PJSC Tatneft. Annual report 2017
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PJSC Tatneft. Annual report 2017

Exploration and production

OIL AND GAS PRODUCTION

«Currently, the Company has a highly efficient assets portfolio and a large-scale resource base with the large proven reserve supply. A significant share of reserves is concentrated in the lower and middle carbon deposits, the commissioning of which is a key driver for the growth of traditional oil production of the Company. Achieving the strategic goals in 2018, while maintaining the restriction of oil production, will require us to focus on reducing operating costs, increasing return on investment, using innovation and competence to ensure positive cash flow and efficiency of the Exploration and Production segment."» Rustam Khalimov First Deputy General Director for Oil and Gas Exploration and Production of PJSC Tatneft from the Report to the Annual General Meeting of Shareholders
on the results of the Company's activities in 2017

Oil production in 2017 amounted to

28,9million tonnes

Ежедневная добыча нефти в 2017 году составила

564,8 thousand barrels per day

OIL PRODUCTION BY THE TATNEFT GROUP, MILLION TONNES
GAS PRODUCTION BY THE TATNEFT GROUP, MILLION M3
DAILY AVERAGE OIL PRODUCTION RATE, THOUSAND BBL PER DAY
DAILY AVERAGE GAS PRODUCTION RATE, THOUSAND BBL O.E. PER DAY
AMOUNT OF DRILLING, THOUSANDS M
Name 2017
Amount of drilling: 958,7
Amount of drilling by Tatneft 950,5
Amount of drilling by subsidiaries 8,2
Amount of prospecting and exploration drilling: 28,1
Amount of prospecting and exploration drilling by Tatneft 18,2
Amount of prospecting and exploration drilling by subsidiaries 9,9
Drilling by Tatneft 968,7
Drilling by subsidiaries 18,1

CONSTRUCTION OF WELLS

752 production wells have been drilled and commissioned (including 702 wells of conventional oil and 50 wells of SVO), with a plan for 747 wells (including 697 wells of conventional oil and 50 wells of SVO). 688 wells have been commissioned for drilling and development, with the oil production rate of 5,3 tonnes/day. In 2017, the Company commissioned 575 small-hole wells (SHW), of which 570 are producing wells with an average oil production of 3.6 tonnes/day and cumulative production of 366,8 thousand tonnes. 112 horizontal wells were drilled; their oil production was 130,3 thousand tonnes. 71 wells were drilled with cutting of side branches and horizontal sidetracking. Wells with SB cutting and HS commissioned in 2017 produced 94,6 thousand tonnes of oil; the average growth in oil production from the production wells commissioned in 2017 amounted to: by SB 6,7 tonnes/day, by HS 8,1 tonnes/day.

In the reporting year the average oil production rate per well of the operating stock in the Company’s fields was 4,5 tonnes/day. 887 new production wells were commissioned. The average flow rate of new wells was 8,6 tonnes/day. By the end of 2017, associated gas production by the TATNEFT Group amounted to 945,3 million m3. The production of NGL amounted to 274,7 thousand tonnes.

COMMISSIONING OF NEW PRODUCTION WELLS, UNITS
STOCK OF WELLS AS OF JANUARY 1, 2018
Purpose of the Stock Number wells
Operating production well stock 19 043
Nonoperating production well stock 3 980
Development and expectation of development from production well stock 9
Running production well stock 23 032

OIL PRODUCTION

The Group’s oil production amounted to 28.9 million tonnes, which is 0.9% higher than in 2016. Gas production in 2017 amounted to 945.3 million m3. The Company produces its most significant volume at the traditional fields in the Republic of Tatarstan. The main share of the current oil production is located at 2 unique and 5 large fields: Romashkinskoye, Novo-Yelkhovskoye, Bavlinskoye, Sabanchinskoye, Pervomayskoye, Bondyuzhskoye, Arkhangelskoye.

OIL PRODUCTION BY THE LARGEST FIELDS IN THE REPUBLIC OF TATARSTAN IN 201
PRODUCTION BY LARGEST FIELDS IN 2017, THOUSANDS OF TONS
Deposits Oil production
Romashkinskiy 15 184
Novo-Yelkhovskoye 2 827
Bavlinskoye 1 255
Bondyuzhskoye 246
Pervomayskoye 319
Sabachinskoye 570
Arkhangelskoye 250

Outside the Republic of Tatarstan, in the Russian Federation, the Company owns licensed sites in the Samara, Orenburg, and Ulyanovsk Regions, the Nenets Autonomous District, and the Republic of Kalmykia. During 2017, 18 oil fields were exploited by the Tatneft Group outside the Republic of Tatarstan, including 15 fields in the Samara Region, one in the Orenburg Region, and two in the Nenets Autonomous District (NAD

GEOGRAPHY OF ACTIVITIES IN GEOLOGICAL EXPLORATION AND PRODUCTION OUTSIDE THE REPUBLIC OF TATARSTAN IN 2017

In the Samara and Orenburg Regions, at the end of 2017, oil was produced from 122 wells, including 121 in the Samara Region and one in the Orenburg Region. Oil production amounted to 340 thousand tonnes in the Samara Region in 2017, and 12 thousand tonnes, in the Orenburg Region. In the Samara Region, 7 new production wells were commissioned after drilling and development. The average production rate of new wells drilled in 2017 amounts to 5,1 tonnes/day. Two prospecting wells and one exploration well in the Samara Region and one prospecting well in the Orenburg Region were also drilled. Two exploration wells were commissioned for trial operation in the Nenets Autonomous District: Severo-Khayakhinskoye (oil production rate 123 tonnes/day) and Vostochno-Khayakhinskoye (oil production rate 50 tonnes/day), and the development of three exploration wells from the Tibeyvisskoye, Hosoltinskoye, and the Podveryukskoye fields. Oil production in 2017 in the Severo-Khayakhinskoye field was 2,757 tonnes, Vostochno-Khayakhinskoye field, 736 tonnes.

DEVELOPMENT OF SUPER-VISCOUS OIL DEPOSITS (SHESHMINSKIY HORIZON)
«The development of super-viscous oil deposits takes an important and significant place in achieving the strategic goals of the Exploration and Production segment. Currently, the Super-Viscous Oil-3200 business project has been approved, which involves the development of 24 deposits of super-viscous oil. To maintain the production of super-viscous oil at the level of 3.0 million tons per year, it is planned to put into operation 16 more facilities in the period from 2020 to 2030. Altogether it is planned to put into operation 40 deposits of super-viscous oil.» Rustam Khalimov First Deputy General Director for Oil and Gas Exploration and Production of PJSC Tatneft from the Report to the Annual General Meeting of Shareholders
on the results of the Company's activities in 2017

In 2017, the production of SVO was 1.6 million tonnes. By the end of the year, daily oil production reached 5022 tonnes. Since the beginning of the pilot development, the total amount of SVO production made 3,4 million tonnes. 11 fields of super-viscous oil from the Sheshmin horizon are in development: 4 deposits of the Ashalchinskoye, 1 deposit of the Languyevskoye, 1 deposit of the Karmalinskoye, 1 deposit of the Nizhne-Karmalskoye, 1 deposit of the North Karmalinskoye, 1 deposit of the Melnichnoye, 2 deposits of the Yersubaykinskoye fields. In the reporting year, 4 SVO fields were commissioned: (Severo-Karmalinskaya, Melnichnaya, Mikhaylovskaya, Polyanskaya), one deposit was prepared for steam injection (Chumachkinskaya), and work has begun for drilling horizontal wells and location constructing at 6 additional SVO deposits (Novo-Chegodayskoye, Verkhneye, Yuzhno-Yekaterinovskoye, Vostochno-Sheshminkinskoye, Studeno-Klyuchevskoye, Averyanovskoye).

PRODUCTION OF SVO, THOUSAND TONNES

Work on drilling horizontal wells and equipping the SVO fields is underway. As of January 1, 2018, the running production well stock at the SVO fields amounts to 651 horizontal wells (including 50 wells drilled in 2017) and 1,964 appraisal wells (including 158 wells drilled in 2017). 284 wells are operating, including 21 steam cyclic and 263 steam-gravity wells. 292 wells are under injection, including 272 steam injection, 16 steamcycle, and 4 new steam wells (primary warming up of the reservoir).

In 2017, a number of experimental works were performed:

  • introducing repair shanks,
  • conducting large-scale bottom hole treatment to create hydrodynamic communication,
  • carrying out interval bottom hole treatment using TAM inflatable packers,
  • carrying out waterproofing works through the drilled packer,
  • drilling a multihole well.
PILOT WORKS TO DISCOVER AND DEVELOP OIL DEPOSITS IN DOMANIC SEDIMENTS

Over the past three years, the Company has been exploring and developing subsoil resources containing unconventional hard-to-recover reserves, which include Domanic productive sediments.

In the reporting year, the works were carried out in accordance with the approved «MES program of the TATNEFT Company for 2017 to discover and develop oil deposits in Domanic sediments.» Pilot projects were carried out using the technology of volumetric acid treatments and hydraulic fracturing.

One exploration well was drilled in the Yelaurskiy subsoil to study and develop bituminous carbonate reservoirs; the core recovered from the well and the well logs are currently being studied.

In 2018, implementation of pilot projects on the exploited fields continues, and it is also planned to study and develop the Domanic sediments, and bituminous collectors at the Domanic and Bitum testing sites using the allocated source of financing.

Application of differentiated mineral extraction tax rates and oil customs duty abatements present a favorable economic condition for the development of the Company’s fields. The use of reduced rates of export customs duties and a zero rate of the mineral extraction tax for super-viscous oil horizons (viscosity of 10,000 mPa*s or more) stimulates the Company’s development of SVO production.

In 2017, the Company applied the zero rate of the mineral extraction tax on super-viscous oil with a viscosity of 10,000 mPa*s and more (for reservoirs) and regarding the oil produced from Domanic sediment deposits. Furthermore, differentiated MET rates were applied with a decreasing coefficient for the subsoil with depletion of more than 80%, for small parts of the subsoil with reserves (IRR) of less than 5 million tonnes and depletion of less than or equal to 5% (according to the State Balance of Mineral Resources as of January 1, 2011), for deposits of super-viscous oil with a viscosity in reservoir conditions of more than 200 and less than 10,000 mPa*s, and for the subsoil in the NAD. Oil production from these facilities in 2017 amounted to 24 million tonnes (including SVO with a viscosity of more than 10,000 mPa*s – 1,6 million tonnes).

THE COMPANY ACHIEVES SAVINGS BY REDUCING THE PRODUCTION TAX RATE OF SUPER-VISCOUS OIL IN SOME OF ITS FIELDS AND OTHER SPECIFIC TAX INCENTIVES RELEVANT TO THE PRODUCTION AND SALE OF SUPER-VISCOUS OIL.

<p>Federal Law No. 239-FZ dated December 3, 2012, «On Amendments to the Law of the Russian Federation ‘On the Customs Tariff’» stipulates reduced rates of export customs duties on oil with a viscosity in reservoir conditions of not less than 10,000 mPa*s.</p>
<p> The development of super-viscous oil reserves is one of the Company’s most capital-intensive projects. To further expand the project and develop other subsoil areas containing super-viscous oil, the management of the Company, with the assistance of the Republic of Tatarstan leaders, came up with an initiative to the Russian Government and was supported with amendments to Article 3.1 of the Law «On the Customs Tariff» on a specific procedure for calculating the rate of export customs duty for oil with a viscosity in reservoir conditions of not less than 10,000 mPa*s for a period of 120 consecutive calendar months from the start date of their application with respect to crude oil produced from a particular reservoir field of a particular hydrocarbon deposit. Due to the nature of the raw material base, the Company retains the priority of maintaining incentive tax regimes for the developed deposits and for the deposits of super-viscous oil.</p>

SYNERGY OF DIGITAL AND TECHNOLOGICAL SOLUTIONS ALLOWS TO DEVELOP HARD-TO-RECOVER RESERVES, concentrated in carbonate reservoirs that have low permeability, complex structure of the reservoir, and high viscosity of oil.

Advanced innovative technologies and equipment, artificial intelligence, high-precision modeling and forecasting programs are introduced in the production. The Company creates digital twins of mining assets, which allows to determine their potential with high reliability and to develop with maximum efficiency. Using these programs, it is planned to complete digital modeling of all fields of the Company by 2020.

STAGES OF DIGITAL MODELING OF THE LARGEST NOVO-ELKHOVSKOYE AND ROMASHKINSKOYE FIELDS OF THE COMPANY
COMPETITIVE ADVANTAGES

A significant advantage is the geographical proximity of the oil production center to the main regions of sales and processing of oil and oil products — the Company has the lowest weighted average tariff for oil transportation to European markets among the major Russian vertically integrated oil companies.