40 years in the making | 334 (April 2017)

LUKOIL actively explores its new block offshore Norway. The Company got production licence for PL-858 in 2016. The block is located along the maritime border between Norway and Russia in the South-East Barents Sea, which had long been disputed by both countries.

2017-04-26 20:23 Views 346

40 years in the making

LUKOIL actively explores its new block offshore Norway. The Company got production licence for PL-858 in 2016. The block is located along the maritime border between Norway and Russia in the South-East Barents Sea, which had long been disputed by both countries.

I n the 1980s Soviet geologists were busy conducting seismic surveys high above the Arctic Circle in the Barents Sea. Back then, just like now, the Arctic region’s potential for oil and gas production was thought to be huge. But there was one major stumbling block – a maritime border dispute with Norway. After almost 40 years of negotiations, a common border was successfully established in April 2010, and energy companies wasted no time in taking advantage of the new opportunities.


Rune Rafaelsen, Kirkenes mayor, former head of the Norwegian Barents Secretariat:

«I think this could be a very interesting Norwegian-Russian cooperation».


A discretionary licensing system

Unlike some other countries, Norway does not rely on competitive bidding or auctions for awarding licenses. Instead it utilizes competitive licensing rounds based upon an analysis of companies’ technical expertise, experience and potential positive impact on the Norwegian economy. Ultimately the Norwegian government has discretion over who is awarded the license. The government’s main priorities are maintaining high levels of activity, value and job creation rather than claiming high upfront payments. Different geographical areas call for different types of expertise, and this aspect affects the government’s decision process over individual companies or consortiums. Beyond the general oil and gas experience that is required, the government would consider High Pressure High Temperature expertise in parts of the North Sea, deepwater experience in the Norwegian Sea and Arctic experience in the Barents Sea.

Under Norway’s oil tax regime, exploration costs are refundable at a rate of 78 % each year, and include license application costs, seismic data purchases and other expenses. This provides a strong incentive for companies to continue exploration in challenging conditions, especially during periods of restrained costs.

40 years in the making Vagit Alekperov, PJSC LUKOIL President:

«We are actively working on the Norwegian shelf now. Together with our partners, we have studied local geology and looking now to expand our presence in the region. In Norwegian sector of the Barents Sea everything is clear and transparent. Risks are fairly divided between investor and the state».


LUKOIL’s road to PL 858

It was thus imperative for LUKOIL to demonstrate its ability to work in the Barents Sea. In 2012 the company registered LUKOIL Overseas North Shelf AS (LONS) with its office in Oslo. The staff immediately went to work identifying prospective blocks in the Barents Sea for the upcoming 22nd licensing round. Their efforts led to the successful award of non-operated interest in two Barents Sea licenses, PL 708 and PL 719, in 2013, making LUKOIL better qualified to bid in the 23rd licensing round.

In 2014 LUKOIL became a member of a consortium of 33 companies to jointly acquire almost 4000 square kilometers of 3D seismic data covering this border area of the South Barents Sea. In 2015, specialists from LUKOIL Engineering and LONS carried out the interpretation of the 3D seismic data and identified key prospective areas.

40 years in the making

An opportunity arose with the 23rd licensing round, which was the first round to include production licenses in the formerly disputed area. LUKOIL submitted its bids in December 2015 and, in June 2016, it was awarded a 20% interest in PL858, which was one of only three licenses approved in the border area. In total, 10 production licenses were awarded to 13 companies.

Twenty-six companies participated in the round. LUKOIL had succeeded in its long-term bid to get a foothold in the region. Its consortium partners were all Norwegian.

Meanwhile LUKOIL continues to strengthen its technical and HSE expertise in Norway through membership in the BASec, a group aimed at developing common solutions as part of a joint operator approach to HSE in the Barents Sea, and the Barents Sea Metocean and Ice Network (BaSMIN) Projects.

40 years in the making On 18-20 of April 2017 Russian-Norwegian agreement regarding exploration works in the frontier zone of the Barents Sea shall be signed in Moscow, on the sidelines of intergovernmental panel. Exceptionally prospective part of this zone is known as the Fedinsky High – a 70-kilometers long geological formation, split between Russia and Norway.

High expectations at Fedinsky

Geologically PL-858 is located in the western part of the Fedinsky High, or Hjalmar Johansen High, as it is known in Norway. The prospective parts include a Carboniferous-Permian reef, similar to those already operated by LUKOIL in the Timan-Pechora Province in northern Russia, and reservoir formations from the Triassic and Jurassic periods. These warm water carbonate reefs usually have a high porosity that could be even higher here due to intense Permian erosion. The reefs are sitting directly below transgressive shales that provide a high quality cap rock, and are on top of a quality source rock that has been already proven in the Barents Sea.

Exploration work this year will include reprocessing and detailed interpretation of the 3D data. The mandatory work program includes a minimum of one exploration well to be drilled by June 2019. If the PL-858 partners can come to an agreement, the selection of a well location and preparation for drilling may begin as early as this year, with the drilling operations scheduled for 2018.

Materials for this page were provided by the following authors: Leonid Surguchev, Egil Bergsager, Henrik Jørem LUKOIL Overseas, North Shelf AS

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