Cracking the Bazhenov
The Siberian shale play could be one of the world’s largest, but it won’t give up its riches easily
Russian oilmen have known of the Bazhenov shale’s potential for decades but never quite figured out how to coax out the formation’s riches.
Now, an influx of Western technology and experience developed in the US shale patch as well as backing from the Kremlin are moving Russia closer than ever to unlocking its vast unconventional oil deposit.
The problem facing the Russian government and industry is that output from its Soviet-era West Siberia oilfields, which have produced most of Russia’s oil, is expected to start declining in the coming years. That has the Kremlin, which relies on revenue from Russia’s world-beating oil production to feed its budget, and industry casting around for new opportunities.
Many are pinning their hopes on the Bazhenov shale. They hope an unconventional oil boom like that seen in the US will help sustain production levels of around 11 million barrels a day (b/d) for decades to come. The Bazhenov is thought to be one of the world’s largest shale plays, both in footprint and in resource potential. In both categories, it is many times the size of the US’ Bakken. Still, exploration is at a very early stage and the path to developing the Bazhenov remains unclear.
Geologists have even had a hard time pinning down exactly how big the shale play is. Estimates on how much oil might be squeezed out of the Bazhenov vary widely.
The US Energy Information Administration says the Bazhenov is the world’s largest shale play with nearly 75 billion barrels of recoverable oil. Wood Mackenzie, a consultancy, estimates the play holds a staggering 1 trillion barrels of oil in place. However, Russian estimates, which are likely based on better sources of data, are far lower. Regional authorities have put the Bazhenov’s resources at 22.7 billion barrels, a figure that has been echoed by Rosneft president Igor Sechin.
Either way, the Bazhenov has the potential to be a world-class oil deposit and it is beckoning Russian and Western oil companies alike. Together the companies hope to finally crack the Bazhenov’s vexing geology.
In spite of decades of research and drilling in the area, the Bazhenov remains largely a mystery to drillers. The play’s composition is highly complex and heterogeneous, and geologists say wells drilled within just a few kilometres of each other can throw up drastically different data.
Yet early drilling has tapped into very promising sweet spots, highly productive pockets that will be key to commercial development.
The best wells are seeing initial production rates of around 2,000 b/d, very high compared with US tight oil wells.
But companies still have a long way to go to be able to identify and predict where they’ll be able to drill into the Bazhenov’s sweet spots.
Shell and state-run Gazprom Neft are starting that work at their Bazhenov acreage. In January, the companies said they had begun drilling their first horizontal, multi-stage fractured appraisal well in the Bazhenov, and five wells would be drilled and fractured through 2015 as part of a pilot drilling project. The companies have spent the past three years collecting 3-D seismic data and drilling vertical test wells at the Bazhenov.
State-owned Rosneft is also ramping up its activity in the Bazhenov. It has signed joint exploration agreements with ExxonMobil, Statoil and Eni to explore the shale. ExxonMobil and Rosneft plan to spend $300 million on their pilot drilling project over the next two years.
By 2015, the data gathered from these campaigns will provide critical data for mapping the way forward for the Bazhenov shale. It will also give the government more accurate data on costs and production levels.
These will help it set a fiscal regime for the sector. Already, tax breaks are in place for difficult-to-extract oil plays in Russia. Oil companies are pushing for deeper cuts to help make shale profitable, but the oil-revenue dependent government is weary of giving too much away too early.
Other projects will also help in this effort. French major Total has agreed to jointly explore the Bazhenov with Lukoil. Imperial Energy, a subsidiary of India’s ONGC, has teamed up with Colorado-based oilfield services company Liberty Energy to explore its Bazhenov licences. Ruspetro, one of the only independents working in the Bazhenov, has teamed up with Schlumberger to explore its acreage.
Testing new technology
Lukoil and Surgutneftegas are testing an alternative to the horizontal drilling and fracturing technologies that the international oil companies are bringing into Russia’s shale patch. Rather than approaching the kerogen-rich Bazhenov formation as a Bakken-like tight oil play they are treating it more like an oil shale play such as the Green River in the US. Using a process known as thermogas, they are heating the kerogen in situ, turning it from a highly viscous crude locked in the shale into liquid that can flow through the well.
Lukoil has said the process could increase recovery rates in Bazhenov from 3-5% now to around 40%, though the technology still has not been proven to be commercially viable. The technology coming from the US is offering Russia its best hope yet of cracking the Bazhenov, but it could also prove to be an Achilles heel.
The US could target sanctions on specific technologies key to the future of Russia’s oil industry if the conflict over Ukraine continues to escalate, argues Jason Bordoff, a former energy advisor to President Barack Obama and director of the Center on Global Energy Policy at Columbia University.
The Obama administration “could impose export controls on goods and specialised equipment necessary for complex oil and gas projects, akin to military technology export controls announced with the latest sanctions”, Bordoff wrote in a recent op-ed.
Combined with sanctions on Russian energy companies the strategy would clearly compromise US business interests in Russia. But it would spare consumers at home the pain of higher prices that would come from harsher sanctions on oil exports. It would also put the brakes on the Bazhenov.