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Interview

with Alexander Lyandres, Moscow Processing Center Manager, CGGVeritas Russia

05.07.2010 / Energyboardroom

CGGVeritas is a world-leading geophysical company, with a long history of operations in Russia. CGG Vostok, a CGGVeritas company, was created quite recently – can you please tell our readers why, and what its preliminary objectives were?

It’s true that CGGVeritas has been active in Russia for a long time. CGGVeritas has two main activities: Geophysical Services, and Sercel, a geophysical equipment manufacturer. Sercel started selling its products in the former Soviet Union in the mid 1960s. The largest contract was signed in 1986 to equip seven crews for the Ministry of Geology in Western Siberia with track-mounted-vibrators and acquisition systems. Today Sercel has more than 60% of the Russian market.

Geophysical Services first contracts were signed with the Ministry of Geology of the former Soviet Union in the 1970s, when we were cooperating with Russian research institutes.

CGG Vostok was created in Moscow as a CGGVeritas company in 2005. The aim was to bring the new technologies of CGGVeritas to Russia’s seismic processing market, with the main target customers being international companies. Our first contract was with western companies operating in Russia, and then a few more contracts were signed with major Russian oil companies.

Our Moscow office started out as what we called a ‘processing and reservoir services center’. This processing center has gradually evolved. When I joined the company in 2008, I changed the local strategy a little in response to the business. We started to develop our reservoir engineering team for seismic interpretation and reservoir optimization. This has been quite successful, doubling the Russian office’s revenue. Today our main aim is to service Russian and international companies in this field. This fits very well with the corporate strategy of CGGVeritas to develop its reservoir services and offer solutions ever closer to production needs.

You mentioned that by studying the Russian market this led to a new approach. How did you realise that this was needed, and what was your contribution?

Knowledge of the Russian market is essential to success here, and as well as being a Russian national, I have worked in the oil and gas business since 1986. The main problem for western companies here in Russia has been that, in the western world, contractors do the processing, but oil companies usually do the interpretation, which is not true for Russia and many other national oil companies. I knew this, and for me it was quite clear that we should make a move into this segment. We have very good, experienced staff on board.

Since 2007, the climate has not been so good for the geophysical sector of the market. How has business been from 2007 until now for CGGVeritas in Russia? Have you suffered in the same way as many of your colleagues globally?

In Russia, the business climate has not been too difficult for CGGVeritas, because of this new market segment. This is because data interpretation is directly related to reservoir optimization and new production. You cannot just shut down new production immediately, which means that you have to continue with interpretation and reservoir work. You cannot just stop it like you can stop seismic activity. However, the processing market was quite difficult last year, due to the worldwide economic slowdown. Our major partners, such as Lukoil and TNK-BP, significantly cut their field survey budgets and, as a result, we had less data to process. Interpretation was still booming, however. Firstly, this was because it is possible to interpret vintage data, and, secondly, because the cost of interpretation is very small compared to the cost of seismic or exploration drilling.

The Chairman & CEO of CGGVeritas, Mr. Robert Brunck, announced the company’s annual results recently, and forecast that the global market would rise again in 2010. In the same way, here in Russia, TNK-BP has allocated around $180 million USD to seismic activity for the year, and Rosneft and Lukoil are both increasing their expenditures as well. How are you following these changes, and how do you intend to capitalise on them?

This winter was quite good for seismic companies. Many projects that were idle or delayed from last season restarted. There was even a shortage of seismic crews. However, in the summer of 2009, when these tenders were launched, there was still pressure from the previous season. Prices were not very high, and many crews were working at these low rates and they could not complete their jobs because of this. The new season is approaching, and we can see that many projects have not been finished yet, and there is a shortage of seismic crews. It won’t affect our business because we are involved in processing and interpretation, and we hope to see a significant rise in activity this year and next as more data comes onto the market. Another important factor in our success in recent months is that the company is earning itself a good reputation, which is helping to drive business.

The Russian geophysics market is made up of 40% foreign firms and 60% Russian. How do you believe this percentage will evolve? How do you think newcomers will arrive on the market segment where you seem so comfortable?

Successful companies in Russia are the ones that use Russian staff. This is clear, because of the language barrier, business culture and also good knowledge of the country’s geology, especially for seismic processing. For instance, there are some specific terrain and geology conditions here in Russia (similar to Canada) such as swamps and arctic conditions with permafrost requiring specific processing sequences that Russian experts are used to handling.

I think the market will grow for foreign firms operating with foreign technology and Russian personnel. I believe that there will also be consolidation on the part of some of the smaller Russian players, who cannot survive for too much longer on their own, but need to be brought under the wing of a larger player in order to continue operating.

One of the particularities of the Russian market is that service companies need to be close and well connected to the senior executives of local oil and gas companies, many of whom are not easily approachable. How have you managed to build up these relations for CGGVeritas?

Business in this country is based on human relations. My predecessor, Jean-Louis Gelot, did an excellent job of building up our level of relations. As a Frenchman, he was able to leverage the cultural similarities between the two countries, and promote CGGVeritas within the country.
When I joined the company, I had already worked in the industry for over 25 years, and the contacts I had made during that time were very useful.

However, in today’s market, it is not possible to simply rely on these connections to win business. The major Russian oil companies have R&D Centers, resourced with modern technologies and smart young people, many of whom take part in our annual technology conference, an event which CGGVeritas uses to promote its technology in Russia and to educate its clients about our technologies, and better penetrate the Russian market. This is very effective, especially with companies who have international experience. As soon as a Russian company is exposed to international practices through their western partners or on their own, it becomes more focused on technology. It’s true that if you know people personally, it helps, but if you can bring some substance to the table, this makes all the difference.

Geologist and experts tend to say that exploration in West Siberia is all but completed, and that in the years to come, the focus will be on Russia’s offshore potential, and in East Siberia. What is your point of view on this?

West Siberia is very well explored but there is still a lot left to do there. A good example is TNK-BP, which is doing a lot of seismic work in Western Siberia, and has been successful. We don’t know what the future of gas prices will bring, but despite this, there is still considerable activity in Yamal: Gazprom and Novatek are already operating there, as well as Total and ENI, and many new players are on their way to the region.

Particularly in the eastern and north-eastern parts of West Siberia, there are many things to be done. New technology will bring new potential for business. In the Gulf of Mexico, for example, companies shoot seismic every few years, in the same place. This is not yet happening in Siberia but Russian companies are coming round to this approach.

I worked in East Siberia for five years. The geology is completely different from West Siberia, and the region is huge – as large as many countries, and much remains completely unexplored. I also worked in Murmansk. While the Russian Shelf is very important for the country’s reserves, it is clear that there is much more to be done onshore in Russia before the Shelf becomes a priority.

What sort of offering is CGGVeritas going to bring to these regions? What sort of offering can you make to ensure that your company stays competitive?

My personal approach is to bring a synergy of western technology and highly educated Russian personnel. This is the key to the market. You cannot operate in eastern Siberia if you bring in a geologist from outside with no local experience, and you cannot work there if your processing system is still old technology. You have to educate your people, and then apply modern technologies, which CGGVeritas, as the industry leader, can provide. This is our message: we are very competitive in East Siberia, West Siberia and anywhere.

As an example, CGGVeritas has high-productivity vibroseis acquisition (HPVA) technology that allows crews to be 18 times more effective than the average Russian seismic crew. This technology has already been applied in projects with TNK-BP in Orenburg and has proven to be successful.

I’m sure that you have to align the objectives of the Russian office to head office requirements for sales and company development. What are the targets you have set for 2010 and 2011, and what are the challenges you foresee in achieving those targets?

CGGVeritas understands that the Russian market is not easy, and that it is a challenge for an international company to be here at all. The target of our Russian business is to profitably grow its reservoir group. Our eventual aim is to service other countries from the Russian office, particularly countries in the Eastern Hemisphere. With our CGGVeritas office in Mumbai, we have a joint project with an Indian company, and we are talking about projects in Sudan, Pakistan, and the Middle East. With strong sales support from the UK and France, the company is well equipped to achieve this ambition.

What are your ambitions for the company in Russia in the next three years?

Firstly, I would like to see CGGVeritas start participating in marine acquisition in Russia. That will be our first challenge. As far as land acquisition is concerned, our current policy is to cooperate with Russian contractors, especially for high-technology products such as HPVA, so we don’t have plans at the moment to deploy our own land crews in Russia, only marine. Another aim is to continue to grow our market share of the processing and interpretation market in which the company specializes.

Is there something you would like to say to Oil and Gas Financial Journal readers, who will be familiar with CGGVeritas but perhaps not CGG Vostok?

If they are new to this market, I would say to them “Welcome to Russia”! If you need any help here, please come and see us at our CGGVeritas company in Russia. We can help you with the Russian market thanks to our leading technology and extensive local knowledge. If you are already in Russia, please come see us as well and we will complete your work to the high international standards set by CGGVeritas, and with the added bonus of the depth of our Russian expertise.

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