…And, while cutting the well count by half.
Thane Gustafson’s newest book on the politics of Russian business focuses on how Soviet oil and gas assets were distributed in the 1990s, who won them and how their ownership has evolved in the past two decades—a culmination of Gustafson’s research, relationships and interviews beginning in the 1980s.
Of course, the fate of Russian oil upstart Mikhail Khodorkovsky is well known, particularly within international human-rights courts and councils.
Lesser known is the role of Joe Mach, a veteran Schlumberger well specialist and University of Tulsa petroleum-engineering graduate, who was hired by Khodorkovsky’s Yukos in early 1999 to turn around its declining oil fields. Mach’s is one of the many tales Gustafson shares in his new Wheel of Fortune: The Battle for Oil and Power in Russia.
Gustafson writes, “Joe Mach enjoyed playing the part of the tough, rough-spoken Tulsa petroleum engineer, complete with cowboy boots and cigar. His language was so colorful, it was said he spelled ‘oil’ as a four-letter word.” By 1999, Mach’s career had already spanned several decades.
Khodorkovsky, who was still in his 30s at the time, meanwhile, “was a chemical engineer by first training and knew nothing of wells and reservoirs…and the logic of (Mach’s) nodal analysis appealed to him immediately….”
Mach went to work, training Yukos engineers. Mach tells Gustafson, “These people had one job: to look at each well, calculate its performance gap and sort them in descending order. The well with the biggest gap went on top and we worked on that well.”
Gustafson writes, “For Joe Mach, West Siberia was an oilman’s dream. ‘Siberia is the simplest environment in the world: It’s one big beachfront,’ he would tell visitors. ‘The Ob’ River is flowing today right over where it was 130 million years ago. It’s the same place. You can see it on seismic; you can see it on the logs. The West Siberian landscape has not changed in 130 million years.’
“The result was a uniquely uniform and prolific environment for oil. ‘You can go a thousand kilometers; it’s the same g[------]ed sand. All across, it’s 18% porosity. The water saturation is very consistent. The other no-brainer is [that] the reservoir pressure is 4,500 pounds and the bubble point’s 1,800. In other words, it’s pure oil. Man, it doesn’t get any simpler than that.’”
Relatively little of the oil the rocks contained had been produced yet. “Pumps, fracs and floods: These became Mach’s mantra over the next five years. But he might as well have said ‘shibboleths, bad practice and screw-ups’ because making changes in these three basic techniques ran straight up against established ways, beliefs and rules.
“From the moment Mach arrived at Yukos, the fight was on, both inside the company and out, in Moscow and in the field.”
Russian pumps at the time were old school in terms of power. Gustafson cites the Russian newspaper Moskovsky Komsomolets’ interview with Khodorkovsky in 2002. “When Joe first arrived, our guys said, ‘We know everything better than anybody.’ But Joe says, ‘Set the pump lower!’ And they said, ‘Go [----] yourself. (Da poshel ty!)’ Because we knew that if you set the pump low in the well, it’d burn out. Joe insisted. So we lowered it, and it burned out. Another one, and it burned out too. Six pumps burned out, but Joe kept saying, ‘Lower, lower g[------] it! One out of three will burn out, but the other two will work so well that you won’t miss the third one.’”
Yet, hydraulic fracturing, which Gustafson points out was as common in West Texas oil fields as wind, was Mach’s “most controversial innovation” in the Russian oil patch. The proppant—that is, ceramic spheres used to hold rock open after being fractured—that Mach ordered for the jobs became known in the field as “Joe’s balls.”
Khodorkovsky was eventually imprisoned in 2003, just weeks after his 40th birthday, on a variety of allegations that are internationally recognized as “trick charges” as Putin’s means of depowering the successful capitalist who had Western-style ambitions for Soviet-era-embedded Yukos.
Gustafson writes that Mach’s large fracs were among the charges. Also offensive was Mach’s prioritization of fixing the best oil wells first and shutting in some 7,000 poor wells—roughly half of Yukos’ inventory.
“Mach regarded this wholesale triage as one of his proudest achievements,” Gustafson writes. “Yet there was one small problem with shutting down wells in this way: It was illegal.”
Gustafson’s 662-page Wheel of Fortune includes 110 pages of footnotes as endnotes, a 20-page bibliography and more than 1,000 indexed terms.
Since leaving Russia and what was left of Yukos in 2006, Mach runs an investment-consulting firm, Houston Consultants, according to the Society of Petroleum Engineers’ JPT publication, which recognized Mach in its 2009 annual “JPT Legends of Production and Operations” program.
In Mach’s first four years at Yukos, until the company was put into bankruptcy by the Putin government, JPT reports, “…Oil production more than doubled from 800,000 to 1.7 million barrels of oil per day. This was accomplished in part while the active, producing well count fell from more than 14,000 to 7,000. The increased production rate came about as a result of decreasing water cut by 15% and increasing the average rate per well fourfold, while reducing operating expense per barrel. Reserves increased by 3 billion barrels.”
Gustafson writes that Khodorkovsky admired Mach, who “did not discriminate between Russians and Americans; he was brusque with everybody” and whose manner of dressing down subordinates appealed to Soviet-era-styled workers’ expectations while Khodorkovsky’s manner was quiet. “(Mach) wove four-letter Anglo-Saxon into a unique language, which his interpreters struggled to render into Russian equivalents—no small achievement in Russia, the homeland of mat—the elaborate obscenity that is an art form among Russian males.”
In the Moskovsky Komsomolets’ interview in 2002, Khodorkovsky said of Mach, “He swears like a Russian.” Gustafson writes, “The unbelieving interviewer then asks, ‘In Russian?’ to which Khodorkovsky answers proudly, ‘In English, but the interpreter translates into Russian.’”
Gustafson’s book is available in print and Kindle format at Amazon.-Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at firstname.lastname@example.org.