Interview with Mars Khasanov, Director of Technology, Gazprom Neft and CEO of the company’s Science and Technology Sector

Gazprom Neft, Russia’s fourth-largest oil producer, is at the forefront of the technological development of the country’s oil and gas industry. Mars Khasanov, Gazprom Neft’s technology director and the head of the company’s science and technology center (STC), tells Nefte Compass why the company, the oil arm of state-controlled gas giant Gazprom, is so focused on developing digitalization and other pioneering technologies.

— In recent years, Gazprom Neft has been paying great attention to the development of technologies, including digitalization. In this respect, the company is one of the leaders in the Russian oil and gas industry. Why is the development of technology such an important part of the company’s business?

— Technology development today is the main task for the oil industry as a whole. The so-called easy-to-recover hydrocarbon reserves are coming to an end, and we are now starting to work with completely new reserves, in new regions, where different approaches are necessary. When I say technologies, I mean the broader notion for this term. This is not only new equipment and materials, it’s also a new way of working, new methods of preparing and making decisions, processing and storing information. Our task is to achieve radical effectiveness. When people usually speak about efficiency, they mean raising it by 10% −15%. However, to develop hard-to-recover reserves, the share of which is growing by the day, you need to boost efficiency by at least 60%, which requires radical changes.

— How can you measure effectiveness?

— If we are talking about crude oil production, the simple parameter is its per barrel cost. A well’s efficiency is determined by its cost and the amount of crude that can be extracted. Today, we have to use more high-tech, more complex and, as a result, more expensive wells. Therefore, it is necessary to ensure that the growth in the productivity of a well is higher than the increase in cost. This is the only way we can improve efficiency by 50%-100%.

— What is the role of the STC, which you chair, in this process?

— STC is creating technologies, testing and implementing them. We are carrying out technological management. Together with production units, STC forms the company’s technology strategy and is responsible for its administration and updating. We are also in charge of the strategy’s effective implementation.

— What is Gazprom Neft’s technology strategy?

— Our technology strategy is actually a tool for developing new types of resources and increasing efficiency. In its current form, it was approved in 2014. It includes nine areas of technological development, which should give the maximum impact on the company’s portfolio of projects.

The strategy is formed from two sides. First, we consider the needs of our production units. For example, we clearly understand how many hard-to-recover reserves, which are currently unprofitable, Gazprom Neft has in its portfolio. We have the task of selecting the technological keys to make the exploitation of such deposits profitable.

On the other hand, we study new opportunities and look at how science develops, what new products and solutions appear, what new information technologies the innovation environment can offer. And we are looking for opportunities to use these innovations, including those emerging in other industries, to increase efficiency.

— What are the nine areas of the strategy?

— Among the nine directions of the technology strategy is the development of unconventional resources, so-called shale oil, which is analogous in Russia with the Bazhenov formations. We are working on creating approaches and technologies to develop those resources, which are one of the largest of their type in Russia. The increase in reserves from unconventional Bazhenov formations could reach 760 million metric tons of crude oil.

Furthermore, since about 70% of the company’s capital expenditures goes on drilling wells, one of the main directions of the technology strategy is in developing technologies for well drilling and completion. The task is to minimize costs as much as possible without a loss of quality. The development of new reserves leads to higher prices and greater complexity of wells. But this should happen in a controlled manner, without dozens of increases. At the same time, we are trying to find the technologies that allow a well with a high cost to produce several times more crude than a traditional well. That is, the well becomes twice as expensive, but we get three times as much crude from it. According to our estimates, the effect of this direction alone could result in a potential cost reduction of 100 billion rubles ($1.6 billion) by 2025.

Another area is enhanced oil recovery methods, which can give additional production of more than 60 million tons of oil equivalent. Exploration technologies, which is another direction, can help increase the company’s resource base by 100 million toe by 2025.

One of the most important areas is certainly digitalization. Our company was engaged in this work back in 2012, when even the very term “digitalization” was practically not used. We called this area “Electronic asset development.” Why is it important? An oil company itself does not drill, does not build wells — it’s all done by our contractors. The main task of an oil company is to prepare the most effective investment decisions. This process involves working with a huge amount of data, with modelling and thorough analysis of information. If service firms can provide equipment and materials, decision-making algorithms must be developed by companies — this is the cornerstone for our business development. Digital solutions that we create on the basis of these algorithms allow us to evaluate our projects and decide how to make them effective.

— What effect should the strategy implementation have?

— The overall expected effect of the Technology Strategy by 2025 is bringing to production more than 100 million tons of additional reserves and saving more than 100 billion rubles.

— How is the technology strategy being implemented?

— As I said, the technology strategy is divided into nine directions. Each includes different projects. Over the past three years, we launched more than 120 projects, which are now in progress. Each has its own management committee, a project team, a project manager. At the end of the project, we consider its effectiveness, and, if successful, we move to its large-scale implementation. During the first year of implementation, we also continue to monitor how the project is replicated.

— How do you select technologies?

— I will give you an example. Suppose that we are offered a new technology for pumping fracturing fluid to develop sub-gas deposits, so that when we extract oil, we do not touch the gas layers. The first stage is evaluating the proposed technology, modeling the processes that occur during hydraulic fracturing using the proposed technology. Today, we are the center of expertise, which allows us to perform our own assessment to see whether we agree with the results that we are promised. We have long abandoned carrying out experiments “at the field” at the initial stage. Some 30% of STC staff are physicists and mathematicians with a fundamental academic education. The first phase of their education is not connected with the oil and gas industry, but now they are using their knowledge to solve the problems of our industry. They are highly engaged in the analysis of a technology, making the necessary calculations. If the results of laboratory and mathematical experiments show that the technology can be useful, we decide what increase in production it might yield, and how much it will cost us. We have very well-developed so-called cost engineering. That is, we can pre-calculate the cost of various objects and processes. After that, we will be able to understand whether the new technology might become profitable.

— What’s next?

— Then we come to the stage of making a choice. We have to prepare the design of the experiment. After that, we start working with real deposits, we carry out two or three operations using the innovative technology. If the forecasts are justified or exceed our expectations, a large-scale introduction of the technology starts.

— Let’s return to digitalization. In which segments is it necessary today?

— I will talk about the upstream sector. The life cycle of an asset consists of exploration, development and production stages. Digitalization is necessary everywhere because modeling, designing and implementing projects in the oil industry involves processing a huge amount of information. On the other hand, we are constantly short of this information, because most data is indirect. We can hang sensors along the entire drilling rig, measure everything that can be measured, but not understand a deposit’s full characteristics since most of the data is, in fact, indirect signs that need to be further interpreted. But the more indirect information we get, the greater the confidence is that you correctly define the properties of a deposit. Only with the help of machine learning and analysis of the relationships between indirect data and reservoir properties can we more or less accurately determine its direct characteristics.

— At all stages?

— Certainly. Let’s start with exploration. As I said, we can learn the reservoir characteristics only using indirect indicators. We conduct seismic, but data processing results can give only an approximate idea of the structure of a deposit. And in this case a priori information can help greatly. We get it using basin modeling. That is, we create models of huge oil and gas basins located on giant territories. By modeling such a basin, we understand what formations a specific deposit can consist of. And when we understand what kind of reservoir we have, we can more confidently interpret seismic data. Moreover, using this information, we can significantly improve the efficiency of seismic design — for example, correctly putting seismic sensors by moving away from even allocation. This is called full-wave modeling and it allows us to choose the right technology for seismic, for allocation of seismic tools, seismic design, seismic data processing and interpretation. This is just one example. In fact, all the exploration tasks involve interpretation of indirect data, the studying of analogies and continuous training.

— The next stage is actually developing a field.

— The development of any field begins with a concept. How does this usually work in the industry? Usually, oilmen say: we have such and such a layer, we will drill so many wells there. As a result, we decide on the production profile and build the necessary infrastructure. But in fact, production forecasts cannot be based solely on the evaluation of a reservoir’s productivity. An integrated view on the entire system is necessary. We need to evaluate not only the productivity of wells, but also their cost, as well as the cost of facilities and infrastructure that need to be built to ensure a certain level of oil and gas production. Thus, we carry out system engineering. We make decisions based on economics, and should consider different options for the production profile under different development scenarios, and at each stage assess how changing a particular parameter will affect the system as a whole. For example, we obtain results from drilling the first wells. Those must be immediately taken into account and our estimations should be adjusted. Already at the concept stage we need to know the cost of the project. Unfortunately, this task was not solved in Russia, because we believe that costs can be determined only after the preparation of the estimate documentation.

— So what are you doing?

— We have cost engineering. We create cost models, a software product that allows us to simulate the system as a whole and calculate the NPV [net present value] of the project under a variety of scenarios and reservoir and fluid parameters. This requires a huge number of calculations and a search of millions of options. Such a job can only be fully performed by machines using cognitive technology. System engineering, when we see the entire deposit as a common system, is also associated with a large amount of computation and is inseparable from digital technologies. And system engineering allows us to get the maximum effect from the project. Only at the initial stage, when nothing is built, is it possible to change the parameters so as to achieve optimal results. That is why programs that allow us to work with data at the initial stages of the project, determining the most effective solutions, are so important. When the field is already launched, the value of IT products is significantly reduced, because the opportunities for change are much smaller.

After we have made the concept, we transfer it to the design and estimate institutes. They prepare design and estimate documentation, offer technical solutions. At the same time, we must ensure the adoption of the most correct design solutions. We create the so-called standard technical solutions for this purpose. And we store all these bases of standard solutions and transfer those to design institutes. In future, all this will also be done by machines.

— So the project is ready and production is launched. What’s next?

— We solve several tasks: safety and integrity of equipment, reducing operating costs and increasing oil recovery. A person can not follow all processes and promptly change something in production. This is done by machines. Again, digital technology.

— If we compare Gazprom Neft with world leaders, do you have something to boast of?

— First, I would note our success in developing low-permeability layers. Today, we are developing oil fields, using waterflooding, where layers have a permeability of about 1 millidarcy. This is a unique experience, which is rarely seen in the West. Second, in what I believe we are ahead of Russian companies and on the front line in comparison with the West, is cost engineering and system engineering. The third is certainly digitization. Moreover, I believe that we differ from other companies in terms of digitalization focus. Almost all oil companies, when they talk about digitalization, have in mind a digital oilfield, which implies digitalization of a field in development. All the money for digitalization is invested at the production stage. But where is the value created? As I said, the main value is created at the concept stage. At this stage, a radical efficiency of 50%-100% can be achieved. When you are already implementing a project, efficiency can be changed only by 10%-15%. Virtually no major in the world invests major money in digitalization at the concept stage. This is our competitive advantage.

— Do you need partners in Russia and abroad?

— We surely do. We cooperate with all leading universities in Russia. We try not to lose contact with Western universities, although these ties are currently weakening. We cooperate with all oil companies in Russia and abroad, with which we have joint projects. We have a very large number of contacts with service companies.

— Last year a delegation from Saudi Arabia visited STC. How is cooperation developing today?

— We exchange experience, we think about launching technology projects in Russia and Saudi Arabia. When oil prices plummeted, everyone started thinking about radical efficiency. Recently, our specialists met and held a three-day technical session in four areas: drilling practices, well design and drilling technology, development of reservoirs with low permeability, development of multi-stage fracturing, design. We can work together on these areas.

— Are there any areas particularly of interest to the Saudis?

— For example, they were interested in the methods of conceptual design, the methodology for evaluating the value of information. Geomechanics is also a very important direction. We are the first in the country to create a center for geomechanics. These technologies they can get only from service companies, and we can offer them our experience.

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