FSU/EASTERN EUROPE

Signs of recovery begin to appear

Soaring oil prices have breathed new life into many of the former Soviet republics, providing cash to boost drilling rates while making some fields and prospects economic again

FSU countries by Interfax Petroleum Agency, Moscow

Russia

This vast nation of 11 time zones entered a new era this year, after President Vladimir Putin won the March 26 election to gain a full term in his own right. Eager to cure the ills of "an inefficient state," Putin has wasted no time in pursuing a fresh governmental agenda. In a July 8 speech to both houses of parliament, the president listed a host of political, economic, social and moral problems facing Russia. He then produced a large package of initiatives to address the various ills.

While he favors a centralized state as a means of keeping the country intact and ensuring a level playing field for business, Putin’s package does contain many pro-reform and democracy sentiments. To ensure stable, lasting growth, the president wants to free business of governmental meddling and a tangled web of rules and regulations that many investors say is a nightmare. Just what measures will be brought to bear on the E&P industry, and how they will affect producers, remained to be seen at press time. However, industry observers did expect changes to be noticeable.

Former Sovier Union Click for enlarged view

Production. Russia produced 6.071 million bpd of oil and condensate in 1999, or about 30,000 bpd more than in 1998. Surgutneftegaz posted the biggest production increase for the year with 47,800 bopd, followed by Tyumen Oil Co. (TNK) with 8,166 bopd and Slavneft with 2,988 bopd. Major oil fields accounted for about 60% of output. They are almost 60% depleted, and water encroachment is 80%. Application of the latest technologies added more than 83,600 bopd last year. Gas production was 20.86 Tcf (57.15 Bcfd), including 19.27 Tcf (52.79 Bcfd) from Gazprom. Output was up 706.3 MMcfgd at Nadymgazprom and 280.6 MMcfgd at Noyabrskgazdobycha. Gazprom also produced 197,186 bpd of oil and condensate (up 4.4% from 1998’s level).

Drilling/reserves. For the first time in recent years, development drilling rose 13%, to 16.6 million ft, and exploration drilling was up 4.5%, at 4.1 million ft.

Wells drilled were about 3,185. The drilling leaders were Surgutneftegaz, LUKoil, Sidanko, TNK, Rosneft and Onako. The outlook this year is for a 12.6% gain, to 3,585 wells.

Wells capable of producing rose 1,560, to 134,872 at the beginning of 2000, of which 75.6% were actually producing oil. Idle wells nationwide declined 2,111 to 32,935, but increased 20.7% at Sibneft and 16.9% at Tatneft. The overall decline in idle wells was due to the mothballing of wells, whose number increased in 1999 to 24,900 from 21,200.

Oil reserve increases did not cover production – 1.44 billion bbl were added, or 65.2% of total output. Development of 36 oil fields began last year, contributing 4,820 bpd of new output.

Gazprom drilled 188 gas wells for 853,000 ft last year, including 27 exploration wells. Footage was 12% more than in 1998. Horizontal drilling rose to 157 wells. However depletion levels at Gazprom’s main fields – Medvezhye, Urengoi and Yamburg – are 80%, 60% and 40%, respectively.

PSAs/Sakhalin 2. The PSA projects (Sakhalin 1, Sakhalin 2, Kharyaga and Samotlor) produced 4,448 bopd last year – 2,852 bopd at Sakhalin 2 and 1,596 bopd at Kharyaga. Investment in these projects is $1.5 billion.

Marathon Oil withdrew from Sakhalin 2, transferring its 37.5% interest in the Sakhalin Energy consortium to Royal Dutch / Shell (62.5%). The transfer will take a year, after which Shell may sell a portion of its stake. Sakhalin Energy put Piltun-Astokhskoye field onstream in July 1999. Project budget for 2000 is $290 million. Seven production wells and two exploration tests will be drilled at Piltun-Astokhskoye while data on Lunskoye field are studied. Sakhalin 2 currently operates five wells.

Sakhalin 1. This $13-billion project is developing Arkutun-Dagi, Odoptu and Chaivo fields on the northwestern Sakhalin shelf, but oil production has not yet begun. Project participants are Rosneft (17%), Sakhalinmorneftegaz (23%), Exxon (operator, 30%) and Sodeco (30%). The 2000 budget is $57.1 million. Drilling of the Chaivo 6 well, to explore the field’s deepest horizons, will absorb over one-third of the budget.

Kharyaga. Output at Kharyaga field in Nenets autonomous district will be about 9,960 bopd this year, after production went onstream last October. First-stage development is being finished. Work on stage two will begin this year, and should triple output in 2001. TotalFinaElf (50%) holds the license to develop the field’s second and third sections, under a PSA that took effect in February 1999. Norsk Hydro (40%) and Nenets Oil Co. (10%) are partners.

Samotlor. The PSA to develop Samotlor field that TNK signed in late 1999 is not being implemented because of legislative problems. Disputes center on taxes, a mechanism for recouping investments and procedures for including the project in oil export schedules. The three PSAs mentioned above were concluded prior to passage of new PSA legislation and enjoy a special tax regime. There is also a legal restraint on signing more PSAs, since their combined coverage of national recoverable reserves cannot exceed 30%. Current PSAs cover 27% to 28% of oil reserves.

Other PSAs. The State Duma approved "first readings" for PSAs at Kovykta (Irkutsk, license to Rusia-Petroleum) and Tyanskoye (Khanty-Mansii, Surgutneftegaz). "Third readings" passed for North Astrakhanskoye (Astrakhan, Astrakhannefteprom), Vankorskoye (Krasnoyarsk, Eastern Siberian Oil Co.) and eight other fields. The president approved laws allowing PSAs to be signed for the Northern Territories and Timan-Pechora projects (LUKoil, Conoco), Priobskoye (Khanty-Mansii, Yukos), and Shtokmanov (Barents Sea shelf, Rosshelf) fields.

Offshore. This year, LUKoil struck oil in the Severny Block on the Black Sea shelf. The Khvalynskaya 1 discovery was drilled to 13,780 ft. Drilling of a second well (Shirotnaya 1) to 8,200 ft in 39 ft of water is underway. The well was due to complete in August 2000. Ultimately, eight exploration wells will be drilled on the 3,282-sq-mi block, and over $200 million has been invested. Construction of a new deepwater drilling rig for LUKoil will begin at Astrakhan Shipyard late this year. The rig will operate in waters as deep as 2,625 ft. The shelf development project also is constructing 10 stationary production platforms and eight support vessels.

Other offshore projects. Following Arco’s withdrawal from development of the Astrakhanovskaya structure on the Sakhalin shelf, Rosneft and its Sakhalinmorneftegaz subsidiary now own 50%, each. Plans for 2000 are to spend $20 million, drill one exploration well and interpret seismic data.

Separately, Gazprom and Wintershall agreed to cooperate on development of Prirazlomnoye oil field, 43 mi offshore, in the Barents Sea. The field may have recoverable oil reserves of 550 million bbl at depths of 7,545 to 8,200 ft. Gazprom, its Rosshelf subsidiary (which holds the license) and Wintershall began negotiating with officials in April on a PSA for Prirazlomnoye.

Timan-Pechora. A draft federal program on upstream development in Timan-Pechora to year 2010 was due for approval during third-quarter 2000. The region has 160 oil or oil / condensate fields, seven gas / oil fields and 23 gas or gas / condensate fields. The program specifies 4.6 million ft of exploration drilling, 24,235 mi of 2-D seismic, and more than 770 sq km of 3-D surveys. LUKoil has prioritized the project and will drill 58% of the wells, and conduct 37% of the 2-D seismic and 93% of 3-D surveys.