BP predicts escalating TNK-BP production

By Paula Dittrick
Senior Staff Writer
HOUSTON, Oct. 17 -- BP PLC expects that its Russia investment will provide improving earnings and escalating production rates, adding that TNK-BP's production will be accretive even if the Brent crude oil price were to drop to $16/bbl.

Along with Russian partners the Alfa Group and Access-Renova (AAR), BP formed TNK-BP, a company owned and managed 50:50 by BP and AAR. TNK-BP, which has been operating for 6 weeks, is Russia's third biggest oil and natural gas company (OGJ, Feb. 17, 2003, p. 34).

In addition, BP and AAR agreed to incorporate AAR's 50% interest in OAO Slavneft into TNK-BP (OGJ, Sept. 8, 2003, p. 36). Between those two transactions, BP has invested about $8 billion in Russia.

Previously, BP completed a transaction with AAR to increase its stake in Sidanco (OGJ, Apr. 29, 2002, p. 37).

Production
BP's Chief Executive John Browne told reporters and analysts Thursday that TNK-BP's first half 2003 oil production averaged 1.2 million b/d. He expects it will rise by 12-14% this year, decrease to 7% growth in 2004, and then hold at about 5% annual growth.

"Cash flows have been reinvested at a rate of approximately 30% over the period 2001 to the first half of 2003. Capital spend has averaged around $850 million a year. TNK-BP expects to increase this rate to around $1 billion or so over the near term—putting over 70% in the exploration and production area," Browne said.

He said TNK-BP will represent some 11% of BP's proven oil and gas reserves and 3% of its capital deployed. TNK-BP is expected to account for about 15% of BP's total production, he said.

Browne said that Russian President Vladimir Putin promised to help provide the necessary tax incentives so that TNK-BP can produce more oil. "The risks are lower than perhaps in other countries," Browne said.

Climbing reserve estimates
TNK-BP has estimated proven oil reserves of 4.1 billion bbl as defined by the US Securities and Exchange Commission (SEC). This accounts only for volumes that can be produced by the time current field licenses expire.

But the estimate more than doubles to 9.4 billion bbl based on Society of Petroleum Engineers' criteria, which accounts for production that can be recovered during full field life. TNK-BP has asked the Russian parliament to extend its field licenses.

"On top of these numbers, we believe there are an additional 21.4 billion bbl of resources," Browne said.

Browne said he was confident that BP paid an "appropriate price" for its share of the assets, adding that BP spent 40,000 man-hrs examining the operational, technical, legal, and environmental aspects of TNK before making the investment.

The price paid for the estimated SEC-defined reserves was $4/bbl, significantly less than the $5.80/bbl in the YukosSibneft merger (OGJ Online, Oct. 3, 2003). On an SPE basis, the price was $1.70/bbl, Browne said.

"It is interesting to note that in the period since our transaction was announced, Russian energy stocks have increased in value by over 40%," Brown said.

Future TNK-BP operations
TNK-BP has three strategic priorities: convert resources to reserves to production; margin enhancement of its downstream assets; and develop natural gas, said Robert Dudley, TNK-BP CEO.

Currently, TNK-BP's top five fields represent 50% of the company's total oil production, Dudley said. Sources of production growth will include waterflood optimization, hydraulic fracturing, idle well reactivation, and electric submersible pumps, he said.

"Great opportunity exists through waterflood alone," Dudley said. He said TNK-BP's top five fields have 74 billion boe of OOIP. Those fields currently have a 25% recovery factor but Dudley believes the recovery factor will reach 30% through the proved developed stage with upside potential of 39-44% ultimate recovery.

In comparison, Alaska's Prudhoe Bay has a current recover factory of 44% with a 53% recovery factor through proved developed stage and upside potential of 56-61% ultimate recovery.

Dudley said Samotlor field in the West Siberian basin was similar to Prudhoe Bay in terms of waterflood opportunities, adding that Samotlor field (south and north) is the third largest oil field discovered, twice as big as Prudhoe Bay.

TNK-BP is evaluating idle well reactivation, infill drilling, and increased recovery potential in Samotlor, he said. Its 2002 production averaged 465,000 b/d.

The company said Ryabchik is a brown-field development behind pipe in Samotlor. Ryabchik has a 1 billion bbl reserve potential although it is in primary depletion with low recovery rates. A pilot is under way using BP's waterflood expertise in this shallow, largely undeveloped area.

Dudley said Western expertise might be able to reactive an unknown number of thousands of idle wells. For instance, Samotlor and Talinskoye fields have 8,000 idle wells.

In Khokhryakovskoye field, TNK-BP is reconfiguring a waterflood program to reverse a production decline, Dudley said. That field produced an average of 65,000 b/d in 2002. Khokhryakovskoye field, in the northern Vasyugan region of the West Siberian basin, was discovered in 1972.

Natural gas
"Russia is one of the last great hydrocarbon provinces of the world," Dudley said, adding Russia is the world's largest holder of gas reserves.

BP-TNK holds 40% of Rospan gas field in West Siberia. Dudley said BP-TNK will first focus on developing Rospan. Meanwhile, BP-TNK is examining its long-term opportunities to access international gas markets.

"We are looking for ways to cooperate with (OAO) Gazprom" in gas development, Dudley said.
Contact Paula Dittrick at paulad@ogjonline.com

Related Articles

EIA: US oil output fell 50,000 b/d in May

07/07/2015 Total US crude oil production dropped 50,000 b/d in May compared with April and is expected to continue falling through early 2016 before growth re...

Obama urged by IPAA president to lift ban on US crude exports

07/07/2015 Commending the administration for its actions allowing some condensate to be exported as a petroleum product, Independent Petroleum Association of ...

Cidade de Itaguai FPSO anchors in Lula field

07/07/2015 Petroleo Brasileiro SA (Petrobras) reported that the Cidade de Itaguai floating production, storage, and offloading vessel has arrived at the Irace...

AER shuts in 16 Murphy Oil sites in Peace River region for noncompliance

07/07/2015 Alberta Energy Regulator said it has shut in or partially shut in 16 sites operated by Murphy Oil Co. Ltd. in the Peace River region. The sites wer...

MARKET WATCH: NYMEX, Brent oil prices take dive on world oil oversupply concerns

07/07/2015 US light, sweet crude oil prices plummeted more than $4/bbl on the New York market July 6, marking a 5-month low, while Brent crude oil prices on t...

WAFWA: Aerial survey finds lesser prairie chicken population grew

07/06/2015 A recent range-wide aerial survey found the lesser prairie chicken population rose 25% from 2014 to 2015, the Western Association of Fish & Wil...

Production ramps up from Sunrise oil sands project

07/06/2015 Husky Energy Inc., Calgary, reported that 25 well pairs are now on production at its Sunrise oil sands project in northeastern Alberta. Steaming is...

Buru awarded onshore Canning licenses

07/06/2015 Buru Energy Ltd., Perth, and Mitsubish Corp. have been granted two production licenses for Ungani oil field in the onshore Canning basin of Western...

Cenovus sells royalty business for $3.3 billion

07/06/2015 Cenovus Energy Inc., Calgary, inked an agreement to sell its wholly owned subsidiary Heritage Royalty LP to Ontario Teachers’ Pension Plan for gros...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts

On Demand

OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected