Business as usual? - OGFJ business acumen and decisive modernity, and that the TNK-BP deal was just...

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RUSSIABusiness as usual?

We will continue to pursue a policy of openness to for-

eign investment in energy, a strategic sector for Rus-

sia,” President Putin told the International Economic

Forum in 2012. But what does an open strategic sector look like

in Russia? The only other examples of what the Russian govern-

ment sees as strategic sectors are defense, state monopolies,

and the media, none of which appear particularly open.

”

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56 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL SEPTEMBER 2013

Investors only had to wait until the frst quarter

this year for an answer. In March, a deal signed by

Rosneft reshaped the Russian oil industry and sig-

nifcantly bulked up Russia’s top oil producer. Ros-

neft’s acquisition of the BP joint venture TNK-BP, in

exchange for BP gaining 20% of Rosneft’s shares,

effectively consolidated Russia’s frst and third larg-

est oil producers. At $55 billion, it was the largest

deal ever signed in Russia and as a consequence,

Rosneft even knocked ExxonMobil off the podium

for the world’s largest oil producer with 4.6 million

bpd production.

For BP this deal marked a new strategic partner-

ship in Russia and presumably a fresh start after

years of turbulent internal legal battles at TNK-

BP. "We hope to help Rosneft to deliver synergies

through its acquisition of TNK-BP and to grow pro-

duction and reserves through brownfeld, green-

feld and unconventional opportunities as Rosneft

strengthens its position among the world's leading

global energy companies," said BP’s Chief Execu-

tive Bob Dudley.

By granting a 20% stake in Rosneft to BP, the

Russian government appeared to defne openness in the strategic

energy sector as a form of foreign ownership with state control. In

a market already restricted in the number of major oil companies,

the relevance of the state to oil industry stakeholders has now risen.

Or has it? In the country, many argue that Rosneft is managed with

sound business acumen and decisive modernity, and that the TNK-BP

deal was just business as usual. Either way, Rosneft’s growth into the

undisputed oil-producing champion has begun to change the land-

scape of the Russian industry for oil and gas companies and service

providers.

FOREIGN SPARRING PARTNERS

The Russian government believes that it needs investment of more

than $280 billion to maintain oil production at the current level until

2020, and indeed, a number of high profle deals have shown that

there is interest in investing in Russia. Rosneft has been leading the

effort to attract foreign partners, signing a joint venture agreement

in 2012 with Norway’s Statoil for exploring frontier areas in the Sea

of Okhotsky and the Barents Sea as well as another JV with Japan’s

Inpex for exploration off Russia’s Pacifc coast. The state giant also

concluded a joint venture with China’s CNPC for a USD5 billion East-

ern Petrochemical venture. Andrey Goltsblat, managing partner of

law frm Goltsblat BLP, confrms that Russia has become a primary

market for many large global players, who have realized that the

country offers more growth perspectives than many other markets.

Yet, according Fernando Martinez-Fresneda, Repsol’s General

Manager for Russia, investing in Russia is not a simple process. “Rep-

sol brings in its global technology and international best practices

gained in the 25 countries we operate in,” he says. “However, com-

panies in Russia operate in the way that they are accustomed to, and

as a foreign company it is not easy to tell them that sometimes they

have to change their approach in order to be more effcient.”

It took time for the Spanish company to develop its business in Rus-

sia after acquiring a 10% holding in West Siberian felds. “We have

been analyzing and screening the market for fve years; some oppor-

tunities failed and others were considered too high risk,” Martinez-

Fresneda says. He believes that it was important to take the time to

do this before Repsol concluded its joint venture with Alliance Oil,

which included an agreement to take over Russian gas development

company Eurotek.

In 2012, after 20 years in the Russian market, Wintershall concluded

an asset swap with Gazprom in which the German company received

a 25% stake in blocks IV and V of the Achimov formation. In return,

Gazprom obtained shares in Wintershall’s natural gas trading and

storage business. Mario Mehren, a member of Wintershall’s Board

of Executive Directors, explains that Germany's largest crude oil and

natural gas producer and Gazprom are starting to share expertise:

“We are working on a project to bridge the way from the North Sea

to the Barents Sea, which is interesting for both parties. Gazprom

is interested in the development of shallow waters on the Russian

continental shelf. This is exactly where in the North Sea our Dutch

colleagues are incredibly experienced. In return, Wintershall will com-

pletely transfer the currently jointly operated natural gas trading and

storage business to Gazprom.”

Dimitry Bolotnik, General Manager Russia & CIS of Roxar, summed

up the situation: “Companies entering Russia should approach the

market with a long-term vision: be patient and do not expect quick

profts. Roxar is today bearing fruits of agreements concluded fve

years ago. The right level of cooperation is important: Russian oil and

gas companies are looking for long-term partners.”

Mario Mehren,

Member of

Wintershall’s

Board of Executive

Directors

Fernando Martinez

Fresneda, General

Manager, Repsol

Russia

Igor Sechin, CEO,

Rosneft

1309ogfj_56 56 9/11/13 10:51 AM

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SEPTEMBER 2013 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM | ENERGY.FOCUSREPORTS.COM 57

PAYING OFF IN THE LNG RUN

Total has been present in Russia since 1989.

Jacques de Boisséson, appointed General Director

of Total E&P Russie last year, took time to discuss

with Focus Reports Total’s involvement in some of

the country’s fagship projects.

Could you outline Total’s operations in Russia?

Total’s roots in Russia are in the Kharyaga feld,

which is located inside the Arctic Circle. Total has

been operating this feld since 1999 under Rus-

sia’s only Production Sharing Agreement (PSA) for an onshore project.

Kharyaga was the frst PSA project in Russia to become proftable for

the state. The Kharyaga feld consists of six reservoirs. Lukoil and their

predecessors were producing at four out of six reservoirs and the two

remaining reservoirs were left untouched as they were too challeng-

ing. These two reservoirs are the ones at which Total is now producing,

because we have the right technology.

We have a longstanding relation with Novatek, Russia’s second

largest natural gas producer. Novatek has a tremendous track record

and has allowed us to make rapid inroads into the Russian market. In

return, we have helped them to shorten their learning curve in the in-

ternational arena, in particular with relation to Yamal LNG, an interna-

tional project by nature. In addition to Yamal LNG, we are partnering

with Novatek for the development of the Termokarstovoye gas and

condensate feld, where production is scheduled to start in 2015.

In addition, we co-own [25%] Shtokman Development AG together

with Gazprom [75%]: a joint venture established for fnancing, opera-

tion and design of Shtokman phase I. Production of the Shtokman gas

condensate feld will contribute signifcantly to our production in the

future. This project is a pioneering LNG project in the Arctic as well as

a major challenge worth confronting.

Where would you like to take the Russian affliate within the coming

three to fve years?

By 2020, Total aims for Russia to become its number one production

country, representing 15% of its global hydrocarbon production. These

are ambitious targets, but I believe we have what it requires to achieve

them.

This number is mainly based on the success of the current develop-

ment in Kharyaga, on the future production in Termokarstovoye, on

the launch of Yamal LNG, and most of all on the benefcial impact from

Novatek’s growth, in which we aim to increase our stake up to 19.4%.

We have to be the frst in class in production, but also in safety, reliabil-

ity, and ethics. Not only because we committed to it, also because it is

the way to get further opportunities in the business. It is the condition

for growth.

Jacques de

Boisséson,

General Director,

Total E&P Russie

1309ogfj_57 57 9/11/13 10:51 AM


A NEW CONTENDER

Never let it be said that Russians don’t have

patience. Russia’s largest independent gas pro-

ducer, Novatek, has been waiting since 2009 for a

decision from the Russian government on whether

or not it would be allowed to export LNG pro-

duced at its Yamal gas felds. Together with Total,

the company is investing $20 billion in the project,

but up until now Novatek was barred from signing export contracts

through a 2006 law granting Gazprom monopoly rights to all gas

exports.

But the situation has changed. The Russian government has

announced that LNG exports from independent companies would be

allowed as of January 1, 2014, thereby ending Gazprom’s monopoly.

Novatek CEO Leonid Michelson has been busy working on a long-

term supply contract with China National Petroleum Corp to begin

supplying the Chinese market from the planned start-up of facilities

in 2016.

However, Gazprom is not giving up the struggle for control without

a fght. Gazprom CEO Alexei Miller has stated that he plans to take

Gazprom’s share of the global LNG market to 15%, from 5% today,

focusing on the Asia-Pacifc markets. Indeed on June 22 2013 Gaz-

prom signed a memorandum of understanding with a consortium of

Japanese companies for a venture called the Vladivostok-LNG proj-

ect. The Russian LNG industry is beginning to heat up.

REVISITING OLD TRAINING GROUNDS

Recently released estimates of Russia’s total resources - previously

restricted information - have confrmed EIA analysis that most of

Russia’s oil reserves are located in the part of Russia where the indus-

try frst started production, in West Siberia.

In June, Russia achieved a new post-Soviet record of 10.53 million

bpd production, but the production growth was not thanks to Rus-

sia’s legacy assets in West Siberia, but rather Rosneft’s ramped up

production in East Siberia. Rosneft has been focusing on its assets

in the region like the giant Vankor feld, in order to supply the thirsty

Chinese market, which eventually expects one million bpd in oil

supplies.

Russia’s legacy assets in West Siberia, many of which Rosneft

gained through the acquisition of TNK-BP, including felds like Samo-

tlor and Priobskoye, are actually in decline. And the fact that a region

with fewer resources is growing its production, while a region with

more resources is in production decline, presents a long-term chal-

lenge to the industry.

Russia was once likened to a large storage tank with a tap that one

could simply turn on and off: it was almost too easy to draw on Rus-

sia’s seemingly inexhaustible oil reserves. In spite of the cold and the

challenge of permafrost, many of the greenfelds in Eastern Siberia

CREON ENERGY: FASTER GAS MARKETS

Creon Energy, the only Russian advisory frm

offering a full range of consulting services in

upstream, midstream and downstream sec-

tors, has grown to become the leading Russian

advisory group in oil and gas, petrochemicals,

chemicals and related industries in the countries

of the former Soviet Union. The company has

been looking into alternative forms of delivery

for gas from the Russian market and one of Cre-

on Energy’s fagship achievements has been its

participation in the LNG project in Vladivostok.

“In our era, in order to be competitive, companies need to be

compact and mobile in order to move fast to markets with de-

mand,” says Dr. Fares Kilzie, Chairman of Creon Energy. He believes

that mobility is the most important element for Russia’s gas industry

to maintain its global competitiveness.

Kilzie supports the idea of opening up the Russian export mar-

ket to increased competition. “This is exactly the message that we

are trying to deliver to the government ... the effect of free trade

will be far better than having only one channel for the export of gas,

which is Gazprom. Furthermore, any monopoly tends to become

fat and lazy due to lack of competition. By having competitors in

the market, companies run their businesses faster and with better

effciency.”

Fig. 1: Feasibility of Pipeline vs. LNGDepends On Distance AndConsumption Volume

Source: CREON

00

15

30

60

75

30 50 70 90

Constructionof gas pipelineis more feasible

Distance from gas pipeline to end-user, km

Gas

consu

mp

tio

n, m

ln c

ub

. m

per

year

Autonomousgas supply ismore feasible

Leonid Michelson,

CEO, Novatek

Dr Fares Kilzie,

Chairman, Creon

Energy

1309ogfj_58 58 9/11/13 10:52 AM


BETTER DRILLS

Oil production and the total depth of drilled wells

have been continually increasing in Russia, generat-

ing great optimism for the country’s drilling compa-

nies. Russia’s largest oilfeld drilling frm, Eurasia Drill-

ing Co. (EDC) makes up about a third of the market

and is operating in both West and East Siberia. EDC

CEO Alexander Dzhaparidze recognizes the poten-

tial, stating that while this sector has historically been

slow to invest in new technology – today 65% of Rus-

sia’s rig feet is more than 15 years old – upstream growth is pushing

drilling contractors to upgrade their assets. EDC has invested more than

$2.3 billion in the modernization of its feet, and therefore, “our feet is

signifcantly younger than Russia’s average,” Dzhaparidze says.

Eriell became drilling market leader in Uzbekistan in 2007 before

entering the Russian market in 2008. “Although we started our opera-

tions in Central Asia working with state-owned companies such as

Uzbekneftegaz, 90% of our revenues came from our customers Lukoil

and Gazprom who are represented in that market,”

explains Eriell Board Chairman Bakhtiyor Fazilov.

“Our objective has been to enter the Russian market

through our partnerships with Russian companies.”

Fazilov goes on to explain his belief that the avail-

ability of a wide range of up-to-date drilling equip-

ment is his company’s competitive advantage in

RUSSIA'S BLUE AND BLACK BELTS

The prospect of LNG is not eliminating the

huge demand for export pipeline infrastruc-

ture: not only are the Chinese pushing for an

expansion of the oil pipeline network out of

East Siberia, but Russia is still pressing ahead

with the South Stream gas pipeline to Europe.

Despite declining demand from Europe in the

short term, long-term demand from Europe is

set to increase.

But as Vitali Parizher, Director General of

Tempobur, a company specializing in the hori-

zontal drilling and construction of pipelines, explains the tech-

nical requirements for constructing these pipelines are increas-

ing. He points out that there are about 80 companies in Russia

that provide services of horizontal directional drilling (HDD) ser-

vices, but that the majority of them do not possess equipment

to construct crossings longer than 700m.

Tempobur has designed and built more than 600 HDD cross-

ings under the most diffcult geological and weather conditions

including notable projects like Nord Stream, the Baltic Pipeline

System, and the construction of the underwater pipeline under

the Eastern Bosphorous strait towards Russia, a highlight for

Parizher.

“The uniqueness of this project for global engineering prac-

tice is evident in the records it has set for horizontal drilling

parameters,” Parizher explains. “The transition pipeline is un-

precedented in length and depth of burial, with some of the

most diffcult ground conditions ... the soil is unfavorable to

the HDD method: crumbling rock and semi rock with interlayers

of crushed stone, boulders and other large detrital rocks.” For

Parizher, this was a landmark project that expanded the enve-

lope for horizontal drilling in the construction of challenging

underground pipelines.

can be developed according to similar production

techniques. For Russia to generate long-term pro-

duction growth, it needs to return to West Siberian

felds, using new technologies to access more chal-

lenging reservoirs.

Some believe that the domestic industry lacks tech-

nologies to fnd productive areas in lower horizons

and thus technological improvement is necessary

not only in production but also in geology. Yet given Russia’s substan-

tial experience in onshore production, some Russian companies would

strongly disagree with this picture of Russian technological capabilities.

For an example of homegrown success in tapping Russia’s chal-

lenging legacy assets, one only has to look as far as Russian technol-

ogy leader RITEK, a Lukoil subsidiary. The frm creates and develops

modern high technologies to ensure the growth of reserves and pro-

duction. In 20 years, RITEK has grown from a small enterprise into an

oil company that produces more than 7 million tonnes a year, with

more than 50% of its oil reserves located in hard-to-recover areas.

“I understood that true progress would be impossible without

innovative development, particularly for an oil company with high

aspirations,” says Valery Graifer, Chairman of the Board of RITEK. “It

was clear that the era of light oil is coming to an end and RITEK

is placing its stakes on advanced innovations.” Graifer, one of the

founders of Lukoil, and also the company’s Chairman, represents in

many ways the lesser-known face of Russia: one that is both modern

and innovative.

Vitali Parizher,

General Director,

NGS-Tempobur

Valery Isaakovich

Grayfer, Chairman

of the Board,

RITEK and LUKOILAlexander

Dzhaparidze, CEO

at Eurasia Drilling

Company

Bakhtiyor Fazilov,

Chairman of the

Board at ERIELL

1309ogfj_60 60 9/11/13 10:52 AM


service department, creating a direct “manufacturer – customer” rela-

tionship with after-sales service. “With this tailored approach to produc-

tion, we decided not to concentrate our efforts exclusively on sales,”

says Volgaburmash General Director Alexander Bosnak. “For us, provi-

sion of engineering support services for well construction was just as

important.”

ROCKY IN THE EAST

A signifcant share of new production in Russia is expected to come

from East Siberia, with some analysts estimating undiscovered reserves

of over 80 billion boe. These East Siberian deposits lie in an area that

covers approximately 3.3 million km2 and to fnd them requires a major

geological initiative.

However, for a few years, Russia's geological exploration sector has

been in decline and unable to handle such demands. In 2011, the Rus-

sian government took steps to deal with this issue: to stimulate new

efforts in seismic surveys, the government decided to establish Rusge-

ology, a holding company that incorporated 38 geological companies

from 30 different regions of the country. The intention was that the

enhanced fnancial and operational resources and coordinated plan-

ning could provide greater synergies in unlocking Russian hydrocarbon

the Russian oil services market. “The program for modernization of the

industry that has been implemented by the government is working in

full force for our company,” he explains. The company has won tenders

against international companies such as KCA Deutag in Russia, which

Fazilov believes is due to the 1,500 highly skilled engineers currently

working for Eriell, in combination with the most modern equipment

available.

For drilling suppliers, the growth of the Russian market also repre-

sents an opportunity, but as Director General of the Association of Drill-

ing Contractors Alexander Oganov explains, manufacturers of drilling

equipment are facing increased price pressure from foreign competi-

tion, particularly from Chinese manufacturers.

The largest and the most advanced Russian manufacturer of roller cone

bits and PDC bits is Volgaburmash. Historically, the company focused on

producing in high volumes, delivering manufactured

tools to oilfelds in Western Siberia. However, over

the past 10 years the company carried out large-scale

modernization of its manufacturing plants and today,

Volgaburmash is focused on technology differentia-

tion instead of mass production.

In 2011, Volgaburmash established its own bit

TMK: INTERNATIONALLY RUSSIAN

“From the inception of the company,” says

Dmitry Pumpyansky, chairman of TMK, “we

were aiming at developing an international

business.” This focus on creating a strong in-

ternational corporate culture was one of the

factors in launching the company’s IPO on

the London Stock Exchange in 2006, only five

years after the creation of the company, ac-

cording to Pumpyansky, and also one of the

factors behind their successful acquisition of

10 pipe plants in the US in 2008 from IPSCO Tubulars Inc.

Since then, TMK IPSCO has expanded to include one extra

production site in the US, and one in Canada. Pumpyansky

believes that expansion into the US via acquisition was the

smartest option, as it gave TMK “an opportunity to enter the

world’s biggest oil and gas market as a domestic player.”

Pumpyansky goes on to say that the company’s move to

the US was generally smooth, and today, the US and Russian

technical teams work together as one integrated unit. How-

ever, the sales processes in Russia and the US do differ: while

in Russia, TMK is used to dealing directly with the end users,

which include Transneft, Gazprom, Lukoil and Rosneft, in the

US, pipe is sold through distributors. “However,” Pumpyan-

sky clarifies, “we have seen similar market structure in other

countries, so we adjusted quickly. The bottom line is: we are

extremely pleased with our North American operations and

colleagues.”

TMK is in the global top three pipe producers today, but is

valued at a 15% discount vs. top peer value, and a strategy to

improve performance and profitability is being implemented

across the company. With sales today in more than 80 coun-

tries, TMK has made the leap that few other large Russian

companies have: successfully exporting their business to be-

come a global scale player with operations around the world.

Dmitry Pumpyansky,

Chairman, TMK

Alexandr Bosnak,

General Director,

Volgaburmash

Made in Russia - TMK

1309ogfj_62 62 9/11/13 10:52 AM

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resources. Rusgeology’s acting CEO Andrey Tretyakov explains that the

company was established in order to carry out subsoil geological stud-

ies and ensure recovery of mineral resources using state-of-the-art geo-

logical, geophysical and geochemical techniques. “We are striving to

create the country’s largest, highly effcient, world-class geological busi-

ness that will match the national interests of the Rus-

sian Federation. Our mission is to ensure sustainable

growth and renewal of Russia’s mineral resource base

through new territories and new geological sites.”

Tretyakov continues.

One of the largest independent oil and condensate

producers in Eastern Siberia is Irkutsk Oil Co. (INK),

which has an impressive exploration track record throughout its 13-year

history. In a period of four years, INK has discovered and contoured

www.total.com

ARCTIC LNG:

TOTAL IS READY FOR THE CHALLENGE

Total, the world’s second-largest liquefied natural gas producer,

continues to expand its LNG portfolio. Over 50 years of operations

in world-scale LNG projects, combined with 40 years of hands

on experience in extreme cold conditions, puts us in a unique position

to develop complex projects in the Arctic.

Having been in Russia for over 20 years, Total since 2011

participates in the major Russian

Arctic project of Yamal LNG.

RUSSIA’S CONSTRUCTION VISIONARIES

The construction industry remains one of the key catalysts of eco-

nomic growth in Russia. The market is expected to grow by 9% in

2013. Naturally this attracts foreign construction companies that

are ready to set foot in the country. Joint Ventures could be mutu-

ally benefcial in terms of receiving the best Western competences

and in return providing them access to the Russian market.

According to Mikhail Polonskiy, President of

Promstroi Group, a Russian EPC group, foreign

companies fnd it diffcult to enter the Russian

market. Construction in Russia remains carried

out in a traditional way. One of the main prob-

lems in the industry is the absence of demand

for effciency. “It is common that the process of

investment planning and management is con-

ducted by separate contracts for engineering,

procurement and construction. In our opinion,

in the near future a number of projects per-

formed by EPC contractors will increase, which means that the

niche for Western companies will also increase. If one has risk ap-

petite, there is a good deal of work outstanding in Russia”, he

says.

One of fastest growing construction com-

panies in Russia, RuzGazEngineering, is cele-

brating its 10th anniversary this year. The com-

pany has recently discussed a proposal with

the Minister of Energy, Alexander Novak, to

create a scientifc base and trial centre in order

to test Russian and international technologies.

This centre will function as an incentive for

smaller companies in the industry to develop

and test their technologies. “Generally, it is

only large state companies that can afford and

have the ambition to develop this amount of

engineering patents, and not the smaller pri-

vate companies, which makes us unique” Ilshat Valiullin, President

of RusGazEngineering Group of Companies says.

Another personality is Dr. Ivan I. Mazur,

president of RAO Rosneftegazstroy (RNGS), a

leading Russian construction company. Mazur

has been working in the oil and gas sector for

more than 30 years and is the founder of a new

scientifc branch called “engineering ecology”.

With more than 200 publications, and 18 pat-

ents, Mazur is leading the way for Russian en-

vironmentally friendly oil and gas construction

projects. In addition to RNGS’s domestic activi-

ties, the company has a strong focus towards

internationalization. Currently international

projects account for 30% of RNGS’s activities. The CIS, the Middle

East and Africa are priority markets for the company’s activities.

Courtesy of Irkutsk Oil Company

Andrey Tretyakov, Acting CEO, Rusgeology

Mikhail Polonskiy, President, Promstroi Group

Ilshat Valiullin, President, RusGazEngineering Group of Companies

Ivan I. Mazur, President of RAO Rosneftegazstroy (RNGS)

1309ogfj_63 63 9/11/13 10:52 AM


LARGEO - AN UNEXPECTED CALL

Exploration in the Russian Arctic faces a great lack of reliable

seismic data about the region. While an impediment to the oil

companies, it is seen as a major growth opportunity by Rus-

sia’s seismic industry.

“The Russian Arctic shelf has a huge long-term potential for

seismic companies, since the shelf has not yet been studied

in the necessary way. Indeed, I assume, that there will be a

great volume of work for at least 20 years ahead, given that

new technology is becoming available and the existing data

have to be renewed,” said Vice-president of leading Russian

geophysics company LARGEO Group of Companies Andrey

Elistratov.

Elistratov explained that when Rosneft started to make

a serious commitment to offshore exploration in 2009 most

other seismic companies were ill prepared. “A question was

raised about the international industrial level of seismic pro-

cessing in Russia,” he said, and went on to explain why out-

sourcing processing work overseas was not possible given that

“the government lays down restrictions on sending seismic

data out of the country.”

In 2008, Largeo concluded a strategic partnership agree-

ment with ION-GXT for access to advanced processing tech-

nology. In Elistratov’s view, this left the company way out in

front of the rest of the Russian seismic industry. He said, that

alliance made it possible for LARGEO to acquire new tech-

nologies and expand computer capabilities while retaining

Russian identity.

He explained that in 2008, most other Russian seismic pro-

cessing players had looked sceptically on the development of

the offshore market, while most foreign players insisted on

having a contract before investing in setting up a Russian en-

tity, something Gazprom and Rosneft would not do.

However, Elistratov sees the situation changing as seismic

companies are beginning to see potential in the offshore mar-

ket. LARGEO has gained offshore experience to operate Arc-

tic shelf projects using cutting edge technologies and com-

puter power, which gives the company a strong competitive

advantage.

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1309ogfj_64 64 9/11/13 10:52 AM

SEPTEMBER 2013 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM | ENERGY.FOCUSREPORTS.NET 65

seven new felds. The company has recently signed an agreement with

Rusgeology to create and adopt new technologies in exploration and

production in East Siberia.

Today, INK holds 19 subsoil licenses and aims to increase its pumping

capacity to 3 million tonnes of oil per year by the end of 2013, now they

are connected to the East Siberia – Pacifc Ocean (ESPO) oil pipeline.

The two companies plan to jointly develop and apply techniques for

assessment of the existing felds as well as new prospective blocks in

the region.

INK has also contracted Halliburton to optimize its drilling processes

by helping to minimize well positioning errors, as well

as optimizing their layout and the number of produc-

tion and injection wells. “East Siberia offers great

opportunities,” says INK CEO Marina Sedykh. “The

region is expected to be the main source of Russia’s

production growth over the next 10 years.”

BUSINESS AS USUAL?

So, should we consider that it is just ‘business as

usual’ in Russia today? Things are certainly starting to

change in terms of the big international players look-

ing increasingly comfortable operating with Russian

partners. But for many of the cogs in the machine of

the Russian oil and gas industry, the landscape looks

remarkably similar to 20 years ago: huge reserves

are still to be exploited in Western Siberia, and more

adventurous projects like offshore Arctic exploration still seem a long way

away. According to Gennady Shmal, President of the Union of Oil and Gas

Producers, there is no rush to explore Arctic felds. The country has suf-

fcient onshore reserves. As president of Rosneft Igor Sechin puts it, “the

challenge of moving to the Arctic offshore is more ambitious than man’s

frst walk in space or sending a man to the moon.” What is certain is that

it is a matter of when, not if. In the meantime, Russia simply remains the

largest hydrocardon producer in the world.

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��

Marina Sedykh,

CEO, INK

Gennady Shmal,

President, Union

of Oil and Gas

Producers

EDITOR'S NOTE: Since the interview was conducted, Andrey Tretyakov was replaced by Roman Panov as CEO of Rusgeology.

1309ogfj_65 65 9/11/13 10:52 AM

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