Seismic firm upbeat on eastern Russia oil potential

Reuters

MOSCOW: New exploration of the Russian oil province which supplies China and other growing Asian consumers will yield oil finds that allay disappointment over meagre gains in output, the head of a seismic firm said.
Russia, the world’s top oil producer, pumped 10.4 million barrels per day last year. Most comes from the Soviet-era oil heartland of western Siberia, while output at new export projects further east is rising from a low base.
The government forecasts output will stagnate or rise slightly this year. Oil firms Rosneft, TNK-BP and Surgut, are working to meet demand in the growing Asia-Pacific market as European demand lags.
To find new reserves, Russian companies are moving away from heavy reliance on exploratory drilling toward greater use of seismic, which allows geologists to construct models of underground reservoirs by sending shock waves through the earth.
“I strongly disagree that eastern Siberia is a disappointment. The methods that were used 20-30 years ago simply do not work. Yes, it has resources which are more difficult to discover and to extract,” Geotech CEO Nikolai Levitksy said.
“It doesn’t mean they are not there and it doesn’t mean they will not be produced,” he added. “I have always been and remain certain that the Eastern Siberia is Russiaís key region from the standpoint of increasing oil production.”
Geotech is part of IGSS, which recently obtained a technical listing in London. IGSS, which is 13 percent owned by Gunvor trade house founder Gennady Timchenko’s investment vehicle, manages the legacy assets of Soviet oil exploration companies.
Russia’s oil industry, led by state-controlled Rosneft, would like to boost Asian exports but needs a sustained increase in eastern output to do so without robbing Europe of oil flows.
The launches of Rosneft’s Vankor, TNK-BP’s Verkhnechonsk and Surgutneftegaz’s Talakan fields in recent years has allowed Russia to export 600,000 barrels per day of oil eastwards and launch a new Pacific grade of crude.
Declines in Russia’s core conventional fields of Western Siberia have so far been offset by rising output at these fields, but ramp-up at two of them, Vankor and Verkhnechnosk, has been scaled back to stretch out peak production over time.
Meanwhile, oil companies have put greater emphasis on stemming declines at older fields by delving into low-permeability, or “tight,” oil reserves in Western Siberia, often using technologies that helped drive the US shale revolution.
ìYou have to do both and there is a huge frontier of operations in the brownfields,” Levitsky said.
“Of course we have a huge number of fields with falling output, and exploration of those fields should yield a serious increase in reserves through the use of current technologies — first and foremost seismic technologies.î
By its own reckoning, Geotech is the world’s second-largest land seismic company. Some of its subsidiaries were founded in the 1940s as Soviet geological expeditions which ultimately discovered the Soviet Union’s supergiant fields.
The last of those major discoveries — Imilor, Shpilman, and Lodochnoye fields — were allocated by the government last year, and Levitsky said producers needed government incentives to explore for the subsequent generation of fields.
ìYou can’t live your whole life on the exploration legacy of the Soviet Union,” Levitsky said.
ìThere are no new Samotlors,” he added, referring to a declining Soviet supergiant field operated by TNK-BP.
“It is clear that reserves are more difficult to extract than before, the fields are more complex and new technology is needed to find and produce oil. Now the technology is moving ahead and specialists are maturing.î
For now, Russia’s oil companies are boosting reserves at a pace matched only by countries such as Norway where oil companies pursue intensive exploration programs.
Levitsky pointed to incentives offered by rival producers such as Kazakhstan and Norway and said Russia should follow suit to help guard against exploration cuts if oil prices fall.
ìThere are no direct state incentives for geologic exploration. There are only indirect ones, like tax breaks for Eastern Siberia, but they do not incentivize the first stage of exploration,” Levitsky said.
“If in Norway up to 78 percent of exploration costs are compensated by the state, there is nothing in Russia even though it has the biggest territory and the most poorly studied reserves.”