Development of Hard–to–Recover Reserves

The Company makes consistent efforts in bringing hard-to-recover reserves into active development. Production of hard-to-recover reserves subsidized by the Government According to Federal Law No. 213-FZ dated 23 July 2013. in accordance with applicable laws increased to 18.7 mmt in 2018, up 15% year-on-year , more than doubling the 2014 level. In 2018, the share of hard-to-recover reserves ofthe Company’s total productionPercentage of Russian onshore production of liquid hydrocarbons (excluding gas assets). grew from 7.5% to 8.4% year-on-year. In 2018, over 820 wells were drilled for hard-to-recover reserves.

The Company’s largest hard-to-recover reserves asset is RN-Yuganskneftegaz, with over 1.0 bln tonnes of hard-to-recover reserves. A significant amount of hard-to-recover reserves is also recorded on the books of RN-Nyaganneftegaz, Verkhnechonskneftegaz, RN-Uvatneftegaz, and JSC Kondaneft. These enterprises and RN-Yuganskneftegaz currently account for over 90% of the Company’s resource base of hard-to-recover reserves.

Company’s recoverable reserves of high-viscosity A viscosity of more than 200 mPa•s according to Federal Law No.151-FZ dated 27 July 2006. oil at the territory of the Russian Federation are over 550 mmt, over 400 mmt of which are concentrated at the Russkoye field, unique for its size. In 2018, the drilling program continued at this field (78 horizontal wells, including 15 horizontal multilateral wells), 53 horizontal wells, including multilateral wells, were brought onstream.

The expansion of the Company’s resource base of hard-to-recover reserves in 2018 was also made possible through the implementation of an extensive exploration program on formations containing hard-to-recover reserves, which has enabled the Company to define formations with low-permeability reservoirs and additionally increase the estimated volume of the Company’s hard-to-recover reserves by over 40 mmt. The performed exploration allow to intensify the efforts at these projects.

According to the current production forecast, the bulk of subsidized production from hard-to-recover and high-viscosity reserves is planned in Western Siberian fields, which contain low-permeability formations of the Tyumen suite, the Achimov deposits, and formations of the start-up complex group containing high-viscosity oil. The post-2020 forecast level of the oil extraction from hard-to-recover reserves strongly depends on alleviating geological and technological uncertainties, for which the Company actively seeks optimal technical and economic solutions. Significant expansion of the Company’s resource base is possible through unlocking the potential of unconventional oil reserves (from the Bazhenov, Abalak, Khadum, and Domanik suites) and high-viscosity oil reserves. Achieving additional potential is possible through successful pilot development in joint ventures with global partners.

As part of the Company’s target to double the production from hard-to-recover reserves during the period of 2017–2022, the efforts on improving the development technologies continued. Technological development is primarily focused on well stimulation at the low-permeability formations, primarily pertaining to the complicated design and an increased length of horizontal wells, expansion in the number of hydraulic fracturing stages in the horizontal wells. In 2018, the Company successfully commissioned about 100 wells with an increased number of multi-stage hydraulic fracturing stages (from eight to ten) at the formations with hard-to-recover reserves, including the wells with horizontal section length over 1 km (a 45% year-on-year growth in wells). The increase in the number of multi-stage hydraulic fracturing stages and the length of horizontal wells allows for involvement of unprofitable areas into development.

Considerable attention is given to promoting the technologies of low-permeability formations development management. Various technological solutions are adopted and implemented for repeated hydraulic fracturing (re-fracking). Based on the results of pilot works performed, the technology of blind re-fracking along the whole borehole, not requiring additional investments in production tooling, was tried and tested. There were 10 such operations carried out with projections to roll this concept out in the near future. Over 30 refracking operations were also undertaken to re-orient hydraulic fractures based on the geomechanical modelling, which showed high efficiency in terms of coverage of new formations and restoration and improvement of well productivity. The Company aims at scaling up the range of activities. The plans for 2019–2020 include testing of controlled refracking operations with a selection of repeated hydraulic fracturing intervals due to additional targeted injection of viscous cushions at intervals that do not require intervention, or through the use of completion technologies that provide repeated temporary isolation of such intervals.

The Company continues pilot development of producing deposits of the Bazhenov suite. In 2018, two directional and two horizontal wells were drilled, with oil inflows obtained. In 2019, multi-stage hydraulic fracturing at the Bazhenov suite will continue.

In 2018, drilling at ultrahigh-viscosity oil deposits at the Karabikulovskoye field of Samaraneftegaz was started. Three pairs of horizontal wells were drilled to enable steam-assisted gravity development (SAGD). The plans for 2019–2021 include the construction of the required infrastructure facilities and pilot development of the field. In addition to the technology being implemented, it is planned to test the three-well SAGD technology.

• Developing silty sand deposits (ultra-low permeability, high heterogeneity) with a geologically adaptive development system and enhanced completion technologies allows involving up to one bln tonnes of oil reserves into production.
• Developing the technologies of localization and development of complex low-permeability, undersaturated reservoirs reserves allows involving up to 420 mmt of oil into production.
• Developing the technology of bringing the Bazhenov suite deposits into production based on specific core research, localization of prospects for drilling, and completion technologies allows involving about 100 mmt of oil reserves into production.
• Developing the technologies of thermal recovery methods for ultrahigh-viscosity oil fields in the Samara Region allows involving about 40 mmt of oil reserves into production.
• Developing the technologies of high-viscosity oil reserves recovery at the start-up complex in the Western Siberia allows involving additionally up to 70 mmt of recoverable oil reserves of the Russkoye field into production. These technologies may also be applicable in developing the reserves of Messoyakhsky project fields and Pokurskoe suite of the North Komsomolskoye field.