Interview with Gazprom Neft Head of Major Project Management, Marat Atnashev
— Mr Atnashev, why has Gazprom Neft decided to begin implementing production projects overseas?
— The oil business is a global one, with global competition for resources. Any company that wants to compete successfully in the global market needs to take that into account. Despite the fact that we have a good resource base in Russia, we realise that in this day and age that a company cannot develop sustainably without participating in international projects which, among other things, provide access to new knowledge, experience and technology.
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— What are the expected stages of the foreign strategy?
— We have several planning options. If we are talking about the next year, then there is a detailed investment plan which determines where and how every dollar will be spent.
If we are talking about a three-year period, then planning requires a great deal of detail; most projects are implemented according to an approved, highly detailed plan. We know in which direction we are moving, which resources we will need and which results to expect.
If we are talking about a ten-year period, then the most important thing is to take a strategic viewpoint on the prospects for business development. Our strategy must be flexible and adaptable to ever-changing external conditions.
— What is your assessment of the current position of the company in different countries?
— Nowadays Gazprom Neft is extremely well-positioned in Southeast and Central Europe (the company owns a controlling stake in the Serbian oil and gas company NIS). We are engaged in systematic expansion in the region. I would like to note that we haven’t simply purchased an asset; rather, we have taken with us our own technical expertise and management experience, creating good synergy and proving our effectiveness as a regional operator.
The second most important region to us is the Middle East. We need to have a presence here if we aspire to be a serious international oil company. Gazprom Neft, in developing the Badra oil field in Iraq, is in direct competition with all the global majors in this country, and our success will be compared with the results of their work.
I am confident that the project will prove successful for us and that we will receive invaluable experience. In this region we are not limiting ourselves to Iraq, but looking at neighbouring countries as well. I’m not going to name any specific countries right now, but we are carefully looking for the most interesting projects in order to begin negotiations.
Next, of course, is Latin America. Our first priority in this region is Venezuela, where we are participating in the Junin-6 project along with four other Russian companies. This project is very interesting, and is currently in its first phase, the evaluation of reserves. The results of this evaluation will be used when making decisions regarding future investment.
We have no doubt whatsoever that there is oil there. We have no doubt that the technology is there to get the oil out of the ground. Even the relatively small share owned by Gazprom Neft, just 8% of this large scale project, requires serious investment and a significant volume of reserves and production.
— Is Gazprom Neft considering any other projects in Latin America?
— We have already finished negotiations to purchase a share in the Petronas exploration project in the Gulf of Mexico, just off the shore of Cuba. Of course, the company is going to explore the possibility of further business development in the region, because Latin America has good resource potential.
As well as all of this, Gazprom Neft is involved in two projects off the shores of West Africa, namely in Equatorial Guinea and Angola.
Thus, we already have a presence in four major regions: Southeast Europe, the Middle East, Latin America and Africa. That’s quite impressive for a company of our size, especially considering that Gazprom Neft has been involved in overseas projects for just three years. We are exploring the possibility of further expanding our portfolio of assets, because the world has more to offer than just four regions.
— How does Gazprom Neft decide in which regions to work?
— There are three fundamental criteria. Firstly, we need to work in the biggest, best oil provinces and have access to their resources. Secondly, we select projects based on either our ability to bring something new to the table, or the potential for us to gain new experience and competences. Finally, although probably most importantly, we have a system of investment criteria. All projects go through a financial and economic “sieve”, with resources being diverted only to the most economically attractive and strategically important projects. All projects are considered by the company’s Major Projects Committee and Investment Committee.
As a rule, the better the tax treatment and overall economics of a project, the higher the risks, be they geological, political or technological. Our objective is to find and invest in projects with the right blend of anticipated cost-effectiveness and cumulative risk.
For example, in Equatorial Guinea and Cuba we are involved in projects with very good resource potential and a good and, most importantly, fixed tax regime that will not change during the transition to the field development stage.
The project in Venezuela has low technological risk and somewhat predictable results regarding the quality and quantity of hydrocarbons. As well as this, the estimated time of extracting the first oil is measured in a few years, whereas the investment cycle of the classic offshore project is calculated in decades. Accordingly, we are prepared for a tougher tax regime.
— What specific experience has the company already gained through its international projects?
— We have a lot of well-trained engineers and managers but, in practice, a very important factor is the willingness to work in an international environment. The issue is not only the language barrier; it’s also a cultural barrier, the ability to work in a multicultural environment where everybody speaks different languages.
When we hold a meeting on the Badra project it is attended by Malaysians, Iraqis, Koreans, Turks and Russians, all trying to find a common language in order to make important technological, organisational and economic decisions. Participation in such processes is certainly a new challenge for us.
In addition there are institutional and legal challenges, because we need to find solutions which apply to different tax regimes and different jurisdictions. We have to learn how to deal with new issues such as financing our business processes and staff secondment. We are currently preparing systemic solutions to each of these issues.
There are technological challenges, because each new province presents us with new geological conditions.
For a long time the oil industry in Russia has evolved in isolation from the rest of the world, and many of our technological solutions differ from generally accepted standards and practices. In Venezuela, for example, we are faced with heavy, viscous oil which must be pre-prepared before distribution. We currently have no experience in building the required systems to prepare the oil, so we must garner it through working with our partners.
We are just beginning to develop offshore projects. Learning how to work offshore is an important strategic goal for us, because a global oil company cannot succeed without developing offshore business. After all, there is a huge amount of oil to be found there. International offshore projects are, in a lot of ways, a training ground, giving us experience that we can take back to Russia.
— In addition to the Junin-6 project, might we see further cooperation with other Russian companies overseas?
— Gazprom Neft has proven that it can cooperate with diverse partners. We are absolutely open to discussing joint overseas projects, including with Russian companies. In particular, we are actively discussing prospective work in the Balkans with Zarubezhneft. There are also ongoing discussions about potential projects with other companies. We have the opportunity to go beyond the Junin-6 project and develop new projects in Latin America, particularly under the National Oil Consortium.
If we understand that another company can bring something besides financial resources to the table, such as technological understanding, good projects and ideas, then such a partnership is beneficial for us.
— What about the company’s participation in Project Elephant in Libya, which unfortunately coincided with the outbreak of war in the country?
— We have signed all of the documents and still believe that the project shows promise. But, naturally, thanks to the current political climate in Libya, closure of the deal has been delayed. We aren’t going to rush this project right now.
— What do you consider to be the best achievement of the last two years in the international sphere?
— The very existence of our high-quality portfolio of overseas projects is a great achievement in and of itself. Two or three years ago Gazprom Neft had no overseas presence whatsoever.
In Iraq we are well on course to fulfil the objectives of the project, which many doubted we could do at the beginning. Today, just a little over a year after signing the contract, we have built an elaborate large-scale infrastructure, solved a number of issues and reached several agreements with the Iraqi government.
In Southeast Europe Gazprom Neft has proved its worth, taking less than two years to increase production and implement a number of new development projects.
In Venezuela our greatest achievement was the fact that, after the formation of the Russian consortium, we took the position as leader of the first phase of the project. The project has already moved on from the preliminary discussion stage, and has reached the stage of practical implementation.
We have also obtained access to promising new projects in Cuba and Equatorial Guinea.
In general we have made serious progress across the board in terms of work in the international sphere.