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[20-04-2010] - Technologies Incubator: SPD tests new production methods for the whole industry // Interview with SPD CEO Simon Durkin
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Situation in Russian upstream is acceptable, but it is necessary to apply modern technologies and use management know-how to make business successful. These were the issues delivered by CEO of Salym Petroleum Development Simon Durkin, who got the appointment in September 2009, in the interview to RusEnergy.
Different approaches
RusEnergy (RE): Mr. Durkin, you moved to West Siberia directly from China, where Shell is developing the Changbei gas field, six months ago. Are there some principal differences between work in Russia and China? What is the difference between Russian and Chinese regional authorities’ attitude to business?
Simon Durkin: Obviously China and Russia are clearly very different countries and their situations unique. The most obvious one is the density of population. Wherever you do business in China, you run into local community in everything that you do.
So, working with local communities in land acquisition, working with significant numbers of people is a characteristic of doing business in China. We approach that with a good technical solution. We drill very long-reach horizontal wells, which was also a part of the development concept from small drill pads. So we really minimized our interaction with the local community and we minimized our land take.
You got a very large area in West Siberia if compared to China. And the challenges in Russia are really the climatic environment rather than the people environment. So in China it’s about dealing with people, in Russia it’s about predominantly dealing with the climatic environment. Both need the technology appropriate to the country and environment.
If you talk about political and fiscal differences, I think, surprisingly to me, there’s more bureaucracy in Russia. There’s more paper work when you try to do things in Russia than in China. China is a huge net importer of energy. We were developing gas field in a country that imports very large amounts of energy. Russia is a huge exporter of energy. And that leads to very different ways of working. In China they would do anything they could to encourage the development of hydrocarbons. I think in Russia, huge reserves, obviously for good reasons, are tightly controlled around the way those reserves are developed.
But I think, looking forward, Russia will also have to look for more flexibility on fiscal terms, if it’s going to encourage people to utilize new technologies, to be innovative for example in enhanced oil recovery.
Obviously, we’ve undertaken SPD to date and we undertook it because we believed it could be profitable for us in the current fiscal regime. But if we are going to move to the 2nd-3rd generation recovery techniques, we are going to need flexibility from the fiscal side in order to be able to do it economically.
I think in China that flexibility and drive to find any solution to maximize production is a little bit more developed. But the reason is clear, it’s because they are importing huge amounts of energy.
Source of opportunities
RE: We can hardly skip the fact that the state company Gazprom neft has replaced a small private enterprise and became a new stakeholder. Has Gazprom neft tried to strengthen its positions in top management or even to take over the project? Is there a possibility for a potential conflict?
Simon Durkin: SPD is the independent company that is 50% owned by Shell and 50% owned by Sibir Energy. And then Sibir Energy’s majority is now owned by Gazprom Neft. We now have a close connection with Shell and Gazprom Neft. In many ways this situation is ideal, because we now have very experienced Western Siberian oil company that gives us the real insight to the Russian element and we have a major international oil company – Shell – that gives us insight to the international service.
Clearly Gazprom Neft plays a more integral role than Sibir Energy did, because Gazprom Neft has more knowledge. At the moment the partnership works very well and I think we see some good examples already of benefit from Gazprom Neft. I think the most obvious one is the 3D
Seismic that we are currently doing, which is building on the experience Gazprom Neft has in the area of 3D seismic to better image the thicker reservoir sands.
I also think that SPD offers good opportunities for the two shareholders. I’d like to call it a technology “incubator”. It’s a medium size company, but it’s still controllable, it’s a dynamic company so it’s a company that can experiment with new technologies, a company that can do things quickly. You can try things in SPD, which could then bring huge benefit to both companies if they are successful.
If we can use SPD to try the EOR, the Alkaline Surfactant Flooding, which is a really challenging thing to make work, to pilot that, and if it’s successful, that obviously presents a new benefit not only to shareholders but potentially to a wider community. If the Alkaline Surfactant Flooding works, it offers great opportunities for the rest of Siberia.
RE: In December 2009, SPD became the bronze winner of the Excellence in Project Integration
Award at the International Petroleum Technology Conference in Qatar. For the Russian oil and gas industry it sounds unusual. Investment profitability and financial profits are considered to be the best award for efficient management. Why was it necessary to somehow distinguish a number of projects’ characteristics to estimate their efficiency? How such estimation is usually performed?
Simon Durkin: First let me say that the IPTC 2009 Award was a tremendous achievement for SPD. It’s important that people working in the company can take pride in the company. That’s recognized not only in Russia but on the global scale. Clearly, financial success is the essence of company. But I think it’s also important when people’s capabilities are recognized on a global scale. And this is really the global scale. The IPTC is one of the leading petroleum technologies conferences in the world.
IPTC Awarding Committee looks at the full value chain, at the complete project. They don’t just take an element of the project. I think what they recognized in SPD specifically was how well the organization had integrated itself in order to deliver a very fast and effective project in a safe manner. And I think the work we do on Well and Reservoir Management and drilling, on ensuring HSSE and environmental aspects are integrated in everything we do, the speed and efficiency of the organization in terms of record development – I think all of that was recognized by IPTC.
New technologies rule
RE: SPD was the first operator in Russia that began implementing Well and Reservoir Management (WRM) and Smart Fields (SF) as well. Can you demonstrate any figures that will give us evidence on more efficient operation when using these technologies? Does SPD remain the only operator in Russia that implements WRM and SF?
Simon Durkin: Smart Well and Smart Field technology is used by other international companies, and its elements are used by companies in Russia. I think what makes SPD unique is the scale of which we’ve done it, and the use we’ve made of it, and the way we’ve made it work.
Firstly, on scale: we currently cover about 80% of all our production wells, 100% of water injection system. And within the next few months we’ll cover a 100% of the field by the Smart Field technology. Our estimate is that typically we are producing 2-3% additional oil every day as a consequence of that optimization process.
We optimized the output from the reservoir and control wells. We measure what’s going on, we use the integrated models so that we understand what that means, we then make adjustments real time, and we can make adjustments real time at all wells, and then we can see how that impacts and then put that back into integrated model, make further adjustments and so on around the loop very quickly to continuously optimize the field development and production.
We are also using the Smart Field technology to minimize maintenance and maximize the lifetime of our equipment, particularly on the ESP’s - (electrical submersible pumps). It works within certain parameters and if it moves out of those parameters, messages are automatically sent the operator saying the ESP is out of certain parameters and the operator can take measures immediately to put the ESP back into its parameters, which maximizes the lifetime of that ESP. And as a consequence we reduce cost and maximize the uptime of our ESP.
Another area is the human interface. We don’t need any longer to send an operator in a car to a well pad to find out what’s happening. We know what’s happening; we don’t need to send him out to take action because we can take the actions remotely. So we reduce the cost of operations by not having to move people around and not having so many people. And as a consequence we also reduce HSSE exposure to the individuals, because we are not putting them in cars, out in a field. Also environmentally, we know what’s going on in every well, in every pad, we have a program of Asset Integrity that tries to ensure that there are no leaks and actually we are virtually successful on that.
But in the event that there is a leak, we can take actions immediately because we have the live measurements. So, the technology helps us to maximize production, the lifetime of the equipment, which we are operating, and it helps us to minimize HSSE risks and costs. It’s very powerful way of working. And we can do it because we now cover essentially everything. It’s the scale that makes us unique in Salym.
Win-win situation
RE: The utilization of associated petroleum gas is a crucial issue nowadays in Russia. To solve this problem SPD decided to cooperate with neighbors. On February 18, 2010, Russneft together with SPD and LLC Monolit launched the first train of the self-contained PGP with the capacity of 44 MW. How much of associated petroleum gas are you doing to deliver there? What percentage of utilization of associated gas will SPD finally have? How are you going to use this energy?
Simon Durkin: We are cooperating with Russneft and Monolit. Russneft at the moment has a power station that has been installed and commissioned and is being run by Monolit. Actually we don’t have anything to do with that power station. But what is going on at the moment, what’s physically being constructed is an LPG plant in the Salym fields. And Monolit is constructing that facility.
That LPG plant will import rich gas from Russneft and rich gas from our fields, it will then separate out from that rich gas propane and butane and then it will export back to the Russneft dry gas and it will export back dry gas to our fields by pipelines. We will use that dry gas in our power plant. Monolit will take the LPG and market it.
SPD has its own 45 MW power plant and today we utilize about 40% of our associated gas. And we are in process of installing the 4th power turbine, which will take the power plant to about 60 MW. Then when the Monolit’s LPG plant is working, we will be utilizing 95% or more of our gas. We expect that plant to be running from the beginning of next year. Once the whole project is complete Monolit, SPD and Russneft will all be integrated to work together in a combined gas solution, which will bring benefit to all of us.
RE: Do you invest in LPG plant too, or is it only Monolit that finances its construction?
Simon Durkin: It’s only Monolit that invests in the LPG plant. We sell them wet gas and buy back dry gas. We invest in the connection to the LPG plant and some compression but we don’t have any direct interest in Monolit’s LPG plant or business.
Fiscal incentives need
RE: SPD is a great example of how foreign investments can succeed in Russia. What advice can you give to foreign E&P investor? What risks and Russian business characteristics should be taken into account?
Simon Durkin: The first thing for success is people and their values. The second thing is what SPD always called “Russia Plus,” which is a company that has not tried to impose an international way of doing business, but has actually looked at what is valuable and works very well in Russia and particularly in Siberia, and then has added to that where technology or management systems from the international sphere will help.
I think the idea of Russia Plus that we’ve applied would be something that any company could apply: taking the best of Russia and being innovative with it, and then adding external technology and innovation where it can add value, setting up the company with good people and good values so that the company works efficiently and has integrity and people are motivated to work in the company. And try to integrate the elements of the company so you can get the maximum value through making everything work together.
In terms of things to watch out for, opportunities in Russia, I think as the oil gets more difficult to find and as the oil gets more difficult to produce, or the older fields die and you need to spend more money on innovation on extracting extra oil, then clearly discussions around the fiscal and tax regime and the profitability are going to be key to any new company and key to the existing companies.
RE: You mentioned that some of new technologies require a more flexible fiscal regime. Can you be more specific?
Simon Durkin: I gave you earlier an example of that in enhanced oil recovery. This is technology that has not yet been fully proved. If you are going to spend significant additional sums of money to extract residual oil, clearly the economics behind that is not as attractive as the economics behind the first, initial production. In order to encourage that sort of innovative activity, there has to be some economic benefits to the company. That requires changes in fiscal and tax regime.
Essentially, the economics of the activities like enhanced oil recovery are not currently sufficient to attract people to do it. If you want to attract people to spend a lot more money on innovation, on recovery of residual oil, then there has to be some incentive. The companies do not invest to make a loss. It is still to the advantage of the country to do that, because residual oil otherwise would be left in the ground, it would not be developed. Clearly it is to the country’s advantage is to get that oil out, because there is still significant opportunity and profit available but in order to help the companies do that, they are going to need incentives.
Obviously the same applies to exploration in more remote and difficult areas, whether it’s deep water, or whether it’s Artic, or whether it’s East Siberia. Similarly, you’re going to require incentives to help people to move into areas which previously were not seen to be economic.
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Copyright © 2004 Salym Petroleum Development N. V.
// Russia, 31, Novinsky blvd, Moscow,
Tel.: +7 (495) 518-97-20,
Email: info@spdnv.ru |
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