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Home / Issue Archive / 2010 / April #4 / Rosnedra's Ledovskikh Seeks Private Investment for Seismic as Public Funding Drops

№ 4 (April 2010)

Rosnedra's Ledovskikh Seeks Private Investment for Seismic as Public Funding Drops

   As the world financial crisis continues, Russia’s Natural Resources Ministry is striving to attract non-budget funds to study subsoils. Cutting the state budget for geological surveys in 2009 led a drop of over 20 percent in the volume of state orders (from 800 in 2008 to 625 last year).

By Elena Zhuk

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   “Further cuts to budget funding for geological surveys in 2010-2011 are likely and they will cast doubt on the chances of fulfilling the main tasks of the “Long-Term State Program on Providing Balanced Development and Use of Russia’s Mineral Resource Base (DGP) to 2020,” Anatoly Ledovskikh, the head of the Federal Subsoil Agency  (Rosnedra) said.

   Last year was characterized by a continuing decline in state financing for seismic surveys – a direct result of the financial crisis. Overall, funds allocated by the federal budget for geological surveys of subsoils and the mineral resource base dropped 14 percent compared to the previous year (the state spent 18.9 billion rubles on seismic studies in the 2009 fiscal year, while a year earlier 22 billion rubles was spent). Specifically, 10.65 billion rubles was to be spent last year under the DGP, but in the end, only 8.9 billion rubles was spent.

   The trend continues – in 2010, the government is allocating 8.6 billion rubles for seismic work, half of which will be spent to study subsoil strata in the Siberian Federal District. Nevertheless, the share of funding on seismic studies directed at hydrocarbon resources remains the biggest slice of the pie – it was 47 percent in 2009. The next biggest share falls to: solid minerals (30 percent), general and specialized surveys, monitoring the condition of deposits, and informational provisions (20 percent), surveys of underground water (2 percent) and other work (1 percent).

   Last year, for the first time in five years, companies also curtailed their spending on seismic surveys. Non-state funding for this suboil activity last year was 149 billion rubles – a significant drop off the 2008 figure of 197 billion rubles.
And yet there is no need to despair. From 2004 to 2009, non-budget sources of funding paid for evaluations and the exploration of 22 of 59 types of minerals. Growth in reserves above the volume of extraction must be provided foremost for the most important strategic minerals: crude, gas, coal, chromium, copper, nickel, gold and platinum.

All Bets on the Arctic and East Siberia

   The state will be paying special attention to the Arctic this year where funding has increased 127 percent to 1.3 billion rubles. Russia plans to complete justification of the outer boundary of the country’s continental shelf in the north Arctic Ocean. In geological exploration, the priority remains the same as it was last year – to survey East Siberia and the Sakha Republic (Yakutia). Here the government is most interested in subsoil areas abutting the route of oil pipelines which are being built. The state plans to spend 4.3 billion rubles in Siberia to drill 8,000 meters and develop 15,000 linear kilometers of 2D seismic surveys. Meanwhile, the state will continue to finance surveys of the continental shelf and West Siberia.

Not Much Drilled in Yamal

   Vladislav Gudanayev, the deputy head of the Department for Geology and Licensing of Oil, Gas, Undergroud Waters and Facilities at the Yamal-Nenets Subsoil Agency (Yamalnedra) said that in the Yamal-Nenets Autonomous District companies like Polyarnaya Ekspeditsiya, SIBNATS, Yamalgeofizika, Nedra, SibGeo and others have been using allocated funds from the federal budget.

   Specifically, SibGeo won last year’s biggest tender – to conduct seismic surveys on the Gydansk section of Yamal. “Work began last autumn,” SibGeo chief geophysicist Yury Ilyin said, “Plans call for three seasons of field work plus processing the seismic graphs already obtained on the Central Gydansk sector.” This unexplored section of Yamal, which is 50 by 150 kilometers, covers nearly a fourth of the peninsula; Ilyin calls it a “blank spot to be turned into a resource.”
“Based on the results of seismic surveys conducted in tenders meeting the norms of federal legislation, we are identifying prospective sections and scheduling auctions and will begin working with subsoil developers to start operations,” Gudanayev explains. While there is not a precise plan for annual volumes of seismic surveys, each company receives recommendations on volumes of work from commissions established under Yamalnedra.

   “Some companies have license agreements which require them to be more thorough in conducting seismic surveys,” Gudanayev said adding, “At the same time, not all of them have those obligations on precise schedules for seismic surveys written into their licenses.”

   Among negative trends in Rosnedra’s report on the last year, there was noticeably less activity by subsoil developers to reformulate their subsoil use licenses. At the same time, the number of petitions by subsoil developers to delay schedules for developing deposits grew and the number of seismic surveys fells.

   Because of financial difficulties, companies cut back on surveys in the heat of the crisis. According to data released by Gudanayev at the beginning of February in Tyumen, the volume of test drilling in the Yamal-Nenets Autonomous District fell from 2008 to 2009 by over 50 percent from 259,200 meters to 108,800 meters. Gazprom’s numbers also fell 50 percent, while NOVATEK figures dropped 75 percent.

   Further drops of such magnitude are not expected in 2010; the companies’ plans call for drilling 200,100 meters. The volume of seismic surveys is also declining. While 10,573 kilometers of 2D surveys were conducted in 2009 (98 percent of the planned volume), in 2010, this number is expected to be 7,494 kilometers. The volume of 3D surveys has shrunk from 8,316 square kilometers (101 percent of the amount planned) to 8,265 square kilometers.

Will East Siberian Reserves Grow?

   Insufficient attention to geological surveys is not only a serious problem for West Siberia which is today the country’s main oil and gas producing region, it is also a problem in East Siberia, where the bulk of operations is expected to migrate over the next 10 years. Alexei Kontorovich, a member of the Academy of Sciences and the research director of the Trofimuk Oil and Gas Geology Institute at the Siberian Branch of the Russian Academy of Sciences (RAN), believes the rate at which seismic surveys are growing in the region is extremely low. “Today, with the crisis, oil companies are not drilling more than 60,000 meters a year. If seismic surveys continue at the same rate, then not only will we not see any more fields discovered in East Siberia, neither will our grandchildren,” Kontorovich said in an interview with the RAN department of public relations.

   At the same time, in Kontorovich’s opinion, “If business really does fulfill its obligations to the state which it took on when getting its licences, then in five to seven years, at least 10 more large deposits can be discovered and reserves can be prepared for the second line of the East Siberia – Pacific Ocean Pipeline.”
The Trofimuk Oil and Gas Geology Institute wrote a seismic survey program for the area located at the territory of Katangsky district of the Irkutsk Region, which Rosneft received in 2006. At the end of January, the oil company reported it had discovered a strategic field in the area (it was called the Savostyanovsky field) with C1+C2 reserves in excess of 160 million tons.  

   Again, in the Irkutsk Region, Rosneft  will continue seismic surveys in 2010: 3,795 kilometers of 2D surveys and 3,700 kilometers of electrical surveys and will drill four new wells. Also, in East Siberia, Rosneft will conduct surveys on 26 licensed areas, including 5,325 kilometers of 2D seismic surveys and 400 square kilometers of 3D serveys while also drilling 12 test wells.

   Surgutneftegaz is also stepping up its plans for drilling. Speaking at the Neftegazservice-2009 conference, Viktor Kovalenko, the deputy head of Surgutneftegaz drilling unit’s Tehnology Department, said that the company planned to increase surveys in East Siberia by 13 percent. As a part of this campaign, Surgutneftegaz will drill 17 test wells in the region (last year, the company drilled 15); drilling at confirmed wells will grow by 10.8 percent (from to 29,120 kilometers in 2009 to 32,280 kilometers in 2010).  

   The development of seismic surveys in East Siberia is closely linked to the issue of stimulating production, says Natalya Milchakova, an analyst with the Otkrytiye financial company. “To make a company’s production profitable, the state must reduce the expenses, which are not relevant to the company’s operation. First of all, this refers to the Mineral Extraction Tax and export duties, as well as to the  ban on revoking decisions already made by the government regarding the zero-rated export duty,” Milchakova said. The zero-rated export duty is applied to 22 fields in East Siberia today but the Finance Ministry considers the possibility of differentiating these privileges or amending their term. “As a result, the budget is losing $100 billion a year, and the Finance Ministry feels that this is a luxury in time of crisis,” Milchakova said, noting that the privilege would boost up the development of the sector in the long term.

Open the Way to Investors!

   Aware of the fact that nothing will be accomplished without getting companies to move into action, at the beginning of March, the Natural Resources Ministry submitted a project to the government entitled, “A Development Strategy for the Geology Sector Until 2030”. “This document specifies the functions and sphere of responsibilities for the state  sector of the geological industry and draws a boundary between the government’s  and the private sector’s investments in developing the mineral resource base,” said Denis Khramov, the director of state geological and subsoil policies at the Natural Resources Ministry. “Specifically, it specifies that the government’s investment in developing the mineral resource base should be limited to the stage of regional study of oil and gas bearing provinces,” he clarified.

   The strategy calls for lowering the limits on foreign investment in seismic surveys and offering tax breaks to companies that use innovative methods and technology in their work.

   “We’ll apply a cluster approach, which envisages planning of surveys within the natural boundaries of mineral provinces and mineral and raw material clusters identified based on the availability of transport and infrastructure,” Khramov points out. In mid-March, the Natural Resources Ministry published a list of 59 fields where seismic surveys are to be conducted by private companies this year. Oil-bearing sites are located in the Nenets Autonomous District, at the Krasnodar Territory, in the Republic of Kalmykia, and in Saratov Region. As for gas-bearing areas, they are located in Saratov and Rostov regions and at the Krasnodar Territory.

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