We must provide the country with gas for a long-term perspective - Maxym Vityk

We must provide the country with gas for a long-term perspective - Maxym Vityk

Maxym Vityk - Director for Strategic Projects in the Exploration and Production Division of Naftogaz Group. Having worked for may years at ExxonMobil and Shell, Maxym Vityk decided to return to Ukraine, and to join the Naftogaz team. The main task assigned to Vityk's team is the implementation of strategic projects, in particular, the offshore development and tight gas production.

What are the challenges facing your team?

I see two important areas. The first is to minimize the decline in production, the second is to increase the resource base.

These are interrelated issues. If we don't have a sufficient resource base today, there will have no production tomorrow. Even if we hold the production rate today, a question arises: ‘What shall we do tomorrow?’

It is the expansion of the resource base is my key task. For this, we have formed a new team, the backbone of which is the specialists with international experience: ex-employees of Shell, Exxon, ENI, Schlumberger, and the specialists from various divisions of Ukrgasvydobuvannya, and Naukanaftogaz. For example, the Offshore Division was formed from the experts of Chornomornaftogaz, who also joined our team.

What areas of expertise make up the majority of your team?

This is a small mobile integrated and highly-qualified team of about 40-50 experts. Our tasks are the coordination, the organization, and the initial implementation of the projects. This is similar to Special Forces or a Rapid Response Group. And it’s after the required conditions ensured and initial success achieved, the projects are transferred directly to the army of reservoir and production engineers. Our task is project capture and delivery.

What projects will your team mostly focus on?

The team focuses exclusively on the Company's strategic projects. We understand a strategic project as an asset that has at least 100 bcm of prospective gas resources. And our goal is to discover and convert these into commercial reserves over the next 10 years.

Please, tell us about yourself and your career.

I started my international oil and gas career at ExxonMobil in 1997 as a "subject-matter" geochemistry expert. I am a geochemist by profession. I graduated from the Geological Faculty of the Ivan Franko Lviv National University, defended my PhD in Ukraine and continued postdoctoral at the Polytechnic University of Virginia (USA). After several years in the position of a researcher in the ExxonMobil's lab, I realized that success in the industry requires a broader integrated experience. So, I moved on to exploration, and, subsequently, to production. My last position at ExxonMobil was in the Business Development Department, where we worked on new opportunities for the company at a global level. In other words, we were looking for new opportunities all over the world, starting from exploration and appraisal and finishing with production, as the final chain-link of projects. In 2004, I received an offer from Shell, which was then just entering Ukraine. Given my Ukrainian origin and experience, I was offered a job with for a relocation to Ukraine.

And how exactly did this happen, I mean, moving from ExxonMobil to Shell? Were you looking for opportunities to move from one company in the U.S. to another, or did they find you?

They “found" me. When there was an opportunity to move to Ukraine, I decided to take it immediately, without a hesitation. I was the first expat in the Shell team to come to Ukraine in 2005.

I made the same decision when I was invited to Naftogaz. I view the Naftogaz's offer as a second attempt, a chance to complete what I have started earlier in Ukraine with Shell. Naftogaz Group has a strong potential for successful mplementation of these tasks.

What was Shell in Ukraine like back then?

In early 2006, Shell in Ukraine was a small team (5-6 employees), which we quickly expanded through the development of new projects. It was then that we carried out regional research and started joint activities with Ukrgasvydobuvannya in the East of the country. My main task at the company at that time was a new business development. Later there was the Yuzivska project, for which I was responsible for. This happened during the so-called revolution of unconventionals in the North America, when suddenly everyone realized that unconventional gas (tight gas) would have a great production potential.

I was also responsible for the first Black Sea Offshore project in Prykerchenska acreage. Shell, unfortunately, lost the tender back then, caving to Vanco.

Naftogaz represents, first of all, the interests of the state. If Naftogaz ceases investing in gas exploration and production, the country's energy security will be questionable

It is worth mentioning another offshore acreage, which was put up for a tender –the deep-water Skifska acreage. Shell won the tender in partnership with ExxonMobil, but then withdrew from it due to the seizure of the Crimea by Russia.

How long did you work in Ukraine in general?

I had worked in Ukraine for 6.5 years, when in mid-2012 I was transferred to the company's head office in the Hague. There I chaired the direction of new unconventionals opportunities in Europe and the former Soviet Union. After the Netherlands, I was expected to return to Ukraine to continue the Yuzivska project. At that time, Ukraine was on the list of the company’s priority projects. The Yuzivska project was my area of responsibility, so I did not cut off ties with Ukraine. I detailed there on business trips, even during the revolutionary events. In 2015, Shell decided to withdraw from the project. But let's hope Naftogaz will be able to resume the development of the Yuzivska acreage [at the time of the interview, the Cabinet of Ministers of Ukraine was approving the by Naftogaz Group’s acquisition of the 100% stake in the state-run Nadra Yuzivska LLC – ExPro].

How did the economic crisis and falling oil and gas prices affect Naftogaz's projects in 2020? Is there any difference between the reaction to such things in a state-owned company and a private one? How does it impact the strategic projects?

Naftogaz represents, first of all, the interests of the state. If Naftogaz ceases investing in gas exploration and production, the country's energy security will be questionable. Everyone clearly understand this, so, the work is steadily going on.

I know that the common stereotypes that public companies are less effective than private ones. But, I know many global examples of state-owned companies effectively performing tasks assigned to them. Naftogaz provides over 70 % of the country's gas production and aims to minimize its decline under difficult crisis conditions. Yet, we are succeeding: in 2020, the production drop was 1.3%. The key factors yielding that were the improved operational efficiency and focus on projects with the highest production effect. But we understand that in the mid- and long-term, production stabilization will only be possible providing the ramp-up of the resource base increase.

Further buildout of the resource base is the priority for the Exploration and Production Division of Naftogaz in the coming years. The company has launched new initiatives to increase its resource base, including the establishment of the Strategic Project direction, which I lead.

Which unconventional gas (tight gas) production assets does one bet on?

For the Tight Gas they picked up 19 gas acreages held by Naftogaz , 5 of which were taken for the pilot Phase 1.

In particular, works are already underway at the Skhidno-Poltavske and the Nurivske fields. We are waiting for the survey results. The third field in the pilot phase is the Svyatohirske field.

Please, tell us more about the Svyatohirske field. What results were obtained?

There are 4 wells at the Svyatohirske field already drilled, however, drilled before the 3D seismic survey were obtained. When we received the results of the high-quality 3D seismic data interpretation, we realised that these wells had not drilled at the best possible spots. Today, we produce from two wells at the Svyatohirske field with a total inflow rate of about 50 tcm a day. Together with gas, there was an inflow of water. It is necessary to understand its source, since this affects the economic feasibility of the project.

Currently, the fifth well is under drilling. It is located in the area where a better reservoir is expected. The result of this well is crucial for further development of the project.

North American practice in the development of such deposits shows that non-standard approaches, for example, cluster drilling and horizontal wells, are very important. We plan to drill the first horizontal well in late 2021 - early 2022 at one of the acreages. By the way, drilling will be performed in close cooperation with one of the largest service companies in the world. Which exactly - the tender will show. We plan to hold it between Halliburton, Weatherford, Baker Hughes, and Schlumberger.

And are these 19 promising tight gas acreages only in the East, or are there some in the West of Ukraine as well?

So far, all the acreages are located in the East of Ukraine. We also keep on exploring promising acreages in the Western region.

Do the four PSA projects (Balakliyska, Ivanivska, Buzivska and Berestyanska) that the government is going to sign soon correlate with your competence?

Naftogaz Group (Ukrgasvydobuvannya) has already signed production sharing agreements (PSA) with the state for four oil and gas acreages – Balakliyska, Ivanivska, Buzivska and Berestyanska. Amid the crisis conditions, Naftogaz confirms its readiness to invest UAH 3.6 billion in their development during the first 5 years. Now we are going through licensing procedures to obtain special permits for the acreages mentioned.

What can you tell us about the offshore work of Naftogaz at the Sea of Azov?

We are deciding whether we will continue our work there. As far as now the issues of focusing and prioritizing are very acute under limited resources. And, if we start working at the Black Sea, the company will need to clearly define its priorities.

What is new in the company's latest strategy?

This strategy has become more specific and crystallized. Resource base development is a priority for Naftogaz exploration and production in upcoming years. Take the Trizub program. It was a vision of the direction to move forward. Over the past six months, Exploration and Production Division of Naftogaz has gone further, formed a specific work program, and a clear timeline for each direction. We are moving in accordance with it. A team and a budget has been formed for this purpose.

Among the main directions, the offshore is a priority. According to various estimates, the forecasted and prospective natural gas resources of the Western part of the Black Sea amount to 1-2 trillion cubic meters, enabling an annual production at about 10 bcm. This allows us solving the problem of Ukraine's full self-sufficiency in natural gas. This direction is actively developing, primarily due to the government support. And I believe this is the right thing to do, as an effective state-owned company cannot exist without close cooperation with the government. Now, this coordination and support of the state is felt more than ever. Therefore, the offshore is one of positive examples of such cooperation. The potential there is very high, but the risks are also significant.

The second strategic direction is the so-called tight, or unconventional, gas. It is quite important for the company, as we have acreages with a significant potential. Unconventional gas has been and is one of the strategic directions of Naftogaz, and for the entire gas industry of Ukraine. The main task now is to prove the commercial deposits of tight gas in the Naftogaz-run acreages in the Dnieper-Donets Basin.

Deep gas should also be noted. Well No. 888 Shebelynska is one of the examples of work in this direction. We have other interesting deep areas both in the Eastern and Western Ukraine. Now we are determining, which of them are the most promising.

Why, in your opinion, did the Government agree to grant special permits in the Black Sea without an auction after all failed competitions to obtain them by both the state-owned Ukrgasvydobuvannya, single international companies, and consortia thereof?

I believe this government decision was influenced by a number of factors. First, it is strategically wrong to buy gas abroad when you have own "frozen" assets. Ukraine has lost a lot of time, and is hopelessly behind neighbouring countries in terms of offshore development. Now we see some movement off the dead point: recently, the Cabinet of Ministers has made a decision allowing Naftogaz to explore the Black Sea Offshore.

Secondly, there are many examples from international practice, when the state-owned companies successfully produce both onshore and offshore. Naftogaz is no exception. Moreover, the company has experience in offshore production. In previous years, Chornomornaftogaz had a positive experience and discovered a number of fields.

Third, it is a security issue. It is important for us to clearly state that we continue to work offshore, on our territory. This position is therefore supported by both the government and the President of Ukraine.

Fourth, this region is relatively unexplored. Naftogaz offers a very simple and transparent solution. We will carry out derisking; in particular, we will shoot a high-quality seismic. Based on the research results, we will estimate the resources and determine the most promising acreages. There we will plan drilling, both in deep- and shallow-waters. At the same time, we will look for a partner to continue the development of the offshore acreages. Full-scale offshore development requires large financial resources and technologies. They are not sufficient within the country. Additionally, it is important to have a partner with a deep-water experience, which is not available in Ukraine.

As for 3D seismic acquisition, do you have any idea who will do the work?

The project needs derisking: new geological exploration works (3D seismic survey) that will provide additional geological information, confirm the feasibility of the works at the Black Sea, and their safety. We plan to hold a tender for seismic works.

What sequence of work is planned on the Black Sea shelf?

First of all, based on old 2D seismic data, we will identify the most promising acreages where the efforts should firstly be focused. Then we will identify the so-called "loops" where further 3D seismic works will be carried out. Deep-water drilling has high risks, and the cost of such wells is high. Therefore, 3D is mandatory for us significantly reducing the risks. These studies, according to our estimates, will take about two years, including tenders, field works, and data interpretation. After that, we will start drilling, which should happen around in 2024-2025. Firstly, it will be an exploration drilling. If successful, we will move on to production drillings.

We are actively negotiating with the companies that might be interested in the Ukrainian potential

Now the company faces two major challenges – a pandemic and a global drop in hydrocarbon prices. How far do these factors affect the company's performance?

The pandemic, of course, had and continues to have a negative impact. Gas prices have dropped significantly, and the funds available for investment into new exploration projects highly depend on gas prices.

Let's take my team: most of them work remotely, and several people are currently sick. Of course, it is very difficult to work under such conditions. The company makes a lot of efforts to minimize these negative impacts: providing protective equipment, creating conditions for remote work, restricting third persons' access to the company's premises. I am amazed that, despite the whole complexity of the situation, the team works synchronously and efficiently performs its tasks.

You have focused on priority acreages concentrated on the shelf and in the Eastern Ukraine. What are the plans for the West? After all, there are private producers which work and develop efficiently in the region. In particular, Zakhidnadraservice, which already produces over 20 mcm of gas per month, and this development was in 5 years almost from scratch. Why would not Naftogaz's pay attention to this as a good example?

I absolutely agree, this example is very interesting. Naftogaz is also interested in this region. It has potential. As an example, it is worth paying attention to the successful work of Zinovy Kozitsky's company. Our Polish neighbours also have a lot to learn from. They use a very simple approach: they gradually cover all promising acreages with a detailed 3D seismic survey, and successfully perform additional exploration - the so-called NFE (near-field exploration). There is no need to invent anything new. We can just pattern their experience right on our territory.

How do you see Naftogaz's cooperation with other companies?

Naftogaz is now open for partnership with both Ukrainian and international companies. We clearly understand that right now, with limited opportunities and budgets, we need to unite with our partners, learn from their experience, and work together.

Therefore, partnership is another major element of our new strategy.

We are actively negotiating with the companies that might be interested in the Ukrainian potential.

What kind of partnership do you mean? What kind of companies with? T

hese don't have to be the major international companies. These can be small players as well. The main thing is effective cooperation that will enable the development Ukrainian production of hydrocarbons.