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Interview

with Valentin Kolesov, General Director, Pangea

26.08.2011 / Energyboardroom

Today, Pangea is one of the leading geological consulting and geophysical companies in Russian, Indian and Chinese markets. What was the vision when the company was established the company in 1994 and how has it changed?

Back in 1994 our vision was considerably narrower than it is today and in essence Pangea sought to create a commercial business opportunity on the basis of Russia’s scientific heritage. At the same time Pangea wanted to assist Russia’s scientific community and allow it to survive through the tumult of perestroika and the under financing of science in the 1990s. In a way the vision was both business and socially motivated.

Pangea saw an opportunity in the integration of different types of geophysical data – something we viewed as under developed in the world geophysical market at the time. The company developed the first commercial software which allowed companies to integrate different seismic data and attributes and took this to the European Association of Geophysical and Engineering (EAGE) show in 1996. The technology was called Multi-D Interpretation and was a world first and we still consider this technology the main way of improving the effectiveness of geophysical prospecting and modeling.

Since creating this opportunity for ourselves back in 1994, Pangea has been seeking to develop the business. Back then the Russian state did not support Russian business structures although the government has since made a step towards supporting Russian companies. We are therefore using these more favorable conditions to increase the company portfolio. Although the emphasis will be on providing breakthrough, scientifically-intensive products we are also seeking to expand into some more standard services.

The direction of the company can be compared to the field of medicine. Pangea is moving from a type of pharmaceutical company which produces one type of medicine to a hospital which can offer the customer any type of treatment. We want to be able to provide both integrated and specific solutions to our clients.

With or without government investment, 2011 promises a strong growth in the geophysics market because of a 5-10% increase in seismic investment and 94% of Eastern Siberia still remains unexplored. What growth opportunity do you see?

Eastern Siberia is one of the most attractive and challenging regions for the industry. However the only risk lies in the profitability of developing reserves in this region. If costs escalate too much there could be a cooling of investment in the region. However, Pangea is carrying out a number projects in Eastern Siberia.

Pangea today is even more interested in brownfield developments such as those in the Volga region and in Western Siberia. There is a lot of oil remaining is in this region for the very simple reason that the production projects began 40-50 years ago when technology was inadequate to accurately model and produce from these fields. There are still huge fields in these mature sites where the geological models are far too simplified. With new technologies Pangea can gain access to these very large deposits and this is an opportunity which is currently underestimated by major producers in many cases. Unfortunately, smaller companies who have perhaps 100 wells tend to know their wells much better than major Russian producers.

In 2009 Pangea has carried out the geological modeling of Arlan field which sets the world record for the number of separate deposits totaling more than 1,000. Pangea also generated the model of supergiant Yamburg field which has more than 5 trillion m3 of gas in just one Senomanian deposit. These huge fields have significant upside potential since improving the profitability from these fields is easy with our technologies and Russia has a large number of these sites.

This opportunity also exists outside of Russia. Pangea recently completed a project in India on a brownfield with an 80% water-cut. Our analysis followed that which had been done by many companies including the main operating company ONGC – the main national producer in India. Nonetheless, with our technology Pangea managed to improve oil recovery by 3% by integrating data and taking a fresh look.

An important trend is the changing economics of oil production. In Libya, Mobil in 1965 abandoned a well tested 500 barrels of oil per day. At the time this was non-commercial for them. Now such a field is more than viable. In Libya we created analysis of a large block with 60 wells which had been considered dry holes according to listed well data. However, when we looked deeper we found evidences for 3 small fields which are now considered commercial. When we add new technologies to finding oil and with changing economics of oil extraction the possibilities in well explored producing regions have again become exciting. We are now performing such project in Williston basin, Montana

You developed your MDI software back in 1994. What are some of the new additions you are bringing to the industry?

We now have three major innovations which add value to industry standard interpretation and modeling results. One such innovation, is the special processing of seismic data allowing us to generate very high resolution velocity sections and cubes. There have been some very successful cases using this technology. For example, it allowed Pangea to construct a model for an offshore well in West Africa off the coast of Namibia which predicted carbonates at a large depth. Unlike clastics, the presence of carbonates allows for gas saturated porous space preservation proved by drilling.

Our second technology addition allows us to answer a very important question: whether there are productive zones in unexplored regions or formations. If for example a company did not drill down to the Devonian formation but stayed at the Carboniferous level this could be the case. Examples of under exploitation are seen in many countries with old and mature fields. The software we developed allowed us to find analogous fields in the rest of the basin as well as conduct inter-basin analysis. The predictions of the software are based on a huge database of maps and geological parameters which were developed by Soviet institutes as well as public domain sources, such as the French institutes as well as local agencies in different countries also produce these geological maps. These predictions significantly increase the reliability of drilling operations. In 2003 Pangea were official consultants of Gazprom in Libya where they had just begun exploration licensing under NELP-IV regulations. Gazprom used Pangea to understand which block to purchase after 23 blocks were put up for tender. Pangea chose 5 of these blocks because they had analogs with the same geological formations in other places. We then conducted the seismic data analysis and well interpretation. Ultimately Gazprom did not win this block in the tenders because other companies were willing to accept lower interest. Tatneft eventually purchased one of these blocks and produces in accordance with our predictions. We then carried out a survey of the results of drilling and discovered that 87% of the dry holes were located in the zones that we predicted as non-prospective.

The third technology which combines very well with our Multi-D interpretation is one which allows us to compare production in one well with production in another well or between production in a well and an injection in another. The aim of this technology is to answer the question as to whether these are different compartments of the same formation. Seismic only gives preliminary ideas on this question and to check the formation properly companies need to conduct tracer tests and well interference tests. Pangea’s Echo software allowes the company to use already existing data without stopping the wells or using tracers. It also allows us to analyze fields across the course of production with an ability to model the changes in fluid flowing. This technology was applied at the largest Indian field, the Mumbai High field. At one time this produced more than 40% of all Indian oil with over 900 wells drilled there since 1994. Now it is a brown field with a significant water-cut. Pangea carried out the analysis on this field and managed to show that they had no barriers to flow. The question was whether there were vertically separated compartments and we found that there were four compartments which were isolated. The software accurately allowed us to understand compartmentalization which is one of the most important issues for hydrodynamic modeling. It is a bridge between a geological modeling and a hydrodynamic modeling which allows all the production data to be incorporated in the modeling process, even before hydrodynamic modeling started. Clearly, if hydrodynamic modeling starts from the wrong compartmentalization model it will not provide the correct prediction. Therefore, these three are the new satellite technologies which Pangea has added to our Multi-D interpretation technology.

Pangea has worked with Gazprom and other Russian companies in projects around the world. How are you planning to strengthen your position in foreign markets?

We already completed more than 30 international projects in 11 countries for customers from 12 countries. We consider now Indian market the second after Russian market for Pangea.

Until recently, Pangea was looking seriously at the Arabian market. I was in Syria in January 29th this year and saw the Tahrir events unfolding in Cairo. The Middle East has now become a problematic market. Thus, in Libya Pangea has two projects postponed, one of which is agreed with a major international company. This would be a regional evaluation of their territories. In terms of opportunity, the main market for the last century was and will be USA because 80% of all oil services money lies in this market. Pangea will hopefully launch a pilot project there. It has often been said that the USA is completely drilled out but Pangea has technologies which can bring more insight. The American market is the most dynamic in the world and if you can demonstrate a strong product it offers many opportunities. This is an exciting time for us.

Despite strong innovative potential, Russian companies are not known for their innovation globally. Can Pangea become an ambassador of Russian innovation?

Innovation is strong in Russia and our unique way of looking at the world helps in creating new solutions. Russians are a very broad minded people. This is sometimes good and sometimes not. For example, we are less good at working in manufacturing which requires that process are repeated accurately. As an example, Russians could make great airplanes, rockets etc. but it is much more difficult for us to make good cars.

It is also really challenging to make a team of Russian innovators work together. You can have a very good businessman in charge of a company but researchers will not follow him because Russians do not accept being managed by someone who is not an expert in their field. I do not know any exceptions to this rule. Fortunately, before going to high-tech G&G business I got a background in theoretical physics and have worked with many prominent scientists including the Nobel Laureate, Vitaly Ginzburg. It helps me to share the understanding and mentality of Pangea’s specialists.

The challenge for Pangea is that to increase profit in any business the best way is to make copies of your products and maximize on economies of scale. This is not however the ethos of Pangea. We have done many projects but take an individual approach to each one and spread our experience in many areas so that we can provide this flexibility. We only take on projects when we know we can really help our clients. Even if we might lose money for a particular project we often do it because if the solution is valuable to the client we know that the next time, this client will use our services. We are striving for quality rather than profit on every single project. Quality does matter.

To answer your question, yes, Pangea is happy to position Russian innovations to international market.

Given your approach, what is the future of your international expansion?

Pangea is heading in an international direction for two main reasons. In Russia the service market of standard processing, interpretation, modeling, resource accounting is downsizing because of the strengthening of government-linked companies who wish to do everything themselves. The market is already 2-3 times less than three years ago. Another reason for our international expansion is that we now have the experience of working with international partners. We have conducted a project with Gazprom, Wintershall and Statoil for example. We came to understand how these companies work and how they can perform better with the application of our technologies. Once we prove that we can help such companies this becomes our calling card for international expansion.

Russian companies can struggle to expand abroad partly because of an inability to speak English and because Russian employees often are happy with their life and work and do not want to change their living conditions even to the higher end. In the case of Pangea, our technological advantages have taken us abroad. We have won international tenders against prestigious competitors like Schlumberger, Halliburton, Weatherford, and Roxar. We completed our task faster than respected international competitors in neighboring fields and proved our ability which was the most exciting thing for us.

What would be your final message to the readers of Oil and Gas Financial Journal?

Our motto is: “understanding depth”. There is a saying in the industry: the deeper you see the better you look. We would be happy to share our experience and technological advantages with our old and new customers to provide that key understanding which allows to be certain managing E&P risks and making investment decisions.

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