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The Russian Onshore Oilfield Services 2010 - 2014 - Report
Worldoils Oil, Gas and Offshore Marketplace    

Equipment ID   : 900
Equipment name   : The Russian Onshore Oilfield Services 2010 - 2014 - Report
Category   : Research Reports
Specifications   : Name of the Report :
The Russia Onshore Oilfield Services 2010 - 2014

Publication Date : 3 December 2010

Contents

Foreword .................15

1 Executive Summary
...........17
1.1 Market Drivers ...........18
1.2 Performance of Russian OFS in post financial crises .........19
1.3 New Technology ............21
1.4 OFS Market by Activity & Region ...........22
1.5 Equipment Markets ........... 23
1.6 Conclusions ............23

2 Russia in the Context of Global Energy Supply
..........25
2.1 Global Demand & Supply ............26
2.2 Oil Price and Exchange Rate Changes ..........28
2.3 Russian Oil Reserves ...........29
2.4 Russia: Comparison of Oil & Gas Production Forecasts.......32
2.5 Russian Oil & Gas Production ............33
2.6 Russian Production in Context ...........34

3 The Russian Oil & Gas Business .......35
3.1 The Soviet Union – Pre 1990.........36
3.2 Recent History ...........37
3.3 The Development of the Russian OFS Market ........38
3.4 Russian Oil & Gas Policy ...........39
3.5 The Domestic Landscape .............42
3.6 Domestic Drilling Activity by Operator ..........44
3.7 Russian E&P Expenditure.........46
3.8 Geographical Coverage ...........48
3.9 In-house Providers ...........51
3.10 Impact of Western OFS Providers .........52
3.11 Entry Strategies ..........53
3.12 Technology .............54

4 Technical Overview ..........55
4.1 Overview ..............56
4.2 Seismic Evaluation .........56
4.3 Drilling ..........57
4.4 Horizontal/Directional Drilling ..........58
4.5 Drilling Operations .........59
4.6 Workover Operations ..........60
4.7 Artificial Lift Technologies ...........61
4.8 ESP Technology ...........62
4.9 ESP-PMM Technology .........63
4.10 Competing Artificial Lift Technologies..........65
4.11 Capabilities of Artificial Lift Technologies .........66
4.12 EOR Overview ...........67

5 Market Participants ..........69
5.1 Key Trends.........70
5.2 Drilling and Workover ..........72
5.3 Russian Integrated Drilling Landscape ...........73
5.4 Rig Manufacture & Service ...........74
5.5 ESP Market ............75

6 Regional Production Overview ..........77
6.1 All Regions – Oil .............78
6.2 All Regions – Gas .............78
6.3 Timan-Pechora ............79
6.4 Volga-Urals ............79
6.5 Eastern Siberia ..........80
6.6 Western Siberia ..........80

7 Model Assumptions ...........81
7.1 The DW OFS & Equipment Market Model .......82
7.2 Drilling & Workover Splits ...........83
7.3 Exploration & Production Wells Drilled ........84
7.4 Active Drilling & Workover Rigs ..........85
7.5 Workover Operations & Well Depths ..........87
7.6 Wellstock & Service Split ..........88
7.7 Seismic Crews & Rig Manufacture .........89
7.8 Coping with future demand in light of an ageing onshore rig fleet ....... 90
7.9 Pricing Dynamics .............91

8 Market Forecasts
............93
8.1 OFS Market: Total ............94
8.2 OFS Market: Drilling ...........95
8.3 OFS Market: Workover ............96
8.4 OFS Market: Seismic Acquisition ..........97
8.5 OFS Market: Timan-Pechora Region .........98
8.6 OFS Market: Volga-Urals Region ...........99
8.7 OFS Market: Eastern Siberia Region ............100
8.8 OFS Market: Western Siberia Region .............101
8.9 Component Markets: Rig & Crew .............102
8.10 Component Markets: Completions ............102
8.11 Component Markets: Perforation .............103
8.12 Component Markets: Fishing & Milling ..............103
8.13 Component Markets: Bit Programme ..........104
8.14 Component Markets: Cementing ...........104
8.15 Component Markets: Logging .........105
8.16 Component Markets: Fluids .........105
8.17 Component Markets: Casing ...........106
8.18 Component Markets: Directional Drilling .............106
8.19 Component Markets: Tubing .......107
8.20 Component Markets: Fracturing .............107
8.21 Equipment Market: Drilling Rigs ..............108
8.22 Equipment Markets: Artificial Lift Equipment .............110

9 Appendix
...............111
9.1 Major operators ..................112
9.2 Selected Domestic Competitors ...........114
9.3 Selected Foreign Competitors .........117

Figures
Figure 1: Total OFS Market by Activity 2005-2014 ........22
Figure 2: Total OFS Market by Region 2005-2014 .......22
Figure 3: Selected Equipment Market by Type 2005-2014........23
Figure 4: Global Energy Demand 1965- 2009 ....... 26
Figure 5: Global Oil Supply 1930-2025 .......26
Figure 6: Global Oil Production 1930-2025 ........27
Figure 7: Global Gas Production 1930-2025 .........27
Figure 8: Oil Price (Urals) and Ruble/US$ Exchange Rate ......28
Figure 10: Oil Production Forecast 2005-2014 .......32
Figure 11: Gas Production Forecast 2005-2014 ........32
Figure 12: Russian Oil & Gas Production 1930-2020 .......33
Figure 14: Global Gas Production 1930-2020 ........34
Figure 16: Post Soviet Industry Expansion ........37
Figure 15: Development of the Russian OFS Industry ........37
Figure 17: Evolution of the Integrated Service Companies........38
Figure 18: Market Liberalisation in Russia 1991-2008 (illustrative) .......39
Figure 20: Average Capex per barrel of Oil 2003-2009 ........41
Figure 21: Russian Oil Production by Operator (000 bpd) .......42
Figure 22: Russian Oil Reserves by Operator (million barrels)......42
Figure 23: Russian Exploration Drilling by Operator (Kilometres Drilled) ......... 44
Figure 24: Russian Development Drilling by Operator ......... 45
Figure 25: Global E&P Company Spend 2005-2010 ...........46
Figure 26: Russian Upstream Capex by Select Oil Companies 2003-10 ......... 46
Figure 27: Geographical Coverage of Russian Production .........48
Figure 28: Russian OFS Competitor Classification ............49
Figure 30: Diagram of Seismic Evaluation ...........56
Figure 31: Basic Onshore Drilling Rig ..........57
Figure 32: Directional Drilling .........58
Figure 33: Basic Onshore Development Well (not to scale) ..........59
Figure 34: Workover: Basic Vertical Onshore Development Well (not to scale)........60
Figure 35: Artificial Lift Types ...........61
Figure 36: Artificial Lift Systems Comparison ..........64
Figure 37: Competing Artificial Lift Types ........66
Figure 38: Steam Flooding via Dedicated Injection Well .........67
Figure 39: CO2 Gas Injection ..........68
Figure 40: Estimate share of Overall OFS Revenues 2009 ........70
Figure 41: Service Split by Contractor Type 2005-2014 .......70
Figure 42: Russian Services Model (illustrative) .........71
Figure 43: Competitive Landscape – Drilling and Workover ........72
Figure 44: Competitive Landscape: Integrated Drilling Services .........73
Figure 46: Competitive Landscape – ESP Market ........75
Figure 47: All Regions Onshore Oil Production 2005-2014 .........78
Figure 48: All Regions Onshore Gas Production 2005-2014 ........78
Figure 49: Timan-Pechora Onshore Hydrocarbon Production 2005-2014 ....... 79
Figure 50: Volga-Urals Onshore Hydrocarbon Production 2005-2014 ............. 79
Figure 51: Eastern Siberia Onshore Hydrocarbon Production 2005-2014 ....... 80
Figure 52: Western Siberia Onshore Hydrocarbon Production 2005-2014 ...... 80
Figure 53 The DW OFS Equipment Market Model .........82
Figure 54: Drilling and Workover Cost-Splits .........83
Figure 55: E&P Wells Drilled 2005-2014 ........84
Figure 56: E&P Wells Metres Drilled 2005-2014 .........85
Figure 57: Active Drilling Rigs 2005-2014 ........85
Figure 58: Active Workover Rigs 2005-2014 .......86
Figure 59: Workover Operations 2005-2014 ..........87
Figure 60: Average Regional Well Depths ...........87
Figure 61: Russian Production Wellstock 2005-2014 .........88
Figure 62: Service Split by Contractor 2005-2014 ............88
Figure 63: Number of Active Seismic Crews 2005-2014 ........89
Figure 64: Russia Rig Newbuild Requirements 2003-2015 .......89
Figure 66: Russian Workover Price per Operation by Region 2005-2014 ....91
Figure 67: Rig Dayrates by Region 2005-2014 .........92
Figure 68: Total OFS Market by Activity 2005-2014 ...........94
Figure 69: Total OFS Market by Region 2005-2014 ........94
Figure 70: Total Drilling Market by Component 2005-2014 .......95
Figure 71: Total Drilling Market by Region 2005-2014 .........95
Figure 72: Total Workover Market by Component 2005-2014 .........96
Figure 73: Total Workover Market by Region 2005-2014 .........96
Figure 74: Total Seismic Acquisition Market by Type 2005-2014 ....... 97
Figure 75: Total Seismic Acquisition Market by Region 2005-2014 ...........97
Figure 76: OFS Market: Timan-Pechora by Component 2005-2014 ........98
Figure 77: OFS Market: Timan-Pechora by Activity 2005-2014 .........98
Figure 78: OFS Market: Volga-Urals by Component 2005-2014 ........99
Figure 79: OFS Market: Volga-Urals by Activity 2005-2014 .......99
Figure 80: OFS Market: Eastern Siberia by Component 2005-2014 .......100
Figure 81: OFS Market: Eastern Siberia by Activity 2005-2014 ......100
Figure 82: OFS Market: Western Siberia by Component 2005-2014 .......101
Figure 83: OFS Market: Western Siberia by Activity 2005-2014 .........101
Figure 84: Component Market: Rig & Crew 2005-2014 ..........102
Figure 85: Component Market: Completions 2005-2014 .......102
Figure 86: Component Market: Perforation 2005-2014 .......103
Figure 87: Component Market: Fishing & Milling 2005-2014 .......103
Figure 88: Component Market: Bit Programme 2005-2014 ........104
Figure 89: Component Market: Cementing 2005-2014 ......104
Figure 90: Component Market: Logging 2005-2014 ........105
Figure 91: Component Market: Fluids 2005-2014 .........105
Figure 92: Component Market: Casing 2005-2014 .........106
Figure 93: Component Market: Directional Drilling 2005-2014 ........106
Figure 94: Component Market: Tubing 2005-2014 ..........107
Figure 95: Component Market: Fracturing 2005-2014 .........107
Figure 96: Total Expenditure on Rig Manufacture <1250 HP ..........108
Figure 97: Topdrive Units Manufactured 2005-2014 .........109
Figure 98: Expenditure on Topdrive Units.........109
Figure 99: Equipment Market: New Artificial Lift Systems 2005-2014 ............ 110
Figure 100: Equipment Market: Replacement Artificial Lift Systems 2005-14.....110

Tables
Table 1: 2010 E&P Capex Budgets ......20
Table 2: Mineral Extraction Tax Calculation (As of 1st Jan 2009) $/bbl .....41
Table 3: All Regions Oil Production 2005-2014 .........78
Table 4: All Regions Gas Production 2005-2014 ......78
Table 5: Timan-Pechora Onshore Hydrocarbon Production 2005-2014 ....79
Table 6: Volga-Urals Onshore Hydrocarbon Production 2005-2014 ......79
Table 7: Eastern Siberia Onshore Hydrocarbon Production 2005-2014 .....80
Table 8: Western Siberia Onshore Hydrocarbon Production 2005-2014 ....80
Table 9: E&P Wells Drilled 2005-2014 ........84
Table 10: E&P Wells Thousand Metres Drilled 2005-2014 .......85
Table 11: Active Drilling Rigs 2005-2014 .....85
Table 12: Active Workover Rigs 2005-2014 .......86
Table 13: Workover Operations 2005-2014 .......87
Table 14: Russian Production Wellstock 2005-2014 ......88
Table 15: Number of Active Seismic Crews 2005-2014 ...89
Table 16: Number of Domestic Newbuild Rigs 2005-2014 ......89
Table 17: Russian Drilling Price per Metre by Region 2005-2014 .....91
Table 18: Russian Workover Price per Operation by Region 2005-2014 .....91
Table 19: Rig Dayrates by Region 2005-2014 ......92
Table 20: Average Metres drilled per Active Drilling Rig 2005-2014 .....92
Table 21: Total OFS Market by Activity 2005-2014 .....94
Table 22: Total OFS Market by Region 2005-2014 .....94
Table 23: Total Drilling Market by Component 2005-2014 .....95
Table 24: Total Drilling Market by Region 2005-2014 .......95
Table 25: Total Workover Market by Component 2005-2014 ....96
Table 26: Total Workover Market by Region 2005-2014 .......96
Table 27: Total Seismic Acquisition Market by Type 2005-2014 .....97
Table 28: Total Seismic Acquisition Market by Region 2005-2014 ......97
Table 29: OFS Market: Timan Pechora 2005-2014 .......98
Table 30: OFS Market: Volga-Urals 2005-2014 .......99
Table 31: OFS Market: Eastern Siberia 2005-2014 ......100
Table 32: OFS Market: Western Siberia 2005-2014 .......101
Table 33: Component Market: Rig & Crew 2005-2014 .......102
Table 34: Component Market: Completions 2005-2014 ......102
Table 35: Component Market: Perforation 2005-2014 ......103
Table 36: Component Market: Fishing & Milling 2005-2014 .....103
Table 37: Component Market: Bit Programme 2005-2014 ......104
Table 38: Component Market: Cementing 2005-2014 ......104
Table 39: Component Market: Logging 2005-2014 ......105
Table 40: Component Market: Fluids 2005-2014 .....105
Table 41: Component Market: Casing 2005-2014 .....106
Table 42: Component Market: Directional Drilling 2005-2014 ......106
Table 43: Component Market: Tubing 2005-2014 .......107
Table 44: Component Market: Fracturing 2005-2014 ........107
Table 45: Equipment Markets: Domestic Drilling Rig Manufacture 2005-14 .. 108
Table 46: Equipment Markets: Drilling Rig Service Market 2005-14 .....108
Table 47: Topdrive Units Manufactured 2005-2014 .....109
Table 48: Expenditure on Topdrive Units 2005-2014 .......109
Table 49: Equipment Market: New Artificial Lift Systems 2005-2014 .....10
Table 50: Equipment Market: Replacement Artificial Lift Systems 2005-2014.....110

2 Russia in the Context of Global Energy Supply

2.1 Global Demand & Supply
Growing Global Energy Demand
Global energy demand is the underlying driver for onshore and offshore energy
production levels. As has been acutely demonstrated in recent years, both growth
and contraction of energy consumption affect production. Despite renewable energy
initiatives and planned nuclear development, for the medium term, global demand is
centred on hydrocarbons (specifically oil & gas). In the long term, the trend towards
increasing energy consumption is clear. Global annual energy consumption has more
than tripled over the past fifty years, driven mainly by demand growth in the developing
economies. Inversely, 2008 saw primary energy consumption decrease in a number of
countries because of the global financial crisis.

Due to China’s rapid development since 1991, Asia’s primary energy consumption has
grown at a rate that has eclipsed all other users. Over the period 2000-2009, Asia’s
primary energy consumption had a CAGR of 13.1% – compared to -1.1% and 0.9% in
the North America and the FSU (Former Soviet Union) & Eastern Europe respectively –
and reached 80.5mmboed in 2009.

According to the IEA, China became the world’s largest energy consumer in 2009 at
16.6 billion boe, with the US consuming 15.8 billion boe. Chinese energy consumption in
2009 was more than double that of 2000, when it totalled 8.1 billion boe, while US
consumption was lower than in 2000, at a total of 15.8 billion boe. The opposing trends
in Chinese and US energy consumption are a reflection of how differently the two
economies faired during the global economic recession.

Oil Supply Pressures
In 2010 non-OPEC oil supply was forecast to increase by 0.7mmbpd, with the US, Brazil
and Russia driving the growth. However, production is forecast to fall by 1.7mmbpd in
2011, due to slow economic growth, reduced production in Russia and declining North
Sea production. Should the forecast for 2011 be accurate, it would be only the third time
in the last 15 years that non-OPEC supplies had failed to grow year-on-year. OPEC
crude oil production increased by 0.3mmbpd in 2010, and is predicted to increase by
0.5mmbpd in 2011. This growth reflects a growing demand for energy following the
global economic recession. Despite this growth, 2010 production levels are yet to return
to the levels achieved before the global downturn.
EIA projects world oil consumption growth will be 1.6mmbpd in 2010. For 2011 the
consumption growth forecast has been reduced to 1.4mmbpd, reflecting lower Gross
Domestic Produce (GDP) estimates in major economies.

Far East – Sakhalin – the Sakhalin basin is built up of six regions, the first of which is
already under production. Sakhalin II came on-stream in 2009 and on May 17 2010
Sakhalin Energy delivered the first cargo of Sakhalin LNG to Japanese customer Tohoku
Electric. Production from all regions in the basin should increase over the next decade
depending on the amount of investment into the region. As a prospective area, this oil
basin is just about completely explored and it is unlikely any new significant discoveries
will be made there in the future. Disagreement exists over oil reserve estimates for
Sakhalin, with totals estimated to be between 2 billion bbls and 14 billion bbls (although
natural gas reserves are widely estimated at 80tcf).9

Western Siberia – the majority of Russia’s production increases over the past decade
have come from this region; the basin accounts for over 64% of the country’s oil
production. However, following a production spike in 2008, production is predicted to
decline annually. A large proportion of production is associated with the huge Samotlor
field, which is the largest oilfield in Russia and the sixth largest in the world. Although it
is now in decline, TNK-BP will spend $4.6 billion between 2010 and 2014 on seismic and
3D surveying, to find new oil pools in Samoltor. ESPs, which are in over 90% of oil wells
in Western Siberia, continue to play a large part in optimising production from the region
– TNK-BP estimate a possible 38% recovery factor (currently 25%) in the future. As the
vast basin is isolated, a lot of infrastructure is needed to produce new fields.

Volga-Urals – the most mature Russian basin with very few new developments on the
horizon. The largest field, Romashkino, is now in decline. Major operators such as TNKBP
are pushing Enhanced Oil Recovery (EOR) techniques to maximise oil production
from the declining region.

3.4 Russian Oil & Gas Policy

In 1992 under the guidance of President Yeltsin, the role of energy in Russian politics
was to rebuild and revitalise a post Cold War economy; this led to multibillion dollar
deals with western majors, such as Shell and BP, and the opening up of Russian
resources to the West to stimulate an underinvested nationalistic sector.
In recent years Russian energy policy has been one of nationalisation, where state
owned companies Rosneft and Gazprom influence much of the energy landscape. This
consolidation does not only affect Western majors, such as Shell or BP, but also nonstate
owned Russian companies.

According to the Index of Economic Freedom, investment freedom in Russia has
decreased dramatically over the last 15 years, with the country scoring only 25 of 100
(down from 70 in 1995) – the third lowest in Europe, ahead of Belarus and Ukraine. In
recent years the government has increased levels of intervention in the energy sector,
while corruption is high and financial freedom has been curtailed. Russia is ranked 143rd
out of 179 countries for overall economic freedom, and it is ranked 147th out of 179 by
Transparency International for corruption levels.11

In July 2008 the government introduced a new law entitled “On the Procedure for
Foreign Investment in Companies Strategically Important for the Defense and National
Security of the Russian Federation”. The law covers 42 ‘strategic’ sectors in which
purchases of controlling interests by foreign companies must be pre-approved by the
government, including hydrocarbon exploration and energy production. The energy
sector is further covered by laws under which the government handpicks companies to
develop reserves that are classed as “strategic” (those which are located on the
continental shelf or are over 513mmboe or 50Bcm of gas in size). This new law has
recently affected hydrocarbon developments in Eastern Siberia, Timan-Pechora, and will
have an impact upon exploration and production in the offshore Arctic oil and gas fields.

However, the government is now set to amend the legal regime in January 2011 to allow
foreign firms to develop Russia’s continental shelf and offshore reserves. Following a
review of offshore development, the government has decided that domestic companies
alone will not be sufficient in exploiting the vast offshore reserves. Currently only stateowned
Gazprom and Rosneft are able to develop offshore reserves. It is not yet known
if the amendment will affect the strategic laws covering onshore development and
foreign involvement.

There are also political and financial shortcomings surrounding Russian energy policies
due to Moscow’s refusal to ratify the Energy Charter Treaty (despite being a signatory).
Should the treaty be ratified, internal energy policies would undergo convergence
towards a standardised western (and EU-wide) policy model that covers many areas
such as network unbundling, export tariffs, investment protection, and dispute arbitration.

4.4 Horizontal/Directional Drilling

Horizontal drilling and directional drilling have enabled energy companies to maximise
the volume of gas that is being produced from reservoirs. Reserves that were previously
deemed to have too low flow rates due to their thickness are now able to produce
greater volumes of gas. Horizontal drilling was first pioneered during the 1930s, while
directional drilling began during the 1950s. Modern technological developments of the
processes and economic viability have resulted in their widespread commercial use in
North America.

Horizontal drilling is the process of drilling a well that begins as a standard vertical linear
bore for a certain depth, before arcing, turning or becoming horizontal and entering into
a gas reservoir, where the bore continues at that angle. Most gas (and oil) reservoirs
have a greater horizontal dimension than vertical thickness. Therefore, the number of
productive reservoirs was limited. Horizontal and directional drilling means the wellbore
can be extended for a great distance horizontally through the gas reservoir. A greater
area of the reservoir and greater volume of gas is therefore exposed to the wellbore than
if a traditional vertical wellbore was being used. Horizontal drilling is estimated to
produce between two and seven times more gas from a reservoir than vertical drilling.

While horizontal drilling enables extraction of gas from reservoirs with reduced
thickness, directional drilling provides the technology for wellbores to be drilled in a
manner relevant to the physical characteristics of the rock formation above the reservoir.
Directional drilling allows for a deviation in drilling trajectory from the vertical line towards
a predetermined target area of shale rock (known as the ‘sweet spot’), where potential
gas flow and permeability are at highest.

The drilling techniques also provide a means of avoiding subsurface obstacles or those
on the surface, such as urban areas, bodies of water and environmentally protected
areas of land. For example, the onshore oil production facility at Wytch Farm in Southern
England, the Al Shaheen field in Qatar and the Chayvo field, Sakhalin in Russia all have
directionally drilled wells that extend out under the sea for over 10km.

Horizontal and directional drilling allows advanced hydraulic fracturing to occur. The
hydraulic fracturing process is key to unconventional gas development and extraction.
For the process to be effective, the wellbore must pass throughout the length of the gas
reservoir, which is something horizontal and directional drilling provides. Directional
drilling is done with rotary steerable to allow steering while rotating – creating smoother,
more efficient boreholes. Drilling three horizontal wells in a reservoir may produce the
same volume of gas as drilling 20 vertical wells. The FSU is estimated to have shale gas
reserves of as high as 11,880mmboe (as well as substantial coal-bed methane
deposits). Although there is no shale gas production yet, directional and horizontal
drilling will allow such gas to be extracted. It will also increase reservoir accessibility and
lengthen the production lifetime of mature fields.

7.2 Drilling & Workover Splits

In order to separate the oilfield services market into its individual components, each
drilling and workover operation has been split into a variety of cost centres, based on
different proportions for each region as identified through market research and
discussions with industry experts. In reality, every operation differs in its makeup, but we
believe the proportions we have used in calculating the Russian market result in
accurate figures. There may be additional cost centres for each type of operation, but as
these are of low value they have been incorporated into “other” costs.

Price for this report :
For Hardcopy or PDF Unit (Price £ UK) : £12,600

Disclaimer
All Rights Reserved.

By purchasing this document, your organisation agrees that it will not copy or allow to be
copied in part or whole or otherwise circulated in any form any of the contents without
the written permission of the publishers. Additional copies of this study may be purchased
at a specially discounted rate.

The information contained in this document is believed to be accurate, but no representation
or warranty, express or implied, is made by the publisher as to the completeness, accuracy
or fairness of any information contained in it and we do not accept any responsibility in
relation to such information whether fact, opinion or conclusion that the reader may draw.
The views expressed are those of the individual authors and do not necessarily represent
those of the publishers.

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The Russian Onshore Oilfield Services 2010 - 2014 - Report
Worldoils Oil, Gas and Offshore Marketplace    Worldoils Oil, Gas and Offshore Marketplace

Equipment ID   : 900
Equipment name   : The Russian Onshore Oilfield Services 2010 - 2014 - Report
Category   : Research Reports
Specifications   : Name of the Report :
The Russia Onshore Oilfield Services 2010 - 2014

Publication Date : 3 December 2010

Contents

Foreword .................15

1 Executive Summary
...........17
1.1 Market Drivers ...........18
1.2 Performance of Russian OFS in post financial crises .........19
1.3 New Technology ............21
1.4 OFS Market by Activity & Region ...........22
1.5 Equipment Markets ........... 23
1.6 Conclusions ............23

2 Russia in the Context of Global Energy Supply
..........25
2.1 Global Demand & Supply ............26
2.2 Oil Price and Exchange Rate Changes ..........28
2.3 Russian Oil Reserves ...........29
2.4 Russia: Comparison of Oil & Gas Production Forecasts.......32
2.5 Russian Oil & Gas Production ............33
2.6 Russian Production in Context ...........34

3 The Russian Oil & Gas Business .......35
3.1 The Soviet Union – Pre 1990.........36
3.2 Recent History ...........37
3.3 The Development of the Russian OFS Market ........38
3.4 Russian Oil & Gas Policy ...........39
3.5 The Domestic Landscape .............42
3.6 Domestic Drilling Activity by Operator ..........44
3.7 Russian E&P Expenditure.........46
3.8 Geographical Coverage ...........48
3.9 In-house Providers ...........51
3.10 Impact of Western OFS Providers .........52
3.11 Entry Strategies ..........53
3.12 Technology .............54

4 Technical Overview ..........55
4.1 Overview ..............56
4.2 Seismic Evaluation .........56
4.3 Drilling ..........57
4.4 Horizontal/Directional Drilling ..........58
4.5 Drilling Operations .........59
4.6 Workover Operations ..........60
4.7 Artificial Lift Technologies ...........61
4.8 ESP Technology ...........62
4.9 ESP-PMM Technology .........63
4.10 Competing Artificial Lift Technologies..........65
4.11 Capabilities of Artificial Lift Technologies .........66
4.12 EOR Overview ...........67

5 Market Participants ..........69
5.1 Key Trends.........70
5.2 Drilling and Workover ..........72
5.3 Russian Integrated Drilling Landscape ...........73
5.4 Rig Manufacture & Service ...........74
5.5 ESP Market ............75

6 Regional Production Overview ..........77
6.1 All Regions – Oil .............78
6.2 All Regions – Gas .............78
6.3 Timan-Pechora ............79
6.4 Volga-Urals ............79
6.5 Eastern Siberia ..........80
6.6 Western Siberia ..........80

7 Model Assumptions ...........81
7.1 The DW OFS & Equipment Market Model .......82
7.2 Drilling & Workover Splits ...........83
7.3 Exploration & Production Wells Drilled ........84
7.4 Active Drilling & Workover Rigs ..........85
7.5 Workover Operations & Well Depths ..........87
7.6 Wellstock & Service Split ..........88
7.7 Seismic Crews & Rig Manufacture .........89
7.8 Coping with future demand in light of an ageing onshore rig fleet ....... 90
7.9 Pricing Dynamics .............91

8 Market Forecasts
............93
8.1 OFS Market: Total ............94
8.2 OFS Market: Drilling ...........95
8.3 OFS Market: Workover ............96
8.4 OFS Market: Seismic Acquisition ..........97
8.5 OFS Market: Timan-Pechora Region .........98
8.6 OFS Market: Volga-Urals Region ...........99
8.7 OFS Market: Eastern Siberia Region ............100
8.8 OFS Market: Western Siberia Region .............101
8.9 Component Markets: Rig & Crew .............102
8.10 Component Markets: Completions ............102
8.11 Component Markets: Perforation .............103
8.12 Component Markets: Fishing & Milling ..............103
8.13 Component Markets: Bit Programme ..........104
8.14 Component Markets: Cementing ...........104
8.15 Component Markets: Logging .........105
8.16 Component Markets: Fluids .........105
8.17 Component Markets: Casing ...........106
8.18 Component Markets: Directional Drilling .............106
8.19 Component Markets: Tubing .......107
8.20 Component Markets: Fracturing .............107
8.21 Equipment Market: Drilling Rigs ..............108
8.22 Equipment Markets: Artificial Lift Equipment .............110

9 Appendix
...............111
9.1 Major operators ..................112
9.2 Selected Domestic Competitors ...........114
9.3 Selected Foreign Competitors .........117

Figures
Figure 1: Total OFS Market by Activity 2005-2014 ........22
Figure 2: Total OFS Market by Region 2005-2014 .......22
Figure 3: Selected Equipment Market by Type 2005-2014........23
Figure 4: Global Energy Demand 1965- 2009 ....... 26
Figure 5: Global Oil Supply 1930-2025 .......26
Figure 6: Global Oil Production 1930-2025 ........27
Figure 7: Global Gas Production 1930-2025 .........27
Figure 8: Oil Price (Urals) and Ruble/US$ Exchange Rate ......28
Figure 10: Oil Production Forecast 2005-2014 .......32
Figure 11: Gas Production Forecast 2005-2014 ........32
Figure 12: Russian Oil & Gas Production 1930-2020 .......33
Figure 14: Global Gas Production 1930-2020 ........34
Figure 16: Post Soviet Industry Expansion ........37
Figure 15: Development of the Russian OFS Industry ........37
Figure 17: Evolution of the Integrated Service Companies........38
Figure 18: Market Liberalisation in Russia 1991-2008 (illustrative) .......39
Figure 20: Average Capex per barrel of Oil 2003-2009 ........41
Figure 21: Russian Oil Production by Operator (000 bpd) .......42
Figure 22: Russian Oil Reserves by Operator (million barrels)......42
Figure 23: Russian Exploration Drilling by Operator (Kilometres Drilled) ......... 44
Figure 24: Russian Development Drilling by Operator ......... 45
Figure 25: Global E&P Company Spend 2005-2010 ...........46
Figure 26: Russian Upstream Capex by Select Oil Companies 2003-10 ......... 46
Figure 27: Geographical Coverage of Russian Production .........48
Figure 28: Russian OFS Competitor Classification ............49
Figure 30: Diagram of Seismic Evaluation ...........56
Figure 31: Basic Onshore Drilling Rig ..........57
Figure 32: Directional Drilling .........58
Figure 33: Basic Onshore Development Well (not to scale) ..........59
Figure 34: Workover: Basic Vertical Onshore Development Well (not to scale)........60
Figure 35: Artificial Lift Types ...........61
Figure 36: Artificial Lift Systems Comparison ..........64
Figure 37: Competing Artificial Lift Types ........66
Figure 38: Steam Flooding via Dedicated Injection Well .........67
Figure 39: CO2 Gas Injection ..........68
Figure 40: Estimate share of Overall OFS Revenues 2009 ........70
Figure 41: Service Split by Contractor Type 2005-2014 .......70
Figure 42: Russian Services Model (illustrative) .........71
Figure 43: Competitive Landscape – Drilling and Workover ........72
Figure 44: Competitive Landscape: Integrated Drilling Services .........73
Figure 46: Competitive Landscape – ESP Market ........75
Figure 47: All Regions Onshore Oil Production 2005-2014 .........78
Figure 48: All Regions Onshore Gas Production 2005-2014 ........78
Figure 49: Timan-Pechora Onshore Hydrocarbon Production 2005-2014 ....... 79
Figure 50: Volga-Urals Onshore Hydrocarbon Production 2005-2014 ............. 79
Figure 51: Eastern Siberia Onshore Hydrocarbon Production 2005-2014 ....... 80
Figure 52: Western Siberia Onshore Hydrocarbon Production 2005-2014 ...... 80
Figure 53 The DW OFS Equipment Market Model .........82
Figure 54: Drilling and Workover Cost-Splits .........83
Figure 55: E&P Wells Drilled 2005-2014 ........84
Figure 56: E&P Wells Metres Drilled 2005-2014 .........85
Figure 57: Active Drilling Rigs 2005-2014 ........85
Figure 58: Active Workover Rigs 2005-2014 .......86
Figure 59: Workover Operations 2005-2014 ..........87
Figure 60: Average Regional Well Depths ...........87
Figure 61: Russian Production Wellstock 2005-2014 .........88
Figure 62: Service Split by Contractor 2005-2014 ............88
Figure 63: Number of Active Seismic Crews 2005-2014 ........89
Figure 64: Russia Rig Newbuild Requirements 2003-2015 .......89
Figure 66: Russian Workover Price per Operation by Region 2005-2014 ....91
Figure 67: Rig Dayrates by Region 2005-2014 .........92
Figure 68: Total OFS Market by Activity 2005-2014 ...........94
Figure 69: Total OFS Market by Region 2005-2014 ........94
Figure 70: Total Drilling Market by Component 2005-2014 .......95
Figure 71: Total Drilling Market by Region 2005-2014 .........95
Figure 72: Total Workover Market by Component 2005-2014 .........96
Figure 73: Total Workover Market by Region 2005-2014 .........96
Figure 74: Total Seismic Acquisition Market by Type 2005-2014 ....... 97
Figure 75: Total Seismic Acquisition Market by Region 2005-2014 ...........97
Figure 76: OFS Market: Timan-Pechora by Component 2005-2014 ........98
Figure 77: OFS Market: Timan-Pechora by Activity 2005-2014 .........98
Figure 78: OFS Market: Volga-Urals by Component 2005-2014 ........99
Figure 79: OFS Market: Volga-Urals by Activity 2005-2014 .......99
Figure 80: OFS Market: Eastern Siberia by Component 2005-2014 .......100
Figure 81: OFS Market: Eastern Siberia by Activity 2005-2014 ......100
Figure 82: OFS Market: Western Siberia by Component 2005-2014 .......101
Figure 83: OFS Market: Western Siberia by Activity 2005-2014 .........101
Figure 84: Component Market: Rig & Crew 2005-2014 ..........102
Figure 85: Component Market: Completions 2005-2014 .......102
Figure 86: Component Market: Perforation 2005-2014 .......103
Figure 87: Component Market: Fishing & Milling 2005-2014 .......103
Figure 88: Component Market: Bit Programme 2005-2014 ........104
Figure 89: Component Market: Cementing 2005-2014 ......104
Figure 90: Component Market: Logging 2005-2014 ........105
Figure 91: Component Market: Fluids 2005-2014 .........105
Figure 92: Component Market: Casing 2005-2014 .........106
Figure 93: Component Market: Directional Drilling 2005-2014 ........106
Figure 94: Component Market: Tubing 2005-2014 ..........107
Figure 95: Component Market: Fracturing 2005-2014 .........107
Figure 96: Total Expenditure on Rig Manufacture <1250 HP ..........108
Figure 97: Topdrive Units Manufactured 2005-2014 .........109
Figure 98: Expenditure on Topdrive Units.........109
Figure 99: Equipment Market: New Artificial Lift Systems 2005-2014 ............ 110
Figure 100: Equipment Market: Replacement Artificial Lift Systems 2005-14.....110

Tables
Table 1: 2010 E&P Capex Budgets ......20
Table 2: Mineral Extraction Tax Calculation (As of 1st Jan 2009) $/bbl .....41
Table 3: All Regions Oil Production 2005-2014 .........78
Table 4: All Regions Gas Production 2005-2014 ......78
Table 5: Timan-Pechora Onshore Hydrocarbon Production 2005-2014 ....79
Table 6: Volga-Urals Onshore Hydrocarbon Production 2005-2014 ......79
Table 7: Eastern Siberia Onshore Hydrocarbon Production 2005-2014 .....80
Table 8: Western Siberia Onshore Hydrocarbon Production 2005-2014 ....80
Table 9: E&P Wells Drilled 2005-2014 ........84
Table 10: E&P Wells Thousand Metres Drilled 2005-2014 .......85
Table 11: Active Drilling Rigs 2005-2014 .....85
Table 12: Active Workover Rigs 2005-2014 .......86
Table 13: Workover Operations 2005-2014 .......87
Table 14: Russian Production Wellstock 2005-2014 ......88
Table 15: Number of Active Seismic Crews 2005-2014 ...89
Table 16: Number of Domestic Newbuild Rigs 2005-2014 ......89
Table 17: Russian Drilling Price per Metre by Region 2005-2014 .....91
Table 18: Russian Workover Price per Operation by Region 2005-2014 .....91
Table 19: Rig Dayrates by Region 2005-2014 ......92
Table 20: Average Metres drilled per Active Drilling Rig 2005-2014 .....92
Table 21: Total OFS Market by Activity 2005-2014 .....94
Table 22: Total OFS Market by Region 2005-2014 .....94
Table 23: Total Drilling Market by Component 2005-2014 .....95
Table 24: Total Drilling Market by Region 2005-2014 .......95
Table 25: Total Workover Market by Component 2005-2014 ....96
Table 26: Total Workover Market by Region 2005-2014 .......96
Table 27: Total Seismic Acquisition Market by Type 2005-2014 .....97
Table 28: Total Seismic Acquisition Market by Region 2005-2014 ......97
Table 29: OFS Market: Timan Pechora 2005-2014 .......98
Table 30: OFS Market: Volga-Urals 2005-2014 .......99
Table 31: OFS Market: Eastern Siberia 2005-2014 ......100
Table 32: OFS Market: Western Siberia 2005-2014 .......101
Table 33: Component Market: Rig & Crew 2005-2014 .......102
Table 34: Component Market: Completions 2005-2014 ......102
Table 35: Component Market: Perforation 2005-2014 ......103
Table 36: Component Market: Fishing & Milling 2005-2014 .....103
Table 37: Component Market: Bit Programme 2005-2014 ......104
Table 38: Component Market: Cementing 2005-2014 ......104
Table 39: Component Market: Logging 2005-2014 ......105
Table 40: Component Market: Fluids 2005-2014 .....105
Table 41: Component Market: Casing 2005-2014 .....106
Table 42: Component Market: Directional Drilling 2005-2014 ......106
Table 43: Component Market: Tubing 2005-2014 .......107
Table 44: Component Market: Fracturing 2005-2014 ........107
Table 45: Equipment Markets: Domestic Drilling Rig Manufacture 2005-14 .. 108
Table 46: Equipment Markets: Drilling Rig Service Market 2005-14 .....108
Table 47: Topdrive Units Manufactured 2005-2014 .....109
Table 48: Expenditure on Topdrive Units 2005-2014 .......109
Table 49: Equipment Market: New Artificial Lift Systems 2005-2014 .....10
Table 50: Equipment Market: Replacement Artificial Lift Systems 2005-2014.....110

2 Russia in the Context of Global Energy Supply

2.1 Global Demand & Supply
Growing Global Energy Demand
Global energy demand is the underlying driver for onshore and offshore energy
production levels. As has been acutely demonstrated in recent years, both growth
and contraction of energy consumption affect production. Despite renewable energy
initiatives and planned nuclear development, for the medium term, global demand is
centred on hydrocarbons (specifically oil & gas). In the long term, the trend towards
increasing energy consumption is clear. Global annual energy consumption has more
than tripled over the past fifty years, driven mainly by demand growth in the developing
economies. Inversely, 2008 saw primary energy consumption decrease in a number of
countries because of the global financial crisis.

Due to China’s rapid development since 1991, Asia’s primary energy consumption has
grown at a rate that has eclipsed all other users. Over the period 2000-2009, Asia’s
primary energy consumption had a CAGR of 13.1% – compared to -1.1% and 0.9% in
the North America and the FSU (Former Soviet Union) & Eastern Europe respectively –
and reached 80.5mmboed in 2009.

According to the IEA, China became the world’s largest energy consumer in 2009 at
16.6 billion boe, with the US consuming 15.8 billion boe. Chinese energy consumption in
2009 was more than double that of 2000, when it totalled 8.1 billion boe, while US
consumption was lower than in 2000, at a total of 15.8 billion boe. The opposing trends
in Chinese and US energy consumption are a reflection of how differently the two
economies faired during the global economic recession.

Oil Supply Pressures
In 2010 non-OPEC oil supply was forecast to increase by 0.7mmbpd, with the US, Brazil
and Russia driving the growth. However, production is forecast to fall by 1.7mmbpd in
2011, due to slow economic growth, reduced production in Russia and declining North
Sea production. Should the forecast for 2011 be accurate, it would be only the third time
in the last 15 years that non-OPEC supplies had failed to grow year-on-year. OPEC
crude oil production increased by 0.3mmbpd in 2010, and is predicted to increase by
0.5mmbpd in 2011. This growth reflects a growing demand for energy following the
global economic recession. Despite this growth, 2010 production levels are yet to return
to the levels achieved before the global downturn.
EIA projects world oil consumption growth will be 1.6mmbpd in 2010. For 2011 the
consumption growth forecast has been reduced to 1.4mmbpd, reflecting lower Gross
Domestic Produce (GDP) estimates in major economies.

Far East – Sakhalin – the Sakhalin basin is built up of six regions, the first of which is
already under production. Sakhalin II came on-stream in 2009 and on May 17 2010
Sakhalin Energy delivered the first cargo of Sakhalin LNG to Japanese customer Tohoku
Electric. Production from all regions in the basin should increase over the next decade
depending on the amount of investment into the region. As a prospective area, this oil
basin is just about completely explored and it is unlikely any new significant discoveries
will be made there in the future. Disagreement exists over oil reserve estimates for
Sakhalin, with totals estimated to be between 2 billion bbls and 14 billion bbls (although
natural gas reserves are widely estimated at 80tcf).9

Western Siberia – the majority of Russia’s production increases over the past decade
have come from this region; the basin accounts for over 64% of the country’s oil
production. However, following a production spike in 2008, production is predicted to
decline annually. A large proportion of production is associated with the huge Samotlor
field, which is the largest oilfield in Russia and the sixth largest in the world. Although it
is now in decline, TNK-BP will spend $4.6 billion between 2010 and 2014 on seismic and
3D surveying, to find new oil pools in Samoltor. ESPs, which are in over 90% of oil wells
in Western Siberia, continue to play a large part in optimising production from the region
– TNK-BP estimate a possible 38% recovery factor (currently 25%) in the future. As the
vast basin is isolated, a lot of infrastructure is needed to produce new fields.

Volga-Urals – the most mature Russian basin with very few new developments on the
horizon. The largest field, Romashkino, is now in decline. Major operators such as TNKBP
are pushing Enhanced Oil Recovery (EOR) techniques to maximise oil production
from the declining region.

3.4 Russian Oil & Gas Policy

In 1992 under the guidance of President Yeltsin, the role of energy in Russian politics
was to rebuild and revitalise a post Cold War economy; this led to multibillion dollar
deals with western majors, such as Shell and BP, and the opening up of Russian
resources to the West to stimulate an underinvested nationalistic sector.
In recent years Russian energy policy has been one of nationalisation, where state
owned companies Rosneft and Gazprom influence much of the energy landscape. This
consolidation does not only affect Western majors, such as Shell or BP, but also nonstate
owned Russian companies.

According to the Index of Economic Freedom, investment freedom in Russia has
decreased dramatically over the last 15 years, with the country scoring only 25 of 100
(down from 70 in 1995) – the third lowest in Europe, ahead of Belarus and Ukraine. In
recent years the government has increased levels of intervention in the energy sector,
while corruption is high and financial freedom has been curtailed. Russia is ranked 143rd
out of 179 countries for overall economic freedom, and it is ranked 147th out of 179 by
Transparency International for corruption levels.11

In July 2008 the government introduced a new law entitled “On the Procedure for
Foreign Investment in Companies Strategically Important for the Defense and National
Security of the Russian Federation”. The law covers 42 ‘strategic’ sectors in which
purchases of controlling interests by foreign companies must be pre-approved by the
government, including hydrocarbon exploration and energy production. The energy
sector is further covered by laws under which the government handpicks companies to
develop reserves that are classed as “strategic” (those which are located on the
continental shelf or are over 513mmboe or 50Bcm of gas in size). This new law has
recently affected hydrocarbon developments in Eastern Siberia, Timan-Pechora, and will
have an impact upon exploration and production in the offshore Arctic oil and gas fields.

However, the government is now set to amend the legal regime in January 2011 to allow
foreign firms to develop Russia’s continental shelf and offshore reserves. Following a
review of offshore development, the government has decided that domestic companies
alone will not be sufficient in exploiting the vast offshore reserves. Currently only stateowned
Gazprom and Rosneft are able to develop offshore reserves. It is not yet known
if the amendment will affect the strategic laws covering onshore development and
foreign involvement.

There are also political and financial shortcomings surrounding Russian energy policies
due to Moscow’s refusal to ratify the Energy Charter Treaty (despite being a signatory).
Should the treaty be ratified, internal energy policies would undergo convergence
towards a standardised western (and EU-wide) policy model that covers many areas
such as network unbundling, export tariffs, investment protection, and dispute arbitration.

4.4 Horizontal/Directional Drilling

Horizontal drilling and directional drilling have enabled energy companies to maximise
the volume of gas that is being produced from reservoirs. Reserves that were previously
deemed to have too low flow rates due to their thickness are now able to produce
greater volumes of gas. Horizontal drilling was first pioneered during the 1930s, while
directional drilling began during the 1950s. Modern technological developments of the
processes and economic viability have resulted in their widespread commercial use in
North America.

Horizontal drilling is the process of drilling a well that begins as a standard vertical linear
bore for a certain depth, before arcing, turning or becoming horizontal and entering into
a gas reservoir, where the bore continues at that angle. Most gas (and oil) reservoirs
have a greater horizontal dimension than vertical thickness. Therefore, the number of
productive reservoirs was limited. Horizontal and directional drilling means the wellbore
can be extended for a great distance horizontally through the gas reservoir. A greater
area of the reservoir and greater volume of gas is therefore exposed to the wellbore than
if a traditional vertical wellbore was being used. Horizontal drilling is estimated to
produce between two and seven times more gas from a reservoir than vertical drilling.

While horizontal drilling enables extraction of gas from reservoirs with reduced
thickness, directional drilling provides the technology for wellbores to be drilled in a
manner relevant to the physical characteristics of the rock formation above the reservoir.
Directional drilling allows for a deviation in drilling trajectory from the vertical line towards
a predetermined target area of shale rock (known as the ‘sweet spot’), where potential
gas flow and permeability are at highest.

The drilling techniques also provide a means of avoiding subsurface obstacles or those
on the surface, such as urban areas, bodies of water and environmentally protected
areas of land. For example, the onshore oil production facility at Wytch Farm in Southern
England, the Al Shaheen field in Qatar and the Chayvo field, Sakhalin in Russia all have
directionally drilled wells that extend out under the sea for over 10km.

Horizontal and directional drilling allows advanced hydraulic fracturing to occur. The
hydraulic fracturing process is key to unconventional gas development and extraction.
For the process to be effective, the wellbore must pass throughout the length of the gas
reservoir, which is something horizontal and directional drilling provides. Directional
drilling is done with rotary steerable to allow steering while rotating – creating smoother,
more efficient boreholes. Drilling three horizontal wells in a reservoir may produce the
same volume of gas as drilling 20 vertical wells. The FSU is estimated to have shale gas
reserves of as high as 11,880mmboe (as well as substantial coal-bed methane
deposits). Although there is no shale gas production yet, directional and horizontal
drilling will allow such gas to be extracted. It will also increase reservoir accessibility and
lengthen the production lifetime of mature fields.

7.2 Drilling & Workover Splits

In order to separate the oilfield services market into its individual components, each
drilling and workover operation has been split into a variety of cost centres, based on
different proportions for each region as identified through market research and
discussions with industry experts. In reality, every operation differs in its makeup, but we
believe the proportions we have used in calculating the Russian market result in
accurate figures. There may be additional cost centres for each type of operation, but as
these are of low value they have been incorporated into “other” costs.

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The Russian Onshore Oilfield Services 2010 - 2014 - Report
Worldoils Oil, Gas and Offshore Marketplace    
Worldoils Oil, Gas and Offshore Marketplace

Equipment ID   : 900
Equipment name   : The Russian Onshore Oilfield Services 2010 - 2014 - Report
Category   : Research Reports
 
Specifications  :
Name of the Report :
The Russia Onshore Oilfield Services 2010 - 2014

Publication Date : 3 December 2010

Contents

Foreword .................15

1 Executive Summary
...........17
1.1 Market Drivers ...........18
1.2 Performance of Russian OFS in post financial crises .........19
1.3 New Technology ............21
1.4 OFS Market by Activity & Region ...........22
1.5 Equipment Markets ........... 23
1.6 Conclusions ............23

2 Russia in the Context of Global Energy Supply
..........25
2.1 Global Demand & Supply ............26
2.2 Oil Price and Exchange Rate Changes ..........28
2.3 Russian Oil Reserves ...........29
2.4 Russia: Comparison of Oil & Gas Production Forecasts.......32
2.5 Russian Oil & Gas Production ............33
2.6 Russian Production in Context ...........34

3 The Russian Oil & Gas Business .......35
3.1 The Soviet Union – Pre 1990.........36
3.2 Recent History ...........37
3.3 The Development of the Russian OFS Market ........38
3.4 Russian Oil & Gas Policy ...........39
3.5 The Domestic Landscape .............42
3.6 Domestic Drilling Activity by Operator ..........44
3.7 Russian E&P Expenditure.........46
3.8 Geographical Coverage ...........48
3.9 In-house Providers ...........51
3.10 Impact of Western OFS Providers .........52
3.11 Entry Strategies ..........53
3.12 Technology .............54

4 Technical Overview ..........55
4.1 Overview ..............56
4.2 Seismic Evaluation .........56
4.3 Drilling ..........57
4.4 Horizontal/Directional Drilling ..........58
4.5 Drilling Operations .........59
4.6 Workover Operations ..........60
4.7 Artificial Lift Technologies ...........61
4.8 ESP Technology ...........62
4.9 ESP-PMM Technology .........63
4.10 Competing Artificial Lift Technologies..........65
4.11 Capabilities of Artificial Lift Technologies .........66
4.12 EOR Overview ...........67

5 Market Participants ..........69
5.1 Key Trends.........70
5.2 Drilling and Workover ..........72
5.3 Russian Integrated Drilling Landscape ...........73
5.4 Rig Manufacture & Service ...........74
5.5 ESP Market ............75

6 Regional Production Overview ..........77
6.1 All Regions – Oil .............78
6.2 All Regions – Gas .............78
6.3 Timan-Pechora ............79
6.4 Volga-Urals ............79
6.5 Eastern Siberia ..........80
6.6 Western Siberia ..........80

7 Model Assumptions ...........81
7.1 The DW OFS & Equipment Market Model .......82
7.2 Drilling & Workover Splits ...........83
7.3 Exploration & Production Wells Drilled ........84
7.4 Active Drilling & Workover Rigs ..........85
7.5 Workover Operations & Well Depths ..........87
7.6 Wellstock & Service Split ..........88
7.7 Seismic Crews & Rig Manufacture .........89
7.8 Coping with future demand in light of an ageing onshore rig fleet ....... 90
7.9 Pricing Dynamics .............91

8 Market Forecasts
............93
8.1 OFS Market: Total ............94
8.2 OFS Market: Drilling ...........95
8.3 OFS Market: Workover ............96
8.4 OFS Market: Seismic Acquisition ..........97
8.5 OFS Market: Timan-Pechora Region .........98
8.6 OFS Market: Volga-Urals Region ...........99
8.7 OFS Market: Eastern Siberia Region ............100
8.8 OFS Market: Western Siberia Region .............101
8.9 Component Markets: Rig & Crew .............102
8.10 Component Markets: Completions ............102
8.11 Component Markets: Perforation .............103
8.12 Component Markets: Fishing & Milling ..............103
8.13 Component Markets: Bit Programme ..........104
8.14 Component Markets: Cementing ...........104
8.15 Component Markets: Logging .........105
8.16 Component Markets: Fluids .........105
8.17 Component Markets: Casing ...........106
8.18 Component Markets: Directional Drilling .............106
8.19 Component Markets: Tubing .......107
8.20 Component Markets: Fracturing .............107
8.21 Equipment Market: Drilling Rigs ..............108
8.22 Equipment Markets: Artificial Lift Equipment .............110

9 Appendix
...............111
9.1 Major operators ..................112
9.2 Selected Domestic Competitors ...........114
9.3 Selected Foreign Competitors .........117

Figures
Figure 1: Total OFS Market by Activity 2005-2014 ........22
Figure 2: Total OFS Market by Region 2005-2014 .......22
Figure 3: Selected Equipment Market by Type 2005-2014........23
Figure 4: Global Energy Demand 1965- 2009 ....... 26
Figure 5: Global Oil Supply 1930-2025 .......26
Figure 6: Global Oil Production 1930-2025 ........27
Figure 7: Global Gas Production 1930-2025 .........27
Figure 8: Oil Price (Urals) and Ruble/US$ Exchange Rate ......28
Figure 10: Oil Production Forecast 2005-2014 .......32
Figure 11: Gas Production Forecast 2005-2014 ........32
Figure 12: Russian Oil & Gas Production 1930-2020 .......33
Figure 14: Global Gas Production 1930-2020 ........34
Figure 16: Post Soviet Industry Expansion ........37
Figure 15: Development of the Russian OFS Industry ........37
Figure 17: Evolution of the Integrated Service Companies........38
Figure 18: Market Liberalisation in Russia 1991-2008 (illustrative) .......39
Figure 20: Average Capex per barrel of Oil 2003-2009 ........41
Figure 21: Russian Oil Production by Operator (000 bpd) .......42
Figure 22: Russian Oil Reserves by Operator (million barrels)......42
Figure 23: Russian Exploration Drilling by Operator (Kilometres Drilled) ......... 44
Figure 24: Russian Development Drilling by Operator ......... 45
Figure 25: Global E&P Company Spend 2005-2010 ...........46
Figure 26: Russian Upstream Capex by Select Oil Companies 2003-10 ......... 46
Figure 27: Geographical Coverage of Russian Production .........48
Figure 28: Russian OFS Competitor Classification ............49
Figure 30: Diagram of Seismic Evaluation ...........56
Figure 31: Basic Onshore Drilling Rig ..........57
Figure 32: Directional Drilling .........58
Figure 33: Basic Onshore Development Well (not to scale) ..........59
Figure 34: Workover: Basic Vertical Onshore Development Well (not to scale)........60
Figure 35: Artificial Lift Types ...........61
Figure 36: Artificial Lift Systems Comparison ..........64
Figure 37: Competing Artificial Lift Types ........66
Figure 38: Steam Flooding via Dedicated Injection Well .........67
Figure 39: CO2 Gas Injection ..........68
Figure 40: Estimate share of Overall OFS Revenues 2009 ........70
Figure 41: Service Split by Contractor Type 2005-2014 .......70
Figure 42: Russian Services Model (illustrative) .........71
Figure 43: Competitive Landscape – Drilling and Workover ........72
Figure 44: Competitive Landscape: Integrated Drilling Services .........73
Figure 46: Competitive Landscape – ESP Market ........75
Figure 47: All Regions Onshore Oil Production 2005-2014 .........78
Figure 48: All Regions Onshore Gas Production 2005-2014 ........78
Figure 49: Timan-Pechora Onshore Hydrocarbon Production 2005-2014 ....... 79
Figure 50: Volga-Urals Onshore Hydrocarbon Production 2005-2014 ............. 79
Figure 51: Eastern Siberia Onshore Hydrocarbon Production 2005-2014 ....... 80
Figure 52: Western Siberia Onshore Hydrocarbon Production 2005-2014 ...... 80
Figure 53 The DW OFS Equipment Market Model .........82
Figure 54: Drilling and Workover Cost-Splits .........83
Figure 55: E&P Wells Drilled 2005-2014 ........84
Figure 56: E&P Wells Metres Drilled 2005-2014 .........85
Figure 57: Active Drilling Rigs 2005-2014 ........85
Figure 58: Active Workover Rigs 2005-2014 .......86
Figure 59: Workover Operations 2005-2014 ..........87
Figure 60: Average Regional Well Depths ...........87
Figure 61: Russian Production Wellstock 2005-2014 .........88
Figure 62: Service Split by Contractor 2005-2014 ............88
Figure 63: Number of Active Seismic Crews 2005-2014 ........89
Figure 64: Russia Rig Newbuild Requirements 2003-2015 .......89
Figure 66: Russian Workover Price per Operation by Region 2005-2014 ....91
Figure 67: Rig Dayrates by Region 2005-2014 .........92
Figure 68: Total OFS Market by Activity 2005-2014 ...........94
Figure 69: Total OFS Market by Region 2005-2014 ........94
Figure 70: Total Drilling Market by Component 2005-2014 .......95
Figure 71: Total Drilling Market by Region 2005-2014 .........95
Figure 72: Total Workover Market by Component 2005-2014 .........96
Figure 73: Total Workover Market by Region 2005-2014 .........96
Figure 74: Total Seismic Acquisition Market by Type 2005-2014 ....... 97
Figure 75: Total Seismic Acquisition Market by Region 2005-2014 ...........97
Figure 76: OFS Market: Timan-Pechora by Component 2005-2014 ........98
Figure 77: OFS Market: Timan-Pechora by Activity 2005-2014 .........98
Figure 78: OFS Market: Volga-Urals by Component 2005-2014 ........99
Figure 79: OFS Market: Volga-Urals by Activity 2005-2014 .......99
Figure 80: OFS Market: Eastern Siberia by Component 2005-2014 .......100
Figure 81: OFS Market: Eastern Siberia by Activity 2005-2014 ......100
Figure 82: OFS Market: Western Siberia by Component 2005-2014 .......101
Figure 83: OFS Market: Western Siberia by Activity 2005-2014 .........101
Figure 84: Component Market: Rig & Crew 2005-2014 ..........102
Figure 85: Component Market: Completions 2005-2014 .......102
Figure 86: Component Market: Perforation 2005-2014 .......103
Figure 87: Component Market: Fishing & Milling 2005-2014 .......103
Figure 88: Component Market: Bit Programme 2005-2014 ........104
Figure 89: Component Market: Cementing 2005-2014 ......104
Figure 90: Component Market: Logging 2005-2014 ........105
Figure 91: Component Market: Fluids 2005-2014 .........105
Figure 92: Component Market: Casing 2005-2014 .........106
Figure 93: Component Market: Directional Drilling 2005-2014 ........106
Figure 94: Component Market: Tubing 2005-2014 ..........107
Figure 95: Component Market: Fracturing 2005-2014 .........107
Figure 96: Total Expenditure on Rig Manufacture <1250 HP ..........108
Figure 97: Topdrive Units Manufactured 2005-2014 .........109
Figure 98: Expenditure on Topdrive Units.........109
Figure 99: Equipment Market: New Artificial Lift Systems 2005-2014 ............ 110
Figure 100: Equipment Market: Replacement Artificial Lift Systems 2005-14.....110

Tables
Table 1: 2010 E&P Capex Budgets ......20
Table 2: Mineral Extraction Tax Calculation (As of 1st Jan 2009) $/bbl .....41
Table 3: All Regions Oil Production 2005-2014 .........78
Table 4: All Regions Gas Production 2005-2014 ......78
Table 5: Timan-Pechora Onshore Hydrocarbon Production 2005-2014 ....79
Table 6: Volga-Urals Onshore Hydrocarbon Production 2005-2014 ......79
Table 7: Eastern Siberia Onshore Hydrocarbon Production 2005-2014 .....80
Table 8: Western Siberia Onshore Hydrocarbon Production 2005-2014 ....80
Table 9: E&P Wells Drilled 2005-2014 ........84
Table 10: E&P Wells Thousand Metres Drilled 2005-2014 .......85
Table 11: Active Drilling Rigs 2005-2014 .....85
Table 12: Active Workover Rigs 2005-2014 .......86
Table 13: Workover Operations 2005-2014 .......87
Table 14: Russian Production Wellstock 2005-2014 ......88
Table 15: Number of Active Seismic Crews 2005-2014 ...89
Table 16: Number of Domestic Newbuild Rigs 2005-2014 ......89
Table 17: Russian Drilling Price per Metre by Region 2005-2014 .....91
Table 18: Russian Workover Price per Operation by Region 2005-2014 .....91
Table 19: Rig Dayrates by Region 2005-2014 ......92
Table 20: Average Metres drilled per Active Drilling Rig 2005-2014 .....92
Table 21: Total OFS Market by Activity 2005-2014 .....94
Table 22: Total OFS Market by Region 2005-2014 .....94
Table 23: Total Drilling Market by Component 2005-2014 .....95
Table 24: Total Drilling Market by Region 2005-2014 .......95
Table 25: Total Workover Market by Component 2005-2014 ....96
Table 26: Total Workover Market by Region 2005-2014 .......96
Table 27: Total Seismic Acquisition Market by Type 2005-2014 .....97
Table 28: Total Seismic Acquisition Market by Region 2005-2014 ......97
Table 29: OFS Market: Timan Pechora 2005-2014 .......98
Table 30: OFS Market: Volga-Urals 2005-2014 .......99
Table 31: OFS Market: Eastern Siberia 2005-2014 ......100
Table 32: OFS Market: Western Siberia 2005-2014 .......101
Table 33: Component Market: Rig & Crew 2005-2014 .......102
Table 34: Component Market: Completions 2005-2014 ......102
Table 35: Component Market: Perforation 2005-2014 ......103
Table 36: Component Market: Fishing & Milling 2005-2014 .....103
Table 37: Component Market: Bit Programme 2005-2014 ......104
Table 38: Component Market: Cementing 2005-2014 ......104
Table 39: Component Market: Logging 2005-2014 ......105
Table 40: Component Market: Fluids 2005-2014 .....105
Table 41: Component Market: Casing 2005-2014 .....106
Table 42: Component Market: Directional Drilling 2005-2014 ......106
Table 43: Component Market: Tubing 2005-2014 .......107
Table 44: Component Market: Fracturing 2005-2014 ........107
Table 45: Equipment Markets: Domestic Drilling Rig Manufacture 2005-14 .. 108
Table 46: Equipment Markets: Drilling Rig Service Market 2005-14 .....108
Table 47: Topdrive Units Manufactured 2005-2014 .....109
Table 48: Expenditure on Topdrive Units 2005-2014 .......109
Table 49: Equipment Market: New Artificial Lift Systems 2005-2014 .....10
Table 50: Equipment Market: Replacement Artificial Lift Systems 2005-2014.....110

2 Russia in the Context of Global Energy Supply

2.1 Global Demand & Supply
Growing Global Energy Demand
Global energy demand is the underlying driver for onshore and offshore energy
production levels. As has been acutely demonstrated in recent years, both growth
and contraction of energy consumption affect production. Despite renewable energy
initiatives and planned nuclear development, for the medium term, global demand is
centred on hydrocarbons (specifically oil & gas). In the long term, the trend towards
increasing energy consumption is clear. Global annual energy consumption has more
than tripled over the past fifty years, driven mainly by demand growth in the developing
economies. Inversely, 2008 saw primary energy consumption decrease in a number of
countries because of the global financial crisis.

Due to China’s rapid development since 1991, Asia’s primary energy consumption has
grown at a rate that has eclipsed all other users. Over the period 2000-2009, Asia’s
primary energy consumption had a CAGR of 13.1% – compared to -1.1% and 0.9% in
the North America and the FSU (Former Soviet Union) & Eastern Europe respectively –
and reached 80.5mmboed in 2009.

According to the IEA, China became the world’s largest energy consumer in 2009 at
16.6 billion boe, with the US consuming 15.8 billion boe. Chinese energy consumption in
2009 was more than double that of 2000, when it totalled 8.1 billion boe, while US
consumption was lower than in 2000, at a total of 15.8 billion boe. The opposing trends
in Chinese and US energy consumption are a reflection of how differently the two
economies faired during the global economic recession.

Oil Supply Pressures
In 2010 non-OPEC oil supply was forecast to increase by 0.7mmbpd, with the US, Brazil
and Russia driving the growth. However, production is forecast to fall by 1.7mmbpd in
2011, due to slow economic growth, reduced production in Russia and declining North
Sea production. Should the forecast for 2011 be accurate, it would be only the third time
in the last 15 years that non-OPEC supplies had failed to grow year-on-year. OPEC
crude oil production increased by 0.3mmbpd in 2010, and is predicted to increase by
0.5mmbpd in 2011. This growth reflects a growing demand for energy following the
global economic recession. Despite this growth, 2010 production levels are yet to return
to the levels achieved before the global downturn.
EIA projects world oil consumption growth will be 1.6mmbpd in 2010. For 2011 the
consumption growth forecast has been reduced to 1.4mmbpd, reflecting lower Gross
Domestic Produce (GDP) estimates in major economies.

Far East – Sakhalin – the Sakhalin basin is built up of six regions, the first of which is
already under production. Sakhalin II came on-stream in 2009 and on May 17 2010
Sakhalin Energy delivered the first cargo of Sakhalin LNG to Japanese customer Tohoku
Electric. Production from all regions in the basin should increase over the next decade
depending on the amount of investment into the region. As a prospective area, this oil
basin is just about completely explored and it is unlikely any new significant discoveries
will be made there in the future. Disagreement exists over oil reserve estimates for
Sakhalin, with totals estimated to be between 2 billion bbls and 14 billion bbls (although
natural gas reserves are widely estimated at 80tcf).9

Western Siberia – the majority of Russia’s production increases over the past decade
have come from this region; the basin accounts for over 64% of the country’s oil
production. However, following a production spike in 2008, production is predicted to
decline annually. A large proportion of production is associated with the huge Samotlor
field, which is the largest oilfield in Russia and the sixth largest in the world. Although it
is now in decline, TNK-BP will spend $4.6 billion between 2010 and 2014 on seismic and
3D surveying, to find new oil pools in Samoltor. ESPs, which are in over 90% of oil wells
in Western Siberia, continue to play a large part in optimising production from the region
– TNK-BP estimate a possible 38% recovery factor (currently 25%) in the future. As the
vast basin is isolated, a lot of infrastructure is needed to produce new fields.

Volga-Urals – the most mature Russian basin with very few new developments on the
horizon. The largest field, Romashkino, is now in decline. Major operators such as TNKBP
are pushing Enhanced Oil Recovery (EOR) techniques to maximise oil production
from the declining region.

3.4 Russian Oil & Gas Policy

In 1992 under the guidance of President Yeltsin, the role of energy in Russian politics
was to rebuild and revitalise a post Cold War economy; this led to multibillion dollar
deals with western majors, such as Shell and BP, and the opening up of Russian
resources to the West to stimulate an underinvested nationalistic sector.
In recent years Russian energy policy has been one of nationalisation, where state
owned companies Rosneft and Gazprom influence much of the energy landscape. This
consolidation does not only affect Western majors, such as Shell or BP, but also nonstate
owned Russian companies.

According to the Index of Economic Freedom, investment freedom in Russia has
decreased dramatically over the last 15 years, with the country scoring only 25 of 100
(down from 70 in 1995) – the third lowest in Europe, ahead of Belarus and Ukraine. In
recent years the government has increased levels of intervention in the energy sector,
while corruption is high and financial freedom has been curtailed. Russia is ranked 143rd
out of 179 countries for overall economic freedom, and it is ranked 147th out of 179 by
Transparency International for corruption levels.11

In July 2008 the government introduced a new law entitled “On the Procedure for
Foreign Investment in Companies Strategically Important for the Defense and National
Security of the Russian Federation”. The law covers 42 ‘strategic’ sectors in which
purchases of controlling interests by foreign companies must be pre-approved by the
government, including hydrocarbon exploration and energy production. The energy
sector is further covered by laws under which the government handpicks companies to
develop reserves that are classed as “strategic” (those which are located on the
continental shelf or are over 513mmboe or 50Bcm of gas in size). This new law has
recently affected hydrocarbon developments in Eastern Siberia, Timan-Pechora, and will
have an impact upon exploration and production in the offshore Arctic oil and gas fields.

However, the government is now set to amend the legal regime in January 2011 to allow
foreign firms to develop Russia’s continental shelf and offshore reserves. Following a
review of offshore development, the government has decided that domestic companies
alone will not be sufficient in exploiting the vast offshore reserves. Currently only stateowned
Gazprom and Rosneft are able to develop offshore reserves. It is not yet known
if the amendment will affect the strategic laws covering onshore development and
foreign involvement.

There are also political and financial shortcomings surrounding Russian energy policies
due to Moscow’s refusal to ratify the Energy Charter Treaty (despite being a signatory).
Should the treaty be ratified, internal energy policies would undergo convergence
towards a standardised western (and EU-wide) policy model that covers many areas
such as network unbundling, export tariffs, investment protection, and dispute arbitration.

4.4 Horizontal/Directional Drilling

Horizontal drilling and directional drilling have enabled energy companies to maximise
the volume of gas that is being produced from reservoirs. Reserves that were previously
deemed to have too low flow rates due to their thickness are now able to produce
greater volumes of gas. Horizontal drilling was first pioneered during the 1930s, while
directional drilling began during the 1950s. Modern technological developments of the
processes and economic viability have resulted in their widespread commercial use in
North America.

Horizontal drilling is the process of drilling a well that begins as a standard vertical linear
bore for a certain depth, before arcing, turning or becoming horizontal and entering into
a gas reservoir, where the bore continues at that angle. Most gas (and oil) reservoirs
have a greater horizontal dimension than vertical thickness. Therefore, the number of
productive reservoirs was limited. Horizontal and directional drilling means the wellbore
can be extended for a great distance horizontally through the gas reservoir. A greater
area of the reservoir and greater volume of gas is therefore exposed to the wellbore than
if a traditional vertical wellbore was being used. Horizontal drilling is estimated to
produce between two and seven times more gas from a reservoir than vertical drilling.

While horizontal drilling enables extraction of gas from reservoirs with reduced
thickness, directional drilling provides the technology for wellbores to be drilled in a
manner relevant to the physical characteristics of the rock formation above the reservoir.
Directional drilling allows for a deviation in drilling trajectory from the vertical line towards
a predetermined target area of shale rock (known as the ‘sweet spot’), where potential
gas flow and permeability are at highest.

The drilling techniques also provide a means of avoiding subsurface obstacles or those
on the surface, such as urban areas, bodies of water and environmentally protected
areas of land. For example, the onshore oil production facility at Wytch Farm in Southern
England, the Al Shaheen field in Qatar and the Chayvo field, Sakhalin in Russia all have
directionally drilled wells that extend out under the sea for over 10km.

Horizontal and directional drilling allows advanced hydraulic fracturing to occur. The
hydraulic fracturing process is key to unconventional gas development and extraction.
For the process to be effective, the wellbore must pass throughout the length of the gas
reservoir, which is something horizontal and directional drilling provides. Directional
drilling is done with rotary steerable to allow steering while rotating – creating smoother,
more efficient boreholes. Drilling three horizontal wells in a reservoir may produce the
same volume of gas as drilling 20 vertical wells. The FSU is estimated to have shale gas
reserves of as high as 11,880mmboe (as well as substantial coal-bed methane
deposits). Although there is no shale gas production yet, directional and horizontal
drilling will allow such gas to be extracted. It will also increase reservoir accessibility and
lengthen the production lifetime of mature fields.

7.2 Drilling & Workover Splits

In order to separate the oilfield services market into its individual components, each
drilling and workover operation has been split into a variety of cost centres, based on
different proportions for each region as identified through market research and
discussions with industry experts. In reality, every operation differs in its makeup, but we
believe the proportions we have used in calculating the Russian market result in
accurate figures. There may be additional cost centres for each type of operation, but as
these are of low value they have been incorporated into “other” costs.

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The information contained in this document is believed to be accurate, but no representation
or warranty, express or implied, is made by the publisher as to the completeness, accuracy
or fairness of any information contained in it and we do not accept any responsibility in
relation to such information whether fact, opinion or conclusion that the reader may draw.
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those of the publishers.

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