No. 3, 2004

Tatyana Vlasenko


LUKOIL marked the 75th jubilee of oil production in the Perm area by implementing several large-scale projects

For several decades already, the Perm Region has been one of Russia's main oil-producing areas. Today, in the context of the processes underway in the country's oil and gas complex, the activity of JSC LUKOIL, a leading oil producer, acquires particular importance in the Region.

Strengthening good traditions

One of the distinctive features of the Perm Region is its advantageous geographical location: it lies between Western Siberia, a major "traditional" oil-producing area, and the extremely promising oil- and gas-bearing provinces of the North-European part of Russia. The oil industry of the Perm Region has known its ups and downs. During World War II the Kama area, where the Perm Region is situated, played the role of Russia's "second Baku". Later on the Region's oil industry went through crises several times, which were due to both the geological peculiarities of that oil- and gas-bearing province and the economic situation in Russia as a whole. But all that time the oil industry remained a powerful base for the economic development of the Region.

Events connected with the activity of LUKOIL, a leading company of the Russian fuel and energy complex, occupy an important place in the latest history of the Urals area. In the early 1990s, when the formation of large national vertically integrated companies began in Russia, the shareholders and the management of the biggest oil-producing companies of the Perm Region and of the Permnefteorgsintez association made an absolutely correct decision - to join JSC LUKOIL. This step proved beneficial not only to the development of those companies but also to the entire economy of the Region. The positive results of that step are plain to be seen today. They boosted both the development of those companies and the regional budget revenues, and, as a consequence, helped solve complicated social problems which are just as acute in the Perm Region as elsewhere in Russia. The revenues obtained by the Region owing to the intensive development of the oil industry have made it possible to take care of schools, hospitals and other social infrastructure facilities, and to pay wages and salaries to public sector employees. Even more important, they gave an impetus to the development of machine-constructing in the Region. Moreover, LUKOIL's policy for placing orders for new oil production and refining equipment with Perm Region manufacturers helped preserve the volume of production and jobs, and carry out partial conversion of local defense factories. In other words, oil producers threw a life buoy of sorts to machine-constructors that kept them afloat.

Today, it should be recalled that the first agreement on cooperation between the administration of the Perm Region and LUKOIL was signed in 1995. Under that agreement the Company undertook to promote the development of fuel and energy complex and mineral-producing companies, as well as sustainable use of the Region's natural resources, and to provide its industrial facilities and population with fuel, lubricants and liquefied gas, improve the ecological situation and take an active part in implementing the Region's social programs.

In its turn, the regional authorities assumed the obligation to create an enabling environment for the development of the oil business. Since then that agreement has been prolonged, and every year the results of the joint activity are reviewed.

At present, LUKOIL continues to rise up its production potential in the Kama area. The production of oil is growing. Furthermore, the 2003 refining figure was stabilized at the level of 11 mln. tons, which enables the LUKOIL-Permnefteorgsintez refinery to operate efficiently. In 2003, LUKOIL's subsidiaries in the area contributed over 22 bln. rubles to the budgets of all levels; investments in the Perm Region totaled 10.6 bln. rubles.

The Perm Region has become LUKOIL's petroleum products marketing center in the Urals area. This vast territory is LUKOIL-Permnefteprodukt's zone of operation.

LUKOIL places orders for oilfield equipment with machine-constructing companies of the Perm Region. The Company's management declares that it buys practically no imported oil-production equipment, except for some separate components. Furthermore, according to specialists, the drill rods which are manufactured by the local Motovilikha Plants Corporation are of better quality than, say, US-made, and their price is more reasonable.

On February 18, 2004, during his visit to Perm, Vagit Alekperov, LUKOIL President, and Yury Trutnev, then the Governor of Perm Region (at present Russia's Natural Resources Minister), signed a protocol on progress, attained in 2003, in implementation of the previous agreement between the Region's administration and the oil company. They were unanimous that active and useful work had been accomplished, within the framework of the agreement, in implementing the tasks envisaged in it. At their joint meeting, the management of LUKOIL's subsidiaries and representatives of the region's administration productively discussed the prospects for 2004, noting that the oil industry of the Perm Region was entering a new stage of development.

Three major events on the jubilee's eve

In 2004, the Company plans to increase its crude production. Moreover, the Perm oilmen's jubilee year will be marked by the completion of three major projects.

In early 2004, the Perm Region saw a large-scale restructuring of LUKOIL's upstream operations: LUKOIL-Perm and LUKOIL-Permneft were merged into a single company - LUKOIL-Perm.

Established in 1995 on a parity basis by LUKOIL and Perm Financial Production Group (under the first agreement between the administration of the Perm Region and LUKOIL), LUKOIL-Perm was a vertically integrated well-to-wheel oil company in the Perm Region. In 2003, it was taken over by LUKOIL Р hence the need for the horizontal integration of LUKOIL's two subsidiaries on the scale of the region. LUKOIL President Vagit Alekperov considers this event very important. In his words, the merger makes it possible to concentrate the financial resources, the production and technological potential and the infrastructure facilities on coping with the major tasks facing LUKOIL Overseas Holding Ltd. Р Company's international projects operator which incorporates LUKOIL-Perm.

Another major project is being implemented in the refining sector. Next fall, one of Russia's largest refinery, LUKOIL-Permnefteorgsintez, is to launch a deeper refining unit, the main feature of which is a T-Star hydrocracking unit. Used in designing the unit were the licenses of such companies as ChevronTexaco, ABB Lummus Global, Comprimo, and Linde.

This will be a fundamentally novel production facility, which will make it possible to increase the output of different types of motor fuel by more than one mln. tons and to obtain petroleum products of European quality (such an increase in the output of light products is equivalent to additionally refining 2.3 mln. tons of crude a year). The construction of this unit is the most imposing project in Russia's refining industry in the past 20 years: its estimated construction cost totals 10.8 bln. rubles.

Mastering hydrocracking is not only an economic objective attaining which permits to extend the depth of refining and raise the quality of petroleum products, but also an ecological one. The amount of industrial discharge will be cut back by nearly 1,500 tons a year, which will be beneficial to the area adjoining the refinery. Furthermore, according to the designers, the use by motorists of low-sulfur diesel fuel meeting the European ecological standards will cut back the emission of sulfur dioxide from motor transport by 947 tons a year in the Perm Region and by 2,700 tons a year in Russia as a whole.

Finally, one more of LUKOIL's major projects has been implemented: an Oil and Gas Institute has been set up on the basis of the Perm State Technological University. The purpose of the specialized institute is to train competent personnel for LUKOIL as well as for other oil and gas companies. Besides, the institute intends to conduct fundamental, prospecting and applied research into topical problems associated with the oil and gas upstream and downstream business.

LUKOIL President Vagit Alekperov, who attended the ceremonial opening of the institute, invited some talented young specialists to come and work at LUKOIL. He stressed that the Company regarded the Perm Oil and Gas Institute as a base for the training of specialists in the sphere of gas production and processing. This means that the services of the institute's graduates may be required wherever the Company has its gas projects. And that includes not only the Kama area, but also the Yamal Peninsula and the Caspian area, as well as Egypt and Saudi Arabia.

It should be mentioned in particular that the Perm State Technological University is one of the six higher education establishments with which LUKOIL has agreements on cooperation. The best students at these establishments - 120 people Р receive LUKOIL scholarship grants. Every year, over 500 Perm students undergo practical training at the Company's facilities.

The 75th jubilee of oil production in the Perm Region, which is being marked these days, is a good occasion for the local oilmen to assess the results of their successful work and to map out plans for the scaling of new, even more imposing, heights.

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Oil of Russia, No. 3, 2004
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