This year Karachaganak celebrates the 40th Anniversary of its discovery. Edwin Blom, KPO General Director, answered questions of KAZSERVICE magazine about current areas of work.
- Mr Blom, we want to congratulate you on the remarkable date! Today we would like to talk about the Local Content Development in KPO, in facts and figures, with which your Company meets this Anniversary. But before we do this could you please comment how KPO is doing right now
KPO have successfully transferred itself from a production company to a company which can also deliver large scale capital projects. The execution of our KGDBN, 4th compressor and 5th trunkline projects, which are in different phases of implementation, is going very well. At the same time we are maintaining a high operational efficiency with good production results. All of this is important because otherwise we would not be able keep our production plateau. 40 years after discovery this is as expected but it is important to re-emphasise that a lack of investment immediately results in a loss of revenues.
- Could you please comment on the development of the Local Content in comparing how it was and how it is now?
KPO has been actively working towards the Local Content enhancement aiming at reduction of imports and increase of Kazakhstani goods, works and services.
KPO fully supports the RoK Government’s plans and initiatives aimed at enhancing local content. We are very proud of our Local Content performance and KPO is committed to push the limits to sustain and improve it further.
If goods, works and services are available in Kazakhstan, with the right quality and at the right price, there is no reason to buy them from outside the country. It is also very important because we need to sustain our competitive cost base operation.
KPO is one of the first oil and gas operators in Kazakhstan, which has successfully introduced the Local Content Development Program, and now we can see some tangible results. Over the last few years, KPO has made drastic changes in its procurement from simple products (like natural gas, petrol or nitrogen) to more complex high-technology goods and equipment such as remote telemetry units, drill bits, ball valves, wellhead control panels, steel structures.
As a result, the share of the Local Content in goods, works and services has grown from 48.7% in 2016 to 60% in 2018. In 2018, the total value of goods, works and services of Kazakhstan origin procured by KPO reached $474 million. Since the beginning of the FPSA in 1997, the Local Content level in supply of goods, works and services exceeded $7 billion.
- KPO has introduced “Early Tenders” and “Trial Orders”. What is the outcome of this mechanism? Production of which goods has started for the needs of KPO and which are in the process of implementation?
To date KPO has reached 70% LC in works and services. This is a good achievment and now our focus is localisation of goods, which is widely encouraged by the RoK Government.
Since 2016, KPO has executed contracts to localise 21 goods, which previously were provided by international companies. Many of them were localised by using “Early Tenders” and “Trial Orders” mechanisms.
In the first half of 2019 KPO facilitated localization of those goods, which have constant demand at any oil field such as flanges, transformers, gaskets, fastening materials, filter elements and motor oil. Now these goods will be produced in Kazakhstan and this will allow KPO significantly cut lead-time and logistics.
- Which works are planned on Projects KGDBN, 4th Gas Re-Injection Processor, 5th Trunk Line Project?
In September 2018, the Partners of the Karachaganak Project and the Authority signed a major Karachaganak Gas Debottlenecking Project (KGDBN) Sanction Agreement.
In addition to the 4th Gas Re-injection Compressor Project and the 5th Trunk Line Project, the KGDBN Project has been included in the Karachaganak Technological Modernization Roadmap.
The KGDBN Project will allow processing the additional volumes of crude gas up to 4 billion cubic meters per year. The volumes will be re-injected into the reservoir to maximize the liquid hydrocarbons production, an additional increase of which will amount to approximately 10 million tons.
As part of this Project, the minimum Local Content in procurement of goods, works and services will be 40% and 75% in the recruitment of personnel. The KGDBN Project implementation will attract additional investment and lay the groundwork for the local construction and oilfield service companies. In this Project, local specialists will continue to play an important role.
As of now, almost 1,900 Kazakhstani people are working at the KGDBN Project construction site, number of which will increase up to 2,500 during the peak of construction. The KGDBN Project already created almost 1,100 new jobs for the West-Kazakhstan region, including over 400 jobs for Aksai town and nearby villages.
On top that, a few weeks ago, Karachaganak partners and the Republic of Kazakhstan reached another important milestone in the development of the Karachaganak field. Aimed at the extension of the duration of the liquid production plateau, the 4th Gas Re-injection Compressor Project will bring significant additional value to the Republic of Kazakhstan and the Karachaganak Partners.
The 4th Gas Re-injection Compressor Project will be executed by the EPC contractor – a consortium of Bonatti and MontazhSpetsStroy, whereby, in monetary value, more than 40% of all the works will be executed by MontazhSpetsStroy, locally.
The EPC consortium committed to invest up to $25 million into Kazakhstan economy, including the West Kazakhstan and Atyrau regions.
Another KPO Project, which is called the 5th Trunkline Project was approved by the Karachaganak Partners and the Republic of Kazakhstan in November 2017. This Project consists of approximately 5 km of 8” and 5 km of 12” pipelines and 3 injection wells. The construction works, excavation and pipe laying works have been executed by Batys Kazakhstan Kuat Service (BKKS) LLP, a Kazakh-German joint venture starting from September 2018. There are plans to complete all the construction works before shutdown planned in mid-September 2019.
As of today, around 200 Kazakhstani specialists are involved in 5th Trunkline Project construction works. KPO has also ordered 4 pig launchers to be made in Kazakhstan.
I would like to say that KPO has recently updated the Local Content Policy and developed a two-year Programme. Company encourages the establishment of partnerships and joint ventures between foreign and local companies for many contracts, which provided local companies with an opportunity to participate in more complex projects during the last few years.
- Can you please tell about your Local Content forums and visits to manufacturers in other regions of Kazakhstan?
We hold regular forums for potential local contractors and foreign companies already known in the market and interested in the production start-up in Kazakhstan.
Just recently, on 22 May 2019, we arranged, with the support of the West Kazakhstan Oblast Akimat and the PSA, a meeting on the Local Content development within the framework of Memorandum of Understanding between KPO, the West Kazakhstan Oblast Akimat, JSC SEC “Oral” and WKO machinery building manufacturers on implementation of the Road Map of the “Machine Building for Oil and Gas Industry”. The participants discussed machine building development opportunities in the West Kazakhstan Oblast, and representatives of the local manufacturers noted progress in promoting local products by the Karachaganak Project.
Last year, we arranged several major forums and participated in similar events as an Oil and Gas Operator. In September 2018, KPO held a Local Content Forum supported by the Republic of Kazakhstan Ministry of Energy and the PSA. The Forum involved representatives of over 130 domestic and international companies that provide full package of Engineering, Procurement and Construction services, interested in establishing joint ventures. The key focus areas were the forthcoming Karachaganak Expansion Project Phase 1 (KEP1) and its Local Content Strategy as well as KPO procurement plans for goods, works and services.
In November 2018, KPO jointly hosted a forum of major operators on the localization of industrial chemicals in the oil and gas industry. For our part, we wanted to familiarize local companies with the KPO short- and medium-term needs and requirements in chemicals as well as with KPO plans focused on facilitation of the Local Content increase in production. The negotiations held were fruitful.
KPO also conducted fit for purpose workshops aimed to facilitate in-country manufacturing of line pipes, valves, electrical equipment and cables.
We regularly visit other regions in an effort to enhance interregional cooperation. Such visits help us to learn more about products and capabilities of local manufacturers and service providers.
In our turn, we outline KPO current and future demands and our specifications to local companies. For the last 3 years KPO representatives as part of the West Kazakhstan Oblast delegation visited 10 regions of Kazakhstan including Astana and Almaty. Following these visits, 17 new companies have an opportunity to work with KPO and supply us with their goods and services.
For instance, the outcome of the meetings related to interregional cooperation with Almaty city was contracts for 2200 tons of structural steel fabrication at Karasai Machinery plant, operated by PSI Group, and fabrication of five modular substations under the Schneider electric brand at the same Karasai yard.
- What support does KPO render to the local suppliers in getting the international certificates and standards?
We are successfully implementing International Standards Training Program for local companies; an integrated implementation of quality and HSE management systems under ISO 9001:2015, ISO/TS 29001:2010, ISO 14001:2015, OHSAS 18001:2007 standards was organized with a view to enhance competitiveness of the local suppliers and improve their quality of goods and services. KPO regularly conducts project management training in accordance with the requirements of IPMA standard.
KPO with support from the West Kazakhstan Oblast Akimat supported developing RoK machine-building plants’ potential by implementing the international technical standards. As an example, KPO employed a specialized company to provide guidance to the local fabricators for manufacture and repair of pressure vessels as per ASME standard. Under this initiative, KPO assisted Petropavlovsk Plant of Heavy Machine Building JSC with ASME certification. Two more companies from the West Kazakhstan Oblast (AksaiGaSService JSC and Ural Plant Zenit JSC) will shortly obtain ASME certification.
- What about Digitalisation? Which needs does KPO have?
As part of the Digital Kazakhstan State Program initiative, all large oil and gas companies operating in Kazakhstan developing their respective Technological Modernization and Digitalization Plans. In Q4 2018, jointly with the Akimat of West Kazakhstan Oblast, we conducted an International Digitalization Forum.
At the forum, KPO has presented its own Digitalization Roadmap, which outlined the key areas for the transition to digital technologies aimed at streamlining, improving and accelerating business processes including production, well operations, implementation of future projects, as well as increasing the Local Content and integrating it with the other components of the production infrastructure. Signing of a Memorandum of Cooperation between KPO, the Ministry of Education and Science, the West Kazakhstan Oblast Akimat and KAZENERGY Association has become one of the highlights of the event. The purpose of the Memorandum is the Local Content increase through training of the new personnel and support of the start-ups.
This forum was an effective platform for discussing the prospects of joint ventures creation, expanding the business and relations with various representatives of the market, both from the state and business side, and enhance the Local Content development in the areas of digital technology and automation of business processes.