Gazprom Neft Sees Good Prospects in Kurdistan

Interview with Sergei Petrov, General Director of Gazprom Neft Middle East

NEFTE COMPASS

Gazprom Neft is Russia’s only company currently engaged in oil production in the Kurdistan Region of Iraq (KRI). Interviewed by Nefte Compass, Sergei Petrov, CEO, Gazprom Neft Middle East, explains why the company plans to expand its presence in the region, and how current projects are progressing.

Gazprom Neft has joined projects in the KRI alongside other major internationals – many of which, however, have since left the region. Why does Gazprom Neft carry on working here, and how do you see prospects in the KRI?

When oil prices were high, companies invested in all kinds of promising regions, expanding their presence in highly diverse markets. Following the collapse in the oil price, as well as disappointment regarding initial expectations in terms of geology, companies have reconsidered performance criteria, terminating the least competitive projects. Gazprom Neft views its asset portfolio in terms of its long-term viability. I believe we have good prospects in the KRI, and that we can secure good a good outcome on these projects.

How much oil did the company produce in the KRI in 2016? What is the planned production for 2017?

The company is active at three blocks. Production is currently ongoing at the Garmian block, through the Sarqala-1 well – Gazprom Neft having taken over operatorship of this block from project partner WesternZagros in February 2016, and having been operator on this project since 1 March of that year. Production at Sarqala-1 last year averaged 3,863 barrels per day (bpd). In 2017, having started with production running at about 5,500 bpd, we managed, over the course of the year, to increase production to 9,600 bpd.

How did you manage to practically double production?

We were able to intensify crude inflow at the Sarqala-1 well through high-volume bottomhole acidizing. Undertaking this operation meant bringing all of the company’s experience – gained in developing complex reservoirs in the most diverse regions of Eurasia – to bear, and taking all possible risks into account – ultimately, coming up trumps. This was the first time this well-stimulation strategy had been used in the KRI. Planned production for this year (2017) at the Sarkala field has been calculated assuming a figure of 4,418 bpd. However, acidisation treatment having subsequently been applied, we expect average daily production for 2017 to reach 7,631 bpd. Production next year could reach 13,455 bpd.

What quality oil are you producing?

It’s good, light crude, with no water or sulphur content, and an API well number of 39.

Has the Garmian block development plan already been approved?

We completed the work initiated by our partner under its operatorship in preparing the field development plan in May last year, and have since agreed it and secured approval from the Ministry of Oil. The plan envisages one well a year being drilled until 2022.

Is there yet any consensus as to what level of production you will be able to achieve once all wells have been drilled?

We are not limited by any figure as to production because it’s difficult to make any prognoses on the basis of data from a single well. Work on estimating reserves at the block is ongoing.

What are the current estimates regarding the Garmian field’s reserves?
What are reserves at the Garmian field, currently?

About eight million tonnes of recoverable crude. We’re currently drilling the second well, which will give us new geological information, and will then fine-tune that figure.

And in terms of gas?

We are also digitizing gas reserves. Once that process is complete, we’ll be able to take a view on the viability of building gas infrastructure.

Do you plan to build a gas plant?

There’s no obligation to build any gas infrastructure under our production-sharing agreement (PSA), although it does appear in the KRI Ministry of Natural Resources’ plans. But in order to develop a good gas plant project it will be essential that the regional government understands what volumes of gas will be coming in from the various fields. We plan to transfer the gas to the Ministry rather than flaring it at the fields, in any event. Added to which, we are currently assessing the possibility of using part of the gas for our own needs, in order to move on from using diesel generators at our production facilities.

How is work going on developing the Shakal and Halabja blocks?

Following seismic investigations at Halabja last year, the decision has been taken not to develop it.

Why was that decision taken?

Geological prospecting works conducted at the block indicated prospects for developing a gas field. Halabja is located in a mountainous terrain, at altitudes of up to 2,000 metres, with a complete absence of any kind of infrastructure, but with minefields remaining following the most recent armed hostilities. Significant investment would be necessary to obviate the existing geological uncertainties. All of which gives rise to very considerable risks, which we are not, currently, willing to take on board.

Have you agreed relinquishing the block with the government?

Yes, all the necessary documents have been signed. Our case against drilling at the Halabja block was fully justified, and the Kurdistan Regional Government shares that view – which is why the outcome of our negotiations was a consensus on investing the resources released in continuing drilling at Sarqala.

We finished the prospecting phase at Shakal this year. Thanks to close cooperation with the government, as well as consensus on developing this block, geological prospecting works here were extended for a further year, on the following terms: firstly, Gazprom Neft had to begin overhauling the mothballed Shakal-1 well by 15 July; secondly, the company was required to announce any commercial discovery by 31 December 2017. Gazprom Neft has fulfilled the first of these obligations, and we are now completing side-tracking (“drilling out”) at the Shakal-1 well. Following interpretation of new geological information, it’s not impossible that we will be able to book the hydrocarbon reserves at the Shakal block. In the event of a positive outcome from exploratory drilling we will prepare a field development plan (FDP) and mark out the drilling site for the next well.

What level of production are you expecting at the Garmian and Shakal blocks?

Prior to completing geological prospecting works at the Shakal block it’s a bit premature to talk about production levels at this asset. We’re expecting growth of up to one million tonnes per year over 2019–2022 at the Garmian block.

Who is responsible for drilling at your blocks?

A Chinese contractor is drilling for us currently – DQE International, the winner of two tenders, for Garmian and Shakal. They’ve got 12 years’ experience of working in the KRI. In terms of cost they were also more attractive than other service companies.

Is Gazprom Neft considering any other blocks in Kurdistan?

— We are ready to expand, and to look at new blocks. Gazprom Neft is in constant dialogue on this issue with the Ministry of Natural Resources of the Kurdistan Regional Government, which has offered us some 10 blocks for consideration. Having studied the available geological data, we have chosen the most promising license blocks and are currently in negotiations.

On what terms would you be willing to join projects?

We would be interested in joining a project as operator, but we appreciate the difficulties associated with this and will be discussing terms and conditions with participants, in detail.

How are you currently selling the oil produced in the KRI?

The Kurdistan Regional Government is taking the opportunity offered under the current PSA to buy all oil produced, from the operator, for resale. The Kurdistan Regional Government owns the oil as soon as it leaves the field. All oil produced is currently transported by road to the Bazian oil refinery.

What price are you selling the oil at?

Oil sales are made under a formula based on the price of Brent crude, adjusted for discounts. Discounts are impacted by various factors, including transport, oil quality, and road taxes. We are now discussing improvements to working conditions with the regional government – our main argument being that the PSAs were signed at a time of high oil prices, and when the price dropped, new investments in the region turned out to be marginal in terms of economic viability.

How urgent is the issue of local security now?

All Gazprom Neft Middle East businesses are operating under heightened security. We are ready for any situation. For example, in 2014, in the face of increasing terrorist activity at that time, we ensured the full evacuation of all employees. For us, employees are our most valuable asset, so issues of security come first.

Is it difficult finding people to work here?

Yes, it can be difficult given the specifics of the Middle East region. But we’ve been able to put together a great multinational team, which is successfully resolving all the challenges we face.

Back to the list