Uralmashzavod had something to show Russian Deputy Prime Minister Sechin yesterday

26.07.2010 — Analysis

The mechanical engineering corporation Uralmash presented a drilling rig designed to work in remote areas. The company will supply the first rig, which the managers are calling a new generation of equipment, to Gazpromneft. Two more rigs will be made by the end of the year for Eriell Group, and three more for the oil company Rosneft. Russian Deputy Prime Minister Igor Sechin, who was attending the presentation, said that Lukoil and Surgutneftegaz are also considering placing orders with Uralmashzavod. Experts, however, have informed this columnist for RusBusinessNews that the deputy prime minister has been misled - there is nothing new about the rig being advertised, and it does not have the quality or the characteristics that the oil companies need.  

The Uralmash corporation has resumed production of petroleum equipment after a five-year hiatus. The mechanical engineering firm, which has extensive experience in the manufacture of drilling rigs, in 2005 unexpectedly sold its manufacturing facilities to the oilfield services company Integra, and then nearly went bankrupt. In 2008, Gazprombank took ownership of the corporation, returned to Uralmashzavod both the facilities that had been sold off and its former staff, and developed an investment program. They plan to invest over 5 million rubles to upgrade the production process, and two-thirds of this money will be spent renovating the facilities that produce metallurgical equipment. The oil and gas division will get about one billion rubles. Oleg Danchenko, Uralmashzavod’s general director, believes that this money will be enough to produce 15 heavy rigs in 2011, and to achieve a yearly output of 50 by 2015.  

Uralmashzavod has never made heavy drilling rigs before - the rigs they produced prior to 2005 never had a load capacity of over 250 tons. The new equipment they made for Gazpromneft has a capacity of 320 tons. In addition, the company’s management claims that the rig is equipped with the latest monitoring and control systems to meet the demands of modern drilling technology.   

Meanwhile, experts saw nothing new in Uralmash’s product. Yaroslav Fedenishin, the production head of the drilling department of the public corporation Surgutneftegaz, thinks that this new generation of equipment is no different than the Ekaterina rig that Integra produced from 2005 to 2009. The experts didn’t have anything bad to say about it (although they are not inclined to speak frankly), but they’re in no rush to buy this "latest sensation." Surgutneftegaz is still putting its order together, so it’s not yet clear exactly what rigs they are buying, or from whom.  

Yaroslav Fedenishin says that the general director is the one who makes the purchasing decisions. "It’s possible that he is leaning toward buying Uralmashzavod’s rigs, but as far as I know, they were talking about buying a different type of drilling equipment. In the early 2000's, we bought a rig from Uralmashzavod with a capacity between 220 and 250 tons. But our company is growing, and that’s not enough for us anymore. We want to see a new generation of rigs with larger capacities, a different configuration, and that can offer more comfortable working conditions for the drillers. We’re currently drafting a set of design specifications to develop a rig like that. And it seems to me that the rig we are envisioning is nothing like the one that Uralmashzavod demonstrated today." 

Experts claim that Russian mechanical engineers will find it extremely difficult to satisfy the oil workers’ requirements. Last year Surgutneftegaz drafted a set of design specifications to build workover rigs that could handle the extreme conditions of the far north. The company’s logistics management office told RusBusinessNews that there wasn’t a single factory in Russia capable of building to these specifications. The Belarusian public company Seismotekhnika, who makes equipment of a suitable price and quality, got the order.   

Victor Vinokurov, the quality manager for Volgogradsky Zavod Burovoi Tekhniki, says you can’t expect a miracle. The Russian mechanical-engineering industry can’t suddenly figure out how to produce a new generation of equipment after fifteen years of decline. And drilling rigs made in Ekaterinburg or Volgograd still have to have their German-made control systems, Canadian top drives, British cleaning systems, etc. The consensus on rigs made in the Volga region or the Urals seems to be the same - they aren’t bad, but often they won’t work in 40 degrees of frost.  

According to Viktor Vinokurov, Uralmashzavod is beating its competitors only because Gazprombank has invested huge amounts of money into its new equipment and is running a lot of TV ads. The owner wants to quickly increase production and get some market share so it can recoup its investment. This could put Uralmashzavod in an awkward position. Manufacturers doubt that the business is capable of producing 50-60 rigs a year. In 2002 the factory messed up an order from Rosneft, only managing to make 12 rigs and was then forced to supply Rosneft with the other three rigs for free, to avoid having to pay a penalty.  

Uralmash’s prospects certainly looked up when Gazprombank arrived on the scene. But experts are concerned about Eriell Group becoming one of the factory’s customers. Gazprombank’s website says that Eriell Group is an "independent oilfield services company, specializing in exploration and production drilling and well workovers. They operate in Russia, Uzbekistan, Turkmenistan, and Libya. Their primary customers are LUKOIL Overseas, Gazprom, Rosneft, Zarubezhneftegaz (a Gazprom group), Turkmengaz, Uzbekneftegaz, and MOL (Hungary)." But meanwhile, Integra’s own managers claim to have never run across this company on the market.  

Eriell is famous, because in the summer of 2009, Gazprombank gave them a tied loan for $300 million to buy Chinese drilling rigs. The Union of Oil and Gas Equipment Manufacturers thinks that those kind of rigs could have been produced in Ekaterinburg or Volgograd.  

Viktor Vinokurov, who works in the oilfield services market, has no idea what Eriell Neftegazservis, that booming company (well, according to the website, anyway), actually does. According to him, dozens of companies call the Volgograd factory every day, offering a variety of services. One person, for example, might claim to be able to get hold of a certificate from the American Petroleum Institute (API) in five days, for a million and a half rubles. But manufacturers are well aware that it takes two years of hard work to get this document. The companies who pop up promising pots of gold are either scam artists or middlemen in complex con jobs. But the experts aren’t ruling out that Eriell Neftegazservis was established to provide some other very specific services.  

In 2008, Uralmash announced the creation of a consortium called Uralmash-Promyshlennye Burovye Ustanovki, which they were establishing with a certain company called Promyshlennye Burovye Ustanovki LLC. Experts discovered that two months earlier, this LLC had been registered in an apartment building in the southwest part of Moscow by the foreign firms Dietswell Engineering and Sunray Energy LLP. Manufacturers suspect that this consortium is just a sham, set up to cover the supply of drilling equipment brought in from abroad. That scheme has been operating for a long time now. Equipment components are brought into Russia, and then they are assembled to produce Russian-made goods. There is said to be evidence that an agreement was made with some Chinese equipment manufacturers to have products from the Middle Kingdom marked "Made in Russia." Companies like Eriell Neftegazservis are ideally suited for doing that kind of thing.  

Experts are convinced that neither foreign manufacturers nor Russian bankers are about to produce a new generation of drilling rigs in Ekaterinburg. They talk about bringing the giant known as heavy industry back to life, but they are doing exactly the opposite. First they promote their equipment on the Russian market, and then they “spend” some real money.  Manufacturers talk about increasing competition throughout the petroleum equipment market. Service companies use American, Canadian, Rumanian, Chinese, and Russian rigs. Out of all of these, they complain most about the domestic ones. The import substitution program is working, but foreign companies who are working on the Russian market usually prefer imported equipment.  

Viktor Vinokurov claims that when the quasi-state-owned Gazprombank allots more than 5 billion rubles to one specific business, then someone there is arranging things personally. Uralmashzavod won’t be allowed to die, because the powerful and influential people who are planning to make money off of it don’t want to lose it.  

Vladimir Terletsky