Fracking isn’t just for shale. In Russia, producers are importing techniques from the U.S. to squeeze billions of dollars of extra oil from Soviet-era fields.
TNK-BP, Russia’s third-largest producer, will use hydraulic fracturing combined with horizontal drilling in almost half the wells it sinks this year, a sixfold increase in just two years, the company said. OAO Rosneft (ROSN), OAO Lukoil (LKOH) and OAO Gazprom Neft have similar plans.
So-called fracking, the process of blasting oil from rock by injecting a mixture of water, sand and chemicals into wells, has been used for years in Russia’s Siberian oil heartland to stimulate production. What’s new is allying it with horizontal drilling, turning the drill-bit 90 degrees to bore horizontally to reach more oil-bearing rock. The pairing was perfected in the U.S. to get economically viable flows out of shale deposits. Used in Russia, producers are recovering 15 percent more crude from aging deposits.
“This is a very big change in the way the company approaches production that has literally happened in the last year and a half,” said Gazprom Neft’s deputy chief executive officer. “We have made breakthroughs.”
Enhancing production from decades-old fields is needed to maintain Russia’s crude production above 10 million barrels a day for a fourth year, a figure that surpasses Saudi Arabia and the U.S., said Cliff Kupchan, an analyst at Eurasia Group. Apart from the Russian state, which gets half its revenue from oil and gas, the other winners are suppliers of people and equipment to frack wells including Schlumberger Ltd. (SLB), Weatherford International Ltd. (WFT) and C.A.T. Oil AG.
“Rosneft is becoming a more technologically advanced company,” Igor Sechin, chief executive officer of Russia’s largest producer, said in a speech in Houston this month.
State-controlled Rosneft will employ the technique at 50 wells this year at its largest production unit, up from just three in 2012, according to a company presentation. Gazprom Neft, the oil unit of Russia’s natural gas monopoly, will double the number of wells where fracks are used this year.
Lukoil, Russia’s second-largest producer, plans to use fracking in 55 horizontal wells over nine years to raise projected production 15 percent at Urevskoye, a 60,000 barrel-a day Siberian field that first started pumping in the 1970s, a company presentation showed. The company expects to get an extra 35 million barrels from the field, valued at about $3.7 billion based on today’s price for Russia’s benchmark grade.
“Everyone is now using horizontal wells and the technologies paired with it like fracturing because that’s the most straightforward way to maximize returns,” said Lev Snykov, a partner at Greenwich Capital in Moscow.
Fracking allowed the exploitation of U.S. natural-gas reserves the industry previously considered useless, elevating America above Russia as the world’s largest producer of the commodity. Horizontal drilling increases fracking’s effectiveness by exposing more oil- and gas-bearing rock.
The process is now boosting U.S. oil production from so- called tight reservoirs in North Dakota and Texas. U.S. crude oil production reached 7 million barrels a day in December, the highest in 20 years, cutting the need for imports, according to the U.S. Energy Information Administration.
As American production gains, Russian President Vladimir Putin has set a goal of maintaining production at more than 10 million barrels a day. Output, which reached a post-Soviet record of 10.4 million barrels a day in September, will be little changed this year or rise slightly, Deputy Prime Minister for Energy Arkady Dvorkovich said in February.
To help postpone production declines at existing fields, oil services companies are exporting expertise to Russia. Houston-based Schlumberger, the world’s largest oilfield- services provider, is vying with U.S. rivals such as Weatherford and Russian operators led by C.A.T. Oil.
Schlumberger has 12 separate fracturing fleets -- the combination of machines and people needed for fracking --working in Russia, a company executive said. C.A.T., which says it has a market-leading share of 31 percent, has 15.
The boom in horizontal wells will cause the number of meters drilled every year to increase at least 40 percent by the end of the decade, according to research from Renaissance Capital.
“Russia under Putin is committed to maintaining production levels,” Eurasia’s Kupchan said by e-mail from New York. Companies like “Rosneft will be drilling and subcontracting unless the oil price really bottoms out.”
The market is growing fast. Lukoil didn’t use fracking in a horizontal well in Siberia until 2011, a company official said. Since then it’s undertaken 215 such wells, adding about 19 million barrels of production. Lukoil plans fracking in 450 horizontal wells over the next three years.
TNK-BP, which is being acquired by Rosneft, plans 102 horizontal wells with fracking this year, double last year’s number and almost half of all the wells it’s drilling, the company’s press service said.
In time, fracking and horizontal drilling in Russia will spread from rejuvenating older fields to developing unconventional reserves.
The Bazhenov shale, a layer of rock the size of France that lies underneath Siberia’s producing fields, may hold more oil than Saudi Arabia, according to Russia’s subsoil agency. The geology is similar to North Dakota’s Bakken shale, where production has more than doubled in two years to 700,000 barrels a day, data compiled by Bloomberg show.
Gazprom Neft (SIBN) and partner Royal Dutch Shell Plc (RDSA) will spend $200 million over the next three years in the Salym area of the Bazhenov, according to the Russian company. Exxon Mobil Corp. (XOM) and Rosneft also plan to explore the area.
Of Russia’s three big energy companies, Gazprom has performed the best during the past three months, gaining about 2 percent in Moscow trading, beating the 1.6 percent decline of the benchmark Micex index. Lukoil shares have lost about 2.1 percent in the period, while Rosneft dropped 9.6 percent.
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