Interview of Mars Khasanov ”Innovations from a Well”

How to maintain technological leadership in the industry, what the efficient corporate R&D is about, and why digitalization for digitalization’s sake is impractical? Mars Khasanov, Director of Technology at Gazprom Neft and CEO of the company’s Science and Technology Center is sharing his vews with Stimul.

Stimul - a journal dedicated to innovations in Russia

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Mars Khasanov is one of Russia’s leading oil industry experts. Since 2011 he has been Director of Technology at Gazprom Neft, and he also runs the Company’s Science and Technology Center (STC) that celebrated its 11th anniversary on November 15, 2018. It is largely due to his efforts that Russian market players now call Gazprom Neft one of the most technologically advanced oil companies.

In addition to being a successful top manager, Mars Khasanov has a vast academic experience. His research mainly focuses on simulation, monitoring and control of the movement of multiphase media with nonlinear properties, as well as development of IT solutions to support the design and monitoring of oilfield development processes. He has discovered the principles of transition to chaos in non-Newtonian movement, as well as the space and time fractality in oil production processes. His engineering methods and software products designed under his guidance were employed during the design and development of Russia’s major oil fields, including Priobskoye, Prirazlomnoye, Messoyakha and Novy Port projects, known as the largest new field in Russia that went into commercial operation in recent years.

– What are the key premises Gazprom Neft’s technological development strategy adopted in 2014 was built on?

– The main premise was business requirements. All the reserves that were discovered and developed in the Soviet era are gradually depleting. Now both our company and the oil industry in general are facing a challenge of developing new classes of oil and gas reserves and reaching out into new regions. In this context, we are now have several missions to accomplish. One of them is to increase oil recovery at the developed blocks. The other one is to begin developing new blocks and regions, where flow properties of the rock are sometimes significantly inferior to those of conventional plays. The only way to develop these hard-to-recover reserves in a commercially viable manner is to employ new approaches and technologies. What is more, when we say new technologies, we mean not just new materials and equipment, but also new methods of work flow management and engineering analysis.

While formulating the technological strategy, we highlighted several subjects that could tip the balance across the industry. This is how we laid down the nine focal areas of the strategy. Bearing in mind the current challenges and the ones we saw looming on the horizon in the next ten years, we decided to bring our approach to technological development up to date in 2014 and incorporated it into the technological strategy. This is a fairly ambitious strategy: in the outlook until 2025, we expect to add over 100 mln tons of additional reserves to our development portfolio and save over 100 bln rubles in costs.

– It has been four years since your technological development strategy came into force. Now it is now time to draw the first conclusions. What are they?

– On top of high-priority tasks, our technological strategy also implied building the company’s technological development management system. In this regard, the ultimate goal is to secure continued development of innovation culture, so that every employee will become an innovator, inventor, a creative individual, and to set up a system that will readily pick up every practical idea, combine it with other ideas and use this blend to develop innovative practices and technologies.

What is more, in this relatively short time we have already been able to devise comprehensive development programs in all nine focal areas of the strategy, and they are in fact a sort of mini-strategies. We used these to launch around 150 technological projects, some of which have already brought us measurable results, most notably in the construction of high-tech wells with extensive horizontal tracks.

– Are you planning to fine tune your technological strategy?

– We are updating it right now, and this will be our Technological Strategy 2.0. There will be no major changes, but we would like to focus more on multifunctional projects. They must simultaneously address the problems of innovative materials and digital technologies and promote the optimization of oil production processes and enhancement of oil recovery, exploration and effective well construction. The intent of this initiative is to get meaningful results in the form of better economics of field development.

– You said you want every one of your employees to be creative. Doesn’t that scare you? Engineering experiments are not always successful.

– I was talking about creative thinking, not creative doing. Every idea must be put to a test. We have a robust system for collecting and evaluating ideas, where every idea is examined by subject matter experts. If they find it interesting, the person who proposed it will be given a team or funding to put that idea into action.

– How do you reward the innovator?

– There is a small bonus, of course, but the most important benefit is recognition and an opportunity for personal fulfillment, a chance to climb up the social ladder.

Nontraditional interests

– The projects that you mentioned – do you carry them out chiefly within the STC or do you outsource them?

– We choose to work in accordance with the trigger-and-bullet principle: you pull the trigger with a soft touch of your finger, and this produces a loud blast with a bullet flying a long way out. We realize that we will not be able to handle the ever-growing host of problems on our own and will have to draw on the full scope of scientific resources available both in Russia and globally. The success of our technological strategy will depend on whether or not we are able to call on a large number of innovators to work on our challenges, and whether or not we can effectively communicate with them.

Simply stating the problem is not enough. Outsourced engineers left to their own devices are unlikely to deliver the products you expect from them. Only close collaboration can result in something useful. We need to work closely with them, and at the initial phases of problem statement and goal setting out involvement must be very active. Lining up management of such complex projects is akin to art work.

– Can you name your key partners in these joint projects?

– These are service companies and universities. The examples of Russian partner universities include the Lomonosov Moscow State UniversityMoscow Institute of Physics and TechnologySt. Petersburg State UniversitySt. Petersburg Polytechnic University and Tyumen State University, all of which have an extensive background in mathematics, physics, technology and engineering. Our cooperation with them is on a wide scale. We are currently running almost 80 research and development projects together with a number of academic facilities, annually investing in them around 350 mln rubles. Additionally, close to 100 students do an internship at our STC.

– Do you work with startups?

– Of course we do. We want to make partnerships with every research facility, big or small innovation team engaged in the areas of our interest, and to understand their competencies. The mentioned areas of interest cover more than just the traditional aspects of oil industry: they include a number of domains that are not directly related to it, such as physical effects and fields, innovative materials and new mathematical modeling techniques. We are thinking of ways to draw some unorthodox and breakthrough ideas that emerge in other industries into the oil sector, and we push others to do the same.

– I have dealt with many startups. Their chief complaint with regard to the oil industry is that this industry is not very enthusiastic about innovations, and that often it’s easier to realize innovations abroad rather than negotiating with domestic oil producers. What is the recommended course of action for the startups that want to work with you?

– There are a handful of myths surrounding the oil industry. And I do not know of any objectively useful startups that we would not listen to. We always use the ideas that are truly interesting and practicable. Still, with all due respect to innovation companies, their technologies are never complete: most of the time they are nothing but concepts. Start-uppers, physicists and mathematicians think that they’ve come up with a brilliant idea, but we understand all the constraints that will make it a “no go”. Ideas and solutions need refining, and it often takes a lot of time and effort. When you point this out, some people choose to turn around and leave. What start-uppers need is to be open to criticism and learn to take advice from their business partner, be able to alter their product quickly and creatively together with the partner.

Then again, we often get to see some pseudo-discoveries, such as explosive well stimulation methods. They say, “Hydraulic fracturing is expensive and must be replaced; let’s use explosives.” What they do not see is that oil industry is extremely sensitive when it comes to safety, and explosions in a well are not the best idea. One of the strong points of our company is that we have many physicists who have a clear understanding of the processes, the forces that govern them and the effects they produce. They can often say at a glance whether the idea is realistic or not.

– Why did Gazprom Neft choose to establish an in-house Science and Technology Center instead of seeking support from service contractors?

– We at STC pursue the same goals as all the leading oil producers worldwide. Activities such as development of geological models and field management concepts have always been performed by oil producers on their own instead of outsourcing them. This effort accounts for roughly 70% of our total work load. Furthermore, oil companies do not rely on outsourcing when developing their technological development strategies, procuring R&D and engineering services and accepting their products. When you want to play the customer’s role, you will need many experts within your company, because one person cannot coordinate with a hundred institutions.

Besides, all oil producers have in-house research laboratories working on things that may become know-how and secure their competitiveness. If you outsource this function to third-party designers, they will complete the job and rush to sell it to somebody else, and you will lose your competitive edge. The list of such priority areas includes digital solutions for the formulation and making investment decisions and for management of investment project portfolios. We develop these solutions on our own because they are our know-how and determine our company’s efficiency and competitive advantage.

What is more, STC runs a Drilling Management Center that operates round-the-clock with four work shifts, two of which are tasked to continuously update geological models of wells and two are in charge of updating the engineering calculations. In 2018, Drilling Management Center has provided support during the construction of over 850 wells, which accounts for all the high-tech wells drilled by our company this year. Today we employ around one thousand people.

Optimum must be global

– Among the experts working at STC you named mathematicians and physicists, but at which point, while choosing a technology, does economics come into play?

– Economics is involved in each and every phase. Some Russian oil companies make a huge mistake when they first design a process flow, for example, for a field development project, and later begin evaluating its economic viability. This is the wrong way of doing things, because when you are putting together a process flow, you are constantly optimizing it. You need to choose the optimal length of horizontal wellbore, well spacing, drilling tempo and throughput capacity of your surface facilities.

From the economic standpoint, your optimum must be global - must go across the board. If you first make a choice driven by your experience and intuition and then start counting the money, you might be able to determine whether or not the project can be unprofitable. Still, you will never be able to guarantee that this project will bring you maximum possible profits. This is why when we develop a new oil field, we introduce economics from the very beginning and look into its development from all dimensions; in addition to the cost of drilling and production, we also consider all the infrastructure costs that are crucial for picking certain solutions.

In the past, this used to be a minor aspect, because the cost of infrastructure in the budget was insignificant due to the shear scale of oil fields. Today, as we move towards smaller fields, which are half the size or even smaller, compared to the ones we developed in the middle of the last century, the situation is changing drastically. You can try optimizing your performance at the operation stage, but this will only increase your efficiency by some 10-15%. On the other hand, at the concept stage, you can add as much as 50-90% to the efficiency and cut the costs or increase yield exponentially. We, too, eventually learned how to calculate efficiency with a much higher accuracy.

– Which of your current projects do you find most impressive and successful?

– First and foremost, I have to highlight our achievements in construction of high-tech horizontal wells, including wells with ratholes and multifrac wells. These jobs call for an array of design, support and geonavigation solutions.

The second source of our pride is the ASP project – our alkaline-surfactant-polymer flooding project delivered in association with Salym Petroleum Development. Surfactants are surface active compounds that produce soap-like foam. A surfactant-based mixture is injected into formation at mature fields to enhance oil recovery. Many people had no faith in this technology because surfactants failed to prove their viability in the Soviet period. At first, surfactants make a lot of noise, and they almost built two factories to produce these compounds in Bashkortostan, but this idea got them nowhere after they discovered that surfactants would deposit on the surface of porous materials. And now we have new generations of surfactants. Jointly with our partners, we managed to synthesize 11 new formulations and carried out full-scale field experiments. These tests demonstrated a 17% rise in oil recovery factor. So, if we can extract only 50% of oil from a reservoir using conventional techniques, surfactants boost this factor to 70%, which gives us a massive total increment in absolute terms. The effect of using this technology within the perimeter of Gazprom Neft totals some 250 mln tons of incremental oil production.

Another area that we are specifically proud of includes our digitalization projects. We initiated these projects in 2012, long before the word “digitalization” became trendy. This domain got the name of “ERA”, which stands for “electronic asset development” in Russian. This area is extremely important to us. Oil producer does not build wells on its own – our contractors do this for us. Our main concern is to make the best investment decisions, and this requires handling huge amounts of data (Science and Technology Center alone generates almost half a terabyte of data daily), meticulously analyzing it and building high-precision models. To make this possible, we build a digital twin of an oil field at the exploration stage and work with this digital twin further on from concept development to oil production in an attempt to improve the model.

Over the past years, we have designed an entire ecosystem of proprietary software products that operate within a single infosphere. We started with data, and now we have a fully digitized user-friendly database with its own management tools. Then we set up computerized workstations for our geologists, design engineers who devise reservoir management techniques, and concept engineers who formulate field development concepts. These solutions feature 50% unique working procedures, completely unique code, user-friendly interface and a direct link to our database. Today, we are working on developing this ecosystem. For example, the Cognitive Geologist project involves designing a self-teaching model of a geological feature. It will help us cut the time required for data analysis from two years to several months, consider thousands of possible field development scenarios and choose the best one.

Our ultimate goal is to develop a single platform built on our corporate database to which we could add our proprietary and third-party applications. And we are working towards this goal. There are a number of platform solutions of this kind offered by different service companies, but if we start using one of them, we will never be able to get off the hook. We want to be independent. Furthermore, many of these solutions are owned by western companies, and this implies potential risks for us.

– I see you have many achievements, but have you had any failures?

– We do not make unrealistic plans. This is why you can’t really say that we made a mistake by choosing any specific focal area for our strategy that resulted in a major failure.

Still, the trial and error phase is all but natural for any R&D project. No one can have a guaranteed victory in any business, especially when this business is about inventing something new. For example, we once started designing a new hydraulic fracturing technology together with an innovation company. It was an interesting and promising technology and we learned many lessons from that project: we stumbled and fell a lot at first, but in the end we scored success and made this technology reproducible. However, we were unable to replicate it on a large scale because it turned out to be extremely expensive: the unit cost of oil that you could produce using that technology was higher than the cost of conventionally produced oil. That project made us realize once again that when you design something new, you have to think about wide-scale deployment from the very start and look into the economic requirements from day one.

– Do you see any jobs of functions that can be completely ousted by automated systems?

– I don’t really believe in that, because it is simply cheaper not to do it. Automation is not a goal in itself, and many businesses forget that amid the worldwide hype of digitalization. What we pursue is not digitalization but enhancement of labor productivity and industrial efficiency. Will we save much by making our drilling processes fully automatic and getting rid of the supervisor who makes all the decisions? The answer is no. Compared to other cost elements in oil production, human labor expenses are almost insignificant. On the other hand there are operations associated with risks, such as firefighting. This is where using robots instead of people is worth the cost. Human labor takes only a small share of the cost, but human life is priceless.

When it comes to automation, one should try to strike a reasonable balance. In my opinion, this balance is achieved by building effective man-machine dialog systems in which man makes decisions and machine executes them, i.e. does all the menial work including calculations, information retrieval and linking of data streams.

Hitting the invisible target

– You focus a lot on oil production simulation. What are the basic challenges here?

– The main challenge is that we do not see the things we are trying to simulate. An oil field is a huge object, dozens of kilometers in diameter; it usually has around 50 different formations in it, and the thickness of these formations may be as small as several meters these days. Some of them have water, and others – oil or gas. And they all occur at the depth of several kilometers underground.

At the exploration stage, we take seismic reflection shots and drill ten prospecting wells. These are 20 cm holes drilled at a distance of 3 km from each other. They give us some idea of what exactly lies beneath the surface, but this is just a rough idea. During the seismic survey, we produce sound waves that refract and reflect from numerous layers of rock. We then need to analyze huge data volumes to acquire an accurate image and identify which wave reflected from which material. Besides, you need to understand that the image we get is only a sketch, in many instances a random one. If we located our sensors or receivers differently, this image could also be different. The seismic profile that we draw may wander up to 20 meters off the object’s true location in both directions, while the formation that we intend to drill to may be as thin as 5 meters; after hitting it, we drill through the formation horizontally for over a kilometer, and the formation may be broken and irregular, with different depths in different locations. Amid all these uncertainties, we dare to start developing the deposit and thus assume heavy responsibility, because construction of the required infrastructure and drilling cost a lot of money, and it is our task to recover these costs. And we succeed every time, or else we simply choose to discard the project.

We try to improve our models all the time, making them ever more accurate to guarantee continued cost reduction. Most of the data we acquire is circumstantial, and it is very important that we interpret such data correctly and look for possible correlations. To this end, we use machine learning systems capable of handling humongous data arrays that no man would be able to process. We have already designed our own tools that employ artificial intelligence technologies. They help us choose the best field development solutions from the perspective of both reservoir geology and economics and enable forecasting of accurate drilling trajectory that will keep us inside the productive formation.

– You have vast research experience. Are you currently involved in any independent research projects?

– Yes, I am, but such research efforts are handled by a team with distributed functions. I used to do it all on my own before, but I do not do the actual calculations any more. Working with my partners, we analyze problems, formulate objectives and only then proceed to analyzing the results of calculations performed by our young fellows.

– Is it true that you have automated the research publication monitoring function?

– It is true, and this is yet another opportunity for me to stick to science. All I need to do is specify my areas of interest, and a bot sends 3 to 5 magazine articles and conference reports to my e-mail every day. This way I can keep abreast of all the news, and the information I get often becomes the starting point for new ideas and developments.

I believe that the traditional working practice where publications issue abstract journals and patent search is tasked to dedicated specialists is the wrong way to do it. Patent search is the author’s job; before presenting the invention formula, the author must become fully aware of the current situation in the area of interest. Could you really delegate this function to some patent section specialist?

– How would you compare Gazprom Neft’s technological maturity with that of other Russian and international oil producers?

– Technological maturity does not imply capability to design all the technologies on your own. As I see it, technological maturity is when you know all the technologies that exist, understand how and when to use them, and have access to these technologies. If you do not possess any given technology, then you find colleagues, business and academic partners and have them help you create what you need. Now if you take this definition as a premise, we are indeed a technologically mature company.

– Do the sanctions affect your business?

– Sanctions can only narrow down the circle of potential partners, but they certainly have no impact on our maturity because we know for sure which technologies exist on the global market. And if we do not see an easy way to obtain these technologies, we start looking for companies that are willing to work with us in the current environment, or to develop such technologies in Russia.

– At the beginning of this interview, I was intrigued by your statement concerning the introduction of new work flow management methods. What changes could be made in such a seemingly mature industry as oil production where all the roles have long been outlined?

– First of all, we need to introduce system engineering, which implies analysis of an oil field as a system, including its physical and economic parameters. This practice must consider how the decisions are made, how engineering calculations influence these decisions, and how you can evaluate the project’s economics, even if the evaluation is approximate, at the pre-investment phase of the project with barely any knowledge of the parameters. Systems engineering is very important because it allows maximizing the benefits the project may bring.

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