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Oil for the future

The development of the Bazhenov Formation is one of the strategic directions designed to save the Russian oil industry from a sharp decline in production in the not too distant future. The prospects here are substantial - it is estimated that billions of tons of hydrocarbons could be extracted. But the next stage – on how to tackle the extraction process – is not yet clear.

Second breath of life for Siberian oil companies

The Bazhenov Formation is a horizon containing oil source rock and highly productive lenticles in some areas. In addition to liquefied petroleum, rocks include solid organic matter — kerogen (immature oil), which is the main potential of the deposit. The Bazhenov Formation is located in Western Siberia on an area of 1.2 million square kilometers, in the old areas of oil production, but at a depth of 2-3 km, that is, below traditional reservoirs.
The formation was discovered back in 1959. Now more than 70 deposits are confined to Bazhenov, and most of them are located in the Khanty-Mansiysk Autonomous Okrug - Ugra.

Opinions on the Bazhenov Formation reserves vary greatly. According to forecasts, the volume of geological reserves reaches 18-60 billion tons, indicated on the website of the Ministry of Energy of the Russian Federation. In the future, it is possible to extract from 700 million to 5 billion tons, as cited earlier by the Minister of Energy Alexander Novak. However, there are more optimistic assessments.

The development of the formation can give "a second breath of life" to West Siberian oil fields that are gradually becoming depleted in terms of traditional reserves. Moreover, the Bazhenov Formation contains oil that is light, low-sulphur, and it exceeds the quality of Brent. Russia believes that it is even possible to create a commercial brand of such oil.

However, it is extremely difficult to extract the precious crude oil of the Bazhenov deposits. The oil-bearing rock is extremely dense with a low level of permeability. These deposits occur at considerable depths and the thickness is often measured to be only 20-30m. Furthermore, the formation is extremely non-uniform in composition, and the distribution of oil in it is uneven. The study of deposits is also difficult due to the fragility of source rocks making it difficult to select and examine the core.

For these reasons, the development of the Bazhenov Formation was considered to be unpromising for several decades.

Projects

The interest of oil industry workers to Bazhenov started in the early 2000s. Surgutneftegaz was the first company to start production in 2005. To date, the company has drilled over 600 oil wells, mainly at the Ay-Pimskoye field in the Khanty-Mansiysk Autonomous Okrug. Surgutneftegaz receives 500-600 thousand tons of oil per year from Bazhenov deposits placing the company in first place in terms of the volume – up to 800 thousand tons per year.
RITEK (LUKOIL group) also began operations in the early 2000s. The company has formed three pilot sites at the Sredne-Nazymskoye field in the Khanty-Mansiysk Autonomous Okrug where it develops extraction technologies. The company's current production exceeds 100 thousand tons per year. LUKOIL also has the Galyanovsky section and several other sites of the Bazhenov Formation.

Since 2009, Rosneft has been developing Bazhenov deposits in the Salym field. Exploration works are conducted on other West Siberian assets of the company, including the Priobskoye field.

RussNeft also launched its pilot project for the exploration of the Bazhenov Formation. In 2017 the company began drilling at the Sredne-Shapshinskoye field in Khanty-Mansiysk Autonomous Okrug.

Gazprom Neft embarked on the development of Bazhenov around 2010 as part of a joint venture with Shell and Salym Petroleum Development (SPD). Gradually, the company launched projects in the Palyanovskaya area of the Krasnoleninskoye field, the southern part of the Priobskoye field in the Khanty-Mansiysk Autonomous Okrug, the Vyngayakhinskoye field in the Yamalo-Nenets Autonomous Okrug and several others.
After the imposing of sanctions in 2014, cooperation with Shell on Bazhenov had to be curtailed. Other projects also suffered: Rosneft’s project with Exxon Mobil and LUKOIL’s project with Total.

As of now, Gazprom Neft, with the support of the authorities of the Khanty-Mansiysk Autonomous Okrug and federal specialized ministries, has established the Bazhen Technology Centre (registered in July 2018). The organization became the operator of the technological test site as part of the project to develop the Bazhenov Formation. The Palyanovskaya area of the Krasnoleninskoye field is used by the centre as the technological platform. The Technology Centre received the status of a specialized national project and now includes more than 20 participating partners — research institutes and companies. It is expected that the project will soon be granted federal status.

In search of the right way forward

Today, production from Bazhenov is still marginal or even unprofitable, and oil industry workers continue to search for the right way forward. The main problem is that high-performance technologies, allowing to obtain Bazhenov oil in large volumes, are not available to anyone in the world.
Experts point out that in order to develop the Bazhenov Formation it is impossible to simply borrow the methods used for shale production from the United States. And this is not due to sanctions, but owing to the difference in geological properties of the deposits.
Russian companies have to go their own way. And work is now being conducted mainly in two directions.

 The first direction is the adaptation of technologies used in the American shale fields, that is, a combination of horizontal drilling and multi-stage hydraulic fracturing (MHF). Rosneft and Gazprom Neft are particularly active in this area. Rosneft first applied this method to the Bazhenov deposits on the Priobskoye field in 2011. Seven hydraulic fracturing procedures were successfully carried out on a horizontal wellbore and, as result, a high initial production rate was received (almost 250 tons per day).

 In 2016, Gazprom Neft announced that it was the first oil company in Russia to implement the entire cycle of technological solutions used in the world to develop shale oil. Alexander Dyukov, the head of Gazprom Neft was quoted as saying: ″...despite all the restrictions due to sanctions, we passed on a set of technologies that allowed us to produce oil from the Bazhenov Formation exclusively through the use of Russian technologies and Russian equipment, and all work was carried out by Russian contractors.″ (TASS news agency).

The second direction in the sphere of technologies for the development of Bazhenov involves methods of enhanced oil recovery (EOR), such as thermochemical and thermal gas methods. Here Russia has a lot of its own developments. For example, Surgutneftegaz has been researching thermal methods of production since the beginning of the 2000s, in particular, the technology of wet in-situ combustion.

 Since 2009, RITEK has been testing the technology of thermal gas impact on the deposits of the Bazhenov Formation of the Sredne-Nazymskoye field, which is often noted as one of the most promising in terms of recovery. The technology involves the injection of air and water under high pressure into the reservoir. As a result of oxidation, carbon dioxide and NGL are released, which together with nitrogen force the oil into production wells. At the same time, under the influence of thermal effect and pressure, additional fracturing is created in the deposit. Kerogen is converted into light oil and hydrocarbon gases. The use of thermal gas impact in combination with maintaining reservoir pressure allows to increase the oil recovery factor (KIN) up to 20–30%, according to data by RITEK.

 Today, companies combine EOR methods with drilling horizontal and inclined wells, as well as multi-stage hydraulic fracturing.
Domestic equipment is also being produced for the development of the Bazhenov Formation. For instance, the Bazhenov Technology Centre created a set of equipment and technologies for the thermochemical treatment of oil wells using supercritical water that helps to significantly increase oil recovery. ″This method has no analogues in the world,″ said Kirill Strizhnev, Director General of the Bazhenov Technology Centre, in his recent interview to the Prime agency. Moreover, oil companies are developing specialized software packages.


Anticipating a breakthrough

Extraction of oil from Bazhenov can become profitable in the upcoming years. Now the cost of a barrel of such raw materials is at the level of $60, but by 2021 it may drop to $40 per barrel, according to Kirill Strizhnev. He added that an acceptable level of profitability would develop at a cost of $30-40 per barrel, provided that the barrel of oil on the market will be valued at $50.
The active growth of extraction is anticipated as well. Plans for the Bazhenov national project are aimed at increasing the rate to 10 million tons per year in 2025 and to 50 million tons by 2030.

 However, to ensure that a breakthrough occurs, a wide range of problems should be solved first.
For a start, the geological structure of the Bazhenov formation has not been fully studied, which makes it difficult to find and develop technologies. Secondly, due to the imposed sanctions, there is not enough equipment - for example, for the drilling of intelligent wells as domestic technologies have not yet been created.

 Experts also point to the need to combine the efforts of independent vertically integrated oil companies and research institutes in the quest for new technology. It is expected that this platform will be the Bazhenov Technology Centre.
There is no question that in order to develop the Bazhenov deposits, active state support is needed. Today, deposits confined to Bazhenov are exempt from tax duty in accordance with MET. However, incentives are also required for the creation and application of innovative technologies.
Besides, the market is waiting for legislative changes. Now the introduction of the draft law on technological test sites is to be expected. The document proposes making the development of technologies for geological exploration, exploration and production of hard-to-recover reserves a separate type of subsoil use. The owners of such licenses will be exempted from one-time and regular payments for the use of subsoil.
In any case, there is little doubt in the market that the Bazhenov Formation and other areas with hard-to-recover reserves must be developed. There is no time to waste. Otherwise, last year's predictions of the Saudi prince about Russia's complete withdrawal from the oil market may well come true.