U.S./Russian alliance to focus on big Siberian field

L.R. Aalund
Managing Editor-Technology

Estimated Samotlor Production [171,947 bytes]

One of Russia's largest and most financially stable oil companies, Tyumen Oil Co., has signed an alliance with Halliburton Energy Services (HES).

Aim of the alliance is to optimize and enhance production from four western Siberian fields in which Tyumen Oil has an interest. Initial work will focus on the Samotlerskoye field.

Tyumen Oil now produces 420,000 b/d with 370,000 b/d coming from Samotlerskoye field. The company has proven reserves of 4.3 billion bbl according to a study by Miller & Lents, an engineering company. Table 1 [25,352 bytes] shows the location of these reserves. Some 70% are in Samotlerskoye field.

Aim of the alliance is to keep Samotlerskoye's production at the 370,000 b/d level for 20 years, according to Simon Kukes, president and chief executive officer of the Moscow-based company. The focus of HES technology will be on gaining knowledge of the reservoir for better planning and production enhancement.

The service company will furnish services and products, according to Edgar Ortiz, president of HES. HES will also offer training to company management and engineers. Ortiz also looks on the nonexclusive agreement as a way for HES to improve its capabilities to address the needs of other operators in the Russian federation.

Kukes says funding for such an alliance is available from several sources. The company exports some 120,000 b/d of crude oil and refines 230,000 b/d. He says only 35% of the exported crude is needed to service debt. The remainder can be drawn on to fund projects.

Tyumen Oil was created by the Russian government in 1995, but the first 2 years were spent in a fight for ownership, Kukes says. It is Russia's fifth largest oil producer, and third largest reserve holder. The company has not failed to make any debt payments, he says, despite Russia's moratorium on loan repayments. Last month it obtained a $105 million loan from Germany's Westdeutsche Landesbank at the same interest rate it could have gotten before the Russian default.

PSA

Kukes says a draft production-sharing agreement for the Samotlorskoye field is now being approved. It was to be presented for government signature the end of last month and then sent to the Russian Duma for approval.

Tyumen then plans to begin work under the PSA which will run from 1999 to 2018. It calls for production of 112.3 million bbl in 1999 rising to a peak of 136.1 million bbl in 2010 and declining to 122.6 million bbl in 2018. Fig. 1 shows the estimate of future production from Samotlorskoye under the PSA conditions.

This will require rehabilitation of 2,300 wells during a 3-year period to improve production. It will also include drilling of 4,583 new production and injection wells with 2,317 of them being horizontal wells; the drilling of 3,245 additional well bores, hydraulic fracturing of 1,500 wells, and other operations to enhance oil production.

The drilling of additional well bores is carried out in operating or nonoperating wells in order to move to another level (reservoir). Also, it is an operation to fix a well that is not functioning properly by preserving the top part of the well and drilling in another direction from a certain depth. It is not necessary in this case to drill a separate new well.

HES will direct the work from its headquarters in Niznevartovsk, which is in the Tyuymen Oblast in west central Siberia. HES now has 175 employees in Russia. What effect the alliance projects will have on this number will be better known once a feasibility study, now under way, is completed, HES says.

Economic crisis

Kukes says the company has increased the number of its service stations from 250 to 400. It doubled its retail market share in 6 months, cut real costs by 30%, and increased refining margin by nearly 50%. As a result of restructuring, the company has cut the workforce by 20% to 40,000.

He said the economic crisis in Russia and the devaluation actually has some benefits for oil companies. Devaluation has cut total tax, labor, and social costs by 250%. Tyumen's tax debt has fallen from $400 million to $150 million. Further inflation will reduce it even more. Also, transport tariffs have been massively reduced, making rail transport economic as a potential export system.

The downside of the devaluation is an expected slump in fuel demand in the industrial and consumer sectors, the dreadful effect it has on Russian enterprises and individuals, and the resulting banking crisis.

In the long term, the most damaging consequences for many will be the difficulty in obtaining any form of credit.

But, Kukes says, the oil industry is at the center of the political stage again in Russia. Issues concerning it will receive high priority, given the industry's crucial role in earning hard currency for the treasury.

He adds, " Russian oil companies are collaborating together and with the government with mutual respect for the first time."