LUKOIL Overseas: a Record-Breaking Year of Business in Kazakhstan
Boris Silbermintz, Kazakhstan Director of LUKOIL Overseas Service Ltd. answers questions from our magazine
Boris S. Zilberminz was born in 1967 in Cherkassy, Ukrainian SSR. In 1992, he graduated from the Geological Department of the Gubkin Moscow Academy of Oil and Gas with cum laude diploma, qualifying as an engineer in Petroleum Geology. In the Academy he also completed an intensive English language course. In 1997 he gratuated from the South Methodist University in Dallas, U.S. with a Master's degree in Economics.
He worked as a leading geologist of the oil and gas production unit of NoyabrskNeftegas JSC in Noyabrsk,Yamalo-Nenetsk Autonomous District, an analyst in strategic planning at AMOCO Eurasia in Houston, U.S., a senior consultant for economics and finance of the petroleum consulting firms Gaffney, Cline and Associates in Olton, U.K.
In 2001, he joined LUKOIL Overseas Service Ltd. as a head of the Strategy Division. Since November 2002, he has been Regional Director of LUKOIL Overseas in Kazakhstan.
He is a member of the U.S. Society of Petroleum Engineers, the Association of International Petroleum Negotiators, the International Association of Energy Economics.
Mr. Silbermintz, today, according to the view of international experts, LUKOIL is the only Russian transnational oil corporation. What is the role of LUKOIL Overseas in achieving such an excellent result?
Actually, LUKOIL’s very aim in establishing LUKOIL Overseas, a special subsidiary responsible for managing the company's international uostream oil and gas projects, was to become a transnational corporation.
Our main goal is to achieve leading positions in terms of production volume among peer group of international oil companies. We are moving towards this goal by constantly increasing reserves and production volumes in the priority countries and regions, by improving operational efficiency and by developing of marketing and sales infrastructure.
Today, apart from enterprises to the Russian LUKOIL-Perm, the portfolio of LUKOIL Overseas includes 16 projects in eight countries and in 12 of these projects we act as an Operator. Year 2004 has become very successful for our company in terms of new projects: two contracts were signed for the Kazakhstani sector of the Caspian Sea (production in Tyub-Karagan, and exploration in Atash), a PSA on gas production was signed in Uzbekistan and a gas exploration contract signed in Saudi Arabia.
In addition, we are drilling offshore exploratory wells in Azerbaijan (D-222 Yalama Block), and Egypt (North-East Geisum Block) and a preparatory stage for the deep-hole onshore drilling in Columbia (Condor Block) is being completed.
Presently, we are carrying out exploratory drilling in Iran and negotiations on the West Qurna Project in Iraq. We are also reviewing opportunities to expand the presence of LUKOIL Overseas in the Latin America and North Africa.
As for the current production projects, I can say that 90% of LUKOIL’s foreign production (more than 3 million tonnes of oil annually) comes from the following Kazakhstani fields: Karachaganak, Kumkol and Tengiz, in which LUKOIL Overseas holds an interest.
Could you give us some details of LUKOIL Overseas’ activities in Kazakhstan?
This year has become record-breaking, for us in terms of production volumes at Karachaganak and Kumkol. This year’s production of liquid hydrocarbons at the Karachaganak oil and gas condensate field, where LUKOIL Overseas has a 15% interest, is expected to exceed 8 million tonnes, compared to 5.9 million tonnes in 2003. And this is not the end because we are planning to further increase output next year.
An important event in 2004 was certainly shipping the first tanker with Karachaganak oil (produced by LUKOIL) from the Novorossiysk terminal of the Caspian Pipeline Consortium (CPC) in early July. Crude is supplied to the CPC system via the 635-kilometre pipeline: Karachaganak – Bolshoi Chagan – Atyrau. The total flow rate of Karachaganak oil is expected to reach 6.5-7 million tonnes in 2005 and it will increase in the future.
As for the Kumkol field, oil production there will exceed 2003 level by 20%, reaching 3.4 million tonnes. It should be noted that in 2004 a Gas Utilization and Pover Generation Plant was commissioned at the field and it is capable of producing 55-megawatt of electricity annaally. This project will allow the great quantity of associated gas to be processed and provide a reliable source of cheap electricity to the field.
Presently, a lot of attention is paid to the Caspian shelf projects that are operated jointly by LUKOILandKazMunaiGaz. What can you tell us about the interim results of these projects’ implementation?
As you know, the first bilateral documents signed during President Putin’s January visit to Kazakhstan were the PSA on the Tyub-Karagan area and an exploration agreement for the Atash area. Less than a year has passed from the time when we entered these projects on 9th January. However a great deal of work has been done since.
Together with KazMunaiGaz we set up two operating companies Tyub-Karagan Operating and Atash Company LLP, which are based in Aktau. A group of subcontractors consisting of KazakhstanCaspiShelf, PetroAlliance, WesternGeco and Yuzhmorgeologiya completed 2D offshore seismic surveys.
It should be noted that our activities were carried out in strict accordance with all environmental requirements for geophysical surveys conducted in the Kazakhstani sector of the Caspian Sea.Public hearings on these environmental requirements were held mid April and early December of 2004 in Aktau.
Presently, the seismic data for the Tyub-Karagan has been interpreted, geological structure established and the location of the first exploratory well defined. By the end of 2004 we are planning to complete engineering and geological surveys, prepare drilling project documentation, start purchasing the well construction equipment, and carry out a tender in order to choose an insurer. The drilling will begin in spring 2005 using "Astra" semi-submersible drilling rig belonging to LUKOIL-Shelf.
As for the Atash area, in 2004 we have completed a large volume of seismic surveys (over a 1,000 running kilometres). In order to discover the most promising oil and gas structures data processing and interpretation will be conducted during the remaining part of 2004 and 2005. It is planned to drill the first exploratory well here in 2006-2007.
Therateof operationsisreallyimpressive. What are the factorshelpingtoachievethegoalatsucharapid pace?
First of all, it is happening due to the fact that there are no disagreements or discrepancies with our Kazakh partners, either at the time when the documents are signed or afterwards. This is quite natural, because these projects are high priority for both LUKOIL and KazMunaiGaz.
It should also be noted that Tyub-Karagan and Atash became the first offshore projects within the framework of the State Programme for the Development of the Kazakhstani Sector of the Caspian Sea. They are also the first in which KazMunaiGaz acts as an equal partner and co-operator.
I also believe in our success because LUKOIL has already a positive exploration experience in the Caspian. For instance, the company discovered a number of oil and gas fields in the Russian part of the shelf (among those are Yuri Korchagin and Khvalynskoye fields). In addition "Astra" is ideally suited for operating at the Tyub-Karagan and Atash areas, both in terms of the water depth and depth of producing reservoirs.
All the wells drilled by LUKOIL in the Caspian Sea have been 100% successful so far. I believe that this tendency will continue in Kazakhstan, and we will celebrate oil discovery at Tyub-Karagan by late summer 2005.
Your words are very optimistic. However, could there have been factors aggravatingtheeconomics of offshoreprojects in generaland especially of the Tyub-Karagan and Atash deposits?
Of course, until a commercial discovery is made there is a certain risk in geological exploration. However, as I have already said, we consider prospects for the commercial discovery of hydrocarbons at Tyub-Karagan as very promising.
The second important point deals with the undeveloped services’ market and the lack of infrastructure for offshore operations. For example, when conducting seismic surveys in the shallow waters of the Caspian we found out that there are only a few such service providers not just in the Caspian but in adjacent areasas well. This is why it is highly important for Kazakhstan to implement programmes for the development and expansion of the Bautino, Kuryk and Aktau ports.
Of course, there is a great deal of work awaiting us. Today, the situation in the Caspian Sea is similar to that in the North Sea some 30 years ago, when because of undeveloped infrastructure it was profitable to develop only huge fields such as Brent. Currently, thanks to the established infrastructure it is possible to develop even small-sized fields in there. That took almost a third of a century, which is why this is not a one-day solution for the Caspian Sea.
Taking into account that 2004 was the year of Russia in Kazakhstan, what in your view is the outlook for our countries’ co-operation in the oil and gas sector?
I believe it is very favourable. LUKOIL is the leading foreign company operating in Kazakhstan in terms of the number of projects implemented (there are eight of them already). In addition, our co-operation in this sphere is inevitable, because Kazakhstan and Russia have common borders in the Caspian Sea, which means that their social and economic, environmental and defence interests are closely connected.
And the second point, which I keep mentioning is the common mentality, history and close relationship between the Russian and Kazakhstani oil industries. Both of these are a hundred years old and were actually developed side by side. This is why I am sure that LUKOIL will have a great future and many joint projects in Kazakhstan.
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