TOGY talks to
Tatarstan: Russia’s powerful oil baseOctober 11, 2019
R.N. Minnikhanov, president of the Republic of Tatarstan, talks to TOGY about the significance of Tatarstan in the development of Russia’s oil and gas industry, the reasons behind the republic’s industrial success and its plans for future hydrocarbons development.
How would you characterise the significance of Tatarstan in the development of Russia’s oil and gas industry?
The Republic of Tatarstan’s oil sector has gone through several phases of development. From 1943 to 1969, fields were put into operation with a subsequent increase in oil production. Then followed a stabilisation of production volumes from 1970-1976. A decrease in volumes occurred between 1977 and 1993. Today, the industry is experiencing a fourth stage, in which the volume of production is stabilised at an optimum level.
Since the beginning of industrial development of the oilfields, cumulative production in the Republic of Tatarstan has amounted to 3.4 billion tonnes [24.9 billion barrels].
The experience of oil exploration and various studies of the geological and oil-producing potential of Tatarstan have enriched oil science and made a significant contribution to the theory and practice of exploration. It was during the years of intensive build-up of deep exploratory drilling in new regions of the republic that bold, innovative solutions in the field of oil prospecting and exploration were developed and implemented. This contributed to major discoveries in the Devonian sediments.
During the period of accelerated industrial development of oilfields, stage-by-stage deposit exploration and a new technique for additional exploration of large and small fields, based on active use of field geophysics, seismic, and structural drilling, were successfully applied. The proposed set of methodological methods has accelerated the pace of preparation of oilfields for development, reduced the cost of additional exploration and increased the efficiency of production drilling not only in Tatarstan, but also in the subsequent development of fields in Western Siberia.
An analysis of the history of discoveries and exploration practice shows that two factors have played a decisive role in creating a powerful oil base on the territory of Tatarstan: the wealth of the subsoil and the use of a new, unconventional methodology for prospecting, exploration and additional exploration of oilfields. If we turn to the history of oil exploration, particularly in the territory of Tatarstan, and compare its accumulated oil potential with the explored reserves of neighbouring regions of the Volga-Ural province, it becomes obvious that the republic takes the first place in this indicator.
In the short and long term, the Republic of Tatarstan will remain a large, promising raw material base for the Russian Federation’s fuel industry. According to an audit conducted by Miller & Lents, Tatneft’s oil reserves amount to 1.3 billion tonnes [9.53 billion barrels].
Since the 1970s, Tatarstan has been the country’s scientific and practical training ground for developing bituminous oil production technologies. It possesses Russia’s largest reserves of natural bitumen (super-viscous oil) in volumes of up to 7 billion tonnes [51.3 billion barrels]. Dozens of technologies have been tested over the years, and valuable experience gained in developing hard-to-recover reserves. This work received a new impetus in 2006 at the Ashalchinskoye field (in the Almetyevsk district of the Republic of Tatarstan), where for the first time in Russia, proprietary development technologies were introduced based on steam-gravity drainage with paired horizontal wells. The annual industrial production of extra-viscous oil reached 2 million tonnes [14.7 million barrels]. In the future, new technologies will bring this indicator to a value of more than 3.2 million tonnes [23.5 million barrels] per year.
How would you explain Tatarstan’s industrial success? What are the most significant milestones in the local energy industry’s development from the past two years?
The historical need to create a powerful oil refining industry in Tatarstan was dictated by economic feasibility. For half a century, the republic remained a supplier of raw materials to other regions of Russia and to foreign countries. Therefore, it was decided to create a vertically integrated complex in the republic that combined oil production and the production and sale of oil refining products and petrochemicals. The task was also set of increasing the depth of oil refining directly in the republic and to use oil raw materials in as waste-free a way as possible to obtain useful products.
In 2018, the Strategy of the Tatneft Group of Companies until 2030 was adopted, accumulating the ambitious goals of the company based on what had previously been approved and confirmed as effective in the first stages of the Strategy 2025 programme. The priority tasks are to further strengthen the group’s resource and technological potential, develop innovative forms of management and production processes, increase margins in all business segments and ensure the company’s financial stability.
The constant focus remains on ensuring long-term sustainable growth in shareholder value. Last year, Tatneft reached a new level of performance among the leaders of the most expensive public companies in terms of capitalisation, while maintaining a high level of investment attractiveness. Over the year, the company’s capitalisation increased by 53.5%, reaching RUB 1.7 trillion (USD 24.2 billion) in December 2018.
In conditions of continued price volatility and uncertainty in the oil market, the results achieved confirm the effectiveness of the company’s vertically integrated business model and programmed management actions. All efforts are concentrated on expanding the reproduction of reserves, ensuring the growth of profitable oil and gas production, developing the segments of oil and gas refining, gas chemistry, energy, tire production, the engineering segment, increasing cashflow growth and profitability of business processes.
What are the priorities of the government of the Republic of Tatarstan for the development of the oil and gas industry from 2019-2021?
The priority areas for development of the republic’s oil and gas industry are determined by the Strategy for Development of the Fuel and Energy Complex of Tatarstan until 2030, which, based on current realities, is being amended. In the oil industry, the worldwide trend today is global transformation of technological potential, the use of artificial intelligence systems, advanced digital solutions and large-scale information resources.
At the end of 2018, the volume of oil production in the republic amounted to 36.4 million tonnes [266.8 million barrels]. In connection with the fulfilment of obligations under the OPEC+ agreement, oil companies are holding back the pace of production, while possessing the potential to increase oil production. By 2030, oil production should reach 39.3 million tonnes [288 million barrels]. This is planned to be achieved by increasing the efficiency of exploration.
The strategic goal also becomes creating and developing scientific training grounds to accelerate development of fundamental, applied scientific research, creation and implementation of the latest domestic equipment and technologies for development of hard-to-recover oil reserves. Today, more than 40% of oil production in the republic is carried out using new technologies.
The possibilities of unconventional reserves, including from shale deposits, and their involvement in production are being studied. Currently, the first results of scientific research to assess the oil prospects of shale deposits in the Republic of Tatarstan and the prospects for their development have come in.
Oil refining and petrochemicals are identified as the base point of economic growth in Tatarstan. The republic’s development strategy has set the task of building an effective oil refining industry that is closely integrated with petrochemical industries.
What are the key projects, especially in the oil processing sector, expected to strengthen Tatarstan’s position in the Russian oil and gas industry?
According to the strategy for development of the fuel and energy complex of the Republic of Tatarstan until 2030 in the oil refining industry, the task of increasing the volume of refined oil in the republic to 23.6 million tonnes [173 million barrels] of oil (or 60% of republican production) with a processing depth of up to 98% remains relevant.
At the oil refineries of the republic, TAIF-NK JSC and TANECO JSC processed 17.1 million tonnes of hydrocarbons in 2018 – almost half of the volume of oil produced.
The TANECO project is developing successfully. The monthly volume of construction and installation work performed at the site is RUB 1.5 billion-2 billion.
During 2018, TANECO commissioned a gasoline plant for hydrotreating naphtha, isomerisation and catalytic reforming. The design production capacity exceeds 1.1 million tonnes [8.06 million barrels] of gasoline per year. As a result, the production of high-quality commercial gasoline grades AI-92, AI-95, AI-98 and AI-100 was mastered with the best operational and environmental characteristics.
In August 2019, a new primary oil refining unit, ELOU-AVT-6, was put into operation. With its launch, the design capacity of TANECO in oil refining increased to 15.3 million tonnes [112.1 million barrels] per year.
In the future, the building of new gas and petrochemical capacities for production of engineering plastics is planned and a wide range of petrochemical products not previously produced in Russia on the basis of the existing TANECO refineries. This is a vivid example of fulfilling the task set by the president of Russia of increasing non-resource exports.
What existing tax and legal stimuli will be changed to support the oil and gas industry, attracting investment and FDI?
In accordance with federal legislation, oil companies of the republic today enjoy certain privileges in calculating the tax on mining. In particular, this applies to depleted fields, small deposits with a depletion of less than or equal to 5% and reserves of less than 5 million tonnes [36.7 million barrels] of extra-viscous oil and Dominic deposits.
The Republic of Tatarstan takes an active part in state authorities’ consideration of the issue of stimulating the development of oil and gasfields. At the same time, proposals are formed that take into account the efficiency of field development for the federal budget and the profitability of oil companies.
At the same time, the republic’s largest oil company, Tatneft, is taking all necessary measures to implement strategic initiatives without attracting large external loans. The company takes a conservative approach to long-term lending, aimed at minimising risks and increasing the return on borrowed funds. In forming trends in tightening credit and financial policies and increasing market expectations, taking into account the gradual increase in lending rates, the company practices the use of hedging instruments.
Thanks to this approach, the company continues to occupy a leading position in the country’s oil and gas industry in terms of investment growth. In 2018, Tatneft invested about RUB 98 billion, which is 9.5% higher than in 2017. At the same time, the industry average growth rate of investments in oil production is 2.4%.
The Republic of Tatarstan aims to become one of the most innovative regions of Russia. What are the basic development goals of the regional government, including for oil and gas education?
The most important basis for dynamic development is the provision of a reliable technological base and the integration of digital solutions in production management.
So, the Tatarstan company Tatneft has made significant investments in its own development, testing and implementation of innovative technological solutions and equipment, and interacts with leading industry research centres. In 2018, more than RUB 1 billion was invested in R&D and ODA. For 2019, investments of RUB 1.7 billion are planned.
Today in the company almost all stages of production are provided with modern information systems, starting with the brigade level and the field and ending with corporate systems for top management, integrated into a single information space.
The manufacturers are equipped with high-precision electronic control systems, and artificial intelligence and robotics are used. The company maintains leadership in the industry in innovative technological potential and delivers advanced certified manufacturing technologies and information products to the market, many of which have no analogues.
To develop the competencies of Tatneft’s current managers and personnel reserve, targeted corporate programmes are being implemented. To date, over 200 managers at various levels have been trained under these programmes.
The unified corporate system of personnel development, training and personal growth covers all areas of business and categories of employees, including corporate policies and procedures, legislative requirements and best Russian and foreign practices. Curricula are aimed at developing effective work skills and expanding professional knowledge and practical experience.
Teachers and specialists from leading universities and reputable training and consulting companies are involved in conducting the training. In 2018, the Corporate University trained 4,709 people (167 groups) in 34 courses. In addition, training was provided by external providers for 847 people. Personnel development programmes and advanced training form a close-knit team of professionals committed to a common cause.
How important is co-operation in the field of digitalisation among the companies of Tatarstan and other oil-producing companies after the signing of the MoU between Tatneft and KazMunayGas?
A memorandum of understanding between Tatneft and KazMunayGas was signed on July 10, 2019. This document makes it possible to expand cooperation between companies in the field of exploration in Kazakhstan and Russia, organise scientific and design work in the field of oil production and field development, introduce new equipment and technologies for oil production, etc. Partnerships are also planned for development during the implementation of projects for the construction and modernisation of oil refining, petrochemical and gas chemistry facilities.
The expansion of co-operation with KazMunayGas is part of the Tatneft Strategy for development outside the company’s base region. It is a question of both Russian regions and foreign countries.
Abroad, Tatneft also focuses on markets such as Turkmenistan and Uzbekistan. In 2019, a memorandum of understanding was signed with Turkmenneft. A document was signed with Uzbekneftegaz on the basic terms of a production-sharing agreement at Uzbekistan’s Pristashkent investment block. According to the signed document, the main efforts of the parties will be directed to the effective search for and exploration and development of hydrocarbon deposits in Uzbekistan.
What is your short-term and longer-term vision for the development of the oil and gas industry in Tatarstan as the president of the Republic of Tatarstan?
As I have said, the Republic of Tatarstan approved the Strategy for the Development of the Fuel and Energy Complex until 2030.
At present, a draft of the Program for the Development of the Petrochemical Complex of the Republic of Tatarstan for 2020-2024 and the prospect until 2034 is being developed. The implementation of this programme should ensure the formation of a raw material and scientific base for development of functional materials production (new and composite materials, superstructural plastics, functional additives) and other types of products of medium- and low-tonnage chemistry.
We need to take all measures to solve the tasks and successfully implement new investment projects.