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Unconventional Plays Reviving West Siberia Activity

With Russian conventional oil and gas production in natural decline, producers have turned, in part, to West Siberia and unconventional plays there that are said to be similar in ways to the Bakken Shale and Permian Basin in the United States. Ruspetro plc is among those looking at the Bazhenov Shale.

The Bazhenov is "basically a blanket across West Siberia" that is about 2,200 meters deep, Ruspetro Chairman Alexander Chistyakov, told NGI's Shale Daily last week while in the United States to meet with investors. The region has substantial surface infrastructure that was used to develop "tens of thousands of wells" targeting the Cretaceous formation.

"All we're talking about is going deeper in a lot of those fields and developing the shale formation and then further down and developing the Jurassic formation [for tight oil] where it's available," Chistyakov said.

The company is not exactly a shale player, yet, as the Bazhenov is "just a type of experimental thing at this stage in Russia.

"There's a good understanding that the source rock has about 2 million square kilometers in terms of blanket coverage of West Siberia," Chistyakov said. "There's been probably a total of less than 100 wells drilled, all of them vertical. The properties are very interesting...[A] lot of engineers are saying that it's probably more prolific than North American shale in terms of its properties. They say about 25-30% more prolific."

While allowing that he is not especially familiar with the U.S. Shales, Chistyakov said the Bakken Shale "is probably the closest analogy" to the Bazhenov Shale. "What I'm being told is where we are is more like West Texas basically in terms of infrastructure, in terms of formations and geology. West Texas also has shale and tight sands," he said.

According to an estimate by DeGolyer and MacNaughton cited by Ruspetro, the Bazhenov's low-permeability resource potential is about 50 billion bbl, representing one-third of Russia's 150 billion bbl of low-permeability resource potential. The same estimate pegs the Jurassic formation at 70 billion bbl. The Jurassic is about 2,700 meters deep.

The Bazhenov contains a web of natural fractures that some companies have been successful at targeting with vertical wells, Chistyakov said. When a vertical well hits a natural fracture, it can produce 250-300 b/d initially with no lateral drilling. However, it's hit or miss. "If you hit that natural crack, you get your oil; if you don't, you get nothing," Chistyakov said.

Recently enacted tax incentives go a long way toward making future development of the Bazhenov economic. Producers were granted 100% relief from mineral extraction tax (MET) on oil production from the Bazhenov and Abalak formations for 15 years. According to Chistyakov, that puts potential wellhead revenue in the Bazhenov at about $45/bbl. However, talks are under way to add a customs tax exemption, which could bring potential wellhead revenue up to more than $70/bbl, he said.

Russia is the second-largest producer of dry natural gas and third-largest liquid fuels producer in the world, and oil and gas revenues accounted for more than 50% of the country's budget revenues last year, according to the U.S. Energy Information Administration. Russia's proven oil reserves were 80 billion bbl as of January, according to the Oil and Gas Journal. Most of Russia's resources are in Western Siberia, between the Ural Mountains and the Central Siberian Plateau and in the Volga-Urals region, extending into the Caspian Sea. Eastern Siberia holds some reserves, but the region has had little exploration.

West Siberia, Russia's main oil-producing region, accounts for about 6.4 million b/d of liquids production, nearly two-thirds of Russia's total production, according to EIA. "While this region is mature, West Siberian production potential is still significant but will depend on improving production economics at fields that are more complex and that contain a significant portion of remaining reserves."

Of more immediate importance to Ruspetro than the Bazhenov is the deeper Jurassic formation, whose development is under way. The company has 1,818 million boe of proved plus probable reserves across three blocks, according to an investor presentation.

The Jurassic formation sands are complicated and can differ in quality depending on location. Clay is also present, which can take nominal permeability of 2 millidarcy down to actual permeability of half that, Chistyakov said. Rosneft, Gazprom Neft and Lukoil also are active in the region.

"We're in the middle of the so-called Krasnoleninsky Arch, which is one of the biggest reserve areas in West Siberia," Chistyakov said. "There is a lot of infrastructure available. There is a lot of conventional development there. It's in decline now, but it probably has one of the highest unconventional potentials, both in shale and tight sands, in West Siberia and overall in Russia."

Chistyakov said the company's neighbors in the arch all have been doing development drilling into the tight sands and some are moving into the shale. Ruspetro has drilled about 100 wells into the tight sands formation, all of them vertical so far. Based on results of neighboring company wells, the thinking is that the play can be developed economically with laterals of 800 to 1,000 meters and about five stages of completion.

"...[A]t this stage, we think those are the optimal parameters," he said. "It doesn't have to go longer than that because as opposed to shale, you usually follow a channel."

Ruspetro started working with Schlumberger earlier this year to unlock the play, and there are about a dozen Schlumberger engineer's in the Ruspetro offices. Chistyakov said the major services companies have been mobilizing their "A teams" to Russia, sending not just reservoir engineers but also completion and drilling specialists.

Currently there are no shortages of equipment or supplies, but if unconventional development takes off in Russia, the demand for human capital will be great, and a portion of it could go unmet, Chistyakov said.

"...[L]ast year, horizontal drilling only accounted for about 10% of overall drilling in Russia," he said. "I think this year it's going to be in the range of 20%. I believe North America now is about 75%. At this rate there's no shortage of supply...

"It's probably going to take a few years to move into a real industrial mode when you drill thousands of wells a year. So it doesn't look like there's any shortage of physical equipment and supplies. My opinion is that the major issue is going to be the human force to actually steer those rigs and collect the information and go on with the development."

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