Energy Intelligence Finance: Russia Steps Up Drilling, Leans Toward Horizontal

Apr 4, 2018

Oil drilling in Russia — measured in terms of total meters drilled — surged 11% to a new record last year, and analysts are forecasting fur­ther annual growth of at least 6% to 8% over the next three years, as producers intensify work at mature fields and grapple with lower flow rates and higher water cuts. As a result of these dynamics, the use of horizontal and multibranch drilling, as well as hydraulic fracturing, is growing sharply at mature fields. However, these efforts won’t be enough to compensate for natural declines, and the country’s major producers will have to rely more on new fields to make up the differ­ence. Meanwhile, Russian producers will have to keep developing their own technologies to work around Western sanctions and ensure they get the most out of new fields.

The total length of all oil wells drilled in Russia last year amount­ed to 28.6 million meters, roughly twice as much as a decade ago. Analysts say well performance is declining, forcing producers “to use all possible methods” to maintain output — a challenging task con­sidering that the water cut in Western Siberia, Russia’s core produc­tion region, is now 92%. Moscow-based Vygon Consulting says out­put from Russia’s largest fields is falling and that increased drilling activity and other intensification measures can cover only 90% of this natural decline.

…. Industry-wide, the number of new wells drilled in 2017 grew by 14.5% to 8,184. Vygon Consulting points out that a new well is typically on line for an average of only six months during the first year, so the full impact on production is only seen in the following year. “It’s important for companies to maintain the gains in drilling since this can have an impact on mid-term volumes,” said Vygon Consulting’s Darya Kozlova. “As far as calibrating output in line with the Opec deal, it is easier to modify drilling speeds at new fields with a high flow rate.”

Production from new fields has been helping to compensate for the natural decline at mature ones. As Kozlova points out, all of Russia’s production gains in recent years are attributable to large new fields such as Novoportovskoye on the Yamal peninsula, operated by Gazprom Neft, and the Messoyakha cluster in the Arctic circle launched in 2016 by Rosneft. Last year alone, new fields provided 200,000 b/d of addi­tional output, according to Vygon Consulting. For comparison, Russia’s total annu­al production amounted to around 11 million b/d in 2017.

Over the long term, Russia’s growing need to tap hard-to-recover resources — specifically, offshore and unconventionals — will collide with Western sanctions, which many observers expect to remain in place for a long time. Today, Russian technology is used for only 20% of hydraulic fracking work, Kozlova said, but the sanctions are spur­ring domestic companies into action. Gazprom Neft, for example, launched a project last year to test various technologies on the Bazhenov formations in Western Siberia, which hold shale gas. “Those kinds of projects will be supported [by Moscow] and grow in size, and then import-substitution will accelerate,” Kozlova said. Gazprom Neft hopes to produce about 50,000 barrels of oil equivalent per day, or 2.5% of its total planned output, from the Bazhenov play by 2025.

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