Uzbek oil company Saneg squeezes the last drop of oil from the tube

Uzbek oil company Saneg squeezes the last drop of oil from the tube
Uzbekistan has an oil deficit, so it hived off 103 of its oldest fields and set up Saneg, a company that uses specialist technology to eek out the last useful reserves and make the most of old deposits. / bne IntelliNews
By Ben Aris in Tashkent March 25, 2024

In 2019 the Uzbek Cabinet of Ministers set up the company Saneg and transferred the ownership of 103 depleted oil fields to see if the company can squeeze a little more oil out of them.

Uzbekistan only produced 63,000 barrels per day (bpd) of oil last year and has an oil deficit, so it has to import what it needs from Russia to meet its domestic needs; every drop of the black gold it can squeeze out of its indigenous reserves is of high value. Energy Minister Zhurabek Mirzamakhmudov told last April that fully 75-80% of the company’s fields have already been depleted.

The project got off to a slow start as production plans were disrupted by the global coronavirus pandemic, but by 2020 Saneg had begun work and production of oil has grown swiftly since then.

“In 2021 and 2022 we tried to boost the oil production. That was our main work, but we also developed gas production as well,” Saneg CEO Tulkin Yusupov told bne IntelliNews in an interview in Tashkent.

The oil fields originally belonged to Uzbekistan’s energy national champion Uzbekneftegaz (UNG), which is responsible of the bulk of the country’s oil and gas production, but the 103 fields require specialist and sophisticated technology such as horizontal drilling techniques supplied by international partners to get at the remaining hard-to-reach reserves, so it was decided to set up a dedicated company to focus entirely on this task.

The first thing that Saneg did was to digitise all the Soviet-era geological survey data so that it could build its own models of the reserves and then began to sink wells to improve those models as part of the process of drawing up operational plans.

Fergana refinery

Saneg is a fully vertically integrated company, not just focusing on upstream production. It also includes ownership of an oil refinery in Fergana in the east of the country, which makes it the second biggest energy company in Uzbekistan.

The company’s raison d'etre is to make the most of what limited oil and gas resources Uzbekistan has, so part of Saneg’s work is also to also modernise the Fergana refinery. Built in the 60s, the refinery had its last upgrade before Uzbekistan’s independence in 1991. The refinery was originally designed to produce 6-7mn tonnes per year (tpy) of oil and its peak production was achieved in 1992, when it refined 7.5-8mn tonnes of oil, said Yusupov.

Today, modernisation work is ongoing and Saneg is continuing to improve the refinery. One of the options is to make better use of the crude it extracts from the ground by cracking the heavier oil derivatives to make more petrol and aviation fuel. Another is to improve the quality of the fuel it already produces to match EU standard E92 and E95 petrol.

“We plan a hydrogen unit at the refinery to produce better quality products that are more environmentally friendly,” said Yusupov. “One of the things we have found is that anything that is eco-driven brings a lot of enhancement technology to our production. Most of the benefits we expect from the investments into the refinery we expect to kick in in the second half of this year.”

Drilling more wells

Since 2021 Saneg has drilled over 100 wells and has a specialist daughter company that focuses on modelling and prediction, studying the geology to work out how best to extract the remaining reserves. Typically a third of the wells are extracting oil, a third extract gas and the remaining third are exploratory wells.

Over 80% of the wells require directional drilling, whereas UNG wells are simple vertical wells with large deposits that are technically simple to operate.

And the project has been successful, with the amounts of oil and gas extracted rising rapidly in the last two years. In 2023 Saneg extracted 594,600 tonnes of oil and 1.2bn cubic metres of gas from a standing start in 2019. The bulk of the production is sold on the domestic market, with a small share being sent for export.

By the way of contrast, UNG produces 770,000 tpy of oil and 30 bcm of gas. The Uzbek Energy Ministry estimates that the country has proven gas reserves of around 1.86 trillion cubic metres. But extraction rates have been flatlining or even declining over the past decade, while domestic demand has grown. The 48.9 bcm of total gas produced in 2022 marked a 4% decrease against the previous year. Last year saw another drop in output, to 46.7 bcm.

Unable to cover its own oil needs, Saneg will see oil imports from Russia rise from 250,000 tonnes last year to a planned 550,000 tonnes this year, most of which will be processed at Ferghana.

The country used to be self-sufficient in gas, but with the economy growing by 6% a year for almost a decade, the demand for gas outstripped its ability to supply itself about two years ago. Uzbekistan’s President Shavkat Mirziyoyev recently signed off on a new gas supply deal with Russia and will invest in reversing the flow of Soviet-era gas pipelines to Russia after rolling blackouts afflicted the country in the last two years.

National programme

Like most of Mirziyoyev’s programmes, the Saneg project is multifaceted. The starting point is to make more use of old fields to reduce expensive imports, but all of the president’s ideas are shot through with schemes to add value to all production in Uzbekistan. The need for and ability to use sophisticated directional drilling technology and advanced modelling is an important adjunct to Saneg’s work and the company is already providing some of the skills it has learned to other countries in the region.

Extracting oil and gas from end-of-life deposits is a difficult technological challenge and also needs careful study of the reserves to work out how best to get the remaining reserves out of the ground at a reasonable cost, said Yusupov.

The company works hand in glove with the likes of US oil services companies Schlumberger and Halliburton that provide the technology for things like directional drilling. But geological modelling is also important.

“About half of the wells we drill are for a work-over of the existing fields, but often it is better to simply drill a new well and frac the deposit to bring it back to life,” said Yusupov.

Yusupov said he expects the project to run for another decade and hopes to raise gas production to 1.8 bcm a year during that period, but the production numbers themselves are not the measure of success.

“We work first and foremost for the domestic market,” said Yusupov. “Our success story is based on the appreciation of society. If they see your success, then you build trust and more assets are entrusted to you. We focus on quality but we are aware that quality and performance alone are not enough to guarantee success, so we focus on society.”

Yusupov said that Saneg is not working for profit alone, but is participating in Mirziyoyev’s New Uzbekistan 2030 vision to lift the country out of poverty and build a prosperous modern country that is integrated into the global economy, and a company such as Saneg is one of the vehicles through which that goal will be achieved.