«Shell» is one of the largest investors in Kazakhstan working in country for 25 years now. Over the years the company has invested into the development of the oil and gas fields as well as into the scientific and technological area. Today the company has a strategy of creating In-Country Value (ICV). Olivier LAZARE, VP and Country Chair for Shell in Kazakhstan, shares with KAZSERVICE what is ICV and how the company works in the domestic market.
- Mr. Lazare, last year you were appointed as the head of «Shell» in Kazakhstan. In your career path you have 30-years of work experience in many countries. How do you find Kazakhstan market, especially the level competencies of local contractors?
I assumed my role as Vice President and Country Chair for «Shell» in Kazakhstan in September last year. I am very familiar with the CIS region, as prior to this appointment I was overseeing «Shell’s» business in Russia for almost four years. To me, Kazakhstan is a unique country! It is not only by the immensity of the country but also by its economic power and geopolitical influence in the region. For more than 25 years Kazakhstan has made an eminent journey of a remarkable development and now has become the leading country in Central Asia. We at «Shell» have been here since the early days of the Republic’s Independence and we are proud of the role we played in creating opportunities for the Kazakhstani people and economy in general.
Together with our partners, we have created and developed two durable joint ventures, «NCOC N.V.» and «KPO B.V.» having invested billions of dollars in these projects. We have provided technology, expertise, and rigorous safety standards.
If we talk about the local businesses in country, I should admit that much has been achieved in this area over the last 20 years. The level of local suppliers has seen a significant improvement and some of them are competitive with foreign suppliers working in Kazakhstan. But there are lots of work still to be done. I believe we must help create local businesses which are competitive in the medium to longer term. They should not only be competitive with foreign suppliers in Kazakhstan, but in the future also be competitive and able to export outside of Kazakhstan, in the international market. It is also about creating and developing local talent and competitive skilled local jobs.
- The start of production at Kashagan field, the acquisition of «BG Group» have placed «Shell» as one of the major oil producers in Kazakhstan. Are there any additional projects/plans to expand the activities of «Shell» in Kazakhstan?
In Kazakhstan, we are involved in several major projects. As you well know, in 2016, we resumed production at offshore Kashagan field. This was an enormous milestone in our journey to bringing Kashagan safely and reliably into production. At the moment Kashagan ramp-up is ongoing and production exceeded expectation. Our top priority for Kashagan is to provide maximum support for «NCOC N.V.» to ensure safe and reliable operations. And I am glad to say that with a reliability year to date of over 92%, Kashagan exceeds by far what you could expect at this early stage of production from a project of this size and complexity.
The combination with «BG Group» two years ago enlarged «Shell’s» operations further. Our major Asset which is jointly operated by «Shell» and «Eni» - the Karachaganak project – is one of the world’s largest gas condensate fields. I am proud to say that the current performance of Karachaganak is world class and credit goes to all those involved in our day to day operation, including our local contractors.
Our current strategy in country is to focus on our current portfolio to ensure safe and sustainable operations for the benefit of all parties involved, i.e. partners, Government of the country and people of Kazakhstan. Both our assets have very large further development potential and without going into details I would say that we have high ambitions for both of them. And of course, we have the Kalamkas-Khazar project.
I am pleased to note that this year is marked with 25th Anniversary of our presence in country. «Shell» has achieved a great deal over the past years, thanks to our efficient and true cooperation with our joint ventures’ partners and the Government of the Republic of Kazakhstan.
- Almost 10 years passed since the start of CMOC (Pearls) exploration phase, where «Shell» is the major shareholder. It was stated that joint development of Khazar (CMOC) and Kalamkas-sea (NCOC) projects can be implemented. What are the prospects for this project?
Indeed Pearls is our so called “new growth project” in our portfolio. With our partners at «NCOC N.V.» we are considering options for maturing the joint Khazar and Kalamkas fields development project. It’s complicated from commercial perspective as it involves two different PSAs and a number of partners. But we are just about to get it moving – again, high ambitions. Consider that after the ‘big three’ projects, which were all initiated 20 years ago, there has not been a new major development in Kazakhstan. We hope to change that soon.
- «Shell» is the key initiator of “Kazakhstan Oil and Gas Technology and R&D Roadmap”, endorsed by the President of Kazakhstan following the FIC 26th Plenary session. Under this R&D roadmap «Shell» completed first-ever in Kazakhstan a Laboratory complex for geochemical studies and presented it to the industry. How are things with further implementation of key directions of roadmap?
The Upstream Technology Roadmap, which was collectively developed by the industry brought government, business and research perspectives together, aligning these stakeholders around common goals and technology needs.
The Roadmap was endorsed by the President of Kazakhstan in 2013 and its implementation has been monitored by the Ministry of Energy. Using it as a guide, operators and investors were endeavoring to coordinate their activities in the priority areas and explore steps to overcome common challenges collaborating together. «Shell» and «KMG» were first to respond to the President’s call by launching a pilot to address one of the priority challenges identified in the roadmap. This related to geochemical capabilities, which are vital in finding more hydrocarbons with the least number of wells and in developing fields at a competitive cost. In April 2015, we deployed a stateof-the-art geochemical laboratory in Atyrau, the first in CIS. The laboratory is using a wide range of new technologies, including ‘geochemical fingerprinting’, which is key to addressing some of the industry’s major challenges in Kazakhstan.
Today, the laboratory is offering independent, high-quality geochemical analyses to the whole oil and gas industry in Kazakhstan and to the neighboring countries. This represents a real success story not only for the industry but for Kazakhstan as a leading player within it.
«Shell» continues to further support the implementation of the Roadmap by addressing other pressing challenges facing the industry in Kazakhstan. We look forward to progressing this work in the years ahead. We believe that the Roadmap provides opportunities for even more collaboration, not just between oil companies, but between operators and local suppliers, to create synergies and identify common solutions, at a time when the industry is facing some significant challenges.
- How do you identify the meaning of «local content development»?
In «Shell», we go beyond “Local content development” concept and call it “creating In-Country Value”. For us, maximising the in-country value is about developing the country’s capabilities – physical, industrial and human. It is about promoting and encouraging creation of local businesses that are truly adding sustainable value, and it’s about changing the paradigm that local content means higher costs. In some cases there may be some higher costs initially, but the path to lower costs and high quality must be clear. We must help create local businesses which are competitive in the medium to longer term. They should in the future not only be competitive with foreign suppliers in Kazakhstan, but also be competitive and able to export outside of Kazakhstan, in the international market. It is about creating and developing local talent and skilled local jobs. We have plenty of examples worldwide that show it is possible.
- What is the company’s contribution to the local content development?
Much has been done by the Government and key industry players in terms of local content development over the last two decades and much has been achieved. Over 6.7 billion dollars has been spent on local content in Karachaganak project since the signing of the Production Sharing Agreement in 1997 and 400 million dollars in 2017 alone. Kashagan figures are also impressive – more than 13,3 billion as of now. This year «KPO» and «NCOC» expect to progress a number of projects aimed at extension of current production level with extensive use of local goods and services. I would like to note that we have come a long way in developing local content in Kazakhstan. But we need to re-invigorate our efforts and move to focusing on creating In-Country Value which goes far beyond statistics and is a much more beneficial and sustainable outcome for Kazakhstan.
«Shell Kazakhstan» supports the RoK Government’s initiative to increase the involvement of Kazakh companies in the Karachaganak and Kashagan projects and to develop national industry capability for the longer term. As «Shell» we are ready to take a strong role in this effort. It is so worthwhile for the Republic and for the oil and gas industry in Kazakhstan, and frankly, it’s just good business for us.
- Your wishes to the readers of KAZSERVICE magazine and local industry players.
The potential of the nation of Kazakhstan is enormous as well as its resource base. Development of the local content, goods, services and mainly Kazakh skill force will be successful only if we take joint collaborative efforts from all parties and have everybody’s commitment to action. I encourage all the industry players who are among the readers of KAZSERVICE magazine to join our efforts to focus on the issue of In-Country Value creation in a collaborative manner by having high quality, ambitious and creative management teams committed to fair competition, and to development of their local staff and of course, to safety!