No. 2, 2009


Oil of Russia magazine talks to Alexander Zhilkin, Governor of the Astrakhan Region

According to expert estimates, the Caspian countries jointly produce 18% of the world's oil. In the light of large-scale development of Caspian oil and gas fields, the Astrakhan Region will, in the next few years, play an important role in both hydrocarbon production and provision of logistical support for oil and gas companies.

Q: To what extent does the Gross Regional Product (GRP) depend on hydrocarbon production and processing today?


A: In the Astrakhan Region, the oil and gas industry accounts for 15% of GRP and over 60% of industrial production. Today, our region produces over 12 billion m3 of gas and 4.5 million tons of oil and condensate a year. By 2020, we intend to raise the annual production level to 50 billion m3 of gas, 15 million tons of the condensate and 29.5 million tons of oil. Thus, the share of the oil and gas sector in the GRP will grow multifold.

Q: How is the Caspian shelf development going?

A: By now, six large oil and gas-condensate fields have been discovered in the Northern Caspian: the Rakushechnoye, Yury Korchagin, Khvalynskoye, 170th km, Sarmatskoye, and Vladimir Filanovsky fields. Their recoverable reserves comprise approximately 300 million tons of liquid hydrocarbons and 700 billion m3 of gas. Besides, another ten prospects have been discovered in the northern and central Caspian.

In 2009, oil production will start in the Yu. Korchagin field. The license for its development belongs to LUKOIL, which cooperates with a group of Astrakhan companies united under the brand name of Caspian Energy. They specialize in ship-building, including the design, construction and servicing of offshore oil and gas fields development platforms. Presently, a platform for LUKOIL is being constructed at the Astrakhan ship-building production association (ASPO) - the leading yard of Caspian Energy. The platform will float out in May 2009 and start drilling in July.

Besides, the ASPO has recently realized a unique project: the Sevan barge is ready to be set afloat and carry bulky cargoes for oil producers in the northern part of the Caspian. She is capable of carrying a 16,000 ton structure, its own draft being less than 11 m. The Sevan will participate in the Vladimir Filanovsky field development project scheduled to go on stream in 2012. In 2015, gas production will start in the Khvalynskoye field whose reserves are estimated at 300 billion m3.

According to estimates, shelf development in the Russian sector of the Caspian will require an investment of $100 billion. It will be necessary to construct 50 offshore platforms and over 100 service vessels. Implementation of this large-scale project will both bring together oil and gas majors, such as Gazprom, Rosneft, LUKOIL, Kazakhstan's KazMunayGaz, and many regions of southern Russia: the Astrakhan and Volgograd Regions, the Republic of Kalmykia, the Republic of Dagestan and Stavropol Territory. The oil and condensate from the Yury Korchagin field will be shipped by shuttle tankers to the port of Makhachkala and thence transported by the Baku-Novorossiysk oil pipeline.

Hydrocarbons from other fields will be transported from a tank farm to be constructed in the Filanovsky field by subsea pipelines to the onshore facilities in the Republic of Kalmykia whence ethane and gas liquids will be extracted from the incoming crude and transported on to the Stavropol Territory's Stavrolen petrochemical complex.

I am sure that the start of commercial development of the Caspian shelf will make the Astrakhan Region a strategic area of operations for the Russian oil and gas industry.

Q: The volume of investment in Caspian shelf development seems rather impressive. Will companies find such resources under the conditions of the current global crisis?


A: Operations on the shelf have been conducted for 15 years already, and the resources for this have always been available. As far back as 1994, the Government of Russia adopted a Caspian Hydrocarbon Exploration and Development Program which had been implemented since 1995 when LUKOIL obtained a license for geological exploration of the entire Northern Caspian. In 1997, the Company won a tender and was awarded a mineral development license for the Severny area.

Investments in Caspian oil and gas development will continue growing. LUKOIL, one of our main subsoil users, has already announced its plans to spend $1 billion on Caspian oil and gas field development. I believe that other companies will also continue implementing their plans.

By 2015, LUKOIL intends to produce 12 million tons of oil and condensate and 14 billion m3 of gas a year in six proved fields and ten prospect features. The Company is also launching new wells in the Caspian - in the Azeri sector and in the Atashsky shallow water area in Kazakhstan.

Q: Is hydrocarbon prospecting also conducted onshore or all efforts are channeled into shelf exploration?

A: The development of small reservoirs has been underway for decades but it was only with the start of Astrakhan gas condensate field development that our Region jumped to one of the leading positions in Russia in terms of oil and gas production. This field accounts for some 90% of the gas reserves of the Southern Federal District. The field was discovered in 1976 and five years later, its development necessitated construction of an integrated gas works in Astrakhan on the basis of the Astrakhan gas processing plant. Today, its annual capacity is 12 billion m3 of gas and little over 4 million tons of unstable gas condensate. The main onshore hydrocarbon producer is Gazprom's subsidiary, Gazpromdobycha Astrakhan, working on the Astrakhan gas condensate field. Its left-bank part is currently under development. The recoverable reserves of this area comprise 2.5 trillion m3 of gas and 400 million tons of condensate.

Q: Is there a long-term strategy for the development of the oil and gas industry in the Region?


A: Such a strategy appeared in 2005 as a component part of the Region's social and economic development program for the period until 2020. We expect that its implementation would increase regional budget revenues from taxes from 25 to 50 billion rubles already within the next few years.

Today, within the framework of the oil and gas strategy, geological prospecting is being conducted in Cherny Yar, Yenotayevka, as well as in Akhtuba, Volodarsky and Liman districts, i.e. practically throughout the whole Region. We also plan to develop the right-bank part of the Astrakhan gas-condensate field and to build another integrated gas works there. Construction by Gazprom of the new gas pipelines (Prikaspiysky and Southern Stream) will allow forming the back bone of the economy in the energy transiter regions. Moreover, we expect the throughput capacity of the Caspian Pipeline Consortium trunk line to go up to 67 million tons a year. Thanks to these projects the annual throughput capacity of the export oil pipelines in the region will increase by at least 150 million tons and that of the gas pipelines by 150 billion m3 in the next 5 to 7 years.

Q: Are there any tax breaks for potential investors in oil and gas field development projects in the region?


A: If a project is of interest to us, we will regard it as a socially important one and grant its owner various tax benefits, such as profit, property and land tax reductions. Gazprom and LUKOIL have already been granted tax preferences precisely because of the social parameters of their activities. The region's investor appeal has of late gone up sharply because investors see for themselves that the money they invest pays back adequately.

Q: What are, in your opinion, further development prospects for the region?


A: As I have already noted, our strategy is ten-pronged. Our objectives include formation in the Caspian region of a cultural, economic and political center; creation of the agricultural and tourist clusters; promotion of natural gas and oil production growth; improvement of the transport infrastructure and ship-building; modernization of the fishing industry, etc. Implementation of these projects will help us create new jobs, increase wages, provide comfortable living conditions and lay a solid foundation for further development of the region.

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Oil of Russia, No. 2, 2009
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