— Since the beginning of 2016, different countries including Russia periodically propose production freeze for the sake of price momentum. How, in your opinion, can a decision like that affect the market, and how realistic is it?
— This discussion is still at the level of intentions, and it is premature to speak of results; however, production freeze will indeed make it possible to set a higher equilibrium oil price and bring back market stability. Besides, a decision like that will allow OPEC to finally show its worth, since the organization has lately been keeping silent, and existed more de jure than de facto. Prices even react to a simple mention of a potential production freeze, and I think that a situation like this will continue at least until December 2016 when the next meeting of the cartel takes place in Vienna.
— How much, in your opinion, have the Western sanctions prohibiting supply of unconventional oil production technologies affected our market?
— At the beginning we of course felt it very strongly since all the events actually happened overnight, no one was prepared for this. However, Russian services companies have adapted to the new conditions fairly quickly – in mere three to four months, and now Russian manufacturers provide services at a sufficiently high level. At the moment we do not experience any shortage of technology nor absence of access to any new developments. Domestic equipment is actively used in well construction including metering equipment and the entire telemetry. According to our calculations, we spend up to 80% of our budget on Russian manufacturers.
— Your company operates in Western Siberia where the majority of fields are already past their production peaks. How acute is the problem of depleted reserves for the company?
— The company’s production peak was in 2011 at the level of 8.4 million tons; since then it has been decreasing by 10% year on year. However, in 2015-2016 our team managed to turn around the declining production trend. While he have stopped the decline rate last year by having produced 6.1 million tons, this year we are in for growth – 6.145 million tons. Some may think this growth insignificant, although it is absolutely non-relevant for fields in the 3rd-4th phase of development where our company is today.
This was enabled by comprehensive development of oilfields. We are not just working closely with the existing resource base of the Salym group of fields but also looking actively for opportunities to grow it. In particular, in 2016, for the first time in the company’s history, we have obtained a new license area – South Yamskoye – for prospecting and evaluation, grown the West Salym oilfield territory on account of a part of the East Shapsha area out of unallocated subsoil fund. We bring into development new, deeper formations and intensify our exploration activities as well, which brings its results already. The exploration well drilled this year has confirmed prospects of the southeast part of the Upper Salym field.
We certainly relate our present and future to progressive technologies that we have implemented and are implementing in our operations. Thanks to them we manage to continuously enhance the efficiency of our work and include new reserves into development.
— What modern petroleum production technologies is your company actively using now and planning to use in future?
— We want to think of ourselves as a fairly progressive company, and therefore use several breakthrough production technologies. First, we started to widely replicate the sidetracking and horizontal well drilling technology – these are well-known methods of work which the entire industry has accepted, it’s just for some reason they are far from being commonly applied. Second, we use a new generation of submersible equipment which makes it possible to substantially reduce costs of fluid lift from formation. Third, our entire well stock (which is over 1,000 wells) has been equipped with Smart Fields integrated remote monitoring and control system. Using this technology, we continuously optimize well operations in real time. Finally, fourth, we are the first company in Russia to implement the so-called ASP technology. According to this technology which we have launched this year, in order to increase oil recovery we do not inject water in the formation but a special cocktail customized to specific geotechnical conditions, which makes it possible to produce by up to 30% more oil than with conventional operations system. Moreover, the conventional production method leaves up to 60% of oil in the reservoir; however, the new technology will make it possible to give a new lease of life to all Western Siberia’s fields which are actually depleted, in the 3rd-4th phase of development, as of today. Our methodology makes it possible to develop and uphold production on the existing infrastructure, and we are prepared to replicate our technology starting as early as next year.
— By how much does the use of this new technology increase project cost, and is oil production pay off in this case, given the current hydrocarbon prices?
— ASP technology is traditionally not cheap, its application is much more expensive than conventional production methods. As of today, cost of oil produced by this method is $20-25/bbl, and, given the market price of $40-45/bbl, and after all taxes and export duties, we lose out. This is largely related to the existing taxation system, therefore we maintain dialogue with the state. The industry is currently discussing the possibility of the income-added tax being imposed, and we strongly support this initiative. With an approach like this, we will be able to arrive at a revenue level acceptable industry-wide for full-field implementation of ASP technology. We sent our proposals to the government and maintain dialogue on them with the bodies supervising this area. We hope that this joint work will result in a modernization of the tax system for the industry in the manner which will suit both the state and subsoil users. We believe that the industry needs this reform – it will give a new momentum to development of the oil industry which starves for it in the current development phase.
Without taxation reform there is no future for ASP technology. We have already invested substantial funds in the pilot project: assumed the risks and built the entire infrastructure required, including an ASP cocktail mixing plant. In the near future we will obtain the results of the pilot project, which should confirm efficiency of the technology. As calculated by experts, thanks to this method it is possible to produce in the next 15 years up to 30 million tons of additional oil on the fields that we are developing, and up to 2.4 billion tons of oil in the entire Khanty-Mansi Okrug.
— This means you are ready to provide your technology to other companies?
— In principle, we make no secret of our development. In case other players operating in the same region are interested, we will surely share our experience with them. In the near future colleagues from Surgutneftegaz will visit us: we will introduce them to the technology, tell them, share our experience. We are not doing this for ourselves alone, but for the industry as a whole. ASP method is already in active use all over the world: in Oman, Canada, China, including our shareholder Shell; in this regard we are only pioneers in Russia.
— To what extent are safety requirements a key factor for your company?
— Historically we have been paying a lot of attention to accident prevention, viewing it as an integral part of a successful business. In the end of 2015 we decided to approach the issue at a different angle: within the scope of the new strategy we started paying the most attention to personal safety, decided to penetrate into hearts of the people working with us and embed the culture of care. Thus, we started working with people at a more emotional level instead of issuing guidelines for them, like “do not violate, stay alert, buckle up”, and this method worked. This year, January through September, we have worked without a single injury or lost-time incident, i.e. nearly 8.5 million man-hours, - this is an absolute records throughout the entire history of our company.