The four-fold increase of production by new reserves is a very rare achievement by any oil producing company’s standards. As hard as it is to believe, this is result achieved by the company Salym Petroleum Development (SPD) in 2018. SPD’s Chief Geologist Yaroslav Gorbachev spoke in an interview to NiK observer Irina Rogova about the resource base development, exploration results and plans, and on new subsurface resource management technologies.
NiK: Yaroslav, please, tell us about the company’s resource replenishment achievements in 2018.
— The past year was very intense for us and, I would say, extremely successful in terms of both the work completed and the results achieved. The main success, of course, is the replenishment of our resource base. Since Salym Petroleum has managed to overcome the falling production trend in 2016 our shareholders – Gazprom Neft and Shell – are expecting some action from us on planning for the company’s future. The strategy until 2025 includes goals on safety, production, cost efficiency, as well as the tech development and digital transformation. The future is always on our minds. For instance, we keep on systematically increasing our investments in exploration. Over the past four years the share of exploration costs in the company’s total capital expenditure has been growing consistently and in 2018 amounted to 7%. This is a very positive trend.
Eight prospect evaluation and exploration wells have been drilled and one deepened down to the Achimov deposits at the company’s license areas in a year. Moreover, we have completed the preliminary work for the seismic exploration at the West Salym field. Following the 2018 results the A+B1 recoverable oil reserves at the Upper Salym, West Salym, and Vadelyp fields in development by the company have increased by 25.4 million tons. If we juxtapose this with our current production figures – we are producing over six million tons of oil per year (last year – 6.136 million tons) – then the reserve replacement ratio amounts to 411% Or, as my colleague, a Subsurface Team Leader Vitaly Mitroshkin has put it more figuratively, SPD has just got four years younger.
NiK: Has this year been exceptional for the company in some ways?
— I think so, yes. Why? Because all our colleagues in the industry – both Russian and other oil and gas producing companies all around the globe – are aiming for the reserve replacement ratio of 100%. Our results, of course, are an exception in the industry practice. One of our shareholders – Gazprom Neft – has excellent reserve replacement results at 163%. This, too, is a key indicator in Salym Petroleum’s strategy.
NiK: How great a role has sheer luck has played in this? Usually it is one of the key criteria of success for geologists, is it not?.
— Of course you can say that we got lucky. But it was both – luck and a lot of work at the same time. One does not come without the other. A lot of preliminary work has been done and a lot of investment in exploration made. All our exploration projects have passed expert assessment and received the necessary approvals, including placing the reserves on record by the Russian Federation State Committee on Reserves (GKZ). This is a large and time consuming work, getting the official approval for a reserve increase.
NiK: Would I be right to say that we should not be expecting the same results in 2019? What is planned for the current exploration season?
— This is true, we, most likely, should not expect the same figures. We, however, are not stopping – this year we are planning to drill a number of new prospect evaluation wells. Literally a few days ago we have completed building a winter road and started drilling the first exploration well in this season at the Upper Salym field. Moreover, we will continue looking into the Achimov deposits, a type of unconventional reserves with low reservoir permeability. We are planning to drill wells into these formations too. By the end of this year we will be able to start field seismic exploration. Seismic exploration itself is fairly serious and time consuming work which then lays the foundation for the start of exploration drilling. A seismic exploration cycle is not a quick thing. It takes two to four years usually and includes the preliminary, field, and office-based work, processing, and interpretation. Most recently we ‘hammered the seismic’ in 2014. Now we are getting ready to start work during the winter season 2019-2020. Why so? We use all the best and the most advanced that our shareholder companies Shell and Gazprom Neft have to offer. Shell, for instance, has vast experience and established traditions in management and safety. The moment of commencement of work is not the time when the work itself is started but when the planning and preparation begin. This is why at SPD a lot of time is traditionally spent on the preparation stage. Most of our time we spend on ensuring safety of work at our license areas. There are a lot of people within the seismic exploration area at any given time. This makes seismic exploration one of the most complex and critical aspects in SPD management from the safety management point of view. The decision regarding the start of the new season has already been made and we are continuing to prepare for it.
NiK: Seismic exploration today is a very broad and bountiful field for tech innovation.
—— This is true. We give ever more attention to detail seismic exploration. Salym Petroleum is a small company. We focus our efforts on having and developing the best professionals and on implementing state of the art technologies. The Department for Subsurface Engineering and New Technologies unites professionals form various disciplines. We have seismic exploration experts. They determine approaches and the choice of methods used to achieve various goals. Also we are supported by the research and development centres of our shareholders, Shell R&D in London and Gazpromneft STC. Together we have advanced in this area quite a lot.
One of the new areas for us is working with complex geological structures such as stratigraphic traps. These non-structural traps have no consistent area spread and are located within riverbed and canal deposits. This makes their discovery and prospecting more difficult. This is a story that is absolutely untypical for our oil industry. Generally everybody works with structural traps. Anticlinal folds, fairly simple in their structure, are easy to find both with seismic exploration and while drilling. Usually the initial seismic exploration results, after the office-based work is completed, are processed using the attribute analysis techniques, following which, on the foundation of data thus obtained, the field work design begins. We work in a different way. We use 3D seismic exploration inverse transformation algorithms since 2016. Companies undertaking this kind of work must have experience in research and be well equipped technically and have more profound competencies which, naturally, requires a higher investment from us. It is thanks to this kind of work the geologists of Salym Petroleum are successful in the development of reserves in stratigraphic traps. ловушках.
Working with such structures requires not just thoroughness at the interpretation stage but also pinpoint accuracy and harmony in the work of geologists, well engineering specialists and contractors while drilling. Last year, for instance, we drilled wells where the width of canal with sedimentation was about 60 metres. The target area at the depth we were drilling for was 50 metres. This meant the well had to hit a 100 metre diameter circle. We did manage to hit these canals with precision. Of course, this is a result of real teamwork of professionals and excellent level of understanding between us, geologists, and our well engineering colleagues.
“SOUTH HUB”: HIT THE TRAPS
“South Hub” is the name of a Salym Petroleum project to develop the South-East part of the Upper Salym field on the KhMAO territory.
High potential of the area was confirmed in 2016 after exploration drilling of two wells revealed daily oil inflow of about 10-15 tons. Hence, the Company assessment showed that South Hub development will allow to reach the production volume of more than 7 mln. tons in the midterm.
Moreover, the Company sees “South Hub” as the ground for new technologies.
NiK: What area are you talking about? Is this the “South Hub” deposits?
— Exactly. In 2016 we interpreted the seismic exploration results at an area of the Upper Salym field and described a meandering paleoriver bed on the profile. The first well was constructed that same year. The reservoir of the highly-permeable sandstone, following the results of the geophysical logging, turned out to be petroleum-saturated. At the time of trial the first well gave 300 cubic metres of dry crude oil a day. Exploration drilling discovered a number of meanders in the area. This is how we discovered the deposits which we are going to develop within the South Hub project. Regardless of the fact that the South Hub was discovered with the very first well, we had to examine the entire Upper Salym area as it still had not been prospected in detail. So another five exploration well have been drilled there. As a result, reserves previously classified as B2, meaning “unproven” according to the new classification, have been reclassified as A+B1 which means “proven commercial reserves” ready to be developed. This work took three years.
Exploration at the South Hub has been completed. Now we are starting the stage of active drilling of production wells. This is why we and our shareholders are very optimistic in respect of the development of this project and the assessment of prospects for the growth of production indicators
NiK: Talking about the geology of the entire Salym Petroleum license area, what are its unique aspects and how large a part of reserves is considered unconventional?
— The key targets at the Salym group of fields — are the high permeability Lower Cretaceous formations. These include bar sand bodies and riverbed deposits. However, if we take our neighbours, the oil and gas producing companies working in the West Siberia, they have already exhausted the Jurassic sediments and are now starting to develop the Achimov level and to actively engage with unconventional reserves.
Oil had been discovered in the Mid Ob area in 1961 at the Megion field. The peak of production there has passed in 1970s-80s and the companies have exhausted these deposits going ever deeper and reorienting for the unconventional.
Salym Petroleum, however, is a comparatively young project, we started production in 2004 and so far have enough oil reserves in high quality reservoirs. This makes our initial positions – and thus goals – different. On the whole, the volumes of unconventional reserves in these deposits, according to our estimates, are quite large. Now the Achimov deposits we discovered have been properly prospected and, upon completion of preparing the case on the reserves, or the “assessment” stage, we will start selecting the technologies and preparing the case on the production, the “selection” stage, where we will have to draft the cost effective case for the development of the Achimov deposits. This is for years and decades to come.
NiK: Has the drilling for the Achimov deposits started? What technologies are required for that?
— Achimov deposits present the low permeability reservoir problem, low oil saturation, and underlying water. This is why we have to choose the optimal horizontal well design and fraccing technologies making expenditures more effective. One pilot cell has been drilled at the West Salym field. This includes injection wells and two horizontal production wells. Multi-stage fraccing has been done in the horizontal wells. Frac tracers studies have been done in the injection wells. Now we are preparing for the drilling of a similar pilot at the Upper Salym field. Here the Achimov deposits characteristics are a little different presenting a lower permeability. All in all we have a lot of work ahead of us on the Achimov deposits.
NiK: Are you taking part in the well-known project Bolshaya Achimovka run by your shareholder Gazprom Neft in terms of the development technologies?
— This project examines the Achimov deposits at the regional level – from Yamal to the south part of the Khanty-Mansiysk Autonomous Okrug. Yes, thanks to our shareholder, we are involved in this project. We study their experience and share ours. The key goal here is to make the Achimov reserves profitable. At the early stages a lot of attention is given to the scientific research component. This is where we are at, from the point of view of approaches to the unconventional reserves. In particular, we have to explore the Achimov reservoir further in order to be able to describe its area and assess the volume of reserves with better precision. The selection and testing of technologies will only start at consequent stages. These technologies are not quite ready for active deployment. The key problem here is that everything that is new costs a lot. Both in Russia and in the entire world unconventional reserve development technologies are tailor-made. For as long as there is no large scale replication these technologies will remain unavailable for commercial use. This is why we pool our efforts.
NiK: In 2018 Salym Petroleum presented the results of the enhanced oil recovery project using the ASP technology. Can the company's plans for the increased production be connected to this technology?
— Undoubtedly. The process efficiency of ASP (a tricomponent mix of anion surfactant, sodium carbonate, and polymer – NiK) was proven by the West Salym field pilot project. Salym Petroleum has built a chemical component mixing plant, drilled cells of a number of wells. I have to point out here that the most exhausted area has been selected for this. Then the experimental ASP composition was injected into the wells. There had been a lot of technological issues but in the end we managed to overcome them and produced over 3,500 tons of oil from the pilot area. The oil recovery factor has been increased by 17% and reached 69% at the area.
Following the ASP project results the options have been prepared for the replication of the technology across the entire West Salym field where the reserves depletion is already very high and the average water cut of the produced fluid has reached 90%. The calculation of the cost efficiency and, I would say, even the viability of this technology replication have demonstrated that the current prices of chemical reagents, materials, and equipment drive the ASP project costs too high. Together with the shareholder companies we have initiated the cost optimisation program where we count on import substitution. We have made some good progress in this direction. Naturally, at the early stages we need some room for manoeuvre which may be achieved by some taxation privileges. We have drafted proposals on the incentivization of production made possible through the use of the ASP technology and submitted them to the appropriate ministries.
NiK: Salym Petroleum does not come to the RosNedra auctions very often but this year has started with a purchase. What drives the interest to the East Shapsha-1 area? What are your immediate plans?
— The fact that we are expanding and, in particular, that we have purchased a new area adjacent to our assets is a step totally logical from the company development strategic planning point of view underpinned by the production growth. This is an opportunity to expand the space available for the exploration and development of new reserves including the use of new 3D seismic exploration data processing methods and digital modelling of ideal analogue field.
Previously our capacities in exploration have been limited by our current asses, i.e. license areas within the Salym group of fields. Now the scope of exploration and the exploration expenditure as a whole will be increased this year. After our bid for this area has won at the auction a number of months will have to pass for the license to be officially processed. For this we have to draft and submit to government authorities the project for the geological exploration of this area which is what we are working on now.
How quickly we manage to start developing the area would mainly depend on the investment and, secondly, on the exploration effectiveness. We are planning 3D seismic exploration for the area next year. It is possible that right at the first stage of exploration we will be able to get objective data for the appraisal of resources.
EAST SHAPSHA REPLENISHMENT
On January 30 auctions were held in Khanty-Mansiysk to obtain the rights to use the subsoils at the border of East Shapsha-1, East-Shapsha-2 and Upper Nazym with the total area of 561 km2. Following the results, the licenses for geological survey and data gathering were given to Salym Petroleum Development, Rosneft and RITEK (LUKOIL daughter company). Total C2 reserves of the three areas, presented for bidding during the first auction in 2019 in KhMAO are 1.17 mln tons of oil and forecasted volume of D1+D2 resources is 24.7 mln. tons.
There is little information about East-Shapsha license areas granted to Salym Petroleum and Rosneft. License development conditions include 2D seismic exploration: at East Shapsha -1 in the scope of at least 200 line km. of profiles, and at East Shapsha -2 at least 350 line km. The conditions also include construction of at least one prospecting well.
NiK: At a recent auction there were some serious contenders and the neighbouring East Shapsha-2 area has gone to Rosneft. Have you been expecting to purchase more?
— We had started working on the appraisal of the area three years ago, then we went to Rosnedra with the request for the inclusion of the two East Shapsha areas into the licensing program. We were interested in both but rules of the auction stand as they are and we have only managed to get one of them. What we got is the area one of the East Shapsha field adjacent to the west border of the West Salym Field.
NiK: Do you have any idea of the new area geology? Would you say that any of your fields are similar in terms of the reservoir properties?
— The field nearest to the East Shapsha-1 and, as we suspect, similar in terms of the deposits structure is the West Salym field where we are developing the Lower Cretaceous horizon. This means it is a fairly good reservoir with high permeability
The problem we are expecting is the very same stratigraphic traps for which the solutions have already been found. Moreover, at the West Salym field there are large reserves in the Achimov deposits. We suspect that at the neighbouring area at the western side of the field there will be the same reserves. We reckon that the sedimentation picture typical for the Salym group of fields being developed most likely will be repeated at the new area. This may include the so called “bar bodies” (sand reservoirs occurring in place of the ancient water currents and riverbed deformations – NiK), which are plentiful at our license areas.
NiK: What kind of payback can you count on considering that the payment for the new virtually unexplored area amounted to over a billion roubles?
— It is difficult to talk about estimates and prognoses when we are talking about purchasing an unexplored piece of subsoil where there is virtually nothing. It is true that no exploration has ever been done there which would have made it possible to have some preliminary data on the geological resources and recoverable reserves. Having purchased this area we accept the full measure of risks and responsibilities for the geological exploration. We consider the optimistic and pessimistic scenarios. There is quite a serious range of uncertainties between them.
NiK: To what extent can your developments in the digital modelling sphere optimise the timeframe and costs at the early stage of fraccing?
— All our license areas have been digitised and presented in our corporate digital library of permanent online geological and hydrodynamic models. We use these models actively to study the formations geology and to build ideal analogue models as well as for the support of well engineering and the consequent management of the development.
NiK: Will you be bidding on areas which will be auctioned this year?
— No such plans have been made for this year. However, I think that we will be able to get ready and react quickly should interesting areas appear at the auctions.