Azimut Energy Services OJSC: Geophysics in the Keen Eye of Experts
Bulat Yelemanov, Acting Chairman of the Board of Azimut Energy Services OJSC, answers questions from the our magazine
What are the current trends in the development of the petroleum geophysics market?
We should look back on our industry over the past few years in order to have a better understanding of the current situation. In January 1997, the Foundation for Preservation Recovery and Reproduction of Subsurface was disbanded, meaning that the state ceased financing exploration projects. Geophysical firms had to sign contracts and subcontracts with producing companies enabling them, in turn, to search for and produce hydrocarbons in Kazakhstan. The legal framework appeared then to regulate the rights of producing companies and employment issues such as the hiring of foreign and local labour. This undoubtedly influenced the market of geophysical services. Many leading international companies that had been operating in our country for the last several years could not compete with Kazakh geophysical firms, and were forced out of the market.
On the other hand, the dependence of our geophysical firms on investment from subsoil users-who are active mostly in spring and autumn-makes our work seasonal. A geophysical firm can not ensure a constant flow of work for 4 or 5 seismic parties all year round. Moreover, the recently discovered huge East Kashagan field has focused the interest of western oil companies on offshore resources, thus worsening the position of Kazakh firms which specialize in onshore exploration.
Our companies are trying to overcome these seasonal constraints and the narrowness of the market by diversifying their operations geographically. They sign onshore seismic contracts with neighbouring countries. In lean seasons they render related services, for example, cargo transportation for drilling or road construction contractors. This strategy makes geophysical firms more sustainable at the time when their oil clients are not very active. These measures, however, have not solved all the problems: seismic equipment stays idle, thus freezing considerable funds, and skilled personnel are not involved in any operations.
So, what is your company’s development strategy?
Our company is the result of merger of leading enterprises in the industry, and I believe that is our major advantage. From the very beginning, Azimut Energy Services was created as a multi-profile geophysical firm offering a wide spectrum of services to various mineral and energy producing clients.Currently, the company consists of its Almaty-based headquarters and processing centre, seven specialized local offices in Kazakhstan, and a branch in Tripoli (Libya). This organizational structure allows the company to tap its extensive potential and provide services of the highest quality.
I would like to emphasise that Azimut Energy Services is the sole company in Kazakhstan providing the entire range of geological and geophysical services. They include 2D/3D seismic surveys of oil and gas fields, data processing based on global networks and multiprocessor systems, search for hard minerals, hydro-geological and engineering geological surveys, environmental studies, and logistic services for drilling operations.
I have already mentioned the keen interest of oil companies in the Caspian basin. Our company has acquired useful experience in processing offshore 2D and 3D data. Currently, Azimut Energy Services is participating in a joint project for processing seismic data for Agip KCO. “Multi-client” 3D seismic surveys in the Central Caspian are quite possible, and our company may be subcontracted for that area.
In 2002 Azimut opened its office in Tripoli, the oil producing centre of North Africa, thus achieving another goal in its development. Aggressively pursuing new opportunities and promising new geophysical markets, our company is extending its operations to Azerbaijan, Algeria and Egypt.
We do not stand still, but are actively developing in every possible direction. Diversification and extension of the operational area are the key factors of success for any geophysical company. Complete dependence on one or two customers would never guarantee a quiet life.
What are the most important projects in which your company has participated?
You know, only company’s clients can show what it is worth. Over the last five years, we have worked on more than 120 projects with more than 40 customers. They include ExxonMobil Kazakhstan Inc., Chevron Texaco, FIOC, KIO, BP Petroleum Kazakhstan, JNOC, Shell, Agip, Orient Petroleum, Maersk Oil Kazakhstan GmbH, Nemir Petroleum Bars BV and Amerada Hess. This year we have processed 3D data on a number of large fields in Kazakhstan for Hurricane Kumkol Munai. I would like to note that we have Kazakh companies among our customers, such as Ai-Dan Munai, KarazhanbasMunai, KuatAmlonMunai, Olager Oil and KokzhideMunai.
Currently, our company is carrying out seismic exploration in West and South Kazakhstan. As for data processing and interpretation, we focus on the largest and most difficult area, the Caspian oil and gas basin.
Azimut’s processing centre-equipped with supercomputers SGI and Origin 2000 and special mathematics software-is the most powerful not only in Kazakhstan, but the entire Central Asia. One of the ongoing projects is interpretation of 2D/3D seismic exploration data for Kokzhide, Konys, Arys, Borankol and Tolkyn fields. Another specialization of our company is turnkey hydrogeological projects, including the most challenging ones, from search for groundwater to construction of production wells and intake facilities. Azimut can boast of large-scale projects such as the search for additional sources of water supply for Astana and the residence of the Kazakhstan president, supplementary exploration of the Nura groundwater field, groundwater monitoring in the Pavlodar and Karaganda Oblasts, groundwater exploration for process water supplies to the Tur mine in the Karaganda Oblast, and groundwater monitoring in the coalfields of Ekibastuz and Karazhira.
The Kazakhstan tax code provides VAT benefits to mineral producing companies when they carry out geological surveys. Do you use these tax benefits?
The situation is paradoxical! Contracts with the Competent Body exempt subsoil users from VAT for geological exploration projects. Subsoil users, however, generally outsource exploration to specialized firms. This creates a problem: a subsoil user contracting geological exploration to a third party is exempted from VAT in accordance with article 230 of the Tax Code, but the contractor’s operation is regulated by another law which requires the VAT to be paid in full. Local geophysical firms have to pay VAT from their net earnings, thus going into the red.
The operation and development of the geophysical industry is extremely capital intensive. In order to avoid freezing its turnover capital for a long period of time, the industry should be regulated by a more liberal tax law. That is why our company is lobbying amendments to the tax code of Kazakhstan: we believe that all types of geophysical and related work and services should be assessed at a 0% VAT rate both for subsoil users and their contractors and subcontractors.
This benefit would not give the right for compensation of VAT from the national budget, but rather the whole VAT to be compensated can be used for setting off other taxes and payments to the state budget. In my opinion, such a 0% rate of VAT for geological exploration, along with a well-defined procedure for providing respective benefits (first of all, to geological exploration firms) would allow the existing problems to be resolved and the situation stabilized.
The exploration and production of hydrocarbons leads to a negative effect on the environment. What is the policy of Azimut Energy Services towards environmental protection?
It is among the top management priorities of our company to ensure safe working procedures for its employees and the environment. We have developed and introduced a field safety monitoring system that is based on the ISO-9000 standards. This highly effective system includes the technical inspection of the equipment and special instructions to the personnel before and after work.
Azimut Energy Services maintains relationships with state and public environmental organizations. Environmental impact assessment reports for various projects, environmental monitoring and inspection of the reclamation of land in the process and after completion of projects, are all important components of the company’s business.
Moreover, we have many years of experience in the environmental services market, and have compiled a database on the environmental situation in Kazakhstan. We are actively introducing international HSE standards developed by the International Association of Geophysical Contractors (IAGC), and have received a certificate from this organization.
The success of any company directly depends on the people working there. Do you agree with this opinion?
I believe the potential of our specialists is Azimut’s major asset! It was our employees who introduced new technology and services to the local geophysical market. That is why education and development have always been and will remain Azimut’s management’s cornerstone policy. Today, the company employs over two thousand people, including 15 persons holding academic degrees. The staffers are only local specialists who have vast experience of field work and are skilled in processing and interpreting geological and geophysical data. Around 67% of the employees have more than 10 years of practical experience.
Our well-designed system of motivation has helped us to retain our so valuable people, even in the most difficult of times. Regular training, interest-free loans, health insurance and other benefits have created a solid staff of loyal people who all strive for success.
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