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Alexander Kolomatsky Interview with Alexander Kolomatsky, Gazprom Neft Badra Project Manager

Gazprom Magazine


— Which stages have already been completed in Gazprom Neft’s Iraqi Project?

— Gazprom Neft first announced its interest in Iraqi fields in the year 2008. We were among 35 companies interested in the Iraqi oil prospects. In December 2009, a consortium where Gazprom Neft acquired a 40% stake was set up to participate in a following bid. Some of the other companies which joined us were Korea’s Kogas (30%), Malaysia’s Petronas (20%), and Turkey’s ТРАО (10%). A little later, the consortium was expanded through the participation of the Iraqi Oil Exploration Company (OEC) which represented the Iraqi Government. It acquired 25% so the other partners’ stakes were downsized by a quarter, and in the end Gazprom Neft was left with 30%.

As early as January 2010, after the bidding stage was over and we had been awarded the contract for Badra field development (in Vassit Province, close to the border with Iran), we signed a contract with the Iraqi Government. Apart from Venezuela which has heavy and viscous oil, Iraq is the number one country for open licenses; for example, the Badra reserves exceed 3 billion barrels of light oil. What is more, operational expenditure is comparatively low in Iraq.

One of the reasons we headed the consortium was the large amount of geological information we had about Badra, and the data from the Iranian part of the field named Azar, which we were negotiating — helped us a lot. The data was used to make a simulation model and to prepare the proposition for field development, which is to reach a 170Mbbl-per-day production and maintain the plateau for seven years.

— What were the requirements for the other partners of the consortium?

— Turkey’s ТРАО, had participated in the first round of the bid with us and Gazprom had already had good relationships with Korea’s Kogas and Malaysia’s Petronas since it had worked with them on other projects.

Initially, Gazprom Neft set itself up as a project operator: our partners know that we deliver results and have huge R&D potential. That’s why we proposed the plans for the production plateau and the compensation per barrel of oil.

It was an open bid. A videocamera was facing a transparent box with the participants’ proposals. Everything that happened was shown on screens. We agreed with the Iraqi party on the compensation of $5.5 per barrel of oil produced by the consortium — and this rate met with their expectations. The contract took effect on February 18, 2010. The compensation we set was the second largest amount to be proposed in the history of Iraqi bids.

To implement the project, Gazprom Neft Badra B. V. was set up as an operating company. To date, all the necessary management departments have been set up, a joint Operations Committee and Management Committee are in effect, and we are in active cooperation with the contractors.


— What complications did you face?

— During the border conflict, our site was located in the combat zone, which naturally entailed various dangers: minefields, unexploded shells. We awarded the demining contract to an Iraqi company. In fact, one of the Iraqi government’s stipulations was to ensure that as many local firms as possible were involved in our operations. Of particular note was the seismic work bidding process, where the contract was awarded to our Iraqi partner, OEC. We were the first of all the projects to complete 3D seismic, thanks mainly to the local company. The field was demined to ensure safe seismic operations — the areas to be cleared included the access ways, 300×300 m cable runs, as well as roads and drill sites. We were able to construct seven drill sites and 27 km of roads. The personnel camp was opened in September.

— How many people is the camp designed for?

— For 100 people. After the second stage of construction, the camp will be able to house up to 450 people.

— What work is done by local contractors?

— Local contractors are involved in all the earthwork subcontracts. There are two advantages in this — firstly, we fulfill the obligations of the contract; secondly, local companies’ services are less expensive.

— How is the quality of their work?

— Not bad. We are quite happy with the quality. The main problem is that local staff are reluctant to follow the safety rules, thinking them excessive — they ignore them thinking that health and safety rules prevent them from earning money. We had to force the subcontractors to follow the international HSE rules and purchase all the safety clothes and buses needed to ensure safety during transportation of personnel and to avoid accidents when they travel hanging off the side of a truck. Furthermore, professional training as a concept does not exist here. Another aspect of the local culture is verbal arrangement, which is considered a deed. It is quite strange for us to witness this sort of relationship between managers and workers. However, overall, the joint effort has produced good results.

Engineering and Construction

— The Russian Central Geophysical Expedition is nearing completion of 3D seismic data interpretation. We will begin drilling in November. The auction for the CPF Phase I EPC Contract is already underway. By February 2013, we expect to have approved the final field development plan, which will be completed as soon as the interpretation of 3D seismic data, the appraisal well drilling and the testing of results have all been finished. We expect oil production by August 2013 at the latest. The minimum commercial production should be 15 thousand barrels per day. Two or three wells are enough to achieve this. We have already signed a drilling contract for 11 oil wells. In total, there will be 17 production wells plus five injection ones.

By the time production starts, we expect to have completed construction of the first line at the CPF for oil separation and processing of 60 thousand barrels a day. Two more lines of the same capacity will be completed in 2014 and 2015 respectively. This means we will be able to produce 180 thousand barrels a day. In addition to this, we plan to build the following facilities: oil storage tanks, a metering station, a pump station and a 170 km long pipeline to Garaf Field being developed by Malaysia’s Petronas and Japanese Japex. These companies will also continue laying the pipeline to the main trunk pipeline system.

— How many people work at the operating company?

— Just over 90 people. About 60% are Russians. Some are from Kazakhstan, where they have a good training system for the implementation of international projects — which works well for us since all our documentation and contracts are in English. We also have Uzbeks, Indians and Pakistanis.

— What is the size of the investment?

— Since the beginning of the project, we have spent nearly 100 million dollars in proportion to the consortium member companies’ stakes. Next year will be the most intensive in terms of capital — drilling, testing wells, and buying equipment — and we plan to invest around 700 million dollars.

— Who will own the new infrastructure?

— Upon completion, all of the infrastructure will become property of the Iraqi Party. However, Gazprom Neft will operate it from the date on which the operating company comes into effect up until the point when the consortium is fully compensated for the costs.

— How long is the payback period?

— The project will be paid back within seven years and it appears to be very profitable.

— Are there any plans to book Badra oil?

— We have discussed that with independent auditors and they do not deny that this is possible.


— What will be the refining process like?

— We need to deliver crude oil to the pipeline and separate stable condensate, natural gas liquids (NGLs), and dry gas from gas. Condensate will be mixed with oil to improve its quality. But even without mixing condensate, the crude is already of quite good quality — very close to meeting the Brent marker. Gas will be supplied to a 180 km long pipeline servicing two Bagdad electric power stations. We plan to build a gas processing plant of 1.5 BCM per year. Gas will be accounted for as if it were equivalent to oil and we will be compensated for gas production as well.

Sulphur is a by-product of field operations. We are planning to construct a storage place for sulphur disposal which will be designed to last for five years of operation. We also intend to build a granulation plant with a view to transporting sulphur. The Iraqi party will deal with any marketing issues on their own.

— How do you plan to handle NGLs?

—NGLs will be supplied to a local company dealing in gas distribution. Unfortunately, Iraq doesn’t have a gas supply system, so light hydrocarbons are just pumped into cylinders and sold to the community.

— What does this project give to Gazprom Neft, apart from profits?

— The main things we gain are experience in international project management and coordination within an international consortium comprising different companies with different ideologies and different engineering approaches. We act as an operator, and our partners trust us. In addition, it allows the team of specialists (who can then work on future international projects) to develop their skills as they put the fields on stream. Relatively soon, Iraq will hold the fourth round of license distribution and we are considering participating in it.