CONOCO VENTURE PLACES RUSSIAN OIL FIELD ON LINE

Commercial production has begun in the first major Russian oil field developed by a Russian-U.S. joint venture (JV).

Polar Lights, a 50-50 venture of Conoco Inc. and Russia's Arkhangelskgeologia (AG) geological enterprise, has started producing oil from Ardalin field.

Ardalin lies on a block of about 378,000 sq miles in the Timan Pechora basin. Site is in Nenets autonomous okrug, north of the Arctic Circle and about 1,000 miles northeast of Moscow. The license area also is west of the Ural Mountains and about 75 miles south of the Barents Sea.

Oil from the first Ardalin wells is being gathered at a 25,000 b/d oil processing center. In addition to oil handling and treating facilities, the center has modular housing for employees; power generation, potable water, and sewage treatment facilities; telecommunications equipment; and other components needed to keep Ardalin operational year-round in the harsh arctic environment.

AG General Director Anatoly Kazakov at a ceremony commemorating the project acknowledged the historical significance of the first large Russian field developed in partnership with a U.S. company.

"Hopefully, we have paved the way for additional foreign investment in Russia's petroleum sector," he said.

Conoco Pres. and Chief Executive Officer Constantine S. Nicandros said Ardalin field was placed on stream on schedule and within budget.

Nicandros said, "Polar Lights is the first Russian-American petroleum development partnership to work under a worldwide microscope, watched by many skeptics--many of whom I presume now are former skeptics."

The JV's spending of about $375 million in the first 2-1/2 years of development is the largest single western investment so far in Russia's petroleum sector. About $80 million went to more than 160 Russian suppliers for goods and services.

"For those who doubt the feasibility of investing in Russia, the Polar Lights project is graphic proof of the viability of such investments," said Russian Minister of Fuel & Energy Yuriy Shafranik.

He added that Russian and American oil field specialists should be credited with taking a big step forward in development of the Russian oil industry.

ARDALIN FIELD DETAILS

Polar Lights' JV area contains four fields--Ardalin, Oshkotin, Kolva, and Dyusushev--known collectively as the Ardalin complex.

Ardalin is the largest of the four, with recoverable reserves estimated at more than 110 million bbl. Oil in place is estimated at 287 million bbl.

With combined recoverable reserves estimated at 20 million bbl, other fields on the acreage also might be developed.

Ardalin production is expected to peak at 25,000 b/d in 1996. Ardalin field components include equipment to handle 15,000 b/d of produced water, as well as facilities capable of injecting as much as 50,000 b/d of water into the reservoir.

AG discovered Ardalin in 1988, but the field was never developed. As a result, Polar Lights literally had to install field infrastructure from the ground up.

Thirty-one wells are operating in Ardalin field, including 11 oil production and 13 water injection wells drilled by the JV. Ardalin partners also worked over three Russian wildcat wells for oil production and drilled four water supply wells.

Ardalin produces 33.5 gravity oil from about 10 sq km of upper Devonian Famennian carbonate strata at about 3,200 m. Measured depths of the field's oil wells are 3,500-4,000 m.

The Ardalin processing center includes one 10,000 bbl storage tank for diesel fuel and four 10,000 bbl tanks for crude oil.

To protect the JV area's tundra, Polar Lights installed drilling rigs and equipment, living quarters, and support facilities on raised earthen pads 2-3 m thick. Altogether, partners built three multiwell drilling pads and three single well pads. Construction took place during the winter when ice and snow cover and protect the surface.

Polar Lights employed more than 1,000 workers, most of them Russian, in development activity.

ARDALIN PIPELINE

To transport Ardalin oil to Russia's crude oil pipeline system, Polar Lights laid a 40 mile, 12 in., above ground, insulated pipeline across the tundra.

Present capacity of the pipeline is 30,000 b/d, but its design allows expansion to as much as 80,000 b/d.

Polar lights but the Ardalin line on 4,820 vertical support members spaced about 17 m apart. The line's 400 m span across the Kolva River is suspended from a highway bridge.

The pipeline's design includes 151 expansion loops, four reindeer crossings, 10 road crossings, nine s crossings, and four block valves.

The pipeline connects Ardalin with the Komineft oil pipeline in Kharyaga field to the southwest. Ardalin oil is to flow by way of the Komineft pipeline to a southbound oil trunk line for delivery into Russia's main pipeline system. With four 10,000 bbl storage tanks, Kharyaga oil terminal can transfer as much as 30,000 b/d of oil.

Preliminary Ardalin pipeline construction began in December 1992, while drilling and hook-up of the production facilities started in mid-1993.

In addition to development of Ardalin complex fields, Conoco and AG are pursuing the possibility of developing other fields in Tin-tan Pechora's Northern area. Northern area fields--Khilchuyu, Yuzhno Khilchuyu, Yareiyu, and Inzerer--hold combined recoverable reserves estimated at more than 1 billion bbl.

Polar Lights partners estimate initial development cost of Yuzhno Khilchuyu, including construction of related infrastructure, at almost $1 billion.

Meantime, Conoco, AG, and several other companies continue studying the possibility of building a crude oil terminal at an undisclosed site on the Barents Sea. The terminal would provide Russia with an export capability in an area believed rich in petroleum reserves. However, the construction project,if approved, could cost another $2 billion.

As a result of development in the Polar Lights area, Russian officials expect more than $1 billion in taxes, royalties and other income to flow to federal agencies in Moscow and to local governments, including Nenets autonomous okrug.

If Conoco and AG agree to develop Timan Pechora's Northern area and the Barents Sea export terminal gets a go-ahead, taxes, royalties, and related income accruing to local and federal Russian governmental agencies could amount to as much as $6.8 billion.