RUSSIAN JV WORKOVERS PROLIFERATING

Well remediation is gathering momentum in Russia as more companies apply western technology to idle wells.

Western petroleum technology is being widely hailed as the best way to halt the decline in crude oil production in Russia and other members of the former Soviet Union. More than 20,000 Russian wells are estimated idle, many of which observers say could be returned to service with western know-how.

Progress has been outlined on two significant projects in the Komi and Chechen autonomous republics of Russia:

KomiQuest Ltd., a joint venture of an international group of companies and Komi republic agencies, has used a Russian rig and crew to work over four wells and started producing oil in one of four Vozey area oil fields in the Komi republic.
A Chechen republic delegation led by President Dzhahar Musyavitch Dudaev last month in Houston let a 2 ear contract worth about $100 million to EnForce Energy Corp., San Antonio, covering workover, drilling, and other services in two oil fields north of the Chechen capital of Grozny.

KOMIQUEST WORK

KomiQuest was granted a 25 year license to produce and export new and incremental oil production from South Vozey, West Vozey, South Famen, and Ufimskaya fields in three concession areas covering a combined 345 sq km.

Komiquest activities are to include:

Working over wells to improve oil flow.
Defining new oil prone structures and extending known fields.
Drilling step-out and development wells.

KomiQuest partners in the first year of field work expect to work over 63 wells, achieving incremental oil production of 10,000-30,000 b/d net to the joint venture.

More precise estimates of incremental production will be available after partners have an opportunity to gauge the effect of western technology on wells in the joint venture's concession.

KomiQuest began field work the second week of September. Partners expect to have completed 20-23 workovers by yearend, enough to estimate likely gains. Preliminary results are to be announced by the end of November.

KomiQuest intends to add two more rigs to the workover program, one by the end of November.

Productive formations in Vozey area fields are mainly Devonian with some Permian.

Partners estimate workover costs at $80,000140,000/well.

"The workovers we've done so far have been considerably cheaper because of the Russian rig we're currently using," said Peter G. Jermyn, chairman and chief executive officer of Star Valley Resources Corp., Vancouver.

Star Valley holds a 9.2% interest in Quest Petroleum Exploration Gesellschaft GmbH, KomiQuest operator with 50% interest. Other KomiQuest partners are Komineft production association and Usinsk NGDU, each with 25% interest.

Among others with equity interests in Quest Petroleum are Qatar's Mannai Corp. 62.5% and Australia's Callina NL 22.9%.

KOMIQUEST LOGISTICS

KomiQuest partners by the end of November expect to expand the workover program by adding a A-30 Russian rig modified to western standards. The rig's 3,000 m depth rating is well within what is needed to work over wells in joint venture fields, Jermyn said.

He estimated the second rig will be able to complete a workover in 4-5 days, less than half the 10 days needed for the rig currently operating there. International crews led by western engineers with arctic experience will operate the second unit.

KomiQuest plans to add a third rig -either a second modified unit or a western rig-so the program during the year will be running a minimum of three rigs.

Jermyn said Komi Republic has a well developed infrastructure of railways and oil and gas pipelines, as well as ports on the Baltic, White, and Barents seas.

A 400,000 b/d oil pipeline operating at about half capacity is "literally right at our front door," he said. So KomiQuest partners won't have to develop infrastructure to begin transporting production to markets.

Jermyn said the joint venture has a contract to sell its first 5,000 tons of incremental oil. That volume will build as more wells are brought on stream.

KOMIQUEST BACKGROUND

KomiQuest was registered officially June 23, 1992, following approval on Dec. 30, 1991, by the Komi parliament.

In February 1992, Mannai Corp. acquired 62.5% of Quest Petroleum, investing $10 million in the Komi project and $1 million to pursue a similar joint venture in Kazakhstan. Quest expects the latter deal to be concluded by yearend.

Callina and Star Valley were founding Quest Petroleum shareholders in August 1991. Other interests aren't disclosed.

KomiQuest partners estimate the cost of producing a barrel of incremental oil selling for $20/bbl from fields on joint venture acreage will average about $12.10/bbl, including a $5/bbl export tax. Other estimated costs are $3/bbl production costs, $2/bbl for a 10% royalty, $1.50/bbl pipeline tariff, 10/bbl for 0.5% pipeline loss.

ACTIVITY IN CHECHEN

EnForce's estimate of the contract value includes costs of working over 50 idle deep wells, drilling seven directional wells, building a compressor station for gas lift, and studying reservoir engineering parameters to design enhanced recovery programs.

The 50 wells to be worked over have been shut in because of equipment failures and casing and tubing problems among other limitations.

EnForce expects to begin in January the first of 10 workovers in Khayankort oil field. The seven new wells are to be drilled in Goyt-Kort oil field, where a handful of wells are producing under gas lift. Goyt-Kort field also is the site where EnForce is to help install the new compressor.

Based on results during the first 2 year service contract, Chechen oil and gas officials could add more workovers, new drilling, and related projects to EnForce's deal.

EnForce and Chechen presently are culling data from other fields seeking candidates for future joint venture work. Possibilities seem numerous.

Chechen, between the Caspian and Black seas, has seen more than 1,000 wells, mostly deep by former Soviet standards, drilled in more than 100 producing oil fields. Most of the republic's 340,000 b/d of oil production comes from fewer than 10 of the largest developments.

Chechen's oil production peaked in 1972 at about 440,000 b/d. Most oil production is from Mesozoic pay, typically at depths of about 16,400-19,700 ft. Shallower Miocene strata also are productive. The deep formations feature reservoir temperatures of more than 200 C. and reservoir pressures of more than 1,000 psi.

QUOTAS TOO HIGH

The seven wells EnForce is to drill under the first 2 year service contract are expected to produce 146-219 b/d of oil from Miocene at 14,764-16,404 ft true vertical depth.

Frank Nigrelle, vice chairman of EnForce, said that under the old centrally planned economy, Soviet oil and gas industry officials routinely set Chechen's production quotas too high for the number of wells in the republic. Consequently, all wells were overproduced.

"The reservoirs are not damaged, but some of the shallow wells in the Miocene sands are damaged," Nigrelle said. "We think there are a lot of oil reserves still in place, because when a well is pumped too fast like that and pulled to water, you basically damage the wellbore, not the reservoir."

The same logic leads Nigrelle to believe Chechen also will offer many opportunities to drill new Miocene wells.

BENEFIT TO CHECHEN

Chechen was the only oil province in the former Soviet Union with such a combination of depth, high temperatures, and high pressures.

While Chechen was part of the Soviet Union, oil extraction, refining, and processing was controlled by a Soviet oil amalgamation. Today, the republic's Ministry of Oil & Chemical Industries overseas oil and gas operations.

Dudaev said western technology acquired through the service contract with EnForce should help increase significantly the republic's oil production. Activity is expected eventually to spread to include oil and gas exploration and helping Chechen revitalize its refining sector.

Dudaev said cooperation in other areas likely will develop more quickly with the EnForce service agreement in place.

Dudaev said Chechen intends to expand its refinery capacity to 700,000 b/d from 540,000 b/d, with a focus on domestic consumption. The government will retain its monopoly in aircraft lubricants, turbine jet fuel, diesel oil, and other motor oil.

About 200,000 b/d of refining capacity is idle, mainly because of insufficient feedstock. Dudaev said Chechen will begin next year increasing refinery activity toward full utilization.

"By this time next year, all idle refining capacity will be in use," he said.

Chechen will not await growing production from its own oil fields to begin increasing throughput at refineries. The republic's location allows reasonable reliance on oil imports, Dudaev added.