Shale oil to be recovered through taxes

28.01.2013 — Analysis

Gazprom Neft, a Russian company, started development of high-viscosity oil reservoirs of the Krasnoleninskoye field. The initial drilling operations will make it possible to assess the prospects for hydrocarbon production from deep levels in Western Siberia. Recently, Exxon Mobil and Rosneft have informed about their drilling of test wells in one of the Siberian shale oil fields. As the RusBusinessNews columnist has found it out, experts stayed unimpressed by the vigorous efforts of the companies: In their opinion, the expectations of heavy hydrocarbon production in Russia should be kept to a minimum, as oil companies are much more interested in additional tax benefits than in new oil-bearing horizons.

The drilling of an appraisal well in the Palyanovskaya Area of the Krasnoleninskoye field is the second shale oil production project of Gazprom Neft. Sаlym Petroleum Development, a joint venture of Gazprom Neft and Shell, intends to estimate prospects of commercial development of the Bazhenov formation at the Verkhne-Salymskoye field. Its high-viscosity oil reserves are believed to exceed 20 billion tons. Relying on the newly adopted technology, Gazprom Neft expects its annual field output to increase to 35 million tons of oil by 2020.

TNK-BP, LUKOIL, Surgutneftegaz and Rosneft also have projects aimed at extraction of heavy oil. They are still in an embryonic state; so, it is too early to talk about their successful performance. The experts note that the development of the Bazhenov formation will need technologies and tax incentives. Both science and the government are ready to provide them, but there is reasonable doubt that these actions will be followed by the commercial-scale production of heavy oil.

Georgy Bulatov, head of the laboratory at the Gubkin Russian State University of Oil and Gas, told RusBusinessNews that the technology developed at his educational institution had been patented in a number of countries. Its distinctive feature is in using oxidizing agents, rather than steam, that are pumped down into the oil-bearing stratum to increase the temperature and decrease oil viscosity. There are also significant achievements in cleaning up oil sands. Scientists started tests on extraction of residual hydrocarbons from extremely flooded fields.

However, to the great dismay of the scientists, oil producers do not snatch up the new technologies: They need persuading. This lack of enthusiasm is quite easy to explain: Oil companies are rather inactive; the competition between them is weak; but the price they may pay for the mistake is high. There are some psychological factors behind their unwillingness: Oil generals who are used to operating huge figures and amounts do not feel like stooping to the start up level. As a result, things aren’t moving.

Elena Smolinskaya, chief technologist of NizhnevartovskNIPIneft, says that she has noticed nothing new in the oil extraction technology within the recent years. As previously, oil producers use powerful pumps, steam, solvents and water-alternated-gas injection into the formation. These techniques are not sufficient for extraction of high-viscosity oil; therefore, it is usually neglected. TNK-BP started its extraction at the Russkoye field, but soon wound up the operations. There has been no progress in development of the Bazhenov formation so far.

G. Bulatov thinks that oil producers prefer to roll out operations at the Arctic shelf, which is incomparable to the development of old fields in terms of costs. He has no doubt that Gazprom is not going to develop any technology for production of shale oil, as it is not interested. Rosneft has no way to retreat, and it tries to grasp the production technology for hard-to-recover oil reserves in Western Texas (USA) and invests in Exxon’s projects in the Gulf of Mexico.

Ivan Nesterov, deputy director of the Institute of Oil and Gas Geology at the Siberian Department of the Russian Academy of Sciences, professor of the Tyumen Oil and Gas University, is sure that Rosneft will not produce heavy oil in Russia, because it does not have any field that would suit the purpose. TNK-BP has high-viscosity oil reserves, but the company does nothing in terms of its production. Gazprom and Shell need technology. The expert thinks that it will take them about 20 years develop such technology, because they do not know what to start with: They got used to sandy reservoirs and are skeptical about oil coming from clay. American oil producers have already started oil recovery from shale deposits, but they use the wrong technology: They drill horizontal boreholes and pump chemicals into them. I. Nesterov says that heating up of the formation has a detrimental impact on the field. His assumption has been confirmed by practice: Wells at the Bakken field in the USA generally demonstrate the standard performance only within one year – then the production performance goes sharply down.

RITEK, OJSC (a subsidiary of LUKOIL) also does not innovations. “They do not have geologists,” I. Nesterov says, “and their advisers are sure that the limestone areas are the best for drilling. That’s the way they work: If they are lucky enough – they get oil; if they miss – they treat it as cost outlays. I gave them my technology – they do everything in their own way. They ignore details that are essential.”

The expert believes that it is important to follow the procedure and to handle each well individually: The choke (used to control oil flowing) must be regularly replaced. Its replacement changes the technology. By observing these rules, I. Nesterov says, he reached the daily output of 800 tons from clay oil-bearing reservoirs 40 years ago. No one was interested in this technology at that time, because there were numerous traditional sources of hydrocarbons.

Today the situation is absolutely different: Deposits are over-flooded, thus resulting in low outputs. The experts forecast that by 2030 Russia will produce only 50 million tons of oil annually. By that time, the energy consumption in the country will reach 700 million tons. I. Nesterov thinks that only production of heavy oil can help to reach the required level.

G. Bulatov assumes that the government is interested in oil companies’ production at deeper levels. For this purpose, in summer 2012 the RF government decided to grant differentiated incentives in paying of the mineral extraction tax depending on the formation permeability. The initiative is, undoubtedly, important, but opens vast opportunities for manipulations. The authorities requested differentiated production accounting depending on the depth of oil occurrence. The distinctive feature of Western Siberia is that it has multilayer fields, and producing companies can be tempted to "mess up" oil producing horizons. Obviously, the differentiated accounting of hydrocarbons needs to be straightened out, while the measures should be taken to prevent oil producers from reducing all initiatives to decreased tax burden.

Vladimir Terletsky