Russia's first commercial shale oil development could start in 2024, write Nader Itayim and Oksana Yablokova
Gazpromneft aims to cut shale oil production costs by more than half by 2024, enabling economic greenfield development.
Russia's third-largest crude producer is targeting Rbs6,000/t ($11.20/bl) costs for oil output from the Bazhenov formation in western Siberia in just over two years, compared with Rbs13,000/t at the end of 2020. Gazpromneft expects costs to drop to Rbs8,500/t next year, using "technology that makes the bulk of this tight formation oil commercially viable", technology director Alexei Vashkevich told Argus on the sidelines of the ATCE conference in Dubai recently.
Gazpromneft said earlier this year that it hoped to start commercial Bazhenov production in 2022 and that costs of Rbs8,500/t would be low enough for developments near established production and transport infrastructure. Bazhenov formation reserves are typically at depths of 2,000-3,200m, lying beneath conventional reserves at producing oil fields.
Production at Gazpromneft's Bazhen pilot project, focused on the Palyanovskoye field, increased by 7pc on the year to 114,000t (3,400 b/d) in January-August. The firm is targeting Bazhenov output of 1mn t/yr (20,000 b/d) by 2025.
Gazpromneft is drilling eight more wells at Palyanovskoye this year to ensure the technology deployed is viable and ready for wider application. The company has gradually lowered costs from Rbs30,000/t in 2017, when pilot Bazhenov formation development began, through improvements in drilling efficiency, the use of horizontal wells and multi-stage fracking.
Production costs for some Bazhenov formation wells have already been reduced to Rbs8,500/t, Vashkevich said, but the same lower cost must be achievable for every well to ensure commercial viability. Eventually, Gazpromneft wants to bring shale costs roughly in line with those for conventional oil — brownfield development costs were at $2.92/bl of oil equivalent (boe) in the second quarter, with greenfield costs at $3.99/boe, it says.
Transferable skills
The company is applying a similar approach to developing other non-shale, hard-to-recover crude reserves, Vashkevich said, citing the Gazpromneft-Vostok upstream venture in western Siberia's Tomsk region — a partnership with Abu-Dhabi's state-owned Mubadala Petroleum and Russian sovereign wealth fund RDIF.
Gazpromneft-Vostok is drilling the first wells targeting Palaeozoic reserves this year and plans to expand the drilling programme in 2022. But these types of reserves are hard to confirm through exploration and "the chance of geological success at the exploration phase is only around 20pc", Vashkevich said — well below the 70pc rate for conventional reservoirs.
Most producers in western Siberia have some Bazhenov formation and other hard-to-recover crude resources lying beneath their conventional reserves, but Gazpromneft has made the most progress with development. Shale oil projects in Russia have been subject to US and EU sanctions since 2014, barring international companies from participation or providing technology and equipment. But Bazhenov resources offer a promising source of future production growth, particularly with the tax concessions for shale output, Gazpromneft says.
