September 16, 2016 / 1:06 PM / a year ago

Russia's GazpromNeft to start Messoyakha oil in weeks

MOSCOW (Reuters) - Russia’s GazpromNeft (SIBN.MM), the oil arm of state gas firm Gazprom, plans to launch its Messoyakha oil field within weeks, a senior executive said, adding to its own fast-growing production and contributing to a global glut.

Vadim Yakovlev, Gazprom Neft first deputy chief executive, attends an interview at the Reuters Russia Investment summit in Moscow, Russia, September 16, 2016. REUTERS/Sergei Karpukhin

Messoyakha, in the Russian Arctic, will produce 0.6 million tonnes of oil this year. It will target 3 million tonnes in 2017 and reach 5.5 million by 2020 (60,000 barrels per day to 110,000 bpd respectively) .

Russia - the world’s top oil producer - is expected to end this year with production of close to 547 million tonnes, or almost 11 million bpd, which would be a post-Soviet record.

Russia’s level of production suggests realizing plans for a global deal on freezing crude output, in order to prop up world crude prices, will be difficult.

“We became the world champions in Arctic production. Our projects - Prirazlomnoye, Novy Port, Messoyakha -- are the only ones on the pedestal,” Vadim Yakovlev, first deputy chief executive at GazpromNeft, told the Reuters Russia Investment Summit.

“We will start shipments (from Messoyakha) in the nearest future, there are weeks left.”

Messoyakha, which is being developed in conjunction with state oil major Rosneft (ROSN.MM), will add to GazpromNeft’s own companywide production, seen at 59 million tonnes of liquid hydrocarbons this year and rising to 62 million tonnes next year, which is more than OPEC member Algeria is producing.

Yakovlev said output at Novy Port field, another of GazpromNeft’s Arctic permits, was seen at around 5 million tonnes next year, rising to 6 million in 2018, with that level seen stable for no less than 7 years.

However, the period of plateau output may be extended while the target for volumes could be increased to up to 8 million tonnes a year, depending on additional exploration and the logistics of oil shipments from the field, Yakovlev said.

Vadim Yakovlev, Gazprom Neft first deputy chief executive, attends an interview at the Reuters Russia Investment summit in Moscow, Russia, September 16, 2016. REUTERS/Sergei Karpukhin

FISH BONES

GazpromNeft was put under western sanctions over Moscow’s role in the Ukraine crisis, which limited its access to western funding and technologies. But oil production, both for GazpromNeft and Russia as a while, is rising, in part because of a weak rouble currency.

GazpromNeft production costs are at around $3.5 per barrel, Yakovlev said, with the average cost of a standard horizontal well at around $1.5 million.

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“This is very competitive for the industry. When we give this figures to American oilmen they are very surprised,” Yakovlev said.

Horizontal wells, which account for around 40 percent of GazpromNeft’s total wells, allow oil firms to unlock complicated geological layers of a field, and were behind the shale oil revolution in the United States.

Novy Port and Messoyakha are largely drilled by horizontal wells. At Messoyakha, in particular, GazpromNeft is also using a network of complicated horizontal wells with a structure that resembles fish bones.

Yakovlev said that this technology alone would allow GazpromNeft to extract around 60-70 million tonnes of the reserves at the field.

“Lowering production would not be economically viable for us. We are producing at a profit,” Yakovlev said. “There are a lot of reserves (globally) which could be put into exploration additionally and produce oil even at current oil prices.”

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Additional reporting by Natalia Chumakova, Alla Afanasyeva and Alexander Ershov; editing by Christian Lowe and William Hardy

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