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Home / Issue Archive / 2008 / October #10 / Success Story. Mirrico Carves Niche in Oilfield Services

№ 10 (October 2008)

Success Story. Mirrico Carves Niche in Oilfield Services

Early in 2000, two young men just out of university approached an elderly experienced chemical expert who, by the way, was the Honored Chemist of Tatarstan and asked him to develop a simple and efficient chromium acetate technology for their start-up business.

By Alexei Chesnokov, Oil&Gas Eurasia

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In a week they met again and the Honored Chemist said: “Sorry, boys, but I can’t help you. It can’t be done in the conditions of your business and without special equipment.” However the young businessmen did not give up; they put on overalls and started experimenting themselves.
And their success came quickly! In an hour the technology was ready. “Well done, boys! I take off my hat to you!” said the elderly chemist.
Luck favors those who are ready for it
Those young men were lifelong friends, Rustam Ramazanov and Igor Malykhin. Rustam graduated from the Chemical Engineering Institute in Kazan and Igor was a graduate of Ulyanovsk University, School of Economics. They had already been in small business for several years, when they began to engage in chromium acetate production. This chemical agent was widely used in oil production but was under-produced in the market. The U.S. chemical products were rather expensive. The Perm factory, the only one in Russia, was unable to cope with their orders as they were affected by old Soviet era habits. They did not try to reassure their customers, believing that they had nowhere else to go. Oil companies paid advances to the Perm factory and patiently waited for their turn to get the product.
The path to the market for a new company is not strewn with roses; on the contrary, it is a thorny path. It was decided that the first industrial synthesis would be conducted during the May holidays, when all workers were off on vacation – just in case (God forbid!) something happened. Not a single sensor was available, steam was curling over the reactor and all attendees wore gas masks. The derived product was very good – concentrated at the required consistency, and of vivid green color. Now it was necessary to convince oilmen to buy the chemical. Igor and Rustam traveled to Kogalym in order to demonstrate to LUKOIL’s specialists that their product was just as good as the one produced by the Perm factory, and that their attitude to customers was much better as a start-up company. In those years, the market was not formed yet. There were a lot of “fly-by-night” companies that did not follow through on their obligations and cheated their customers. Nobody believed the young people and nobody wanted to buy their chromium acetate. The situation was critical and approaching a complete failure. There was no cash to pay wages. The company had to borrow money to pay the workers. In spite of all the problems, our heroes managed to convince LUKOIL representatives that their product was of high quality and reliability, and the first batch was sold. Further development of the company was now easier. New customers appeared, the offered range of products diversified, and new trends opened up.

OGE: How did the company evolve from that point?
Igor Malykhin: It was clear that the company was developing at a fast pace. We understood where we were heading and how to define a strategy. We set our minds on becoming a leader in the production of chemicals for oil companies and reaching a turnover of $100 million by 2010. To achieve this we were lacking two things in the production chain: our own chemical plant and a good sales department. We purchased a plant in Almetyevsk and hired active sales reps, thus enabling quick development of the company. As we communicated with customers, we had a better picture of the market and its trends. Indeed, chemicals are a good business but this is only a part of the market. So we made a strategic decision and at the end of 2005 that the company would become service oriented. We did it mainly for ourselves because we understood that if we did not start to develop as a service company, there would be no orders in two-three years and no development. As a service company, we enter a new stage in our development with more responsibilities, but with a larger market as well.

OGE: Could you describe the transition from commercial and industrial activities to service operations?
Rustam Ramazanov: We purchased one service company and then started to aggressively poach specialists from other companies with poor management, or no orders. Service is a personnel-dependent business. Everything is determined by what engineers you have in your company. Advantages of any equipment or any ace-high chemical engineering solution may be brought to nought if you do not have qualified specialists. Engineers are an equally vital service component as are chemicals or equipment. Another significant service component is scientific research. We are engaged in several service activities: oil field service, drilling fluid service (DFS), oil recovery enhancement (ORE), and water circulation system service for metallurgy and other industries. Different market segments are shaped differently. In the market of water circulation systems, we are the only Russian company rendering services in the area of utility water treatment and purification. We applied here an “oil industry principle” offering a complete package of services, which was highly appreciated by the Novolipetsk Integrated Iron-and-Steel Works, where we treat 98 percent of utility water. Our principal competitors in this segment are Nalco and General Electric. The DFS market was shaped long before us. It is fast moving and promising. MI SWACO, Baker Hughes and Baroid are our principal competitors in this market.
OGE: What are your most recent achievements?
Ramazanov: For two years, assets of our company multiplied by 20. We set up quite a large service company. In addition to the central office in Kazan, the company has representative offices in Moscow, Nizhnevartovsk, Noyabrsk, Almetyevsk, Usinsk, Krasnoyarsk, Krasnodar, Lipetsk, and Teheran (Iran). In the area of drilling fluid service we have over 30 service crews and are able to simultaneously service over 30 drilling rigs. In our work we successfully developed all four service components. The first two include chemical agents and equipment production. We produce chemical agents ourselves and partially order some of them in any place of the world subject to the most favorable terms. As for equipment we are engaged in assembly, repair and maintenance. We have our own group of designers and receive feedback from specialists on drilling rigs. Scientific research and engineering are two other service components in the oil industry. We have two large laboratories that are engaged in scientific research, one in Krasnodar and another in Kazan, as well as minor laboratories in close vicinity to customers.
In the near future, we plan to open a new laboratory and a research complex covering an area of over 2,000 sq. meters. A major task of engineering is education and training of engineers who work directly for a customer.

OGE: What about competition in the service market of Russia?
Malykhin: For example, the DFS market in Russia is estimated at about 25 billion rubles per year. This year we plan to seize 4 percent of it. MI SWACO takes 35 percent of this market with Baker Hughes and Baroid taking approximately 10 percent each. Based on our competitive advantages, activities and ambitious plans we expect to take about 30 percent of this market in the future. We want to be the top-ranked player in the Russian market. We already take 12-14 percent of the oil field chemistry market this year and anticipate taking 20-25 percent of it next year. The ORE market is an established, competitive and to a high degree conjunctural market. Any company executive has his own viewpoints and preferences. For example, Khodorkovsky at YUKOS recognized only hydraulic fracturing that quickly enhances oil recovery but does not contribute to the improvement of the oil recovery factor. At that time he had a task to increase the company capitalization. Our technologies are slower, but they are economical, improve the oil recovery factor, more advantageous in the long-term perspective, and more rational from the state’s point of view. We take over 4 percent in this market segment, with OTO, Chernogornefteotdacha, Purnefteotdacha, and Himeko-GANG being our principal competitors.

OGE: What can you say about the water circulation system service?
Ramazanov: Having created a whole range of chemicals for solving various tasks we found out that these products and technologies could be applied not only in the oil industry but in other industries as well. For example, a large integrated iron-and-steel works consumes huge amounts of water. When water is supplied to the works it has certain properties, then it passes through a set of process equipment where it is heated, cooled or purified. Water is required to be specially treated in order to avoid quick failure of equipment at the works. We offered the Novolipetsk Integrated Iron-and-Steel Plant to try the following service approach: they will be smelting a metal and we will ensure required water properties at each stage. If they believe us, then tomorrow we will offer them to take water treated by us; we will take water from the Volga, we will purify it and drain it back to the river. We will undertake all work including construction and operation of treatment facilities, and they will pay only a subscription fee per cubic meter of water. This approach was appreciated by the plant management. We won the tender and signed with them a contract for $10 million per year. U.S. Nalco and General Electric could not withstand the competition and left the plant. In this market sector, we are now the only Russian service company rendering services of utility water treatment and purification.

OGE: Please, tell us about your international projects.
Ramazanov: We have a representative office in the Islamic Republic of Iran. When the U.S. companies started leaving the country, we took advantage of the opportunity and filled the niche. It is interesting for us aside from profit making. Here we acquired experience of working in new conditions. Setting aside the organizational problems and pitfalls of the legal system, we faced a lot of new, interesting engineering challenges. For example, in our cold climate conditions, there is a problem of product freezing; in Iran, fire risk and evaporation problems come to the fore. In new conditions chemicals behave differently. We had to conduct a series of scientific research; testing has been successfully completed, and now our company is included in the bidding lists.
We perform some activities in India and have a lot of work in Azerbaijan, Uzbekistan and Kazakhstan, where it is of course – easier to work.

OGE: What is your vision of the company’s future?
Ramazanov: We are a company of horizontal integration, not vertical. We have drilling fluids and highly qualified drilling specialists (not always available in drilling companies).  We could start drilling, but instead we selected another direction. We promote chemical services in various industries. The service market will only be expanded and cover new areas. So it is more advantageous for a production company to concentrate efforts on a core business and thus to increase its capitalization. It is easier to give away all non-core activities to service companies. For example, it is more efficient for an integrated iron-and-steel works to construct an additional mill train or a furnace and to order construction of treatment facilities to a service company. Let us take an example from our every-day life. Dry cleaning is also a chemical industry service. A person buys a washing machine, detergents, invests money, creates an infrastructure at home, and bears all operational expenses. Besides, the washing machines takes up a space in the apartment, and person spends time washing and ironing. And nobody is responsible for quality but himself. If we were in the dry cleaning business, we would do the following: Our company comes over to a client and takes his dirty linen. The next day we bring him clean and ironed linen. In this case our client pays only a subscription fee, bears no more expenses and receives services of guaranteed quality. The person buys cleanliness from us.
This is the approach we will use in the future for our services. Based on our ideology and extensive experience of dynamic development we are optimistic about the company’s development prospects. Service in general and chemical services in particular become more and more demanding with expanding applicability frames. Therefore, we target the following: by 2012 we plan to reach a turnover of $1.2 billion and the company’s net profit ratio of at least 20 percent. In the near future we expect to become an international company integrated into the global economy and to change the word market of chemical service, reorienting it from delivery of solutions to delivery of eventual outcome and final effect. We are persistent in creating a unique corporate culture in the company, which is aimed at the service approach to needs of our clients.

Own production is necessary for stable business development
In the vicinity of Almetyevsk, there is a chemical plant owned by a Mirrico group of companies. It is called OPU-30 (a pilot production plant). Dmitri Filyushenko, Managing Director of OPU-30 answers OGE’s questions.

OGE: Please tell us about your plant.
Dmitry Filyushenko: Our company acquired this site in 2005. The pilot production plant (OPU) was established back in the 1980s. During the “reconstruction” period and afterwards, it was used as a warehouse or a base, and only in 2005 was the production of chemicals for the oil and gas industry launched there.

OGE: What production lines do you have at your plant?
Filyushenko: Our plant functions around the clock; and we have 90 employees. We manufacture products for our subdivisions of the oil field chemistry and water circulation system service, corrosion inhibitors, scale inhibitors, demulsifying agents, drilling lubricants, and modified starch. We produce about 1,000 tons of liquid components per month and about 120 tons of starch per month. Modified starch is one of the components of the drilling fluid.
OGE: What is done at the plant in terms of quality control?
Filyushenko: For quality control purposes we have a special laboratory with highly qualified personnel. The laboratory manager and assistants are employees with an extensive experience who came from Tatneft. The laboratory conducts testing of incoming raw material; intermediate quality testing of products at various production stages; and obligatory testing of final products for compliance with specification requirements. A Quality Passport is prepared for each product batch. The Passport contains all necessary quality parameters of the product. In addition, a specialist of the quality control department (quality assurance engineer) is present at the plant on a permanent basis as well as a representative of our customer, Mirrico. For successful market competition, it is required to ensure the highest quality of products. Therefore, a function of the so-called external control is performed by this customer’s representative who is not enrolled as our employee and is not paid a salary by our plant. In case of disputes we address our central chemical laboratory in Kazan. Great attention is paid to packing material quality and integrity and qualified loading of rail cars. Photos are made during loading to avoid sometimes groundless claims of external organizations.
In addition, an arbitration sample is taken from each product batch and stored within the whole product shelf-life. If a customer has any questions relating to our product quality, the central laboratory in Kazan will conduct control test of this arbitration sample for verification of all properties and quality parameters of the given product.

OGE: What are the prospects for plant development?
Filyushenko: In the nearest future we plan to launch production of alkylimedazalin at the plant. It is a chemical agent and one of the active substances for corrosion inhibitors. A process of its production is rather complicated with high temperatures and pressures. However, production of this component is commercially viable since at the moment we have to purchase it. In the long term, it is also planned to launch liquid waste incinerator.

Custom-tailored approach
Airat Mukhamadiev, Oil Field Service Project Manager of Mirrico group of companies, answers OGE’s questions.

OGE: What are basic chemical methods and technologies for equipment corrosion control?
Airat Mukhamadiev: We implement a complex approach to solve this problem and try to combine both chemical and other methods to control corrosion. One of conventional methods is adding inhibitors to various systems of oil treatment and transportation. We offer a ready-made solution to the customer. In addition to a product, we furnish a customer with a dosing plant, install and maintain it, treat wells, and monitor our own work in order to demonstrate final results. We try to be as close to our customers as possible. We have representative offices in nine cities. If there is no representative office nearby, our engineers visit the customer.

OGE: What can you offer to control various scales?
Mukhamadiev: There are two types of scales: organic and inorganic.
Inorganic are saline deposits, sulfates, carbonates, and barites. We install a special scale control system in a well directly in the bottom hole. A system of capillary dosing is lowered down to the pump suction zone, and a feed system is installed on the surface. It enables dosing required quantities and obtaining good results. For example, when this method was applied in one of TNK-Çê’s wells, in the Samotlorsky field, the overhaul period of equipment use increased by more than six times. This method can be applied also for control of asphaltene-resin-paraffin deposits and corrosion.

OGE: How do the company’s service groups perform their work?
Mukhamadiev: Our engineers visit a customer and select chemical production and technologies at the site. Then they come back to the company and bring the problems they experienced there in order to update and improve solutions selected. Almost in each case, our specialists have to create new unique products for a specific customer. Each visit to a customer is a new challenge and there are no similar tasks. Wells differ by oil composition, a degree of development, age, and depth of occurrence, and have additives resulting from application of various technologies. But oil quality is strictly specified by GOSTs; therefore it must be refined by various methods in order to achieve the required condition. The work is tough but interesting. We have remarkable customers with extraordinary and challenging tasks. Custom-tailored approach is our special method of approaching customers.

- Alexei Chesnokov is a staff writer for Oil&Gas Eurasia. 

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