Professional Documents
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recovery (EOR)
methods in Russia:
time is of the
essence
Contents
I. Introduction ..................................................................................1
VIII. Conclusions.................................................................................18
Contacts .............................................................................................20
I. Introduction
The replacement of conventional fuels (oil, The development and commercial In the Soviet times, Russia was among
gas, coal) with alternative ones has been deployment of modern enhanced oil the worlds pioneers in deploying EORs
under intense scrutiny for several decades. recovery methods (EORs) is today seen suffice it to mention reservoir pressure
Many experts believe that debates around as the global oil industrys core way to maintenance techniques that involve gas,
this matter are likely to continue in the improve the efficiency of initial recoverable air and water injections, hydrofracturing
foreseeable future. In particular, BP has reserves through an enhanced oil recovery and hydrochloric acid treatment. Over
revised its expectations downward as to the factor (ORF), a measure that represents the past decade, additional output gained
use of biofuels in its Annual Energy Outlook the percent of the in-place oil discovered by modern EORs remained unchanged at
2030. With the lack of significant scientific that is technically recoverable. best. Application of these methods had
advances on the alternative energy front, no significant impact on overall operating
With over a hundred various related
global oil demand is set to remain high. performance, with EOR-based output
technologies now available worldwide,
According to the consensus forecast, there accounting for only 3% of Russias total
the development of new solutions
will be no significant shift in oils share of output, compared with over 10% in the US.
continues to gather steam. Primary and
the global energy mix, which will make up The lack of government support is one of
secondary generations of EORs have
27% to 30%1 by 2030. Hence, considering the key reasons for EORs not being fully
made way for tertiary ones that are
that energy consumption is expected to rise deployed in Russia. However, persistent
explored in this report. Traditionally, these
at an estimated average rate of 1.6%, oil worrying trends observed in West Siberia,
methods have included modern enhanced
demand, exclusive of gas condensate, might the countrys oil heartland (daily oil
oil recovery technologies (primarily
grow in absolute terms from todays production dropped by around 7% from
thermal, gas, chemical and microbial)
88 million barrels per day (mbd) to more 2006 to 2012), and no new attractive
incorporating innovative solutions.
than 100 mbd by 2030. licensed sites available in the open acreage
While involving major expenditures at the indicate the continuing importance of
It is no secret that the age of easy oil
initial stage, EORs, when implemented, EORs. Without such methods, achieving
is coming to an end. Most of the worlds
make it possible to expand the companies sustainable production at the levels
largest producing fields are approaching
resource bases as the essential condition projected in the General Plan for Oil Industry
depletion, and their remaining reserves
for their capitalization. Some estimates Development 2020 will be a challenge.
are classified as hard to recover. The
suggest that the growth of the global
peak of new oil discoveries occurred in
ORF by just 1% would permit increasing
the 1970s; at the same time, it takes an
conventional oil reserves by around
average of about 25 years for an oil field
88 billion barrels, which is nearly three
to enter the fourth, and last, stage of
times the current annual output.
development. Therefore, exploring for
new reserves and improving oil recovery
factor are high on the agenda. However,
given constantly increasing geological
knowledge, discoveries are now becoming
more predictable. It is no wonder, then, that
almost all of the worlds leading vertically
integrated oil companies (VIOCs) invest
heavily in innovative solutions focusing
on reserves already explored and put into
development. According to our estimates,
international oil companies (IOCs) invested
about US$5b in new technologies in 2011.
1
International Energy Agency, ExxonMobil, Shell, BP,
Organization of the Petroleum Exporting Countries.
Natural drive
Oil recovery
Flow production Artificial lift
5% to 15%
Secondary methods
Tertiary methods
Oil recovery
Thermal methods Physicochemical methods
35% to 75%
60% ne
h
owt
gr
ut
erc
at
40%
ndw
a
tion
ple
De
20%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Estimates of Ernst & Youngs Moscow Oil & Gas Center.
Figure 3. Structure of EORs global use Table 1. Criteria governing the use of an EOR method
5%
Chemical methods
recoverable reserves)
Density (kg/cubic m)
reserves (% of initial
Permeability (mD)
Temperature ( C)
Method
Depth (m)
Rock type
2
Enhanced Oil Recovery: Experience and Prospects, Neftegazovaya Vertikal, May 2011.
3
World Energy Outlook, International Energy Agency.
12,000
* Corporate data.
120
Gas condensate liquid
100 Unconventional oil
Crude oil undeveloped elds
80
Crude oil EOR
mbd
20
0
1990 2000 2010 2020 2030
* Corporate data.
4
VNIINeft; Oil and Gas Vertical, May 2011.
5
World Energy Outlook, International Energy Agency.
6
Oil Recovery Improvement Methods in Russia and Abroad: Experience and Prospects, Bureniye i Neft, February 2011.
60% 0.5
50%
0.45
40%
30% 0.4
20%
0.35
10% Initial recoverable reserves
0% 0.3 ORF
1961 1971 1981 1991 2001 2011
Source: The use of enhanced oil recovery in Russia and abroad: experience and prospects, Drilling and Oil, http://burneft.ru/archive/issues/2011-02/8, February 2011.
According to the Russian Ministry of The use of EORs in such fields seems most Russian output decreased from 70% to
Energy, around 10.7 billion tons out of practical, provided that due consideration 61%. The share of mature fields (excluding
22 billion tons of recoverable reserves8 is given to technical and economic factors. major assets of Yuganskneftegaz and
are uneconomic to produce (Figure 8). Salym Petroluem Development N.V.)
For example, deployment of tertiary
that had been on track for steady growth
A significant number of Russias producing recovery techniques in West Siberia, which
before 2012 dropped from 58% to 47%
fields, though constantly depleting, have accounts for over a half of Russias oil
over the above period (Figure 7).
stranded reserves that can be unlocked output, is crucial. Recent developments
using cutting-edge EOR techniques. in the region have not been encouraging,
with daily production declining by 7% over
the past seven years, from 2006 to 2012.
West Siberias contribution to the total
7
Tatneft data.
8
Report on the General Plan for Oil Industry Development 2020, dated 28 October 2010.
7.0 75%
70%
6.0
65% West Siberia
Sources: Corporate data, estimates of Ernst & Youngs Moscow Oil & Gas Center.
This downward trend can be reversed if Delays in EOR technology upgrades Increased production of stranded
modern EOR methods are introduced; may substantially reduce budget oil in mature regions
otherwise, the objectives set in the revenues, which would otherwise
Gains in recoverable reserves
General Plan for Oil Industry Development be available, owing to:
with no exploration costs
2020, namely replacement of
Multiplicative effects on allied
reserves and efficient use of mineral Tertiary EORs could add 2.7 billion to
industries such as machine
resources, may not be achieved. 4 billion tons of recoverable reserves,
building, chemical and microbial
or 16% to 23%, to the CIS resource
Developing local high base, estimates by the International
technologies and services Energy Agency suggest.9
9
World Energy Outlook, International Energy Agency.
development
11.7 Developed
Fields under
almost half, since account is taken only regime
10 (53%) reserves
of those reserves that are economically
extractable under the current tax regime.
5 10.2
Figure 8 shows that 80% of commercial 5.9 Undeveloped
(27%) reserves
reserves originate from developed fields 0
with extended production infrastructure,
while new fields account for only 20% of Russias reserves Russias reserves
according to international according to domestic
the total reserves. Major investments
classication classication (1, 2)
in exploration, development and new
infrastructure will be required to start Source: General Plan for Oil Industry Development 2020.
production from these new fields.
The Russian structure of reserves has seen
the share of hard-to-recover reserves rise Figure 9. Changes in the Russian Figure 10. Changes in the Russian
significantly over the past decade. Despite structure of recoverable oil reserves oil production structure
their growing share in total reserves
(Figures 9 and 10), such hydrocarbons
exhibit a slower production rate. From 100% 100%
14% 9% 6% 7%
2000 to 2011, the share of hard-to-recover
oil reserves in Russia increased from 56%
80% 80% 32%
to 62%, while production grew only from 36% 35%
3% to 8%. This trend, resulting in shrinkage 35%
and deterioration of the resource base, 60% 60% 3%
is most evident in mature oil regions. 8%
7% 16%
40% 40%
59% 50%
20% 44% 38% 20%
0% 0%
2000 2011 2000 2011
0 5 10 15 20 25 30 35
Years
Hydrocarbons, total Oil
Sources: Corporate data, estimates of Ernst & Youngs Moscow Oil & Gas Center.
10
International Energy Agency, World Energy Outlook.
80
60
40
The current Russian tax regime focuses in revenues (around 60%) and growing with the oil price at US$110/bbl, the net
primarily on high-producing fields where transport tariffs that oil companies cannot income of Russian VIOCs operating in the
the mining rent accounts for a large control are the main barriers to effective upstream segment would be only at the
share of the oil price. A high tax share cash flow management (Figure 14). Even lower side of the range estimated by IEA.
140
120
Oil price, US$/bbl
100
80
60
Export duty
40
MET
20 Transport costs
0 Net income
Source: Estimates of Ernst & Youngs Moscow Oil & Gas Center.
11
Resources to Reserves, International Energy Agency, 2010.
Table 2. List of current and future tax benefits available to domestic oil producers (Urals price of US$110/bbl)
Grounds for In effect Eligibility Tax benefit Reduction of tax Positive effect
tax benefit from criteria period, years burden, US$/bbl* for EOR
The introduction of the 60-66 tax regime equivalent to additional gains from the US$4.4/bbl at the Urals price of
in October 2011 was the first step in Brent price rising by of almost US$110/bbl) were largely negated by a
encouraging greater investment in West US$25/bbl. The new system can extend higher MET. With the basic rate growing
Siberian brownfields. Suffice it to mention the life of a midsize field by at least five from RUB419 to RUB470 per ton, oil
that the around US$4/bbl gained by oil years. However, the advantages of the producers lose around US$2.5/bbl
producers in the new tax environment is new tax regime for oil producers (namely, at the oil price of US$110/bbl.
120
100
80
US$/bbl
60
40
20
0
Break-even well Break-even well Unit EOR Transportation Income acceptable Potential
head price (prior to the head price costs to investor government take
60-66 regime) (the 60-66 regime)
Source: Estimates of Ernst & Youngs Moscow Oil & Gas Center.
The expected EOR-based production oil price of US$110/bbl and US$25/bbl fiscal framework that guarantees an
costs are estimated at US$50/bbl, at the oil price of US$90/bbl (based on acceptable level of return on investment
compared with around US$15/bbl for oil the forward curve as it stands today, this and promotes a wider use of EOR
produced using conventional techniques. price is essential to the assessment of technologies. Russia may follow suit
To guarantee an acceptable level of income EOR projects sensitivity). These levels by introducing a windfall tax payable
for investors, the tax take should not exceed of tax take will allow for large-scale on net income. Why not try it on pilot
US$45/bbl (about 80% of the export duty deployment of EOR in Russia. projects where EOR methods are used?
rate, or 0.48 against the current 0.60
Note that the US, Canada, UK and other
used in the calculation formula) at the
countries already benefit from a favorable
LUKOIL Yareg Timan-Pechora Heavy oil and Thermal methods (two types)
natural bitumen
TNK-BP Talinskoye West Siberia Tight light oil plays Gas methods
Gazprom Neft and Rosneft Priobskoye West Siberia Tight light oil plays Gas methods
Thermal and gas methods
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