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Islam Nazaraliev, CEO of NaftaGaz JSC, on the statements concerning the prospects of the Russian oilfield services sector

Islam Nazaraliev, CEO of NaftaGaz JSC, on the statements concerning the prospects of the Russian oilfield services sector
On September 8, Energy Policy published an article authored by Alexander Novak, Minister of Energy, concerning the situation in the Russian oilfield services industry. Islam Nazaraliev, CEO of the independent oilfield services company NaftaGaz JSC, believes that the publication has come at the right time:

“The Minister has spelled out his perception of the current situation in the Russian oilfield services industry quite clearly. Mr. Novak is absolutely right saying that the Russian oilfield services industry has established itself over the last decade. Indeed, Russian oilfield services companies, especially, independent providers, have come a long way to carve out a market niche for themselves and ensure import substitution for our oil producers in terms of oilfield services.

The current situation proved to be a real endurance test for the oilfield services sector. We have started optimizing our business processes as early as a year ago. The pandemic has demonstrated that the decisions we made were right. We deliver on our contractual obligations to customers and social responsibilities to our employees and partners. Over the year, we have increased our staff strength by 30% and our equipment fleet — by 40%. We did this to support our current stock of orders and implement our ambitious plans. They are currently staying idle to a certain extent, but the company should keep them ready for resumption of business as usual.

Management of the Ministry of Energy is well aware of systemic issues. For instance, the need to modernize the equipment. The equipment fleet is becoming obsolete faster than it is upgraded, and the rates of the oilfield services companies do not have any investment component. Russian companies’ access to funds is quite constrained, and hence, they are hardly able to contemplate development. There are no concessional funding rates for the Russian oilfield services sector. High interest rates have to be factored in the quotation.

Deferred demand for high-quality upgraded drilling units entails yet another serious problem that both the Minister and the oilfield services companies are concerned about – the number of foreign oilfield services operators in the Russian market is rising. We are aware of the policy adopted in some other countries — they are investing significant financial resources in their existing production to provide incentives for the export services offered by their companies. Ipso facto, foreign drilling companies are already operating in our market. In a number of tenders we had already encountered situations when we offered a good quotation, but Chinese companies were able to offer even better terms.

In the recent article published in Rossiyskaya Gazeta, Pavel Sorokin, Deputy Minister of Energy for Oil & Gas, has assured that the Government is developing several support measures for the Russian oilfield services sector. It is good to know that the Ministry of Energy goes beyond oil majors when evaluating the performance of the sector and conducts a qualitative analysis to see how related businesses are doing. We, in the Ministry of Energy, are aware that national energy security is a multi-faceted issue. The Minister has spelled out the measures. We are looking forward to the implementation thereof and counting on the government support”.

NaftaGaz is a Top-5 drilling contractor in Russia. Company’s core activities — drilling of oil and gas wells and full-cycle rigging services. The company operates in the Yamalo-Nenets and Khanty-Mansi Autonomous Areas, Krasnoyarsk Territory, and Tyumen and Tomsk Regions. The company systematically increases activity in the market updating the equipment fleet and improving drilling rate mostly by acquiring new clients and entering new fields. Since 2014 (year of incorporation), the company has drilled about 3 mln meters (704 wells). The company has its own fleet of 26 drilling units with up to 320 tons capacity. Over the course of five years, the company has invested over RUB 5 bln in fixed assets. The company demonstrates sustainable progress in production and financial indexes every year. Total of taxes.
In 2018, NaftaGaz joined the IADC (International Association of Drilling Contractors) thus making its production compliant with international market requirements.

Energy Policy published an article concerning the situation in the Russian oilfield services industry authored by Alexander Novak, Minister of Energy of the Russian Federation.

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