October 6, 2012
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№ 7 (July - August 2012)

It’s End Times for Easy Hydrocarbons

   The time of “easy” hydrocarbons is over. No longer is it enough to simply “discover a field” and get a fountain of crude as was the case when the oil and gas industry was being established.

By Lada Ponomareva

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   Things are much harder today and the paths to solving new challenges in the sector essentially boil down to one thing: the need for new technologies both upstream and downstream and the need for a scientific approach to the fuel and energy sector overall — existing knowledge is simply not up to the task.
That was the conclusion drawn by those who participated in the 10th Russian Petroleum and Gas Congress held in Moscow at the end of June alongside the Neftegaz-2012 exhibition.

   There was a wealth of new information at the Congress this summer as speakers representing a wide range of companies and agencies gathered together for the forum – over 900 companies participated this year. However, an analysis of all facts, figures and examples raised during the congress shows that the main theme of the two-day “brainstorm” can be boiled down to a few pages.

Here we go. Back to Life
   In May this year, oil and gas companies were warned by Rosnedr that the agency was planning to introduce a new bill on forcing the closure of exhausted wells and cleaning up the remains of any related infrastructure. That decision had been made in light of the accident-prone condition of most depleted wells whose infrastructure did not meet ecological or technical requirements, which in turn posed considerable threats to the surrounding environment. There are thousands of such sites, some of which have been abandoned and essentially have no owners.

   On one hand, this is an understandable decision. However, executives in the companies themselves believe that the old wells do not need to be closed, but merely put on long-term stand-by until the technology arrives that can get them producing again. The same can be said of brownfields (fields in later stages of development that have been depleted by over 75 percent – author’s note), where it is quite realistic to increase or at least sustain output at a stable level.
Brains Behind Bashneft

   One example of “the scientific strategy” is Bashneft. As Bashneft Vice President, Production and Geology, Mikhail Stavskiy noted, wells in Bashkortostan are growing old and fields in the region are mostly depleted and this has had a significant impact on the company’s bottom line. From 2003 to 2008, Bashneft production was steadily falling (see Fig. 1). But beginning in 2008, an innovative approach to resolving this problem was adopted at the company and its annual production rose dramatically from 11.7 million to 15.1 million tons of oil, an increase of 29 percent. The jump was impressive, given the working conditions: Bashkortostan fields are known for their high water cut and oil produced there is highly viscous (10-50 mPa*s). Furthermore, the region has a large number of small fields with reserves of under 1m tons of oil equivalent.

   In the end, the company used an entire system capable of resolving the problem of falling production in the shortest time possible. Bashneft’s approach included:

implementing modern hydraulic fracking technologies;
optimising the design of acid treatment;
optimizing reservoir pressure maintenance;
optimizing downhole equipment operations;
horizontal drilling;
implementing a detailed system for choosing candidates for drilling and other wellwork.

The Never-ending Need for Technology
   Bashneft’s example is enough to instil optimism across the entire sector, but at the same time it is clearly not enough to focus all attention on old fields. Consequently, the company is beginning to pay more attention to tight reserves where production is currently ineffective from the point of view of profitability (see Table). And this brings us right back to the main issue: to exploit tight reserves, the company needs even more new technologies.

A Serious Problem
   According to “Ekspert” magazine, Shell led the oil and gas industry from 2006–2009 in terms of investments into scientific and technical work, investing over $4 billion. Russia’s Lukoil was sixth on the list, after a number of foreign companies. Even so, there is not that much to be proud of – the company spent less than $500 million on innovation (see Fig. 2). Russia is also behind in terms of adding its own scientific input to the world’s oil and gas sector: foreign companies lead the top-10 list of number of patents registered (see Fig. 3). One small exception is Tatneft, which has over 500 patents; the rest of Russia’s oil and gas giants lag far behind.

   This picture makes it hard to merely say Russian is having a difficult time with new technologies. The situation is highly tense. Despite common problems Russian companies face (falling production and unprofitable new tight fields), they are doing very little to make use of existing foreign experience and solutions. And this has very little to do with any peculiarities in the geology of Russian rock (despite oil and gas moving ever father north). It often seems Russia’s centuries of pride keep it from taking advantage of other’s proven knowledge.

The Way It Should Be
   The task facing companies in Russia may seem insurmountable, but no-one is calling for the country’s fuel and energy sector to solve all its problems on its own. One sincerely hopes that Rosneft President Igor Sechin was being straightforward when he said, “Our rivals are overseas. We have no rivals at home. We have partners.” In terms of production at tight reserves, the ideal format would be: Company A + Company B + the State. And these companies should make use of current scientific knowledge while the state gives them support. Given even the best situations today, tight fields not only require a lot of effort to develop, they require a lot of money.

   The state has made overtures to companies: beginning in 2013, a differentiated mineral tax will apply to tight resources. For the most “difficult” fields, the tax will be from 0-10 percent of the standard rate, mid-difficulty fields will be taxed from 10-30 percent of the rate, and the “simplest” from 30-50 percent. Russian President Vladimir Putin said tax breaks for companies operating such fields would be offered from the beginning of industrial production for 10, seven and five years respectively.

Ancient Chinese Wisdom
   In speaking at the Congress, Russian Oil and Gas University Professor Valeriy Zolotukhin noted the need to concentrate the most attention on those sites which the sector has today, putting off “trendy” new resources like tight reserves and shale gas for future generations, while preparing the scientific and technological base for them to make use of when the time arrives.
And since we have mentioned gas, we must repeat the industry’s new catchphrase: “Russia has shale gas, too!” And Russian reserves are no less than those in America — about 200 trillion cubic meters, or enough to allow Russia to export just as much shale gas as the United States.

   As Lao Tse put it, “The more I know, the less I understand.” This nugget of Chinese wisdom was the theme of “Geology Without Limits”, the geophysical program presented at the Congress (read more in “EAGE Promotes Basins Approach” on page 42). For the oil and gas industry today, the guiding principle should be: “Everything old is new again.”

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