«    2009    »

Integra brochure
(pdf - 1.6 mb)

October 22, 2009

We have no financial problems

RBC Daily newspaper

The crisis has had an impact on the market of oilfield services. Large oil companies tried to save, in the first place, on geologic exploration works while smaller ones started to abandon the market due to unavailability of loans. Integra President Felix Lubashevsky told about the operation of this oilfield service provider in the present perplexed times in an interview to RBC Daily.

At an IPO two years ago Integra raised some US$600 million by placing about 28% of its shares. This September, you placed 21% of your shares and raised US$95 million. Are you satisfied with the results?

I am. After the crisis, the capital markets have changes. In both cases, it was the market that valued the company. Our investors value us in comparison to our competitors and other players in the industry. An additional proof to that is the fact that since the last placement of our shares their price has gone up by a third, with placement price being US$2.50 and yesterday’s GDR price reaching somewhat US$3.70 .

What changes in Integra followed the appointment of Antonio Campo as its CEO?

It is true that executives of such a high level, at least in our industry, have not been coming to Russia to permanently work and live here. The industry rather saw people aged 60 to 70 years coming to sit on the boards of directors, but we now got an executive who is healthy, energetic and willing to turn Integra into a large technologically advanced international oilfield services provider and significantly improve its performance.

Antonio was among top ten senior managers of Schlumberger, world’s largest oilfield services provider, and had headed its various units, including its global integrated project management branch, as well as supervised operations in Eurasia which included Russia among other countries. At his last position with Schlumberger, Antonio was in charge of operations in Latin America, a major region for the company activities.

What are his immediate plans in Integra?
They are improving technological performance and management efficiency and promoting company’s active expansion. At the moment, Antonio runs all company operations and production branches.

Does that imply that the company is currently concerned with technological issues rather than financial problems?

We have no financial problems. In February 2008 we were granted an EBRD facility. It will mature for five years with an interest of about 10% per annum; this money is both cheap and long. In the midst of the financial crisis we restructured out debt having obtained a syndicated US$250 million loan from a number of banks.

The EBRD facility is in a way a proof of reliability of ourselves as a borrower. For long months, EBRD specialists carefully reviewed out business, our production facilities, our cash flows, our management mechanisms and our environmental protection measures. Their subsequent analysis witnessed stability of our business model and promising outlooks for its future. Therefore, the facility extended allowed us to resolve our most pressing financial challenges by eliminating most of our short-term debts.

Before the crisis, out debt stood at US$540 million in mid 2008. By the end of 2009 we expect it to drop to a figure slightly over US$200 million. That has been accomplished through continuous generation of cash flows and increase in share capital which was not dramatic for a company of our scale. That is why today we focus our attention on our production performance.

The money is back

After a drop in oil prices and subsequent decline in oilfield services market, the situation has come to stabilisation. How has market stabilisation influenced your portfolio?

The market has stabilised indeed. In geologic exploration, seasonal tenders on seismic operations started in August. Due to increase in capacities of service providers rendering services in seismic and geologic prospecting operations, which was observed in recent years, the prices somewhat declined. At the same time, the scope of services grew due to insufficient investment in geologic exploration last year. Volumes of other services are expected to grow as well.

AFK [Joint-Stock Financial Corporation] Sistema, the new owner of the pool of energy companies in the Republic of Bashkortostan [including Bashneft, Novoil, Ufaneftechim, Ufa Refinery, Ufaorgsintez and Bashkirnefteprodukt] recently announced its intention to use outside service providers for rendering oilfield services to Bashneft oil company. Will you take part in their tenders?

At the moment, we already provide various services to Bashneft and will certainly consider new opportunities and participate in future tenders.

Headhunting for equipment manufacturing industry

It has become known that 11 designers left an Integra Group’s subsidiary. How will you find new professionals?

To start with, let me explain some history. In late 2005 Integra acquired from MNP Group various assets in mechanic engineering, including Uralmash-Burovoye Oborudovaniye which in turn included two workshops located at the Uralmash plant, a design bureau holding all of previous patents, documents and drilling rigs engineering specifications, and a check assembly site. About a year later, Metalloinvest and Gazprombank acquired Uralmash Machine-Building Corporation among other assets from Mr Kakha Bendukidze and for some while continued cooperating with us, but toward the end of 2007 they decided to launch their own production of equipment for oil and gas industry. They saw us as their competitors and hence terminated any cooperation whatsoever.

To my knowledge, Uralmash has not manufactured a single drilling rig ever since. Hence they probably decided that once they are unable to launch such production all by themselves, they should outbid Integra and lure away its employees. Out of over 200 engineers of our machinery design unit, 11 employees defected including deputy chief of engineering, chief designer and few others.

What were the reasons behind their decisions? First, the salaries offered by our competitor at rates far exceeding the market average, and second, the growing competition with their younger colleagues. Will their current employer now succeed in launching new production of drilling machinery? Having enticed out former employees and in case of a proper structuring of the manufacturing process, Uralmash may in a while launch drilling rigs production, but there is no point to predict the time frame for that. That is the challenge of their own choice.

Still, could you describe the current performance by Integra’s engineering unit?

The revenue Uralmash-Burovoye Oborudovaniye generated in 2005 was about RUR1 billion, in 2008 it was RUR6 billion. We have invested some US$50 million in various engineering assets, acquired and subsequently developed Stromneftemash, purchased additional workshops at Uralmash plant and bought Tyumen Shipbuilding Plant (TSP).
In the past 15 or so years TSP built no single ship and was literally in ruins. After we invested 450 to 500 million rubles, the plant manufactured its first drilling rig.

Besides, we expand cooperation with ROSSATOM State Atomic Energy Corporation who have huge capacities which will enable us to ensure timely and high quality assembly of our drilling equipment.

For quite some time, Integra developed extensively by buying other industry players. Given the crisis, do you have any plans in mind of selling some previously acquired assets?

True, we purchased many small companies which became core of our varied businesses, but for us that was the only way of building a large company from a stretch. By mid 2007 our extensive expansion was over. It should be noted that our development plans initially incorporated both organic and non-organic growth. To consolidate our production capacities (CAPEX), in 2005 and thereafter some US$600 million were invested. At the moment, all of our branches perform well, but in case we come to believe that some business unit of ours will slow down its progress in the forthcoming years and will fail to meet the targets set, we may consider an option of selling it, should there be a purchaser.
Betting on seismic operations

Your six months financial results evidence that your drilling branch which generates 42% of Integra’s overall revenue, has a margin of merely 7%. Which segments will be the company’s priority in 2010?

As a matter of fact, drilling is a low margin business in Russia, but the core of all of our oilfield services. As far as most dynamic businesses are concerned, they are technology services and seismic operations.
This year we made two seismic explorations contracts with Tengizchevroil and the consortium exploring Karachaganak oil and gas field.

Our mechanic engineering branch has not seen many new contracts this year, but we made a big contract with Rosneft and will supply four drilling rigs. Our cementer manufacturing facility has been showing good growth too.

In 2007 your company announced its expansion to international markets. Given the crisis, should these markets be targeted at all, or should the only focus be on Russia?

The two approached do not interfere with each other. Most of our revenues are generated in Russia. Still, in CIS countries there are rather large oil and gas markets which are not comparable to those of Russia, of course, but are nevertheless attractive. Two years ago we opened our representative offices in all CIS countries with developed oil industries. Our seismic services provider in Kazakhstan is performing quire well. We see good sales of our drilling machinery in Turkmenistan and are successful in oilfield services provision in Ukraine.

Do you plan to expand into totally new markets?

We have opened an office in Kurdistan (Iraq) as we believe that the Middle East market is attractive for us. With the technologies we can export at the moment, we actively participate in tenders outside Russia, first of all in seismic operations, machinery exports, technical services and IPM.

What is the share of these markets in your portfolio?

It is not big. We proceed with an offshore project in Latin America and have just accomplished two seismic projects in Mauritania.

In the first turn, we are a Russian company and hence we focus on the markets of Russia and CIS. A major expansion into international markets is the goal for the future.