Development of the Russian Arctic Shelf: The Need for Accelerated Development Part 2

Vadim Kravets: leading Analyst

Following on from Part 1 of this article which ran in issue 30 of ROGTEC, the article discussed how In early August 2012 the Russian government requested a revision of the draft Program for development of the Continental Shelf. On the whole, however, the government approved the draft. The program’s primary targets include increasing Russia’s offshore oil and natural gas production to 66 million tons per year and 230 billion cubic meters per year, respectively. The economic benefits of the program are expected to exceed eight trillion rubles. Revision of the draft will affect provisions that are meant to make offshore operations attractive to private companies. Experience suggests that Gazprom and Rosneft alone will not be able to explore and develop promising offshore oil and gas areas by a deadline which is acceptable to the government. Therefore, in the first few months of 2012 Russian federal authorities took a number of steps to make offshore operations more attractive to investors, primarily in the country’s most promising Arctic sector. Development of the Program can be seen as just one of the ways in which the Russian government tries to accelerate development of the nation’s offshore hydrocarbon reserves.

Kara Sea
Projects
The shelf of the Kara Sea is considered a promising oil- and gas-bearing area immediately adjacent to the Yamal Peninsula. Exploration of this offshore area, as well as development of existing discoveries, are expected to proceed in coordination with the development plans for the gas fields located on this peninsula. The region’s exploration maturity is 15 percent for oil and condensate and around two percent for natural gas. The regional recourses of hydrocarbon liquids (D1+D2 categories) are estimated at 300 million tons, while gas resources of the same categories are estimated at 29.8 trillion cubic meters.

Within the Kara Sea offshore area, two gas condensate fields have been discovered—Rusanovskoye and Leningradskoye. Both fields require supplementary exploration since they have been probed with just two wildcat holes. Oil and gas initially in place in each field is estimated at four trillion cubic meters of gas.

In addition, the most promising plays in the Kara Sea offshore are the following:
»    Nyarmeiskaya
»    Skuratovskaya
»    Zapadno-Sharapovskaya
»    Nevskaya
»    Severnaya
»    Severo-Kharasaveiskaya
»    Amderminskaya

Of these, only the Nyarmeiskaya prospect has been prepared for deep drilling. The rest of the plays require 2D seismic surveys.

The Leningradskoye and Rusanovskoye fields are expected to be fully prepared for commercial production after 2020.

In 2010 licenses for three Vostochno-Prinovozemelsky blocks were issued to Rosneft. Further study of the Prinovozemelsky blocks using 2D and 3D seismic is scheduled for 2012 through 2016. The first wildcat well is planned to be drilled in 2015.

In August 2011 Rosneft and ExxonMobil signed a strategic cooperation agreement to jointly implement a number of geological exploration and hydrocarbon development projects, including some on the Russian Arctic shelf. The parties formed a joint venture. Rosneft’s ownership share in the joint venture for the Kara Sea offshore development is 66.7 percent while ExxonMobil owns 33.3 percent. Cooperation also extends to the Vostochno-Prinovozemelsky blocks.

Rosneft plans to conduct seismic surveys in these blocks throughout 2012. It will acquire 3D data on the  Vostochno-Prinovozemelsky-1 block and conduct a series of 2D seismic surveys within the Vostochno-Prinovozemelsky-2 block.

Forecast of hydrocarbon production
The report assumes that from 2012 to 2020 commercial production of hydrocarbons in the offshore areas of the Kara Sea will not start under either optimistic or pessimistic scenario. It is assumed that operations in the Vostochno-Prinovozemelsky-1,2, and 3 blocks will be limited to exploration.

Forecast of drilling and platform requirements
In Scenario 1, the report assumes that exploration drilling by Gazprom at the rate of one well per season will begin in the Kara Sea between 2015 and 2020. According to Rosneft’s plans, exploration drilling on its blocks will commence in 2015, and the company will drill a total of three wells from 2015 to 2020.

Scenario 2 assumes that Gazprom drills one well in two years while Rosneft drills a total of two wells in the Kara Sea from 2015 to 2020.

Under both scenarios, two drilling rigs may be engaged in exploration drilling in the Kara Sea after 2015, i.e., one rig working on Gazprom’s blocks and one rig working on Rosneft’s blocks.

Ob and Taz Bay
Projects
The Severo-Kamennomysskoye, Kamennomysskoye-more, Obskoye, Chugoryakhinskoye, Semakovskoye, Aderpayutinskoye, and Antipayutinskoye fields, and the Geofizicheskaya-more, Bukharinskaya, Preobrazhenskaya, Karpachevskaya, and Vostochno-Tambeiskaya prospective structures have been found in the water areas of the Ob and Taz Bay. Only the first three of those fields will be put into production in the initial phase. The fields will be developed by Gazprom while its subsidiary Gazflot is involved in exploration of the region.

Forecast of hydrocarbon production
Under the optimistic scenario, production at the Severo-Kamennomysskoye, Kamennomysskoye-more and Obskoye fields would drive the total production in the Ob and Taz Bay area from 2012 through 2020. Combined production from these fields may total about 25 billion cubic meters of natural gas per year in 2020. All of the fields would be put into commercial production as scheduled – in 2018, 2018 and 2020, respectively.

The pessimistic scenario assumes the three fields will be put into commercial production roughly one or two years later than anticipated by the current plan. This may be caused primarily by a lack of project financing. In this case, the combined gas production in the offshore areas of the Ob and Taz Bay may amount to 15 billion cubic meters per year in 2020.

Forecast of drilling and platform requirements
In Scenario 1, the report assumes that commercial development of the Severo-Kamennomysskoye, Kamennomysskoye-more and Obskoye fields will begin as announced in 2018, 2019 and 2020. In Scenario 1, two exploration wells are drilled annually – which requires one rig to be deployed.

In both Scenario 1 and Scenario 2, the regional plans include putting on production three fields in the Ob Bay: Severo-Kamennomysskoye, Kamennomysskoye-more and Obskoye. This will completely define regional demand for production platforms as follows:
»     Development of the Severo-Kamennomysskoye field after 2015 will require one platform
»     Development of the Kamennomysskoye-more field after 2015 will require two platforms
»     Development of the Obskoye field from 2017 to 2019 will require one platform

Under Scenario 1, eighteen exploration wells and 91 production wells will be drilled across the region between 2012 and 2020.

Scenario 2 assumes that the development of the Severo-Kamennomysskoye, Kamennomysskoye and Obskoye fields falls behind schedule by roughly one year due to financial and technological constraints, and Gazflot drills one well per season. This will require one drilling rig. The number of production platforms in Scenario 2 is equal to the number of production platforms in

Scenario 1. Under this scenario, there will be nine exploration wells and 76 production wells drilled across the region by 2020.

Offshore Area to the East of the Yamal Peninsula (Laptev Sea, East Siberian Sea and Chukchi Sea)

The Laptev, East Siberian and Chukchi seas are the least studied Arctic offshore areas in Russia. Companies have conducted some incomplete 2D seismic surveys and 3D simulations but the seismic coverage (measured in linear kilometers per square kilometer of area) does no exceed 0.01. Because of this, any oil and gas prospectivity forecasts for the Laptev Sea and, particularly, the East Siberian Sea, can be made only on the basis of geologic analogy.

Total forecast resources in the Laptev Sea range from 3.2 billion tons to 8.7 billion tons of oil equivalent. Three oil fields were discovered in the southwestern part of the Laptev Sea, their forecast recoverable reserves estimated at 8.7 billion tons. Exploration drilling, however, has not confirmed this figure.

The resources in the East Siberian Sea are roughly 5.58 billion tons of oil equivalent. The southern regions of the East Siberian and Chukchi seas (with their depths not exceeding 20 m), which belong to the Novosibirsko-Chukotskaya oil and gas bearing province, are not very promising. The northern parts of both seas’ offshore areas, included in the Eastern-Arctic oil and gas bearing region, are much more promising from the point of view of discovering hydrocarbon accumulations.

The resources in the Chukchi Sea do not exceed 3.3 billion tons of oil equivalent.

It is highly unlikely that active seismic surveys in the offshore areas of the Laptev, East Siberian and Chukchi seas will start before 2013 or 2015, while exploration drilling is likely to start after 2020.

Conclusion
Developments in  the first few months of 2012 have demonstrated that the Russian government is trying to encourage offshore exploration and production activities on the Russian continental shelf (including the Arctic Ocean). The government’s efforts are supported by Gazprom and Rosneft, which seek to engage both domestic and foreign partners in their projects. Nevertheless, these efforts so far have produced few practical results. In all likelihood, any significant acceleration of these activities can be expected only after modification of the taxation procedure applied to offshore projects and extensive involvement of private Russian and foreign companies in the development of the country’s offshore hydrocarbon reserves.