VERKHNECHONSKOYE OILFIELD, Russia - It's very cold, very old and rather salty. And that's just the oil.
Russian oil major TNK-BP has just brought on stream a pioneering big new oilfield in eastern Siberia, part of a wave of development overcoming huge technical challenges to open up some of this vast country's most inaccessible crude reserves.
As the first commercial oil flowed on Wednesday from the 1-billion-barrel Verkhnechonskoye field to the sound of disco music echoing across the empty taiga, TNK-BP TNBPI.RTS Chief Operating Officer Tim Summers told an audience of men in hard hats, dungarees and overcoats:
"Oilmen say every oilfield in the world is unique. That is true, but there are several things which make Verkhnechonskoye extremely special."
First discovered by a Soviet geologist in 1978, Verkhnechonskoye lies in a desolate area of thin, spindly forest inhabited by the odd elk, wolf pack or bear. More than 4,000 km (2,500 miles) and six time zones east of Moscow, temperatures mostly remain below zero and can plunge to minus 50 degrees Celsius in winter.
TNK-BP, which is jointly owned by BP Plc (BP.L: Quote, Profile, Research, Stock Buzz) and four Russia-connected oligarchs, has so far spent $1 billion to bring the field on stream and plans to spend another $4 billion to $5 billion over its whole life.
TNK-BP owns 68 percent of the development, with Russian state-run oil major Rosneft (ROSN.MM: Quote, Profile, Research, Stock Buzz) holding 25 percent and the remainder subject to a legal dispute involving the regional administration.
The field's first commercial oil came 12 days after Russian oil firm Surgutneftegas (SNGS.MM: Quote, Profile, Research, Stock Buzz) began pumping from its nearby Talakanskoye field, inaugurating east Siberian oil production at a key moment for Russia, the world's largest energy producer.
Alarmed by falling production from the country's mainstay fields in western Siberia, the Kremlin has pressed hard to open up the vast eastern taiga to commercial oil production.
EAST SIBERIA KEY TO MAINTAINING RUSSIAN OUTPUT
"East Siberia is key for the Russian oil and gas industry if it is to maintain production at or above current levels of 9.8 million barrels per day," Summers said in an interview.
Russian Deputy Prime Minister Igor Sechin praised the "stunning results" and "feats of labor" at the Talakanskoye opening, underlining the difficulties of building infrastructure from scratch in a remote and hostile region.
Managers operating in the area say the challenges are tough even by Russian standards.
"It's hard to find qualified people to work here. We bring them from all over Russia," said Verkhnechonskoye field director Mugammir Galiullin, who runs the operation from the provincial capital Irkutsk, 1,100 km to the south.
His "commute" to work involves a 100-minute flight, followed by two hours in a helicopter -- a trip he makes at least once a month, while using satellite, computer and mobile phone communications to keep in touch the rest of the time.
The 500-odd permanent personnel on Verkhnechonskoye usually travel by helicopter and spend 28 days working and living in the green-roofed blocks on the site, before taking 28 days leave. Even when using special protective suits, all work outdoors is banned when temperatures fall below minus 40 degrees Celsius.
The crude at Verkhnechonskoye is some of the oldest in the world, formed 500 million years ago from fossils of some of the first life forms inhabiting the planet. That makes it 300 million years older than the world's deepest freshwater lake, Baikal, which is the nearest well-known natural landmark.
The age of the oil deposit, which takes its name from the nearby head of the river Chona, creates special problems.
For a start, there is almost no experience in the industry in dealing with such ancient pre-Cambrian rock. "There are only one or two fields in the entire world as old as Verkhnechonskoye," said Summers.
COLD OIL POSES SPECIAL CHALLENGE
"The temperature in the reservoir is around 18 degrees Celsius, much colder than you would find in other fields," explained Sergei Brezitsky, TNK-BP Executive Vice-President for Upstream.
"By the time the oil reaches the surface, it is at minus two degrees." Hot water must be pumped around the pipe to keep the oil flowing.
The rock containing the oil is also salty, meaning the company is experimenting with additives to reduce the salinity to acceptable levels for pumping into the pipeline network.
Finally, the geological structure of the oil deposits is complex, meaning that under conventional drilling a large number of expensive wells would be needed to maximize production.
Soviet oil engineers drilled around 100 exploration wells at the field, which is about the size of Greater London, but gave up because of the difficulties and lack of infrastructure.
TNK-BP is using state-of-the-art rigs drilling horizontally to reach as much oil as possible while keeping costs down.
"If you drilled the field in a conventional way you would need 1,300 wells at a cost of $3 million to $5 million each," said Summers. "By drilling more extended horizontal wells you can do it with somewhere between 400 and 600."
Crude from the field will open new frontiers for Russian oil by traveling east, rather than west.
When state pipeline operator Transneft TRNF_p.RTS completes a new east Siberian pipeline at the end of next year, Verkhnechonskoye oil will flow to a new Pacific terminal at Kazmino.
It could also use a spur branching off from the new route to reach China, underlining how Russia is diversifying away from its traditional reliance on European markets.
Until then, the new TNK-BP crude is flowing west along a completed stretch of the east Siberian pipeline toward Irkutsk to Rosneft's Angarsk refinery for processing.
For now, the oilmen who have opened up Russia's latest frontier are savoring their success.
"In terms of difficulty it's almost like an offshore environment," said Summers. "The weather is very extreme and it's very remote. Even in a country like Russia, which excels at the ability to get things done, it's been a real challenge for the industry."
Russian oil major TNK-BP has just brought on stream a pioneering big new oilfield in eastern Siberia, part of a wave of development overcoming huge technical challenges to open up some of this vast country's most inaccessible crude reserves.
As the first commercial oil flowed on Wednesday from the 1-billion-barrel Verkhnechonskoye field to the sound of disco music echoing across the empty taiga, TNK-BP TNBPI.RTS Chief Operating Officer Tim Summers told an audience of men in hard hats, dungarees and overcoats:
"Oilmen say every oilfield in the world is unique. That is true, but there are several things which make Verkhnechonskoye extremely special."
First discovered by a Soviet geologist in 1978, Verkhnechonskoye lies in a desolate area of thin, spindly forest inhabited by the odd elk, wolf pack or bear. More than 4,000 km (2,500 miles) and six time zones east of Moscow, temperatures mostly remain below zero and can plunge to minus 50 degrees Celsius in winter.
TNK-BP, which is jointly owned by BP Plc (BP.L: Quote, Profile, Research, Stock Buzz) and four Russia-connected oligarchs, has so far spent $1 billion to bring the field on stream and plans to spend another $4 billion to $5 billion over its whole life.
TNK-BP owns 68 percent of the development, with Russian state-run oil major Rosneft (ROSN.MM: Quote, Profile, Research, Stock Buzz) holding 25 percent and the remainder subject to a legal dispute involving the regional administration.
The field's first commercial oil came 12 days after Russian oil firm Surgutneftegas (SNGS.MM: Quote, Profile, Research, Stock Buzz) began pumping from its nearby Talakanskoye field, inaugurating east Siberian oil production at a key moment for Russia, the world's largest energy producer.
Alarmed by falling production from the country's mainstay fields in western Siberia, the Kremlin has pressed hard to open up the vast eastern taiga to commercial oil production.
EAST SIBERIA KEY TO MAINTAINING RUSSIAN OUTPUT
"East Siberia is key for the Russian oil and gas industry if it is to maintain production at or above current levels of 9.8 million barrels per day," Summers said in an interview.
Russian Deputy Prime Minister Igor Sechin praised the "stunning results" and "feats of labor" at the Talakanskoye opening, underlining the difficulties of building infrastructure from scratch in a remote and hostile region.
Managers operating in the area say the challenges are tough even by Russian standards.
"It's hard to find qualified people to work here. We bring them from all over Russia," said Verkhnechonskoye field director Mugammir Galiullin, who runs the operation from the provincial capital Irkutsk, 1,100 km to the south.
His "commute" to work involves a 100-minute flight, followed by two hours in a helicopter -- a trip he makes at least once a month, while using satellite, computer and mobile phone communications to keep in touch the rest of the time.
The 500-odd permanent personnel on Verkhnechonskoye usually travel by helicopter and spend 28 days working and living in the green-roofed blocks on the site, before taking 28 days leave. Even when using special protective suits, all work outdoors is banned when temperatures fall below minus 40 degrees Celsius.
The crude at Verkhnechonskoye is some of the oldest in the world, formed 500 million years ago from fossils of some of the first life forms inhabiting the planet. That makes it 300 million years older than the world's deepest freshwater lake, Baikal, which is the nearest well-known natural landmark.
The age of the oil deposit, which takes its name from the nearby head of the river Chona, creates special problems.
For a start, there is almost no experience in the industry in dealing with such ancient pre-Cambrian rock. "There are only one or two fields in the entire world as old as Verkhnechonskoye," said Summers.
COLD OIL POSES SPECIAL CHALLENGE
"The temperature in the reservoir is around 18 degrees Celsius, much colder than you would find in other fields," explained Sergei Brezitsky, TNK-BP Executive Vice-President for Upstream.
"By the time the oil reaches the surface, it is at minus two degrees." Hot water must be pumped around the pipe to keep the oil flowing.
The rock containing the oil is also salty, meaning the company is experimenting with additives to reduce the salinity to acceptable levels for pumping into the pipeline network.
Finally, the geological structure of the oil deposits is complex, meaning that under conventional drilling a large number of expensive wells would be needed to maximize production.
Soviet oil engineers drilled around 100 exploration wells at the field, which is about the size of Greater London, but gave up because of the difficulties and lack of infrastructure.
TNK-BP is using state-of-the-art rigs drilling horizontally to reach as much oil as possible while keeping costs down.
"If you drilled the field in a conventional way you would need 1,300 wells at a cost of $3 million to $5 million each," said Summers. "By drilling more extended horizontal wells you can do it with somewhere between 400 and 600."
Crude from the field will open new frontiers for Russian oil by traveling east, rather than west.
When state pipeline operator Transneft TRNF_p.RTS completes a new east Siberian pipeline at the end of next year, Verkhnechonskoye oil will flow to a new Pacific terminal at Kazmino.
It could also use a spur branching off from the new route to reach China, underlining how Russia is diversifying away from its traditional reliance on European markets.
Until then, the new TNK-BP crude is flowing west along a completed stretch of the east Siberian pipeline toward Irkutsk to Rosneft's Angarsk refinery for processing.
For now, the oilmen who have opened up Russia's latest frontier are savoring their success.
"In terms of difficulty it's almost like an offshore environment," said Summers. "The weather is very extreme and it's very remote. Even in a country like Russia, which excels at the ability to get things done, it's been a real challenge for the industry."
