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Uralmash rocking the boat of the oil and gas machine building sector

Uralmash rocking the boat of the oil and gas machine building sector

25.03.2010 — Analysis

The machine building corporation Uralmash has signed a contract for making five drilling rigs for OJSC Gazprom Neft. The deal, according to experts, will aggravate competition amongst the oil and gas equipment makers which are living through very difficult times. The RusBusinessNews observer established that it is likely there will be no winners in this struggle; the sinking boat of the Russian machine building sector might not withstand the rocking. 

The Uralmash Corporation that at some point supplied drilling rigs to countries friendly to the USSR has not been making drilling machines for almost five years. In 2005 the four areas of the plant specialising in the production of oil and gas equipment have been transferred together with technical documentation to the Integra Group. The plant designers had to change their employer too.

New proprietors very quickly received an order for 11 heavy gigs from GAZPROM. 13 more rigs were ordered by OJSC Rosneft. According to the data provided by Vitali Tkachev, the Vice President of Integra, by 2009 16 drilling rigs had been shipped to Vankor, Priobskoye, Yurubcheno-Tokhoma and other fields. In total in the four years 40 complexes have been designed, this includes a stationary rig with the weight-supporting capacity of 320 tons. The progress is evident in comparison with 2005 when Uralmash made only two rigs.

The situation changed rapidly in 2009 when geological drilling virtually ceased. Gazprombank, the proprietor of Uralmash, started to sanitize the enterprise. The proprietor talked Integra's designers to come back to Uralmash and placed an order for five drilling rigs for Gazpromneft. These are going to be the mentioned stationary rigs with the 320 tons capacity.

Chinese manufacturers have suffered as a result of shifts in emphasis. In order to ensure the workload for its own enterprise GAZPROM has announced the reduction of equipment purchases abroad. It has been planned initially to order two rigs in Russia and buy five in China. In 2009 Gazprombank obtained a tied loan of 300 million dollars to buy exclusively Chinese units.

Experts, however, say that Uralmash's problem only just began with the placement of the order. After a five year gap it will be not easy for the plant to make five drilling rigs straight away. Moreover, the customer will have painful problems kitting out the rig as the production of pumps, diesel engineers and other infrastructure equipment still remains with Integra. Uralmash traditionally made only the tower and the lifting device.

It is likely that knowing the weakness of its position the plant started in February sending out letters to oil and gas companies warning them not to cooperate with Integra. Moreover, Uralmash is initiating proceedings over the sales of the enterprise's property to Integra which may get in the way of the completion of drilling equipment supply contracts.

Aleksandr Romanikhin, the President of the Union of Oil and Gas Equipment Manufacturers, reckons that Uralmash, fomenting the conflict, inflict damage on the domestic production of oil and gas equipment. The plant's proprietor Gazprombank could have fount a more elegant way out of the situation - for instance initiate making platforms for the hydrocarbon production on the shelf which Russia imports.

Uralmash had been making sea rigs for Azerbaijan in the seventies. They are out of date now and the work would have to be started from scratch - look for orders, choose the concept of the platform etc. Rauf Dzhabarov, the former Manager of the Uralmash's Oil and Gas Division, told RusBusinessNews in the summer 2009 that the enterprise is conducting negotiations with operator companies which obtained rights to develop the Caspian shelf fields. At the same time the top manager did not expect to get the technical specifications too soon.

Experts, in the meantime, again say that Russia might be too late as per usual. Iran has announced successful deep-sea drilling in the Caspian Sea using own platform which is the first built in the Middle East. Aleksandr Romanikhin reckons that the Islamic Republic achieved this rapid success thanks to the policies of the State which made the oil industry to order up to 50% of equipment to be made domestically. Expert does not rule out that in a few years time oil and gas companies in Russia will be importing sea rigs from Iran.

There is another market of drilling equipment which Russia deserted and left to foreigners. Valeriy Shemenev, a Head of Laboratory at the Institute of Mining Engineering of UB RAS, says that there is just one manufacturer of machines for drilling technological shafts in Russia. These products are much behind the modern standards and mining companies prefer imported equipment which is almost ten times more productive. Foreign companies applied in their products the hydraulic impact technology which was developed at the Ekaterinburg Mining Engineering Institute but was never used industrially here due to the lamentable state of the machine building sector which had not been able to make parts of requited precision and geometry. 

Experts are talking of a systemic crisis altogether. The Deputy Designer in Chef of a machine building company demanding to remain anonymous told RusBusinessNews that no Russian enterprise today is capable of making, working "on the lap" any promising high quality equipment. The electronics industry is in tatters, domestically made hydraulics break and leak, the ergonomics of the goods is no good at all. The worst thing, according to the designers, is that the system of specialist education in the country has been totally demolished. Before young specialists spent several years studying the designs developed by their predecessors. No they have no time for this as employers demand results form the working day one. However, one can only become a good designer in about fifteen years, if one has a talent, of course.

The production has been cast loose since the collapse of the Soviet Union and in order to revive it we need fundamental research and find money to establish the technology foundation. According to experts structures like GAZPROM are the very ones which could start organising the new industry in Russia. The company is in possession of a significant financial resource, has decent lobbying potential which might be decisive in the fight against the expansion of foreign manufacturers. However, due to the strange set of circumstances the GAZPROM structure spends the resources on starting up a war between domestic enterprises which in the today's conditions is like having a quarrel on the deck of a sinking ship, according to the precise words of Aleksandr Romanikhin.

This assertion is confirmed by statistics somewhat graphically: according to the data provided by Andrey Glebov, the Deputy Director of the Institute of Mining Engineering of UB RAS, shipments of machine building sector products from the Sverdlovsk Oblast amounted to just 10.5% of all exports in 2009. Up to 80% of it was ores and metals. The region imports dump truck, drilling rigs, diggers which are better than similar products made by Uralmash controlled by Gazprombank.

Vladimir Terletski

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