"EXPERT" Magazine, May 16, 2005

From the article “Microbes are for oil magnates”, “Expert” magazine (¹ 18 (465) dtd May 16, 2005).

….Horizon in half a century.

“It’s understandable, why China is so interested in innovation methods, - Yury Bobylev, head of laboratory of economy of mineral and feed sector of the Institute for the Economy in Transition, comments the situation. - China is oil importer, their oil production decreases. That’s why they have to stimulate the increase of oil production on their own oilfields. The same situation is in USA. The situation in Russia is different – the extracted purveyance will be sufficient at the minimum for a quarter of a century (according to international method of calculation)”.

However, the Ministry of Natural Resources of the Russian Federation makes more critical calculations, considering that in Russia as early as by the year 2015 all the profitable resources will have been exhausted. Probably the Ministry of Natural Resources means profitable storage and doesn’t take into account resources that are difficult to be extracted, which also can be profitable ones. According to other estimations, profitable resources will be sufficient for at least twenty-five years or even more. It's quite another matter that after ten years we will have to do only with oil resources that are difficult to be extracted, we have 60% of them, and in that case oil prime cost when using traditional methods will be higher than nowadays.

In spite of that Russian oil companies try to declare the use of tertiary methods, they often call innovative ones quite usual geological and technical actions, which lead to intensification of oil production usually out of storage and not of resources that are difficult to be extracted. There are such methods: for example, formation breakdown or horizontal well-boring. Whatever companies declare, oil recovery factor, which determines main quality of development, is still decreasing. In the report on negative processes in reproduction of source of raw materials of oil production of Zarubezhneft it is said that oil recovery factor (on the point of mineable reserves to evaluative ones) recently has formed 0,27-0,28 when an average is 0,35. This index is half as less again than in USA, where oil recovery has been increasing for many years, although their structure of resources is worse than ours.

Experts from Zarubezhneft mention two main reasons for irrational use of bowels. The first one is oversupply of many Russian oil companies by oil resources. Production’s potential out of these resources is 450 mln tonnes, the skimming of “cream” with low prime cost is among shareholders’ interests. That’s why the production out of more “difficult” resources isn’t profitable for them and innovative methods are not called for. The second reason is an absent of civilized state system of management of rational use of resources.

“In the west, for example, in USA and Canada, the governments carry out deliberate policy regarding independent producers in the view of rational nature management, - Director General of Associations of small and medium oil companies, Elena Korzun, comments the situation. – Those countries provide tax remissions, tax vacations to make companies produce permanent oil. In our country all the bowels’ users without regard to what oilfields they work on – high profitable ones or with resources that are difficult to be extracted, pay the same taxes. And these taxes depend on world oil price”.

According to Mr. Bobylev, in many countries, including USA, there is a varied system of taxation depending on “quality” of oilfield. Our experts have repeatedly offered to introduce such system. “But for our Ministry of Finance it’s more convenient to calculate common taxes, - says Elena Korzun. - You take world price and multiply it to tons. But if large companies work with high profitability, because their economy consists of production and processing, small companies, which don’t process, have to bear with low profitability. But they would be able to develop old and deserted oilfields, which have considerable resources, and we have many such deserted oilfields”.

Yury Bobylev believes that in Russian conditions officials rate the complication of taxation system as potentially dangerous action: varied system will create good conditions for schemes of taxes’ avoidance.

Nevertheless the experts give us notice that such policy will lead to the situation when in ten years we will have pumped out all oil from storage and will work with resources that are difficult to be extracted.

Mastering of modern methods by other oil powers, according to experts’ evaluations, will let by the year 2020 lift a quantity of mineable reserves 1,4 times as much – up to 65 bln tonnes.

The problem of increase of oil recovery has many times become a subject matter including on parliamentary auditions in November, 2004, where there was risen a question of “insufficiency of economic and legal stimulus for providing financially highly risky geological surveys, for providing the fullness of labour-rent of cultivated resources, for rational use of raw material”. Zarubezhneft for many years has been offered a concept of federal program for overcoming of decline of oil recovery, which main elements could be: varied taxation, facility in getting export quotas for companies, which realize methods of rise of oil recovery, independent state examination of these methods. Most experts say that stimulation of innovations in oil field could lead to growth of mineable reserves in bulk of 2-2,5 bln tonnes in eight-ten years.