Gazprom Neft and Shell have expanded the territory of their 50%/50% joint venture Salym Petroleum Development by acquiring an underexplored East Shapshinski-1 field at a Rosnedra auction for 1.1 billion rubles. This block borders on the West Salym field, the main asset of SPD. The oil company sees the new acquisition in alignment with its plans to grow production from 6 to 7 million tons of oil per year.

Salym Petroleum Development (a 50%/50% joint venture between Gazprom Neft and Shell) has won at an auction for the exploration of the East Shapshinkski-1 block in the Khanty-Mansiysk Autonomous Okrug, reports Rosnedra, the federal subsoil management agency. Although the field is sparsely explored and contains relatively small reserves (D1+D2 account for 10 million tons of oil), there was competition to get it. In the auction, SPD overcame the rival Rosneft by offering 1.1 billion rubles, which is almost 80 times the starting price. Rosneft acquired East Shapshinski-2 (D1+D2 reserves, about 13 million tons) for 200 million rubles.

“The new license is a great growth opportunity for the company”, said SPD CEO Michael Collins in a message conveyed by the company’s press service. “We are adding to our portfolio, and working to increase production to reach the level of 7 million tons per year.” It was “SPD who initiated the East-Shapshinski fields to be included in Rosnedra’s licensing program and auction plan,” said the company’s chief geologist Yaroslav Gorbachev.

SPD is producing from the West Salym, Upper Salym and Vadelyp fields with total recoverable reserves of 140 million tons of oil. The East Shapshinski-1 field borders in the north-west on West Salym, the main field of the company.

According to the SPD website, the company has invested 45 billion rubles in the development of the Salym group of fields. SPD was created in 1996 by Evikhon company and Shell, and Gazrom Neft received the share of the Russian company in the venture at the end of the first decade of the century. SPD’s production peaked at 8.4 million tons of oil in 2011, and the company has been maintaining production at about 6 million tons per year since then (the production in 2018 was 6.14 million tons, according to TsDU TEK). SPD is currently focused on enhancing recovery from its mature assets, launching the chemical flooding technology since 2016, and is expanding into new areas. In particular, it expanded the acreage of the West Salym field by adding a part of the East Shapshinski block (with 1.2 million tons of C2 reserves). Gazprom Neft and Shell announced their desire to explore the areas neighboring on SPD territory back in 2017. Their other priority JV, the Khanty-Mansiysk Petroleum Alliance (KMPA), is now considering several fields on the Yamal peninsula, Cederic Cremers, Country Chair Shell Russia said in December 2018. KMPA had been intended to look into shale-type reservoirs, but had to suspend that activity due to Western sanctions in effect since 2014. Shell is also showing interest in the fields located in the Ayyash block offshore Sakhalin.

63 million tons

Was the production of liquid hydrocarbons by the Gazprom Neft group in 2018

Over the past few years, Gazprom Neft has succeeded in developing major production clusters in various regions (Yamal, Orenburg, KhMAO).

The company is looking for partners in such projects. Gazprm Neft is already partners with the Spanish Repsol in a JV in KhMAO, having expanded its exploration license by including the Karabash blocks. There are very few large explored onland fields remaining in the Russian government property that could be auctioned off. When such fields were offered for sale in the recent past (in particular, the Erginski and Nazymski blocks), Gazprom Neft would lose the auctions to Rosneft.

“International companies are interested in developing unconventional reserves, which is natural and comes in line with the world trends,” says Yekaterina Grushvenko, an expert of the Skolkovo energy center. She commented that such reserves may have tax benefits associated with them, which improves the economics of their development.

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