Kuwait’s oilfield services opportunities

Kuwait

TOGY talks to Mick Stephen, country manager of Novomet, about starting to work with the Kuwait Oil Company (KOC), the new opportunities for services with the increase in rigs and focusing on introducing new technology. Set up in 1991, Russian company Novomet provides products for artificial lifting systems in the oil and gas industry.

Can you discuss your strategy for employing Kuwaiti nationals?
Of course, we have Kuwaitisation targets to meet. It can be challenging to find locals who want to come and work in this industry, as many young people leave Kuwait. But hopefully we will increase our Kuwaiti staff. That is one of our goals moving forward.
While, there are universities here, the majority of the students go overseas for their higher education. Once they return, they either start up businesses here or work with family.

How have the upstream and oil field services adapted to the new climate?
I wouldn’t say anything has really changed, other than they’ve tightened their belts, as everybody should in this climate. It seems that all projects are forging ahead. Progress has moved a little slower and there have been some changes in the country regarding the people driving the industry, but for the most part they’re sticking to the plan as far as I can see.
Besides Joint Operations being shut down, which was a surprise, we do not see any major shifts as a results of the current oil prices. Everyone is continuing with the big drilling programmes that are planned to start next year.

How will the increase in the number of rigs from 80 to 120 change affect the oilfield services sector here?
This will cause a massive shift. With all of the new wells, valves and pumps, the majority of which will require artificial lifts, it’s going to be a massive increase in workload. This will also mean a lot of new opportunities for oilfield services [operators]. We expect there will be a big tender by the end of the year to cover that next phase.

How will the mid-size players who are also trying to have a stake in the market change the competition?
For our sector, artificial lifting systems, there are only four or five main players that you can really call ESP players in the market. It’s not like the little guys come up easily.
Kuwait is moving towards enhanced oil recovery which requires new technology. For us, it’s perfect timing, as we have a great deal of new technology coming out in Russia that is a good fit for the Kuwait market. So we’re quite happy with where we are right now.

How will new technology increase efficiency in Kuwait?
Efficiency is not really the word you want to use. Kuwait is looking for technology to get more oil out of the ground, and its efficiency is not necessarily the most important factor.
The market requires technology that conserves power. Power consumption is a limiting factor for operators, and it is a variable that requires major infrastructure upgrades to be improved. We definitely have some technology that can help along those lines.
However, whether this technology is recognised by the companies operating in Kuwait is another factor. They don’t generally see power consumption as a priority. In Kuwait, we primarily deal with mature fields which characteristically have less pressure compared to other assets. That requires new technology to lift the fluids. Kuwait still have the lowest lifting costs in the world by far. So they’ve got room to spend a little more to produce a little more for sure.

How are drilling conditions in Kuwait and how does that affect you and any companies that are working in oilfield services?
Kuwait has everything: sand, hydrogen sulphide, corrosion. You name it, they have it. There are really tough conditions here. You’ve got to take all of those variables into account and apply different materials and different equipment to handle the conditions. We have specialised equipment that requires us to take timing and design issues into account.

With the investment of KWD 115 billion (USD 381 billion) in the oil and gas industry in Kuwait, how will you fight with the big players?
I don’t know how long this will go on for. We are seeing a little bit of recovery now. Personally I think it will drag on for a couple of years. So the big projects will continue to move forward slowly in the country, which will provide business opportunities for oilfield services companies like Novomet.
Kuwait will forge ahead, but in the rest of the industry, things will continue to be slow. The big players have to tighten their belts and try to maintain their workforces and their expenditure. It’s going to be quite fluid for the next couple of years. Companies will change directions and amend their strategies. It’s hard to predict.

Does it mean that the upstream sector in Kuwait will be attractive for quite a time now?
Absolutely, the upstream sector in Kuwait is good bread and butter work. To be established in Kuwait is good during this period of low oil prices. Everyone wants to be here.

Is this one of the reasons you came to Kuwait in the first place?
Absolutely, if you want to get into this region, you need to be working in Kuwait, or you need to be in Saudi. Iraq is another major player.
We’re already well established in Iraq and we’ve got work coming up in Oman and work in Abu Dhabi. We’ve got more work in Iraq. Everybody’s been waiting for the Iranian market to open up. Iran is conveniently close. We’re definitely planning to go there now that the sanctions have been lifted.

Novomet has been expanding very aggressively over the past couple of years. What is the drive behind it?
Basically, our goal is to expand our footprint internationally. We’re already in South America, the Middle East region is being targeted right now and then we’re heading east.
We have 18 service centres worldwide. Only five of them are in Russia so we’ve got a presence in a lot of countries. All of the manufacturing is done in Russia in one major assembly point. We are second largest Russian manufacture after Borets, which does approximately 1,000 sets of equipment a month. In comparison, we do about 750. However, we have a much larger international presence.
Looking at the production levels, the two biggest companies in the West are Schlumberger and Baker Hughes. Together, both of these companies, only do about 400 sets a month each. So we’re as big as both of them put together.

What are the challenges you faced here as a newcomer?
The biggest challenges are visas and manpower. The rules keep changing and it is a constant juggling act to get visas and people mobilised or to get new work permits. That’s undoubtedly the biggest challenge. Everything else is no problem because the infrastructure is already here.
The licences and constructing the building itself and the equipment delivery were no problem. The area was originally for support operations for the Americans in Iraq, so since they pulled out, this all became defined as the new maintenance and work area for Kuwait. So that’s why you’ve got Halliburton coming here, you’ve got Weatherford here. We feel this is going to be the new oil hub.

What’s your business strategy for the year ahead?
[Our strategy] is to continue with the new technology trials. We’re introducing some new technologies through the contracts, so we are just continuing to expand. The technologies we are focusing on are permanent magnet motors and slimline equipment. We will keep improving on the technology and then present it to KOC.
Around 34% of our profits go to research and development. We have 19 test wells in Moscow.

What are the technologies? What are the ideas you have in mind?
Permanent magnet motors, in which we are really the world leaders, and slimline equipment. Both of these technologies are well established and in use across the world. The primary advantages are power reduction and the ability to deploy in slim casing, where our competitors equipment won’t fit)
Being a mid-size company in oilfield services gives us more flexibility. We have a very small niche market. We’re not like the big groups that have got different divisions doing completely different operations. We do not need to drill or do anything else to distract us. We will continue to focus on artificial lifting.

To learn more about Kuwait’s oil and gas industry click here.

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