August 22, 2012
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Home / Issue Archive / 2009 / June #6 / PGS: Now is the Time to Grow Russian Business

№ 6 (June 2009)

PGS: Now is the Time to Grow Russian Business

Alexander Dementiev, heads the Russian representative office of Petroleum Geo-Services (PGS), and recently returned to Russia after having lived the last 19 years in Noway.

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   That might be why he views Russian reality through the eyes of an expat, while at the same time, his St. Petersburg upbringing and education puts a Russian spin on things as well. This duality gives Dementiev an advantage as he navigates the Russian business environment with his own, fresh, perspective. In a recent interview with Oil&Gas Eurasia, Dementiev talked about his company’s work in Russia and abroad while he also shared his thoughts on growth prospects for the industry.

Oil&Gas Eurasia: What projects in Russia and the CIS are at the top of PGS’s agenda?
Alexander Dementiev: Currently we are participating in a large tender in the Caspian sea. The scope of work, estimated at three years, is very large and may require 3D data acquisition, using ocean bottom cables.
After having done the preparatory work we have become certain that we have all the necessary technical, financial and organizational resources to ensure completion of work in the allotted time without compromising quality, safety, or the environmental integrity of the Caspian.
We plan on  involving a considerable number of local companies as subcontractors, which ensures a strong national presence in the work conducted during the project. If we win this contract, it will be a major step forward for our work in the CIS.
The Caspian region is very complex; you can’t bring large ships into it. The Caspian Sea is a shallow sea, and only certain vessels should be used there.

OGE: What does PGS Company represent on an international scale?
Dementiev: The PGS Company is a global geophysical company that is a leader in the field of offshore seismic research worldwide. Additionally. we have an onshore division that operates mainly in the U.S. and Latin America. PGS Headquarters are in Oslo, and other main offices are located in London, Singapore, Houston. The company operates in 30 countries and operates around 30 vessels. including the Caspian fleet. In contrast with its many competitors, PGS offers a complete range of works ranging from date acquisition to processing and finally to data interpretation. Data processing requires very powerful data processing centers; the software is developed in-house. The data processing centers are located in every country we have a presence because, according to legislation in most countries including Russia, the data must be processed in the same country where it is are collected. In 2007, we set up a large data processing center in Moscow. Our main competitors worldwide include major companies such as CGG Veritas and Western Geco, a member of the Schlumberger group.

OGE: In what direction is your business expanding?
Dementiev: One of the promising trends of our business development is the “multi-client” approach. We work a lot with the governments of many countries, which hold licensing rounds and tenders. In these cases, our company often invests its own money into research and, once the license is sold, we receive compensation for our work related to the contract. It is more beneficial for both state and the bidding company when research results are more consistent, as license blocks can be sold at a higher price. It’s hard to understand why Russia does not use this approach.
We constantly perform so-called speculative research of areas and offer to sell the results of that research to concerned companies. The work is often fully funded before it even begins, as many potential clients contribute in advance. This is beneficial for the client, since the risk and cost of research is spread out between several oil companies that may do work in an area.. This is what we call the “multi-client” approach.
As a result, today we have the world’s largest customer “library” of 3D seismic data (over 400,000 sq. kilometers) collected from some of the most promising offshore areas in the world.
We offer cooperation to  Russian companies venturing into the overseas markets, such as Lukoil Overseas or Gazprom. If these companies want to operate, for instance, in Nigeria, Brazil, Venezuela, Northern Europe or Southeast Asia, then there is a high probability that we already possess data that could be useful to them. We can also discuss the option of arranging multi-client research with other companies interested in the same area.

OGE: How is the multi-client approach taking hold in Russia?
Dementiev: Unfortunately, it cannot be used in Russia. Firstly, there is no notion of “multi-clientness”, because according to current legislation, all offshore oil fields have been declared strategic and may only be developed by two companies, namely Gazprom and Rosneft, which will split the license areas between themselves. It’s possible that these companies could share the risks of seismic research with their potential foreign partners; inviting them to participate in separate projects while retaining formal control. But decisions like that must be made during the survey phase.
Secondly, no individual research licenses are issued as of today, only general licenses for research, development and production. This does not give geophysical companies opportunity to invest their own money into the research. Obviously, any decisions restricting the access of efficient international technologies to the Russian shelf prohibit its fast development.
I think it would be useful to establish dialogue and arrange meetings and seminars with the concerned companies, Gazprom and Rosneft, for the purpose of presentation, study and discussion of the experience available in other countries and international companies in the area of legislation regarding geophysical surveying and implementation of various business models. We are ready to take on the role of  coordinator, if our Russian partners show interest in such a process.

OGE: Does this explain why there aren’t very many offshore seismic surveys being conducted in Russia?
Dementiev: I have already mentioned some of the difference in applied business models between Russia and other countries. Furthermore, Russian oil companies have invested considerably less in geophysical exploration compared to their foreign colleagues.  It is also worth mentioning that the Russian geophysical industry is behind in some aspects of technology and efficiency. In addition, considerable restrictions placed on foreign companies do not contribute to the development of hydrocarbon resources on the Russian shelf. For example, only ships with Russian flags are allowed to operate within the 12-mile contiguous offshore zone.
In a case like this, one must have a reliable Russian partner or form a joint venture for to charter vessels for at least one year, despite the fact that the seismic survey season in the Arctic region lasts only three to five months.  Such restrictions on the formal regulatory process bar foreign companies from enteringthe market directly. In 2006 we established the joint venture PGS Khazar to operate in the Black, Azov and Caspian Seas. We are considering the the possibility of using this joint venture for operations in other Russian offshore areas.
The Arctic most certainly attracts us because we have the vessels, technology, and people. We are aware that carrying out efficient, large-scale seismic surveys in the Arctic using the latest advances in geophysics can dramatically increase the capitalization of Russian assets and increase the geopolitical leverage of the Russian state.
Recently,  American scientists declared that the hydrocarbon resources of the Arctic were much exaggerated. What does this mean exactly? Is this the result of scientific studies or is it a just a ploy to discourage attention on the Arctic region?
This is yet another reason to proceed with Arctic research using today’s seismic methods.

OGE: Why is your company interested in cooperation with  Russian partners?
Dementiev: We are convinced that it is very hard to work in Russia without a local partner, namely becuase there are multiple restictions and because Russian counterparts are well aware of the market place and the rules of the game.
For us it would be much more advantageous to find a strategic partner in Russia to form an alliance with or launch a joint venture. During the crisis, the Russian seismology sector is going to face hard times as volumes of seismic studies have dropped considerably, with job requests from abroad virtually drying up due to the low efficiency of Russian companies which have not changed much over the past ten years.
With a strategic partner in the Russian Federation, we could immediately supply high-performance vessels to the market and at the same time review the possibility of  shipbuilding at Russian shipyards using our technologies for the Russian market.
The main point is that we are convinced that the time has come to start making money in Russia and invest it here, too. The mentality of many Western companies has changed and now they believe there is no need to take money out of the country, that instead they should work here and create value within the Russian community. As a potential strategic partner we consider both service companies and oil companies. Perhaps this interview can help us finding such partners.

OGE: Would you also be willing to cooperate with any local scientific-research institutes?
Dementiev: If we join our potential with a serious scientific research organization, such as VNIIGAZ, we would be able to achieve very interesting results. Currently, VNIIGAZ is engaged in active research at Yamal, and we are very interested in this.
Yamal is a very promising region, but it requires specific survey vessels with deep draughts capable of operating under very harsh climatic conditions. We would like to understand the scope of what coud be available there, and if the findings are positive, we could jointly develop the research projects. This would serve as a breakthrough into the market via science.

OGE: Are the Russian seismology contractors inferior to the global leaders in terms of software?
Dementiev: Yes, in terms of software, as well as hardware, equipment, and project management. For example, let’s take our RAMFORM ships, specifically designed for marine seismic surveys: we can simultaneously tow 18-20 streamers, while the best Russian vessels can only tow six streamers. This means that our efficiency is substantially higher due to our ability to cover a  larger area within the same timeframe.
Our vessel can work for five months without calling to port; everything necessary for work and leisure is available onboard. In addition to state of the art equipment, the subjects of job safety, personnel training and quality control are main priorities for PGS. I would not rule out that our services can be somewhat more expensive, but in the end the customer stands to save money through quality, expediency and volume of research.

OGE: What about Russia caught your attention after living for so long in Norway?
Dementiev: Job performance and labour productivity in Russia are much lower than in the West. In my opinion, labour productivity in Russia is just 30 percent of what it is in the West. Moreover, it even applies to office work when using the same Western equipment.
Personnel expenses in Russia and especially in Moscow are much higher than in Norway. I cannot understand this being a manager myself. This is an issue of mentality and work ethic.
In running their own businesses, local professionals do  very well, but on the whole the Russian business community lacks creativity. Sure, there are lots of gifted people in Russia but they are mostly concentrated in science and culture. People like that are few and far between among executives.

OGE: Are there any new developments in your company?
Dementiev: Our latest news is introduction of a new PGS “hyperBeam” technology, which brings processing and interpretation together in a nearly real-time interactive system, reducing the cycle time for velocity model building from months to minutes. This new achievement will improve the quality and precision of our models and reduce our customers’ drilling risk. Updating the velocity model ahead of the drill bit be a reality!
Recently, our company deployed a new generation streamer called the GeoStreamer, which represents not an evolution but I would dare say a revolution in the field of imagery collection.
We have also developed a unique system for continuous reservoir monitoring – 4D-4C or OptoSeis, based on fiber optic cables that lay on the ocean floor. It allows us to track changes occurring in the reservoir over the course of production, which provides reservoir managers with information to decide, for example, the nature and location of the next well or finding new oil or gas traps.
Application of such system allows us to boost oil production up to 5 percent while considerably improving cost performance of an oil-and-gas project. Unlike Russia, the Westerners do not usually drill a lot of wells at one go. It is better to drill them later but with more precision. A high-performance system of monitoring and quality interpretation of the processed data allows the drilling budget to be cut by 70 percent.

OGE: What forecast  can you make regarding the growth of the marine seismic  market in the nearest future?
Dementiev: We all know the nature of the oil and gas industry development curve perfectly well. Dropping demand for oil caused by the global economic crisis will undoubtedly be followed by its substantial growth.
And even if this proves to be a protracted crisis , its duration will not be comparable to the period of putting a new shelf field into operation , which is 12-15 years from the date of discovery.
Additionaly, considering the fast-shrinking resource base, the technological complexity of discovering any new “easy” oil fields, the failed investments, the considerable drop in production, and the lack of prospecting, it can be presumed that in the foreseeable future we will once again bear witness to demand for hydrocarbons  that is far in excess of their supply.
At the same time, a marketable alternative to oil and gas, capable of covering the gap remains to be seen.
Therefore, from the point of view of the global market or individual states, geophysical exploration must be intensified. In doing so, one has to apply the latest geophysical technologies which allow the performance (speed, quality, depth, safety) of geologic exploration at sea to be considerably enhanced while dramatically cutting expenses on the whole, especially now when one must make every penny count.
Nevertheless, from the point of view of an independent oil and gas company calculating project budgets amid low prices and shrinking demand, it is preferable to concentrate on the upkeep of production at existing wellheads. This unavoidably leads to considerable reductions in prospecting volumes, which regretfully has not been up to the mark that is has in the past. I think that investment reductions in seismic research in the next two years will surpass the overall reduction in capital investment both offshore and onshore by 5 to 15 percent.
In a longer term perspective, I would predict a steady growth of seismic exploration project volumes, but at a new level established by the lessons of the financial crisis. These lessons indicate the need for technology upgrades of the domestic offshore geophysical industry.

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