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London — Gazprom Neft's pioneering Arctic oil projects are not going to be crimped by international production cuts, but output growth will no longer be the company's main driver as it focuses on other metrics such as technology, its strategy and innovations head, Sergey Vakulenko, said Thursday.

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At a briefing in London, Vakulenko said Gazprom Neft, the oil-focused subsidiary of energy giant Gazprom, wanted to become an industry "benchmark," measuring up against international rivals on criteria such as safety, efficiency and particularly technological prowess, which it aims to bring to bear at legacy fields and frontier tight oil and shale projects.

Gazprom Neft has been at the forefront of Arctic oil projects, particularly since ExxonMobil's withdrawal from the area due to sanctions. It has almost reached its overall production target for 2020 of 100 million mt/year, with production last year of 89.8 million mt (roughly 1.8 million b/d).



"We're drafting our new strategy at the moment and our mission is to become what we call a global benchmark to become a leader when it comes to efficiency, profitability, technological prowess, safety record etc," Vakulenko said. "It's much more difficult to measure, but that's our next aspiration -- not only scale, but also other metrics."

Vakulenko said all three of the company's flagship Arctic projects -- Novy Port, Prirazlomnoye and Messoyakha -- were on course for expansion even as the company contributes to OPEC-non-OPEC production cuts by limiting output from aging fields in west Siberia. While the international cuts have been beneficial, there should be scope to alter the quotas under the original 2016 agreement to take account of rising demand and lower oil inventories, he said.

Vakulenko highlighted the efficiency of the company's Arctic oil wells: a typical well at Novy Port produces up to 5,000 b/d, compared with 300 b/d on average in west Siberia, he said. He also noted the financial benefit of selling Arctic crude separately from Russia's westward export blend, Urals, as well as the preferential tax treatment of so-called 'greenfield' Arctic projects, which is time-limited.

Novy Port crude, shipped via the Barents Sea, is light and low in sulfur - production was around 140,000 b/d last year and is due to reach 160,000 b/d or more - while Messoyakha is heavy and shipped through Russia's Transneft pipeline system, but east to Asia. The Prirazlomnoye field, located in ice-prone shallow-water in the Pechora Sea, produces a heavy, high-sulfur crude under the Arco brand - output was 2.7 million mt/ last year, or roughly 50,000 b/d.

Gazprom Neft has the potential to add other nearby fields to the Novy Port production stream, while Prirazlomnoye, with only one rig in operation, will take another three-four years to reach its plateau of 5 million mt a year, he said.

On the company's technological ambitions, Vakulenko said Gazprom Neft had gained an additional 1 million-2 million mt of reserves by using artificial intelligence to reinterpret Soviet-era well logs at legacy fields. It is looking at using drones for delivery of lighter spare parts to remote locations, as well as using convoys of driverless trucks to transport sand, needed to drill well-pads in areas that turn to swamp in summer. It is also making progress on the metering and automation of drilling, he said.

Vakulenko played down any suggestion Russia's oil industry is trying to go it alone on technological development in the face of sanctions. But he said international cooperation on technology could be "a bit of a gamble" and "we probably have to think of Plan Bs and not make ourselves completely dependent on a certain technology."

"We definitely think that in the current world you cannot develop all the technology alone -- the world is too complicated and there are too many technologies that have to go into the project."

On Russia's Bazhenov shale formation, seen as holding billions of barrels of recoverable reserves, Vakulenko predicted a relatively short timeline of five years for its development, but underlined that Gazprom Neft would first "hone" the requisite skills on Achimov tight oil formations that have greater porosity and permeability.

The company has estimated that several hundred million tons could be recovered from Achimov deposits at the Severo-Samburgskoye (North Samburg) field in Yamal-Nenets, south of the Arctic projects.

"We don't dive headfirst into the Bazhenovjust because there are lower hanging fruit," he said. "The technology is exactly the same - long horizontals with multi-stage fracks - at the same time we are learning more about the geology of the Bazhenov."

"There are sweet spots and not-so-sweet spots - we have certain hypotheses on how to identify those. There are also hypotheses on well architecture and frack architecture. What we're trying to do is develop the models, develop the understanding."

--Nick Coleman, nick.coleman@spglobal.com
--Edited by Jonathan Dart, newsdesk@spglobal.com