Russia’s vast but challenging Arctic offshore oil resources have regained their appeal due to the oil price recovery and, given time, are likely to develop into the country's key oil-producing region, according to GazpromNeft’s official responsible for Arctic projects.

The state-run oil company operates Russia’s only producing Arctic offshore oilfield, Prirazlomnoye in the Pechora Sea, and continues to explore at four other Arctic licenses.

Gazprom and Rosneft, the two other state energy giants with rights to develop Russia’s Arctic resources, shelved survey works on many licenses in the region a few years ago amid low oil prices and sanctions blocking western companies and technology from the area, and halted a number of projects.

But with breakeven economics of around $50/b, Gazprom Neft estimates that most Arctic projects could now easily turn a profit at current oil prices of $75/b, said Andrey Patrushev, the company's deputy CEO for offshore projects.

“They are economically viable at the moment, no doubt,” he told S&P GlobalPlatts in an interview.

Russia’s Arctic offshore holds 585 million mt of crude and 10.4 Tcm of gas in ABC1+C2 reserves, equivalent to proven, probable and possible reserves under international classification, according to the natural resources ministry's 2016 estimate, while hydrocarbons resources are believed to be many times higher.

While East Siberia, where Gazprom Neft plans to launch several fields in the mid-term, is to become a key region for the company's output growth until 2030, offshore projects, including in the Arctic, hold the next big production potential after that, Patrushev said.

“We believe that technology and infrastructure development, including in the Arctic region, will allow for profitable hydrocarbons production there,” he said.

Arctic offshore plans

Oil production at Prirazlomnoye is set to grow by 33% on the year to 3.5million mt, or about 71,000 b/d, this year, before hitting the 5 million mt/year plateau in 2021-2022, Patrushev said. Plateau production is expected to hold for three-four years “for sure,” he added.

Gazprom Neft is also considering the field’s next development stage through tapping the field's deeper Silurian-Devonian geological layers, he said. This project, drafted for 2024-2026, can add 1.1 million mt/year to the fields production, according to the company's preliminary estimates.

Gazprom Neft plans to shoot new 3-D seismic over 500 sq km of the area this year, the outcome of which will define further prospects and inform decisions on drilling targets at the layers, Patrushev said.

The company also expects to complete a review of a 3-D seismic survey at the Dolginskoye field and Severo-Zapadny block by the end of this year, he said. Both licenses are located in relative proximity to Prirazlomnoye, in the Pechora Sea.

Gazprom Neft initially planned to launch Dolginskoye in 2019 but three years ago pushed the date to 2031, citing the need to reconfigure the fields geological model after drilling the first well in the northern part of the field in 2013.

Two other licenses with tougher geographical and weather-related challenges remain a prospect for much more distant future, Patrushev said. These include the Kheysovsky block, located 1,000 km offshore in the Barents Sea and Severo-Vrangelevsky block lying partly in the East-Siberian Sea and partly in the Chuckchi Sea in the eastern part of the Russian Arctic.

"They are geographically very large, very distant areas, and very little known. But they have very large potential and may hold large resource there,"he said.

Sea of Okhotsk

Despite the Arctic’s huge potential, Gazprom Neft plans to see its next offshore barrels from the Far Eastern Sea of Okhotsk due to well-developed infrastructure in the area, Patrushev said.

The company plans to launch the Neptune field it discovered last year offshore Sakhalin Island in 2025, he said. The company estimates the fields hydrocarbons production at 6 million mtoe/year at plateau.

The Sakhalin cluster is an “understandable” conventional region for the company with developed infrastructure and available contractors and services, Patrushev said. Also, sufficient geological information about the region allows better estimates of the future projects’ efficiency, as opposed to prospective but little-explored distant Arctic areas, he said.

Gazprom Neft is also continuing talks to attract foreign partners “mainly but not exclusively from the Asia -Pacific region” to its offshore projects.

Last month, the company signed a memorandum of understanding with Japan’s Mitsui on cooperation at the Ayashsky license, which includes Neptune. It also has an MOU with India’s ONGC Videsh on potential offshore cooperation in Russia and third countries, signed last year.

The shape and terms of both MOUs remain to be defined but do not rule outjoint ventures, Patrushev said.