Salym Petroleum Development (SPD), a joint venture between Shell and Gazprom Neft, has always relied on its ability to integrate international and Russian experience as its main competitive advantage. SPD is now the 9th largest producer of oil in Russia. Alexey Govzich is the first CEO of SPD in 12 years who has been seconded to take the position from Gazprom Neft (previously it had been invariably occupied by managers from Shell).
Levels of Growth
Q. What are the main challenges facing the company at the current stage of development in Salym?
A. The main challenge is to maintain production at the current level for the coming three to five years, and to also reinforce the company’s leading positions in safety and environmental protection. It’s no secret that the overwhelming majority of fields in Western Siberia are in the third or fourth stages of development, which implies that the production there is declining. Salym Petroleum is no exception in this respect. The production in Salym fields reached its peak in 2011 at more than 8.4 million tons, followed by a decline. In 2012, the decline was a heavy 12%, but in 2013 and 2014 we managed to reverse that negative trend. We challenge ourselves to stop the production decline by 2016 and maintain it at a stable level of about 6.3 million tons for the following several years.
We are confident that we will be able to stop the decline and hopefully even reverse this negative trend in the future. Salym Petroleum is now finalizing a long-term development program, where we will prioritize our projects. Under the program, SPD will develop new sections and formations in Salym. In particular, we are currently studying the potential of the Tyumen and Achimov formations. Our engineers believe that these formations can be developed profitably, but we will make sure that we address all technical risks before we start developing them. We also intend to step up our program of drilling sidetrack wells.
Intensified development of the Salym group of fields will naturally require more attention to HSE issues. To address these challenges, SPD plans to implement a number of projects to maintain asset integrity and enhance the safety culture.
Q. How would you assess the operational performance of SPD over these years?
A. This year we will mark ten years since commercial operations started in the Salym group of fields. During these years, SPD has passed a major journey, from a company employing 15 people to a major oil production operation, with more than 3 thousand people employed by us or contractor and subcontractor companies. During these years, we created modern infrastructure with more than 950 wells, and produced a total of more than 58 million tons of oil. SPD’s current production accounts for 1.2% of all domestic oil production in the Russian Federation, which ranks us among the top ten producers in this country. During this period, Salym Petroleum paid 380 billion rubles to the Russian budget in taxes, and we also spent about 1 billion rubles to finance social investment projects in the area of our operations. I believe that these numbers speak more eloquently about our achievements than any prizes or awards.
When I returned to Russia in 2007 and joined Gazprom Neft, I kept getting excellent feedback about the Salym project. SPD is regarded as one of the most modern and advanced companies in the Russian oil industry. Many of the things done by Salym Petroleum were done for the first time in Russia. Among other things, SPD was the first company in Russia to implement a full-scale Smart Fields project. It all started in 2008 with a two-well pilot project in West Salym, but today all SPD’s wells, including producers, injectors and water source wells, are fitted out with this remote monitoring and control technology. In addition to optimizing production (wells with this technology produce 2 to 2.5% more oil), this has considerably reduced safety risks.
Q. How would you characterize the cooperation between Shell and Gazprom Neft in implementing the Salym project?
A. I believe that the fact that these two companies are engaged in this project in Western Siberia makes it a unique one. The SPD team together with our shareholders have made it possible to successfully combine the best practices of the Russian and international industry, the East and the West. Gazprom Neft has extensive experience of operations in Russia and abroad, and Shell is the leader in innovation and management of complex large-scale projects. We have this unique opportunity of using the two libraries of knowledge, borrowing the best things from it and achieving excellent results.
Q. Are there any changes contemplated to the strategy of the company with you as a former manager of Gazprom Neft becoming the CEO of Salym Petroleum?
A. Please be assured that SPD’s development strategy will remain unchanged. Our objective for 2016-2018 is to maintain a plateau in production and be the best in the region in terms of HSE performance. We will continue developing the traditional reserves with maximum efficiency and safety, and will have incremental production from new development areas. We intend to use all opportunities that open up at this stage of our development. I already mentioned production from new formations, but we are also exploring a chemical enhanced oil recovery project, where Salym Petroleum is now in a pilot project stage. We are geared up for growth – our team is there and we know the technologies available to us.
Q. To which extent does the company you lead use the Russian service companies and Russian-made equipment?
A. SPD has always positioned itself as a Russian company relying on local contractors. As a matter of fact, the structured system of relationships with contractor companies is one of the key factors that bring success to the Salym project. We use the Russia+ concept in dealing with contractors. We try to make use of all the best things that can be offered by Russian and international companies, without making a distinction between large recognized manufacturers or small local companies. This approach allows us to find the best solutions and technologies for the Salym fields. Our company prefers to enter into long-term contracts to minimize overall expenditures and stimulate the service providers to invest money to improve their services. We encourage healthy competition among suppliers of each service. All other things being equal, Salym Petroleum would give preference to Russian and regional companies, which currently account for 90% of all contracts. More than 80% of our budget goes to buy goods and services from domestic companies. SPD is a demanding customer, which stimulates providers to seek rapid quality improvements. Working with us, Russian companies acquire the experience they need to better compete with international players.
Salym Petroleum relies on Russian manufactured goods as well as the domestic service companies. All materials and equipment used by SPD to build its wells, including casing strings, wellhead equipment and completion equipment, are manufactured in Russia.
We help our contractors expand their business by introducing them to our shareholders. After working with Salym Petroleum, several companies have won contracts with Gazprom Neft and Shell operating companies (including those outside of Russia) to confirm that they are now best in class.
Without mentioning names, let me give just one example of how it works. We have two companies performing drilling work in the Salym oilfields, one being a Russian one, and the other international. On the one hand, this promotes sound competition between them and allows SPD to continuously optimize the drilling process and improve performance, because each of the contractors is interested in improving their business processes and adapting modern drilling technologies. On the other hand, the foreign drilling company is getting valuable experience of implementing a project in the Russian oil and gas province, and the Russian contractor has an opportunity to learn and meet the requirements of an international operator, becoming more competitive on the world market. This healthy competition has resulted in continuous improvement of our drilling performance. While it took us about 30 days to drill a well at the start of the project, now it takes less than nine days to drill more complex wells.
Enhanced Oil Recovery
Q. What is your view of the potential of West Siberian fields?
A. There are a lot of reserves still remaining in Western Siberian ground, which can be recovered with the use of new technologies, although most of the fields there are in the phase of falling production. Ten years ago, when SPD only started commercial production, nobody thought it would become such a successful project. Such technologies as Smart Wells, Smart Field, and large-volume fracs made it possible to elevate our performance to a much higher level. Today, these technologies are complemented (and sometimes replaced) by newer technological solutions to further improve the efficiency of development: multilateral uncased wells, new generation logging systems, assemblies for multistage fracs, coiled tubing units, sidetracks, and many others.
We are continuously looking for and adapting new technological solutions in our fields. Our shareholder Gazprom Neft does very many interesting projects in Russia, and Shell implements a lot of innovations around the world. There are promising technologies around we haven’t yet tried out in Salym, for example, horizontal wells and sidetracks with multiple fracs.
Q. Which enhanced oil recovery technology in your opinion holds most promise for Russia?
A. Today’s oilfield development operation is an extremely complex project, which requires colossal investment, extensive infrastructure facilities, and advanced technologies. The time of the so-called “easy oil” is gone. But demand for energy continues to increase. Therefore, companies around the globe are looking for technologies to enhance recovery from existing fields. We are now into “tertiary” recovery methods, which offer the best development efficiency. According to one study, enhancing oil recovery factor by a mere 1% on a global scale would increase conventional reserves of oil by 88 billion barrels, which is three times today’s annual production! For Russia, enhanced oil recovery is a very important challenge, because, as I have said, the overwhelming majority of fields in Western Siberia, the main oil-producing region of Russia, are in the declining phase of production. Enhanced recovery methods may give a new lease of life to these fields.
An ASP chemical flooding technology is one of the most promising methods of enhanced recovery. The name comes from the first letters of the three components of the chemical mix, which is injected to enhance oil recovery: alkali, surfactant, and polymer. The use of ASP technology may yield an additional 30% of oil that would otherwise stay in the formation. This means that the recovery from hundreds of fields in the world may almost double, considering that traditional waterflooding technology recovers only 30% to 35%, after which the remaining oil stays in the formation forever. This technology makes development more efficient and more environmentally-friendly as compared to traditional ones. It has three important advantages. First, this technology makes use of the existing infrastructure of an oilfield. Second, ASP technology production cycle is only three years as against decades of the traditional flooding technology. Third, all components used in the chemical mix are analogues of the substances we use in our everyday life, and are safe for the people and the environment.
This technology is already being widely used in the US, Canada, Qatar, and Oman. Our company is the first to start implementing it in Russia. We have launched a pilot project, whose purpose is not to derive profit, but to minimize risks and check whether the technology is going to work in real field conditions. We are doing the pilot in a section of the West Salym field with the watercut level of 98%, and have already built seven wells required for the project. We are now in the process of completing a special pipeline, an ASP mixing plant, and an emulsion break-down unit. Our plan is to complete and commission these units, and start injecting the ASP before the end of the year, to get the first results from the pilot in 2016. If the pilot is successful, we may be able to increase production from the Salym group of fields by 250,000 to 500,000 tons per year. The technology may then be used in other Western Siberian fields to help them maintain high production levels. According to expert estimates, the technology may potentially produce 2.4 billion tons of incremental oil in the Khanty-Mansi autonomous okrug alone. However, there is an issue there: mass-scale use of this method will not be profitable in the current tax environment. That is why we are now in close engagement with the legislative authorities trying to have a special tax treatment applied to the use of this technology. This is something needed not only by us in our pilot project, but the whole of Western Siberia, because the method may extend the life of dozens of fields in the region.
Q. You have already mentioned the “Smart Fields” technology. What is it all about? What benefits have you received from applying it in Salym?
A. We take special pride in this technological solution. Implementing this technology has allowed us to monitor the operation of all our wells in the field every minute, even every second, in real time. Now, if anything goes wrong, we can react instantaneously. Smart Field technology optimizes the production system of Salym Petroleum – we manage production better, and consequently improve efficiency and productivity. The technology has helped us improve the availability factor for our systems every year, and now it stands at more than 97%. In the past, restarting a well and ramping it up to stable production took up to two days, but today, the Smart Fields technology does that in less than an hour.
The technology allows Salym Petroleum to better protect its downhole equipment. We can detect any anomalies, failures and deviations from normal operational envelopes much earlier and respond immediately. The Smart Fields technology has a visualization system, where information on the status of all wells is displayed to operators in a traffic light format. The system has improved reservoir and field development control. The Smart Field has also reduced the company’s operating expenses. Personal and process safety risks have gone down considerably. The automated system does not require as many trips by operators to the wells (the number of such trips has gone down from 40 to 7 to 8 per day), because most of the operations can now be performed remotely. This is a major achievement, considering that road accidents are the most common types of accidents in the oil and gas industry. We have also implemented the Exception Based Surveillance system and a remote monitoring and control system for the injection of chemicals (e.g. scaling inhibitors).
Q. What does your company do to address the utilization of associated gas, something which has become quite an issue in Russia recently?
A. We currently operate the Salym group of fields at an associated gas utilization factor of 97%. We have been able to maintain this high level for several years already. This has become possible because of a joint project to utilize associated gas we completed in partnership with the Khanty-Mansi autonomous okrug and two private companies.
The first phase of the project was implemented back in 2008, when we built a gas turbine power plant. The second phase of the program involved the construction and commissioning of an associated gas processing plant. What makes it unusual is that it is located right in the field and did not require the construction of a lengthy pipeline system. This plant, which has been built and is operated by our partner, receives associated gas from the Salym group of fields and neighboring Shapshinskaya group of fields developed by Russneft. The gas is then processed into stripped dry gas (which is used at the power plant), and natural gasoline, propane and butane (which are marketed to third parties).
Q. How does the company address safety and environmental issues?
A. Safety and the environment are our priorities. Our goal is to operate with no accidents and injuries. Our strategy is grounded on three principles: leadership, culture and planning. It is impossible to achieve sustainable good results in this area without the involvement of top managers, leaders of contractor companies, and heads of field teams and crews. Culture implies a clear understanding of the need to follow safety rules and personal responsibility in that. Every person must realize that a human life is more valuable than any barrels of oil. Employees should know that doing something faster at the expense of safety is not an option. Meticulous planning helps us have sustainable safety performance. We need to have a clear long-term development strategy, which makes it possible for the company to prepare in advance for any new operations, and find the resources to perform such operations safely and to high quality standards.
I’d like to emphasize three important aspects here. First, strange as it may seem, even in the oil industry, which is associated with so many risks, most accidents happen at places not immediately related to oil production, often in an everyday setting. For instance, falling down is one of the most common causes of injuries. Such injuries are so common not because people violate safety rules, but because they are simply not used to evaluate the risks around them. Each one of us should be able to see such risks and take measure to minimize them. Second, it is traffic accidents. In our fields we have a special focus on road safety. There is a speed limit of 40 km/hr on all field roads. Every vehicle is fitted out with a satellite monitoring system, which allows us to see all the vehicles on the territory of the field, and their speed. In addition to that, every driver working in the field has to pass a special defensive driving course with further examination, and a fatigue management course. One cannot simply impose safety on others – safety should start from personal responsibility of every employee.
The last but not least is that good safety performance goes hand in hand with good living conditions for the people in the field, and the availability of protective clothes, and the right instruments and tools. Therefore, we devote so much attention to out-of-work time of our employees, who work on a rotational basis: 30 days on shift, 30 days off. The Salym group of fields is located away from major cities and populated centers, so we take care of all the basic needs ourselves. There is a gym, satellite TV and wireless internet. Food is excellent and people’s everyday needs are well taken care of. I am pleased to note that our people are very happy working for us. The people are our main asset, with many working with us for more than 10 years, since the first days of the project. I am confident that with such a team we will be able to meet all those ambitious targets that SPD aspires to achieve in the coming years.Back to