Russia’s tight oil will play an increasingly important role in its oil output, underpinned by the fact that 20 percent of its current reserves already belong to the “tight” category. Most of it, however, remains untapped as oil producers prioritize traditional projects which entail lower production costs and time-honored technological solutions. As the traditional variants of production gradually move towards depletion, it is tight oil that oil companies will inevitably turn to.
Mostly located below historically formed oil-producing regions, these tight oil reserves come with a well-developed infrastructure and supply logistics. However, one sees significantly more media coverage on Russia’s Arctic, than its tight oil. The reason, you ask? Using traditional methods, tight oil’s recovery factor is a mere 3-5 percent, therefore it is evident that its development requires new tailor-cut approaches, which, unfortunately, have been severely lacking.
Generally speaking, the development of Russia’s tight oil reserves is hindered by many factors; prioritization of other oil clusters, lack of adequate funding (Central Bank’s base rate at 9 percent and commercial credits are even higher), high dependence from foreign know-how, lack of test sites and only a small number of companies appraising tight reserves in earnest.
The same can be said with regard to Russia’s Arctic reserves, with one essential exception: the government impels Rosneft and Gazprom Neft, the only oil companies active in Russia’s Arctic region (and the only eligible), to provide tangible results about their progress. Perhaps, it all boils down to more favorable breakeven levels (Russian Arctic currently floats around $70/bbl, whilst tight oil is in the $80-90/bbl), perhaps not. The fact is that the state has not given due consideration to Russia’s tight oil bounty.Apart from technological solutions, the development of tight oil reserves also requires legislative changes despite a wide range of concessions already in effect since 2013. Tight oil projects, including the Bazhenov, Abalak, Khadum, Domanik Suites among others, are exempted for 15 years from paying the mineral extraction tax. Moreover, in case the oil is exported and Urals is below $50/barrel, the export duty is nullified. If Urals is above $50/barrel, producers will still pay a mere fraction of what they would pay for “regular” crude. Still, even more is required. The Russian Ministry of Natural Resources is proposing changes to the existing legislation, asserting that a full 0 percent taxation rate would be instrumental in consolidating geological test sites as springboard for new technologies to be used when studying subsurface resources. Related: Post Harvey: Crude Climbs As Gasoline Crashes
Unfavorable economics, Western sanctions and economic recession notwithstanding, almost all major Russian companies are trying to tackle the tight oil conundrum. Yet, typically, companies brave enough to take on the Bazhenov suite seem to be approaching it with different conceptual foundations. For instance, the LUKOIL-owned RITEK is focusing on various means of implementing thermal gas treatment to enhance oil recovery, whilst Gazprom Neft and Surgutneftegaz are concentrating on fine tuning multi-stage fracking and sidetracking techniques. This discrepancy in approaches also resulted in the sluggishness of Bazhenov Suite fields being brought online.
Only a few years ago, the Russian Ministry of Energy predicted that tight oil production would reach 50 million tonnes per year by 2025. As things stand now, Surgutneftegaz will remain the only company with significant Bazhenov output (0.5 million tons per year), Gazprom Neft intends to start commercial production on its fields in 2021.
Occupying an area the size of Ethiopia, roughly 1 million square kilometers spreading from the Russo-Kazakh border to the Kara Sea along Western Siberia’s most prolific oil fields, the Bazhenov Suite has been keeping Russian geophysicists awake at night for more than 50 years. Although it is one of the most researched subjects in Russian petrogeology, there still is no authoritative estimate on Bazhenov’s reserves (most reasonable located within the 15 to 20-billion-ton interval) and will not be for some time. There is no unified method for the quantification of Bazhenov reserves, moreover, most oil discoveries within it were carried out on a rather hit or miss basis. Yet we know a lot already about the Bazhenov Suite - the 70 known oil fields in the Bazhenov Suite are located at depths ranging from 600m to 3800m, while the thickness of the Suite mostly ranging from 20 to 40 meters, with an organic matter content of 16-17 percent.
The probability of hitting the rock-fracture zone with a standard vertical well is quite low - all companies have opted for multistage hydraulic fracturing as primary means of extraction. It remains to be seen how commercially viable RITEK’s attempts with the pyrolysis of kerogenic shale will be. It can allegedly extract up to 60 percent of the original kerogen volumes – the problem they will face sooner or later, however, is that they will have to develop a standardized procedure for layers at very different depths. As there is no indication that sanctions are to be eliminated anytime soon, companies are looking for a fresh take.
Gazprom Neft has been particularly keen to attract fresh ideas and approaches domestic institutions (universities, service companies) to unlock the potential of the Bazhenov Suite, partly driven by the overarching need to carry out this technological import substitution as soon as possible, since in the pre-sanctions period up to 90 percent of tight oil-related equipment was imported to Russia.
The Ministry of Energy considers the Bazhen project as one of federal importance; a laudable lobbying result, however, it is only the thin end of the wedge. Even with the most intensive and successful lobbying, one cannot speed up the Bazhenov development without some sort of technological breakthrough. Simply implementing methods which proved their worth in the United States will not work – even though Bazhenov and the Bakken share many similarities - permeability, porosity, organic content. Bazhenov is stratigraphically more complex, more argillic and thinner than its American counterpart. It is worth noting that below the Bazhenov lies the Abalak Suite – due to really high hydrostatic pressure and appropriate reservoir characteristics oil may move down from Bazhenov to the Abalak Suite.
Just as the Bazhenov Suite more or less copies the Western Siberian oil region, the Domanik Suite follows the contours of the historically oil-producing Volga-Urals region. A dark bituminous shale formation with current 2P oil reserves of a mere 27 million tons. Its organic content is thrice lower than that of Bazhenov, around approximately 5 percent. Of the 10 oilfields discovered in the Domanik Suite, none have any sort of commercial production. Related: In A Bold Move, Saudis Raise Crude Prices For Asia
This need not be the case forever. Even though the Domanik remains uncharted territory, its estimated reserves are expected to amount to 2-3 billion tons. Whilst Bazhenov will most likely end up being a Gazprom Neft – Surgutneftegaz domain, virtually the only oil major that seems intent on developing the Domanik Suite is Rosneft.
Rosneft formed two joint ventures with European majors BP and Statoil to explore the Domanik in the Orenburg and Samara region, respectively. By spudding first exploration wells in 2017, the Russian oil giant and its partners did not violate any sanctions-related conditions, as technically they were not drilling for (the banned) shale reservoirs, instead they drilled deeper, going for the limestone.
By Viktor Katona for Oilprice.com
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