German-Russian JV Begins Production Drilling in Siberia

At the German-Russian economic consultations in Tomsk, Southwest Siberia, BASF subsidiary Wintershall and OAO Gazprom signed an agreement whereby Wintershall will get 35 percent minus one share in the West Siberian gas field of Yuzhno Russkoye. The first gas is not expected to flow from the reservoir, which has reserves of more than 600 billion cubic meters of natural gas, until 2008. But Wintershall is already working together with Gazprom in another project to produce hydrocarbons in Siberia: the ZAO Achimgaz joint venture operated by Wintershall and Gazprom subsidiary OOO Urengoygazprom has now started drilling its first production well. The German-Russian Achimgaz joint venture will produce 200 billion cubic meters of natural gas and 40 million metric tons of condensate from a sub-region of the West Siberian Urengoy field over the next 40 years or so.

Most of the work on the roads and facilities for the drilling and production sites to develop the Achimov Formation was completed last year. The first of two drilling rigs has now been put into operation in the first phase of the project which will eventually encompass six production wells. The Achimgaz wells are consolidated in two clusters, each of which comprises three wells. Each of the first wells will be drilled vertically to a depth of 3,700 meters. All the other wells will be deflected at an angle of 70 to 80 degrees. In this way the wells will reach an overall length of somewhere between 4,400 and 4,800 meters. This is new for this part of the West Siberian Basin: never before have such angles of deflection been attempted in this region under such extreme pressure conditions (700 bar) and at such depths.

Both companies contribute their specific strengths to the joint venture: for instance, Gazprom has many years of experience in producing gas in Arctic regions, while Wintershall has many years of experience with technically demanding reservoirs – especially with horizontal wells under challenging geological conditions. "We have the competence to develop this difficult field, using a special drilling technology", explains Reinier Zwitserloot, Chairman of the Board of Wintershall AG. With this technology the drills can start drilling almost horizontally and continue in this way to reach other sections, allowing reservoir rocks several kilometers long to be accessed. This increases production rates – especially from rock with low permeability – many times over compared to vertical drilling.

Joined forces: Natural gas production in Siberia

When the reservoir behavior has been explored, work will start on developing the entire field in 2007/08. The Achimgaz joint venture, named after the Achimov formation from which the gas will be produced, hopes to produce up to 8.3 billion cubic meters of natural gas each year. By way of comparison: this would be enough to supply four million family homes in Germany for a whole year. With total investments of up to one billion US dollars this project is one of the largest investments ever made by a German company in the Russian Federation.

Chairman of the Gazprom Board, Alexei Miller, referred to the project as a model on which his company can base other cooperation ventures in the future. The partnership between BASF/Wintershall and the world's largest gas producer, Russian-based OAO Gazprom, has existed since 1990 – initially in the area of natural gas trading and now also in the areas of exploration and production. "Now we want to strengthen this cooperation as an important contribution to safeguarding Europe's future natural gas supplies along the entire value chain, from the wells in Siberia to the customers in Europe," said Reinier Zwitserloot, Chairman of the Board of Wintershall AG. Due to declining production volumes and expected increases in gas consumption, Russian natural gas will further gain in importance for Western Europe in the medium term. Russia is, and will remain, the most important partner for safeguarding supply security in the growing European gas market. "We have recognized this fact, and rather than wait passively for Russian gas to be delivered through pipelines to our national borders, we get actively involved directly at the well site and share responsibility as producers," explains Zwitserloot.

Shared objective: Gas for Europe

The partnership between the two companies began 16 years ago with the "Vertrag über die gaswirtschaftliche Zusammenarbeit" (agreement on gas-industry partnership) shortly before the German reunification. Because of this, BASF was able to secure its competitive position by having its own gas supply source and also lay the foundation stone for what has now become a very attractive business unit. With the cooperation agreement Gazprom has direct access to its most important export markets, whereas before it only delivered the gas to the border.

The long-distance network of the joint subsidiary WINGAS, over 2000 kilometers in length, connects the natural gas markets in Germany and Western Europe with the natural gas infrastructure, stretching through Eastern Europe and the Russian Federation all the way to the gas wells in Siberia, where the world's largest natural gas reserves are located. To date, the two companies have spent around three billion euros on creating and expanding their joint natural gas infrastructure. Gazprom's interest is one of the largest investments in Germany by a Russian company to date. The successful model used to market gas was also applied to the production of natural gas with the formation of the Achimgaz joint venture.

Wintershall AG, based in Kassel, Germany, is a wholly-owned subsidiary of BASF AG in Ludwigshafen. The company has been active in the exploration and production of crude oil and natural gas for over 75 years. Wintershall focuses on selected core regions, where the company has built up a high level of regional and technological expertise. These are Europe, North Africa, South America, as well as Russia and the Caspian Sea region. Today, the company is Germany's largest crude oil and natural gas producer.