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Valery Bessel: “Previously, I had a negative view about exhibitions”

Next in the MIOGE Preview interview series is Valery Bessel, Executive Vice-President of the NewTech Services Group of Companies and Professor at Gubkin Russian State University of Oil and Gas (National Research University). Mr Bessel talked extensively about the technology Russia needs, how exhibitions help supply it, and why he is optimistic about the future of Russian oil and gas. 

Mr Bessel, the economic sanctions on Russia have put the objective of import substitution to the forefront. However, it turns out that we have not been manufacturing a broad range of products. How could this have happened?

In my time hardly anybody could have anticipated that the Soviet Union would cease to exist in December 1991.  We had no experience of living in a market economy, and simply had the naïve idea that the market would very rapidly regulate itself and put everything back in order. It goes without saying that the Soviet Union boasted vast technical and technological potential – the USSR was one of the two superpowers in the world. I would like to remind you here that one of the key characteristics of a superpower relates to its ability to manufacture a whole range of R&D and high-tech products to ensure its self-sufficiency and for export.

Unfortunately, the production of oil and gas equipment, and equally the entire oil and gas complex of such a vast country as Russia, cannot be developed with “short” and “tight” money. As a result, we are facing a problem when domestic production of oil and gas equipment and tools has begun to lag behind the growing requirements of the country’s oil and gas complex.

Surely you are exaggerating a little? For in actual fact Russian oil and gas companies have been developing proactively.

It is true that we have been witnessing the market restructuring of the oil and gas complex. However, the production of oilfield services equipment - something that at one time the Soviet Union was famous for, manufacturing as it did the full range of equipment - has contracted in the country.

Attempts to revive production “from scratch” resulted in an abrupt increase in the cost of even technically advanced products, as it only starts to become affordable once series production starts and you need to survive somehow until that happens.

You can’t start series production without the assistance of production companies, as they are your clients. However, these companies, exploiting the market situation, have as a rule been reluctant to take any risks and have procured instead all the necessary equipment from foreign manufacturers in public tenders.

Research and production facilities can only develop in an environment when they enjoy demand and their products are purchased. However, how can you carry out R&D and pilot testing in conditions when a tender is announced for the acquisition of equipment, but you don’t have either the time or the money for development, because the production companies need to buy the equipment as soon as possible at the best price? And also in a situation when the client passes on to you the maximum liability for any possible setbacks ...

Therefore, taking into account the realities of the free market, companies from the USA, Europe, China, India and South East Asian countries come to a tender and sell their products at the optimal “price quality” criterion for the client.

I am often asked the following question – why can't we do this? I have to explain that such a leading company on the oilfield services market as Schlumberger, for example, generates approximately 10% of its business in CIS countries, in other words, countries with transitional economies (from a planned economy to a market economy), while this company conducts the remainder of its business in countries with sustainable and stable economies, thereby providing it with an opportunity to constantly develop.

Meanwhile our companies, which had traditionally focused on the domestic market, are also entirely dependent on this market. Accessing international markets is an extremely difficult and time-consuming task, as everything everywhere has been well balanced for a long time already.

One can also understand our oil and gas companies - the Russian budget and also GDP depend to a large extent on their stable operations. In our country 60-65% of the export potential consists of hydrocarbon sales, and not because we have no other products, but simply because the other markets for our products are several times smaller.

Winning back global markets from our competitors, who have had a presence there for a long time, is no simple matter, but this is something that we must do. For the time being, it is namely our sector that is generating the main foreign currency proceeds necessary to modernise the country’s economy.

Oil companies pay taxes, excise duties, mineral extraction tax… In principle, they are not interested in the development of the oilfield services market, even though are completely dependent on it.

Let me give you an example. In the sector, when it comes to the number of patents received each year, you have two global leaders – Schlumberger and PetroChina. PetroChina is a rapidly growing production company, and our Chinese partners invest significantly in its development. By contrast, Schlumberger is an oilfield services company, which has worldwide agreements with all the global leaders in the oil and gas production sector, including Shell, BP, Total, etc.

The mentality of Schlumberger’s management is such that the money that they earn is spent first and foremost on the development and creation of new technologies. These technologies will be used first and foremost to satisfy the requirements of the company that ordered these technologies – for example, BP, and subsequently these technologies and equipment will be replicated all over the world. That is why Schlumberger has been developing aggressively – it has the money to do this, and earns this money from clients.

Unfortunately, we don’t have such resources at our disposal. One of the reasons for the inadequate investments in the Russian oilfield service market is related to the fact that you need to wait at the very least 5-10 years to earn income from the money you invest.  However, the mentality of many “captains of Russian industry” has remained the same as in the mid-1990s – figuratively speaking, within one year of investing one billion, you are expected to earn a minimum of two billion.

Now the political realities are such that the competitive struggle is intensifying globally. Russia is needed as a business partner by China, India, the countries of the CIS and South-East Asia, European countries, Turkey, and also by a number of countries in the Middle East, where we have traditionally had a presence since the times of the Russian Empire.

In actual fact, the USA and European countries have not stopped exporting all their equipment to Russia - this is continuing today. They target companies and regions that constitute the core of Russian business, and these are the very companies and regions that are subjected to the sanctions.

For example, the unique South-Kirinskoye field on the Sakhalin shelf has a vast volume of proven reserves, which enhance significantly Russia’s appeal as a raw materials power for Asian countries. Oil and gas can be produced there round-the-clock, using only underwater equipment – something that we started manufacturing at some point in the former Soviet Union and that subsequently we have never tried to manufacture, because this is high-tech and expensive equipment, whose production requires vast, long-term investments. Now we will have to return to this issue again – however, so much time has been lost!

At present such equipment is only being imported?

Yes, it is only being imported. The companies Cameron and FMС manufacture this equipment - international giants that apply the very serious technologies that need to be applied, as this concerns environmental and safe production.

How can this problem be resolved? If we are going to try and manufacture this equipment, we will need the backing of the vast consolidated efforts of the country as a whole.

We have people, who understand how to organise the production of such equipment – talented guys from Russia and CIS countries work at these companies in different positions. If we make them an “offer that they can’t refuse”, in other words, offer them terms and conditions that are better than the ones on offer at Cameron and FMC, then I am convinced that they would be delighted to come and work for us.

However, the following is key – we need to create a production platform with the participation of state companies and private business, engaging all the companies from Russia and CIS countries capable of producing such technologies and still operating in this sector. We need to start learning how to use money “over the long term”.

Luckily, people’s mentality is now changing; other investors and talented young specialists are appearing, who realise that they will be living and growing in this country, and that Russia is not simply “a field for grazing”, but instead that this is their country where they will raise their children and grandchildren. And more and more such people are appearing.

I can cite numerous examples when people buy drilling rigs, create production platforms and start manufacturing high-tech equipment here. And I am proud of one of these examples - our company NewTech Services. We have worked all our lives in the oilfield service business, and have never received any wells or plants from anyone – we have earned everything ourselves.


How did you earn it?

Apart from the high-tech services that we consistently provide to clients during the construction of wells, we created four plants in Russia to manufacture drilling equipment and tools – a full-cycle production plant of PDC cutter bits in Kurgan, a production plant of down-hole screw motors, drilling jars and other down-hole equipment in Perm, a production platform in Samara for down-hole telemetry systems with electromagnetic telecommunications channels and a production centre in Nizhnevartovsk, where we assemble, test and service telemetry systems with a hydraulic communication channel.

Now we are working hard on creating a production facility for equipment for well pumping and work in cased holes. In order to avoid inventing this equipment “from scratch”, in 2015 we created the company Frontier Oil Tools with a plant in Houston, and invited there highly-skilled and experience professionals who boast extensive experience of working for leading international companies. They created the first prototypes, which were applied successfully during the binding of complex S-shaped wells built for the production of hydrocarbons from the Achimov deposits here in 2016.

Just over a year has passed, from the creation of the new production facility until pilot deployment in Russia - this represents an excellent result for our sector! Now we have started offering the tried and tested equipment to our clients, and as soon as demand for the equipment reaches planned levels, we will locate this production facility here – or we will expand one of our plants, or buy a new production platform and manufacture this equipment in Russia. In this way we will optimise the process of creating new equipment both in terms of time and money.

As a researcher who has direct ties to both science and the development of technologies, I can say that this is utter madness – to start inventing everything ourselves. Everybody always takes the best from each other.

If I work at a certain company that produces drilling bits, all my patents belong to this company - if I leave this company, I retain all my knowledge. All I need to do is to improve something  - and we already have superior equipment that is not covered by the patent protection of the previous prototype. Everybody knows this and everyone exploits this fact in the world. 

Our Chinese partners constantly use our prototypes when they produce their weapons systems and space equipment. American partners, who manufacture the best hydraulic bottom-hole machines in the world, have no scruples about saying that down-hole screw motors and turbodrills are the inventions of Soviet scientists. Our European partners, creating a thermonuclear power research centre in France, constantly say that Tokomak is the invention of Soviet scientists. This is how the whole world develops.

Therefore, if one contemplates the issue seriously, then localisation and import substitution are to all intents and purposes the same thing. If you take a foreign prototype, which is not protected by a patent, and start manufacturing it, simultaneously modernising and adapting it to local conditions, then this is also the localisation of production. Meanwhile import substitution is the process of substituting imported goods by goods produced in Russia or the countries of the Customs Union.

It is of no concern to the client who actually invented these goods and who ramped up mass production of such goods. The key is that it is always accessible for consumption and is on offer at an affordable price.

It is also essential that you always keep nearby these goods the service engineers of the manufacturer, who are capable of helping the client use them to the maximum benefit and are able to introduce to the goods all the amendments and improvements required by the client. And then everyone will be OK – the state, the client and the manufacturer.

To what extent are exhibition platforms useful when it comes to organising such an exchange?

Previously I had a negative view about exhibitions. I couldn’t understand why they were needed. Now I have completely changed my point of view – I can see that this helps. I always participate with pleasure both in the work of the organising committee of MIOGE, and also on the programme committee of the Russian Petroleum and Gas Congress (RPGC), I speak at conferences, talk about the experience of our company in implementing the most interesting projects in industry magazines, and support the promising work of young specialists. This is a very important component for the creation of the correct information space for the oil and gas sector.

I have great respect for what ITE does. It was one of the first companies that managed to demonstrate that specialist industry exhibitions represent an excellent platform for communications between specialists from different countries, for knowledge and technology transfers.

MIOGE represents an excellent demonstration of what is being done on the market at present, and what the market can offer to clients. People are given an opportunity to showcase their products, and not simply to show prototypes, but also to deliver seminars, talk about the potential of the products so that a specialist coming up to you understands the potential that the equipment can deliver in a year, two years, and works with us with pleasure.

In your opinion, what is better – a business mission or exhibition? 

The exhibition format is closer to me. Practice demonstrates that all the representatives of cutter bit manufacturers try to convince clients that their bits are the best in the world and can even dance and sing during drilling. Meanwhile, at an exhibition, where the bits of all the manufacturers are on show, as a specialist I can gain an understanding about the specific companies that I will invite to tender, and with whom I will cooperate to establish the entire production chain – from geological prospecting and drilling to the refining of oil. That is the key difference of an exhibition, in particular, an industry exhibition.

How did you react on learning that MIOGE would be relocating to another platform in 2017?

In my opinion, this was without doubt the right decision. Crocus Expo is more convenient from a logistical standpoint. The Expocentre platform that we are used to is located in the centre of Moscow with all the resultant problems – shortcomings in exhibition spaces, the absence of or limitations on parking, etc.

There will be hard times, as I have already experienced on numerous occasions in my lifetime, a large number of manufacturers will approach us again, including the manufacturers of equipment for offshore production, processing, transport – at Crocus Expo, there will be no problems with the location of large exhibits.  There you have spacious premises and an excellent exhibition platform. You have parking - both underground and above the ground - restaurants, and a concert hall where a wonderful cultural programme can be organised.

Expocentre on Krasnaya Presnya has become in its own way a “sacred” venue for Russian and international oil and gas workers during the many years of hosting MIOGE. However, it has become a problematic platform for the holding of large-scale exhibitions with large prototypes.

I am convinced that the heads of companies contemplating business development prospects in such an extremely competitive environment fully understand that they will recoup one hundredfold their efforts and costs of participating in the exhibition.

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