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No. 4, 2012

Vladimir Igorev

THE OIL OF THE AMBER LAND


September 2012 marks 40 years since the establishment of Kaliningradneft, the state-owned enterprise reorganized as and renamed LUKOIL-Kaliningradmorneft in 1995

The Kaliningrad Region - the westernmost region of Russia - is an exclave that has no common land or sea border with the rest of the country. Despite relative small volumes, oil production plays a major role in the economy of the Amber Land. The proximity of European markets, the existence of a well-developed transportation infrastructure, low production costs and high quality of crude oil provide a very sound basis for successful petroleum operations. The region's leading oil producer is LUKOL-Kaliningradmorneft, providing more than 98% of its oil. This year marks the company's 40th birthday.

On and off shore

Predictions about commercial oil reserves in the Baltic region began to be made in the first half of the 20th century, but it was not until after World War II that Soviet scientists provided a scientific basis for the existence of an oil- and gas-bearing potential in the Baltic Region and, specifically, in the Kaliningrad Region. In 1951, regular geophysical surveys began, with drilling of key, parametric, and prospect wells.

An oil production enterprise was established when commercial oil fields were discovered onshore in the Kaliningrad Region in the late 1960s. The largest field discovered by the Kaliningrad exploration company was the Krasnoborskoye oil field, 36 km east of Kaliningrad. Further exploration was successful, discovering Zapadno-Krasnoborskoye, Severno-Krasnoborskoye, Malinovskoye, Ushakovskoye, Deyminskoye and other fields. The reserves were not large, but the quality of oil was high and production costs potentially low, therefore the USSR Ministry of Oil Industry decided to focus on tapping the oil resources of the Amber Land, so an oil production company, Kaliningradneft, was established on September 8, 1972.

Commercial development of the Krasnoborskoye field began on February 7, 1975, and the first train carrying oil was sent from the Kaliningrad Region on February 14. About 35 million tons of oil have been produced in the Region's onshore fields since 1975. Many wells there flowed for a long time, and some are flowing to this day.

In the 1970s, geologists began to think about exploring offshore areas. Active oil prospecting commenced in 1976, when Petrobaltic was established, as an international entity involving the Soviet Union, Poland, and the German Democratic Republic. It had become obvious that Kaliningradneft's prospects depended on developing offshore petroleum resources of the Baltic. The largest oil field of the Baltic was discovered in 1983. The field, located 22 km west of the Curonian Spit, was named Kravtsovskoye, after Soviet geophysicist Boris Kravtsov, who played a huge role in the efforts that led to the discovery of the field.

In the early 1990s, work was started to install an offshore drilling rig there, but the collapse of the Soviet Union caused a crisis of the country's industries, so the offshore drilling platform construction was delayed. The project was revived in 1995, when LUKOIL-Kaliningradmorneft was established. As more field data were available, one of LUKOIL's research and design institutes, LUKOIL-VolgogradNIPImorneft, updated the Kravtsovskoye field development plan and conducted a project feasibility study for it, which provided the Kaliningrad oil company with an efficient field facilities development concept.

Oil production began in June 2004. The operation involved the use of a fixed ice-resistant platform (D-6) - the first Russian-designed and Russian-built oil production platform operating in a Russian offshore oil field. The expected full life of the field is 30-35 years. As of June 2012, more than 5.5 million tons of crude oil had been produced. The sea depth in the field's location is 25-35 meters, the target formation depth averages 2,160 meters. Recoverable oil is estimated at 9.1 million tons. This is a zero-discharges offshore operation, which means that all industrial and household waste is taken to the shore for treatment and disposal.

A subsea pipeline 47.3 km long takes formation fluid (a mixture of crude oil, associated gas, and water) from the platform to the onshore oil-gathering station at Romanovo where it is separated and treated to marketable standards. Treated oil is pumped by a buried onshore pipeline to an oil terminal in Izhevskoye, then shipped by tanker to the market.

In addition to the D-6 offshore operation, LUKOIL-Kaliningradmorneft is currently developing 26 onshore fields in the region, all of them small in reserves, but better than most fields in Russia in terms of oil quality.

Driving growth and diversification

Throughout the 40 years of its history, oil production has been a key business area for the Kaliningrad oil company, but not the only one. Its special geographic location led to a diversification of operations in the 1990s. During that period, the company established services, marketing, and transportation units and facilities, including an integrated oil terminal, a gas-bottling plant, a petrol station network, a steel-work plant, etc. The steel-work plant manufactured Russia's first fixed ice-resistant oil production platform - for the D-6 field. Later it manufactured an offshore oil-loading facility for LUKOIL's terminal in Varandey in the Barents Sea shore and a production platform for the Korchagin field in the Caspian.

Later, some of those facilities were reorganized as LUKOIL subsidiaries with a legal entity status. For example, the petrol station network was made part of LUKOIL-Severo-Zapadnefteprodukt, a product retailing subsidiary, and the oil terminal became part of LUKOIL-Trans, a subsidiary for transshipment, transportation, and storage of oil and refined products in Russia. Such structural optimization helped LUKOIL-Kaliningradmorneft to focus on oil exploration and production, its primary mission.

In 2011, the company produced more than 1.1 million tons of oil: 503,163 tons was produced onshore, and 615,165 tons, offshore.

Depletion rates of oil fields in the Kaliningrad Region are as high as 80% of initial reserves. Exploration maturity averages 60% for onshore hydrocarbon resources and 20% for offshore resources. Gradual depletion of fields invariably results in declining production. The hopes and prospects of LUKOIL-Kaliningradmorneft depend on further exploration and development of offshore fields in the Baltic. The onshore infrastructure built for the Kravtsovskoye operation will save a lot of investment when new commercial reserves are discovered offshore. Tapping about 36 million tons of hydrocarbon resources prepared for development in the Russian sector of the Baltic is an important reserve replacement priority for LUKOIL. With new offshore oil resources developed, LUKOIL-Kaliningradmorneft may increase annual oil production to more than 2.5 million tons.

When it joined LUKOIL in 1995, Kaliningradmorneft brought valuable offshore field development expertise and experience of offshore operations not only in the Baltic; its specialists had developed offshore fields in the Arctic and in tropical seas in southern Vietnam in the 1980s. Construction and installation of the D-6 platform and the offshore operation in the Baltic provided LUKOIL with invaluable experience of developing offshore fields in Russia. The Baltic operations provided LUKOIL with skilled personnel for future offshore projects. Kaliningrad specialists are making a major contribution to building oil production platforms for Caspian offshore projects implemented by the Russian oil industry leader; the Baltic environment-friendly and ecological monitoring experience is being successfully applied in the Caspian operations of LUKOIL.




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Oil of Russia, No. 4, 2012
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