Irkutsk Oil Company

The interviewee – Marina Sedykh of Russia, Director General of Irkutsk Oil Company, an oil producer based in the far north-east of Russia.

1. Tell us about your company: what is the structure of the company, in what areas do you operate, what are the volumes of production?

Irkutsk Oil Company was established in November, 2000 by uniting several small oil and gas producers operating in Irkutsk region. Irkutsk Oil Company (henceforth INK) was the first in the region to enter into the operational stage of production and for all those years kept its leading position as the largest oil and condensate producer in Irkutsk region. 2008 oil and condensate production of the company was close to 300,000 tons (2.5 million bbl).

Nowadays Irkutsk Oil Company is a vertically integrated holding which unites such producing companies as "Ust-Kutneftegaz Ltd", “Danilovo Ltd.”, and "INC-Neftegazgeologiya, Ltd." These company hold licenses for exploration and production of oil and gas in Yaraktinskoye, Markovskoye, Danilovskoye and Ayanskoye fields, as well as Ayanskoye, Potapovskoye, Bolshetirskoye, West Yaraktinskoye, Nar’yaginskoye, Angara-Ilimskoye and North Mogdinskoye fields. All the above fields and licensed areas are located in the Irkutsk region. The owner of "Irkutsk Oil Company” is “INK-Capital, Ltd.”, among the shareholders of which is the European Bank for Reconstruction and Development (holds 8.15% shares). Crude oil extracted from the reserves of the company, is supplied both to the domestic market and exported to Asian Pacific region. Irkutsk Oil Company currently employs about 1,000 people.

2. Tell us about yourself - how long have you been working in this industry, position? How did your career develop over the years? What are the tasks and challenges is your current position?

I was born on May 3, 1960 in Irkutsk. Graduated from the Irkutsk State University, majoring in Law. I started working as a legal adviser in an Administration of Shkotovsky District, where I was the only lawyer for four years. Next followed 8 years of work in the legal department of the Irkutsk Heavy Machinery Plant, then as the principal legal adviser to GUGP "Vostsibneftegazgeologiya (VSNGG). The break-through moment came when I took part in the establishment of "Irkutsk Oil Company” in 2000, which was the first company to begin oil exploration and production in the Irkutsk region. From the day of foundation of Irkutsk Oil Company I have been the company’s Director General and in fact, the only female Director General in the Russian oil industry.

As I’ve said many times before, I prefer not to divide jobs and professions into those suitable for men or women. Instead, what matters are business qualities and attributes of a person, their professionalism. That said, I believe that womens’ behaviour and management style have their own characteristics and peculiarities which one should be able to use in the right way. From my personal experience, I’d say that women generally lack the adventurous streak as, historically, their ancestral role was to be a keeper, protector and guarantor of stability. However, from the business point of view, moving forward requires a reasonable risk and men are generally better in taking it on. Therefore together with Nikolai Mikhailovich Buynov - the Chairman of the board of directors of Irkutsk Oil Company – we’ve created this remarkable tandem: from the days of the creation of the company till nowadays we’ve been complementing each other, using each other’s strengths to achieve common goals. He is the generator of different ideas, the one who suggests innovative solutions whereas I, being an experienced lawyer, make sure that all our decisions and ensuing actions meet all the legal terms.

It is obviously great to know that our work is being appreciated. Our company, and myself as the Director General, repeatedly received prestigious and influential awards, including a gold medal from the Russian-Swiss Business Club and an INSAM medal “For quality control”. We also became the three times winner of the national "The taxpayer of the year" competition. In 2009 I have received “The Women in Business” Award in the category "Industry" by the EBRD wherein becoming the first Russian woman to receive such an award.

3. Tell us about the most significant projects on which your company is currently working on? What are the business priorities for your company?

We indeed have quite a few projects currently in development and it is difficult to say which one is the most important, however, I would particularly like to mention a few that present the biggest challenges for us.

The first one is the further increase of oil supplies to the oil transportation system “Eastern Siberia – Pacific Ocean” (ESPO). INK production was originally seen as a resource base to fill the ESPO. The company had repeatedly addressed JSC “Transneft” with the request on granting access to ESPO at projected tie-in point #7 and in early September 2009, we have finally got it. Together with "Vostoknefteprovod" (a contractor for “Transneft” which carries out the majority of the construction) we have already agreed the main points of the route for the pipeline alongside with other necessary parameters. As such, the construction of a pump station has not been planned, instead an oil pumping unit will be built. The main section of the pumping part of the pipeline (about 60 km long) will be held in the same corridor as the existing infield INK pipeline from the Yaraktinskoe to Markovskoe fields. If all the paperwork and necessary procedures are finalised on time, we will be ready to deliver the first tons of oil to the ESPO in early 2010.

Within the development of the ESPO project, Irkutsk Oil Company put into operation Central Processing Facility (CPF) at Yarakta field in August 2009. The CPF construction took over one year in adverse weather conditions. All Company’s Management came to the field to hold an opening ceremony of CPF: it was a real challenge for us, but we have proved that together we can take up any challenge! After putting CPF into operation technical experts opened several wells producing salty oil. In future, the new CPF at Yarakta field will be able to process almost 1.5 mn tons of oil per year and supply oil processed in accordance with international standards to the ESPO pipeline.

If all goes according to the plan, INK will be able to supply the ESPO with at least 500 tons of oil from Yaraktinskogo and Markov fields in 2010.

Secondly, I would like to mention a project which is as important for us as the ESPO –and that is Gas cycling process project (gas re-injection). This project allows us to separate gas and condensate during the extraction process and ensures following re-injection of associated natural gas back to the reservoir. Funds for the project have been received from the European Bank for Reconstruction and Development - in the spring of 2009 the bank granted us a loan of EUR 90 million. It is expected that starting from 2010, only Yaraktinskoye oilfield’ re-injection volume may reach 360 million cubic meters a year.
The EBRD is also working with the Irkutsk Oil Company on finding opportunities to transfer quotas on greenhouse gas emissions to other countries, in exchange for their investments in modernisation of oil exploration and production -such a procedure is provided for under the Kyoto Protocol.

This project will allow INK to keep up with Russia's environmental requirements for utilisation of associated petroleum gas by up to 95% by 2012.

Furthermore, in addition to the two main projects under development mentioned earlier, ESPO and the Cycling process, our company keeps on investing in geological exploration for all licensed areas.

Irkutsk Oil Company invests about 1 billion rubles per annum in geological exploration and currently has no intention to reduce this volume in future. In 2008, the company discovered West-Ayan field. In September 2009 and October 2009 the company plans to book reserves of newly discovered Nar'yaga and Angaro-Ilim fields with the State Reserves Committee of Russia.

Finally, another international project of our company is worth mentioning: Irkutsk Oil Company and Japan Oil, Gas and Metals National Corporation (JOGMEC) through their subsidiaries, have established a new company “INK-Zapad” - a 49:51 joint venture between Japanese and Russian parties, which will be exploring and developing new license blocks of Severo-Mogdinskiy, Bolshetirsky and Zapadno-Yaraktinsky fields, all located at Irkutsk region. Within the frameworks of this project we plan to conduct 2,200 km of seismic survey and drill at least 6 wells by 2013.

Working in partnership with JOGMEC have been mutually beneficial: not only have we a reliable financial partner, but also a unique opportunity to obtain access to the latest technology. JOGMEC in cooperation with Japanese companies and foreign partners contributes to the development of new technologies in all sectors of its activities worldwide. Mr. Hirobumi Cavanaugh (правильное написание?), President of JOGMEC expressed an opinion that such joint projects will further strengthen mutual understanding between Russia and Japan, and prompt the implementation of new joint projects in different sectors, the statement that I fully support.

4. What changes have occurred in the industry as a whole and within the INK specifically during the time you have been with the company?

When I headed up the company in 2000 we only had just over 100 members of staff and rented a small office space. Our then subsidiary, JSC "Ust-Kutneftegaz" carried a large debt load inherited from the previous owner and apart from them no other company was engaged in the industrial production of hydrocarbons from the depths of the Eastern Siberia region. Therefore, we faced some enormous tasks: to recruit qualified personnel, to develop and implement new techniques for field exploration, not to mention the necessity to build the entire infrastructure in the region, from roads and power lines to entire pipeline network. Obviously, the funds required to do all of the above were very sufficient, but we had coped. We soon paid off all the debts, making the company not only profitable, but also perspective in terms of future revenues. This was soon realised by unscrupulous competitors who undertook several raider attempts to seize the control over the company. Local legal authorities had to interfere in the situation; but fortunately my own legal experience and a firm adherence to the law helped prevent the seizure of the assets of the company and we won all the lawsuits.

We have come through all the past challenges and now that we have a strong business structure in place, I will never let anyone else put in doubt the good reputation of our company, which from its first days focused on the adherence to the law and complete transparency over taxation not somewhere in the offshore zones, but here, in the Irkutsk region.

At the moment we have a fairly large by the regional standards company with staff force of about 1,000 people. We have firmly established our niche in the marketplace, having become the first company in Eastern Siberia to commence commercial operation of oil and gas deposits. The tax payments to budgets of all levels exceed 500 million rubles (over $17 million) annually.

Industry is also not standing still. The Russian Government’s decision to go forward with the construction of the pipeline Eastern Siberia - Pacific Ocean (ESPO) has encouraged many companies to further develop the potential resources of Eastern Siberia and saw the arrival of such big names as TNK-BP, Rosneft, Surgutneftegaz, Gazprom to the region too. Many industry experts say that it is, in fact, Eastern Siberia region that will soon become one of the main centres of oil exploration and not only in all-Russia, but also globally.

5. What is the key to the success of your company? What helps you stay ahead of competitors?

I would mention Professionalism, team work and our expertise in the industry; compliance with all the laws and regulations, including environmental. Our company is registered in the Irkutsk region, respectively taxes are paid to the local authorities. Therefore each staff member of the INK understands that they work not only for the company, but, ultimately, for the benefits of the region they live in; and that in turn ensures that everyone appreciates the importance to preserve the environment and its natural resources. Our local authorities are aware of our social responsibility, and provide all sorts of practical and administrative assistance to us.

6. Have you felt the influence of the global financial and economic crisis? If so, what steps is INK taking to withstand its consequences?

Of course, the global economic downturn could not but affect the profitability of our company. Since the beginning of 2009 INK have initiated an anti-crisis programme, our capital investments levels have been almost halved. The management of the company was forced to take such unpopular measures as cuts in discretionary bonuses and temporarily suspension of wage indexation. We didn’t have much choice: the revenues from sales of crude oil have decreased by 24%; average selling price of crude oil decreased almost 40%, while the profit before taxation decreased 6 times. Therefore to keep the company profitable we have introduced a series of measures to help us optimise the production costs, mainly saving on raw materials, components and professional services, and also by cutting down on certain social programs. Thanks to the coordinated strategy of the sales team, INK even now remains profitable. Recent growth in the world’s oil prices has had a positive impact on the cash flow of our company. To sum up, despite the crisis our company continues to grow and expand its production capacity and have even been increasing its staff levels. Thus, during the first half of 2009 INK has hired 50 more people and keeps hiring.

7. How does your company cope with the requirements of the industry in the areas of Health & Safety and Environmental protection?

I would like to note that, in my opinion, the main change has been happening on the personal level, i.e. in the level of consciousness of both management and employees. We understand that with the acquisition of the European Bank of Reconstruction and Development as a shareholder, Irkutsk Oil Company has become even more accountable in front of its shareholders and society and had to take on even more responsibility in the areas of environmental protection and Health and Safety procedures in place. Therefore, the development and implementation of environmental management system in accordance with ISO 14001 has become one of the priorities for us.

As a local company, we see and value the beauty of Eastern Siberia. It has unique natural wonders such as the gorgeous Lake Baikal, distinctive forests, and famous rivers of Angara, Lena and Kirenga. We feel obligated to pass it on to the future generations. Therefore, we are in the process of enacting an Environmental and Social Action Plan. This plan, which will be implemented by Irkutsk Oil Company, has the following key objectives:

•   Taking into consideration the habitat of endangered plants, animals and birds;
•   Careful consideration given to the use of ancestral lands occupied by the indigenous ethnic minorities. We try to check all their actions with the sentiments of residents in the areas of development;
•   Improvement of the waste management;
•   Monitoring of air emissions, soil, surface waters and groundwater quality to the fullest possible extent in zones where the company operates;
•   Other actions that are aimed at protection of the environment.

In the past year alone we trained further 44 members of the company on environmental issues and overall in 2009 INK would invest over 160 million rubles (over $7 million USD) into projects that will address the scope of work outlined in Environmental and Social Action Plan.

Moreover, INK plans to implement projects on associated and natural gas injection into the respective formation in the Yarakta field. The gas re-injection will nearly completely eliminate all flaring of associated gas, making this project the first of its kind in Irkutsk region. Irkutsk Oil Company will consider the possibility of realization of injection operations in other fields which in turn may be a model for other oil and gas producers operating in the region.
In April and August 2009, an international environmental consultancy ENVIRON (UK) assessed the implementation of existing corporate plan and our environmental and social activities as part of the initial environmental assessment of INK and had confirmed the adequacy of work done within the project.

8. What tasks your company has set itself on corporate social responsibility?

Irkutsk Oil Company is a responsible employer. It strives to create a safe, healthy, and stimulating environment for its employees.

In 2009, at the times of the tough economic situation and a plunge in the INK profit, the company has still managed to allocate 6 million rubles (about $ 200,000) of sponsorship money. Despite financial difficulties we continue to provide assistance to those whom we have traditionally been supporting. The agreement provides for the INK support to a number of social projects and programs in the northern territories of Irkutsk region, among them: the supply of 14,000 cubic meters of gas to Verhnemarkovo village gas turbine station which generates heat and electricity for the local population; the installation of modern fire alarm system in a high school of the region and the participation in the major road network infrastructure repairment project in this village.
The donations will also go to the Russian Association for Blind People, Veterans of Second World War Organisation in the Lena district of Ust’-Kut. The financial support to the indigenous population of the region has been substantially increased: within the framework of the agreements with Irkutsk government, the administration of Katanga MO,"Evenkijskiy National Cultural Centre", "URE" Association and the “Tokma” community for this purpose IOC has allocated more than 1,8 million rubles ($ 60 thousand) in 2009. All socio-economic obligations to the municipalities and the Government of Irkutsk Region are carried out in full and ahead of schedule.

9. What goals, short-and long-term plans and strategies do you set for the IOC?

We have discussed our main goals and objectives in the beginning of this interview: this is the construction of the ESPO pipeline and the gas re-injection project. We will continue exploratory drilling, keep expanding the number of operational production wells and will be opening new fields. In short, we are definitely not going to stop at the achieved results; there is a massive potential for us within pan-Russian gasification process which is happening now, with gas generation & gas processing projects and gas chemistry developing rapidly. We have signed several partnership agreements with Gazprom, Sibur East, JOGMEC on joint studies in the number of gas projects and while everything is in the process of negotiations, we are actively communicating with our partners and considering various options. I think that by spring 2010, the intentions of all the parties involved will shape out and we will be pleased to announce new projects and further steps for the Irkutsk Oil Company’ development.

10. Please include any additional information about you and your company, you would like to share that you consider important and which may interest our readers.

As I said earlier, our company annually invests about 1 billion rubles (over $ 30 million) in the exploration of new fields, and these investments are proving to be fruitful. In September 2009, State Reserves Committee (GKZ) of the Russian Federal Subsoil Agency approved resources of the new gas field located within Angaro-Ilimsky license area of Bratsky and Ust-Udinsky districts in the north of Irkutsk region. The new gas field was named as Angaro-Ilimsky gas field by geologists and management of Irkutsk Oil Company. The initial geological reserves are 33 billion cubic meters of gas in C1+C2 category (according to the Russian Classification).

Earlier, in 2008, the subsidiary of INK opened the West -Ayan oil and gas condensate field with gas reserves of 29,903 million cubic meters of gas and oil – 24,000 thousand tons of oil. Furthermore, in November 2009 INK intends to contour and book reserves for, Naryaginskoye gas field with the State Reserves Committee (GKZ) .

To conclude, I would like to accentuate the fact that Irkutsk Oil Company is the only one in the region that have been opening up new fields over the past two years and is not going to stop there!

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