Far Eastern Express | |||
“By the end of 2008, investments into the field will reach $1 billion, which means that we are spending around $10 million a week on it”, says Tim Summers, Chief Operating Officer of TNK-BP. "One of the most important things for us is to understand the deliverability of the wells and how much a well costs”.
Back to the future
500 million years ago the Earth was still being formed. This was a time so remote that the very earliest tracks had yet to appear on land. Some of the elementary forms of life which existed at the time, later became part of an oil-bearing rock in East Siberia, the oldest oil and gas basin in the world. By comparison, most experts agree oil in West Siberian basins is much younger, generally forming between
Tectonic shifts some 200 million years ago led to the creation of Lake Baikal in what is now the Irkutsk region in the south of East Siberia. Baikal, the world’s deepest lake is a huge chasm in the rock. Similar cracks in the rock created the reservoirs of the Verkhnechonskoye oil field, the largest oil field in East Siberia, which is being developed by TNK-BP to the northeast of Baikal.
Verkhnechonskoye got its name from the Chona river. The field is located at the head of the river thus adding the name «verkhniy», which means «upper» in Russian. Though little-known, Chona runs for an impressive 800 kilometers flowing north into the autonomous republic of Sakha (Yakutiya), into the Lena and thence to the Laptev Sea.
To say that Verkhnechonskoye is remote is an understatement. It lies 4,000 kilometers from Moscow – roughly the same distance as from New York to Rome – and is 1,100 kilometer from the regional capital city of Irkutsk.
The nearest airport is located in the township of Yerbogachen, a rural outpost where horses graze alongside the airfield, and the main activities for locals are hunting and fishing.
The field was discovered in 1978 by the Soviet geologist Boris Sinyavsky. In 1991, Verkhnechonskoye’s reserves were estimated at nearly 1.5 billion barrels. But after drilling 100 exploration wells, the operation was abandoned due to a lack of infrastructure, technology and project development skills.
“At present, the known oil resources in East Siberia are more modest than West Siberian reserves», says Mugammir Galiullin, General Director of TNK-BP affiliate Verkhnechonskneftegas, which holds the licence to Verkhnechonskoye. «However, I’m certain that new technologies will appear in future to reveal the full potential of these complex reservoirs”.
The remoteness of East Siberia had helped to defeat another brave attempt in the 1970s to kickstart the resource-rich and pristine region’s economy. In a bid to open access to deposits of mineral ores, the government of the Soviet Union had called on the country’s youth to help complete the long-delayed construction of the Baikal-Amur Magistral (BAM) railway to the north of the TransSiberian railway. Despite a lot of enthusiasm and funds channeled by the government, the ambitious BAM project was never fully completed. The reason the pioneering drive ran out of steam was simply because the area lacked a readily available supply of power.
Pacific outlet
In a breakthrough for Verkhnechonskoye’s viability, the Russian government in 2006 sanctioned the construction of the East Siberian Pacific Ocean (ESPO) pipeline. The
The decision to build the ESPO was a milestone for the East Siberian oil. And in a second important step to encourage greenfield development in the region, the government approved tax concessions for East Siberian oil and gas projects.
Even so, skeptics have continued to question Russia’s ability to undertake such an ambitious project, and doubt has been cast on the availability of crude for the pipeline.
Transneft, Russia’s pipeline operator, has repeatedly stated its commitment to build the ESPO line to high technical and safety standards and to minimize its environmental footprint. These considerations have recently led to a decision to delay completion of the first stage of the pipeline by one year until the end of 2009.
The pipeline delay will not hinder the development of Verkhnechonskoye because oil from the field can temporarily be pumped in a reverse direction from East Siberia to the west via already constructed stretch of the ESPO pipeline.
Because of its size and proximity, Verkhnechonskoye has always been an obvious candidate to supply oil for the pipeline. The challenge was how to find a feasible engineering and economic scheme to develop the field and harness the human and technical resources to bring it to success.
Look who’s here
TNK-BP, by virtue of its international roots, possessed the necessary skills to tackle this new frontier in Russia’s oil industry.
TNK-BP inherited its shareholding in Verkhnechonskoye via the company’s participation in RUSIA Petroleum, the operator of the Kovykta gas field. When it was created in 2003, TNK-BP’s founding partners BP and the Alfa Access Renova (AAR) consortium transferred to the new company their Russian oil and gas interests, including their equity in RUSIA Petroleum. As a result, TNK-BP became the owner of a 63% stake in RUSIA, which held licences both to the Kovykta gas field and the Verkhnechonskoye oil field.
The shareholders of RUSIA Petroleum decided to separate their oil and gas projects and transferred the licence for Verkhnechonskoye to Verkhnechonskneftegas (VCNG). VCNG’s shareholding structure has changed over time, but now it is held 68% by TNK-BP, with the rest owned by Russian oil company Rosneft.
By agreement between the two partners, TNK-BP is the operator of the project, while Rosneft’s representatives who sit on the VCNG board of directors are involved in strategic decision-making. As a practical example of this cooperation, Rosneft’s scientific research institute in the Siberian city of Tomsk is conducting a Verkhnechonskoye feasibility study.
Making Verkhnechonskoye work
TNK-BP managers now speak with certainty about Verkhnechonskoye’s production plans. But the outlook was not quite so rosy when the company approached the task back in 2003.
Verkhnechonskoye is different from the majority of oil reservoirs – not only in Russia, but also globally. In fact there are only two fields of this kind in the world. “There isn’t, actually, a lot of production experience around the world from rock like the one in Verkhnechonskoye”, says Francis Sommer, TNK-BP Vice President for Production Technology.
Most oil accumulations in West Siberia date back to the more recent, Jurassic period, where the rock is less hard due to less compression over time. Verkhnechonskoye is a very old Precambrian rock which was formed around the time the very earliest forms of life began. One of the central challenges of the field is how to work in the hard rock. There is also a lot of salt embedded in the rock. Both factors mean that conventional drilling is not efficient.
According to Sergei Brezitsky, TNK-BP Executive Vice President for Upstream, “The production of crude oil is a creative process. However, there are rules of the game and processes which should be adhered to. TNK-BP has tried to make the best of this when tackling the Verkhnechonskoye project”.
When TNK-BP was created five years ago, blending international expertise with Russian oil tradition, the resulting benefits included the growth of efficient business processes and project management skills as well as enhanced technological capability.
2003—2005
Company experts carried out a careful appraisal analysis. The work involved drilling and extensive testing, including the so-called “interference testing” – a process when fluids are injected in one well and a response is examined in the nearby “offset” wells.
The testing was done to check how well the zones and geology in the field were connected. This had caused concern in the past and it could have become a key obstacle to economic development if too many wells had to be drilled.
TNK-BP teams found that the formation was of good quality and had high connectivity. In the tests, several wells showed higher rates than had been predicted.
The results of the appraisal analysis allowed the Verkhnechonskoye project management team to come up with a development concept and draw up an economically viable development plan to submit to the board.
Under current estimates, Verkhnechonskoye contains between 4 and 5 billion barrels of oil equivalent in place. TNK-BP believes that at least 1 billion barrels of this amount are recoverable reserves.
At present, crude is extracted from one layer of the field, bearing the same name, Verkhnechonskiy. There are two further layers in the Verkhnechonskoye structure, one potentially rich in oil and the other holding 95 billion cubic meters of gas. By pushing the technology to new levels and creating the necessary infrastructure, the two layers can augment Verkhnechonskoye’s proved reserve base.
The field development plan envisages building the 85 kilometer pipeline to connect Verkhnechonskoye with the ESPO, along with the construction of a motor road with seven bridges, oil treatment facilities and an electric power station which will run on the associated gas produced with the oil.
“By the end of 2008, the investments on the field will reach $1 billion, which means that we are spending around $10 million a week on it”, says Tim Summers, Chief Operating Officer of TNK-BP. “One of the most important things for us is to understand the deliverability of the wells and how much a well costs”.
The total investment needed for Verkhnechonskoye in the next five to eight years is estimated at between $4 and $5 billion, depending on the final number of wells.
2005- 2006
These years were critical for the development of Verkhnechonskoye. First, the picture of the field that the company had built up convinced it that a pilot production.
The announcement of the ESPO pipeline construction accelerated the pace of work at Verkhnechonskoye. The pilot project was replaced by the so-called “early oil development”, which stepped up activity and brought forward the start of commercial development – now scheduled for the end of 2008.
2007
Verkhnechonskoye produced its first 220,000 barrels. Progress with infrastructure and field development allowed TNK-BP to add to its books a portion of Verkhnechonskoye reserves audited by international standards.
2008
Output from the field is set to exceed 6,000 bpd. By September, the Verkhnechonskoye project team will have the pipeline stretch to the ESPO completed, tested and ready to feed the first crude into the system.
2008 project highlights
- June
Oil treatment facility ready to deliver crude to the ESPO pipeline.
Capacity: 61,000 bpd - September
Verkhnechonskoye crude ready for delivery in ESPO pipeline.
Verkhnechonskoye — ESPO pipeline stretch: length 85 kilometers, capacity 265,000 bpd - October
Motor road from Verkhnechonskoye to Talakanskoye commisioned.
Length 85 kilometers, including seven bridges
2009
The field will be ready to produce about 20,000 bpd, and may reach a plateau of 140,000—180,000 bpd in the middle of the next decade.
High angle
TNK-BP continues to weigh several scenarios to optimize field development. A key accomplishment has been the choice of technology, which finally solved the issue of economic profitability.
The enabling technology is the drilling of «high angle» wells. As opposed to a vertical well, a high angle well can intercept many layers of a reservoir with one well bore. The idea is to lengthen the well bore that is exposed to the reservoir so that more oil flows in. In this way, Verkhnechonskoye can be developed with fewer wells but still attain a high recovery rate.
Development impact of high angle wells (average cumulative production per well) at Verkhnechonskoye
A high angle well is more expensive than a regular vertical well, but not as expensive as the two or three vertical wells needed to produce the same volume of oil. It also means that Verkhnechonskoye will have fewer gravel pads, which in turn is also less expensive and minimises the environmental impact.
Siberian pioneers
Organisational capability is one of the key challenges the company faces at Verkhnechonskoye. Unlike West Siberia, this part of East Siberia remains largely untouched and there is a noticeable shortage of oil industry professionals required for such an undertaking. Investing in the region’s future, TNK-BP supports a dedicated training centre at Irkutsk University and cooperates with other Siberian educational hubs in Tyumen and Tomsk.
Verkhnechonskoye currently employs 2,000 people onsite, of which 1,500 work for contractors. Overall, 45 companies are working as contractors on the project.
“We have now created a market for project contractors that can be roughly divided into three categories: international contractors; Russian contractors from across the whole country; and regional contractors”, says Mugammir Galiullin, “Our criteria are flexible. We are looking for the best experience and track record for each particular project segment”.
Besides international companies engaged in well drilling and drilling services, Verkhnechonskoye employs a company from Novossibirsk to build a stretch of pipeline, and a contractor from the Irkutsk region for road construction.
All contractors are selected via a tender system in accordance with TNK-BP’s governance and policies. In drilling, contracting firms operate on the basis of three-year contracts, and similar long-term relationships are planned to be cultivated for drilling services from 2009.
The VCNG head office is located 1,100 km to the south, in Irkutsk, which presents constant challenges in getting people to the field and managing project operations.
“Project management is executed practically online. We have established ongoing communications, including a cellular link, with the field. We maintain a hands-on control over the field operations», says Alexander Mikheev, VCNG Deputy General Director for Finance and Economics. Alexander himself represents a new generation of Siberian pioneers. The young executive left the Moscow headquarters for Irkutsk a year ago to contribute, as he puts it, to TNK-BP’s pledge to «open new horizons and create new infrastructure in East Siberia, starting off with Verkhnechonskoye”.
What is it like to work at Verkhnechonskoye? The field lies in permafrost where the ice penetrates deep into the ground and never melts. On only about 60 days a year does the temperature venture above zero. In winter it may average well below minus 30 degrees Celsius. Transportation is mainly by helicopters, which according to safety rules are only allowed to fly in daylight, which itself is in extremely short supply so far north. It’s a land of solitude – the density of population is less than one person per square kilometer.
“The oil industry is to an extent an improvisation on the basis of knowledge you believe in. An oilman should have the intuition for a specific field and the skills, methods and technology needed for success”, Sergei Brezitsky says.
People working at Verkhnechonskoye are involved in the development of a world-scale field, one of the first in the conveyor belt of new projects commissioned by TNK-BP. Verkhnechonskoye and the nearby Talakanskoye field will create a hub for future exploration in East Siberia, and open up a new oil and gas basin of global significance.
Far Easten Express (1.01 MB)