Houston-based LUKOIL VP Kevin Black tells Oil Journal about the technology behind deepwater offshore, prospects in West Africa and the challenges of extremely long timeframes.
What are the strategic goals of LIUW for the next 5-10 years?
The primary goal is to execute economic projects successfully through their exploration and development phases to production. Along the way, we will continue to develop within LUKOIL offshore development expertise and experience. The majority of assets have a five year outlook towards that objective. Beyond those five years, we will manage the production from these assets. Obtaining deepwater production experience opens the door for LUKOIL to qualify as operator in some of the most prolific and yet highly regulated offshore areas, enabling further growth of our portfolio in this direction.
In which regions of the world is LUKOIL interested from the point of view of offshore developments? How does LIUW select prospective projects?
Region 2 is focused on the Americas, West Africa and Western Europe. Our existing offshore portfolio includes eight offshore blocks (three in Norway, two in Nigeria, one in Cameroon, one in Ghana and one in Romania’s section of the Black Sea) as well as one onshore block in Mexico. The interest remains high for Norway, having just acquired PL-858 in 2016. We continue to see high potential in offshore West Africa and the Gulf of Mexico. South America has long been in our aspirations if the right opportunity is identified.
Although our offshore projects have long timelines to first oil and higher per barrel development and operating costs, the advantages are that they tend to be larger field sizes, better reservoirs that yield high production rates from fewer wells. Other positives are security of production and facilities due to their offshore location as well as generous fiscal cost recovery and royalty rates.
Which projects from the current portfolio are the most promising?
I would mark two projects. The first one is the EX-30 Trident Block in the Romanian Sector of the Black Sea. We have completed one successful exploration well, which improves the outlook for the block as the exploration work is continued.
The second one is The Deepwater Tano / Cape Three Points Project (DTCTP), which is located offshore Ghana in the Gulf of Guinea on the border with Cote d’Ivoire. At 2600 meters, Pecan Field is one of the deepest deepwater fields in the world. The project is operated by U.S.-based Hess Corporation.
The Final Investment Decision on the project is scheduled for 2018, with first oil production planned for early 2020s.
The Tano Project has the potential to establish some “firsts” for LUKOIL if successfully executed within the operator’s plans. These would include:
- LUKOIL’s first oil production in West Africa.
- LUKOIL’s first production from the deepwater turbidite play.
- LUKOIL’s first production from a Floating Production Storage and Offloading Vessel (FPSO).
What difficulties does LUKOIL face in realizing offshore projects?
The first is that the technology required for deepwater projects is more specialized than that of shallow water and onshore projects. We are overcoming this through the expertise provided by the people we have hired, specialized training and selection of projects with experienced operators and joint venture partners. Not only is the technology different, but difficulties can arise when working with Western oil companies with institutionalized project management processes for maturing their projects. That’s why LUKOIL has adopted a great many cutting-edge project and fiscal management processes, such as IPMS, which help align us with our most successful peers.
Change is another challenge. Offshore projects have a have long timeline to first oil and the decision on development can be taken five years before production begins, so the risks to committing these funds with great uncertainty over the future price of oil can be substantial. We will always encounter change in this industry and must remember the opportunity it brings as well as the downsides.
Kevin Black is a VP of LUKOIL and Managing Director of LUKOIL International Upstream West (LIUW).
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