Production of Bazhensk products is being reduced in Yugra, tax benefits are not yet in effect.

Industrial development of hard-to-recover reserves, in particular the Bazhenov formation, has in recent years become one of the key tasks of the oil industry in the Khanty-Mansi Autonomous Okrug - Yugra in conditions of falling production due to high depletion of "old" fields. The tax benefits introduced for the fields with Bazhenov deposits have had no effect so far; Bazhenov production in Ugra has been declining for several years. This situation may be improved by introduction of new efficient technologies for extracting hard-to-recover reserves that oil companies are now looking for and approbating. In the interview with Interfax-Ural Alexander Shpilman, the Director of the Gazprom Neft Bazhen Center, talked about when the results of this work are expected, whether Rosneft will be able to implement Bazhen projects without foreign partners who gave up cooperation due to sanctions, and what Surgutneftegaz is counting on.

- In 2008 your Center made a forecast of the oil production in Ugra till 2030. According to the forecast, oil production will decrease approximately by 1.5% annually. Do you have plans to make any forecasts for the period after 2030?

- We make long-range forecasts, but the longer the period, the less accurate the forecast is. It is difficult to take into account factors that we may not even be aware of. For example, when we made the forecast in 2008, we did not take into account production from the Bazhenov formation. Now we produce half a million tons of oil a year from the Bazhenov formation, and if we were producing 10 million, we would be wrong. When we make a forecast, we know the reserves and the patterns of their involvement in development; we put our data into formulas and get a forecast. At the same time, the forecast is always probabilistic; there are variants with higher and lower indicators. It is very difficult to predict all the parameters: we need to understand the price of oil, the cost and volume of drilling. There are more straightforward forecasts, they are based on the design documents of the fields already under development. But we also need to take into account the fields that will be involved in the development for a longer period. Therefore, it is easy enough to make a five-year forecast based on the project documents. In 2008, we made a forecast for the next 20 years, which is more complicated.

- But your forecast turned out to be very accurate...

- We were lucky. On the one hand, we were lucky; on the other hand, we really know how to make forecasts based on an understanding of the patterns of field development and commissioning. That was the first time we said, and it was in 2003-2004, that production in the district would go down. This aroused general surprise; everyone said that the production would grow. We were given strong support from the Ugra government; Alexander Vasilievich Filipenko, the governor, gave instructions to the government to work out the question of how the Okrug would survive in conditions of a drop in production. Our forecast also formed the basis for the rest of the government's actions;
If we talk about the new forecast after 2030, we have not yet received such an order from the district. But it's quite possible that task will be set soon. We need about a year to make a good forecast.

- In 2018, we managed to reverse a decade-long downward trend in production, and the region even increased production slightly. What made this happen? Will this trend be long-term or will we still see a decline in production, as indicated in the forecast?

- This year there will be no increase in oil production in Yugra, most likely the same volumes will remain (oil production in 2018 was 236.5 million tons - IF) or even half a million tons less. This trend cannot be called a growth, it is a matter of the level of stabilization. This process is typical of all oil provinces of the world with declining production. There are "shelves" of production where there is a stable production level for several years, usually 6-7 years. We have reached such a "shelf". If you look globally, the next 10-15 years production will be declining. And, most likely, at about the rate we predicted. But there will be such "shelves.

- Why do they occur?

- Subsoil users have dramatically increased production drilling. We drilled 18 million meters in 2017 and 17.5 million meters in 2018. In 2000, we drilled 5.5 million meters. That is, in such a short period of time we have tripled our drilling volume. Drilling rigs, crews, practically the entire industry has tripled. We sometimes hear that the oil industry is declining in Yugra. The industry is not declining, the industry is growing. Production is going down, because the reserves are hard to extract now. The industry is increasing its drilling volumes, especially Rosneft.

- How do you assess the results of the Bazhen Technology Center as of today? Earlier it was supposed to start commercial production of Bazhenov oil within the framework of the project in 2025. Do the plans remain in place? Or can the process be accelerated?

- Developing a cost-effective technology for extracting oil from Bazhen is the main task of the Bazhen Center. Bazhen oil is being extracted now, but it is on the limit of profitability, even taking into account all the benefits. It is difficult for me to assess from the outside because our center is a partner of the Bazhen Center and Gazprom Neft. We do more research: we study the Bazhenov core, we try to understand the rock composition, its porosity and permeability. We are trying to understand how to properly induce oil flow.
I think that the project works well. We have drilled 14 horizontal wells extending up to 1.5 kilometers, and multiple hydraulic fracturing is carried out on the wells, which is effective along the entire length of the well. The landfill gets decent oil flows, decent oil flows are higher than 30-40 tons per day. Over 40 tons per day is the flow rate, after which the project becomes profitable. A lot depends on the flow rate. A well runs for a short time, 3-4 years, and during this time it is necessary to pump oil and drill a new well in the neighboring area.
Specialists working on the "Bazhen" need to try out the technology of production from Bazhen, to make sure that they work, to try to make drilling cheaper. Drilling cheaper with mass drilling is possible. They are trying and getting their first successes. They have not yet answered the question: can the Bazhenov formation always be developed efficiently? I think they will need this period till 2025 to do a lot of different experiments and to declare that the technologies of commercial development of the Bazhenov formation have been selected and they will start drilling hundreds of wells.

- How actively are technologies for the production of hard-to-recover oil appearing in Russia?

- They are appearing, but not very often. There are not many domestic developments, and you cannot do nothing for 20 years and expect them to appear very quickly now. The hope that the West would give us technologies and equipment has been alive for the last 20-30 years. Oil was sold for currency, equipment was bought with it, so design bureaus disappeared, many scientific fields disappeared. It is not easy to revive the industry, it will take years, you need to train specialists. Everyone talks about import substitution, but there is no funding. Companies finance something, but reluctantly. There is a problem, and I think it will take at least another ten years for our design bureaus and factories to work well.

- Russia has been living under sanctions for a long time now. How much have companies rearranged their exploration priorities in recent years, compared to the plans of a few years ago?

- In exploration, companies have not really rearranged anything. There are a lot of 3D seismic projects underway, and these projects are aimed at refining the structure of the fields for development. The volume of prospecting seismic surveys to discover new fields is still insignificant. And the amount of exploratory drilling is exactly as much as the companies want to increase the reserves - close to half a million meters. And I think that is quite enough. The sanctions were imposed very narrowly, for example on the Bazhen. Western companies are forbidden to produce oil from oil shale. Yes, we lost something on this, we had international companies - Total, Shell, ExxonMobil - working very actively with our companies. When they left, and they left apologetically, it became more difficult for our companies to select technologies for developing Bazhenov oil. But I think that, eventually, all these technologies will be picked up.

- Do you think Rosneft will be able to develop these projects without ExxonMobil and BP, which have suspended their participation in the exploration of the Bazhenov deposits in West Siberia?

- In my opinion, of course it can. Speaking about Bazhenov, it is Rosneft that is increasing its production from the Bazhenov formation while Surgutneftegaz is slightly decreasing it. I even have a feeling that Surgutneftegaz is not very interested in developing Bazhenov, while Rosneft and Gazprom Neft are very interested. These companies are actively studying and selecting technologies for Bazhen production. So, of course, Rosneft will be able to implement these projects on its own. But some scientific work is needed. And, as I said, it's a matter of funding and, apparently, funding by the oil companies themselves. If they do not start to develop science, design, then we will not have development. I think they will come to this. They are already developing science, but for now it's corporate, their own institutes. Maybe in the future they will develop university science as well.

- If Surgutneftegaz has become less interested in the Bazhen, what are its stakes now?

- On other territories, Surgutneftegaz has gone to Eastern Siberia. They are developing a whole block of fields - Rogozhnikovskoye and others - and also the Yuganskoye Depression in the south of the district, which has very good prospects. So, Surgutneftegaz focuses on the development of new territories. "Rosneft and Gazprom Neft remain in the region. Rosneft has decent reserves, good fields, including new assets, such as Vankor, not quite a new asset - Priobka, but with good production. Gazprom Neft has new fields, it has enough of them and the company acquires new areas at the auctions.

- Recently Russia completed an inventory of the recoverable oil reserves and according to its results only 64% of the reserves are profitable. How do you evaluate the results of this inventory?

- Four years ago Russia switched to a new classification of reserves, it is more in line with the international classification, because it includes economic assessment. We know about technologically recoverable reserves, but the question is, will they all be recovered? And economists' calculations show that no, some will be extracted and the rest is unprofitable. I'm somewhat skeptical of these estimates because of a few things. First, it has to do with the discount factor, which takes into account the loss of money in value over time. In the calculations, that factor was taken as 15%, which is a lot. It means that this year's investment will have zero value in 10 years. In my opinion this is some kind of mythology.
Secondly, Khanty-Mansi Autonomous Okrug does not have a single stopped field out of the more than two hundred fields that are in development. And some of them have been developed since the 1960s. The economists say that in 10 years, for example, the fields will become unprofitable. Believe me, if mining was unprofitable for the companies, they would stop the fields. I would still calculate the profitability without taking into account the discount factor, then the calculations, in my opinion, would be more correct. I do not really understand how to use the results.

- Originally the inventory was conceived to assess the effectiveness of tax benefits.

- I can tell you how to make an assessment of the effectiveness of tax benefits. For example, the state gave a tax break for Bazhen - a zero severance tax (mineral extraction tax - IF). What happened? Did production go up? No, production went down. While production from the Bazhenov formation in 2014 in the county was almost 759,000 tons, in 2018 it was down to 483,000 tons. This year, as of December 1, it was about 483,000 tons. There's nothing else to explain: on Bazhen production is declining, tax incentives don't apply. Yes, other processes are going on in parallel, landfills are being created, technologies are being developed. That is why we say that this is temporary.

On the other hand, since the new classification of reserves required the introduction of the parameter of their profitability, and for some fields it has never been counted, the inventory allowed us to have a normal balance and economic evaluation of all fields. Even if it was an express-evaluation.

- How much will the oil recovery factor (ORF) be increased in Ugra in the next few years? Are there any new technical solutions for this?

- The technical solution is very simple - drill closer to the grid and increase the ORF. This is a simple, clear and very important approach. In Western Siberia we have standard nets of 25 hectares per well, but now we tighten the nets to an average of 40 hectares per well. In order to increase the oil recovery factor we should drill much denser nets, up to 15 hectares per well. But so far this is not the case in Western Siberia.
And the second solution to increase the oil recovery factor is the methods of formation stimulation, for example thermal and chemical stimulation. The specialists of the French Petroleum Institute believe that the oil recovery factor may be increased by 10-15% in Ugra. We are going to do a joint project with them and evaluate how much the oil recovery factor in the Okrug can be increased with the help of chemical methods. We know the properties of our deposits, reservoirs, and oil, and the French will tell us how to evaluate the effectiveness of this or that method. We plan to do a fairly quick assessment, it will take 3-4 months.

- What are the prospects in exploration in Yugra compared to other Russian oil and gas regions? Is Artik in this sense the only point of growth in the coming years?

- The Arctic is complicated not by geology, the Arctic is complicated by climate. Most Arctic projects are assessed as unprofitable or technically unfeasible. Ice is a very dangerous thing, it can shear off all the equipment and cause major accidents. That's why it will take a long, painful time to develop the Arctic, investing huge amounts of money, which will take a very long time to pay off. Geologists in the Arctic have no special problems, seismic surveys have explored everything there, because their productivity at sea is very high: a steamer with seismic equipment goes and travels thousands of kilometers. On land it would take several seasons of work for such volumes. The Arctic is not a challenge for geologists, but for engineers, designers of wells, rigs and vessels. In my opinion, in the next 10 years the Arctic will not be the center of oil production in Russia.
There is very little success in Eastern Siberia, unfortunately, according to many geologists, the limit of oil production has been reached there. The other provinces are more "old", they are already getting all the "petty", wells are being drilled to increase the density of the drilling grid and produce new oil, like in Tatarstan or Bashkiria. In West Siberia, there are prospects for new fields; we discover 2-4 fields every year. Sometimes they are small, sometimes they are bigger, such as the Uuryinskoye field discovered on the western border of the district, with C1 and C2 reserves of 33 million tons.