Monthly Archives: August 2013

New oil discovery in Irkutsk Oblast

As reported in Rosneft’ press release published on the corporate web site on 20 August 2013, a new oil and gas play was discovered on Mogdinsky license block located in the northern part of Irkutsk Oblast 160km north of ESPO.

According to the release the exploration well Mogdinsky-10 produced free-flowing gas condensate at the rate of 425 K m3/day and oil – 90m3/day in the course of testing Lower Ustkut horizon.

The well location was selected based on the fundamentally new geological model created by Rosneft’s subsidiary  RN Exploration LLC, which enabled Rosneft to tap a hydrocarbon deposit that was not encountered before.

The play’s reserves are estimated at over 4 mln. tonnes of oil and 2 bln. m3 of condensate.

Another discovery from the same horizon was made on Danilovo block where well No. 73 produced free-flowing oil at 165m3/day during the well test, which proves soundness of the new 3D seismic data-based geological model.

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Construction of 500km of gas and product pipelines is considered for Irkutsk Region gas reserves development

Ust-kut, 13 August 2013 (IA “Teleinform) – Implementation of gas-chemical facilities project to use feedstock from the fields in the northern part of the region  was discussed at the meeting headed by Sergey Eroschenko, Irkutsk Oblast Governor, in Ust-Kut on 13 August.

Marina Sedykh, Director General of Irkutsk Oil Company (INK), presented proposals on gas distribution network development in northern areas of Irkutsk Oblast. The potential investment project for development of gas reserves includes construction of about 500km of gas and product pipelines, which will support transportation of gas feedstock from the fields to Ust-Kut. Potential enhancement of the project to add the construction of a gas chemical plant in the vicinity of Ust-Kut is also evaluated. It is expected that 450 new jobs will be created.

A short time ago Irkutsk Oil Company announced that it was conducting a research on a gas-chemical complex construction in the north of Irkutsk Oblast.  On 1 August, at the regional government meeting on the creation of a gas processing cluster Marina Sedykh, the company’s Director General, was quoted as saying that the company was commencing a feasibility study for a potential investment project to develop gas reserves of Yaraktinskoye, Markovskoye and Zapadno-Ayanskoye petroleum fields. Construction of complex gas treatment facilities was also considered within the project. By applying a cryogenic technology the company intended to achieve a high (up to 96%) extraction of valuable components from the produced natural and associated petroleum gas. The project made provisions for 500km of gas and product pipelines to transport gas feedstock from the fields to Ust-Kut.

The regional government has embarked on a course of creating a number of industrial clusters including the petrochemical one.  In the regional government opinion, Irkutsk Oblast is best prepared for development of Eastern Siberia’s petrochemical cluster. In recent years, the regional oil and gas industry has seen accelerated growth: in 2012 the annual oil production increased over 25 times in comparison with 2008.  The tax incentives at the federal and regional levels have  played a defining role in this growth.

Irkutsk Oblast has already got several large-scale oil-processing and petrochemical centers located in Angarsk and Sayansk, which have a great technical and human resources potential to become a basis for high-volume gas processing development.  

The regional government supports construction of new industrial facilities for the petrochemical cluster by providing property and income tax exemptions, assistance in getting federal tax reliefs to attract investments to the regional  industry.

Russia ready to grant tax breaks for new Arctic projects

By Vladimir Kovalev

Earlier this year, Russian Prime Minister Dmitry Medvedev noted that Russian oil and gas operators’ attempts to explore the northern sea shelf were proceeding rather slowly. Exploration work in the Russian section of the Arctic has been 10 times less extensive than in the US section of the Chukchi Sea and 20 times less than in the Norwegian Arctic shelf, he was quoted as saying by RBC Daily.

Moscow may now be trying to remedy the matter. The Russian government has reportedly decided to accede to the requests of major state-controlled oil and gas operators to amend the federal tax code in order to generate additional funding for exploration of crude oil and natural gas deposits on the northern sea shelf.

Rosneft’s new project

Following reports of the Kremlin’s decision to reduce tax rates for new Arctic sites, state-owned Rosneft, Russia’s largest oil producer, announced that it had begun seismological research work in the Barents Sea, in co-operation with its Italian partner Eni.

The partners are slated to explore several sections of the Tsentralno-Barentsevsky Block, which may hold 7 billion barrels of oil equivalent, as well as the nearby Fedynsky deposit, which could contain more than 18 billion boe.

The sites may be home to nearly 15 billion barrels of oil and 1.9 trillion cubic metres of gas.

Using previously collected 2-D seismic data, Russian experts have identified 10 promising structures. However, it may take about 10 years to explore these structures thoroughly.

Rosneft has indicated that it intends to drill the first exploration well at the Fedynsky deposit in 2017, with additional seismological research to continue in 2018. Another well is slated to be drilled by 2020, and if the results are positive, a third well will be drilled at the block by 2025.

At Tsentralno-Barentsevsky, meanwhile, the first well is scheduled to be completed by 2021 and a second well by 2026, according to InvestCafe, a Moscow-based investment company.

High costs

In the exploration phase of this project, Eni will fund up to US$1.4 billion in new exploration expenses; it will also cover Rosneft’s previous expenditures in the area. But in the development phase, the Russian firm will be responsible for covering 66.7% of costs, while its Italian partner will carry 33.3%.

Since the total cost of exploring and developing the two blocks is anticipated to reach US$50-70 billion, Rosneft’s outlays will be quite high. Under these conditions, the company’s request for tax breaks seems reasonable.

Grigory Birg, an analyst at InvestCafe, noted that the Arctic projects were likely to be very expensive. “Production costs for crude oil on the Arctic shelf could reach US$40-50 per barrel, which is one and a half to two times higher than in Russia, on average,” he told NewsBase.

The amendments to the tax code take such difficulties into account, Birg said, and the extent of the concessions will hinge on the complexity of the sites in question. The legislation defines several categories of eligible sites and states which licence areas qualify for tax breaks, “including rates of 5-30% for production taxes [and] zero export duty, as well as zero [import] duty and VAT for imported equipment,” he said.

He added: “The government will also guarantee the shelf operators that the tax code will not be changed within a period of five to 15 years. This would enable the companies to make shelf projects profitable.”

Major challenges

However, Rosneft and its partner will still face serious obstacles.

One of the main challenges will be the extreme weather conditions that prevail in the area. Eni and Rosneft will only be able to work for two months each year, when the northern seas are free of ice, according to Vladimir Vovk, a scientist at the Gubkin Oil and Gas Institute in Moscow.

“The most serious problem on the Arctic shelf is the lack of drilling technology and equipment, as well as the very short length – only two months – of the ice-free season,” he was quoted as saying by This means that investors must have access to the technologies and equipment needed to carry out geological research, to conduct exploration and development drilling and to extract oil and gas from sites that are not only underwater but surrounded by ice, he explained.

Other projects

Nevertheless, work is moving forward on several projects. In June of this year, for example, Rosneft announced that it was starting seismological research work at the Lisyansky, Kashevarovsky and Magadan-1 sites in co-operation with Norway’s Statoil. The partners set up a joint venture for the project in 2013 on roughly the same terms as the Rosneft-Eni deal. The sites may hold as much as 1.74 trillion tonnes of oil equivalent.

Then in the first half of July, Gazprom, the state-controlled gas monopoly, was awarded exploration licences for sites in the Barents and Kara Seas. The company is likely to team up with a foreign partner, owing to the extremely complex nature of these sites.

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