Laisan Limited Liability Company.

CMS (Chemicals Management System) Conception, or Complex Chemization of Processes of Oil Extraction, Transportation and Treatment

Operational Experience and Results

February, 2010

About Our Company

Basic Activities:

Implementation of chemical processes into oil-and-gas extraction productions; Development (synthesis) of new forms of chemicals; Development and implementation of strategy of corrosion management; Development and implementation of strategy of complex management of chemization of oil extraction, transportation and treatment; Selection and delivery of chemicals; Manufacture, erection and service maintenance of batching equipment; In-complex service Monitoring of efficiency of programs (engineering and economic)

Fields of Practical Application

• SRB oppression

• Possibility of synthesis of new substances in view of a definite task

Line of Chemical Products of Our Own Production

Hydrate development inhibitor LGD-7000

List of Permission Documentation of Laisan LLC

No. Name of license / permission document

No. of license / document Issued by Activity Valid up to

1 2 3 4 5 61 Certificate of Evaluation of Conformity IO-00006-00127 Unified System of Conformity Evaluation on Sites

under Control of Federal Agency for Environmental, Technological and Atomic Surveillance

Activities on sites under control of Rostechnadzor (Federal Agency for Environmental, Technological and Atomic Surveillance) (SDA-18)

19.12.2011

2 Permission for Application of Mobile Batching Plant (UZR-1)

No. RSS 00-34888 Federal Agency for Environmental, Technological and Atomic Surveillance

Use on hazardous production sites, out of explosion-hazardous zones, pursuant to operation manual and valid normative documents on industrial safety

Issued on 29.06.2009 for the whole operation period

3 Certificate of Conformity of Mobile Batching Plant (UZR-1)

No. ROSS RU.H003.A02441 Authority for Certification of Machinery and Equipment for Oil and Gas Complex, Electric Machines, Raw Substances and Materials

For chemical treatment of wells and pipe-lines Issued on 23.10.2009 for the whole operation period

4 Attestation of Accreditation of Testing Laboratory

No. ROSS RU.0001.22ХИ63 Federal Agency for Technical Regulations and Metrology

Conducting works on testing of chemicals in accordance with the scope of accreditation

12.02.2009-12.02.2012

5 Certificate of Conformity – Quality Management System GOST ISO 9001-2008 (ISO 9001:2008)

No. SMK.RU/12.09.-2089 “Standard-Guaranty” Certification System 28 December 2012

6 Certificate of Conformity – Labor Protection Management System GOST 12.0.230-2007 (OHSAS 18001:2007)

No. SUOT.RU/12.09.-2090 “Standard-Guaranty” Certification System 28 December 2012

7 Permission for Application of Mark of Conformity to “Standard-Guaranty” Certification System for Certification of Works, Services and Management Systems

No. R.RU/12.09/-2089 “Standard-Guaranty” Certification System 28 December 2012

8 License K 065203 No. GS-1-69-02-1027-0-6905078935-004436-1

Ministry of Regional Development of the Russian Federation

Construction of buildings and edifices, except for edifices of seasonal or auxiliary nature

25 December 2013

9 Certificate of Permit to Works which Affect Safety of Major Construction Objects

CV No. 0000618Reg. No. SO-1-10-0715

Self-Regulating Organization – Non-Profit Partnership “Association of Constructions Companies of Medium- and Small-Size Business”

All types of major construction Without limitation

Experience and Duration of Work in Application of Chemical Technologies

No. Description of works * Customer

Date Done

Beginning of works

Completion of works Value of works

incl. w/o subcontract

ing

1 2 3 4 5 6 71 Anti-corrosion protection of equipment of over 190 wells as a part of an anti-

corrosion projectRN-Stavropol-Neftegaz LLC

2008 2008 over 13,5 mio.RUR 100%

2 Monitoring of efficiency of wells and pipe-lines anti-corrosion protection Gazprom-Neft – NNG JSC

2008 2008 over 3,0 mio.RUR 100%

3 Anti-corrosion protection of equipment of over 500 wells as a part of an anti-corrosion project

Udmurt-Neft JSC 2003 2006 over 46,8 mio.RUR 100%

4 Anti-corrosion protection of equipment of 12 wells with ESP LUKOIL-Volgograd-Neftegaz LLC

2004 in process over 7 mio.RUR 100%

5 Anti-corrosion protection of equipment of over 450 wells as a part of an anti-corrosion project

Orenburg-Neft JSC 2004 in process over 188,1 mio.RUR 100%

6 Protection against complications in extraction and transportation (oil treatment, deposits of asphalt, salts, hydrates, H2S neutralization, etc.) As a part of complex chemization projects

Orenburg-Neft JSC 2007 in process over 70 mio.RUR 100%

7 Erection of electrochemical protection systems for protection of pipe-lines against external corrosion

Orenburg-Neft JSC 2009 2009 over 120 mio.RUR over 80%

8 Maintenance of electrochemical protection systems for protection of pipe-lines Orenburg-Neft JSC 2009 2009 over 3,5 mio.RUR 100%

9 Integrity of pipe-lines – protection against internal and external corrosion, diagnostics of pipe-lines and replacement of lengths of pipe-lines being in bad state (over … pipe-lines, over 450 wells)

Orenburg-Neft JSC 2010 in process over 110 mio.RUR over 95%

10 Monitoring of efficiency of wells and pipe-lines anti-corrosion protection TNK Nyagan JSC 2007 in process over 20 mio. RUR 100%

11 Elaboration of processes of inhibiting gas pipe-lines TNK Nyagan JSC 2007 2008 over 4,2 mio. RUR 100%

12 Anti-corrosion protection of equipment of over 160 wells as a part of an anti-corrosion project

Samara-Neftegaz JSC 2007 2008 over 54,6 mio.RUR 100%

13 Pilot testing of chemicals against viscous emulsifiers /Pilot testing of complex chemization

Samara-Neftegaz JSC 2008/2010 2008/in process - 100%

14 Protection against salt scaling on site objects of oil treatment Surgut-Neftegaz JSC 2009 in process over 2 mio.RUR 100%

15 Protection against corrosion of pipe-lines on site objects of oil treatment Surgut-Neftegaz JSC 2009 in process over 2 mio.RUR 100%

Chemicals Management System (CMS):In-complex solution of problems arising in oil extraction, transportation, treatment and delivery by use of chemicals, for reducing current and long-term costs with utmost efficiency, in accordance with the principle “from well downhole to oil delivery point”.

CMS – What Does It Mean

Advantages of In-complex Approach: Works are performed by a single contractor possessing own chemical production, chemical laboratories and resources for delivery and injection of chemicals on deposits, engineering support with maximum efficiency; contractor may promptly modify the recipe of chemicals and injection process in address manner for definite conditions; Providing compatibility of multiple chemicals in the common technological system; Choice of multiple lines of chemicals with “the best”, “good”, and “satisfactory” process efficiency and respective price affording to optimize specific costs; Contractor’s profit in dependence on the achieved Key Efficiency Indicator preset for all types of complications on a definite deposit/site; Long-term partnership allows developing the service component in the region of presence and having a competitive environment;

Classical Consequence of CMS Programs Realization

I. Creation of Customer – Contractor Project Team

2006 2005 2007 2008

Typical CMS Performance (Complex Anti-Corrosion Inhibiting) Illustrated by Examples of 2 Fictitious Deposits

Comments: Complex inhibiting allows achieving Customer’s target key efficiency indicators;“Incubation interval” up to achieving of the acceptable level of fault rate shall be about 7-10 months, due to inertia nature and “saturation” of the flow line system by the inhibitor and optimization of dosage rates and frequency of injections on monitoring basis; It is important to collect the database of time between failures (TBF) of submersible equipment for monitoring of this indicator in CMS framework and estimation of extra benefits.

After CMS implementationPrior CMS implementation

Typical CMS Performance (De-emulsification at Oil Treatment) Illustrated by the Example of a Fictitious Deposit

Regular Stage

Comments: Properly chosen de-emulsificator allows reducing unit costs up to 40% of the basic level and achieving key efficiency indicators; Before “the best” result is achieved, it is needed to use dosage rates which are sufficiently high; consequently, current unit costs will rise in this period; An important task of optimization is ensuring compatibility with chemicals of other functions

Typical CMS Performance (Gas Hydrates Prevention) Illustrated by the Example of a Fictitious Deposit

Specific Quantity of Hydrate Development in 2006-2008

5,6 5,7

8,3

2,0

2,6

3,5

2,2 2,11,8

1,6

2,2

3,8

7,57,5

1,7

1,00,6

0,0 0,0 0,0 0,1 0,00,3 0,2

0,0 0,1 0,0 0,1 0,0 0,0 0,0 0,0 0,0 0,0

0

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2

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6

7

8

9

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Ap

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Dec Ja

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Feb

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Ap

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ay

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Dec Ja

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Feb

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2006 2007 2008

pc

s/w

ell

*mn

th

Regular StagePilot Tests

Methanol

Comments:

The properly chosen inhibitor allows achieving Customer’s target key efficiency indicators; Replacement of methanol by another chemical instead of methanol will reduce risks of personnel poisoning; CMS measures with use of ХХХХХХ chemical allowed reducing monthly losses of oil – 130 tons, gas – 260,3 thou. m3; Info: the reserve is 16 wells

Theoretical Change of ESP-80 Characteristics Depending on Change of Viscosity (Avtotechnolog Production Association)

The experience of application of solvents of asphalt, paraffin and resin deposits allows to state reducing of viscosity in 3 times and over.

When performing chemical treatments (without impact of factors not related to chemization) it may be expected that flow rate characteristic of ESP-80 will rise in the range of 1,3-37,5 % and efficiency will rise in the range 11 - 44 %.

It is rational to apply such calculations to each well individually.

Вязкость при 200 С, мПа*с

12,5%

1,3%

37,5%

Viscosity range of the most usual complicated reserve of wells

11,5 %

44%

Viscosity at 20°C, mPa*s

• Provided correct selection of the inhibitor and its correct use, efficiency of protection against mineral scaling will be 90-100 %.

• Correctness of selection of the inhibitor will be defined by carefulness of chemical analysis of solid scaling and water, and by finding the actual cause of mineral scaling.

• To prepare an inhibitor with predictable properties it is needed to use special active components but not wastes of various productions. It will allow to obtain chemicals with consistent properties.

• Chemical composition of the inhibitor will be corrected on basis of results of commercial tests.

Salt Scaling Prevention

Typical CMS Performance (Neutralization of Hydrogen Sulfide and Ethyl-methyl Mercaptans) Illustrated by the Example of a Fictitious Deposit

159

0,532

6,929

1,473

46,905

13,294

0

10

20

30

40

50

60

70

до после

ppm

Результаты нейтрализации

сероводород метилмеркаптаны этилмеркаптаны

KEI for mercaptans

KEI for Hydrogen Sulfide2 ppm

5 ppm

Basic requirements to the chemical:• To be free of chloral compounds

• Not to contain free water

• Not to precipitate into insolvable scaling after reaction with hydrogen sulfide

Basic requirement to the application process:

• The feeding point shall be close as possible to commercial oil (after discharge of water)

• Good stirring should be provided (feeding before pumps, via dispersion medium)

• In case of long-time storage of the chemical, stirring / agitation should be provided

Results of neutralization

prior after

Algorithm of Evaluation of Economic Efficiency (Examples)

KEI is Profit by results Results are…

–Solving a package of tasks for achieving set targets:

1.Improving process parameters with costs per unit retained;

2.Improving economic indicators (costs per unit) with the process indicators unchanged;

3.Improving process parameters with simultaneous improving costs per unit

Contractor’s profit, apart from monthly payment for actually performed works, may be caused by:

–Prolongation of Contract

–Increase of Customer’s market share

KEI scale unites targets of the extracting Company and Contractor for achieving maximum efficiency of applied technological processes with optimal costs.

Payment is related not to amounts of injected chemicals but to the final results: technological efficiency.

Basic terms: Injection availability – percentage of procedural requirements of chemical injection.Percentage of protection efficiency – 100% minus relation of the number of early failures at the protected reserve of wells to the number of protected wells.Number of days with non-conformance of oil and water quality – days with exceeding of average daily results of analyses of chloral salts concentrations in water, % of water in oil and residuality of oil products in recycled water.

Key Efficiency Indicators (Example)

Benefits from Implementing CMS for Extracting Company

Visible costs of chemization(purchasing of chemicals, CMS contracts)

Reducing “latent” costs

• Cost of CWR repairs• Oil losses due to downtime during CWR• Oil losses due to raising pressure in pipe-lines• Replacement of tubing, submersible pumps and cable• Price of removal of scaling from tubing• Price of lands regeneration• Expenses for liquidation of breakdowns• Replacement of pipe-line lengths being in bad state• Expenses for re-treatment of off-grade oil• Reducing risks of personnel poisoning with methanol

All o

pera

tion

cost

s

Benefits from CMS

• Legal Address:170000, Tver City, Volnogo Novgoroda Street, 5• Postal Address:119002, Moscow, PO Box 32• Actual Address:121019 Moscow,Bolshoy Afanasyevsky Lane, 15,

bldg. 1• Phone / fax:(495) 695-04-10, 695-04-12• E-mail:laisan@complat.ru

Top managers:• Director: Nikolay V. Korostelev• Deputy Director for Oil

Services: Yuri V. Makarov• Anti-Corrosion Team Manager:

Andrey A. Lysov• Chemical Service Manager:

Dmitry M. Nikitin• Coordinator of Chemical

Monitoring Works: Yevgeny V. Frakiysky

Contact Information