of all, we are talking about projects implemented under DRODs on the areas licensed to the parent company. Here, we have practically not changed the commissioning dates and planned production levels, which are part of our obligations to Gazprom. We also tried not to change the timing of projects, the return on which is expected in the coming years.
—Have you had to rebuild relationships with your contractors who have suffered from a drop in demand for their services?
—Even before the pandemic, we made a strategic decision that our relations with contractors should be not just contractual, but equal partnerships. In 2019, a Code of Relationships was prepared, in which we prescribed the basic principles of collaboration. The focus was on long-term cooperation and the integration of internal processes, including our production systems. We tried to replace fines for improper performance with incentive mechanisms. The pandemic and the subsequent increase in financial burden forced us to accelerate the implementation of the new approach. As a first step, we reduced the number of fines for non-fulfillment of contractual obligations many times, leaving financial sanctions only for the most critical violations related to ensuring the safety of life and health of people, the integrity of facilities, etc. Moreover, we understood that the effectiveness of the implementation of our projects largely depends on the sustainability of contractors. Therefore, measures were envisaged to support them during this difficult time and to share the financial risks and burdens caused by Covid-19. For example, when organizing the delivery of personnel to the fields and the two-week pre-shift isolation of workers in observations, we also took into account the needs of contractors, because, depending on the scale of the business, not all of them could independently debug these processes during the pandemic. Therefore, we can safely say that the pandemic has accelerated the transition to a partnership system of cooperation with contractors.
—The company’s portfolio of large projects includes many of those located in remote locations in the Arctic, which creates an additional economic burden. In your opinion, are these projects profitable at current oil prices?
—We regularly update our plans in terms of the economic efficiency of the development of each asset, taking into account macroeconomic parameters. It is often necessary to look for new solutions to maintain or increase their profitability in changing market conditions. This is an extremely serious burden, which companies cannot always cope with on their own. It is important that at such critical moments the state takes into account the growing economic pressure on business and supports it, including through tax methods. To a large extent, the profitability, and sometimes the feasibility of new projects, depends on this as well as the scale of the future returns that they will bring in the form of taxes to the treasury, not to mention jobs and maintaining the market for oil field service companies and equipment suppliers — an entire production ecosystem that exists around each project.
—Many of the major projects are long-term. Do you see the demand for hydrocarbons in a few decades, given the forecasts for a drop in oil demand?
—The company’s development strategy takes into account all external factors, including the growing vector among Western countries towards alternative energy sources. At the same time, we are convinced that even with the most intensive development, “green” technologies and renewable resources will still have to compete with traditional energy sources. The global economy’s connection to hydrocarbons remains very strong. Therefore, we focus on the competitive component of the traditional energy sector, increasing the efficiency of our projects through organizational measures, implementing digital solutions and improving technologies. If Gazprom Neft’s previous strategy until 2020 was mainly focused on expanding the company’s scale and increasing production volumes, now we are focused on increasing efficiency.
—Let’s get down to specific projects. Will you please tell us how the preparations for the launch of the Tazovskoye field are progressing? What production volumes do you expect?
—We are actively continuing preparations for the start of commercial production at the field. We are now completing the construction of an oil and gas treatment facility and the crude intake point. Development of the Tazovskoye field is scheduled to begin at the end of the first quarter of next year. Production plan for 2021 is more than half a million [metric] tons of crude oil.
—Earlier the company considered the possibility of developing the Tazovskoye and a number of other fields in the Yamalo-Nenets Autonomous Region together with Royal Dutch Shell. As you noted, the amendment of Shell’s plans to participate in the project did not affect its implementation. Will you be looking for new partners?
—It is true, our plans have not changed in any way — we continue to develop the Tazovskoye field and other assets that were part of the project on our own. We are able to develop them ourselves, but at the same time we remain open to possible partnerships.
—Tell us about the expansion of the gas infrastructure of the Novy Port project. What is it for?
—The development of the gas infrastructure of the Novy Port field is being carried out as part of the large Gas of Yamal project, which is being implemented by Gazprom Neft Razvitie and Gazprom Neft Yamal. We are expanding a gas treatment unit to a gas processing plant, and are also building a gas pipeline for external transport through the Ob Bay. This pipeline will connect the Novy Port field with Russia’s unified gas transportation system. In the summer, our fleet carried out the construction of the pipe’s water section. In the fall, we are preparing to connect two sections, which are now being led by pipelayers going towards each other. In the second quarter of 2021, we plan to start commissioning work, and at the end of the third quarter we will be ready to start delivering gas to the unified gas transportation system for further transportation to the consumer. The project will significantly increase opportunities for gas utilization and monetization for the entire Novy Port cluster. This will create conditions for increasing production at the Novy Port field, which is currently constrained by limited gas utilization capabilities. Infrastructure development will make it possible to launch new production wells with a high gas factor. The commissioning of a new gas pipeline and a gas processing plant will make it possible to monetize up to 20 billion cubic meters of gas per year.
—The company plans to develop a number of license areas around the Novy Port field. At what stage are the decisions on these sites?
—The south of Yamal is an area zone of promising development with large-scale potential for the company. The portfolio of our new assets located there includes the Yuzhno-Kamennomyssky, Yuzhno-Novoportovsky and Surovy license areas. There are also the Blizhnenovoportovskoye, Khambateyskoye and Malo-Yamalskoye fields. When formulating development plans for a group of these assets, we take into account their geographic proximity and available infrastructure. All of this will provide a synergistic effect and will enable to bring to production resources that will help sustain the output plateau of the Novy Port field for many years to come.
—You have projects in Iraq in your portfolio. Is the company considering the development of new areas around the Badra field in federal Iraq?
—We are constantly assessing the development opportunities in the region. At this stage, we do not have specific plans for the implementation of projects near Badra. But if we talk about Iraq as a whole, we continue to look closely at the Mansuriyah field. We are in constant contact with the Iraqi Oil Ministry on the timing and format of participation in the tender and by the end of the year we expect the situation on this issue to be clarified.
—You were planning drilling of the fourth well at the Sarqala field in Iraqi Kurdistan. Has the work started despite the pandemic?
—Today there are three wells in operation at Sarqala. To maintain the production profile, a fourth is being drilled. It should help us discover a new layer that has not been previously developed. If our reserves estimations are confirmed, these layers could become a new source to maintain plateau production at the field.
—What production levels are we talking about?
—Today the production level at Sarqala is about 28,000 barrels per day. With the commissioning of a new well, daily production can reach
—When do you plan to complete drilling?
—We plan to complete the drilling of the Sarqala-4 well in the first quarter of 2021.
—Are there any plans for new drilling at the field?
—If we confirm our reserves estimations for the new formation and obtain additional geological information, we do not exclude the possibility of drilling additional wells.
—You mentioned the construction of gas infrastructure at the Sarqala field.
—The Government of the Kurdish Autonomous Region of Iraq has decided to build an energy complex. Associated petroleum gas from oil production at Sarqala can serve as a fuel for electricity generation. As part of the project, we are building only a small section of the gas pipeline to deliver gas directly from the field.
—Is the company considering new projects in Russia and abroad?
—Screening is ongoing. We are looking at projects both in Russia and abroad. There are no specific projects at this stage, but we continue to study the MENA (Middle East and North Africa) region. In Russia, we are focused on developing in our traditional regions of activity, where there is already an established infrastructure. Yamal is an area of strategic growth for us. It is there where today we are developing both our own fields and working on the license areas of Gazprom.
—You have already raised the issue of efficiency. What organizational, managerial and digital tools do you use to improve efficiency?
—Gazprom Neft Razvitie is a member of the international community of the hydrocarbon development management and production projects. We regularly compare our results with other companies. It helps to objectively assess both our strengths and identify opportunities for growth. Benchmarking with global and Russian companies shows that we are among the leaders in terms of project completion schedules. At the same time, we see that projects of both Russian companies and world majors often get more expensive as they are being implemented. This indicates the lack of development in the early stages. After all, it is then that their maximum value is formed. Therefore, today we are focused on the quality of the early stages and have already changed our approaches to this issue. For example, we additionally involve specialized design institutes in the analysis of the concepts and scenarios that we create. This significantly increases the depth of elaboration of each project. Only after that we move from the concept formation stage to the ground infrastructure design stage.
In the current macroeconomic environment, we are increasing our focus on valuation. The accuracy of this indicator in the early stages allows you to look in advance for ways to improve the efficiency of the project in the future.
—You also use digital tools to improve efficiency, including the Project Management Center (PMC). What does it do?
—The PMC consists of three levels — in St. Petersburg, Tyumen and at the fields. The department in St. Petersburg is responsible for shaping the need for the development of digital technologies, their testing and replication, as well as the general methodology. There is a regional analytical center in Tyumen, which collects, summarizes and analyzes data from groups of production facilities and generates materials for forecasting and decision-making. Local control systems are being created at the fields. These are mobile labs that include all of our digital tools. They help to collect up-to-date information about all parameters of work or the construction of new facilities. By the end of the year, we plan to introduce such complexes at the Pestsovoye and Chayandinskoye fields. The presence of three levels of collection and analysis of information allows real-time control of the key parameters of the implementation of projects, instantly identifying their weaknesses and potential for increasing efficiency.
With the help of digital tools, today we monitor the construction of new facilities in 24/7 mode, ensure industrial safety and monitor the health status of personnel. The next stage is the platformization of all projects and programs, the creation of a single digital center for managing and optimizing production processes.
—Gazprom Neft makes extensive use of drones in geological exploration and for monitoring infrastructure. Do you use drones when developing new projects?
—Unmanned aerial vehicles are actively used to control the construction of new facilities. Drones with cameras compare the 3D design model with the actual state of the facility being built. This allows you to track the status of the project and the slightest deviations from the plan. Even during quarantine and restricted access to the fields, we always had an up-to-date picture of all assets. This year we also began using drones for geodetic surveys at the Gazprom Neft Zapolyarye fields. This data are used in the development of conceptual solutions for the development of infrastructure for new fields.
—You have been heading Gazprom Neft Razvitie for almost a year now. What challenges do you see for yourself today?
—The strategic challenge both for the company and for the division I chair, responsible for new large projects, is to become an industry efficiency benchmark in Russia and enter the world’s top 10 best project implementers. The goal is to maximize the quality of processes using organizational tools and technologies, including digital ones. All this should give a powerful impetus to the efficiency growth of the entire company. There is a lot of work to be done. And this is a real challenge for me and each of our team members.