Work for interest

Atashskiy, one of the biggest oil and gas projects, being implemented by JSC OOC KazMunayTeniz jointly with Lukoil Overseas, has not reached any expected results.
A 2500-meter well has not indicated any oil or gas. Failures and prospects of the geological activities in the Caspian Sea are covered at the interview with Yermek Marabayev, JSC OOC KazMunayTeniz General Director.

— Yermek Nasibkaliyevich, Atashskiy has been considered as one of the most prospective oil and gas projects. Significant investments have been made for the seismic activities in this area. And now it has turned out that the well has been drilled in vain...
— No, not in vain. From the very beginning it was known that Atashskiy area was located in the zone where any search for hydrocarbon deposits was risky. It should be noted that the available geological data of the structure were poor and more than that its contract area is 9,7 thous. sq. km., for comparison — the contract area of the North Caspian Consortium, consisting of four structures, is 5.6 thous. sq. km.
For the above reasons, we signed the Contract for Exploration not the Production Sharing Agreement. This Contract includes a geological survey and a well drilling to identify the oil and gas content and to survey the geological section. Upon Atash 1 exploration well drilling we obtained some actual data for further detailed analysis of the section. And with this in mind it is incorrect to say that the failure to discover oil and gas is an unsuccessful result of the drilling activities as the exploration well has implemented its purpose.
For information, when surveying the geological structures in the North Sea only one out of eight wells indicated oil and gas content. Sakhalin practice confirms that it is required to drill 4-5 exploration wells on one structure.
— What financial risks do the investors bear and to what extent are the investments into the project justified?
— Actually when making contracts and production sharing agreements the parties acknowledge a risk of commercial discovery of hydrocarbons and in each particular case they try to minimize it. With respect to Kurmagazy structure we bear equal financial risks with Rosneft; Atashkiy and Tub-Karagan (within the exploration period) only our partner, Lukoil Overseas.
— Will the Government have to offer the investors concessions and on account of the increase of the geological risks will the State Program for Development of the Kazakhstan Sector of the Caspian Sea be amended?
— In this case our partners will have to apply expensive and advanced survey technologies. 3 D seismic will cover the blocks where the probability of oil and gas content is high. But any concessions or amendments into the State Program are out of the question.

— Will the next failure in the Kazakhstan Sector of the Caspian Sea affect the investors? interests?
-The price for oil has reached its incredible size. Remunerations and dividends for oil and gas discovery will grow. These facts will definitely prompt the investors to consider more risky hydrocarbon projects. In other words, the risks are becoming equal to the returns on the investments. But in general, it does not contradict the fundamental business principles of the investors.
-High gas factor makes oil production less profitable. If gas is discovered instead of oil, how will the problem related to its production be solved?
-High gas factor makes oil production more efficient, heavy oil in particular. I think you know a gas-lift method of producing oil (gas is injected into the well to facilitate a lift of hydrocarbons on the subsurface). The purpose of exploration activities is to discover hydrocarbon and oil and gas reserves. If we discover gas, we will determine methods of its commercial development for Kazakhstan economy.
But so far it is early to talk about the reserves (oil and gas especially) in the whole block as only one exploration well has been drilled on Khazar structure (some hydrocarbon indicators were detected there). In general there are four such structures. This year it is planned to drill the second well in Auezov structure, i. e. geological survey is ongoing. Upon the completion of the whole scope of exploration and appraisal activities, the reserves can be calculated and approved.
— How to upgrade the attractiveness of our resources before foreign investors? They are discouraged not only with the negative geological data but also with our tax legislation, nationalization idea and state sector strengthening?
— To create an investment attractiveness is the matter of state significance. At present a long-term State Program for Development of the Kazakhstan Sector of the Caspian Sea, approved by the Decree of the President of the Republic of Kazakhstan, is acting; our legislation is improving. Annually the Council of Investors under the President discusses issues of vital importance.
The geological data obtained in the result of the exploration activities of our company cannot be negative for any investors. Any information, especially direct, obtained in the result of the drilling activities is implacably approaching us as well as our partners to the success. This fact is proved by time and history of our oil and gas industry development.
Exploration activities are long and tedious work of many specialists. They require patience, financial costs, but I strongly believe — we won? t wait long for the results. For comparison, I would like to say that the Governments of Canada, Australia, the US are spending 5-8% of the cost of the production only for exploration activities. Now we are at the very beginning of a long way to the full field exploration of hydrocarbons in the Caspian Sea.

— KazMunayTeniz is the only Kazakhstan company, engaged in offshore operations in the Caspian Sea. What is its principle difference from foreign companies?
— KazMunayTeniz and our strategic foreign partners are aimed to make profits. Unlike foreign companies KazMunayTeniz protects the state? s interests: ensures the implementation of the Program for Kazakhstan Specialists Training, the nationalization of working places; observes the increase of Kazakhstan content of goods, works and services; coordinates and manages the activities of operators-companies, incorporated to perform offshore operations within the State Program for the Development of the Kazakhstan Sector of the Caspian Sea. In the long-term the principal task of KazMunayTeniz will be to ensure the cost increase of state assets through the increase of hydrocarbon reserves in the Caspian Sea.
— It is known, that KazMunayTeniz draws much attention to the social problems in Mangistau and Atyrau oblasts. What actions are taken to develop infrastructure and increase working places in the regions?
— The activities of KazMunayTeniz and its partners are socially oriented to Mangistau and Atyrau oblasts. All contracts for exploration and production sharing agreements contain social obligations of any company. Only within the last two years International School of English in Aktau has been opened, a kindergarten for 120 places in Kuryk — built, labs of Aktau State University — equipped with special facilities for training and scientific purposes. The gas pipeline is currently being constructed in Kzylozen, Mangistau oblast. For these purposes within five years the sum in the amount of USD 5.4 mln has been spent.
When incorporating new operators-companies the preference is given to local highly qualified specialists. The share of Kazakhstan personnel in the projects constitutes 86%. But from Commercial Discovery of Hydrocarbons all social indices such as employment, earnings into the local budgets as well as the amount of social investments will sharply increase.
— KazMunayTeniz plays a special role in oil and gas sector of the Republic of Kazakhstan. What cooperation principles do you consider the most significant?
— Today we are successfully cooperating with such transcontinental oil companies as Rosneft, LUKOIL, Shell, Omanoil, Repsol, including the participants of the North Caspian Project Consortium. Joint operating or production sharing agreement is concluded with each partner. KazMunayTeniz and its partners are committed to the basic cooperation principles: to observe Kazakhstan laws related to subsoil use, ecology and environmental protection; to comply with all requirements of the Contracts and PSAs; to distribute all financial obligations and benefits proportionally to the relevant economic interests; not to admit any infringement of rights and any violation of obligations of a partner; to be open and transparent between themselves and if any disputes or disagreements arise to settle them through amicable negotiations.
— What are principle environmental requirements to hydrocarbon production projects in the Caspian Sea?
— The preservation of the natural balance in the region is the most important component of our policy and strategy. We strictly observe environmental protection-related national and international laws. The efficient combination of management, environmental protective measures and up-to-date technologies introduction say about minimum environmental impact

KazMunayTeniz is currently carrying out its activities applying the zero discharge principle. Industrial and domestic wastes are collected in special facilities located on the rig and then are transported onshore for further utilization on special sites.
We hope that our accident-free activities on exploration of prospects and construction of wells will not impact the environment. We apply up-to-date technologies, mechanisms and equipment which comply with international standards. We constantly perform environmental monitoring of our projects. So far these observations are local, but in the near future we plan to participate in the development and introduction of the regional environmental monitoring in the northern part of the Caspian Sea.
— In your opinion can we expect new discoveries of oil and gas fields in the Kazakhstan Sector of the Caspian Sea?
— Certainly. Oil and gas prospects in the Kazakhstan Sector of the Caspian Sea are beyond any question. In sub-salt Paleozoic deposits Kashagan, Kairan and Aktoty were discovered, in Mesozoic deposits — Kalamkas-more and Khazar, in adjacent Russian structures — Khvalynskoye and Sarmatskoye.
Pre-Caspian oil and gas bearing province and Scythia-Turan platform lifting and loading system are unique in terms of their oil and gas content, both of them have complex subsurface geology. The thickness of the deposits has favorable conditions to form aggregates of hydrocarbons in the whole geological section. The development activities in the Kazakhstan Sector of the Caspian Sea are only at the initial stage. The available geological data forecast oil and gas prospects. In spite of the complexity of the regional environment and the geological section, the Kazakhstan Sector of the Caspian Sea will not lose its investment attractiveness within a long period of exploration.
— The President of the Republic of Kazakhstan in his February message to the people of Kazakhstan noted that the strengthening Kazakhstan? s position as a influential and responsible participant of international oil and energy markets is a resultant vector. On this point what can you say about your company?
— KazMunayTeniz is a 100% subsidiary of KazMunayGas and, consequently, it represents Kazakhstan? s interests in offshore projects and actively participates in the policy of strengthening Kazakhstan? s position in oil and gas sector. An additional share in the North Caspian Project is to be purchased to make the state? s share in the project — up to 16.8%. Therefore, our position in this project will be strengthened. Besides we are participating in the negotiations regarding the establishment of New Operating Model that foresees staffing the Joint Operating Company with Kazakh specialists. The recently adopted law, stipulating at least 50% compulsory participation of the Kazakhstan party in all projects along with other types of contracts instead of PSA has considerably strengthened Kazakhstan? s position in new offshore projects.

— Training of specialists for offshore oil production is one of the priorities of KazMunayGas personnel policy. How is KazMunayTeniz solving this problem?
— Personnel policy gains special importance in KazMunayTeniz. I can say with full confidence that our company has a high personnel potential: over 48% of its employees have at least 10 years of experience in oil industry, 43% worked in international projects, 44% have good command of English.
The Company is guided by the 2006-2010 Program for Development of Kazakhstan Personnel for Offshore Oil Operations, approved by KazMunayGas in November 2006. According to this program young specialists can get higher education or undertake on-the-job-training in foreign companies. At present 29 young specialists are having hands-on training in leading foreign oil and service companies. Upon this practical training they will return to Kazakhstan and work for the welfare of the domestic oil and gas industry.
We intend to follow up such cooperation with our partners and plan through 2015 to involve up to 200 specialists into this program. In search of worthy candidates we cooperate with Kazakhstan and foreign technical universities, Center for International Program (Bolashak). Within the implementation of five projects over USD 10 mln has been spent for Kazakhstan personnel training for offshore oil operations in the Caspian Sea with the qualification, meeting the international standards and industrial needs. I think our serious intentions to train specialists of international level are proved by the fact that it is the second year when the company is attracting the consultants of the British University to assess personnel needs and training.
I would like to note that KazMunayTeniz is the first and the only domestic company, which is exploring Kazakhstan subsoils for oil and gas production. But we are not just recovering hydrocarbons. Our task is to develop the economy of our country. Now all our projects including oil and gas and social projects confirm that we are executing this strategic task. In fact for this we are working hard.

Yuriy BELYI, Astana