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Gazprom Neft Eyes Mideast Expansion

Gazprom Neft Eyes Mideast Expansion

Gazprom Neft, Russia’s third-biggest oil producer, is developing the Sarqala field in the Kurdistan Region of Iraq. In an interview with Energy Intelligence, Sergei Petrov, head of Gazpromneft Middle East, spoke about the prospects for drilling new wells, decarbonizing production and the potential for business growth in the region.

— Gazprom Neft is currently producing at the Sarqala field, where the fourth well has recently been brought into production. What level of production did you manage to reach with the commissioning of a new well and what work is planned at the field in the future?

— This year we completed drilling the Sarqala-4 well and put it into operation. Oil production at the field today stands at 23,000 barrels per day, or about 3,000 metric tons per day. The fourth well gave us new knowledge of the field, and we are planning to drill the next one, Sarqala-5. According to the road map, drilling should begin in mid-2022 and complete in early 2023. We expect production from the new well at between 7,000 b/d and 8,000 b/d. The initial production level of Sarqala-4 exceeded our expectations and at its peak was about 11,000 b/d. This was followed by a certain decrease, since the flow rate of wells operating in the fountain way traditionally falls in the first months of operation. Nevertheless, Sarqala-4 showed very high efficiency. We expect it to pay for itself as early as January 2022.

— What’s the production plan for 2022?

— On an annual basis, in 2020 production stood at 1.2 million tons. This year we plan to produce some 1.185 million tons. In 2022, we expect production to remain at about the same level. The launch of the Sarqala-5 well will allow us to increase production and in subsequent years to maintain it at the planned level of more than 1 million tons per year.

— Until what year do you expect to maintain the planned production level?

— It depends on how successful the subsequent drilling will be and how our understanding of the deep field model changes. A favorable geological forecast may become the basis for the construction of the next wells at Sarqala. And we are guided by this scenario.

— Have you already selected the contractor for the fifth well?

— Contractors have already been identified for some of the services. The drilling tender is under way now.

— The fourth well was drilled by Chinese contractors.

— Right. DQE International. Now their rig is with another operator. But the Chinese company is ready to continue drilling and is participating in a new tender.

— Earlier, Gazprom Neft showed interest in the Topkhana Block. Have your plans changed?

—  We keep our interest in new sites in Iraqi Kurdistan. If this asset is put up for tender, then we will explore the possibilities for participation in it.

— But are you interested in the gas block?

— We are interested in it because today the government of Kurdistan has a gas strategy related to the development of power generation capacities in the region. Gas should become the fuel for new energy centers. And this is a real channel of possible supplies — more obvious than the sale of gas in other directions.

— In Kurdistan, you are the operator of the Shakal Block. Is there any news on this project?

— We completed all the necessary studies and analysis of geological and technical information on the Shakal Block and came to the conclusion that the block’s resources are insignificant. Potential field development is not viable in the current macroeconomic environment.

— Have you felt the impact of the Opec-plus deal on projects in Kurdistan?

— This did not affect our activities. Gazpromneft Middle East didn’t cut production. First, because there were no such orders from the Ministry of Natural Resources of the Kurdistan Regional Government. Second, given the premium quality of our crude and the highly competitive cost of production, we have one of the most efficient assets in the region.

— Are you planning to develop deeper layers of Sarqala?

— While drilling the Sarqala-4 well, we assessed the potential of the lower layer. Unfortunately, it is not commercially attractive. At the same time, we also received geological and geophysical information on the upper layers. And today we are analyzing the collected data, assessing the prospects for the development of this part of the field.

— But, in theory, can these formations be developed?

— If the cost-effective case is confirmed, then we will be ready to start developing the upper Sarqala reservoirs.

— Do you use any solutions at Sarqala that have previously shown their effectiveness in Russia?

— We constantly use technologies that are being used in Russia. The carbonate reservoirs of the Garmian Block are somewhat similar to the formations in the Perm region. Our project employs geologists with experience of work in areas of the Volga federal district that are similar in terms of conditions. Staged acidizing technology, which has proven itself in the development of carbonate deposits in Russia, once helped us to more than double production at the Sarqala-1 well — from 5,000 b/d to 12,000 b/d. At the Garmian Block, we are actively introducing advanced Russian solutions, as well as applying innovations from around the world. Our field has the gas factor and ultra-high temperature of the formation, which affects the process of hydrocarbon preparation. To solve this problem, we used the oil cooling technology, which helped to improve the quality of oil treatment at the oil pretreatment unit, as well as to prepare gas, which today serves as fuel for the new energy center built by the authorities of the Kurdistan Region of Iraq.

— Gazprom Neft plans to commercialize its technologies and recently presented a number of its technologies in Dubai to its Middle East partners. Can the technologies you use at Sarqala be applied to other regions of the Middle East?

— We have a number of innovations that have been successfully tested on Garmian, and in the future can be replicated on other projects. These include the already mentioned stage-by-stage acidizing technology, as well as special approaches to drilling, special well designs, and completion methods. The introduction of these technologies, of course, will be carried out taking into account the geology and specifics of certain areas.

— Technology partnerships are one way to expand your activities in the region, right?

— We have two key development models. The first is entering new production projects. The second is technology partnerships. And in the Kurdistan Region of Iraq, we are ready to move in both directions, as well as commercialize our expertise, experience and technology in the oil-field services market.

— Many companies are leaving Iraq. How competitive are your projects in Kurdistan in the Gazprom Neft portfolio?

— As far as we know, there is no trend toward withdrawal of oil and gas companies from the Kurdistan Region of Iraq. On the contrary, large players working in the region have recently been evaluating the possibilities for expanding their activities here.

— How efficient are projects in Kurdistan?

— In terms of efficiency, Sarqala is assessed under the same criteria as the Russian projects in Gazprom Neft’s portfolio. Definitely, not every foreign asset will be able to compete with the profitability of deposits in Yamal. But nevertheless, the marginality that we have achieved at the Garmian Block is quite comparable to Russian projects.

— Today we can’t get away from the ecology issue. Do you feel the impact of the green agenda in Kurdistan?

— Initially, at the start of the project in environmental matters, Gazpromneft Middle East was guided by the world’s leading practices and Russian standards, which were much stricter on a number of issues. A key project in terms of the decarbonization of production for us was the launch in 2021 of a gas transmission system, through which associated petroleum gas [APG] of the Sarqala field started flowing as fuel to a new energy center created on the order of the

Ministry of Natural Resources of the Kurdistan Regional Government. On our side, we participated in financing the construction of the gas pipeline and took part in the development of the engineering part of the project. Today we send 76% of APG to a new power plant. When the facility reaches its peak capacity, it will produce about 165 megawatts and will provide electricity for residents of several provinces of the Kurdistan Region of Iraq.

— What are the requirements for the level of APG utilization in the region?

— This year, the Ministry of Natural Resources of the Kurdistan Regional Government ordered all oil and gas companies to completely extinguish the torches by 2023. Launching the gas transmission system for the supply of associated petroleum gas to the new power center at full capacity will allow us to reach this figure, which will ensure maximum environmental friendliness of production at Sarqala.

— You supply gas to the gas pipeline to generate electricity. Where does the oil from the field go?

— Oil from the Sarqala field is delivered by trucks to the Hurmala collecting point located in Erbil province. The oil is transported further via an export pipeline to the north of Kurdistan. The Ministry of Natural Resources of the Kurdistan Regional Government is in charge of the sale of all export oil.

— Have you considered the profitability of export by pipeline?

— The shipping scheme we use is the most cost effective. The closest point of connection to the main oil pipelines is located at a distance of about 300 kilometers from Sarqala. Taking into account the difficult terrain and elevation differences from five to 20 meters, the construction of such a pipe — according to the calculations of previous years — could cost up to $500 million. This amount significantly exceeds the costs that we can incur when transporting raw materials by trucks over the entire life cycle of the project.

— In general, what are the advantages for the company in working in the Middle East?

— In addition to solving production and economic problems, working in the Middle East gives us constant contacts with leading international oil companies, exchange of information and experience. This not only gives us access to new solutions, approaches and technologies in oil production, but also demonstrates our own achievements and opens the door to promising projects.

— Do you have requirements for the localization of employees?

— As the project develops, we are increasing the number of local employees. At the initial stage, the core of the Gazpromneft Middle East team was made up of expats. Now about 70% of the company’s employees are Kurds. And this is not the limit. We will raise this bar in the coming years. In a number of areas, Kurdish employees have already replaced expats in leadership positions. To increase the level of localization of engineering professionals, we have implemented a project to train Kurdish students at leading technical universities in Moscow and St. Petersburg. The vast majority of graduates of the program are currently employed by Gazpromneft Middle East.

— Do you communicate with other Russian and international companies operating in the region?

— Constantly. All industry participants know each other well enough and are in constant contact. At least once a quarter, Gazpromneft Middle East and other oil and gas producing companies participate in meetings where we discuss current issues and the technological agenda. These events are taking place with the participation of the Ministry of Natural Resources of the Kurdistan Regional Government, which over the past year has carried out a number of reforms that have helped in solving industry-wide issues. All industry participants feel the active support of the ministry today. And this encourages us to launch new projects and continue development in the region.