Sergei Moiseev , 车里雅宾斯科钢管集团
Release Date: 2010-09-16
Sergey Moiseev, Chairman of the Board of ChTPZ, has been intervewed by Russiaenergy.com for a Russia Special report for Oil and Gas Financial Journal to discuss the main milestones and visions of ChTPZ since its foundation, the main challenges of integrating the company's assets acquired in the last eight years and the way the competition climate is changing in Russia.ChTPZ, one of the leaders in the Russian metal sector and oil and gas industry, was founded in 2002 after a series of mergers and acquisitions. Could you tell us the main milestones and visions of the company since its foundation in 2002?
The last decade was marked with significant investments in the main business and our acquisitions in the last eight years. First and foremost, we have acquired Chelpipe, a plant that was strategically important to provide a full spectrum of pipe products. Prior to that, Chelpipe has been known as the large diameter pipe (LDP) producer. Up till today, 5% of all pipes buried underground were produced at Chelpipe. Now there is more competition, there are four more LDP producers, and it took us quite a few decades to get 25% share of the market since the first LDP was produced in 1960. By acquiring Pervouralskiy pipe works in 2004, we were able to showcase full-scale presence on the oil and gas market (mainly concerning well tubing). At that time, Pervouralskiy had 20% share of the tubing market which is the sweetest part of the entire business. By closing that deal, we were able to offer the entire spectrum of pipes to the Russian oil and gas companies, whether they transport products or explore them underground.
Afterwards, we were following the matrix approach: we figured out it was feasible to provide complete solutions to build LDPs. We acquired a number of companies that build from scratch and produce all kinds of pipes including sophisticated pipes with various bends, elbows and valves. Given the need for professionalism and an international outlook, we bought MSA a.s., a Czech manufacturer of large diameter valves, one of the largest in Europe. We built, employing new Dutch equipment, a company called SLT in Chelyabinsk, and now are able to hot/cold-bend all kinds of shapes and forges of pipe. We’re also able to produce practically everything except huge pumps that we sell to Transneft as part of our complete solution. In general, we’re doing everything but construction of the actual pipelines.
As for the OCTG part of business which is Pervouralsky Novotrubny Works, the leading producer of steel pipes in Russia and Europe, we went into oilfield services (OFS) business by acquiring Alnas JSC which has always been the crown jewel of the Russian submersible electric pumps. The acquisitions here include a drilling company, a logging and geophysics company, an equipment manufacturer and Izhneftemash JSC, a well construction company. All in all, we have done a spree of about 10 acquisitions that allowed us provide a complete solution for the big and small oil companies that use underground pipes.
In 2010 that followed the restructuring and a drop in ChTPZ’s productivity and profitability, the company came very close to its goal of partnering with commodity manufacturers such as OMK, TMK, Izhora, and becoming a full-fledged solution provider to the oil and gas industry. We used to have a construction company on the trunk pipeline side of the business. On the well construction side, we’re able to do it already.
What were the main challenges that you faced to integrate all the different entities acquired in the eight years of your operation and find a common interest between the different divisions?
There are two parts of one market: trunk pipeline services business (TPS) which is involved in LDP transportation, and OFS business which is everything that concerns the well. It would be a gross exaggeration to say it’s fully integrated because there is still a lot of work to be done but already now we feel the interconnection of these markets that allows us open the door next to the one where we have just sold the pipe. I perceive this as a ten-year process: after starting in 2010, we should have a fully integrated company with Chelpipe as the head company of the Holding by 2012, and all the other entities being its daughter or granddaughter companies.
As a financial publication, OGFJ is interested in the financial aspect of the business. To which extent is Arkley Capital’s participation in providing capital for ChTPZ’s investments and acquisitions a strength for the company and how did the financial crisis affect the Group?
Every company is centered on a structural core – a measurement center, a corporate finance center or an M&A department… There’s always a group of people who deal with acquisitions, large-scale financings, capital market transactions, disposals - this is what Arkley Capital is. Technically, it could be a stand-alone company similar to an investment bank but we, just like your highly professional and sophisticated publication, find it easier to have a small group of people. Any outside specialist hired to work with us requires time to learn the industry while with a professional financial employee who has been in this business for seven or eight years gives you the confidence to accomplish some transaction correctly in a short period of time.
Which were the main growth drivers in 2009 and which sectors of the Russian oil and gas industry have stood for this growth demand?
First of all, we have a few new projects coming onstream for large diameter pipe sector with both Transneft and Gazprom. Secondly, the OCTG sector representing oil companies is, after a successful year, under a recovery path and its budgets are bound to go up. Thirdly, the energy sector is experiencing a lack of infrastructure and energy in certain areas such as the city of Yekaterinburg which is one of the largest industrial areas in Russia. Namely, it requires new coal facilities and additional power stations, and all of that requires enormous amounts of pipe products of very high precision and quality. Therefore, in preparation for that peak of demand, we have made enormous investments to significantly improve the quality and went through all the finishing operations since 2002. We have taken care of all the finishing operations, we have commissioned the large diameter pipe with one well and, lastly, in October 2010, we are jumpstarting a new billet facility in Pervouralsk. We have made sure that ChTPZ has the highest precision in those industries and is capable of producing top-notch products.
As you said, the major projects are back in the pipeline… Could you name a few products that would highlight your commitment and expertise to the Russian oil and gas market?
First and foremost, we are part of Bovanenkovo-Ukhta pipeline in the second part of ESPO. We will also take part in projects for the new energy products in Sakhalin.
In terms of your position, as you said, you’re part of the five main players in Russia… In some sectors, we’re seeing increased low cost competition with China or Western companies trying to enter the market. How is the competition climate changing in Russia?
We have to regard this in terms of sectors. If you look at the LDP sector, our main competitor there is Ukraine. There’s also a lot of debates now about China posing a threat to the Russian LDP production which really was the case during the construction of the first part of ESPO when Russia did not have enough capacity and some of the Chinese pipes came in. Now it’s also said that there’s too much capacity but the major current trend is to build new facilities to substitute the older facilities.
In 2011-2015, we expect the new and the existing facilities to work close to full capacity to fulfill the peak demand from Transneft and Gazprom. Once the peak is over, we will be able to shut down the double-well facility in Chelyabinsk.
Are you targeting possible exports to international markets or direct entries to other markets?
Russia is a country that spans eleven time zones; it’s the first gas producer and the second oil producer in the world. We have about 4% of export but it takes a lot of effort and does not bring the same type of reward quickly. Obviously, we do export internationally in the USA, UK, Europe and Middle East, and we’re also a big participant in the CIS – namely Kazakhstan and Uzbekistan where there is pipeline construction - however our focus is in Russia where we play the best. Russia is closest to all the pipelines and, moreover, with 160,000 km of Gazprom’s pipelines, about 60,000 km of Transneft’s pipelines and 25,000 km of Transnefteprodukt’s pipelines, a lot needs to be exchanged every year, and these pipelines are all located east of Moscow, like our company.
What are your main expectations and ambitions in the next three to five years?
We want to break from the commodity ground and provide turnkey solutions. We want to sell pipelines in kilometers and not in tons, and in this respect I hugely rely on Gazprom and Transneft wanting to buy kilometers of pipes because their job is to transport gases and fluids as harmlessly, carefully and efficiently as possible. If a company offers them help to make sure their product is transported safely from Bovanenkovo to Ukhta, it is a big relief for them and it is also the main reason why oil companies are getting rid of their service facilities.
We also need a pipeline construction company. It is a very difficult business to get in but I’m confident that that would allow us shift our focus towards providing solutions and not producing. Slowly but surely, the whole industry is moving eastwards in terms of geography, and the corresponding temperatures and sizement conditions require special facilities to manufacture the pipes.
What would be your final message to our international readers, especially in Russia?
I really wish that our company internationalizes in a good sense when everyone works at their best. This is what I always felt the word ‘happiness’ stands for: everyone on the cover of OGFJ or inside it would not be doing what he or she does if he or she were not happy to do that. In a business application, that means that the participants of that market should be doing their business, and that is when you catch up with the global majors in terms of efficiency. It’s not a secret that we aim for the top of the crowd, both for pipe production and servicing.
| Company: | 车里雅宾斯科钢管集团 |
| Position: | Chairman of the Board |
| Country: | 俄罗斯 |