In east Siberia lie the vast oil fields owned by one of Russia’s fastest-growing oil and gas companies, whose growth figures have exceeded expectations
Eastern Siberian oil company Irkutsk Oil last year recorded some of the fastest growth rates among Russian oil and gas companies. Irkutsk Oil drilled 27 new wells in the region in 2011, more than the previous three years combined. For the company, barely 12 years old, it was a significant achievement, and meant that ambitious goals could be delivered. The 19 new wells built around the Yaraktinsky field ensured that the company recorded the best operational and financial results in its history. “In 2011 we delivered and exceeded our organic growth expectations,” said Marina Sedykh, Chief Executive Officer, in an open letter to shareholders, colleagues and partners.
One of its most important projects in recent years has been the development of the expanded pipeline known as the Transneft ‘East Siberia-Pacific Ocean’ (ESPO)
Irkutsk Oil operates out of the Irkutsk region, east Siberia. With its scorching hot summers and freezing cold winters, the area is remote and rich in oil and gas reserves. The company was founded by Mikhail Buynov and his son Nickolay – the company’s current president – along with several prominent geologists and oil and gas specialists, many of whom had been employees of state-owned enterprise VostSibNeftegazGeologiya, the company which was behind many of the oil and gas discoveries in the region, and which has been defunct since the collapse of the Soviet Union. By combining the strengths and knowhow of its own service unit, which is experienced in drilling in the region, Irkutsk Oil guaranteed that it would be well provisioned for a competitive future.
By mid-2012, just over a decade since its inception, Irkutsk Oil owned 18 exploration and production licenses. The area in which the company holds its concessions, Irkutsk and the Republic of Sakha (Yakutia), exceeds 38,500 square kilometres; similar to the size of Switzerland and 8,000 square kilometres larger than Belgium. The area is immensely rich in hydrocarbons. “It is believed that the Irkutsk region alone has recoverable resources of more than two billion tonnes of oil and 7.5 trillion cubic metres of conventional gas,” say the company’s financial reports. The report also reveals that the two regions were accountable for 2.4 percent of Russia’s total hydrocarbon production in 2011, “while demonstrating the largest increase in production among all regions.”
Growth and expansion
The Irkutsk Oil group has always been dedicated to increasing its productivity and profitability. In 2011 it produced 1,184,000 tonnes of crude oil, up from 609,000 tonnes the year before; an increase of 94 percent. Natural gas production similarly increased, from 234 cubic metres in 2010, to 300 cubic metres the following year; an increase of 28 percent. “The main drivers behind the increase in production were the larger scale drilling activity and the introduction of more efficient drilling and oil recovery processes,” read a statement by the company.
“Last year was an important one for the company and the group, and results proved that our strategies for the past few years – active investment in geological exploration, drilling, and infrastructural projects – were correct,” said President of the Group, Nickolay Buynov, in a letter to shareholders. After substantial levels of investment, 2011 was the first year the company produced more than one million tonnes of hydrocarbons. “This high production, along with some taxation easing and effective project management, has allowed us to achieve high performance levels and demonstrate excellent financial results,” he added.
According to Buynov, one of the company’s main goals, in addition to the continued increase in output, is the development of its resource base. In partnership with Japan National Oil, Gas and Metal Corporation (JOGMEC), and Russian partner Vostokpetrogaz, the company has been carrying out extensive geological exploration in 2011, including the completion of over 550km of 2D seismic imagining, and 50 square kilometres of 3D seismic imaging. Efforts to continue increasing productivity have so far yielded the discovery of a few new deposits, according to Buynov: “The discoveries we are most excited about took place in our largest field, the Yaraktinsky. We discovered two new deposits and increased the reserve base of the field. These reserves are to be booked in the end of 2012, or the beginning of 2013.”
The group’s extensive experience in the east Siberia region and its geology has enabled it to take a new approach in searching for deposits. Based on its findings, the group significantly increased its area of activity in 2011. “We acquired five licensed blocks, three of which are located on the territory of the Republic of Sakha, ” explains Buynov. “We believe that this region has great exploration and production potential and that over time its production capacity will be in demand. We are looking to create a new centre of oil and gas production in the region and, possibly, of gas processing, based on these northern fields and license blocks.”
New success, new expectations
Because of the many successes and milestones achieved in 2011, this year has been a particularly challenging one for Irkutsk Oil. The company has been exploring many of its new discoveries and working hard to emulate and surpass last year’s positive results. “In 2012, the group plans to conduct a large amount of both production and exploratory drilling at Yaraktinsky field. However, we also plan to begin extensive appraisal, exploration, and production drilling at other blocks, building on our previous geological work,” says Buynov. “We will begin developing the Ayansky and Danilovsky fields and connect them by pipelines to oil treatment facilities at the Yaraktinsky field.”
At the centre of the company’s expansion plans is a well-defined corporate governance mission, one which ensures that respect for the rights and legal interests of all stakeholders lies at the heart of every decision and initiative
Irkutsk Oil is expecting to raise its annual production in 2012 to around two million tonnes, and has set an ambitious target for 2013 of 2.5 million tonnes. In order to achieve these goals, the company has been implementing an increased number of horizontal drilling and hydraulic fracturing tools throughout the year. Irkutsk Oil is acutely aware that investment is needed in order to ensure its facilities are adequately supporting their desired levels of production. One of its most important projects in recent years has been the development of the expanded pipeline known as the Transneft ‘East Siberia-Pacific Ocean’ (ESPO), 61km long and recently completed, and which includes complex uploading facilities for oil storage, pumping equipment, laboratories and a quality control centre.
During its first stage, the uploading facility is capable of processing 1.5 million tonnes of oil per year, but as production increases the facility will be expanded to handle up to 3.4 million tonnes per year by 2013. This project has secured transportation and ensured sales keep up with the rising production levels.
The new pipeline and facilities are also important from a strategic point of view. The enduring crisis in Europe has prompted Russia to start turning to Asia for business prospects. And as Russia is the world’s largest energy exporter, this means developing infrastructure like Irkutsk Oil’s new discoveries, pipelines and facilities. The region in which the company operates is strategically located to serve energy-hungry China, and the ESPO pipeline, with its link to the Pacific, makes for easy transportation of hydrocarbons to the rest of Southeast Asia and its promising markets.
At the centre of the company’s expansion plans is a well-defined corporate governance mission, one which ensures that respect for the rights and legal interests of all stakeholders lies at the heart of every decision and initiative. “Our system of corporate governance contributes to the efficient operation of the group, increasing its asset value, job creation, and maintenance of financial stability and profitability,” says Evgenia Kuryleva, Head of Corporate Governance.
The company has taken steps in order to streamline and all sectors of the company, including upper management. “Last year the group underwent a reorganisation in order to achieve a simpler and less costly structure. The new structure was approved by the Board of Directors and agreed upon by shareholders,” said a company statement.
The company has also been investing heavily in maintaining extremely high levels of industrial safety and environmental responsibility through educational programmes and training. All of these factors are combining to ensure that Irkutsk Oil continues to grow in a sustainable and responsible fashion, and continues to surpass its goals.