№ 6 (June 2007)
Editor's Letter
It's MIOGE Time Again with a New Event by ROSING
Pat Davis Szymczak
If it's an odd numbered year - like 2007 - we call it MIOGE. If it's an even numbered year - like 2008 - we call it Neftegaz. But either way, if we're in the month of June we know that the world of oil and gas will soon be descending on Moscow and if you haven't yet booked hotel rooms for your out of town guests, you might be in trouble.
This June, Moscow is hosting the MIOGE exhibition and the Russian Petroleum Congress, both organized by ITE at Expo Center along the Moscow River. But also this year, ROSING (the Russian Association of Oil and Gas Engineers) is running an entirely new event - a technology conference on enhanced recovery methods at the Moscow Mayor's office exhibition hall. (To learn more, visit www.oilandgaseurasia.com and click the ROSING banner on the left side after the menu.)
It seems there will be lots of activity, but will anyone be saying anything new?
While the issues might not have changed since last year's Neftegaz, there are some subtleties that - if you've been paying attention - suggest the market is moving forward. Whether it's moving in the right direction is a matter of opinion. But at least it's moving. Consider, for example, the topic of the Russian State's increasing dominance of the natural resources sector. A year ago, with the YUKOS public relations disaster still fresh in the minds of most would-be foreign investors, the reallocation of assets to state companies was cast in a sinister light.
NOC is Now a Household Word
This year, if you visited the Offshore Technology Conference in Houston in May, you may have caught a presentation on the new role being played globally by National Oil Companies (NOCs.) It seems Russia isn't the only country with its NOCs. And whether you like it or not, it seems that wherever you work in the world, you're going to be encountering them. What's been happening in Russia is happening throughout the world and the trend will reshape how the oil industry does business.
In Oil&Gas Eurasia's MIOGE issue, you'll find reports on how foreign companies are building businesses in Russia and how Russian companies are extending their reach into new markets abroad. That this happens isn't exactly news. But increasingly, there are more and more success stories. Our cover this month focuses on one of them - Bentec GmbH Drilling and Oilfield Systems. Bentec is betting its future on the Russian market and is investing millions of euros into a fabrication and rig up yard in Tyumen Region. The incentive? Russia's demand for new drilling rigs in the next three to five years will, by some estimates, reach between 400 and 600 units.
Bentec's quest to play a leading role in fabricating rigs for the Russian market and offering services and support for those rigs is leading it to literally become Russian. Bentec will have in-country manufacturing and a Russian workforce hired locally and intensively trained in Germany and in Russia. OGE focused on the same theme in March when we interviewed Wood Group's chairman Sir Ian Wood. He literally used the phrase "to work in Russia you need to become Russian" to describe Wood Group's strategy in developing its ESP business in Russia. Again, in-country manufacturing in West Siberia by locally hired Russian employees is the cornerstone of Wood Group's formula for success.
The Oil Boom that Keeps on Growing
Then there's the issue of high oil prices. With Russian companies awash in petro dollars, Russia should be a mecca for any company in the services and supply sector. But world-wide, producers are in so much profit that demand for equipment and services is high in whatever market you care to name. This means that service and supply companies are staying close to home. And for Russia, that means that technology transfer and investment is increasingly coming from Europe.
While talking to U.S. companies in Houston during May I heard over and over how business is so good in the Gulf of Mexico and elsewhere in the Western Hemisphere, that American firms simply don't need to become involved in markets far from home. Russia is risky, I agree, but not for the reasons often stated. I heard over and over the phrase "but we won't get paid". On the other hand, I know a U.S. company that has been selling equipment to Gazprom since the mid-1990s and they think Gazprom is their best customer because Gazprom pays in advance before the equipment even leaves U.S. shores.
The problem here is a lack of understanding of the market. Russia is an eastern country and so business is done on a relationship basis. Let's go back to the Bentec example. Here, you have a company that has worked in Russia since the 1990s testing all sorts of business models. It has shipped equipment into Russia from Germany, it has supplied products to Russian rig assemblers, it has explored opportunities with prospective Russian partners, it has gotten to know regional officials in Tyumen. In fact when I visited Bentec's headquarters in Bad Bentheim outside of Dusseldorf last month, I was amazed to find that the secretary to the company's two managing directors is a Russian woman fluent in German and in English. To have a native Russian speaker in Germany answering the managing directors' phones was a way of Bentec sending a signal to its customers and partners that Bentec is serious about building relationships.
And the lesson to be learned here is that when the bubble bursts one day and business starts to dry up, companies that shunned Russia today because it seemed too complex, will start to come knocking on the door. There will be business here of course, but those who come later will find many well-established foreign brands of companies owned by foreign shareholders that are run in Russia, by Russians as Russian companies. We'll be meeting many of these future success stories at MIOGE this year and at ROSING's important event. Welcome to Moscow!
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