with Alexander Dementjev, Head of PGS Russia, PGS Russia
Focus Reports had the chance to interview PGS in a number of important markets. But Russia, arguably the biggest energy market in the world, requires even an international player with international solutions and procedures to adapt to its intricacies. Therefore how would you define for our readers the specificities of PGS’ operations in Russia?
PGS has been working in Russia for more than eleven years now, specifically in the Caspian and Far East regions. In terms of regulations, the Caspian region is more open towards foreign contractors since it has had to adapt to the fact that many countries share the shelf. PGS consolidated its presence in the Caspian Sea when we established a joint venture (JV) in the region called PGS KHAZAR in 2006. Since then, the JV has reached the considerable growth rate, rewarding the hard work of our people and investment in the project.
In 2010 PGS KHAZAR started a fleet expansion program with three new vessels; by the end of 2010, the joint venture will have twelve specialized vessels operating in Russia. This number makes PGS one of the biggest market actors in the Caspian, and we have solid intentions to grow in different segments of the market. Currently we are investigating opportunities in extreme transition zones and deepwater 3D data acquisition.
To support our ambitions, PGS has around two hundred people working in the Commonwealth of Independent States (CIS) today. Around 20 of them are based here in Moscow, where we have a data processing center with a strong geophysical data interpretation group, and around 140 people work directly in the Caspian Region, where the data acquisition itself takes place.
How are your Russian and CIS operations integrated with the rest of the PGS Group?
PGS Group has undergone reorganization recently; as of 1st May we now have a new organization with four core business divisions. The first division is Marine Contract; the second the MultiClient division. This MultiClient business concerns PGS managing investments, including the company’s own funds, into commercial surveys and then licensing the results to companies that are interested in them. This is a very important business for the company today, since PGS has the largest global library of geophysical surveys in the world: nearly 400,000 km2 of 3D data and about 200,000 km of 2D in its worldwide portfolio. Furthermore this library is open to all market actors. The third division concentrates on Data Processing and Technology development, and the fourth on New Ventures, aimed at discovering new business areas for PGS to enter.
PGS’ Russian organization serves all these divisions on the regional level. Of course the shallow water services which we offer in the Caspian are not the core business of PGS on the global market; our core international business is very efficient deepwater geophysical hi-end surveys. Today, our recently launched PGS vessels of Ramform S series can theoretically tow up to 22 seismic streamers! So it means such vessels can do high quality 3D acquisition over considerable areas in one go. This should be a very competitive advantage in such regions as, for instance, the Barents Sea and or Okhotsk Sea in Russia.
These vessels are able to work without refueling for up to five months, so it means they don’t have to call at a port during a typical survey. These vessels are built according to the highest standards of HSE and comfort for the crew. The only reason we haven’t been able to use these vessels, or PGS’ other 3D vessels, and have been focused only in the shallow waters of the Caspian is because there are still some restrictions for use of vessels under foreign flags on the Russian shelf.
What have been the main growth drivers amongst the services that you provide?
In Russia, PGS’ main growth driver has been our Marine Acquisition activities in the Caspian shallow waters. However, as I mentioned earlier, we see interesting potential in other segments of the Caspian and also in fast expanding markets. Today we work mainly in Kazakhstan and Russia but we also have optimistic expectations for Turkmenistan and Azerbaijan. The Black Sea is also a very interesting region. Big players such as Rosneft, Gazprom, Naftogaz are opening up new prospects.
The Russian Arctic shelf represents huge long-term potential for geophysical marine companies as it has not yet been properly explored. It goes without saying that we are also eager to start planning surveys of the previously-disputed zone between Russia and Norway. The two countries agreed in April this year about the principle of the border delimitation between the two countries, settling a dispute that has been taking place for over 40 years, thus hopefully allowing for studies and exploration to further develop the region. This area is about 175.000km2 and is almost completely unexplored. On the Russian side you have very important gas discoveries; therefore this area should be extremely interesting for both Russia and Norway. Such an agreement is a very good sign of the positive trends in Russian geopolitics.
There are some issues that we are trying to understand but which are still unclear. Geological exploration is listed as a strategic activity; as such, foreign companies cannot efficiently compete on this market, posing a big problem to Russia itself. Russia’s shelf development plans are ambitious; however the geophysical fleet is rather outdated. This makes efficient exploration of the Russian shelf without the support of foreign technology quite challenging.
The country should incentivize serious foreign companies to further invest in the country and transfer technologies that are still not available. The global oil and gas industry is increasingly integrated and we Russians have learned from the past that isolating ourselves from the world is not always the best way to go.
For instance, it is impossible today to acquire so-called MultiClient data. We are willing to consider investments in such projects in the Russian Arctic and we know that there are oil and gas majors ready to buy this data, but what is lacking in Russia today is the exploration licenses themselves.
The PGS’ MultiClient business is growing around the world. This is very interesting model for many countries because they get the knowledge about their geological resources practically for free – so they save state funds while they make their countries attractive for investors. Russia is interested in increasing volume of foreign investments, so I hope that the government will look into applying this new business model in the coming year.
Mr. Vartan, Managing Director of PGS Brazil was telling us that when PGS sold it onshore division to Geokinetics it was particularly good for countries like Brazil and Australia, because by doing so PGS could focus on its offshore business. What about Russia, what are your main expectations for the country?
I truly believe that the current process of modernization and higher level of openness that the Russian government has recently initiated will accelerate, and I want to believe that in 2012 the regulations will be more welcoming towards foreign contractors, such as PGS. Russia is a resources-capitalized country. It therefore needs money to modernize; it needs serious investment into exploration of the shelf.
Even if Russia doesn’t need that much gas right now, the country needs to start thinking more towards the long-term. We are talking about a time frame up until 2050. There will be a shortage of hydrocarbons, while alternative sources of energy will hardly represent cheap or viable options by 2050. I hope that Russia intensifies the exploration of its Arctic Shelf soon, because ultimately it’s only when you know better what you have that you are able to attract investors and to utilize the explored resources more efficiently. Russia plays a very important role, both present and future, to the world energy supply.
What is PGS doing to bridge this gap, how do you hope to support the Russia industry and help the country to reach its energy potential?
We don’t promote the idea of coming to a market, making profits, taking our money and leaving. PGS is firmly committed to the development of the Russian oil and gas industry. We have come here, invested, developed values for local communities, and created work places. The global business of PGS today has no nationality. In all seriousness, we are here to transfer technology and competence. I can imagine that during the 1990s some western companies just wanted to sell their overstocks in Russia, reap the benefits and go away. Today everybody can see the capabilities of the Russian market. This market does need technology in order to grow, but there is no doubt that it can grow.
PGS is willing to bring our efficient vessels here to Russia on competitive commercial terms. We can also discuss transfer of vessels and technologies to Russian partners through JVs, whoever they may be – whether governmental agencies or oil and gas companies. As an element of such cooperation we would be willing to train Russian specialists on board of our vessels worldwide and in our international data processing centers. Aside from this, today Norwegian companies can support cooperation projects in Russia with very favorable long term financing through Norwegian financial institution Eksportfinans. I am sure there are many interesting opportunities and business models, which could provide fast access to the geophysical technology absolutely required for exploration of the Russian shelf and which could significantly increase efficiency.
What would be your final message to our readers?
My final message would be that the time has come to start thinking more long-term; we all must understand that often the best solution is a compromise.
For Russia, to think in the long-term is to realize that it needs to maintain its strong position on the global energy market many decades in advance; it has to diversify its markets, to show its ability to grow in accordance with expectations, which will ultimately attract investors. The shelf should be one of the main engines behind the modernization of the country. The oil and gas industry will be the main resource to finance this development. It is very important to understand what resources are available in order to plan the future of the country. To achieve this as quickly as possible Russia will need efficient technology and competence; it is in this way that PGS can add to Russia’s present and future development.