No. 2, 2008

Oil of Russia magazine talks to Vladimir Yakushev, Governor of the Tyumen Region

The Tyumen Region plays a key role within the economy of the Russian Federation. For several decades already the raw materials and fuel and energy resources of this region have ensured the energy security of the country, the requisite basis for further development of the economy and a stable export potential.

Q: The Tyumen Region currently leads in the oil and gas production. What is the status and what are the prospects for the future development of the oil and gas industry in the Region?

A: The Tyumen Region’s leadership is confirmed by the performance of its fuel and energy complex during 2007. Oil output, including that of gas condensate, amounted to 323.8 million tons, including 1.37 million tons in the south of the Region. Natural gas output reached 590.5 billion m³ (600 billion m³ in 2006). There was a planned reduction in the production of gas in the Region by JSC Gazprom during the first half of 2007 given the anomalously warm weather in Western Europe. Production of associated petroleum gas remained at the 2006 level and the degree of its utilization was around 80% (the average for Russia being 73%). During the next few years, the oil and gas industry will increase its production levels. Proceeding from the planned targets for development and performance of the leading oil and gas companies over the next three years, oil and gas production on the territory of the Region will be characterized by positive dynamics. For instance, production of oil and of gas condensate will rise from 331.3 million tons in 2008 to 348.5 million tons, while that of natural gas will go up from 630 billion m³ in 2008 to 653 billion m³ in 2009 and 672 billion m³ in 2010. The biggest growth in the production of hydrocarbons is forecast in the Yamal-Nenets Autonomous Area.

Oil production in the south of the Region will also grow dynamically, above all through implementation of the projects on the Uvat group of fields by TNK-ВР. Over a period of just three years (2008-2010), 34 billion rubles are to be invested in these projects. According to the forecast, oil production in the south of the Region will, by 2020, reach 12-15 million tons.

Q: One of the factors behind stable socio-economic development is naturally a favorable investment climate. What steps is the government of the Tyumen Region taking in this respect?

A: Business selects investment targets proceeding from the conditions obtaining in a region or municipality. In order to attract investors, we offer them support, primarily for those prepared to engage in areas strategically important for the Region.

We associate the further development of the Tyumen economy with branch clusters geared to producing high added value output. The development strategy for the Region up to 2020 clearly identifies the most promising branches which will become our “growth points.” These are the oil and gas, forestry, construction and agroindustrial clusters.

Investor companies can claim tax benefits. We will also assist them in selecting and allocating a land plot for offices and production facilities, for which purpose we have set up a database of sites for development. Moreover, in the future, we intend to offer developed sites. In a word, all the mechanisms for government support are simple and transparent.

TNK-ВР, Schlumberger and Bentec Drilling & Oilfield Systems already enjoy such support. In 2007, several major projects were launched. The company SIBUR intends to build, in the city of Tobolsk, a globally unique complex for producing propylene by dehydration of propane and polypropylene with a capacity of 500 thousand tons on the basis of the petrochemical works. The German Bentec Drilling & Oilfield Systems will produce drilling rigs.

Western and Russian businessmen already refer to the Tyumen Region as a territory with investment appeal, and the statistics corroborate this. The volume of investments in the Region’s economy during the period from 2000 to 2005 inclusive increased, in comparable prices, two and a half times over. The volume of investment in 2007 amounted to almost 90 billion rubles and in 2008 they will exceed 100 billion rubles.

Q: What are the current development plans for innovation in the industrial sector of the Tyumen Region?

A: The scientific potential of the Tyumen Region, which consists of over 14,000 academicians and scientists in higher educational institutions, research and design organizations, will allow many of the Region’s economic and social problems to be resolved.

The main areas of research conducted by Tyumen scientists include production, transportation and refining of oil and gas, water supply and energy-saving technologies for production of building materials, selection and seed breeding, as well as projects to improve the living standards of the Region’s residents. The scientific community has become actively involved in implementation of regional and federal programs, such as the Great Ob program, the Industrial Urals – Polar Urals megaproject, as well as research connected with the priority national projects: Education, Healthcare, Accessible Housing and Development of the AIC. Several nation-wide leading scientific schools are on the rise in the Tyumen Region. Their research areas are multiphase system mechanics, oil and gas hydromechanics and development of oil and gas fields, chemical technology of fuel and others. Fundamental and applied sciences are continuing to integrate.

We see support for science as a priority in the work of the regional government and intend to pursue it in the future. In 2007, the expenditures on innovation research projects in the Tyumen Region totaled 329.6 million rubles.

The region’s substantial research and production potential has enabled us to initiate a major project: creation of the Western Siberia Innovation Center for Oil and Gas. This technopark in Tyumen will promote development of the entire fuel and energy complex of Russia in the long term. It will help to design and introduce advanced technologies and other innovative products for the oil and gas sector. The specialists link its creation with further improvement of the investment climate, increased activity in the scientific and business communities and expansion of the Region’s export opportunities. It is indicative that the leading Russian companies, including LUKOIL, have supported this promising project.

Q: How do you evaluate the prospects for international cooperation in the oil and gas industry?

A: As I said before, in recent years, the Tyumen Region has become one of the Russian regions with the greatest investment appeal. It is attracting major foreign companies, a substantial proportion of which are engaged in the oil and gas business. This agrees with the tasks set by the regional government to attract investors and concentrate investment resources on the most promising areas of development in the economy’s production sector.

A worthy example might be the cooperation between the Region’s government and TNK-ВР in implementing an investment project to develop reserves that are difficult to recover from exhausted fields in the Region, hydrocarbon reserves in the Uvat district and to introduce new technologies.

Traditionally, cooperation continues with foreign companies and their representative offices in oil and gas services, equipment and technology supplies and training of highly professional personnel.

Apart from the production sector, international cooperation will also involve the Technopark I have already mentioned. We have no experience of setting up technoparks in Russia and we are already actively working with western companies, which are not only participating in setting up a special economic zone, but are willing to work within this structure.

Q: What place do issues of corporate social responsibility occupy in the activities of the oil and gas companies operating in the Tyumen Region?

A: Russian business is maturing and it is naturally interested in stable relations with the public. Businessmen have begun to understand how important goodwill is for successful business. It is well known that “an ounce of reputation is worth a pound of work” and the most foresighted Russian businessmen have already taken this axiom on board.

While the state is not yet fully capable of fulfilling all the social tasks, it is assisted in this by the commercial sector, through charity, participation in social projects and programs. All this ultimately promotes development of the company itself and expansion of business. Moreover, the businessmen are also Russian citizens and they, too, like everyone else, want it to be a prosperous and stable state.

The existing system of interaction between the authorities and business in the Region is based on the principles of social partnership. And this is right: after all, apart from the specific functions and problems of each of these parties, they have to fulfill many common tasks.

By signing cooperation agreements with the Region’s government, companies working on our territory assume certain social obligations. For instance, many of them, including LUKOIL, support occupational training institutions, help in modernizing their production base, provide internship places, and finance further training of industrial trainers. In this way they are training a personnel reserve for the future. There are examples of business participation in resolving housing, healthcare and other problems.

I can assure the readers that the fuel and energy complex of the Tyumen Region will, for several decades to come, be not only the main source of the Region’s and country’s revenues, but also a driving force behind development of other branches of Russian production.