No. 4, 2011


Oil of Russia magazine talks to Ravil Maganov, First Executive Vice President of LUKOIL

What oil producers have been talking about for decades is finally coming to pass. Light oil is running out, the largest oilfields are drying up, and most companies are beginning to experience difficulties. Our available reserves can be brought into cost-effective development only through the introduction of modern technology and processes. Further development is possible only by raising the efficiency of all lines of company operations. The ongoing search for and adaptation of innovative solutions plays a key role here.

For LUKOIL, a company that holds a leading position in such a science-intensive industry as oil, having strong scientific support is a decisive factor of success. Close cooperation between science and business based on the combined efforts of all employees is also important.

LUKOIL's directors are charged with determining the strategic lines of science's development within the Company and reorganizing the efforts of research and design institutes. The main objective of the changes now being made is to concentrate and develop current competencies and knowledge, and meet the industry's PDD and STI needs as much as possible.

Q: Why did you decide to reorganize the RDC in the area of geological exploration and production?

A: The success of a business depends on its readiness for change. The time had come for us to follow a new tack as well, by putting the Company onto an innovative course of development. This led to the Program for the Reorganization and Development of the Research and Design Center, and I see great possibilities along these lines for the E&P BS.

Until recently, there were four regional research and design institutes operating within the LUKOIL Group. Their main task since the early 2000s was to draft and present project documents to the government for the Company to obtain the licenses it needed to develop oilfields, and to compile design and estimate documentation. Our institutes performed these jobs admirably. Today, their main priority is the innovative development of the E&P BS through increasing the share of their own R&D efforts and taking an active part in seeking, testing, and introducing new technologies and processes.

The decision to create a new research center, JSC LUKOIL-Engineering, in Moscow was taken to organize a single RDC directorate, to incorporate current competencies and develop new ones. To accomplish this, we studied the experience of this country and the rest of the world in setting up research centers in oil corporations. We also analyzed the current state and role of regional research and design institutes in LUKOIL's production activities and refined the Company's strategy and business plans in the area of oil and gas production. Using the results from these studies, we drew up the Concept for the Reorganization and Development of the Research and Design Center. It called for four subsidiaries to join LUKOIL-Engineering as affiliated regional research and design institutes: VolgogradNIPImorneft, PechorNIPIneft, PermNIPIneft, and KogalymNIPIneft. In October 2010, the Concept was approved and confirmed by LUKOIL President Vagit Alekperov, after which the Program for the Reorganization and Development of the Research and Design Center of the Exploration and Production Business Segment was launched at the beginning of 2011.

Q: What does the RDC Concept Development include?

A: Our task is to create the optimum target operational model of the RDC by using the best practices of Russian and world oil and gas companies, in line with LUKOIL's strategic goals. The main principles of building the model are optimizing resource use and introducing state-of-the-art technologies and innovations. At the initial stages of reorganizing, we studied the best methods of resource planning and distribution, and of process monitoring and standardization. Those best suited and most needed will be adapted and applied at LUKOIL-Engineering. We simultaneously determined the key lines of RDC operations, its organizational framework, and the specific duties of each unit, and optimized our business practices and established the areas of specialization for our regional subsidiaries.

The key role of the RDC is to facilitate the performance of our production subsidiaries through the application of innovative new technologies. The RDC's vertically integrated structure of management, formed by consolidating the efforts of the four affiliated institutes, will provide for sustainable use of available resources, and the creation of new areas of expertise. With the help of employee motivation and incentive, the RDC can have a synergetic effect. In the final analysis, LUKOIL's strategic objectives - ensuring long-term business growth and strengthening its position as one of the world's leading energy companies - will be attained by LUKOIL-Engineering provided that the business has the appropriate scientific, technical, and technological tools and resources.

Q: Who is involved in implementing the program?

A: In devising the organizational structure of the program, it was important that we consider the interests of all those whose work is associated with the RDC. We therefore tried to involve representatives from different levels of LUKOIL.

To carry out the reorganization and make maximum use of our accumulated experience, we created an integrated program management structure.

Under my direction, the program steering committee is responsible for setting objectives, making decisions, confirming results, and monitoring implementation. It includes LUKOIL's top executives.

Program manager is LUKOIL-Engineering's General Director Nikolay Karnaukhov, who is responsible for overall program implementation. The Operations Committee, headed by LUKOIL-Engineering's Deputy General Director for General Affairs and Regional Coordination Mikhail Vyatchinin, is responsible for planning, organizational management, and solution finding within working groups.

The main driving force is our working groups and subgroups. Organized in terms of specialty (planning, development, construction of wells, and so on), they bring together for specific purposes directors and key experts of the Main Department for Geological Exploration, the Main Department for Oil and Gas Production Support, and the Head Office and subsidiaries of LUKOIL-Engineering. It is because of the working groups that the detailed plan for the reorganization and development is being implemented. By encouraging initiative and professional development, we have succeeded in bringing these groups together and making clear and coordinated efforts to achieve our common goals.

The role of the Program Office is performed by outside consultants from JSC Molten, who also took part in developing the Reorganization and Development Concept and have thoroughly studied the main tasks now facing the Company. The Program Office renders technical and methodological assistance to the working groups and subgroups and ensures the efficient exchange of information and the results of their work between them, the Steering Committee, and the Operations Committee, and also establishes the necessary communication between those taking part in the process.

Q: What results have you achieved to date?

A: The program is being implemented in two stages. From January through the end of July, a "technical" reorganization was carried out. Its main result was the successful completion of the process of the legal merger of regional research and design institutes and LUKOIL-Engineering. The institutes were transformed into its subsidiaries.

By decision of the Company's management, some of the RDC functions were outsourced. In devising the RDC Development Concept, it was decided that such functions would include bookkeeping, legal services, employee instruction and training, some of the design and survey work, and so on. Agreements were reached with leading universities in the field (Perm State Technical University, Tyumen State Oil and Gas University, Ukhta State Technical University) on the creation of independent entities within them - research and design institutes to which some of the subdivisions of our regional R&D organizations engaged in such work have already been transferred. This will allow us to free ourselves from several kinds of work, focus on more skill-oriented lines of activity, and raise the quality of company employee training.

Q: How is the "technical" reorganization being accomplished?

A: One of the key measures for the working groups at this stage is describing the existing and target business processes in the institutes' current lines of activity. The aim here is to identify optimum business practices in subsidiaries and to build thereon standardized processes for future centralized introduction into LUKOIL-Engineering. Standardization will be achieved through the adoption of local regulations that describe in detail the powers, responsibilities, and division of roles among the participants, and the performance criteria for the process.

In March and April, the working groups drew up proposals for the subsidiaries' specialization. They were presented and approved at the second session of the Steering Committee. Specialization entails the responsibility of a subsidiary for developing methodology, standardization, finding best practices, training and skill upgrading, and patenting the results of R&D work in their corresponding fields. LUKOIL-Engineering's Head Office will thus specialize in RDC management, geological exploration, reservoir development and EDR methods, well surveying, and core and fluid analytic coordination and methods. The Kogalym subsidiary will specialize in well planning and construction. PermNIPIneft will be responsible for the development of production processes and technologies and well completion design. The Volgograd subsidiary - for offshore projects; and the Ukhta subsidiary - for heavy oil field development.

One of LUKOIL's priorities at the current stage is organizing the search for and the adaptation and deployment of new technologies. A description of the organizational model for this line of work has now been drawn up. It stipulates who shall be responsible for the process of introducing new technologies to LUKOIL, and how they shall go about it.

As part of the stage of "technical" reorganization, LUKOIL-Engineering General Director Nikolay Karnaukhov made a number of working visits to the subsidiaries in order to talk directly with their employees. General employee meetings were held in each subsidiary, during which they were free to ask any questions of interest to them and get a direct answer from the program director.

Q: What will the next steps be on the road to creating a world-class RDC?

A: The world is in constant motion. The Company is also constantly changing in accordance with external circumstances, so perfecting the RDC is an ongoing process. Since the beginning of July, LUKOIL-Engineering has proceeded with "substantial reorganization," that is, with direct implementation of proposed transformations. The main efforts to bring the RDC units up to the target models are just now getting under way.

So far as the program's priority measures for the near future are concerned, they are:

  • standardizing the organizational structures and business processes of subsidiaries;
  • outsourcing design and survey works;
  • assessing the possibilities for outsourcing part of our project design documentation development work;
  • introducing new lines of RDC activities;
  • developing competencies in line with their subsidiaries' specialization;
  • improving the corporate knowledge base and creating an institute of experts;
  • reexamining our system of incentives;
  • developing a technological strategy;
  • fostering a culture of innovation and promoting innovative new developments.

Q: What benefits does the Company expect in the long run from creating an integrated RDC?

A: The creation of the integrated LUKOIL-Engineering Center in Moscow will allow us to raise the efficiency of RDC management; this is especially important for a company with such a broad geographical reach and a large number of subdivisions. The leading role of LUKOIL-Engineering in setting the Holding Company on an innovative path of development thus becomes even more important.

The creation of an integrated RDC will enhance the Company's overall economic efficiency by improving the quality of its operations and project documentation, and introducing state-of-the-art scientific and technological solutions. The use at the corporate level of best practices employed earlier at a particular institute will allow us to solve more complicated problems of production at less expense.

In the final analysis, the introduction of new technologies based on the coordinated efforts of LUKOIL-Engineering and its  subsidiaries will raise the Company's competitiveness and offer LUKOIL the opportunity to strengthen its leading position in both the Russian and global markets.

Q: What are some of the benefits of the Reorganization and Development Program for the employees of LUKOIL-Engineering?

A: First of all, merging the research and design institutes into an integrated entity will increase the potential for career growth. The variety of R&D projects will be expanded, meaning there will be new opportunities for self-realization. We plan to open new job vacancies in both operating and newly established subdivisions.

Second, we will reexamine at the second stage of reorganization our system of material and nonmaterial incentives in light of the specific needs of research and technical personnel.

Q: What would you wish for the LUKOIL-Engineering's RDC employees?

A: It is difficult to accept any changes in our life; people are by nature somewhat conservative. Research personnel should be even more open to innovation than the employees at our production subdivisions, since any change brings with it many new opportunities, including those of scientific development. I would therefore like to wish each employee at the RDC to find in the program activities the potential for their own professional and career growth. There are many opportunities for this: the prospect of rotation, taking part in new projects with colleagues from other subsidiaries, increasing their knowledge in new areas of specialization, or advancing their own innovative work. LUKOIL-Engineering is always ready to extend whatever assistance is needed to those who do their best to push the envelope, and to develop and bring to life new ideas.

In addition, I'd like to wish the RDC specialists to be an example of the development of innovative thought and innovative culture for other LUKOIL employees. Be open to new methods and technologies; seek and propose new, more efficient ways of problem solving. For its part, the Company will never ignore the ideas of true innovators.

 - Ekaterina Brazhnikova

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Oil of Russia, No. 4, 2011
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