Gennady Kazanin, Marine Arctic Geological Expedition (MAGE)
Release Date: 2010-04-08
MAGE has a long and proud history. Perhaps you can start by explaining the origins of the company, and the climate in which MAGE came into existence in Russia.MAGE stands for Marine Arctic Geological Expedition, and was founded in 1972, to operate in the Arctic Seas. The Murmansk Expedition was included into the scientific production association “Sevmorgeo”; a leading scientist – oilman (later an academician) Igor Sergeevich Gramberg was appointed its head. The first head and organizer of Marine Arctic Geological Expedition was Nikolay Nikolaevich Trubyatchinsky. MAGE was founded to prove hydrocarbon potential of the Russian Arctic. This is a very large and technically demanding region for exploration, including all the seas that shape the Russian shelf, such as the Barents Sea, the Kara Sea, the Laptev Sea, and the East Siberian Sea.
Although the region had been explored to a basic degree before, no deep study had taken place, and the existence of hydrocarbon reserves on the shelf and their quantitative estimate were purely speculation at that time. Between 1973 and 1978, various expeditions were organized in order to acquire more specific geophysical data on the shelves of the Barents and Kara seas, and the infrastructure was put in place in the Murmansk region for data processing, using the best technologies that were available at that time. It was after these expeditions that the first structures were found, such as Murmanskaya, Severo-Kildinskaya, Severo-Gulyaevskaya, Kharasaveyskaya, Skuratovskaya which proved hydrocarbon potential of the Barents and Kara Seas.
At first, it was the offshore areas closer to the shoreline that were studied. The expeditions could not venture to go too far, as no specialized fleet had been constructed in order to reach more remote areas: rather, smaller vessels had been customized for seismic study and used for these first expeditions. Once there appeared the first information, proving that the Arctic region was indeed rich with hydrocarbons, the first specialized vessels started to be constructed.
In 1979, the Soviet government made the decision to divide the task of the expedition. The prospects that had already been discovered by MAGE were given to other companies, such as Sevmorneftegeofizika, to explore more deeply. MAGE was given the task of exploring the regions that were still blank on the map, further to the east. By 1980, the region was sufficiently studied to start exploration drilling by such companies as Arktikmorneftegazrazvedka. Drilling vessels and platforms were very well organized and equipped for such work, able to compete on an international level in this activity.
The situation on the Russian shelf is interesting. For so many countries across the world, the offshore region is incredibly important, accounting for around 35% of the world’s hydrocarbon resources. Russia is only just beginning production on its offshore assets. Why do you believe this is?
The current lack of infrastructure, pipelines and refineries close to the Russian shelf to facilitate the production for companies that want to operate there means that capitalizing on these assets will require very high levels of investment, in order to put the necessary amenities in place. This activity is already progressing on some projects, such as the Shtokman development.
However, because of Russia’s high level of onshore reserves, developing the offshore region is not currently as much of a priority as it is in other countries throughout the world. For example, Norway’s hydrocarbon assets are predominantly found off the coast, and so this has meant that infrastructure has inevitably built up around it.
As long as Russia’s biggest oil and gas companies are able to remain profitable by mainly focusing on their onshore operations, the development of Russia’s offshore potential will progress slowly. However, the decline of onshore assets is inevitable, and it is at this point that companies focused on offshore services will be able to fully capitalize on the region’s potential.
What does that mean for a company like MAGE, who has spent so long devoted to exploring a region that is still in the process of development?
It led to the company applying its expertise to world markets, where offshore resources are more developed. Since 1990, MAGE has spent a lot of time working on the Norwegian shelf. The development of offshore activity in Norway is at a much more advanced stage than in Russia: Norwegian reserves have been so thoroughly exploited that today, work is focused on sustaining such fields for as long as possible. MAGE has been involved in partnerships with companies such as Fugro-Geoteam as part of the work involved in perpetuating the life of Norwegian fields.
What were those first partnerships, and how did they help your company to develop?
Cooperation has given MAGE the chance to work with and integrate some of the worlds most advanced technologies into its operations. Sustaining a high technical and scientific level is crucial in our sector in order to gain clients and contracts. Having such a high technological level has allowed MAGE to compete for work in some of the most promising regions in the world for exploration, such as the Indian Ocean, in cooperation with ONGC Ltd.
What are the factors that would lead a large oil company to choose a partner like MAGE?
Large Russian companies like Rosneft and Gazprom come to MAGE because they trust that working with us will be an effective way to increase their reserves, to help maintain production, and increase it. These companies trust us because we have proven ourselves to be an extremely intelligent company. To succeed in the geophysics segment, it is important that you not only provide a high quality product, but also have intelligent minds working within the company to provide cutting edge analysis. Geophysics is an extremely complex business. Even oil and gas experts cannot fully understand results of a geophysical survey – it can take years of training to be able to fully interpret the raw data.
Intelligence allows a company to create its business, even in regions where others are pessimistic about the opportunities. New technologies can very rapidly change the oil and gas directivity, and this has direct implications for the geophysics segment. For example, if a new technological development dramatically lowers production costs, smaller companies are able to compete in areas where they did not operate before, such as offshore, meaning more business for geophysics companies like MAGE.
Where is MAGE most focused today?
Today, the business is focused in two areas. Work orders from the Russian government for surveys in the Barents and Laptev Seas currently fill around 60% of MAGE’s order book. The Barents Sea has been studied rather thoroughly in comparison with other Arctic Seas, but MAGE was given additional work using the latest technologies and facilities, in order to gain more in-depth information on the reserves. We hope the data analysis, and acquisition from new angles will yield positive results. The Barents Sea is a difficult region, and analysis can often be complex. Orders do not just come from Rosnedra, but also from state oil and gas companies who need modern geological information. MAGE has an excellent relationship with Rosneft, for example, which has led to current work in the Laptev and Barents Seas.
The other direction that MAGE is involved with is geological mapping of the shelf, which is a more scientific type of work, and is requested once production starts on the shelf. This type of survey contains much more information in terms of ecology and geology, and more integrated data on the structure and composition of the subsoil.
MAGE is privately owned, unlike the other marine expeditions that were founded around the same time. Do you think that has helped you to stand out from your competition?
MAGE was privatized in 1994. This has had some positive results. It means that the company is able to select clients and partners that are more profitable. As a state company, it is perfectly possible to have your client list dictated to you, according to certain strategic priorities. This means that over the long term, MAGE has been able to develop cooperative and mutually beneficial relationships with its partners.
When MAGE’s shares were sold off in 1994, the law at the time stated that a third of shares should go to the international market, a third to the domestic market, and that the remaining third should be split amongst the company’s employees. After the initial sale, MAGE’s shares were redistributed, until eventually the company was owned almost entirely by private interests, with only one share block being taken by PetroAlliance.
Although it does have certain advantages, being privatized does not bring MAGE business simply because it is not state-owned. Reputation is the only real factor in attracting clients. It is not an issue for our state customers that we are private, only that we maintain a high level of quality in the work that we do. The same goes for our private customers.
So if we were to come back to MAGE in five years time, what would you like to have achieved with the company?
On a basic level, I hope that the company will still be carrying out its main activity of the geological survey of the Arctic region. Places like the Kara and Laptev Seas take a long time to study, and I hope that the work with our current clients will continue in the years to come.
If I were to set a more complex goal for MAGE, it would be to advance the company down the value chain. I believe that we could make the company more profitable, and bring added value to our clients, by developing the business to a position where we can provide fields to our clients in a state where production can begin immediately. This means developing the means to study in more depth, and also test production. It is a challenge, but MAGE is ready.
We also hope to equally balance the level of business that comes from state and private customers, in order to guarantee the security of the business.
Do you have a final message for the readers of Oil & Gas Financial Journal?
I can only wish them luck. Whether they work in geology or they produce, luck is the most important thing.
Thank you, Mr. Kazanin, for talking to us!
| Company: | Marine Arctic Geological Expedition (MAGE) |
| Position: | General Director |
| Country: | Russian Federation |