Multilaterals, horizontal wells could access remote Russian oil reserves

Tom Hazen
President, Timan-Pechora Co.

The Timan Pechora onshore/offshore Contract Area is located approximately 1,770 km northeast of Moscow on the Pechora Sea, north of the Arctic Circle. It is within the continuous permafrost zone and is subject to a severe Arctic climate.

It is very remote. The present infrastructure is limited to the village of Varandey located on the coastline and containing the basic housing, offices, a heliport and miscellaneous facilities which have supported the past drilling operations of Arkhangelskgeologia, now Arkhangelskgeoldobycha (AGD).

AGD started exploring the northern portion of the Timan Pechora Basin, in what is now known as the Timan Pechora Contract Area, a long time ago. The first discovery was in 1976. Since then, AGD has discovered 11 oil fields and identified 21 exploration prospects within the Contract Area. The discoveries were not developed, however, largely because of capital constraints and technical challenges. Texaco, along with a number of other western petroleum companies, was invited by the Russian Government in 1989 to look at the Contract Area to see if new methods and technologies could be applied there to develop the potential of the area.

After a USSR tender was conducted, Texaco was selected from 14 companies to team up with AGD to complete a study of the feasibility of oil development in the Timan Pechora Contract Area, using western oilfield methods and technologies, and to negotiate a contract for this work. The feasibility study was completed in 1991 and concluded that the Contract Area has the potential for economic recovery of large volumes of oil.

AGD estimated these volumes to be as large as 729 million tons, but it was mutually agreed by a joint Texaco/AGD study team that the most likely potential volume of oil is 306 million tons from the 11 discovered fields. Since completion of the study, Texaco, along with Exxon, Amoco and Norsk Hydro, formed the Timan Pechora Company (TPC) to complete negotiations and to jointly undertake the project.

Well considerations

New, innovative and cost-effective technologies are required to evaluate and economically develop the oil potential in the Contract Area. These technologies are available and are in common use in the West. Alaska North Slope and Canadian arctic techniques such as drilling from multi-well gravel pads and modular oil processing are expected to provide the most economic and environmentally sound development.

Total project capital costs will be high, estimated at $19 billion, first because of climatic conditions and second, due to the area's remoteness. There are other reasons having to do with the oil formations themselves.

The majority of the oil is contained in deep carbonate reservoirs with relatively low flow capacity. This will require more wells and therefore more costs. The end result is that in comparison with other large fields it is expected to cost twice as much with Timan Pechora to recover a ton of oil as at Prudhoe Bay, Alaska and 50% more than in the North Sea.

Oil processing modules will be constructed elsewhere to avoid the expense of working in the arctic environment and then transported and assembled at the Contract Area. These modular techniques will be cost-effective since expansion of the facilities can easily be done by adding new modules as production increases. This is what is done in Alaska. The modules are fully insulated, warm, safe to work in, and have a limited footprint to minimize impact on the environment.

TPC participates in the Northern Gateway Terminal Study. This is a co-operation of Russian and Western entities and oil companies with interests in the northern Timan Pechora basin. The objectives of the Northern gateway consortium is to evaluate, based on economic and technical viabaility, alternatives for a northern export solution.

Analysis carried out to date, combined with Russian and Canadian experience, indicates that crude oil export from a terminal in ice, serviced by ice-breaking tankers, would be environmentally safe, reliable and cost-effective. An additional attribute for this Northern gateway would be that it creates work activity and a valuable infrastructure for the Nenetsky Autonomous Okrug.

The alternative solutions studied could serve both onshore and offshore oil developments as well as oil from other areas. In a larger sense, a Russian northern terminal could also form the nucleus of an export system serving the total Russian oil industry by providing unrestricted access to international waters and markets.

Wells drilled horizonatlly in the oil-bearing formations may be much more productive than conventional vertically completed wells. This could be especially beneficial if used in a field with waterflood operations. Horizontal wells are more expensive, but because of higher productivity, can eliminate the need for up to four conventional wells.

Multi-lateral horizontal drilling may also be beneficial. One well location on the surface may tap several productive areas of the oil reservoir. Use of appropriate technologies is especially important in the deep, tight carbonate reservoirs at Timan Pechora because there may be pockets of high productivity that could be missed with conventional drilling.

The most important activity under way by TPC today is finalizing the Timan Pechora production sharing agreement (PSA). Concluding this agreement could provide Russia with an opportunity to gain the rewards of past exploration success with minimal risk and to bring jobs and development to the North.

The Feasibility Study estimated the total value of oil revenue to be $97 billion with total capital and operating costs of $50 billion over the next 50 years. Profits were estimated to total $47 billion of which approximately $25 billion would flow to the Russian parties under the terms of the PSA. In addition, significant contractual work is expected to be available to Russian companies in the area. An example of this is the service agreement that TPC negotiated with AGD last year for exploratory activities in the Contract Area.

Reference: Trade and Investment Opportunities in the Russian Oil Industry, London, March 29 1996, convened by The Royal Institute of International Affairs.