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Interview

with Andrey Tretyakov, Acting CEO, Rusgeology

17.04.2013 / Energyboardroom

Rusgeology was established in July 2011 and puts 37 companies under one roof. As a new entity on the market, can you please begin by introducing our readers to Rusgeology, and elaborate on where the company stands in terms of consolidation process?

The consolidation process is still under way. 24 are consolidated and seven federal state companies have changed their organisational form already (became joint stock companies, that is needed for them to be included in the holding), but Rusgeology doesn’t have their shares yet.

On the 15th of July this year, the process of consolidation will be completed.

In terms of Rusgeology’s vision, we are striving to create the country’s largest, highly efficient, world-class geological business that would meet the national interests of the Russian Federation. Rusgeology’s mission is to ensure sustainable growth and renewal of Russia’s mineral resource base through new territories and new geological sites. As a result, the company will be able to increase the real value of geological exploration assets, boost the growth of reserves, and expand the resource base of strategic minerals. We are intent on creating platforms for our extractive companies and plan to work comprehensively.

As far as our activities on the market are concerned, one of our first priorities is to help geological companies from the list of Presidential Decree that are on the brink of bankruptcy.

In an interview from February 2012 Sergei Donskoi stated that given its unique positioning, RusGeology doesn’t have any competitors. Can you elaborate on this?

We provide a comprehensive geological research of the Russian territory, as well as reproduction of the country’s mineral resource base. Rusgeology is indeed strategically and uniquely positioned in the Russian market. The company develops important geological research techniques by implementing modern technologies and methods.

Among our priorities are also the cooperations with different academies and scientific institutes. Additionally we are creating so-called competence centers –intellectual and technical cores. Such structures will make it possible to organize both a constantly functioning pool of experts and professional teams. This cannot be provided by a single other company. The holding will also be able to support cooperation between the State and the investors. Therefore, in terms of positioning and qualifications, Rusgeology is a unique company.

Our task is to link the governmental geological study program with the needs of subsoil users and, vice versa, to attract subsoil users into large-scale geological exploration projects that meet the interests of the Nation as a whole. We will expand the scope of our work in effort to cover the entire range of geological exploration services, offering turnkey projects, with Rusgeology not only participating in efforts to reproduce the mineral resource base but also initiating them.

Beginning of this year the Minister of Natural Resources Sergei Donskoi expressed the will to further invest in geological exploration. How does this reflect on your operations?

Currently the industry has a breakdown between regional work done on the government’s dime and work on geological survey, which is carried out by companies. It’s that gap which we have to compensate for, so as to raise the capitalization of the sections.

When we take a new project, on first stage of geological work – regional scale studies – balance of investments is 80% state, 20% – private. On the stage of prospecting and exploration ratio should be different, up to 85%-90% of private investment.

Later this month I will present Rusgeology’s long-term strategy to the government. Once we have received approval from the government, we will have a clear picture of investment.

By 2030, outside investors may co-finance state projects up to 50%. What is your view on this?

At the moment the right to work in Russia’s strategic oil and gas fields belongs only to companies with more than 50% governmental ownership. This has been decided to secure the government’s income from oil and gas revenues. Foreign companies will be able to take part only as partners.

Historically it has been difficult for foreign producers to establish or maintain footholds in the country, but today the market is ready and opening. In line with this our legal framework needs to catch up.

What makes Rusgeology the partner of choice?

We have been actively looking for foreign strategic partners to secure joint exploration and development of hydrocarbons. In 2011 we negotiated alliance options with Total, ExxonMobil, Shell and other huge players. However, we have postponed these negotiations for the time being as approval of our long-term strategy is pending.

In order to be appealing to these foreign majors we need to have strategic assets. By assets I mean territories where it will be possible to discover big, strategic oilfields that will reach oil production of more than 70 million tonnes, or more than 500 million barrels.

The Russian oil and gas industry needs to enter new operating markets to ensure production growth. One of these regions is the Arctic shelf. Is Rusgeology prepared?

These projects are interesting. However, we have developed fields with existing infrastructure that are more appealing for the moment. Russian oil majors have quietly drilled successfully super-deep oil wells, and put them into production creating new drilling horizons. With the latest technologies, companies are able to drill 6 kilometres under the surface.

As far as the Far East is concerned, we have proposed the government to explore these territories. In the North of Russia we have also expressed the desire to explore new fields.

In terms of geographic expansion, there are plans for Rusgeology to represent Russia abroad in the context of intergovernmental agreements – like it is already the case with Kazgeologia in Kazakhstan. Could you elaborate on your international strategy?

Rusgeology’s aim to to become a global player on the market for geological exploration work. Currently we are seeking opportunities to establish representative offices abroad. As for possible projects abroad this applies above all to the strategic minerals in which Russia is interested.

As an example, we have signed an intergovernmental agreement with Mongolia to conduct geological exploration work and we will provide the government with recommendations.

Moreover we have concluded agreements in Vietnam, Ecuador – where we recently established a representative office, Tanzania and Benin.

What’s on the top of your priority list and where do you want to take Rusgeology in the next two to three years?

Rusgeology’s priority is to consolidate the existing exploration companies to ensure a. The Holding’s task is to optimize the performance of the individual companies, increase effectiveness, be transparent in terms of costs and in general improve the quality of exploration.

Moreover, we need to establish and develop an efficient cooperation system with governmental structures to start projects as soon as possible. Next step is to new objects on that territory. In 2015 we would like to already have some discoveries there.

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