The International Resource Journal: Rimera

Rimera
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admin on 14 October, 2009 07:18:00
 
Rimera represents the Oilfield Service Division of ChTPZ Group
(http://www.chtpz-group.ru) and is currently one of Russia’s leading oilfield
service companies. The company was founded in 2007 as part of the implementation
of ChTPZ strategy aimed at meeting complex needs of the domestic oil and gas
industry. The strategy of the company Rimerа implies the development of three
main business focuses: Trunk Equipment - complex delivery of equipment for the
construction of federal and regional pipelines; Oil and gas equipment - the
production and maintenance of equipment for operational wells and geophysics and
drilling and well logging and drilling. Rimera’s mission is to meet the demand
of Russian and global oil and gas companies by developing and providing
integrated OFS solutions. IRJ had the opportunity to speak with the CEO of
Rimera, Vladimir Khristenko. IRJ: Good Afternoon Vladimir. Could you please tell
us about the impact of the world economic crisis on those segments of the OFS
and oil and gas construction markets in which Rimera operates? VK: The crisis
had a negative impact on the oil and gas industry and consequently the entire
OFS service market. However, before talking about the impact of economic crisis
on the latter, I suggest dividing it into three sub-groups to understand each
effect the crisis has caused. First we can look at the OFS service industry for
the emerging fields, including drilling equipment supplies, the drilling of
exploratory wells and geophysical surveys and logging of exploratory and
operational wells. Then we can look at the servicing of the existing fields
including the delivery of new equipment to replace existing pieces, servicing of
the existing equipment, geophysical surveys in the operational wells, actions to
increase oil output and minor and well work-over operation. Then in conclusion
there is the third group which does not belong to the classical OFS market but
nevertheless covers a fairly large chunk of service works; the development of
the infrastructure around new fields including construction of pipeline
infrastructure. As a diversified company, Rimera is present in all three of
these groups. We provide services for new wells - drilling and geophysics for
new as well and existing stock - with a focus on geophysical surveys and
servicing of submersible facilities. We also produce and supply equipment for
pipelines construction. Over the past nine months we and the market as a whole
have felt a significant reduction in the amount of geological and exploration
programs being done. The reasoning behind this is simple: the oil companies are
not investing for the long-term and preserving the cost to fix up the existing
level of extraction.  This trend is already leading to a structural shift in the
market in the short term. Market share of the servicing of the existing wells
sub-group is set to increase from 36 per cent to 45 per cent. This segment of
the market is clearly more resistant to crisis than OFS for emerging fields,
arguably because the oil companies cannot substantially reduce the volume of
orders and prices for these services without causing a reduction in production
to ensue. Hence this group will not suffer a significant decline. According to
our preliminary estimates a correction will be about 10 per cent. The demand for
geophysical services for drilling will decrease proportionally to the decline in
the volume of drilling whereas the demand for geophysical surveys in the
existing fields will remain at the previous level, provided the price declines
by 15 per cent. The segment of pipeline infrastructure shows the greatest
resistance to the crisis because it is inextricably related to the
implementation of major infrastructure projects both in Russia – such as the
“Vankorskoe” field by Rosneft – and to the construction of the second
stage of BPS (Baltic Pipeline System) and abroad, notably the construction of
the Asian gas pipeline (Turkmenistan - China). IRJ: Has the crisis affected the
overall results of 2008 given the growth in the first three quarters and the
decline at the end of the year? Where are you standing with the results for the
first quarter of 2009? VK: Overall Rimera fell short of its 2008 revenue targets
by 7 per cent. For the first quarter of this year we have surpassed the plan by
1 per cent.  However, looking at the quarter on quarter result for the same
period last year, the decline is in between 5 per cent to 25 per cent. The
largest decline we have seen is in the production of oil and gas equipment for a
couple of reasons. Firstly, in the fourth quarter of 2008 some of our customers
cancelled the standing orders. Secondly, the fall in the first quarter of this
year occurred because the oil companies delayed the announcements of tenders’
results - most of them took a “wait and see” position in late 2008 due to
the lack of understanding of the dynamics of the world oil prices. IRJ: How do
you evaluate the amount of new contracts both for servicing and equipment supply
segments so far this year? How far behind is this from the expected numbers? VK:
Compared with the beginning of the year, the market and subsequently the amount
of new business and contracts for the second half of 2009 have been
characterized by the further fall in the volume of purchases of new equipment by
the oil companies. Moreover the purchasing prices for the equipment which were
agreed in late 2008 - early 2009, have since then declined from 15 per cent to
30 per cent on various items. Servicing prices have fallen by an average of 20
per cent. IRJ: In your view, has the price pressure from customers been at least
partially offset by the decline in the cost of equipment and services through
the reduction of the real costs of fuel, metal, depressed wages and so on? VK:
The reduction of commodities prices was not proportional to the plunge in the
price of oilfield equipment. Moreover, despite the drop in prices at the
beginning of the year, prices for metals (steel and cast iron) which are the
main source of our variable costs of production, have resumed their growth. Of
course, along with the decline in production volumes came a slight fall in
variable costs. But in the structure of the costs of the products manufactured
by our company, fixed costs maintain a significant proportion and obviously they
cannot be reduced in a wink. As a result, even though the variable part of the
costs in the structure of production has fallen, the proportion of fixed costs
has increased with the obvious result being a significant drop in profitability.
  IRJ: The authorities have repeatedly stated that the devaluation of the Ruble
over the past year increased oil revenues and the competitiveness of domestic
industry. How do you assess the impact of this factor on the current situation
in OFS and construction sectors? VK:  In today's environment, all manufacturers
are experiencing difficulties with the financing of their activities - some
more, some less so. Yes, domestic companies have benefited from the devaluation,
but not because they started manufacturing a better quality product but because
the foreign competitors are less price-competitive in this situation; however,
it’s a short-term phenomenon, a breath of air for a sinking company. We are
seeing the reverse trend already. The Ruble has strengthened. The price of oil
is in the range from $60 to $75 dollars per barrel again. Raw materials have
been rising in price, resulting in the increased costs for the manufacturers. At
the same time oil companies are reluctant to return prices to the past levels.
Today the oil and gas servicing market is a buyer’s market wherein the oil
companies dictate the conditions of business - even more so because quite often
they still have a false perception that oil and gas servicing companies are
merely their own vertically integrated units and thus can be exploited. IRJ:
What is the best course of action in this situation? How the government can help
private oil and gas servicing companies, which in the wake of buoyant market
conditions began to modernise their equipment, and have now found themselves
hugely indebted? VK:  Today there are several scenarios for the situation in the
industry. It is possible to maintain the status quo and leave things as they
are.  The result is obvious. The economic crisis has exacerbated the problems of
all sectors, but the mechanical engineering industry has suffered the most as it
has gone through some major changes in domestic working conditions in addition
to the deterioration of the overall situation. As a result we see the biggest
decline in the output in the first quarter of 2009 in engineering. As for what
it lead to in the near future, for companies - to an increased gap between
technological advances of Russian machine-building industry and its foreign
competitors and in the worst case scenario - to a partial or complete shutdown
of the relevant industries; for the country's economy - to the loss of its
leading position in scientific-heavy industries; for the regions - for job cuts
and ensuing social tensions. Before the crisis, the domestic oil and gas
servicing industry was growing by an average of 20 per cent per year. Tremendous
work has been done to improve the efficiency of production and quality of the
products. However, today oil and gas industry construction and engineering again
requires the support of the state. The holders of licences for the new fields’
exploration should be prompted to start developing such new fields that in turn
will serve as a strong impetus for creating the demand for new exploration
equipment. I am confident that the state order and contract for the geophysical
and exploration equipment for the Eastern Siberia projects will also allow
service companies to stay afloat in today's conditions. Another important area
of state support could be research and development. Without preserving at least
the existing levels of investment in the new products, our backlog (in terms of
technological advances) compared to the foreign products will only increase.
Companies need free funds to keep investing in research and development, but
such funds are not available. Tax incentives should be provided to the
manufacturers for them to keep investing in research and development that in a
few years will allow them to manufacture products the quality of which will
exceed the western counterparts. Rimera’s customers include renowned domestic
and foreign oil and energy companies such as Gazprom, Transneft, Rosneft,
Lukoil, Surgutneftegaz, Tatneft, Bashneft, KazMunaiGaz, ConocoPhillips, Shell,
PDVSA, The National Iranian South Oil Company, The Iranian Offshore Oil Company,
ONGC, Oil India Ltd, Petroleum Development Oman and Dublin International
Petroleum.