Russia Adopts Texas Drilling to Revive Soviet Oil Fields

March 19, 2013

Bloomberg reports that fracking isn’t just for shale. In Russia, producers are importing techniques from the U.S. to squeeze billions of dollars of extra oil from Soviet-era fields.

TNK-BP, Russia’s third-largest producer, will use hydraulic fracturing combined with horizontal drilling in almost half the wells it sinks this year, a sixfold increase in just two years, the company said. OAO Rosneft (ROSN), OAO Lukoil (LKOH) and OAO Gazprom Neft have similar plans.

So-called fracking, the process of blasting oil from rock by injecting a mixture of water, sand and chemicals into wells, has been used for years in Russia’s Siberian oil heartland to stimulate production. What’s new is allying it with horizontal drilling, turning the drill-bit 90 degrees to bore horizontally to reach more oil-bearing rock. The pairing was perfected in the U.S. to get economically viable flows out of shale deposits. Used in Russia, producers are recovering 15 percent more crude from aging deposits.

“This is a very big change in the way the company approaches production that has literally happened in the last year and a half,” said Gazprom Neft’s deputy chief executive officer. “We have made breakthroughs.”

Enhancing production from decades-old fields is needed to maintain Russia’s crude production above 10 million barrels a day for a fourth year, a figure that surpasses Saudi Arabia and the U.S., said Cliff Kupchan, an analyst at Eurasia Group. Apart from the Russian state, which gets half its revenue from oil and gas, the other winners are suppliers of people and equipment to frack wells including Schlumberger Ltd. (SLB), Weatherford International Ltd. (WFT) and C.A.T. Oil AG.

Enhanced Production

“Rosneft is becoming a more technologically advanced company,” Igor Sechin, chief executive officer of Russia’s largest producer, said in a speech in Houston this month.

State-controlled Rosneft will employ the technique at 50 wells this year at its largest production unit, up from just three in 2012, according to a company presentation. Gazprom Neft, the oil unit of Russia’s natural gas monopoly, will double the number of wells where fracks are used this year.

Lukoil, Russia’s second-largest producer, plans to use fracking in 55 horizontal wells over nine years to raise projected production 15 percent at Urevskoye, a 60,000 barrel-a day Siberian field that first started pumping in the 1970s, a company presentation showed. The company expects to get an extra 35 million barrels from the field, valued at about $3.7 billion based on today’s price for Russia’s benchmark grade.

As American production gains, Russian President Vladimir Putin has set a goal of maintaining production at more than 10 million barrels a day. Output, which reached a post-Soviet record of 10.4 million barrels a day in September, will be little changed this year or rise slightly, Deputy Prime Minister for Energy Arkady Dvorkovich said in February.

To help postpone production declines at existing fields, oil services companies are exporting expertise to Russia. Houston-based Schlumberger, the world’s largest oilfield- services provider, is vying with U.S. rivals such as Weatherford and Russian operators