Oil and gas services companies were given the green light for credit financing


Tyumen Association of oil and gas service companies has solved the credit issue for the whole industry with German Gref.

The oil and gas service companies have faced a lot of difficulties in this crisis year. The state corporations have a 90 days payments standstill. During this period the service company shall pay taxes and wages to the employees and it causes the absence of current assets. This situation is like an endless circle which is difficult to break.

Risk factors

It should seem that the way out is to address the credit companies that exist for this purpose. However when the companies go to Sberbank they encountered new disappointment: the employees advise that the credit financing is rejected for the enterprises operating according to OKVED code 74.20.2 “Geological-survey, geophysical and geochemical operations in the mineral resources field of study” even if there is a negotiable security and excellent indexes of financial and business operations.  It is thought that the companies engaged in scientific research activity are belonged to high-risk companies.


Oilfield Services Law: be or not to be

Hydrocarbon production and refinery is a major source of domestic budget financing. Today the most favored nation terms are developed to stimulate these two flows. Nevertheless oil and gas services being a key link in chain stay in the background and have to survive on their own.

This issue has quite fair historical background.Oilfield service companies were affiliated to vertically integrated companies two decades ago. They worked with dedicated mineral developer, were provided with scope of work and related facilities and resources. At the end of the1990s oil companies started to get rid of so-called incidental assets by the way of moving oilfield service companies and research institutes out of their structures. Finally oil and gas service companies have actually formed a separate branch but have not been legalized. 

The oilfield service companies have worked for a while by inertia. Independent enterprises rendered he services as contracting entities. The companies spent the most part of earnings to pay taxes, wages and invest less to technological infrastructure. The matter was perturbed when foreign companies started to enter Russian market of oilfield service companies. Statistical estimates show that for 12 years foreign companies has increased their presence from 10 percent to 65 percent as for Russian oilfield service companies – they have reduced their presence from 90 percent to 35 percent.

In this respect the issue of legalizing the status of oilfield service companies as industry is extremely important.


It is time to act

The specialists have discussed the development of Tyumen region industrial capacity.

The domestic economy status is tough but at the same time it gives a chance and stimulates to search and develop. The status was assessed as tough by the representatives of legislative and executive authorities, directors of large enterprises and key scientists of Higher Education Institutions at round table discussion about Tyumen region industrial capacity development that took place on October 16ththe year 2014.

Theattendeeshaveexchangedtheiropinionsandstatedtherecommendationsofexpertcommunity concerning the issues of region industrial capacity development under economic sanctions and necessity to get to import substitution.

During discussion the attendees made relativesuggestions.

ThepresidentofTyumen Association of Oil and Gas Service Companies VladimirBorisovpointed out best practices of other countries in hydrocarbon production. InU.S. almosta halfofoilisproducedby small independent companies (the total number is about 7 thousand) that develop oil fields of little promise. They do not have even pipelines to the fields instead of that they use tanker trucks!Namelythesmallcompanieshavemadetheso-called ‘shalerevolution’. IntheRussianFederationthe number of independent oil companies is more than one hundred and they have2.8 percent of the industry’s total production volume.

As a result governmentauthoritiesarefocusedonmajorplayersofmarketand itmakessense, VladimirBorisovunderlined. However as Skolkovoexpertsestimatedincasetheindependentoilcompaniesare founded, extra 43 million tons of oil will be produced annually at the end of next decade against 14.4 nowadays. Itwillhelpmechanicalengineers. Largeoilcompaniesdictatetermsandsmalloilservicescompaniesface the difficulties when competing with foreign companies.

DepartmentofInvestmentPolicyandStateSupportofEntrepreneurshipoftheTyumenregionDeputyDirectorAndreySanosyanreminded about measures taken by Tyumen region government concerning industrial promotion and approved that volume of financial assistance for the manufacturers will not be reduced even in case of budget reduction. Thisisastandof Governor of Tyumen Region Vladimir Yakushev.


Russia needs a law that regulates oil production, Vladimir Borisov said

In Russia oil production cost-per-ton grew by 8-10 times over the past 10 years as reported by the president of Tyumen Association of Oil and Gas Service Companies Vladimir Borisov at Neftegas – Western Siberia 2014 international conference in his report on Commercial development of hard-to-recover reserves: how to raise investments and innovative know-hows (September 29th -30th the year 2014).

We know the reasons of oil production cost increase. One of the key reasons is monopolistic behavior of foreign companies in Russian market. The prices have been raised in the absence of competence, Vladimir Borisov explained.

It is a federal law that will allow evading unreasonable increase of oil production cost and will regulate the relationship between all participants of hydrocarbon production process.

The law that regulates oil production is vital in a big country where two thirds of foreign currency component of budget is received from hydrocarbon production. Even in France where wine production volume exceeds oil production the oil and gas industry policy is well-planned, Vladimir Borisov underlined.

For instance, look at best practices of foreign countries where field development and foundation of oil services industry started only after adoption of a law that regulates oil production.



In Russia the equipment for offshore fields development can be produced by local manufacturers, Vladimir Borisov says

The State Duma has discussed once again the issue of import substitution regarding the equipment for domestic oil and gas industry. The production of equipment for offshore projects development by the Russian manufacturers was in the spotlight. The president of Tyumen Association of Oil and Gas Service Companies Vladimir Borisov gets his point across.

- It is necessary to phase out imports of equipment for offshore oil and gas projects. First of all U.S and European Union sanctions against Russia refer to the companies engaged in offshore and hard-to-recover oil reserves development projects. At that, the percent of Russian oilfield services companies is insignificant in this segment.

So far, two-thirds (65%) of oilfield services market in Russia are foreign companies, Vladimir Borisov said. However 12 years ago local manufacturers have constituted 90 percent of market. “During this time external companies increased their presence at 6 times!” Vladimir Borisov pointed out. Our positions should be equaled 50/50. That is to increase the percent of Russian oilfield services companies in two times. It is practicable in a year or two. The Russian manufacturers are able even now to produce oil and gas equipment for offshore fields development. “The Berkut platform made for Sakhalin-1 project is a remarkable example”, Vladimir Borisov mentioned. The platform foundation is produced in Russia; the upper part of platform is produced in Korea. It is possible to work without Europe or U.S. in the sphere of technologies (know-hows). We have already had such experience. The domestic manufacturers are always interested in import substitution. The today’s status of domestic companies is a matter of common knowledge. It is required to revive Russian factories”.

The State Duma discussed the founding of dedicated department in Minenergo of Russia under the issue of import substitution for offshore production. It is expected that this department will be responsible of fuel and energy complex upgrading and cooperation with suppliers and contractors in oil and gas complex. Such department had to be founded earlier, Vladimir Borisov said. “The foundation of this department will encourage people. The manufacturers need long-term loans and Minenergo can assist in this matter. For instance, it can achieve some settlements with oil companies or banks. The certain metals supply preferences are required as well. This department would assist in such issue. It will coordinate achievement of final objective that is required under today’s circumstances”.