Mavriky Kalugin: We produce 4,200 tons per day, but it could have been 300 tons more with our current asserts.

Mavriky Kalugin: We produce 4,200 tons per day, but it could have been 300 tons more with our current asserts.

Mavriky Kalugin, Vice President for Production and Processing of PJSC Ukrnafta, has been working for the company since 2016. In four years, Ukrnafta has made an enormous breakthrough in production. The company has changed its long-term downward trend and shows excellent production results. However, resources and opportunities for further growth are almost exhausted, and without proper investments, production is expected to fall. In May, for the first time in two years, Ukrnafta announced a reduction in oil production by 1.3% and natural gas by 1.7% compared to the same period in 2019. We, of course, asked for the company’s insight. And we have an exciting conversation to share with our readers.

For the first time in years, you've had a production decline. What's the reason?

From a technical perspective, a production decline is expected as oil reserves are exhausted and depleted. Today, the decline is caused by increased idling of wells during overhauls. But the main reason is a minimal investment program. Here's an example: we can't purchase what we need in the required amounts, for example, oil well tubing or submersible equipment and chemicals. For instance, how we change the pumps. As soon as the submersible equipment fails, we lift it from the well, check it, and if it's not working, we change it for a reliable one. Today, however, we lack sufficient reserves, and we have to fix problems during repairs on-site by reinstalling the same equipment. It all leads to idling. An extra seven days of downtime are minus seven days of production. We are trying to reduce this time, but it also requires investment in specialized equipment, as the one we have has become worn out. At the same time, it's important to know that we've been increasing our time between failures lately. Earlier one pump was running for 180 days, and today this period is over 200 days. It is a positive change that supports the stabilization of our production.

In terms of statistics, we observe a decline of production base. If we do nothing, we can expect 16-18% loss per year across the company. This year, we predicted its decline by 13%. To maintain the production base level, we have to change wells pumps (electric centrifugal pumps and rod pumps) about 2,000 times a year. What does that mean? On average we visit one well twice a year. It requires a lot of work: the arrival of special vehicles, the same team stops the well, lifts all equipment, performs diagnostics to understand the cause of the failure. And sometimes the team simply never reaches the well because of the equipment breakdown. After all, it needs to be updated continuously or repaired. But our funding is not enough to purchase necessary spare parts. Without sufficient investment, it isn't easy.

When I came to Ukrnafta in 2016, I realized that we need a more aggressive yet careful approach to operations analysis to assess the effectiveness of our work. I also needed to prioritize growth opportunities to achieve maximum effect with minimal investment.

For example, one of the priorities is to reduce the cost of operations and speed up their performance. We have six oil and gas production departments, and in the past, they have not always interacted well with each other. For example, one department has a shortage of tubing, and the other has extra piped. But the latter says, "I have my own business plan to fulfil, so the pipes stay in our department." It would seem that we all are one company, but not one team. And we've worked our way from fragmented structures to one company, where interaction is a priority.

From my experience with international companies, I have often seen that we are doing something wrong with our wells, something that obviously didn't maximize the technical potential of the well or the process. Of course, I started to wonder what it was. And often the answer was simple - our equipment is not of high quality, it is worn out, etc. Almost always, the engineers in the fields knew what had to be done, but they still couldn't convince the management to solve the problem (usually it was all about investments). As a result, engineers had to improvise and optimize what was close at hand.

What was the first project you had implemented at Ukrnafta?

The first project was the purchase of electric centrifugal pumps at Dolinanaftogaz Oil and Gas Production Department, in western Ukraine. In the east, we already had these pumps, and in the western fields hadn't them at that time. The old rod pumps were out of service once in 45 days on average. Because of the curvature of the well, the tubing got holes and leaked. That's when we defended the investment project and bought the first 30 pieces. It was the first well with all new equipment: new tubing, new cables, sensors, etc. This project was economically attractive. But one of the main reasons for its launch was to demonstrate that we can increase the average time between overhauls from 45 days to more than 365 days. We only needed to do the right thing and invest in a completely new set of equipment instead of trying to make a mixture of old and new work. According to our calculations, the expected increase was 5-6 tons of oil per day. There was a tiny mistake, and the increase was +50 tons! (smiling) However, the next 20-30 wells have already yielded 5-6 tons per day, additionally, as we expected.

Experience has proved once again: equipment of high quality is the key to production growth. And then we started to introduce this technology across the company, purchasing large batches of 50-60 pieces. I remember one of those first electric centrifugal pumps worked for 1,000 days, for the whole three years!

Let’s talk about the failed projects.

Our bottleneck today is unsealed tubing. Limited funding prevents many significant and great projects from implementing. It is Ukrnafta's problem.

What are the consequences of underfunding?

In the last three years, we have maintained production growth, and the trend is still there. But it won't last forever. This year's production forecast is moderate.

Today, idling causes 5% of production loss, while the downtime of wells leads to another 8%. Besides, insufficient investment forces us to shut down low-production wells, take out the tubing, perform seal testing, and store them so that there is a reserve for high-production wells.

Our current well stock produces 4,200 tons per day, while this number could have been 300 tons more. The wells are breaking down. All we have to do is to replace the pumps quickly. If we reduce the downtime to three days (international standard), we can increase production.

And this is another underinvestment problem.

How to reduce downtime?

From my experience of working in California and Romania, the first thing you need is a ready-made tubing. One team brings the new, tested tubing to the well in advance. It shuts the well down to get ready for the replacement. The other team lifts the old tubing and replaces it with the tested or new one. The work is accurate and fast.

And how it happens in our company? Workers come to the well, lift the tubing, check it by eye, and if everything seems to be normal, we put some parts back. Then we do the seal test. If it endures the pressure, then we lower it down and recheck the pressure. Can the tubing withstand it now? If not, we need to take it out once again. And check it. This process causes losses and downtime. We know our bottleneck, and we know how to fix it. And still, the main challenge is underinvestment.

Let's assume that Ukrnafta will successfully solve the problem of historic debt. What would you like to implement first?

A step-by-step approach to replacing the tubing stock, replacement or repair of essential surface pipelines, replacement of worn-out surface equipment (gas compressors, reservoirs, boilers), and acceleration of our new Digital Oilfield program.

From a production increase perspective, we need further optimization of our artificial lift equipment to minimize draw-down pressure. We also need to expand our water flooding program (which will provide more artificial lift optimizations), sidetrack the dormant wells to restore formation pressure. As well I would like to implement infill drilling of existing wells (both oil and gas) and upgrade our exploration team.

How would you evaluate hydraulic fracturing operations of Uknafta?

Over the last two years, the company has performed several dozens of hydraulic fracturing operations. On the whole, they are successful. But still, the potential for hydraulic fracturing operations at Ukrnafta oilfields is vast. But we need more advanced equipment for this purpose. In this area, we also have the problem of insufficient financing of our hydraulic fracturing equipment upgrade. Our fleet is outdated, breakdowns are frequent, but the most important thing is that for the time being we limit ourselves to pumping about 25 tons of propping agent, and this figure, as a rule, should be over 60 tons.

Production companies, including Ukrainian ones, pay a lot of attention to geological modeling of the deposit, digitalization of data, etc. What is the current situation at Ukrnafta?

It is a matter of utmost importance. We have also purchased software, Petrel in particular, and are actively working in this direction. We have created hydrodynamic models for several fields, which allows us to improve the efficiency of field development and clarify their geological structure. It is the process used by the most advanced companies, and we need to follow the lead.

What are the main areas of work for Ukrnafta in the future?

The main promising directions are flooding, sidetracking, drilling of new wells. And, of course, the infrastructure recovery. With it, everything will be fine.