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Home / Issue Archive / 2007 / June #6 / Bentec Bets on Russia - German Rig Manufacturer to Launch Production in Tyumen Region

№ 6 (June 2007)

Bentec Bets on Russia - German Rig Manufacturer to Launch Production in Tyumen Region

By Pat Davis Szymczak

How hot is the Russian drilling market? Ask German engineering firm and rig fabricator Bentec GmbH Drilling and Oilfield Systems which aims to more than double its current revenue stream with a plan that will one day see half of the company's global business coming out of Russia. Bentec aims to more than double its current revenue stream with a plan that will one day see half of the company's global business coming out of Russia.

Bentec, a wholly-owned subsidiary of ABBOT Group plc, estimates that Russia will buy about 400 new rigs over the next three to five years. To capture its share of this business, Bentec is investing more than US$20 million in Tyumen region. Bentec in June signed an agreement with Tymenskie Motorostroiteli, a former aviation gas turbine manufacturer, with extensive machining and other technical capability, to purchase existing workshop and office buildings and to lease 80,000 sq. meters of land with direct access to roads and the Russian railway.

The facility will employ 300 to 350 people, most of them to be hired locally and extensively trained. The plant will have the capacity to fabricate eight to 12 rigs a year - rig construction and assembly with key components continuing initially to be made in Germany and transported to Tyumen. It facility is expected to become operational in the 2nd Quarter of 2008. Or as Norbert Gebbeken, the commercial half of Bentec's team of Managing Directors, puts it: "That's when we'll start to cut steel."

Oil&Gas Eurasia spoke with Gebbeken and his co-managing director, Arend Loedden, Bentec's boss for technology and engineering, during a recent visit to Bentec's headquarters in Bad Bentheim in North West Germany. The team of Gebbeken and Loedden took the helm in March and if they stay the course, one day soon, Bentec's Tyumen operation will be almost as big as HQ in Germany.

"The demand for rigs is very high in Russia because of the lack of investment in the last 10 years," Loedden explained. "Russian law requires rigs to be replaced after a certain number of years and now, we see a shift away from refurbishing or repairing rigs, to the purchase of new rigs. We see this trend in the tender specifications. That's why we want to get closer to the market and to provide not only the rigs but to provide services as well. That's one major reason why we are going to Tyumen." The move also cuts the US $1.5 million to $2 million price cost of shipping from Germany to Russia.

And for the development of Bentec as a global company, Russia's rig boom could not have come at a better time. Bentec's 19th roots (1888) were as the engineering service and maintenance department of what is today KCA DEUTAG. Bentec GmbH Drilling and Oilfield Systems was organized as a separate company in 1993 but still, Bentec had a more or less guaranteed market in KCA DEUTAG. That changed in 2001 when Bentec and KCA DEUTAG were acquired by the holding company, ABBOT Group plc in Aberdeen.

"When ABBOT Group bought us, 60 to 70 percent of our turnover was work for DEUTAG," Gebbeken explained. "As the shareholders, ABBOT Group wanted us to establish external markets on our own and become more independent from our sister company." Bentec management took up the challenge and today Bentec is independent. "We now have 70 to 80 percent external turnover; we are established on different markets - Europe, the Middle East, North Africa, CIS and, within the CIS, our main focus, Russia," said Gebbeken. "Russia is where we have our biggest investment."

In 2003 when Bentec opened its Moscow office, the company had a turnover of 37 million euros. This spring, Bentec's financial auditors confirmed 2006 revenues of 105 million euros. Gebbeken forecasts 2007 turnover at approx.160 million euros. And the future? Once Tyumen is operational, Gebbeken said, "the plan is that Russia will provide around 50 percent of our total business globally. So from today's point of view we'll almost double our current figures; we'd be looking at up to 300 million euros in the future." More importantly, Bentec will have guaranteed its market position. "In three to five years there will likely be a consolidation in the market and we hope to be firmly established in Russia by then," Gebbeken added.

Bentec's most recent participation in tenders was in April when it bid on orders  from Rosneft, Gazprom and Eurasia Drilling. Results with Gazprom and Eurasia Drilling have yet to be announced, but Rosneft has chosen to negotiate with Bentec over the delivery of two 320-ton cluster slider rigs of the HR 5000 series. The HR (Hybrid Rig) series combines the best features of Russian built rigs with state of the art western technology and engineering. Six Bentec HR 5000 rigs are working for TNK-BP under contract with KCA DEUTAG. Bentec is also building four HR-4500 series rigs for BKE Drilling Company

As for the April tenders, Gebbeken said, "We won't know the final outcome for a while. But if we finalize a contract it will be the first time that Rosneft has contracted with a Western company for new Rigs in 10 years. These rigs are for cluster drilling and move on a track system from one well to the next; then in winter the entire complex can be relocated and drill another row of wells." The contract value is between 30 and 35 million euros depending on what options Rosneft chooses, he added.

According to Loedden, "These are quite new rigs. This is a 320 ton rig, equipped with top drive. It is all modern equipment. Also important is that when it is moved to a different cluster location, you can break it down to transport it on the Russian railway system. It was a real challenge to build and design the rig in such a way that it could be broken down and moved fairly fast but we succeeded. We delivered the first two of this type to Russia in 2005" to KCA DEUTAG.

Currently, there are five Bentec HR 5000 rigs engineered from western designs, working in Russia with five more on the way: the two 320 ton rigs KCA rigs already referred to; four sold to TNK-BP through KCA (see sidebar)and four 250 ton rigs under construction for Eurasia Drilling. One of the two KCA rigs has been used for training in Tyumen and its presence is a boost for Bentec's marketing. "When we speak to customers they know that rig," Gebbeken said. Bentec's commitment to Tyumen is likely to include also participation in the new Technology Park being developed by local authorities with the support of private industry. "We have a good relationship with the governor and the vice governor. We've had first talks and we will be involved in the future with this project," Loedden said. "It's good to have a place like that which can generate synergies."

Once Tyumen is operating on a par with Bentec Germany, the Bad Bentheim facility can supply Europe, the Middle East, North Africa while Tyumen supplies and services Russia and expands Bentec's reach into Caspian and other ex-Soviet states. Bentec opened an office in Baku in 2002 which performs mainly offshore engineering work and is also one sales hub for the Caspian region. In 2003, Bentec opened an Aktau office (Kazakhstan) to service rigs built with a local partner in Petropavlovsk with Bentec draw works and engineering services. It also has an office in Ashgabat (Turkmenistan) which supplies also spare parts to a rig sold to Turkmenistan about six years ago. And in 2005 its Muscat office opened in Oman. The company also has an office in Algeria and it continues to supply rigs to Europe where drilling programs for geo-thermal energy are growing.

Bentec has been navigating a transition from rig assembler to engineering company which designs and engineers its own equipment including draw works, masts, electrical systems and instrumentation. "We've sold 11 of our drawworks to date and I'd like to get to the stage where the customer pre-specifies a Bentec drawworks," Gebbeken said.

Four years ago, as part of its restructuring under ABBOT Group, Bentec sought efficiencies by subcontracting steel fabrication to Poland, Czech Republic and the former East Germany. "This has proven to be efficient and price effective," Gebbeken said. Bentec focuses on fabrication of the machinery itself, electrical controls, instrumentation, final assembly and testing. "For the last years we have always delivered our Rigs on time and on budget," Gebbeken said.

"We learned in the 1990s with smaller projects such as mobile drilling rigs," Lodden said. "We have been supplying to St. Petersburg and from there by train. Also, we understand the licensing requirements and we have the GOST (Russian standards system) approvals. Actually understanding Russian requirements is very important to getting licensing approvals on the first shot."

As for the competition? "There's no doubt that Uralmash is our main competitor in Russia," said Loedden. "They are very well established and they have supplied most of the Rigs in Russia in the past. National Oilwell Varco are also participating in some tenders. But our feeling is that we are a step ahead.

In fact the Russian market for drilling rigs is so huge; there is plenty of business for the existing players - European, Russian and American. Chinese competition, however, is viewed differently. "We see China as a challenge because of their aggressive marketing," Loedden said. "They still have quality problems but on price they are very aggressive. They are obviously supported by Chinese state.

So from a competitive point of view, Bentec's strategy is to focuses on the reputation, quality and reliability of German engineering and workmanship. "We need to make sure that we have the market in quality in new products," Gebbeken said. "On the other side we are sure to offer competitive prices for these products "Our Russian clients really see next to quality and reliability factors in-country service capabilities as important; the sort of repair and operating functions we will have available in Tyumen," Loedden added. "We won't compete on price only. We always need to evaluate performance and life cycle cost with the initial purchase price. We are convinced we can succeed on this strategy."

Though the shareholders decided to split managing direct responsibilities between two men, Gebbeken and Loedden "speak with one voice," as they say. Both started with DEUTAG group in the 1980s. Loedden said: "During the last five years we have changed so many things that give us new confidence in our capabilities. This is a team we can lead."

Copyright © 2007 Eurasia Press, Inc. (USA). All rights reserved.
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