From Pawns to Queens

From Pawns to Queens


Against the backdrop of tightening sanctions, experts are calling for support for small oil and gas companies. After all, they can become one of the drivers of development not only for the mining regions, but for the country as a whole.

Difficult oil

At the National Oil and Gas Forum held under the slogan of market transformation in the context of geopolitical changes, for three days they discussed ensuring scientific and technological sovereignty and finding solutions for the development of hard-to-recover reserves. It is indicative that a chessboard with drilling rigs and gas stations, electric cars and windmills arranged on it was chosen as the logo of the forum.

By the way, according to Igor Shpurov, General Director of the State Commission on Mineral Reserves, "difficult" oil already amounts to two-thirds of our recoverable oil, although back in 2015 its share in production barely reached 50%. And the increase in reserves mainly occurs due to additional exploration of deep horizons and flank areas of the exploited deposits, as well as discovery of small fields with resources of up to one million tons.

Now there is a need for technology import substitution, without which it is impossible to imagine the development of the industry. Dmitry Kobylkin, Chairman of the State Duma Committee on Ecology, Natural Resources and Environmental Protection, is convinced that there is no reason for panic. Indeed, one of the results of the sanctions could be termination of supply of Western technologies. However, colleagues from friendlier countries will try to help us with this.

Moreover, as Mikhail Ivanov, Deputy Minister of Industry and Trade, noted, since 2014 our machine manufacturers have mastered the production of more than 140 types of oil and gas equipment with the support of the state and interaction with key customers. And its share in the country's fuel and energy complex has increased by half, from 40 to 60%. This work must be continued, although it is clear that such a task cannot be solved quickly.

Awaiting the technological revolution

Yuri Shafranik, Chairman of the Council of the Union of Oil and Gas Producers and former Minister of Fuel and Energy of Russia, reminded that in the 1990s they managed to make truly revolutionary decisions. This includes the formation of vertically integrated companies on the basis of the state ownership, designed not only to meet the needs of Russians, but also to compete in the global market. Along with the oil giants, thousands of small joint-stock companies were to emerge that would create "new property" by developing small fields.

"What's wrong, let's say, if our entrepreneur invested his free money in the subsoil, instead of transferring it abroad? — Yuri Shafranik reasons. — In the United States, where the world's largest companies are registered, more than half of all oil is produced by small companies. Many of their owners left large companies, drilled two or three wells and became millionaires. Let people form partnerships and run family business. The more private sector we have — in construction, drilling, renovation — the better. There's nothing to be afraid of!"

He received support from Genady Shmal, president of the Union of Oil and Gas Producers. As an example, he also cited the experience of the United States, where small companies were at the origins of the shale revolution. They were the ones who spent decades deliberately developing the appropriate technology. Not without government support, by the way.

"That's the only way to win!"

For decades, unions and associations have advocated the adoption of a special law on small business in the oil and gas industry. Once the Duma of Yugra even prepared a draft of such a law, but it remained on paper. In the 2000s, the Union of Oil and Gas Producers held a meeting in Kazan on small oil business. Its members considered it important to bring this topic to the State Council of the Russian Federation, but they did not find support. There is an opinion among oil workers that they are not understood in some offices. It is said they believe that small companies in the oil industry are some kind of simpletons who have no technology or knowledge and hardly participate in the country's oil product supply because they don't produce the end product. This opinion, of course, is subjective.

"The development of small business is inseparably linked with the development of small deposits," says Genadi Shmal. — Big companies will not do it, they have other problems now. It would be right to return to the adoption of the federal law on small business in the oil and gas industry, as well as to create a comprehensive scientific program for the development of hard-to-recover oil production technologies.

Market participants are encouraged by the fact that the Energy Strategy of the Russian Federation until 2035 approved a couple of years ago by the government once again mentions small companies after a long oblivion. In particular, the document provides for the creation of conditions for their development. Small companies are assigned the primary role in "bringing small fields, marginal and high-watered wells, and hard-to-recover reserves into economic turnover".

"Oil farmers"

Elena Korzun, General Director of the Association of Independent Oil and Gas Producing Organizations "AssoNeft", also spoke about the necessity of small business development. She compared her "wards" to oil farmers who achieve amazing results from their nurse boreholes. Executive managers of such enterprises are usually professionals who are aware of the latest trends, including the digitalization of the fields. At a small scale, a lot can be implemented faster than in a large company.

But the number of such "farmers" is steadily decreasing. And for most of those who continue activities, life is not easy. For example, the independent company RNG, included by the Russian Ministry of Energy in the list of backbone enterprises of the fuel and energy complex, found itself under quite severe pressure. In less than 20 years since its incorporation, RNG has transformed from a small exploration company into an oil and gas holding company considered one of the key private investors in Yakutia. Since 2014, it has invested more than 100 billion rubles in the exploration and development of the most complex northern fields. It created more than 3,000 highly paid jobs in the Republic of Sakha. At the same time, it builds bridges and roads, purchases equipment and medicines for the Mirninsky hospital, and supplies free drinking water to the population of the Botuobuyinsky agricultural community, where it carries out its mining operations. It supports many cultural, educational and environmental projects. The company timely allocates over 10 billion rubles annually to budgets and extra-budgetary funds.

" Criminal cases can harm the sustainability of civil turnover and predictability of consequences of transactions concluded by the companies

The situation got so complicated that a year ago Elena Korzun had to appeal to Yuri Trutnev, deputy chairman of the Russian government, asking him to protect the rights and legal interests of this organization. As follows from the letter, in 2019, shortly after the commissioning of the Eastern Blocks of the Srednebotuobinskoye field and the first oil supplies for export, the company's private shareholders were put under pressure by commencement of criminal proceedings at the request of third parties for reimbursement of their multi-billion loss of profits on some eight-year-old case, the claims on which no one had previously applied to the courts.

They say that the current owners of RNG, who were then heads of one of the banks in Moscow, in 2011 allegedly prevented the bank's borrower from continuing to participate in the municipal development project. However, as our colleagues pointed out, by that time the project had already been cancelled by the Moscow authorities for two years. But the borrower himself has accumulated billions of debt to the bank.

As the media wrote, the "victims" in this case were just friends and partners of the owner of the company, which is a minority shareholder of the borrower, and none of them invested anything in the project itself. Moreover, the minority shareholder was forcibly liquidated by the Federal Tax Service long before the case was filed — for non-payment of taxes and non-submission of accounts from as early as 2011.

Nevertheless, a criminal case was initiated against RNG shareholders three years ago, and Preobrazhensky Court of Moscow granted a petition made by the investigation and seized 100% of RNG shares owned by their multi-profile Cyprus holding company as the collateral for the case. No matter how ridiculous these claims may seem, the investigation has been going on for more than three years at the main office of the Investigation Committee.

As Elena Korzun points out, this pressure has already resulted in the blocking of RNG's development and the stagnation of its ambitious production plans to double its business and develop the virgin territories of Northern Yakutia. There is an opinion that the investment climate suffers against this background — criminal cases can harm the stability of civil turnover and the predictability of the consequences of transactions concluded by companies. The conflict situation around the second largest independent company in terms of production forces other market players to plan their investments with great care, taking into account, in addition to the impact of Western sanctions, the growing risks of hostile takeover when making decisions. This practice, according to observers, causes harm to the implementation of deoffshorization programs in our country and the return of capital to Russia.

At a time of the highest turbulence, when we all have to readjust on the go and focus on surviving in extreme conditions, we should protect and support every taxpayer, especially a taxpayer as large as RNG. Recently, the task of stopping unjustified interference in disputes between business entities by law enforcement agencies has become more urgent than ever before, in order to allow entrepreneurs to continue their work for the benefit of Russia.

We can rightfully expect justice to prevail in this particular case. As for the industry as a whole, we need to believe that the state will be able to implement the key points of the Energy Strategy, including on small business, without waiting until 2035. In the current geopolitical environment, this is extremely important. Today there are just over a hundred small companies in the oil and gas industry. If their number increases significantly, they will have a chance to make a real economic leap — from pawns to queens, if we recall the analogy of the forum organizers with the chessboard. Small companies will develop hard-to-recover reserves, introduce domestic technology, and scale up their businesses. And along with them the regions and the whole country will develop, in spite of the sanctions — how do you like this future?

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