No. 3, 2004

Interview with Vladimir Mulyak,
General Director of JSC LUKOIL-Komi


The oil industry of the Republic of Komi marks its 75th birthday this year. This is a comparatively old oil-producing region which has known its ups and downs. One of those "downs" occurred in the mid-1990s. Today, however, the Republic's oil industry is successfully overcoming the consequences of that difficult period. Actually, it is living through its "second birth".

Q: In your opinion, why do people sometimes refer to the Komi oil industry as being of a "ripe old age"?

A: Indeed, one often hears that, in characterizing this or that oil-producing region, people compare it with man's age periods - they talk about "young", "mature" and "old" regions. Partly, this is justified: similarly to man, any oil or gas field, any oil- and gas-bearing province, goes through various stages of development - being put into service, stepping up production, reaching its peak and going into a decline. Continuing the present analogy, we should note that each oil-producing area has not only its "factual" age, but also its "biological" age - just like people: some feel old at forty, and some remain spry and active up to a hundred.

And so the 75th jubilee of the Komi oil industry, which we celebrate today, does not mean that we are dealing with an "old" region. True, it is "ripe" but quite "active", and its prospects are good. Today, the Timan-Pechora oil- and gas-bearing province has the largest resource base in Northwestern Russia. And although some of the oil fields there have really been exhausted, new ones are being put into service, and not only on the territory of the Republic of Komi but also in the neighboring Nenets Autonomous Area. Moreover, its advantageous geographical location with access to the sea coast, its infrastructure and the system of pipelines constructed there, as well as its human resources make the Timan-Pechora province one of the regions most attractive to investors and promising for Russia's oil production.

Q: Have the consequences of the "disastrous' 1990s been fully overcome? If not, what hinders overcoming them?

A: Our main achievement of the past five years is that we have managed to reverse the dynamics of development, making them positive instead of negative. And that means not only rising production, but also an increase in the volume of tax payments, and a growth of the well-being of the Company's personnel and of the region's population as a whole. All those things combined give one confidence in the future; they make for stability and open up new prospects. I'll give you only a few examples. Whereas in 1998 JSC LUKOIL-Komi produced 3.48 million tons of oil, the relevant figure for 2003 was as high as 8.59 million tons, and this year we plan to produce 9.42 million. Whereas in the year 2000 our tax payments totaled 3.13 billion rubles, in 2003 they came to 8.7 billion. And so the dynamics are obviously positive. Therefore, today we can say that the backbone of the Republic of Komi's oil industry has been restored.

Of course, it would be untrue to assert that we do not run into difficulties. We do, and some of them are quite formidable. First of all, I must tell you that the operating conditions at our oil fields are much worse than in most other regions. The Republic of Komi has a complete "collection" of factors that hinder the work of oilmen. They include: a high gas-oil ratio, high saturation pressures, high-viscosity oil, a higher-than-normal paraffin content, the presence of hydrogen sulfide, and incredible equipment corrosion rates.

Besides, most oil fields in the Timan-Pechora province are much smaller than, say, those in Western Siberia. We are working 48 fields, while they contain over 150 oil pools. Furthermore, whereas in Western Siberia fields were developed in a proper and rather efficient manner, with strict observance of the right sequence of technological operations, in the Republic of Komi things were quite different.

LUKOIL-Komi came, for the most part, to old fields - Usinskoye, Vozeiskoye, Western Tebuk, etc. - which are in the third stage of development. Quite often we have to reject the old, defective system of development and replace it with another, a better one. And this cannot but affect the pace of work.

Finally, we have had some organizational difficulties as the LUKOIL-Komi company has been set up on the basis of 14 independent legal entities. And whereas at LUKOIL's subsidiaries in Western Siberia and other regions there had already evolved appropriate production relations, an organizational structure and work teams, we had to start practically from scratch.

Q: President Vladimir Putin has said that the trouble with the Russian economy is the absence of ambitious plans for development. What ambitious plans can LUKOIL-Komi boast of today?

A: In keeping with its strategy, LUKOIL has planned the peak of oil production in Komi for 2008. By this target date we should be able to produce on the territory of the Republic (leaving aside the Nenets Autonomous Area) 10.5 million tons of oil a year. But already today, owing to a careful study of the subsoil assets, optimized development of the old oil reservoirs and intensified exploration efforts we are prepared to reach the figure of 12 million tons, and that is not our limit by far. Are not such plans ambitious?

As for the performance indicators, it is our task to get abreast of the Company's leading affiliates and, perhaps, even surpass them in some respects. Take, for instance, the Usinskoye oil field: its recoverable reserves are 88 million tons, with the oil recovery factor of 0.15. It has been developed for 20 years, and, as we have proved today, this has been done incorrectly. In working the oil fields today, we are searching for effective technologies in order to bring the recovery factor to 0.3. That is, working the already tapped reservoirs that do not require any great outlays, we double the recoverable reserves. This extends the service life of a field and increases the Company's recoverable reserves and, consequently, augments its capitalization.

An equally ambitious task, I think, is the development of fields in the southern parts of the Republic of Komi. The Company obtained a license for this eighteen months ago. Hundreds of wells will have to be drilled there, pipelines and roads will have to be constructed, spanning hundreds of kilometers, oil collection and treatment systems will have to be set up, power supply will have to be provided, etc. In the next few years the amount of investment necessary for developing a raw materials base in the south of the Republic will, by the most conservative estimates, total 25 billion rubles.

Finally, an extremely important task Р an ambitious one, if you wish Р is the development of our base towns and settlements. More specifically, the task is to provide the necessary conditions for the normal work and rest of oil crews.

Q: Can the oil and gas complex of the Republic of Komi today become a production and manpower base for developing the oil and gas resources of the subarctic regions of European Russia and the shelf of the northern seas? To cope with that task, should the capacities and resources at the region's oil and gas companies be constructed at an accelerated pace?

A: LUKOIL has come to the Republic of Komi not as a time-server but with serious intentions and for long. Proof of this is the fact that here in Usinsk an adequate infrastructure for oilfield equipment repair and maintenance has been set up and that the transport infrastructure is being constantly developed. So the Company has already established a firm foothold here.

The human resources situation is as follows: when we began working here, we did not have a single young specialist. Today, there are over a hundred of them. And this is very important. We devote much attention to work with young personnel. That includes cooperation with the Usinsk Branch of Ukhta State Technical University, drawing young specialists from other higher schools, and holding various specialized conferences and contests. Every young specialist here is provided with the opportunity to do practical work in all the basic sectors for 12-18 months under a personal supervisor. Then he is free to choose what he likes. By that time this specialist has a wide perspective of what's going on around him and perfectly orients himself in the entire activity of the Company. I believe that this kind of practice may be regarded as training manpower for developing the northern fields.

Q: Working in the Republic of Komi today are quite a number of oil companies of different sizes and forms of ownership. Can it be said that there is real competition in the region? If so, how does it manifest itself?

A: In my opinion, oil companies today should compete, for the most part, on the sales markets. The more effective a company's downstream arm, the higher that company's value.

As for the situation in the Republic of Komi itself, you probably remember the propaganda campaign that was started against LUKOIL when the Company had just come to the region. It was alleged that LUKOIL was clamping down on small and medium-size oil companies, stifling them in an attempt to ruin and to take them over. It turned out that exactly the opposite was true. It is precisely LUKOIL that provides the right conditions for the work of small companies. It's a fact that only a large oil company is capable of developing a new oil region or restoring the potential of an old one. The Republic of Komi is a graphic example of that. Operating there were dozens of small companies, but they were unable to amass the money necessary for restoring the transport infrastructure of the region; moreover, they started quarreling over the distribution of property. This led to a complete disorder. On coming to the Timan-Pechora oil-bearing province, LUKOIL first of all renovated the Kharyaga-Usa oil-gathering system, doubling its throughput capacity, which required an investment of $150 million. Today, small companies also fully avail themselves of the pipeline.

That is how things happen throughout the civilized world: first, a big company comes into a region, develops it and works its fields. Later on a secondary market appears, with small private companies further developing the field. Such a system is suitable for the Republic of Komi as well.

Q: And what are the relations between the oil companies and the local authorities?

A: As I have already mentioned, at first LUKOIL was sharply attacked. This is understandable: certain economic relations had formed in the region, and then an outsider came and began demolishing everything. As a result, the Republic's former administration often had conflicts with the Company, making use of the mass media for that. We decided not to respond to insults but to prove our case by deeds, not words.

Finally, other people came to power, and businesslike, mutually advantageous partnership relations began to evolve. The Company and the administration signed an agreement which we fulfilled one hundred percent. Later on, we concluded agreements with cities and municipal entities. And now we have come to the south of the Republic, and there, too, we cultivate the same type of relations.

Being realized are some of our social projects such as work teams' patronage of schools, kindergartens, hospitals, etc. We also concern ourselves with the provision of public services and all proper amenities in Usinsk and other towns of the Republic. For instance, today, as we are talking here, some 150 of our workers are busy planting trees in the city. Such actions are prompted not only by a healthy and natural striving for cleanliness and beauty but also by a certain educational consideration: I am convinced that normal citizens cannot grow up in filthy cities. So we try to educate the young by our own example.

Q: It is known, specialists are the main asset of any modern company. What is being done to enhance this resource in your case?

A: The formation of our work team was difficult: the best specialists had been attracted by time-serving rogue companies. They offered much higher pay than Komineft did - for the simple reason that those companies did not invest in production. Furthermore, during the 1998 crisis many specialists (often the best) quit Komineft. And so our work team had to be rebuilt literally from the ground up. Many came over from other regions; some of those who had left earlier returned to rally round LUKOIL's flag. It is no secret that every leader tries to bring his team over to his new place of work. It gives me pleasure to tell you that many of the specialists with whom I worked in Western Siberia and Belarus had followed me to Usinsk.

Today, when we mark the 75th jubilee of the Komi oil industry, I would like to pay tribute to the selfless labor of all the members of our many-thousand-strong team. It is owing to their services that the Republic's oil industry preserves its great production potential and has sufficiently encouraging prospects for development.

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Oil of Russia, No. 3, 2004
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