It is no secret that market conditions have not been kind to the oil and gas industry in recent years, which in turn has fuelled the usual predictions of its imminent demise. This being said, unlike the doom-and-gloom expert predictions of the past, the increasing emergence of alternative energy as a viable energy source means that such a viewpoint is now plausible.
If the evidence coming from some of the world’s largest oil and gas producers is to be believed, however, such pessimism should be taken with a pinch of salt. In many countries, oil and gas exploration and production is stubbornly starting to pick up again, and in the case of Kazakhstan it never stopped going strong in the first place. As new opportunities in the country bloom, Endeavour investigates Arctic Group International’s plans to blossom with them.
Kazakhstan’s rise to prominence as one of the world’s leading oil and gas producers, and the ever-increasing billions that are being invested to tap into its huge reserves of oil and gas, is quite justifiably catching its fair share of marketplace attention. Today, the country ranks amongst the global oil producing elite, and upon taking a glance at the figures it is easy to see why. A little over 3% of the world’s total oil reserves can be found in Kazakhstan – a figure which to the untrained eye may not sound like a lot, until you start to break it down; oil and gas fields cover 62% of the country, and of its 172 known oil fields this includes, more than 80% are in the process of being actively developed. Last year alone, these operations produced a total of 78 million tons of oil and condensate- an impressive figure in the global context, and one which predicted to keep growing over the coming years.
With Kazakhstan’s oil and gas potential in such ripe condition, this is a time of opportunity for companies competing locally in the sector to enter into this hydrocarbon gold rush and take their operations to the next level. For the industry giants who have established control of the country’s oilfields, success seems assured, but what of the independent companies working to support and supply these ventures? We spoke with Marc Vincent, CEO of Arctic Group Kazakhstan, about his company’s strategies for maximising their gain during this bountiful period, and securing sustainability for themselves as and when the tide changes.
Arctic Group International (AGI, or AGI CDCS JV when trading in Kazakhstan) have been operating in Kazakhstan since 1998, and has developed a well-deserved reputation for excellence. Quite simply, AGI is an oilfield services specialist with the resources and capabilities to offer a vast umbrella of services to the region’s industry operators – an important requirement indeed in a country where the oil and gas sector is so prominent. AGI’s portfolio includes just about everything an oil and gas operation could need, such as rig moving, lifting, heavy haul logistics and fluid hauling, equipment rental, pipeline construction, construction management, and, where they don’t cover something in-house, the capability to procure project materials and services in-line with client requirements.
Within Kazakhstan, AGI operates from a secure position. Their first contract was in 1998, with Tengizchevroil (TCO) – a joint venture between Chevron, ExxonMobil, KazMunayGas and LukArco, formed in 1993 when the Kazakh government granted exclusive 40-year rights to develop Kazakhstan’s Tengiz and Korolevskoye oil fields.
“Energy development has been critical in generating Kazakhstan’s growth and prosperity,” commented Tim Miller, Managing Director of Chevron’s Eurasia Business Unit. “At Chevron, we are very proud to play a supporting role in generating Kazakhstan’s success and its goal to become a nation of global prominence.”
Both oil fields are world-class reservoirs with staggering potential output. The numerous wells that tap into Tengiz access an oil field with a surface area more than four times the size of Paris, and an oil column an incredible mile in thickness. Taking into account its considerable size and scale, it should come as little surprise that Tengiz has been classed as the deepest producing supergiant, and the largest single-trap producing reservoir, in the world.
Between them, the fields could produce enough oil to satisfy demand for an entire nation. According to Chevron, their share of 2016’s daily output from this venture averaged 263,000 barrels of crude oil, 375 million cubic feet of natural gas and 22,000 barrels of natural gas liquids – a figure that could yet increase with further development.
This work in Tengiz continues to be AGI’s focus, and will remain so with no sign of slowing for at least two decades. “Chevron have high standards,” Vincent tells us: “They control the field, but that’s a double-edged sword.” With the bar set high and Chevron’s control of the oilfield established, not many companies venture operations into the area. The process of arranging contracts with the company are lengthy and rigorous, so as to ensure quality, fortunately for AGI, a relationship was built with the company early on, which has proved invaluable in keeping industry rivals at bay.
Another key relationship for AGI’s is, of course, their joint venture partner CDCS – Caspian Development Company Services. For many years the two companies have worked in close partnership, during which they recently formed their formal JV. CDCS specialist crane and transportation rental services, through which they cooperate with world-leading brands like Liebherr, Tadano, Manitowoc, Grove, Terex Demag, CAT, JCB, Mercedes, MAN, Volvo, Cometto, Goldhofer, Faymonville, Hartung, Makinsan and many others. This plays a key part in the total fleet of equipment AGI can call on or provide for rental – a fleet they are proud to say has equipment with an average age of less than two years.
After recognising the strength of the company’s partnership with TCO and its incredible growth potential, Marc Vincent bought AGI outright. In an industry which swings from boom to bust in approximate 10-year cycles, Marc’s acquisition of the company was strategically timely, allowing him to capitalise on a company with huge potential in need of leadership and direction. .
“I had worked in the same oil field and with this company as a consultant since 2002 and saw huge potential and opportunity,” explained Vincent.
“I recognised the opportunity with Arctic Group right away, and knew initiative and leadership could turn its fortunes around. It had great people, good clients and was in the right place, with opportunities upcoming. The industry is experiencing low prices globally, but the Tengiz Oil Field has been stable and steady. In our niche market, we have no direct competitors in the local area.”
AGI’s old links with TCO are hard-earned, and are a key element in their ongoing success, but they cannot rest on history alone. With every renewed contract, the application process is just as rigorous as the first, and Chevron assess their long-time suppliers against their potential rivals, meaning AGI must constantly remain the best choice.
We ask Vincent his strategy for holding their position. “Be the best – always outperform client expectations.” A simple answer, but not one that’s easy to achieve. AGI reach for this goal through a number of strategies: approaching their work with ethical integrity, investing in their staff, and re-investing their success back into the company; not content to feel safe in his niche, Vincent knows that whilst the market is on the rise, AGI must keep growing as a service to keep ahead of demand.
TCO understands this as well, which is why they are planning to invest heavily in the area through their Future Growth Project. This US$37 billion investment project will use state-of-the-art sour gas injection technology to increase daily crude oil production from Tengiz by approximately 260,000 barrels per day- an investment which will prove to be vastly profitable for TCO, and Kazakhstan as a whole.
John Watson, CEO at Chevron Corporation, WORD: “It’s a continued drive for excellence that has paved the way for expansions, resulting in a dramatic increase in production at Tengiz.”
This injection of investment into the market means a wealth of work and, therefore, profit for AGI. To make the most of this, the company has already purchased four hectares of land beside their existing base, on which they plan to use for the expansion of their construction division. “Without a doubt, expansion at this time is a safe gamble,” states Vincent with confidence. TCO’s oilfields are predicted to yield work for the next 20 years, defying the usual ten-year peak and slump pattern. In terms of construction, Chevron are currently only predicting work for the next five to eight years, but Vincent knows his industry well enough to know that more construction work always appears. Off the back of this confidence, he has ambitiously decided to re-invest 100% of the company’s profits from construction back into the department. The company also plan to grow their heavy haul and lifting division, expecting a 10 – 20% year over year growth for the next five years. Re-investing in the company may seem risky, but it is a sign of wisdom in this profitable period, and shows a hunger to create something that outlives the current industry boom.
Of course, resources on the ground are only so useful if they’re not backed up by good practice, especially in a role that provides support to long-term clients: “Honesty, integrity and hard work. If you treat people with respect and honesty it’s pretty hard to go wrong.” Marc Vincent’s philosophy shows that he understands that you get the best out of people if you treat them well – this is true of the company’s attitude towards delivering reliable results to clients, paying their suppliers on-time and treating these relationships with respect, and also looking after their staff. A team 750 strong, employees are an essential resource for AGI:
“Ongoing training and personal development is a strong part of our company culture and we employ a full-time training department that provides in-house training, bringing in experts to lead specialised courses as well as funding training for employees that want to take courses on their own time. We are strong believers in promoting from within. We especially try to promote and develop our local staff to fill openings in our management team. We believe strongly in developing the workforce of the countries we operate in.”
As well as looking after their own team, AGI also share their success by giving regularly to local charities. “Giving back to the local community only makes us stronger.”
Fortune favours the bold, as well as the wise. Profiting during an industry boom may be good luck, but working to secure and hold onto a niche within a sector is good business. By re-investing their current success and expanding over the next five years, AGI are fighting to hold tight onto their advantage in Tengiz for the next 20. Ever working, and growing to meet exacting standards and rising demand, they are in a strong position to reap the rewards that the next two decades have to offer. To be sure, AGI will always adhere to their policy of integrity and reliable support to their clients, even during the boom times. The power of partnership and loyalty is, and will always be at the heart of the business.