BP and Rosneft pushing the boundaries of exploration off northeast Russia

Feb. 1, 2006
Expanded Sakhalin projects hold potential production windfalls

Expanded Sakhalin projects hold potential production windfalls

Jeremy Beckman, Editor, Europe

BP and partner Rosneft may bring in a second rig to accelerate drilling off the far north of Sakhalin Island. Rosneft, the region’s leading acreage holder, also plans to extend offshore exploration to the western Kamchatka Peninsula.

These developments, and progress from projects in production to the south, were outlined recently at IBC’s 9th annual Sakhalin conference in London. BP’s presentation was delivered by Doug Suttles, president of BP Sakhalin.

In 2003, the company created the Elvary Neftegaz joint venture with Rosneft to explore the Sakhalin IV and V licenses, situated to the northeast of the island. Based on the results of a 3D seismic acquisition survey the previous year, the partners drilled their first well in summer 2004 on the Pela Lache prospect, located within the 6,000 sq km Kaigansky-Vasuykansky block in the southern part of the Sakhalin V license area.

This well found oil and gas in sandstone reservoirs, in an area farther offshore and in deeper water than the other Sakhalin projects. Last summer, the partners returned to drill the Udachnaya structure, 15 km west of Pela Lache, in a water depth of 100 m. That well, drilled by the semisubmersibleTransocean Legend, was also successful, encountering hydrocarbons in three zones.

A restricted test was conducted on one of the zones, flowing 1,900 b/d through a 28/64-in. choke, before exploration had to give way to the approaching winter ice. Simultaneously, the partners were acquiring a total of 3,000 sq km of 3D seismic over the East-Shmidt area of the Sakhalin V license, and West-Shmidt in Sakhalin IV. The partners are currently analyzing and interpreting the data, and the survey program will continue this summer.

Suttles explained that drilling in this northern latitude was currently only possible during the four summer months. The rigs have had to be modified to avoid environmental damage, with a purpose-built drill cuttings disposal facility assembled in the north of the island.

Map shows location of the Sakhalin IV and V licenses, operated by the Elvary Neftegaz joint venture.
Click here to enlarge image

Shortly, the alliance will move into purpose-built offices in Yuzhno. The partners will then look to drill two more wells this summer, he added, perhaps bringing in a second rig in 2007 if they decide to extend their activities. One of the wells should be in the West-Shmidt block. “To date,” he said, “the results look encouraging. It will be a while before we can confirm if we have commercially viable reserves to justify development, but we have started early conceptual work.

“To this end, we’ve been looking closely at the Sakhalin I and II developments: we want to learn everything we can from their experiences. We need to determine whether we can implement year-round operations, what is the best development concept, and what is the best route in for the supply chain, via Russia or Southeast Asia?”

Suttles felt Sakhalin projects had the potential to collectively produce 2 MMb/d of oil and over 6 Bcf/d of gas within two decades. “BP also advocates the creation of a Sakhalin oil and gas industry association, with the aim of developing local capability in terms of infrastructure, oil spill response, and resource management.”

Lev Brodskiy, Rosneft’s general director, CJSC Sakhalin Projects, added that Elvary Neftegaz was also establishing offices in Houston, London and Moscow to manage the forthcoming programs. He pointed out that Rosneft was one of the three leading oil companies in Russia, and was currently providing 16% of the country’s oil production.

On the eastern side of the island, it operates the Sakhalin III license. In one of the license blocks, Kirinsky, it is partnered with the state-owned Sakhalin Oil Company and China’s Sinopec. The partners plan to start drilling this summer, and to acquire over 400 sq km of 3D seismic, using theTridentsurvey vessel.

North of Sakhalin on the West Kamchatka Shelf, Rosneft was awarded acreage early last year offshore the southwest of the Kamchatka peninsula, in partnership with the Korean National Oil Company. “We have already acquired over 8,000 km of 2D seismic,” Brodskiy said, “and having analyzed the data, the first results show that the area has huge potential as a petroleum province. But exploration will be highly complex, as this is also a prime fishing area.” As a precaution, Rosneft has started a dialogue with the local authorities and community representatives.

Budget over-runs

Ian Craig, CEO of Sakhalin Energy Investment Company, provided an update on operations at Sakhalin II. The development’s first production installation, the Molikpaq platform, was expected to surpass its target of 12 MMbbl of oil last year, despite a late start due to lingering sea ice. It will therefore have produced 70 MMbbl since starting up in 1999.

As for the current Phase 2 development, based around the giant Piltun and Lunskoye platforms, the partners realized in 2004 that the budget and schedule had been severely underestimated, Craig admitted. “This was due largely to the challenging environment we are working in, and the risk assessment process. With hindsight, we set ourselves over-aggressive targets at the outset.”

However, there were other unforeseeable negative factors, he added, such as the mounting oil price, which had the effect of increasing demand globally for oilfield services. “The impact on Sakhalin II was exacerbated by the projects’ long duration. So minimizing the project’s schedule has become a priority, both to keep costs down and to maintain Russia’s reputation as a good place to invest in.”

Despite the high expenditure levels, the development’s total cost still looks to be in the region of $5-6/bbl, he maintained. And the spending should be offset by the more positive outlook for oil and gas prices.

By December, Phase 2 was 60% complete, with 17,000 people employed on the project on Sakhalin Island, 70% of them Russians. Craig added that the two platforms’ 100,000-ton gravity-based structures had been installed last summer. The Lunskoye topsides should be loaded out of Korea this summer, with Piltun’s to follow in 2007.

Stephen Terni, president of ExxonNeftegaz, said that the Sakhalin I partners had invested over $4.5 billion in their development, which came onstream last October. The Chayvo field, initially producing 50,000 b/d of oil, should be in full swing - 280,000 b/d - by the end of 2006. “Our initial gas rate of 60 MMcf/d should also rise quickly, ultimately reaching 250 MMcf/d by the end of this decade,” Terni forecasted. Later phases of the project, taking in gas from the Odoptu and Arkutun Dagi fields, should keep production going through 2050.

To date, seven extended reach (ER) wells drilled into Chayvvo from the land-based Yastreb rig have reached total depth. Drilling of the first wholly offshore ER wells from the Orlan drilling platform started early in December. The combined programs will constitute the world’s largest cluster of ER wells, Terni claimed.

Overall, the development was 78% complete last month. Construction of the processing facility on mainland Russia, opposite Sakhalin’s west coast, should be finished late this year. Gas not sold to the domestic market will be injected for use as sales gas elsewhere in the future, he said. The project’s tanker loading facility at De Kastri, with a single point mooring, should be completed in due course.