Gazprom Neft: Reaching New Resources, Remembering the Discoveries

Viktor SavelievInterview with Head of Gazprom Neft's Geology and Exploration Directorate, Viktor Saveliev

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Today, Gazprom Neft is the fifth largest Russian oil producing company. Having targeted at annual production of 100 million tons, the company has been expanding its geography and exploring off-shore opportunities and foreign partnerships. Head of Gazprom Neft’s Geology and Exploration Directorate, Viktor Saveliev shared with PRIME Agency his vision of the company’s prospects in hydrocarbon exploration in Russian and abroad.

— How much does the company spend on exploration?

— In 2011, we will spend approximately 5.5 million rubles on exploration activities for our 100% owned assets. In 2012, the amount will be similar. Although exploration knowledge of existing blocks is increasing, in order to perform additional exploration, as well as explore new blocks, we will have to maintain the level of our investments. Overall investment volume for the entire Gazprom Neft Group will exceed 10 billion rubles in 2011 and in the next year it will be 11-11.5 billion rubles.

— Have you been able to meet your drilling schedule?

— We have seen some positive dynamics: in 2011 we will drill 15 exploratory wells at our assets and the total of 24 for the entire Group of companies. Next year, the number of our own wells will increase to 19, while the overall for the Group will reach 32. In 2011, 3D seismic coverage will be 3,000 km2 for our fully owned assets while the total for the Group will exceed 5,000 km2 , both this year and next year. In 2012, our own seismic scope is estimated at 3-3.2 thousand kilometers. As a result of such efforts we will almost finish 3D-seismic surveys in our conventional fields. However, if Chonskiy Project gets on the fast-track, this will only add about one thousand square kilometers to our exploration program.

— What factors will influence the decision regarding Chonskiy Project?

— We recently booked additional 100 million tons of oil reserves for these fields which significantly enhanced the attractiveness of the entire project. An Investment Plan to develop Chonskaya Group of fields has been drafted, including two modules — Southern block which includes Ignyalinskiy license area, and Northern block, which includes Tympuchikan and Vakunay license areas. This plan will be reviewed by the company Investment Committee in the near future.
Since the Project involves certain risks, we would like to attract some foreign partners for the project. We have been conducting some negotiations but I cannot mention the partner now, since we have not finalized the deal yet.

During the first stage, we plan to re-enter some wells in Tympuchikan and Vakunay license areas in 2012 and determine commercial value of the reserves. The second stage will begin next summer when active exploratory drilling and seismic and electrical surveys will be performed. Our plans include approximately 600 kilometers of seismic coverage and 2.5 thousand kilometers of electrical survey annually.

Exploration activities in Ignyalinskiy license area will be even more fast. As early as in the winter, we will complete 300-400 square kilometers of seismic work while plans for 2012 already include well drilling. Year after year the program will continue to grow. Thus, our overall exploration investment in the Chonskiy Project during 2012-2016 may add up being about 13.5 billion rubles.

— What are the exploration results of this year and the prospects for 2012?

— Traditionally, we are actively involved in the regions of our strong presence, such as Yamal Nenets Autonomous District, Khanty-Mansiysk Autonomous District, Omsk and Tomsk Regions. We have seen some good growth in our joint ventures. For example, in 2011, we drilled 6 exploratory wells in Mesoyakhinskoye field and completed 400 square meters of seismic surveys.

In 2012, the geography of our operations will continue to expand with the purchase of the eastern part of Orenburg Field from Gazprom where we will do seismic surveys in order to explore deep horizons. In the other two fields that we also purchased in the fall in Orenburg Region, namely Tsarichanskoye and Kapitonovskoye fields, we will only do seismic surveys. No plans for drilling there in 2012.

Active additional exploration and test production have been done in Novoportovskoye Field. In Messoyakha, the scope of work will remain at 2011 level.
We have also been preparing a licensing program in the main regions of interest for our company, particularly in the north of Yamal and in the Gydan Peninsula. We are primarily looking at license blocks around Messoyakha. However, exploration in those blocks will not begin until 2013.

Kuyumbinskiy Project located in the Eastern Siberia is also of great importance to us. If oil transportation issue from this field is resolved, we will become more active there as well. We may spend over 10 billion rubles in additional exploration in Kuyumbinskaya Group. Right now, options to develop transportation network are being discussed with Rosneft and Transneft.

— Which transportation options do you consider?

— Obviously, it is Eastern Siberia — Pacific Ocean oil pipeline. We want to tie into the ESPO pipeline together with Rosneft which works in Yurubcheno-Tokhoma zone. This will enable us to consider oil transportation from our field via one common transportation corridor.

— What are the details of the licensing program for blocks around Messoyakha?

— The program includes 10 license areas around Messoyakha and 6 around Novy Port. Both of them are located in areas of our development and since the construction of the Zapolyarye-Purpe pipeline has already been agreed on, we can become more proactive in our exploration efforts in the region in order to join adjacent fields to the Messoyakha Project. We have used the same approach in Novy Port, although, oil transportation scheme there is a whole lot more complex, also involving marine export. However, with a significant increase of the resource potential we will be able to look into other transportation options.

— Do you have a Development Program for Novy Port Project?

— Yes. It has been approved. The budged for 2012 is also been almost approved along with the 3-Year Operations Plan. We have a Full Field Development Project but it will be adjusted based on the results of the first three years. We hope that we will be able to acquire this asset from Gazprom, similarly to what we did with Orenburg Field: initial assessment followed by the purchase.

— Gazprom Neft will increase its reserves by 50 million tons this year. What is included in this number?

— Almost half of it, over 24 million tons of reserves, will be added through exploration. Out of 15 wells that were drilled in 2011, 14 wells were successful thus enabling to discover new reservoirs. Further growth has been secured through development drilling.

According to the international classification, the resource potential in 2011 will increase by 1%. Our reserves-to-production ratio is estimated at 20 years, which is good. Year after year the reserves potential will increase according to the international classification by 1-3%. Such dynamics resulted from our strategy to produce 100 million tons of oil equivalent by 2020.

We have been working on Gazprom Neft general reserves development concept till 2020. This document defines regions of our operations, reserves increase volume and estimates CAPEX. We will continue the work in new regions and in the Western Siberia, where we have been completing seismic surveys and additional three years are needed for further exploration.

We will claim to get Imilorskoye Field, as well as Erginskoye and West Chatylskinskoye. This way, hopefully based on the results of new auctions we will obtain new license areas for additional exploration, including in regions of our traditional presence.

— Which exploration solutions do you use in the old fields?

— It has been two years that we have been using a new program particularly geared to identification of new deep layers offering potential in our traditional fields. We performed drilling in some of them which shown flow rate close to profitable. Although additional total resource potential of underlying horizons for our subsidiaries is estimated at 100 million tons, in some cases, even if we get significant resources from explored horizons, oil production from them is impossible without massive hydraulic fracturing. Massive hydraulic fracturing almost doubles the cost of the well. As a result, despite good flow rate the investment project never breaks even. Tax incentives are needed. In addition, effective development of such reservoirs requires application of cutting -edge technologies. This year we tried one of such technologies which has been actively used in the world — multi-stage hydraulic fracturing in horizontal wells which enables production from oil saturated intervals, although, it still remains quite expensive.

— Let’s discuss your overseas projects. Have you started drilling in Cuba?

— Drilling of the first well is scheduled on April. The sea depth there is about 2.5 thousand meters. The total well depth is 5.2 thousand meters. At the end of May-beginning of June we will perform testing and we will know the way forward. Not far from this zone there are 12 more license areas and if reserves are confirmed, the project will become very attractive from the commercial point of view. In this case the program will be significantly expanded.
— How are things in Equatorial Guinea doing?

— We performed 3D-seismic this year. Right now we are finishing data interpretation. We can tell that there are reservoirs and traps. Resource evaluation is underway after which we will be able to prepare an investment project for drilling. If economic efficiency is confirmed, we will start drilling of one or two wells. Right now we are studying a number of other interesting areas, however, the capability of further expansion of the list of projects in the area will depend on the drilling results of the first well.

— Do you think there are other countries with promising potential?

— We are looking at possibilities to expand our efforts in Iraq. Numerous blocks are being offered there for exploration within the scope of the forth licensing round in which we plan to participate.

Gazprom Neft is also very interested in the Serbian project. Apart from Serbia, where we have been actively exploring the Pannonian Basin through our subsidiary NIS. We have also looked into the adjacent areas such as Hungary, Rumania, Bosnia, Herzegovina and Bulgaria. Right now we are discussing partnership possibilities with a number of companies. I think we will make an investment decision about Hungary, Rumania, Bosnia, Herzegovina in the near future. In 2012, these projects will require about 400 million dollars of investment. This will involve major scope of seismic surveys, drilling of 9 wells, as well as our plans for Serbia in the Pannonian Basin which we will be able to cover almost entirely through our work in several countries. If everything goes according to the plan, by 2015-2017, we should be able to double our production in Balkans in tons of oil equivalent. Right now, we produce about 1.5 million tons per year in Serbia and we expect just as much from our new projects.

— What is the reserves to production ratio of your Serbian Subsidiary NIS?

— When we bought the company, its remaining recoverable reserves were only 12 million tons. Today, it is as much as 15 million tons and each year we plan to increase the reserves by 3-4 million tons. Such reserves increase will take place primarily through exploration. Apart from that, for some of the older fields we re-interpreted the reserves and identified some possibilities to enable a significant increase of the resource potential. For example, in Velebit field which has been developed for many years by now, the reserves increase this year will be about 1 million tons. Moreover, Serbia has an outstanding oil recovery factor: today, it is 0.57 for Velebit field and we are aware of opportunities to increase it to 0.7. In Russia, oil recovery factor, as an average, is 0.3.

— How do you see off-shore prospects in Russia?

— Overall, it appears that our considerations of the off-shore development reached some sort of stagnation. We need to determine if off-shore is our today’s priority or it is a future prospect reaching far behind 2020, since almost all Russian northern off-shore is underexplored. I think that during initial phases, off-shore exploration can be done with the State financial support. Moreover, this study has to include a serious comprehensive program which could be prepared with our help as well as with the help of our colleagues. We need to perform stage-by-stage regional work, parametric drilling, seismic surveys, license allocation and furthermore, a serious licensing campaign.

As far as northern seas are concerned, the logic of our development to the north of Yamal and Gydan tells us that those regions are of great interest to us. We have developed an off-shore exploration program and out of three applications that we prepared for blocks in Pechora sea, we filed two: one for the South Russkiy block and the other one for the West Matveevskiy block, although, no we got no feedback so far.

We also spent two years investigating Caspian opportunities. There are some interesting block but they are mainly located in the Kazakh off-shore where we have not been able to establish any cooperation. The Turkmenian sector of the Caspian Sea is also hard to enter into. However, we remain interested in the Caspian and will definitely consider it if we have proposals from partners.

If we were to talk about the Black sea, I think Russian exploration program of the Black Sea off-shore has to be done under the cover of the State program. Right now, there are no check shots. We have to drill at least a couple of wells to which seismic data will be tied to, followed by new re-interpretation. We proposed a Federal Program to study the Black Sea. It will not take much money but it will create a totally new vision. For now our company is not considering Black Sea as a priority, however, we have seen other companies work there in cooperation with foreign partners.

Either way, Gazprom Neft is not losing its interest to the off-shore. We have been performing research and basin simulation, so when the doors are opened, we will enter the off-shore arena much better prepared.