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Interview

with Yury Melekhov, Acting Director General, ArktikMorNefteGazRazvedka

08.11.2011 / Energyboardroom

Yury Stanislavovich, would you begin by introducing Arktikmorneftegazrazvedka to the readers of Oil and Gas Financial Journal including the company’s history, its main areas of expertise and its principal assets?

Arktikmorneftegazrazvedka is more than 30 years old and was founded in Murmansk with the goal of exploiting hydrocarbon reserves on the Arctic Shelf. During the first years of its existence the company developed so quickly that its staff soon grew to 5,500 people. One could also say that, from a development perspective, the city of Murmansk today owes much to AMNGR. This is because of the fact that in Russia during the 1980s, the birth of companies such as AMNGR often provided the impetus for the development of entire cities.

During the thirty-plus years of its existence AMNGR has opened up more than 15 fields on the Arctic Shelf out of 23 fields which have been discovered in total and from this fact alone one can get some idea of the rate of success enjoyed by the company. As you may be aware, it is the only company in the Russian Federation at the current point in time which is able to carry out every type of off-shore geological exploration from start to finish. What this means is that we are capable of providing a full service starting from preliminary drilling to the construction of wells and also including the development of reserves in already discovered fields.

In the 1990s and 2000s, the company continued to pursue activities in the Arctic but a drop in the level of business being generated in Russia gave us no choice but to look to projects abroad. Thus during these years, rigs and other equipment belonging to AMNGR began operating all over the globe including on the Brazilian Shelf, African Shelf, South Asian Shelf and in the Persian Gulf. As a result, many international oil and gas companies are very familiar with the technology and specialists AMNGR provides.

Today the principal assets of the company comprise three drilling rigs. The drilling rig Valentin Shashin (DS “Deep Venture”) is preparing to begin operations in the Vietnam region by the end of the year in cooperation with VietSovPetro (a joint venture between Zarubezhneft and Vietnam Oil and Gas Group). Murmanskaya, our largest rig in size, has already been working in Vietnam for three years: this has been a very successful operation and each new field has been a new production opportunity for the joint venture. In Vietnam in August we completed work on the deepest well yet drilled by AMNGR and in doing so reached a depth of 4990m. Up to that point the deepest well had been in the Arctic with a depth of 4370m. The third drilling rig Kolskaya is conducting exploratory work following an order from Gazprom on the West Kamchatka Shelf in the Sea of Okhotsk.

In terms of partners, the company mainly receives orders from Gazprom, VietSovPetro, Zarubezhneft and a working relationship is currently developing between AMNGR and Rosneft.

You have been General Director of the company for nearly a year. What are your key priorities for shaping the strategic direction and business development of AMNGR?

The main focus of our business development plan is to shift the company’s principal operations back to the Arctic Sea. AMNGR was founded in Murmansk and remains there to this day; we have staff working in the city and it is precisely from there that we intend to launch greater exploitation of resources in the Arctic. As AMNGR becomes a daughter company of Zarubezhneft, the latter will gain the right to attain a licence for exploitation of the Russian shelves and in so doing will become a third player in that market. AMNGR will work as Zarubezhneft’s men on the ground in the Arctic.

Since the establishment of Shtokman AG in 2008 and more recently with the Exxon-Rosneft deal, international oil and gas companies are increasing their presence in Russia’s Arctic Shelf. How is the company adapting to this environment with regard to the arrival of more foreign players?

AMNGR does not fear competition. On the contrary, we enjoy it because competition forces the company to mobilise its full strength, minimise redundancy, raise the quality of its work and provide greater security, both ecological and industrial. The oil and gas business is complex and cost-intensive and for this reason it is well understood that the exploitation of resources frequently occurs as a collaborative effort between large enterprises.

As our principal shareholder, Zarubezhneft will determine with whom we are to collaborate in the future. Our other shareholder, the state ultimately plays a crucial role too, not least because Zarubezhneft is also a state company. Essentially what this really means is that the state will decide with whom the company is to work and from whom it is to receive technology exchanges or additional financial resources.

That said, I would stress once again that the company is self-sufficient enough to carry out a full spectrum of operations, not only exploration but also production completely independently. This is particularly notable in Kolguev where the company has been producing oil for more than twenty years.

In the world at large, companies generally have a fairly narrow range of specialisation, but during the Soviet period things were somewhat different. The breadth of our focus is aided today by the special training received by students at the company’s own special training centre which produces over 1,000 specialist graduates per year. This centre itself undergoes regular attestation from international organisations including The International Well Control Forum. The graduates of the institute then go on to work at Gazprom, Rosneft, Lukoil and for AMNGR.

AMNGR also possesses its own special technology for underwater operations and our divers have experience at depths of up to 300 metres. AMNGR is also the only company in European Russia to possess this kind of barometric diving setup which allows for the deployment of divers up to this 300m-depth.

In addition, AMNGR has its own emergency rescue service which at the current time is going through the approval process and by the end of the year will be able to provide assistance across a wide range of oil and gas exploration fields.

As someone with a technical background, what do you perceive to be the biggest challenges these offshore projects must overcome in order to develop?

As a matter of fact I have three bachelor-level degrees, two in technical fields and one in management. I am also a doctoral candidate in one of these technical fields and for five years I dealt with offshore development for Gazprom. From a technical perspective I cannot see any significant problems with the exploitation of the Arctic fields. The only potential obstacle lies in the economic conditions for offshore development since complex technology requires significant financial outlays and as the process becomes more expensive, the oil and gas produced becomes less profitable as a result. Operations may also become more expensive because AMNGR pays especial attention to matters of environmental and industrial safety.

Given that AMNGR now exists within the Zarubezhneft holding, how is this collaboration serving to improve the position of both companies?

Zarubezhneft is one of Russia’s largest holding companies and has unique operational experience both on shelf-based projects such as VietSovPetro, and soon in Cuba, as well as on dry-land such as with RusVietPetro in the Nenets autonomous region. This is in addition to Zarubezhneft’s experience in the refining industry in Serbia. All in all this makes for a rich and multi-faceted range of experience in the fields of management, production, delivery and refining. Zarubezhneft’s experience will therefore be a great asset to AMNGR’s further development.

For its part, AMNGR will be responsible for providing expertise in the Arctic although in exchange the company will of course benefit from the experience Zarubezhneft gained from other shelf-operations. The level of cooperation is already close. As a matter of fact, although AMNGR is still a separate company in de jure terms, for over a year now it has worked in close cooperation with Zarubezhneft such that the two companies have essentially functioned as one entity.

The principal tasks which lie ahead of Zarubezhneft are technological modernisation and renewal, the development of staff, greater engagement with the international market and the initiation of projects on the Arctic shelf. These are without doubt complex challenges, but everything the company has achieved this year gives us reason to believe we will acquit ourselves very well when confronting these tasks. Indeed, if we were to meet every year, the readers of Oil and Gas Financial Journal would certainly be able to observe Zarubezhneft’s consistent progress into the Arctic.

Internationally, Zarubezhneft and AMNGR intend next year to make inroads onto the Cuban shelf. As an active team of professionals, Zarubezhneft inevitably has other international plans in addition to those in Cuba, and AMNGR will be supporting the parent company fully in these.

Russo-Vietnamese cooperation appears to be very well developed. Given your experience with VietSovPetro, why do you believe Russian companies are well suited to work in Southeast Asia?

As far as why Vietnamese and Russian companies have enjoyed successful partnerships, this can only be down to shared professionalism. In fact work in Vietnam is considerably easier than in the Arctic without the challenges posed by ice loads, icebergs, minus-forty degree temperatures, storms and the lack of on-shore infrastructure. In Southeast Asia one is able to repair ships conveniently, manage logistical challenges more easily and benefit from services provided by local companies.

What do you see as the potential for Russia’s future Arctic exploration as a contribution to the country’s overall oil and gas industry?

Hydrocarbon reserves on the Russian mainland are decreasing rapidly whereas the untapped potential awaiting us on the Arctic Shelf is enormous. There can be no doubt that the exploitation, processing and delivery of these Arctic resources will make a very significant contribution to the energy security not just of Russia, but of the whole world. However, exactly when this development will occur is an extremely difficult question and too much depends on the role of the tax system, lawmakers and state supervisory companies for it to be answered at the current time.

This region will certainly provide potential for AMNGR’s growth. For one thing the company is already present in the Arctic and as such its activities in the region are already well developed and efficient from both political and social perspectives. It is in the Arctic that our greatest reserves of experience, personnel, knowledge, technology and infrastructure are to be found and where we are best qualified to manage operations.

Nevertheless, this does not mean that as our Arctic operations increase, we will simply abandon our projects overseas as this would simply be a repeat of the 1990s. AMNGR has already learnt the lesson that leaving a market is easy but entering one is much more difficult. Moreover our international partners such as those in Vietnam rely on AMNGR’s presence and we of course do not have the right simply to let them down.

Finally, what is your own personal ambition for the company over the coming years?

During the company’s first fifteen years of existence, it discovered and opened up fifteen fields and my first ambition for the company is that over the next fifteen years it opens up another fifteen fields at the very least. Secondly, AMNGR aims to add another ten fields for the production of oil and gas to those currently operational in Kolguev. As one of Russia’s champions, AMNGR is headed back into the Arctic and is taking all its ambition, experience and expertise with it.

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