Konstantin Dolgunov, Sevmorneftegeofizika (SMNG)
Release Date: 2010-04-05
Sevmorneftegeofizika has a very proud history; perhaps you could start by telling our readers a little about that history, and how it has helped the company to its position today, and the scope of its operations.In January 2009, Sevmorneftegeofizika celebrated thirty years of activity. The company was founded in Soviet times, at the same time as other geophysical and drilling companies that were charged with exploring the potential for oil and gas activity in the biggest of the offshore regions: Sakhalin, the Arctic shelf, and the Baltic and Caspian Seas. This activity was carried out by the Ministry of Gas Industry of the USSR. There was a drive from the ministry to excel in this area: in the first ten years, 740 vessels and water craft were constructed for the fleet both within the USSR and in neighboring countries – Poland, Finland and Norway.
Sevmorneftegeofizika, focusing on the geological structure and appraisal of the prospects of oil and gas potential of West Arctic shelf, took nine of these vessels: one from the USSR, two from Finland and six from Poland. Most of this work was accomplished in the 1980s, when at times the companies would be completing as many as 40,000 linear km of seismic surveys per year. It was then that state contracts ensured the main geologic research and appraisal of the potential of the Arctic Sea basins.
As a result, of these operations over three hundred prospects were identified, 40 of which were classified as the most prospective and were prepared for deep exploratory drilling. Based on the data obtained by Sevmorneftegeofizika, 18 oil and gas fields have been discovered in the Arctic region, including some fields that today have become very famous, such as Shtokmanovskoye and Pirazlomnoye in the Barents Sea, and gas fields in the Kara Sea – Rusanovskoye and Lenindgradskoye. The greatest achievement of the previous stage was the discovery of the giant oil and gas Barents-Kara province with initial recoverable resources reaching 80% of Russian offshore resources. One of the leading roles in the estimation of the oil and gas potential of the Arctic is attributed to geophysical marine explorations and, especially, to seismic carried out by SMNG. Today, the unique geological and geophysical database of SMNG represents 90% of all the currently available data on the Russian Arctic shelf.
Neither the nineties nor the first decade of the 21st century were particularly productive for the development of the Russian shelf. As far as SMNG is concerned, we have done everything that we were supposed to in the Arctic shelf. We have nothing to do with the fact that the development of the discovered fields takes decades, not years, and the fact that the exploratory stage did not come to a logical termination, meaning hydrocarbon production at the Arctic shelf. In the world oil market, 35% of hydrocarbon reserves are produced in the offshore regions. Russia is only starting its activity in this area.
By early 1990s, having achieved the goal of exploring the Russian shelf, Sevmorneftegeofizika started to look to international markets. How did you develop the commercial strategy for this activity? You were General Director of the company at that time, so how did you start that process?
In the late 1980s the management of Sevmorneftegeofizika realized what our situation of having the state as our only customer was fraught with, and that at some point the order book would dry up, and SMNG would be left with over 1000 employees and no work to give to them. So as early as before the collapse of the Soviet Union, we started to look to international markets to source new business. We found work on the Norwegian shelf first of all, in cooperation with NOPEC and CGG. Working with large oil companies directly was out of the question at this stage, as we were unknown outside of Russia, and even though we were relatively well equipped, our fleet in general did not fully meet international requirements. NOPEC and CGG were acquiring non-exclusive (speculative) seismic surveys and were not giving very strict requirements for the vessels they used, so Sevmorneftegeofizika was sub-contracted for surveys in Norwegian waters that were eventually licensed to the oil companies there. The first two vessels operated during the entire field summer season in the Norwegian part of the North Sea in 1990. Besides, we were preparing seismic data sets, geological-geophysical atlases of the Russian Arctic offshore areas where we were licensed by Rosnedra.
During the 1990s, which was not the easiest time for the company, we still managed to re-equip all of our vessels to international standards. This also came through our long-term cooperation with some of the big players such as CGG and Geco-Prakla (Schlumberger). As a result, we gained a niche on the world oil market, mainly in the 2D seismic services market.
Today, the majority of our work is focused on the international market and in the Russian waters. Over the last five years, we have done three times as much work in the Black, Azov and Caspian Seas than on the Russian Arctic shelf. In the Russian sectors of these basins, we have been contracted by Rosneft, Chernomorneftegaz, Lukoil, and by NAK Naftogaz of Ukraine on the Ukrainian shelf.
As the Arctic shelf is a key strategic area for the Russian government, the chance to develop the region has been left in the hands of companies in which the state has a majority stake, and who are experienced in the development of offshore assets. These companies are Gazprom and Rosneft, but also, potentially, Zarubezhneft, that, according to the existing Russian laws, can potentially get a license for the works on the Russian shelf. In the 1990s, the company’s order book was being filled mainly from the world oil market (around 75-80%) and 20-25% from the Russia, including state orders. The situation changed a little last decade, when the Russian projects grew approximately to 50%. This was entirely due to the increased activity of Rosneft and Gazprom. Although Gazprom are active in the Arctic today, Rosneft is preparing itself, and is currently only operating offshore in the Black Sea and the Far East.
Where are your vessels today? Where do you have them allocated?
The company’s vessels operate worldwide. We have two ships currently engaged in projects in Vietnam; two more are in the Black Sea. 3D seismic survey in the Black Sea and 2D survey in the Caspian Sea are starting to operate in April-May 2010. Two vessels in Poland are on their way to be repaired and are starting operation in the Norwegian sector of the Barents Sea in April-May 2010.
In the four years preceding the economic crisis, this industry was very active. 62 seismic vessels fitted with the latest advances in technology were constructed during this period to operate on the world oil market. If there is demand, then there will always be someone to cover this demand, especially from the Norwegian market, which is filled with marine geological specialists.
However today, competition is very high in our sector of activity, as the oil-pricing situation has changed, and this has had a knock-on effect to our sector. When the crisis hit in late 2008, the market was flooded with vessels and companies ready to conduct geophysical surveys, but the number of orders shrank drastically. In 2008, Sevmorneftegeofizika’s order books were full, but in 2009 there was only half as many orders.
As a service company, Sevmorneftegeofizika has to search intensively for clients. Rather than competing directly with the multinational companies in this sector, our company is much more focused in certain niches where it can prove its expertise and exercise its competitive edge. Although Sevmorneftegeofizika is a state owned organization, it has not applied for or been financed by state funds for over twenty years. Instead, the company has been entirely self-financed for this period – a measure of the success of this strategy.
If, through this interview, you could speak to potential partners, what would you tell them about Sevmorneftegeofizika?
The rewards for our potential Western partners will depend on the development of the situation in Russia. If, as today, access to the Russian Shelf continues to be closed to Western companies, we’ll continue pursuing our current strategy of looking for customers both on the world oil market and on the Russian shelf and establishing the reputation of a reliable and qualified contractor.
Apart from potential partners, we’ve had very close business relations with our constant customers for a very long time – namely, Gazprom and Rosneft. The contractor for all the main 2D and 3D seismic works on the Arctic shelf, in the basin of Azov Sea and the Black Sea, in the Caspian Sea and, partly, on the Sakhalin shelf, is Sevmorneftegeofizika.
It seems that the main track of the future development of the Russian shelf is to develop the national industry to a stage where it can exploit the potential of the shelf independently. This is possible, but it will take the industry another 25 years and very considerable capital investments to reach this stage.
Norway is a perfect example of the way that a country can take best advantage of its own natural resources through cooperation. The Norwegian shelf is smaller than the Russian shelf, but successful partnerships and open competition helped the country secure its economic future. Although the hydrocarbon reserves of the Norwegian shelf might suffice for as little as 25-30 years more, the level of culture, industry and education in Norway is very high and gives a ground for optimism in the future. Russia has much larger reserves that will last for a long time but, because these resources have not yet started to be exploited, the Arctic region is still awaiting its peak level of development. We call the 1990s the years of ‘lost opportunities’. If the Shtokman field had been developed at that time, it would have been a strong drive to develop other projects in the Arctic shelf, as well as the development of the region itself. The opportunity was there, even in the 1990ies. But history is history, and time is yet to come for Shtokman and other discovered Arctic fields.
I believe that the reason for the lack of development is that the decision-makers are very careful about the Russian shelf. Even the most risky and costly on-shore oil and gas projects in Russia are more understandable and do not require cooperation with other companies unlike shelf projects where it is very difficult.
If we have to say one good thing about Sevmorneftegeofizika, what would it be? What do you think is the most important, relevant thing about your company?
During its history, Sevmorneftegeofizika has grown from a small company into a rather large, well-equipped and highly professional company that has adapted itself to a certain niche on the world oil market. Even though that niche is not too big, we are ready to take on any request from the oil and gas producing companies. We have learned to adapt to any offshore region, and have excelled in our diversity. It is nice to know that all the 30 years of being a state company – first as a federal state unitary enterprise and during the last 7 years as an open joint stock company with 100% of shares owned by the state – using the technical base left from the 80ies, we have managed to retain and improve our company. During the last 20 years, SMNG was not getting and did not even ask the state for a single ruble or dollar for the support and modernization of the fleet and buying or leasing expensive modern geophysical systems, hardware and software. We have done it on our own, being the first to enter the world market of marine geophysical services complying with its high technologies and safety standards. Step by step, we were modernizing and equipping the seismic ships with modern navigation and geophysical systems and we also had to train the workers and change their mentality.
By the end of the nineties, we became the strongest marine geophysical company in Russia and acquired a reputation of a reliable marine geophysical contractor on the world oil market.
Thanks Mr. Dolgunov for talking to us!
| Company: | Sevmorneftegeofizika (SMNG) |
| Position: | General Director |
| Country: | Russian Federation |