TNK-BP views on Russia's reserves of strength

Sergei Brezitsky, TNK-BP Executive Vice President, Upstream, believes Russia’s reserve base ensures the country is yet to see the peak of its oil production. “In my view, the Yamal peninsula is an area of high potential for future Russian reserves and production growth for many years to come, given the right regulatory framework,” Brezitsky says. “For example, TNK-BP is developing the giant Russkoye oil field in Yamal – a project that will underpin the sustainability of our own future production.”

Ahead of the game

Keeping oil reserves topped up is like a never-ending marathon where you have to keep running faster to avoid dropping behind. All leading oil companies aspire to replace at least 100% of their reserves every year, and those that fail to find a new barrel for every one they produce are in effect slowly going out of business.

Against this sobering background, TNK-BP can hold its head high in Russia and the world, having achieved the remarkable average reserves replacement ratio of 138% annually since it was founded in 2003. These figures are independently audited and are considerably higher than the Russian average over that period. They are among the best in the industry internationally.

For a company that in 2007 produced 1.6 million barrels of oil equivalent, this is no mean feat, especially as production since inception has risen more than 25% (adjusted for acquisitions and disposals).

TNK-BP ranks among the world’s major oil companies, with its total proved reserves standing at 8.225 billion barrels of oil equivalent, according to the Securities and Exchange Commission (SEC) standards, the strictest in the industry, on a life-of-field basis as of end 2007.

TNK-ВР reserve recovery factors

Top five fields have 55% of company's proved reserves
	Recovery factors, % of OOIP*
Top five TNK-BP fields	Cumulative recovery to date**	2004 proved reserves***	2007 proved reserves***
Samotlor (South)	38%	42%	44%
Samotlor (North)	22%	27%	34%
Khokhryakovskoye	17%	32%	29%
Yem-Yegovskoye	3%	12%	12%
Talinskoye	7%	11%	11%
Top five	27%	32%	35%
1% improvement in recovery factor = ~750 mln boe increase in total proved reserves
* Original oil in place ** 2007 year end D&M reserves audit *** Reserves defined by PRMS (formerly SPE) basis and based on year end 2007 D&M audit results

The total reserves replacement ratio in 2007 hit a staggering 179%, which was hailed by TNK-BP President and Chief Executive Officer, Robert Dudley as an “outstanding result – among the very best in the global industry.” He said the company’s record represents “an achievement very few companies of our size can match.”

Looking ahead, Dudley sees two big challenges to continuing to add to Russia’s reserves base. “One is to keep the engine running hotter and more efficiently to maintain production from mature brownfields (which over time will inevitably decline), and the other is to bring on new greenfield projects to replace production from those mature fields.”

Upstream strategy

It’s widely accepted in the international oil and gas industry that a company is only as good as the future production it has in the ground – in other words, its value and share price are to a large extent driven by its proved reserves of oil and gas. At TNK-BP, a fundamental plank of the reserves strategy – almost a company mantra – is to create a “conveyor belt” of hydrocarbon assets, moving them through the categories of “resources to reserves to production.” This is the beat to which TNK-BP’s upstream business marches.

Identifying new resources has led the company to pick up new licenses in promising Russian regions like Timan-Pechora and Astrakhan. The aim is to discover accumulations of oil and gas (resources) and, through a process of appraisal and auditing, to demonstrate that these would be commercial to develop at prevailing prices, and thus to firm up these greenfield resources into proved and probable (2P) reserves, which can then be turned into production. This sequence also applies for the company’s brownfields, where TNK-BP has had great success in locating new resources and quickly proving them up into the more valuable category of reserves, and then producing them using established infrastructure.

Technology works

One word – technology – sums up how TNK-BP has managed to achieve such impressive levels of reserves replacement. Technology has unlocked new reserves in old fields and has been the key factor in making it viable to develop fields that are both geologically difficult and geographically remote.

“I would say that some technologies applied had been in use before [in TNK], but they were significantly enhanced. Hydrofracturing technology was significantly enhanced and improved; our performance became much better. Optimization and asset work were improved too,” says Francis Sommer, TNK-BP Vice President for Production Technology.

With brownfields, one notable success has been the company’s sidetrack programme. Sidetracking is a process that can be applied to existing wells that have matured and in some cases have high water content in the oil flow, or that may not have been drilled in very good locations to begin with. Using the existing well, the drill reaches a certain depth, then takes off on a different tack – a sidetrack – to explore, develop and produce bypassed reserves.

“You are looking for areas where reserves have been bypassed, where the recovery and the flooding of the reservoir was not efficient, which happens normally in every development,” Sommer says.

The sidetrack programme started off with a handful of wells in 2005 and is now in full swing. In 2008 the company plans to drill 320 sidetracks. 

Sidetracking is particularly efficient for idle wells – an asset many Russian oil companies, including TNK-BP, have in abundance.

Water injection has traditionally played a big role in maintaining the pressure necessary to produce the company’s reservoirs and enhance oil flows. Today, this effort has been stepped up under a water-flood optimization programme, which is showing good results and adding substantial volumes to reserves.

In many of the company’s fields there is a configuration of producing wells and water injection wells. “Over time, the water finds it way from the injectors through to the producing wells,” Sommer explains. “What we have done with the water-flood optimization programme is to reconfigure those patterns to change the orientation of the injector wells and the producer wells to force the water to displace oil that has been bypassed.”

Even though a field like Samotlor has been producing for decades and has some 10,000 wells, potential remains to find more oil. “If you imagine a field that had 60 billion barrels in place, you have a lot of reserve opportunities remaining around the edges,” Sommer says. “Around our major fields, like Orenburg and Samotlor, and using 3—D seismic, we have identified a number of large to medium-sized satellite accumulations.”

Most of today’s focus is on the four-way closures around Samotlor and the dome structures in Orenburg that the company is now drilling and producing. The name “four-way closures” is linked to the geological explanation of how the oil has been trapped. Sometimes they are also called “satellite structures.”

Another new technology introduced by TNK-BP – extended-reach drilling – is also paying dividends. “We have been able to drill into some of these structures with extended-reach wells using existing drilling pad locations, rather than having to wait and build new gravel pads,” Sommer says. Once again, these long-reach wells benefit from having infrastructure nearby already in place and paid for so the new fields can be quickly put online. This technique also reduces environmental impact.

Greenfields

In 2007, for the first time the company saw significant contribution to reserves from its new greenfield projects. The greenfield projects contributed reserves of over 300 million barrels of oil equivalent in 2007. Sommer expects these projects to deliver a steadily increasing share of TNK-BP’s total reserves in future.

High angle

Many of the new greenfields tend to be in difficult environments, in extremely cold climates and far away from existing infrastructure. In such cases, technology can hold the key.

With Verkhnechonskoye, high-angle wells are being brought into play. As opposed to a vertical well, a high-angle well penetrates the reservoir at an angle similar to a horizontal well. “At Verkhnechonskoye the reservoir is layered, and what we want to do is to intersect as many of those layers as we can in a single wellbore. Extending the length of the wellbore exposed to the reservoir encourages and allows more oil to flow.”

At a field like Verkhnechonskoye, high-angle wells represent “an enabling technology”; without them it would simply be too costly to drill and produce the oil. A high-angle well is more expensive but not as expensive as two vertical wells, which might be needed to produce the same amount of oil.

“Originally it was assumed that Verkhnechonskoye would need 1,300 vertical wells, but we think we can develop it with something in the order of 600—650 high-angle wells,” Sommer says. “That removes several billion dollars of capital from the equation. It’s the difference between having a project and not having one.”

Third dimension

In the case of the complicated Uvat project reservoir, where the oil lies in “channels,” 3—D seismic has proved to be an enabling technology. “You couldn’t develop Uvat without 3—D seismic,” Sommer says. “You want to stay inside this channel system, and 3—D seismic, along with modern processing and analysing techniques, allows us to see where these channels are and to keep drilling in the right places.”

Uvat required a new approach from the conventional 2—D seismic, which would show there was a “bump” in the geological formation underground that could be worth drilling, but gave no details about the structure,” says Richard Herbert, TNK-BP Executive Vice President, Technology. “The 3—D seismic unlocks the reservoir to enable TNK-BP to drill off the flanks into the stratigraphic traps.”

3—D has also come into its own at the Buzuluk license, acquired at auction in the Orenburg region. Three or four fields sit inside the contract area, some of which are fairly large and quite mature. “This is an old basin that has been explored for 60 years or so, but there is no modern data and there is a good chance that some of its potential had been missed,” Herbert says. “So we covered it in wall-to-wall 3—D seismic. It was very brave, because we’d never done any exploratory 3—D before that. We found about 35 reefs and structures – some of them quite small, but they all started popping up out of the data. We’ve now started drilling these to prove them up.”

Samotlor four-way closures

Gas reserves

TNK-BP started booking gas reserves for the first time in 2006, chalking up over 300 million barrels of oil equivalent in proved developed gas. As a company with significant gas holdings elsewhere, including the Rospan gas project in Yamal Nenets and large quantities of associated gas, the contribution to reserves from gas is set to increase.

TNK-BP has significantly enhanced the performance of its wells on the large Rospan gas field using hydrofracturing.

TNK-BP is also committed to using, selling or responsibly managing all of its gas. Gas injection pilot projects are being considered which, if they proceed to full development, would place TNK-BP among the first companies in Russia to use this technology on a large scale for enhanced recovery.

Horizontal drilling

An exciting project for the future is Russkoye, a heavy oil field, where the company has high hopes that its appraisal of the reservoir will bear fruit and deliver a sanctioned project. A number of vertical wells were drilled before TNK-BP acquired the field, but they yielded discouraging results at the time.

Russkoye is in a remote location and contains quite heavy or viscous oil, of about 260 centrepoise viscosity, which is 130 times higher than the viscosity of oil produced at the Samotlor oil field in West Siberia. It means that oil from Russkoye does not flow as freely as lighter crudes.

“Developing Russkoye is a tremendous endeavour for both people and technology, but our team is very committed to put this resource into production,” Sergei Brezitsky says. “We are lucky to have completed a road to the field this year and solved the water problem – otherwise our people there had to crack ice from the river and melt it for drinking.” 

But one factor that Russkoye has in its favour as an oil development is that the rock is high quality and very permeable. “We have drilled a couple of horizontal wells,” Sommer says, “and we have been able to demonstrate sustained production at high rates from these wells. Given a sufficient wellbore length you can overcome some of the adverse viscous properties of the oil. Oil in place at Russkoye is estimated at about 400 million tons. Even modest recovery rates would yield very significant reserves from this field in future.”

It’s not part of our SEC proved reserves. It sits in the probable and possible categories. But it’s coming. It’s the Uvat or the Verkhnechonskoye of the future. It’s on the greenfield conveyor belt that we’re building,” Sommer says.

The Bolshehetsky project is another promising but technically challenging resource, which the company is working to convert into reserves for future production. One of its fields is the Suzunskoye field – a very high-quality reservoir, which Sommers expects to yield between 30 and 40 million tons of new oil reserves. The key factor will be whether horizontal drilling technology at Suzun can yield the strong flow rates expected.

TNK-BP has adopted a consistently conservative approach to booking reserves, being careful not to add what Sommers calls “specious barrels” – barrels of reserves which only exist because of a temporary spike in the oil price, or barrels which would become uneconomic should the oil price drop significantly in the near future. There is a prudent safety margin in the economic assumptions of the company’s independent reserves auditors.

“Fields of blue”

People familiar with the jargon of property development understand the meaning of “brownfields” and “greenfields.” Now a new term – “bluefields” – has been added to the TNK-BP vocabulary.

Richard Herbert, Executive Vice President, Technology, explains: “We thought about areas where we haven’t established any kind of presence. We said it’s a blue sky kind of thing, so from blue skies we got to bluefields.” 

He adds, “Unfortunately, there aren’t many bluefields left in our business any more. Russia is one of the few places you can still find them.”

Looking for new areas is part of TNK-BP’s long-term reserves renewal strategy, and in Russia the aim is to find regions that have the potential to deliver more than one billion barrels of oil. Two areas have been targetted: Astrakhan and Timan-Pechora. “This is where we would like to be booking reserves in five to 10 years’ time. That is the sort of lead time we need in our industry in order to sustain the production profile of the company,” Herbert says.

In a federal auction, TNK-BP has picked up three adjacent licenses that sit under the Volga River delta on the northern edge of the Caspian Sea, south of the Astrakhan gas field operated by Gazprom. “Astrakhan is one of the largest hydrocarbon fields in Russia, but like everything in the Caspian, it’s quite a difficult structure, with sour, wet gas,” Herbert says.

“Our view is that this area hasn’t been fully explored, and there is a possibility of either an oil rim to the gas field or some kind of independent structures, but there is no existing well data or seismic,” he says. Herbert believes the region is “the same play” as Kazakhstan’s huge Kashagan and Tengiz fields, which between them hold reserves of well over 20 billion barrels. Kashagan, discovered in 2001, was hailed as the biggest find worldwide for 30 years.

TNK-BP aims to complete a 2—D seismic programme on the three license areas in the delta – Svetlosharinskiy, Kirikilinskiy and Vatazhinskiy – by mid – 2009 and take a view by the end of that year on whether to proceed to drill.

Because of the environmental sensitivity in the Volga delta, TNK-BP has an engagement program with a number of NGOs, including Greenpeace, but is keeping its operations well away from the designated, internationally recognised conservation areas in the delta.

TNK-BP’s other “bluefield” focus is Timan-Pechora in the far north of Russia, where it has acquired three exploration licenses on the eastern side of the basin, towards the Urals mountains. The company plans to acquire seismic over the winter of 2009/10 at the three prospects – Berganty-Mylkskiy, Vostochno-Vorgamusursky and Chernyshev. 

“This is an interesting area, with quite a lot of historical production to the south, while the Arctic borderlands to the north in the Nenets region hold a lot of undeveloped fields,” Herbert says. “Our licenses are more towards the mountain front. We’re looking for large fields in the less-explored areas of the basin, where the geology is more complicated.”

Opportunities galore

“An important measure for an oil and gas company is to sustain or grow its production. We have managed to transform our brownfields from the reserves perspective with the help of aggressive well work, water flood optimization, development drilling (access to satellites via extended reach drilling) and sidetrack programmes. We have also identified enabling technologies for our greenfields. From 2004 to 2007, the resource base of the company grew by one billion barrels to over 30 billion barrels last year. This is a remarkable accomplishment, because we managed to add to the resource base while still producing 600 million barrels annually. With a resource base of this size and scale and ongoing exploration activity, we have our hands full for now and for years to come,” says Tim Summers, Chief Operating Officer of TNK-BP.

TNK-BP organic reserve replacement rate 2004 – 2007, SEC LOF*

* LOF - life of field

 

Organic 5Y annual average reserve replacement rate 2003 – 2007

 

Source: http://www.tnk-bp.com/company/5years/reserves/

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