6.9. SCIENCE AND INNOVATION

Continuous growth of the Company’s technological potential is stipulated by the 2011-2015 Innovative Development Program (approved by the Board of Directors on April 01, 2011, Minutes No. 34). The document meets the requirements of regulatory, planning, and policy documents at the national, regional and corporate levels. Its targets and goals contribute to the performance of the Rosneft Long-Term Development Program.

The program consists of the following blocks:

• targeted innovation projects;
• targeted programs for modernization and increasing production efficiency;
• measures to improve innovation activity.

Innovative projects of the Program are focused on the following business lines:

• Geology and difficult oil production,
• Gas production and processing,
• Offshore exploration,
• Oil refining and petrochemicals,
• IT and management solutions.

Rosneft’s innovative activities are aimed at the development and implementation of the newest technologies to achieve the following objectives:

• Upstream segment:
  • replenishment of hydrocarbon reserves at the level of at least 100 % of the current production;
  • increase of hydrocarbon recovery rates on new deposits, development of systematic measures to increase oil and gas yield on existing fields;
  • efficient use of associated gas (95 %);
  • development of technologies for cost-effective involvement of unconventional and hard-to-recover hydrocarbon reserves in the development.
• Downstream segment:
  • increase of the degree of oil refining;
  • introduction of new technologies for processing heavy residues and oil and gas chemistry;
  • development of its own catalysts (import substitution).

In 2015 the Company started updating its Innovative Development Program for 2016-2020 according to the Directives of the Government of the Russian Federation No. DM-P36-6057 of August 09, 2014 and No. DM-P36-7563 of November 07, 2015, and due to the termination timelines of the current Program performance (2011-2015).

In 2015, the innovation expenses of the Company amounted to RUB 116.9 bln while R&D costs amounted to RUB 36 bln.

All the planned activities for 2015 were fulfilled.

Targeted innovation projects

In the reported year, growth of patent activity was continued and special attention was paid to the implementation of R&D results and securing intellectual property rights. As a result of the implementation of targeted innovation projects in 2015, the Company filed 69 applications for security documents including five abroad.

The main results achieved in 2015 on key projects:

• The Company organized systematic work on research of promising gas fields of the Berezovskaya suite. A program of targeted field studies on additional exploration of the Berezovskaya suite was developed and approved. According to the 2015 assessment, the resource potential of the Berezovskaya suite exceeds 5 trillion m3 free gas. The planned development of reserve localization technologies and their cost-effective development will allow to put the reserves on the balance sheet of Rosneft and to increase the capitalization of the Company.
• The development of computer technology for processing three-dimensional seismic data, which is aimed at the research of unconventional hydrocarbon deposits in cavernous fractured reservoirs, was completed.

The developed technology has a number of advantages over similar technologies developed by leading oil and gas companies (Shell, Total, Saudi Aramco). The technology makes it possible not only to allocate scattered waves to forecast increased fracturing zones but also to determine the possible orientation of cracks by the scattered waves and predict fluid saturation in fracturing zones.

Especially effective is the use of this technology in the process of research of different reserves, which are widespread in Eastern Siberia, the Timan-Pechora oil and gas province, and on the Arctic shelf.

• Research was continued to assess the prospects of Upper Jurassic deposits in the license areas in the activity zone of LLC RN-Yuganskneftegaz, two wells were completed by drilling with coring and recording of an expanded GIS complex, which will enable a qualitative study of the object and design of a multi-stage hydraulic fracturing.
• Pilot projects were implemented at Prirazlomnoye field by LLC RN-Yuganskneftegaz to test its own technology for developing low-permeability reservoirs based on horizontal wells with multiple transverse fractures for hydraulic fracturing. The results showed high potential of the technology to increase well production.
• The following was also developed as part of the project:
  • infill drilling technology in marginal zones drilled by directional wells of low permeability reservoirs. The technology allows for a multiple increase the effectiveness of the development of this collector type. A patent application for the technology was filed.
  • a software unit to optimize the modes of EDCP systems, the implementation of which only at LLC RN-Yuganskneftegaz will potentially increase the production by 1,000 tons/day.
• A new technology of acid gases removal (СО2, Н2S and mercaptans) from associated gas was developed based on the method of acid gas absorption through porous hollow fiber membranes in amine solutions (pertraction). Successful completion of the project will provide multiple reduction in capital and operating costs compared with traditional methods.
• Development was completed of a software unit for calculating a 3D formation model for geological support of horizontal drilling and sidetracking, which surpasses the existing analogs. The 3D formation model, in contrast to the standard one, improves the accuracy of calculation of synthetic logging.

In addition, the Company developed a software unit for combined calculation of detailed hydrodynamic models, which has no analogs, improves calculation accuracy, and reduces the time of modeling super-large fields (Priobskoye, Prirazlomnoe, Samotlor, Vankor, etc.) including the ones characterized by the presence of gas caps and high permeability formations/interlayers.

• The concept and the calculation core of the corporate hydraulic fracturing simulator were developed. According to test results, the developed algorithms surpass Western commercial analogs in calculating speed. The development of the unique competences in the field of geological and technical activities will allow the Company to improve the economic efficiency of oil services and to eliminate dependence on imported technology.

Arctic shelf

• Rosneft with the participation of the Arctic Research Center and experts of the Arctic and Antarctic Research Institute organized the Kara-Winter-2015 and Kara-Summer-2015 expeditions, in which 35 hummocks and four icebergs were studied comprehensively, morphometric parameters of ice formations and physical and mechanical properties of ice were measured, and large-scale experiments on research of dynamic processes in the sea ice — iceberg system were performed. Aerial filming was performed of glacier fronts on the east coast of Novaya Zemlya and glaciers and icebergs of the Severnaya Zemlya and Franz Josef Land archipelagos. Maintenance of six automatic weather stations and 13 autonomous oceanographic buoy stations was performed.

The Kara-Winter-2015 research expedition became the most ambitious Arctic expedition in the world by scale and composition over the past 20 years.

GTL

• A mini-channel reactor and a technology of the Fischer-Tropsch process in a compact version of the GTL (Gas-to-liquid) technology, which provides processing of natural / associated gas into synthetic oil. Implementation of this technology will provide an extra 20 mln tons of oil per year by processing natural / associated gas directly at the fields. The main advantages of the GTL technology are:
  • compact size allowing to use GTL on hard-to-reach and remote fields (including offshore projects),
  • block-modular design of the facility that enables easy scaling for different capacity fields.
• A laboratory technique was designed for determining the compatibility of mineral and synthetic oil. Research has confirmed the compatibility of mineral oil with products that are obtained by Fischer-Tropsch synthesis, which allows their joint transportation via oil pipelines.

Refining and Petrochemicals

• IDW and hydrofinishing catalysts were developed that are used to produce low sulfur, winter, and arctic diesel fuel (Euro-5). Implementation of this project will enable import substitution of catalysts at two-stage hydrofining and IDW unit, at the Company’s refineries.
• Development of catalysts for hydrofining of diesel fractions and pre-hydrofining of gasoline fractions was completed. Pilot industrial operation catalysts in the amount of 200 kg was completed. Independent comparative tests of hydrofining catalyst were performed with domestic and foreign analogs, which showed its competitiveness compared with the foreign analogs. Implementation of these catalysts will make the Company independent of supplies of foreign-made catalysts for hydrofining of diesel fractions and pre-hydrofining of gasoline fractions.
• A modern technology was designed for producing synthetic PAO oils with a high viscosity index (140 – 170), low pour point (-50°–65°), and excellent thermal oxidative stability. The developed technology has a number of advantages, such as lack of wastewater and toxic gas emissions as well as useful oligomerization heat. In 2015, the development of initial data was completed for the design of a pilot plant producing synthetic PAO base oil with 300 tons / year capacity of (OPU PAO-300).
• The development of anti-corrosion additives for environmental safety class 5 motor gasoline was completed. A multifunctional additive formula was designed, which includes the developed anti-corrosion additive. This project will enable import substitution of the multifunctional additive. Implementation of this project will allow the Company to produce the multifunctional additive from domestic raw materials and complete import substitution of foreign analogs.

Polymer materials

• A laboratory technology was designed for production of diethyl ruthenium catalyst for dicyclopentadiene polymerization with 6 kg / year capacity. This volume allows to produce up to 120 tons of new polymeric and composite materials based on polydicyclopentadiene with unique mechanical properties.
• The development of initial data was completed for the design of an industrial plant for dicyclopentadiene production (98.5 wt%) from the C5 pyrolysis fraction with 4,000 t / year capacity.

International cooperation

In 2015, a Center for Advanced Research and Technology was established together with General Electric; its task is to improve the existing technologies of partner companies and to develop new technologies for mutual benefit.

The first project agreement was signed for the development of an improved performance heat exchanger for liquefied natural gas plants (LNG). Draft technical specifications are worked out for conclusion of project agreements for the development of the following technology:

• renewable energy sources to improve the energy efficiency of pipeline transportation of hydrocarbons (remote control and diagnostic systems);
• plants with an organic Rankine cycle to reduce the thermal impact of refineries on the environment.

Methodical support of innovative activity

As part of the systematic work on the development and improvement of innovative activity of the Company in 2015, the following were developed and approved:

• Management of Innovation Efficiency Company Standard;
• Management of Innovation Projects Company Standard;
• Order of development (updating) and implementation of the Rosneft innovative development program;
• On the procedure and rules of the one stop shop system for implementation of innovative products Company Regulations;
• Guidelines Comprehensive assessment of innovation efficiency (calculation of the integral key performance indicator of innovation activity) Methodical Guidelines.

Thus, the Company has established an integrated system for managing the efficiency of innovative projects based on the best practices and standards. The system allows to identify risks of innovative projects in due time, to improve their performance, and to achieve mass effect from the technology implementation.

Adaptation and implementation of advanced technologies in 2015

Within the framework of attracting promising efficient technologies developed by domestic and foreign companies to the Company, in 2015, testing, adaptation, and adoption of new technologies was organized within the framework of the New Technologies System (NTS) and the Pilot Test Program (PTP) projects.

During the tests, the key features and technologies were determined and the assessment was conducted on the feasibility and effectiveness of their use in the geological and technical conditions of the Company. According to the technology applicability analysis, the 2016 – 2017 implementation plan was generated.

In 2015, 7 subsidiaries completed tests of 21 technologies in 4 areas within the NTS framework:

• fracturing and stimulation of wells;
• machine mining;
• new well technology;
• field development technology.

In 2015, 98 tests were performed within the NTS framework, in which 51 thousand tons of additional oil were produced and costs were reduced by RUR 66.1 mln.

In 2015, 240 pilot test projects were implemented in 8 areas:

• drilling and completion of wells;
• fracturing and stimulation of wells;
• machine mining;
• ground infrastructure and pipelines;
• new well technology;
• field development technology;
• use of chemicals in industrial processes;
• energy and energy efficiency.

In 2015, tests on 137 NTS projects were completed within the NTS framework. The additional oil production from the tests amounted to 68 thousand tons, and reduction of costs, RUB 294 mln.

As a result of NTS and PTP projects of 2011 – 14, in 2015, implementation of 137 successfully tested efficient technologies was organized with an overall budget of RUB 15,883.8 mln, additional oil production of 2,668 thousand tons, and an economic effect of RUB 1,642.7 mln