Oilfield services in Kazakhstani style
Interview of Almas Kudaybergen, the President of the Oil Field Service Companies Union of Kazakhstan
Could you describe the current state of Kazakhstani oilfield services market? What is its structure and specificity?
Our service market is not uniform and does not have clear boundaries. If, however, to simplify the situation, it can be divided into three sectors by technological complexity.
The first is performing basic operations: the construction of buildings, roads, transportation of simple goods, catering. Here, the market is more or less developed by the local companies and foreign players, even if present, are not as active as in the 1990s.
The second is the construction of coast field facilities, heavy-lift, pipeline laying, drilling operations, etc. At this level, there is a clear dominance of foreign companies, but there are also such successful Kazakh enterprises as TengizServis, Caspian Offshore Construction and Tengizneftestroy.
The third one is carrying out such difficult and knowledge-intensive works, as the engineering and construction (EPC contracts), deep water and horizontal drilling, design and construction of drilling platforms, and others. Here, the main share of services and products falls on such foreign companies as Schlumberger, Halliburton, Saipem, GATE, ENKA etc.
It should be noted that the higher the processability of an issue the higher the margin. According to the Statistics Agency, in general oilfield services market in Kazakhstan in 2011 was estimated in about 800 billion tenge, whereof services to install, repair and derrick dismounting, and corresponding services related to production of oil and gas, accounted for about 130 billion tenge, for drilling services - more than 250 billion tenge, and the others - more than 400 billion tenge.
To our opinion, these figures can be easily doubled, since this does not include data on the transportation of oil, and does not reflect the actual situation on the three mega-projects - Kashagan, Tengiz and Karachaganak, a budget of which exceeds the above amount.
There are also other data. Thus, according to the rating of National Business 500 more than 80 companies out of the five hundred largest companies in Kazakhstan represent service sector which contributes over 6% to the GDP.
Through such projects as the development of Kashagan and construction of second generation plant of TCO Kazakh service companies and equipment manufacturers have shown that they can compete with foreign players. Moreover, the works in these fields are the most technology-intensive. These shall meet high demands on safety and the environment, and our companies are fully consistent with these standards.
What factors have a restraining influence on the further development of the market? Can you identify ways to eliminate them?
First of all, it is a matter of human resources. For fast and high-quality implementation of the projects it is very important to have a sufficient number of professional specialists. And what do we have?
These are mainly unskilled workers, who need to undergo the process of additional training to meet the strict standards of quality, safety and the environment. This is for the “blue collars”. Another aspect is the training of operating personnel. Unfortunately, the main Kazakhstan universities release personnel that need a few more years to re-educate.
Another factor of Kazakh specificity is that our oilfield service depends not so much on the general situation in the economy, but on the implementation of certain major projects. For example, when the second generation plant of TCO was under construction, almost the entire sector was booming. And when it ended, many companies have significantly reduced business activity.
Evening-out of the business cycle of oilfield services sector is promoted by the fact that since the early 2000s several major projects are implementing in Kazakhstan, which almost come one after another over time. Now, for example, the active phase of the Kashagan project, which involves a number of local companies, is in progress.
However, after 2012, we can expect some recession, as there will be a time lag before such new major projects as the second phase of the Kashagan project, the factory of the future growth of the TCO and the third expansion of the Karachaganak project.
Moreover, the situation with the implementation of offshore projects in the Caspian region is unclear: although there are many discovered fields, the time of their development is undetermined.
What kind of support the state could have given in this regard?
In the last 2-3 years, the government has been tackling the increasing of Kazakhstani content. We can say that it set face towards the problem. Meanwhile, the Forced Industrial-Innovative Development program adopted by the government virtually does not provide any schemes for the development of local oilfield services sector. It speaks about the construction of plants and factories, whose products will be exported to international markets. But then we will have to fight for these markets! No one abroad waits for Kazakhstani products and services with open arms. Resources is a different matter. So, why build these new facilities for export production when there is a guaranteed market in the west of Kazakhstan, which is estimated in more than $10 billion a year? It's not even an import substitution, but just the satisfaction of demand, which is now covered by foreign producers.
Take, for example, steel works that were delivered or will be delivered to the new oil and gas projects. As far as I know, they were made or planned for production in different countries, while Kazakhstan has its own good enterprises like Ersai, Keppel, KSOI who are willing to provide the output of such products. I will not mention that this means thousands of jobs and billions of tenge paid taxes.
I believe that the growth of oilfield service market will be higher than the growth of the overall economy. So, if the government plans to increase Kazakhstan's GDP by 50% to 2015, our segment provided the implementation of the targeted large projects can grow more than two times.
Now state agencies take measures to increase local content, mainly in cooperation with oil companies. But in fact, the latter do not set themselves a task of creating new productions.
In my view, for large projects, the state, along with the oil companies should settle the issues of increasing local content with the general contractors, as these are they (with a few exceptions) who receive all the profits and pull out it from Kazakhstan without having to invest in training, upgrading, equipment and organization of the local manufacturing.
What the practical issues does your Union face at present and in the future?
We are different from other associations that are established specially to defend and promote the interests of service companies. The staff of our organization consists of 10 people, and members of the Union are more than 50 large and medium-sized service businesses that operate on endpoint and want to contribute to the development of the sector.
The Union has the experience, ideas and information on issues directly at the first hand. We conduct daily system work with the ministries, oil companies, development institutions, and establish relationships with law-enforcement authorities. We have signed a number of memoranda with similar foreign associations, so that members of the Union can easily find foreign suppliers and partners. The Union also assists companies in tenders through information, presentations, appeals and complaints.
One of the major activities that we have planned for the near future – is holding on 14–15 February 2013 a Kazneftegazservis-2013 Conference which will be a platform to discuss the prospects for the sector development, as well as meetings of service companies with potential customers.