Pioneers of the Caspian sea

JSC OOC KazMunayTeniz, which celebrated its fifth anniversary this year, was one of the participants of KIOGE 2008, the 16th Kazakhstan Oil and Gas Exhibition. According to specialists? estimates offshore petroleum operations are enormously prospective. Yermek Marabayev, General Director of the Company, covered the following progress of offshore oil and gas projects.

 

— Yermek Nasibkaliyevich, oil and gas production remains one of the main budgeting branches of our economy. In this regard, what challenges has your company issued?

— Noteworthy is the fact that within more than a hundred years of Kazakhstan oil history we commenced offshore operations. In future KazMunayTeniz (KMT) must become a leading domestic operator in offshore exploration and production.

In its activity KMT is focused on international standards and best practice in HR management. The performance of these and other measures will foster the growth of resource potential of KazMunayGas companies and improve the performance of exploration and production activities and financial and economic indices. Our goal is to obtain a reputation of reliable, qualified and effective offshore exploration and production company, which complies with expectations of our sole shareholder — KazMunayGas.

In order to implement oil and gas operations we need qualified technical personnel. For this purpose we have created a working group to search, select and train specialists for offshore projects. The group has the following tasks: to develop qualification requirements for candidates, establish a motivation system and train specialists.

The company tracks the growth of Kazakhstani content of goods, works and services, coordinates and manages the activities of operating companies specially incorporated to perform offshore operations within the State Program for the Development of the Kazakhstani Sector of the Caspian Sea. In the long-term the main task of KazMunayTeniz will be to ensure cost rise of state assets through hydrocarbons increase in the Caspian Sea.

— Has the absence of expected drilling results of exploration wells in Tub-Karagan, Kurmangazy and Atashskiy impacted prospective cooperation with the Russian companies?

— KMT is implementing four projects jointly with the Russian colleagues. Within the agreements we are implementing Tub-Karagan, Atashskiy and Zhambai projects jointly with Lukoil, Kurmangazy project jointly with RosNeft-Kazakhstan. The first exploration wells in Tub-Karagan, Atashskiy and Kurmangazy have not discovered any oil and gas bearing reservoirs. The survey outcomes indicated a considerable difference between actual geological data and design data.

But it should be noted that based on the preliminary survey results we can not definitely conclude that this area is of no prospect. We are currently analyzing and summarizing the data to identify oil and gas accumulation and to evaluate resources. Upon survey completion, KMT jointly with partners is to drill the second exploration well in Kurmangazy structure, it is considering an opportunity to drill one more well in Tub-Karagan and is to issue recommendations regarding further geological and exploration activities in Atashskiy.

— But failed drilling results may incur doubts about the expediency to develop soils of the Caspian Sea...

— I would like to draw your attention to the fact, that within the North Caspian Project, such fields as Kashagan, Kairan, Aktoty, Kashagan South West and Kalamkas-more have been discovered. It indicates a great potential of hydrocarbons in the Kazakhstani Sector of the Caspian Sea. For this reason varying results of exploration wells in other structures cannot reduce high possibility to discover hydrocarbons in the region. Statistically, within exploration period only 30% of exploration wells yield positive results, meanwhile financial income of oil companies remains along with the opportunity to invest in exploration of new prospects.

— As geological risks have grown will the Government have to make concessions to investors and revise the State Program for the Development of the Kazakhstani Sector of the Caspian Sea?

— In this case our partners need to apply more expensive and up-to-date technologies for soil studies. In some blocks where the possibility of oil and gas content is high, 3 D seismic is required. Any concessions or amendments into the State Program for the Development of the Kazakhstani Sector of the Caspian Sea are out of question.

Moreover, please note that oil price remains high and in the long-term, as experts forecast, will grow. No doubt, it will encourage investors to take even huge risks of discovering hydrocarbons ‘cause remunerations and dividends for such discovery will grow as well. In other words, risks become are adequate to returns from investments and this doesn?t contradict fundamental business principles of investors.

— What stage are joint projects with other foreign partners on?

— Mutual international cooperation is an integral part of KMT strategy. First of all, it should be marked that North Caspian Project is implemented jointly with the biggest oil companies in the world. Since February 2006 our company has been Managing Director of KMG Kashagan to which the interest of KazMunayGas in the Production Sharing Agreement with respect to the North Caspian Sea was transferred in the amount of 8,33. As is known, oil was discovered in all areas of this project. Kashagan is the biggest field in the world discovered during the last thirty years. At the moment partners agreed to increase the interest of KMG Kashagan up to 16, 8%.

It is also envisaged to increase considerably the influence of the Kazakhstani side on the project. KMG Kashagan will be involved in all aspects of the proposed structure, including the development of Experimental Program and field development. Besides, KMG Kashagan and Shell are creating joint production company.

In 2006 our company became a participant of the Pearls project. Joint Operating Company Caspi Meruerty was incorporated to implement exploration plans. The first exploration wells in Khazar and Auezov structures indicate the presence of hydrocarbons. This year was life-changing for the Pearls project as in August the appraisal program was submitted to the competent authority and the goal of KMT is to produce oil as soon as possible.

At the end of the last year we were given Zhambai project, the participants of which are Caspian Investments Zhambai and Repsol. The construction of the first exploration well is under preparation. In future we expect good results from all joint projects.

— What are sources of their finance?

— Offshore petroleum operations requiring considerable investments are characterized by a long-term cost recovery. We think it is optimal if a strategic partner selected at exploration stage takes all investments risks. Following discovery and appraisal when risks are dramatically reduced, sources of finances will be distributed.

With respect to Kurmangazy structure we jointly with NC Rosneft are taking equal financial risks. With respect to Atashkiy and Tub-Karagan for exploration period our partner — Lukoil is taking all risks.

— You mentioned that state influence has been strengthened. New Tax Code specifies increased burden on the producing sector. Negative geological data are in place. Will these factors scare foreign investors away?

— The creation of investment attractiveness is of state importance. Firstly, it is enhanced by the long-term State Program for the Development of the Kazakhstan Sector of the Caspian Sea, approved by the President?s Decree. Taking into account new requirements and international standards, tax laws are amended, vital issues of this industry are annually covered at the forum of Investors? Council under the President of the Republic of Kazakhstan.

As for geological data of exploration activities carried out by our company, they can not be negative for investors. Any information, especially direct information obtained upon well drilling approaches us and our partners to success. It is proved by time and history of our oil and gas industry. Geological exploration is a long and painstaking work, which, undoubtedly, requires patience and necessary financial costs and only then results will not keep waiting long. For comparison, I want to say that governments of such countries as Canada, Australia and US spend five- eight percent of the production cost for geological exploration activities at all stages. We are at the beginning of a long way to a large-scale geological exploration of hydrocarbons in the Caspian Sea.

— In this case, in your opinion can we expect new discoveries of oil and gas fields in the Kazakhstani Sector of the Caspian Sea?

— Since the commencement of activities related to the development of the Kazakhstani Sector of the Caspian Sea a great amount of geological and geophysical materials have been collected. They enable us positively forecast prospects. In spite of environmental problems in the region and complexity of geological structure, the Kazakhstani Sector of the Caspian Sea will not lose its investment attractiveness during the whole long exploration period.

— Some foreign oil operators controversially reacted to the Government?s plans to revise the production sharing agreements made. Please your comment.

— We are familiar with the practical application of PSA and the Law On Production Sharing Agreements during Offshore Petroleum Operations. In fact, with the lapse of time a sufficient number of provisions appeared, they did not act or infringed the interests of the country. I consider it necessary to specify the protection of economic and strategic interests of Kazakhstan and relations between partners. Regarding problems arising from PSA including law — making initiative we cooperate with KazEnergy and prepare proposals on service agreements which as we think will help us to solve issues not specified.

— Do local specialists have required qualifications to perform offshore petroleum operations?

— Within personnel training a big data base of KazMunayGas employees and external applicants has been formed. We are currently analyzing young specialists, graduates and students of technical universities and Bolashak program who will be attracted to work within the following five years. Total number of this pool exceeds three thousand specialists.

For Kashagan project management and administration positions to be held by secondees have been predefined. In this regard, qualification requirements meet international standards.

With respect to young specialists we set a task to bring up the best generation of professionals dedicated to their business. At the moment 27 engineers are undergoing on-the-job training in the US, France, Holland, Great Britain, Norway, Singapore and Australia. In order to reach the level required by international practice we will train our employees on a regular basis. For these purposes we will continue cooperation with our partners and plan to arrange on-the-job training for up to 200 specialists until 2015.

In general, since the implementation of five projects over ten million dollars have been spent for training of Kazakhstan personnel for offshore petroleum operations with qualifications meeting international standards and needs of operational processes. I think that seriousness of our intentions is proved by the fact that it is the second year when the company is attracting consultants from the British University to assess staff needs and training.

Today I can say with confidence that KMT has high personnel potential. About half of employees have experience of over 10 years in oil industry, 43 % of them worked in international projects and speak English.

— A sore point for oilmen — environment protection. Does your company meet environmental requirements?

— The Caspian ecosystem is unique and at the same time sensitive. For this reason the priority is to ensure environmental and industrial safety in offshore petroleum operations. The company adheres to zero discharge principle — wastes are collected in special containers and transported onshore for further utilization, i.e. wastes are not disposed onshore.

We are introducing information technologies which not only promote the quality of seismic activities, speed of data processing and safety of operations, but also minimize the negative impact on the environment. We approve technical projects with the authorized bodies, conduct environmental surveys, monitoring and public hearings.

Our company is a pioneer. We are among the first whom our state entrusted the destiny of offshore oil projects, the destiny of the ecology and flora and fauna of the Caspian Sea. Taking into account the importance of this task, I can assure that rich soils of the sea will be always developed in accordance with all environmental law requirements.

An environmental issue is directly connected with the safety in offshore activities. In this context our partners — Agip, Shell, Total, Lukoil and others are of great help. Besides, our specialists obtain practical skills abroad and undergo training in specialized workshops. We made agreements with international companies regarding oil spill response services. Our employees participate as observers at Shell trainings devoted to assessment and management of operational environmental risks. Joint drills on emergency response and management are always held. All these measures contribute to the implementation of measures related to personnel safety and the Caspian environment.

— As is well known, KazMunayTeniz draws much attention to the solution of social problems in Mangistau and Atyrau oblasts. What exactly is your company doing to develop local infrastructure and increase working places in the region?

— All exploration contracts and production sharing agreements specify social obligations of the company. Within the last two years International English Language School was opened in Aktau, the kindergarten for 120 places was built in Kuryk, training classes of Aktau State University were equipped with special equipment for both training and scientific purposes. This year a gas pipeline to Kzylozen, Mangistau oblast is under the construction. For these purposes within five years about USD 5.5 mln was spent. When creating new operating companies local highly qualified specialists are preferred, their number totals 86 %. Since commercial discovery all indices of social nature such as employment, budget revenues, investments and social needs have sharply increased.

Annually USD 1.5mln is spent for social projects and USD 2.4 mln for local personnel training in Mangistau and Atyrau oblasts.

In conclusion of the interview I want to remind that KazMunayTeniz is the first and the only local company that explores offshore soils to produce oil and gas. We are not just recovering hydrocarbons, our task is to develop the economy of the country. Today I can surely say that all KMT projects ranging from oil and gas to social ones confirm this strategic task performance. Not by chance our motto runs: Offshore Resources of Kazakhstan Belong to its People!

 

Asset KALYMOV, «Kazakhstanskaya Pravda», October 30