ROGTEC Talks to Simon Durkin, CEO of Salym Petroleum Development

How has business been for SPD over the last year and what is your forecast for the next 12 months?

In 2013 it will be 10 years since the start of the Salym project. Over those 10 years we started from nothing and have built a major modern oil production facility at the Salym fields. In 2004 our annual oil production was only 38 400 tons, while in 2011 we delivered more than 8 mln tons with a daily production record of 25,597 tons set in September 2011. SPD and its contractors constructed the field facilities and brought them on stream at a pace unheard of in Western Siberia and the success of the Salym project has been recognized both in Russia and globally. This September SPD got a prize in the Black Gold of Yugra regional contest as “The Most Dynamic Enterprise” in Western Siberia for the eighth time in a row. Earlier this year we became the winner of global Shell Safe Production Award as well as The Best Employer in the category “Region” of HR Brand Award. These achievements are evidence of our unique culture and unique team of high-caliber professionals.

The start of this year was not easy for our team, we had a number of challenges, including some power failures and also some of the wells drilled early in the year delivered below target. However, the drilling team is now well ahead of our drilling targets and we will more than compensate for the early shortfall with more wells than planned and enhanced reservoir management. This year we have already drilled 85 wells from 3 rigs and our well stock will soon exceed 800 wells. We continue to focus on performance improvement in all areas, for example we have further improved our well delivery time, so that our average drilling time for a normal well is now at 8.5 days, which is a great achievement. Another example is our performance in coring, where we recently set a new coring record for SPD of 72.62 m in one core run, through close partnership with one of our contractors, Sibburmash. This means that we now do the maximum required core run of 70 metres in one go, compared with 4 to 6 core runs as we did when we started in 2004. This is only a small example from many where we continue to get better in collaboration with our contractors. Further we make these improvements safely, for example with no accidents in coring since the start of our operations. We are also continuously intensifying our well reservoir management processes, both through effective modeling and planning and also remote controlled and measured operations across all the facilities and wells.

Driving this continuous improvement is our people, who deliver the cutting-the-edge technologies, top-class performance and ultimately the value to our shareholders. It is our people who enable the company to once again be above our plan on production to date for this year. I’m proud of my team that is efficiently, passionately and safely delivering our business tasks. For example, our operations team is doing a tremendous work on improving the overall production system availability, which consistently runs at around 97% – a truly world class performance.

With the official launch of LPG plant in May (see article in ROGTEC #29) we are now able to sustainably use the Associated Petroleum Gas (APG) that was previously flared. APG is transported to LPG plant built and operated by our partner Monolit, where it is processed. After processing the APG to extract the LPGs, the lean gas is then fed back to SPD where it is utilized in our 60 MW turbine driven power plant to generate electricity for our internal needs. Other components produced from APG – natural gasoline, propane and butane – are the marketed by Blue Line (Monolit). I’m very proud that we succeeded in realizing this project despite a number of challenges. Our cooperation with Monolit, Russneft oil company and Government of Khanty-Mansi Autonomous Okrug is a sound example of mutually beneficial partnership between private companies and the state that is also recognized abroad.

However, we are not going to now rest on our success to date. After 10 years of robust development and peak production we are facing a new phase of Salym fields’ development that consists of three areas. Firstly, it is “Run and Maintain”, further efficient and safe development of Salym oilfields. It is impossible to do anything else without safe and efficient daily delivery of oil. As part of this we are also looking to make further improvements in Well and Reservoir Management programme through metering upgrades to ensure we have accurate production measurement on all our wells and pads and, through further implementation of automation and effective storage and use of data. As the field mature and as the well numbers increase, the accurate collection and use of data is critical to running the fields optimally and maximizing ultimate recover, as well as meeting annual targets.

The second part of our strategy is “Grow New Oil”. This is about finding extra oil resources within the SPD licenses and adding them into delivery plan. To achieve this we have been implementing a large-scale 3D seismic campaign since end 2009. Over the period 2010-2012 we acquired 3D seismic data over 800 km2 of Vadelyp and Upper Salym and 530 km2 of West Salym. As usual, in doing this work we focus on safety and efficiency both of which have massively improved over the time working with our chosen contractor Integra Geophysica. For example we set a Siberia record by drilling 35,178 shot holes with a single seismic crew in one season. Again, this winter, we will be shooting more 3D seismic this time in South Upper Salym (500 km2). We have already processed / interpreted all the data acquired over Vadelyp and Upper Salym and we are now interpreting the processed data from West Salym. There are already some very good findings that enable us to both more economically develop known areas through better subsurface definition and open up new exploration prospects. For example we already drilled a successful exploration well in West Salym this year.

The third area we focusing on is what we call the “Game Changers”. This is where we aim to use new technology to unlock large new volumes of oil, effectively “changing the game” and adding a whole new life to our licenses. These cutting-the-edge technologies could also change the game across Siberian oil fields as a whole, if our work is successful. Under this programme, we are currently moving to a full scale Chemical EOR pilot using ASP (alkali-surfactant-polymer) flooding and separately will be drilling multi stage fracced horizontal wells into the oil rich but very tight Bazhenov formation.

SPD have written a number of articles for ROGTEC in the past looking at the development of “smart fields” – how is this “smart” implementation going and what results/advantages have been achieved?

Our vision of Smart Field project is that all our teams have information, workflows, tools and capabilities to continuously optimise the development of Salym oil fields – in the short term for production, and in the long term for lifecycle values. Currently we have realized 4 phases of this project starting from installing first equipment on wells at West Salym up to covering the whole well stock of Salym oil fields. Nowadays 100% of total SPD production & injection streams are connected to Smart Field systems.

With Smart Fields implemented on site now we have a real time feedback loop where we monitor well performance, model this using our integrated field management tools, define adjustments that are necessary and then make these adjustments via the automated control systems on a well by well basis. This Smart Field approach also helps us to position ourselves better for the challenge of a continuously growing number of wells, which we need to manage while retaining our operating costs.

If you would like me to be more specific, what Smart Fields mean for SPD, I could point out five key areas. First of all, Smart Fields are optimising our production system with real time wells monitoring, and enable control for performance & production optimisation, reducing deferment associated with unscheduled deferments. It is faster response time to well ramp up, that ultimately result in increased production availability. For example, previously it took up to 2 days to restart and stabilize well; today Smart Fields enable to do this in less than 1 hour. During 2007-2011 our production system availability was increasing annually by 0.6%. We significantly increase ESP Mean Time Between Failure (MBTF). In January 2011 it was below 600 days; nowadays it is almost 750 days.

Secondly, it is about safeguard equipment and wells. We can better detect abnormalities and failures as well as deviations from operating envelopes at early stages and prevent them. There is a traffic light display within Smart Fields system – operators have system status “at a glance” injection that enables focus on problem wells and remedial actions to improve its performance. Moreover, system enables production/injection optimization within constraints, such as injection flow distribution, choke-size, and pressure drops.

Thirdly, Smart Fields enabled us to reduce operating costs. Thanks to continuous increase of ESP MTBF we managed to increase number of pads to be operated by operator. SPD reduced OPEX costs by over $5 mln while operator to well ratio increased from 1:20 to 1:60 since initial deployment.

Fourthly, thanks to Smart Fields we improved well and reservoir management via continuous improvement in well operating pressure stabilization leading to increased production and better management of reservoir integrity. Together with this, we managed to streamline hydrocarbons allocation and reporting.

Last but not least, it is reduction of HSE exposure. Automation enabled us to exclude travel to pad location for production optimisation work – all activities execute remotely. There are less ESP trips now due to constant monitoring and control via Smart Fields with trips to wells decreased from 40 up to 7-8 per month.  This is a very significant achievement considering the fact that road incidents are the most frequent accidents in oil & gas industry.

Outside of “Smart Fields” what new innovative technologies have been implemented at SPD? And what technology do you think has had the greatest impact on your operations?

We are implementing a number of innovative technologies in different areas starting from exploration, well construction and oil production up to HSSE, HR and information management. For example, new technologies and methods have been tested in SPD logging operations. In 2009 SPD and Weatherford, contractor company, successfully conducted a logging operation while drilling underbalanced using a coil tubing tool in an open hole of a small-diameter well in Upper Salym. For the first time in the experience of two companies, we ran 2.25” logging tools in a 2.75” open hole. Among other high-end methods SPD applies in the Salym fields are electrical and acoustic microscanners to study the texture of rock and fractures, and dipolar shear sonic logs to study the unconformities in the lateral stress of the studied deposits. Surface and downhole microseismic surveys help evaluate the shape of fractures after a hydrofrac, and vertical seismic profiling helps combine seismic and logging data. SPD and contractor engineers are also using wireline formation testers and sidewall core samplers to recover samples of fluids and rock.

SPD supports a high level of integration of its operations and information flows. One example is its Well and Reservoir Management project, which involves several business units and departments in an integrated way, allowing the company to quickly and safely perform its drilling programme, optimizing the position of the wells, their robustness and high availability, and assuring maximum recoveries and a low level of operating costs in the long term. Mentioned earlier Smart Fields are inevitable part of this project.

To maintain the costs of operations at a low level, SPD implements a number of programmes in the area of data quality and business process management. One such project, the MAYAK data quality management project, is aimed at creating a new system to collect, process, store and use information. SPD has already developed standards and principles that will determine the organization of the single data base of the company. All employees who have access to the data base get instantaneous access to updated and reliable information, which is only one click away. As a result SPD employees spend less time looking for data and checking it, which considerably simplifies the process of actively and accurately managing our fields.

SPD seeks to continuously improve its business management processes. For this purpose, the company uses the LEAN methodology as a tool to optimize its processes. The approach is well known in other industries and is based on breaking down every process into its constituent elements, some of which contribute to the end result, and some do not. A traditional approach to the optimization of business processes is to improve the efficiency of the overall effort to achieve the result. While in the LEAN methodology the main focus is on those activities that do not play a role in achieving the end result. These activities are considered to be waste and can often be eliminated speeding up the processes and reducing the effort and cost involved in running them. The LEAN programme has the potential to considerably improve processes across all departments of the company. Projects implemented include those aimed at improving the performance of ESPs, well testing operations, water sampling activities, waste disposal, logistics, etc.

As referenced earlier under the “Game Сhangers” a key technology development is the application of Chemical EOR or ASP flooding. This EOR technology is designed to enhance recovery by reducing the amount of residual oil that remains trapped in the porous spaces of the rock after a conventional water flood. SPD has been studying this technology since 2008, conducting a number of laboratory and field tests together with its shareholders Shell and Gazprom Neft. In 2009, SPD conducted a single well chemical tracer test in West Salym and obtained very positive results that demonstrated that 90% of the residual oil saturation after waterflood was mobilized by the ASP flood. And today we are going ahead to the next phase of this exciting project – we are launching a full scale field pilot. Of course, this still has a long way to go, but if the proposed EOR pilot project is successful, then many fields in Siberia and particular in Yugra could get a new life. Unfortunately, there are several boundaries that slow the process. Particularly, we need to find a tax solution because you can’t produce that extra oil based on the current tax regime. Under the current tax regime production with EOR methods is just not profitable for the operator; SPD or any other company. That doesn’t mean it is not profitable at all, we think that we may be able to produce the “enhanced” oil at a cost of some 30-40 dollars a barrel. This compares with a current world oil price of over 100 dollars a barrel; so there is clearly profit to be made both for the government and for the company, but today the tax regime doesn’t allow us to go ahead. So we plan to proceed and do the research, study work and field trials while at the same time engaging with the government on how we can better split the profit to achieve a win/win. Without making profitable EOR methods, companies won’t produce residual oil, and it simply will remain in the ground.

In a previous ROGTEC interview, Harry Brekelmans, former SPD CEO, was keen to highlight “a very strong performance in the area of Health, Safety, Security and Environment, HSSE” – how have your HSSE programs performed and developed in the last 3 years? What further plans do you have to ensure worker & environmental safety?

Safety is our priority. It is embedded in our principles of doing business. Our goal is to work without harm to people and the environment. Our philosophy on safety is expressed in the slogan Goal Zero, i.e. zero accidents, zero injuries and fatalities; everybody goes home in one piece every day.

It’s very difficult to say that you can guarantee safety. Safety is a continuous journey, and you have setbacks and we’re not a company that completely avoids them, but we are committed completely to the safety of our employees and our contractors.  I’m sure we are doing a tremendous job on safety, particularly in two most important aspects of it: personal safety and process safety.

Personal safety is about keeping people safe. The safety journey starts with everybody understanding that you are really committed. Everybody understanding that human life is much more important than a barrel of oil and if there’s a choice between doing something safely or doing something quickly you choose to do it safely, or if there’s a choice between doing something safely or doing something cheaply you again choose to do it safely.

In 2011 we performed an analysis of most serious accidents in SPD since the start of the Salym project in 2003. This analysis revealed that we had to focus on four key areas – thus a programme called 4 Big Moves appeared. Since the start of the programme we became more efficient in supervision of activities on all worksites. We did this by training over 800 supervisors and ensuring that all worksites are fully complied with SPD minimum standards. The second area (or Move #2) is contractor and sub-contractor management. We are improving the accountability of contract holders and contractors for safety in their contracts and for their sub-contractors by providing effective training and support for our contract holders. Move #3 is about vehicle compliance & controlled maintenance of HGV’s / heavy machinery. As you know road safety remains the single biggest cause of fatal accidents in the oil and gas industry. Today all vehicles entering the territory of Salym group of oil fields must comply with SPD’s minimum vehicle and driver standards. For example, this means that all drivers working for SPD have defense driving training and certification and also that all cars and trucks are equipped with in-vehicle monitoring which is linked to a satellite system so we always know who is driving, at what speed and where. Further, we ensure that maintenance of heavy machinery and vehicles are done in a controlled and certified manner. Lastly (our Move #4) is about better planning and management of change to ensure proper risk assessment of changes.

Of course, besides this there’re some basic things you can do to protect people: to make sure they wear the right equipment, drive around in safe vehicles, and follow our 12 Life Saving Rules.  Before you start working for SPD and come to our territory you are trained in these rules and have to sign a safety declaration that commits you to them. They cover basic things: e.g.: if you’re in car, you wear the seat belt.

As a result in 2012 we are continuing to show a further improvement in safety, we are doing the right work and moving steadily to our Goal Zero. We already have some very good Goal Zero examples, e.g.: our central processing facility, SPD’s most complex facility, has now worked for 4 years without a Lost Time Injury (SPD or contractor). In September we had a meeting in Moscow with about 100 contractors where we congratulated a number of our contractors who had achieved 6, 7, and even 8 years without any injury in Salym fields. It all shows that Goal Zero can be achieved, which is something I strongly believe in.

Process Safety is about managing our assets in the safest manner to ensure we have no process incidents or leaks. Although less frequent, the consequences of a major Process Safety incident can be massive; indeed they can destroy multiple lives and a company in a moment (e.g: BP Macondo, Venezuela refinery, Bopal, Piper Alpha, etc.). Further, ineffective management of asset integrity is very poor business as the cost of replacing poorly maintained process equipment and pipelines usually far exceeds the cost of maintaining them effectively. We therefore have a detailed programme on asset integrity and maintenance to ensure that our assets are safe and that we always know their status. For example, this year we have a program of improvement focused on better management of process alarms. If there are too many alarms for a control room operator he is easily overloaded and can fail to see an important alarm amongst the numerous spurious or minor alarms. Ideally an operator should get an alarm once and timely, so that he has enough time to respond. To achieve this takes time and hard work effectively eliminating spurious alarms and prioritizing the remainder alarms in a controlled manner. As a result we have now brought the average number of alarms per operator down to about one quarter of what he was experiencing a year ago. This is a major step in giving back control to our operators so they can keep us safe and keep the oil flowing.

What plans does SPD have for future growth and reserve placement? Will we see SPD operating outside the Salym region in the future?

I can say only with regards to Salym oil fields. The question of expansion of SPD beyond them is one for our shareholders. SPD is doing much work to find new oil within its licenses: as I have already mentioned we are conducting a large-scale 3D seismic programme, making field pilots for Bazhenov and ASP and  doing exploration. I believe these projects will enable us to increase our oil base. With oil volumes increasing and optimizing costs SPD will remain in the game for longer time.

And finally, what is your outlook for the Russian O&G sector for 2013 and onwards?

I’m looking forward to 2013 as SPD has a number of very exciting projects ahead, like the Game Changer trials and further exploration, as well as the day to day challenge to safely maximize production and shareholder value.  Similarly for the whole Russian oil and gas sector I think it is also entering a new phase. After years of oil production increase provided by the mature conventional oil fields of Western Siberia, a time of change is coming into the industry. The mature fields of Western Siberia are beyond their peak and production is starting to decline. To compensate the Russian oil industry has to launch a number of new projects both within the traditional oil provinces and new regions such as Arctic and Eastern Siberia. This situation is also driven by further increases in global energy demand – by 2050 some forecast that Oil & Gas demand could be as much as double what we see today! With the share of “easy oil” starting to decline, Russia has to invest in the development of new projects in new more difficult areas and using new more difficult techniques, without sacrificing the environment and safety. I think this is the area where international players like Shell can have fruitful long-term relations with Russian oil & gas majors like Gazprom Neft. Together with our shareholders I believe companies like SPD can apply cutting-edge technologies that delivers more oil safely and in a manner that protects the environment. Of course to incentivize this will require continued changes in the tax regime to ensure that the more “difficult” oil (like oil from EOR or the Bazhenov) can be produces in a profitable manner for all the parties concerned.