YUKOS building growth and value for next generation
Posted: 12 February 2004
Address of YUKOS-Moscow President Steven Theede at 2004
CERAWeek International conference on 10 Feb 2004
Thank you Mr. Chairman and Good Morning Ladies and Gentlemen!
It's a pleasure to be back here at CERA Week, and to be speaking
to you this morning representing Yukos which has been an active
participant in this conference for the past several years.
That participation hasn't been accidental, it has been based upon
a fundamental commitment that Russian and Western oil companies
can create significant value for each other by working in mutually
beneficial partnerships. Sharing technology, intellectual assets
and global best practices has already brought benefits to Russian
and Western companies alike. So keeping with the growth and creating
value theme of the meeting, this morning I want to talk about how
this approach has played an important role in Yukos' success - it
has helped transform YUKOS into the largest and fastest growing
oil company in Russia . And it's played an important role in the
overall turnaround of the Russian oil industry after years of production
decline. Russian oil production fell by (-45%) during the first
half of 90's from its peak in 1989. Yukos' performance was consistent
with that, falling to 900,000 bpd. However, since 1999, Yukos' production
has increased by double digit percentages each year to an average
of more than 1.6 mmbpd. 81% growth. Russia 's overall production
rose by 38% during the same period. So, Yukos' share of the country's
total production has increased from 14.6 to 19.5%. Last year Russia
once again became the world's largest oil producer - a claim She
has not been able to make since 1992.
Yukos has achieved this result by focusing primarily on modern
reservoir management techniques. The practical impact on our business
has been to reduce the number of producing wells from almost 14,000
to 8,800. Average production per well has increased by a factor
4 and today is four times above the Russian industry average. The
production rates of our new wells averages over 1000 bpd, compared
to the Russian industry average of 250 bpd. Just as importantly,
our lifting, finding and development costs are about $ 2.50 per
bbl - the best in Russia .
I like to talk about production efficiency as a dramatic way of
illustrating how much we've improved up to now, but just as importantly,
how much more we can improve in terms of future production increases.
This goes for Yukos and for Russia alike. Production efficiency
is the ratio of actual well production compared to its theoretical
capacity. At the time of privatization in 1996, the efficiency of
wells operated by Yukos was 9%. Integrating western technologies
into our operation, YUKOS has increased that efficiency to 27%.
But 27% is only about half of the average for our Western peers.
So even though we've made significant improvement, there's still
a ways to go.
The results speak for themselves -- Russia is on the brink of breaking
through the 9 million bpd production milestone and potential still
exists for further increases through optimization and effiency improvements,
without even getting into the potential for development of new fields
and reserves.
Increased use of technology and reservoir management techniques
has brought such a fundamental change in the way fields are developed,
that in many cases development plans will have to be reassessed.
For example, the development plan for Yukos' Entelskoye field was
formulated in 1996. It envisaged drilling 57 wells to fully exploit
the reservoir. Using modern technology, and drilling and reservoir
management practices, it was determined only two horizontal wells
were needed. Performance results of the field after those wells
were drilled, were 2.5 times better than was expected in the original
plan and that performance has been sustained.
Such a material change in field development raises the question
of technical compliance with licenses that were awarded in the past.
Most of my Western colleagues would declare the Entelskoye field
example and others like it outstanding successes. So would I. But
some in Russia aren't so sure. They express concerns about the effects
this may have on the resource base and whether it allows full exploitation
of the reserves. Results are on our side though because we have
been able to increase our overall average reservoir recovery factors
from 27% to 44% as a result of these technological advances. I'm
optimistic that we and our colleagues will be able to successfully
demonstrate that new technologies are needed and must continue to
be applied in order to establish and maintain a competitive position
for the industry.
So, the implications of this are actually quite fundamental: The
challenge of continuing production growth at YUKOS and in Russia
today is not related to development of reserves and reservoirs –
they have significant capacity and are capable of delivering double
digit production increases for a number of years to come. For us
and other Russian producers, maintaining profitable growth is directly
related to our ability to export increasing production in a cost
effective way.
Last year Yukos exported about 75% of our crude oil production
either as crude oil or as refined product. With export pipeline
capacity essentially full 1/3 of those exports were made by rail.
Some progress is being made to increase export capacity, but until
a major pipeline project is completed, incremental production growth
will also have to rely heavily on rail, which at the margin is not
as economically attractive as pipeline. Options for export pipelines
have certainly been discussed, and the final decision of which option
is pursued, when it's pursued and at what capacity will depend upon
the Russian Federation 's ambitions for its economy and how it wants
to position itself in the overall world crude oil market.
Looking to the future, just as the pipeline export infrastructure
needs to be upgraded to meet the need for increased, cost-effective
export capacity, the Russian oil industry has to modernize in other
areas. This pertains in particular to our oil field services.
When Russian oil companies came into being in early 1990s, the
defining criteria for their creation was geographical rather than
industrial, and they retained most of the basic features of the
Ministry they had once belonged to. Oil services were just a part
of the oil companies, and there was no competitive market. In 1998
YUKOS was the first Russian oil company to introduce the concept
of outsourcing through the establishment of independent companies.
A year later YUKOS had 126 companies dedicated to providing us with
these services. Still, the new companies only serviced their parent
company and competition didn't exist. Today, we have reduced the
number of companies to 86 which is important, but of Yukos 100,000
employees, 56,000 reside in the services. We are implementing a
three year plan to reduce that to 10 companies, each of which will
have to compete for our business in open tender processes. It's
our ambition to facilitate the establishment of efficient, substantial
and well managed Russian service companies that can compete effectively
with Western service companies in Russia . Our most important ambition
is to insure we carry out this plan in a way that will create a
healthy and competitive Russian Oil Services market and that's critical
to an industry that has a turnover of $4 Billion. Of course, the
benefits from an environmental and safety point of view are also
obvious.
To close, I think it's important to make the point that the performance
improvements I've talked about here today is not a case of the west
rescuing the Russian Oil industry. It's more a case of Russian Oil
Company leaders recognizing there were opportunities to improve
their performance and by being open minded enough to allow new ideas,
technologies and approaches into their businesses they were able
to realize those opportunities. Those of us who have been in business
for many years know it takes courage to let that happen. In Russia
's case it's resulted in the reestablishment of it once again becoming
the world leader in crude oil production.
For more information see www.yukos.com
Posted by Richard Price,
Editor Pipeline Magazine
Information supplied by companies
or PR agencies who are responsible for content. Send press releases
to info@pipelinedubai.com |
