Oilfield service companies seek state support to increase competition in industry

ASTANA – The Union of Kazakhstan Oilfield Service Companies wants to increase the involvement of domestic businesses and state support for the $45 billion in projects underway by Tengizchevroil, Karachaganak Operating Company and North Caspian Operating Company, according to a Feb. 13 press briefing.

Kazakhstan Oilfield Service Companies Union Presidium chairperson Rashid Zhaksylykov. Photo credit: Abctv.kz.

Kazakhstan Oilfield Service Companies Union Presidium chairperson Rashid Zhaksylykov. Photo credit: Abctv.kz.

“Proper use of resources is an essential task for all parties. In this regard, the Union of Oilfield Service Companies Union traditionally acts as an important dialogue platform for protecting the interests of Kazakh companies. Domestic enterprises face a number of challenges including low margins of service-based businesses, closed tender procedures, certain preferences proposed by foreign companies and other things. They believe that the effective measures will be taken to resolve all existing disputes,” said union presidium chairperson Rashid Zhaksylykov, adding the three operators account for 75 percent of all the domestic oilfield service purchases.

He noted the companies need state support, as they currently must compete in unequal conditions with foreign enterprises that are exempt from import duties and have access to finance.

“Our oilfield service market is profitable for foreign companies. More than 20 out of the 100 largest contracting companies operate in Kazakhstan. Domestic companies have been able to improve their competences due to competition in the local market. At least 1,000 companies with a total number of more than 170,000 employees work in the oilfield service industry. Turnover of oilfield services averages $7 billion per year in the subsoil use sector. The share of the three large operators accounts for 77 percent of the oilfield services. There are 66 oilfield service companies in the list of top 500 largest companies in Kazakhstan with a total tax payment of 280 billion tenge (US$868 million) by the end of 2016,” he said.

Foreign investments enable local companies to improve their competencies as part of the joint ventures and consortia.

“One of the conditions proposed by the government is that the subsoil user provides the transfer of knowledge, technology and experience. The increase of local content share through the participation of Kazakh companies in major oil and gas contracts is an important part of bilateral cooperation,” said Zhaksylykov.

Russia remains an important market for Kazakhstan’s oilfield services. Domestic companies participate in the projects in Moscow, Sakhalin, Yamal and other oil and gas regions, providing construction, engineering and drilling services. They also operate in Georgia, Iran, Iraq and Jordan.

The active phase of the future expansion project at Tengiz field will start this year. Tengizchevroil has obligations that the share of local content should be at least 50 percent. The company purchased goods and services from Kazakh suppliers for $494 million in the first quarter of 2017.