July 9, 2014 / Prospects for the development of oilfield services in Kazakhstan

10 Июля 2014

The “Oilfield services in Kazakhstan. Prospects for the development”  meeting chaired by K.K. Massimov, Prime Minister of the Republic of Kazakhstan  was held on July 9, 2014 in Aksay (West Kazakhstan region).

The meeting was attended by the management  of ministries, development institutions, oil and gas companies and senior management of local oilfield services companies and industrial entities..

Association of service companies of Kazakhstan, outlined the current issues in the industry, particularly, pointing the engineering of expansion projects made  abroad. The  engineering made abroad implies that information on foreign suppliers of goods, works and services is included in the project.. It was noted that it is quite problematic to introduce changes in the approved projects after the engineering made is  approved  by the shareholders and governmental authorities in Kazakhstan.. When the engineering is made abroad it is quite impossible for the local  companies  to meet the foreign engineers in order to obtain information, to provide information about their products they would like to supply and services they wish to provide.

The Association recalled the instruction of the President of Kazakhstan to establish the engineering centres, outlining  the implementation of engineering in major oil and gas projects in Kazakhstan as an example of a proper execution of his instruction, specified in the Address.

The representative of the Association also mentioned issues related to the construction in the oil and gas industry in his speech, particularly describing the current situation, where Kazakh contracting companies cannot get the contracts. It is stipulated by the  inability to provide the bank guarantees for a large amount, the need to cover big cash shortages of up to six months in case of awarding large contracts. Consequently, the foreign EPC-contractors who do not hold open tenders in accordance with the rules approved by the Government of the Republic of Kazakhstan get the major stake of the construction contracts. Further, general contractors involve the local contracting companies in subcontracts, paying them at the lowest rates. The Association of service companies of Kazakhstan proposed to set a goal to grow at least 5-7 large local contracting companies within each major expansion project, after completion of which they would be able to freely execute the all-level difficulty USD 150-200 million worth projects on the annual basis.

The unwillingness of  the strategic suppliers of such companies as Chevron, Shell, BG and other major foreign companies to localize  their services and the production  of equipment in Kazakhstan became the another problem which was raised at the meeting. The  Association of service companies of Kazakhstan urged the state to involve into  the process of negotiations with strategic suppliers, offering them the preferences and marketing guarantees in return for their agreement to localize the production  in Kazakhstan.

Damiano Ratti, Director General of Karachaganak Petroleum Operating, also gave an address at the meeting, he told about a cluster of service companies and manufacturers established around KPO and the future expansion project of  the Karachaganak field.

It is worth noting the presentation of Murat Munbaev, General Manager for Strategic Affairs of Tengizchevroil LLP, who told about the Future growth project - Wellhead pressure management project and opportunities for the development of local content.

A representative of Statoil company  told about the experience of Norway in the development of the local content.

Giuseppe Rodelli, the manager of Sicim S.p.a. Kazakhstan noted that the local content in the staff of his company makes more than 98%. He said that with the assistance of the Association of service companies of Kazakhstan, such Kazakh companies as Express Global Stroy and LOGIC established the Consortium with the Italian Sicim Company. The Consortium will carry out the full scope of works and services in the field of industrial construction. The main idea of such a consortium is to support domestic companies through transfer of experience, technology, project management and financing. The establishment of the Consortium does not involve a scheme of simple subcontracting, but provides a full-fledged partnership between international and domestic companies, where all participants contribute and receive an equal share and margin from the customer.

Mr. Rodelli indicated that the above-mentioned factors differ from the usual practice when foreign general contractors engage Kazakh companies in the subcontracting and pay their services at the minimum margin. He noted that such types of the Consortium must become a benchmark in the field of oil and gas construction and should widely used  in Kazakhstan.

The speech of the Regional Director of Baker Hughes brought the hot debates on the meeting when he  noted that the establishment of a joint venture leads to the profit sharing with the local company. for them means to share profits, which they receive in Kazakhstan, with a local company. According to the Company the  local content is limited by the local staff training only.

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