Oil field Featured Interviews
The president of the FID Group talks about the FIDmash company's activity in the coiled tubing equipment market, as well as about the changes brought by the arrival of the new investor.
Oil&Gas Eurasia: How much has the quality of your production increased in recent years?
Leonid Gruzdilovich: No company can offer quality services for oil and gas producers unless it has appropriate equipment. Such major companies as Schlumberger, Halliburton, and BJ Services distinguish themselves by employing high-quality multifunctional equipment. We have been constantly making efforts to improve our production. Initially (1999-2001), the FIDmash equipment was manufactured in accordance with the requirements of the customers of the day so only domestic components were used. Some of the Russian-made components (certain hydraulic elements and lifting mechanism for equipment installation, etc.) were less reliable, especially under extreme conditions. This posed certain limits for the operators wishing to perform unique or challenging tasks. The second generation of our equipment (2002-2004) overcame all the aforementioned issues in terms of component reliability, but it still lacked all-inclusiveness and stability of the solutions employed. The third generation of our machinery introduced in 2005 was more export-oriented to supply international service companies in full compliance with their requirements. The fourth generation equipment, which was introduced this year offers the best of the solutions already tested by international companies, including several unique solutions. We also took steps to diversify our production. Five years ago we only produced coiled tubings, but at present we also produce preventors and pumping equipment, BHA, devices for drilling fluid preparation, hydrofracturing complexes delivered both complete with all the relevant kitting-up (including blenders) and equipped with separate elements, such as manifolds, proppant carriers and proportioning units. We can provide a service company with all the equipment necessary for operations, for performing unique and the most demanded operations in the market.
OGE: Who purchases your production?
Gruzdilovich: 50 percent of this year's deliveries will be made for international servicing companies, 30 percent for the companies from the CIS and 20 percent of the deliveries will go to Russian oil and gas production and servicing companies. You can compare, for example, the figures for 2006: international companies - 24 percent, the CIS - 30 percent and Russian companies - 46 percent. As you see, the share of orders from international service companies has increased. However, it doesn't mean that Russians have started buying less. It is just that this year the international servicing companies have ordered more than twice as much equipment units as compared to the last year figures, whereas the Russian companies have increased their orders only by 20 percent.
OGE: What kind of services does FIDmash provide?
Gruzdilovich: With regard to employing service centers as storehouses for spare parts, we have already solved this problem: spare parts are delivered within one-two days. Speaking of servicing as such, the issue is still being discussed. We usualy provide an after-sales service kit in one package with the purchased unit. We're conducting researches to estimate the demand and find customers who would like to use service centers not only to buy spare parts, but also to get warranty and after-sales services. If we find enough potentially interested customers, such centers will be opened.
OGE: How do production companies deal with the well servicing issue?
Gruzdilovich: Everyone is well aware that production companies worldwide tend to have less and less structures of their own to provide servicing, including coiled tubing services as well. The most prominent company in this aspect is Surgutneftegas, which offers a great variety of quality services to itself. The majority of companies, including Gazprom, LUKOIL and, until recently, YUKOS, separates these services or sells them to independent companies to use the services of contractors. It has already been done in other countries and has become a universally accepted business practice - some companies produce, while the others offer servicing.
OGE: Do your specislists undergo training abroad?
Gruzdilovich: Yes, they do. There are certain programs, as well as there are certain ways of interacting with the investor and other manufacturers of similar products. However, I think that the most precious experience can be gained through dealing with such customers as Schlumberger, BJ Services, and Halliburton which occupy leading positions in the global market having achieved this first and foremost through dealing with such customers that precised their requirements to the smallest details and only cooperated with such manufacturers who were able to meet the specified requirements. We have been working with Schlumberger since 2004 and it's been a successful mutually beneficial cooperation, as the order volumes have seen constant growth. This company was one of our teachers. But we do teach someone else too, including our overseas partners: some rather famous companies admit that they have learned a lot from us as well.
OGE: How exactly do you cooperate with your overseas partners?
Gruzdilovich: First and foremost, it is a joint development of technical requirements and specifications for the ordered equipment, as well as participation in various conferences and seminars, sometimes involving customers. We have been participating in round-table discussions for seven years now. This event takes place twice a year, in Houston in spring and in Aberdeen in autumn. At the consumer conference that we hold annually, every customer expresses his wishes, after which we either agree that it is doable, or we inform that we do not possess the needed materials, technical solutions or human resources to come up with the desired solutions. At such conferences we also discuss new solutions and recommendations for increasing functionality and reliability of our equipment.
OGE: Are the market participants aware of the fact that FIDmash is the property of NATIONAL OILWELL VARCO?
Gruzdilovich: There is a Russian-Belorussian group of companies FID, and even though FIDmash is the largest in the group, it's still just one of the companies. It has to be crystal clear to everyone that FIDmash has been an enterprise with foreign investments since its establishment in 2001. It is just that the initial investors were not so active in the market for oil and gas servicing, and their participation was limited to financial investments. The process of regularly changing owners and investors has long since become endemic for the global market. Since 2005 our investor has been NOV, and they might sell their stakes in FIDmash to somebody else tomorrow. I am extremely pleased with this new investing partner. To be honest, I never expected the arrival of a new investor to be so fruitful. I mean, there is an opinion that once a world leader has become your investor, it will re-orient your markets, change your product lines and limit the company's own developments. Nothing of the kind! Apart from the financial relationship, equally fruitful are the ones within the NOV technical, marketing, manufacturing, recruiting and accounting areas, as well as in some other numerous fields. It is undoubtedly a change to the better for us, because the investor did not only provide the financial support, but offered its support in technical, marketing and other issues as a true associate.
OGE: Did the change of owners lead to the increase in quality of your products?
Gruzdilovich: We saw no dramatic change in quality as we have been rather successful in cooperating with other major international service companies even before the changes took place. However, the dynamics of growth, reliability and functionality improved and the systemic action of this work was enhanced.
OGE: Do you have competitors among Russian manufacturers? And is coiled tubing manufactured in Russia at all?
Gruzdilovich: Yes, there are two compnies that are still starting out planning to start manufacturing such kind of equipment. One of those has already been working on producing such equipment for more than ten years now. For the last five years it has been producing about one coiled tubing unit a year. The other two companies have produced three-four units for the last five years, whilst we've manufactured more than 50 units over the same time span. If we divide coiled tubing units into six principal classes, all the production of these competitors will belong to one class - light surface one - and can be used accordingly.
OGE: How strong is the position of the FIDmash company at present in the Russian market of coiled tubing equipment?
Gruzdilovich: For the last seven years FIDmash has dominated the Russian market of coiled tubing equipment. Out of the total number of units purchased by Russian customers, 70 percent is produced by us, about 13 percent - by Hydra Rig, and about four percent - by Stewart&Stevenson. About 13 percent of the purchased units were produced in Russia, but judging by the total number of performed operations their share does not exceed five percent, and only two-three percent in terms of labor intensiveness.
OGE: What is the reason for the successful activity of your company?
Gruzdilovich: Our greatest advantage is our location which is much closer to Russia than that of international companies, which makes life much easier for our clients. One of our competitors retaliated by transferring a service center from the USA to Europe, but that did not change the situation much. In view of the fact that the needs of all our clients in terms of spare parts are fully covered, one can say that we do offer the best servicing infrastructure. To our benefit, the coiled tubing market is a small one. The average Russian company has in the range of two to five units at the maximum. Larger companies have more, for example, Gazprom owns 30 units, and Surgutneftegaz owns 27. The fact that played into our hands was that we managed to occupy a considerable share of this rather small market in time, including international market as well. At present our production volume allows for supporting a major design, technological and service base, which lets us constantly modernize, improve and burnish our products. Every year we do not only upgrade the models already in the production, but produce new ones as well. Any setback in this process would be costly for us. For example, last year we produced five various modifications of a standard KM 20 unit, which enjoys the greatest demand now, and chose the best one. And those modifications are all in demand, they are all operable. Constant changes are the only thing that can provide sustainable development and competitiveness. For anybody to start coiled tubing production from scratch is rather senseless, since if even a new player managed to seize 50 percent of the Russian market and to produce four-five various units a year - one-two in two or three classes, and support them, and upgrade them - all these expenses will either pay back in ten or may be even 20 years, or will never pay at all, if the beginning is not a success. There are numerous other directions where investments can be compensated in two-three years, and these are vacant.
OGE: Have your relationships with the Russian clients changed since the arrival of NOV?
Gruzdilovich: A good share of our clients started treating us with more understanding and respect, but what's truly crucial for us is that all the three most respected international companies are our clients. The customers also understand that the NOV company, which covers 70 percent of the global coiled tubing equipment market, would not put its trademark on some products not complying with a certain level of quality. Our cooperation just emphasized the fact that we meet the specified requirements in terms of technical level and reliability which they demand of their own production.
OGE: Do you consider yourself to be a Belorussian company?
Gruzdilovich: As I have already said, the FID Group comprises Russian and Belorussian companies alike. As a legal entity, FIDmash is a Belorussian company with foreign investment, which pays taxes in Belarus. The majority of people working for us are of Belorussian or Russian origin, though there are a certain number of foreigners in the company's management. So, we can say that indeed, we are a Belorussian company.