UpstreamOnline.com: Making up for lost time with hunt for Salym oilfield riches

By Upstream staff

Russia’s Salym Petroleum Development (SPD) is pressing ahead with three Salym oilfield projects after 10 years of waiting, targeting 1.1 billion barrels of estimated recoverable reserves.

The company is a joint venture between Shell and Russia’s Evikhon, although the Anglo-Dutch supermajor is the driving force, having seconded senior executives and project management expertise.

It also provided access to new technology in 2003, when Russian authorities threatened to withdraw SPD’s field licences.

Shell originally won the licences in 1993 in the first round of tenders open to foreign companies in West Siberia’s autonomous region of Khanty-Mansiysk, the former Soviet Union’s core oil producing area, after the country started privatising its oil industry the previous year.

Shell then formed an alliance with Evikhon, which at the time was an obscure company with powerful local interest and was later bought by UK-listed Sibir Energy.

However, apart from drilling five appraisal wells on the Upper Salym oilfield between 1995 and 1998, the venture was at a standstill, due to Shell insisting on signing a production sharing agreement with the Russian government to guarantee a stable tax regime and repayment of investments.

The Russian parliament never completed legislation to allow new PSAs, so in 2003 Shell and Evikhon decide to push ahead with the Salym project.

The project had to proceed at a quick pace to avoid authorities claiming the joint venture had failed to fulfill its licence commitments in time, and so Shell sent in specialists Dale Rollins and Tom Hooft to take over as SPD’s chief executive and technical director, respectively.

Some insiders describe Hooft as a “crisis manager”, whose task was to organise things as soon as possible to enable development drilling and start oil production to appease Russian officials.

Rollins, who began work with the joint venture in November 2003, says he and Hooft had “very challenging targets”, with shareholders having only decided to proceed with the project two months earlier. “Within four months, we built the road, the communication corridor, that linked all three fields West Salym, Vadelyp and Upper Salym. We put in power facilities and transported a rig to the wellpad that we built and started development drilling on West Salym in April 2004,” he says.

“That same year, we drilled an exploration well, found some new oil that we did not know was there and, in essentially a year of work, started to produce oil at West Salym, which is the largest deposit of the three.”

According to SPD, first oil was produced from early wells in December 2004, one year ahead of the schedule set out in the amended licence agreement with the government.

“A year later, we had the central processing facility (CPF) running,” Rollins says.

The CPF separates water and gas from West Salym crude and pumps it 88 kilometres through a dedicated link to the national trunk pipeline system operated by state-owned Transneft.

On 25 November last year, SPD celebrated the start of commercial oil production at West Salym, despite weather conditions grounding three chartered helicopters and leaving Rollins in the regional capital of Khanty-Mansiysk along with top Shell and Sibir Energy officials and shareholders and Khanty-Mansiysk governor Aleksandr Filipenko.

SPD has since increased its output to more than 45,000 barrels per day of oil, and is aiming to reach 60,000 bpd by the end of this year and 120,000 bpd by 2010.

Rollins says SPD is “doing a number of firsts in West Siberia”, such as “some core techniques that we are using” and “some perforating techniques that we are going to try”, as well as the use of smart wells, which will allow measurements to be taken downhole.

“We are looking at employing new technology on all levels here, from the way we build roads, all the way to how we drill wells and produce oil,” he says.

“Last year, we drilled more than we planned. We will get more oil faster,” he adds. “It is difficult to compare drilling times in West Siberia, as different companies include different things in their statistics. Some companies include rig moves, running casing, while some do not,” he says, adding that the best estimate for a West Siberian well’s average drill time “would be between 18 and 20 days”. However, SPD is “now running at 12 to 13days. This is worldwide benchmarking”, he says.

He adds that SPD’s contractors, Siberian Service Company of Russia and international driller KCA Deutag, “are drilling wells very quickly and of very high quality”.

“This is important for a variety of reasons,” he says. “The faster wells are drilled, the quicker the oil comes to production. We will drill over 500 wells on the three Salym fields. If we can reduce the drill time by two days per well, we would save 1000 days of rig time. That’s like paying for a rig for three years.”

Rollins also says that SPD is able to drill wells with a longer vertical reach than planned. Typical West Siberia wells have an outstep, a deviation from the location on the surface to the entry in the reservoir of between 1500 and 1800 metres.

“We have already had wells with an outstep up to 2800 metres. If you can drill wells longer, you drain the larger area from that wellpad, and you won’t need so many wellpads,” Rollins says.

“We initially planned 26 wellpads for West Salym, now we think that we will be able to do it from 23. Not only does that mean we won’t need to build a wellpad, we won’t need to build a road, power lines, put small facilities on the wellpad, or move the rig,” he says.

“If you factor in everything, each unbuilt wellpad saves probably between $10 million and $15 million.

“The trend of costs has only been upwards here in Russia. In spite of this, it is our intention to bring these fields on stream at or less than 10% of the original budget of $1.25 billion,” Rollins says.