A new cable published by WikiLeaks shows the big challenges BP faces in its new Arctic exploration joint venture, and also sheds some light on the Russian government's motivation for allowing the unprecedented deal with state-controlled oil company Rosneft in the first place.
A new cable published by WikiLeaks shows the big challenges BP faces in
its new Arctic exploration joint venture, and also sheds some light on the
Russian government's motivation for allowing the unprecedented deal with
state-controlled oil company Rosneft in the first place.
The cable, which quotes Tim Summers, the former acting Chief Executive of BP's
Russian joint venture TNK-BP, shows how Russia's oil industry has operated far
below international technical standards, but struggled to improve its
efficiency because of government interference in the sector. It reveals why
Rosneft so badly needs BP expertise to tap oil and gas reserves in Arctic
waters, but also raises questions over whether BP will be able to deliver on
its ambitious plans in the sclerotic Russian operating environment.
TNK-BP declined to comment on the cable. A representative of Summers declined
to comment.
In a
September 11 2009
meeting with the U.S. Ambassador to
Moscow
,
Summers is said to have talked at length about problems in the Russian oil
industry.
The cable said: "The inefficiencies in the system 'are so huge', according
to Summers, that it would take a very long time to modernize the Russian oil
and gas sector. Summers pointed out that a well that would take 10 days to
drill in
Canada
would
take 20 days to drill in
Russia
. He
said moving a drilling rig from one site to another, a process that might take
7 or 8 hours in
Canada
,
takes 28 days in
Russia
.
"Multiply that by hundreds or thousands [of rigs] and you can start to
imagine the costs."
Rosneft executives admitted earlier this month that one of the main motivations
for the BP deal was access to better technology. "Acquiring new
knowledge...is of the greatest importance," said Igor Sechin,
Russia
's
Deputy Prime Minister and Chairman of Rosneft.
It appears that a joint venture with a company like BP may be the only way to
achieve this. Many state-run oil companies in other regions, notably the
Middle
East
, have been able to lead development complicated oil and gas projects in
close collaboration with Western oil service companies. However, Summers said
these companies were reluctant to enter
Russia
because of worries about intellectual property theft or negative headlines
about the business environment.
"
Russia
continues to be seen as too risky by many service companies," he is quoted
in the cable.
Summers also outlined how direct government interference hampered the work of
oil companies.
"Oil company Slavneft [on whose board Summers sits], had been ordered to
cancel an order for foreign equipment in favor of a domestic supplier, even
though the foreign equipment was clearly superior," the cable said. "Sechin
[who is in charge of the energy sector] told Summers directly that he should be
using Russian gas turbines instead of the preferable General Electric models
TNK-BP was buying."
Whether BP's Arctic venture with Rosneft will face similar interference is
debatable. Summers was talking about onshore oil drilling, for which
Russia
has
an established industry with significant vested interests. In contrast,
Russia
currently has no offshore oil industry to speak of, so the pressure to
patronize local companies may be lower.
These comments show the particular challenges of operating in
Russia
, but
they also show how things have changed. That Sechin has gone from quibbling
about turbine suppliers in 2009 to approving a multi-billion-dollar exploration
agreement in 2011, suggests a more accommodating stance to foreign involvement
in Russian oil and gas.
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