Tough operating conditions, a complicated bureaucracy and government monopolies compound obstacles for companies working the Russian oilpatch, but huge opportunities open up for organizations that know the territory and the system.

“We’ve had more than 100% reserve replacement each year, and we haven’t yet booked reserves on new fields,” said Tim Summers, chief operating officer of TNK-BP, a Russian company formed 3 years ago through a combination of Tyumen Oil and BP oil and gas assets in Russia.

Giant Samotlor field is a cleaner, safer place to work since TNK-BP started a massive cleanup campaign. (Photos courtesy of TNK-BP)
That statement highlights the potential and the complications of Russian operations. To understand working in Russia, it’s necessary to understand the sheer immensity of the operations.

When TNK and BP joined forces, the combined company first had to look at merging the various corporate cultures and simplifying the corporate structure into a coherent, focused entity, he said. With the focus in place, the new company tallied pluses and minuses in its legacy operations to understand where it should target its efforts. It found a lot of targets.

Immensity
It employs 70,000 people producing 1.9 million boe/d (including the 50% share of production it owns in another Russian oil producer, Slavneft). It is Russia’s third largest oil company and one of the largest private, non-state oil companies in the world. It operates around 200 fields in the Urals and in northern and eastern Siberia.

On top of that list is giant Samotlor field with 55 billion bbl of original oil in place, 24 billion bbl of reserves and 4 billion bbl of oil left to produce.

Downstream, it has five refineries and 1,600 service stations and plans to expand its retail presence in Russia and the Ukraine.

Among assets with high potential are its 70-Tcf (1.9-Tcm) Kovykta gas field north of Irkutsk in East Siberia and Verkhnechonskoye, a potential 1-billion-bbl Pre-Cambrian oil prospect it is evaluating with Rosneft, also in East Siberia, both with high potential for exports. In northwest Siberia, it is exploring the Bolshekhetskaya depression and an oil and gas condensate prospect that could be even larger than Verkhnechonskoye.

Legacy challenge
That potential is important, but the legacy challenges have directed much of the company’s operations to date, according to Summers.

Much of the growth to date has come from legacy assets as the company concentrated on waterflood management to re-energize fields and increase recoveries. Water management is a major issue, he said. The company produces more than 12 million bbl of water a day.
To control that water cut and increase oil and gas production, TNK-BP must understand its reservoirs. That means heavy investment in seismic. “We are one-third of the Russian seismic market,” Summers added. Last year, it shot 7,452 miles (12,000 km) of seismic, not only in existing fields but to drill 60 exploration and appraisal wells in its total of 400 to 500 wells a year.

Rig availability isn’t as severe a problem as many companies around the world face these days. TNK-BP has around 100 drilling rigs and 500 workover rigs operating today, owning about half of the rigs itself through its in-house service company.

It needs that equipment. Most Russian fields pump liquids to the surface with electric submersible pumps. In TNK-BP’s case, they provide 80% of its production, but the run life of a pump, on average, is 325 days. Picture replacing more than a pump a year on nearly 17,000 wells in just one field. The world average replacement period is 650 days. Obviously, Summers makes extending the lives of those pumps a high priority.

Among legacy issues, TNK-BP is a cleaner and safer company than it was 3 years ago, but it has a long way to go, he said.

Samotlor is one of the opportunity areas and challenge areas and an example of operating necessities in Russia. Discovered in the 1960s, the field has 17,000 wells drilled from 2,500 well pads.

The company controls 25 sq miles (5,000 hectares) of polluted land, 18 sq miles (4,500
An oilfield camp near Irkutsk serves as headquarters of TNK-BP operations in the area.
hectares) at Samotlor alone, largely from leaking gathering lines and pipelines as much as 40 years old. To date, it has already remediated 2,000 hectares of that legacy. TNK-BP has set US $1.1 billion aside to work on those legacy issues. It has replaced 932 miles (1,500 km) of those lines and still has another 1,552 miles (2,500 km) to go, in addition to repairs. Some 4,347 miles (7,000 km) are also now protected by corrosion inhibitors.

A high-intensity focus on safety, including safety equipment, seat belts in all vehicles and driving classes helped lower the company’s work-related vehicle accident fatality rate down to one last year.

Another legacy issue deals with flaring associated gas. During the past couple of years, Summers said, the company has done a lot of planning and permitting and sanctioned expenditures of $1 billion to improve the use of associated gas, including construction of pipelines, compression, injection for reservoir pressure control and access to the national grid.

With that work and a continuing program, TNK-BP plans to have utilization of associated gas in full compliance with government regulations, land pollution at zero and the pipelines all in good shape.

Future operations
Moving forward, the giant Kovykta field is an important asset, both in size and in location. Even at 70 Tcf of gas, it’s not the top priority project, but it is on the list of 15 major projects, Summers said. Right now, however, TNK-BP books no production, no reserves and no income from Kovykta.

East of Lake Baikal, the field is in position to provide gas to the Irkutsk area and to feed gas pipelines to Russia’s east coast and to China.

The company has run up against the government in compliance with its contract terms. The terms call for the company to provide 318 Bcf (9 Bcm) of gas a year to local markets, but those local markets can accept only 88 Bcf (2.5 Bcm) a year. Under those conditions, compliance is impossible.

Kovykta’s production potential cries for an export market, but since GazProm is the only company in Russia authorized to export gas, any plan must include that government gas monopoly. TNK-BP and GazProm are talking. As a Russian company, TNK-BP may not have to face giving up 50%-plus-one-share ownership of the field as Shell did at Sakhalin II.
Overall, TNK-BP may have to give up some equity in the company, but the ability to get pipelines under construction and export gas would make the trade-off a plus for Summers’ company.

That’s just one project. The company has acquired 40 new licenses since its creation, and it’s drilling 50 to 60 exploratory wells a year with a 60% success ratio.

In addition to technological improvements to existing fields, the company also is starting to develop new projects, including Uvat in Tyumen. TNK-BP drilled 25 wells there last year and will drill the same number this year, with a goal of bringing the field on stream in 2009 to 2010.

In Irkutsk, if the potential 1-billion-bbl prospect with Rosneft works out, it is close to the proposed Trans-Siberian oil pipeline that will pass north of Lake Baikal to Russia’s east coast.
“We’re now moving from a brownfield company to a combination brown- and greenfield company as new fields are evaluated and come on stream,” Summers said.

Part of that evolution calls for a heavier emphasis on natural gas. Gas now represents 12% of the company’s output, up from 8% when the company was formed, and it will increase that ratio.

Summers encouraged other companies with a need for growth to consider Russia among their options. “It’s one of the world’s great hydrocarbon basins with a third of world gas reserves and 40% of non-OPEC oil reserves.”

Working in Russia
The Russian oil and gas industry has tremendous in-country reserves. It’s a huge industry capable of producing 9.7 million b/d last year.

The subsurface is complex to image seismically, he said, and the terrain is challenging, with no roads at all in many places with oil and gas potential.

Temperatures can plunge to minus 77°F (-60°C) forcing producers to shut down operations when equipment won’t function. During the summer, temperatures can climb to 94°F (34°C).
In addition, “Distances are vast. The logistics challenge is significant,” Summers said. On the positive side, “If people apply technology and have the right attitude toward development as a Russian company, it’s exciting. The country is very dynamic,” he added.

The combined company has had to go through a lot of learning about Russian culture and on both operations and technology from the expatriate side. The overall goal has been to match Russian capabilities with international standards.

That brings up another positive for companies working in Russia. “We have a high-quality work force. Only 200 employees are non-Russian,” Summers said.

Last year, the company recruited 500 Russian graduates and now has 1,000 recently graduated newcomers to the company.

Much of the world has an aging work force, he added, and Russian companies also have to deal with that issue, but the nation has plenty of well-educated, technically capable people. In addition, the Russian attitude toward oil and gas operations is more positive than in many other parts of the world.

There are caveats for companies that want to work in Russia. “It’s a complex country. It’s the most complex culture I’ve experienced. Understanding the country takes a long time,” he added.

Some operations activities move very quickly. Internal activities can move quickly. In other areas, the system moves very slowly. The bureaucracy often is a challenging part of planning and doing business in Russia.

Russian blend
In some ways, Russia is a blend of world operations, Summers said. Individual well rates tend to be low, like much of the United States. The subsurface is difficult to image. “The subsurface reminds me of Colombia,” he added.
The distances involved in Russia make it somewhat like offshore operations. Some areas are accessible only in winter over frozen roads, and logistics is a critical part of doing business.
Some of the environmental and logistical aspects of working in Russia are like the UK North Sea.

From a personal point of view, “More than 500 workover rigs is new for me. Making a difference at scale is a challenge. It’s easier to work on a field with 50 wells than 20,000 wells. It’s unique,” Summers said.

“Russia gets a lot of press, a large part around oil and gas. It’s a challenging place to work, and it’s very exciting,” he added.