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No. 4, 2012

Pavel Bogomolov ,
Chief Editor of Petroleum News


In December 2012, LUKOIL Overseas, operator of LUKOIL foreign upstream projects, celebrates its 15th anniversary

Perhaps, it is only natural that the privately owned energy giant called JSC LUKOIL, Russia's first company to run the fuel and commodity business in a new way, was the pioneer, and a very successful one, in one more sphere. It rightly earned the name of pioneer of new approaches by Russian oil producers to business projects outside the Russian Federation. In other words, it developed a brand new model of investment projects and began to implement it not only at home but also in former Soviet republics and other countries.

The wind of change

Speaking of the USSR, no one had ever implemented projects on a "well to wheel" basis. Until the 1990s, this was out of the question. In the Gosplan era, with distribution of related functions among a dozen or so ministries and departments, no one thought about an all-bracing business line: from seismics somewhere in the tundra to a cup of coffee for the driver at a fuel filling station. Nor could the tasks of "commodity-driven expansion" abroad be concentrated in one and the same hands. In any case, this was not discussed on the "sixth of the world's land surface." Moreover, outside the USSR, too, the Soviet oil producers who wished to "speak in other languages" were held back by dogma. They had no advanced ideas, consonant with the wind of globalization, for creative, bold entry on to foreign upstream markets and their dynamic development.

Overcoming the legacy of "pussyfooting" and, at the same time, retaining the best of the experience gathered in Soviet times (conceptual scope, long-term planning, broad logistics coverage and a striving to share honestly with partners), LUKOIL created, indeed, at its very inception, a department for developing new regions. Then this mechanism was called the department for foreign projects. In the fall of 1996, the main department appeared for offshore and foreign projects of JSC LUKOIL. These were pilot approaches to a future scheme for management coverage of everything relating to upstream outside of the Russian Federation. And, finally, on December 4, 1997, the company LUKOIL Overseas Holding Ltd. (LUKOIL Overseas) was established and registered to improve management of overseas geological exploration and production assets. By that time, the newly established LUKOIL Overseas already had 8 projects in 4 countries.

The significance of these figures is perceived much deeper in consideration of the geopolitical factor at the quite tough turn of the 20th and 21st centuries. On the one hand, the LUKOIL management notes that, for all its status, the fuel and energy giant that was born in Siberia remains outside politics, both domestic and global. Yet politics cannot but impact on the course taken by Russian oil exports. Over a quarter of a century, customs bottlenecks, tariff disputes, all sorts of embargo, price conflicts and transit jams have occurred repeatedly. Flows of crude hydrocarbons and refined products have been blocked on a number of routes: the Baltics, Belarus, Ukraine, the Caucasus. The Georgian and both Chechen wars involved energy problems in Eurasia and difficulties in laying corridors for exporting hydrocarbons from the Caspian region. And it was to be expected that, despite the short-sighted resistance on the part of the Russian opposition in the 1990s, the domestic fuel and energy complex, not confining its course to geographical location of upstream and downstream facilities exclusively "close at hand," moved abroad.

Observers noted even then that the Russian oil sector refused to define industry patriotism merely as parochialism, a narrowly single-vector growth of the infrastructure on the territory of the Russian Federation alone. On the contrary, LUKOIL, and later other industry players, took up a new challenge (later set out in the country's Energy Strategy up to 2030). The objective is to increase substantially the share of overseas production projects in the portfolios of Russian companies. In relation to LUKOIL Overseas, the aim set for the end of the current decade is a minimum of 25-30% of the corporate volume. It should be added that this objective is, in general, being successfully met, especially with respect to gas. What does this mean in practice?

At least that, tomorrow, LUKOIL's supply obligations to somewhere in Europe, the United States or China, especially in conflict situations, might be covered not necessarily from Siberia and Timan-Pechora but from abroad, i.e., Central Asia, Iraq, West Africa and South America. Experts and leading media have already recognized this possibility. In any case, the idea of the Kremlin striving to suffocate oil consuming countries is being replaced by something else. A new interpretation of the Moscow's role as one of the energy arbiters is coming to the fore, be it sometimes painfully. An understanding is growing, especially since the St Petersburg G8 summit, that now the overseas business platforms, too, of the Russian majors are positively orientated on providing good insurance and guaranteed support for the fuel and energy balance in the world. Is this not, one might ask, a partnership way of thinking that is emphatically peaceful and turned to the new realities of globalization? It is this, as you can see, that is inherent in the management of the Russian fuel and energy complex and those that handle it in government offices.

...Yet exactly how, you will ask, right from its inception, did the JSC LUKOIL "daughter" have a, though modest, quite weighty block of assets abroad? The secret is that Russia long since pinpointed the priority destinations on the oil map for later, in the market era, priorities in view of existing projections, proven reserves and discussed routes. In I. Lukin's book Pochyotnaya Vakhta (The Shift of Honor), one veteran of LUKOIL Overseas, Shamil Gainanshin, speaks of this: "Many projects that were launched later were conceived then in Iraq, and in Kazakhstan, and in Egypt. The first three years I engaged in development of projects for the assets of Karachaganak, Kumkol and West Qurna-2. For a long time, there weren't too many projects. It is now that there are so many of them!" We should add that there really are a lot of them now - 28 projects in 13 countries!

In 1998, with the participation of the new holding company, exploratory drilling began at the Shah-Deniz offshore structure in Azerbaijan's sector of the Caspian. Soon, a huge field was discovered there, with reserves of 1.2 m3 of gas and 240 million tons of gas condensate. This and certain other discoveries or confirmation of these and formation of entire regions of presence of LUKOIL Overseas have not gone unnoticed by foreign investors. Reciprocal interest among foreign shareholders has increased, alongside a growth in demand for activization of transborder financial flows and also for creation, on the distant approaches to Russia, of "professional sifting teams" for initial analysis and selection of the business proposals and projects coming in from everywhere. Against this quite symptomatic background, in 1999, LUKOIL Overseas opens offices in London, Nicosia and Amsterdam.

A leap into the unknown every year

In December 2000, Andrey Kuzyaev became President of LUKOIL Overseas and this was more than just "one of many facts" from the HR chronicles of the operator of overseas upstream projects established within the structure of the Russian oil giant. You will learn much from looking at even a seemingly brief career CV of this exceptional man from the Urals town of Perm. Kuzyaev's appointment was a sure sign that LUKOIL's overseas course would most likely become, without exaggeration, contemporary, dynamic and emphatically market-orientated. And most important, orientated not so much on grandiose plans as on the ultimate business result. Let us take a look at least at one paragraph of this brilliant, major industry leader's biography: Kuzyaev graduated from Perm University with distinction in Industrial Planning. He worked as an economist at the Kommunar plant, and then as an associate in the Political Economics Faculty at his alma mater. In 1991, as an associate in the Political Economics Faculty, this time of Moscow University, he was inspired by the idea of setting up a commodity exchange in Perm. Just one year later, it became one of the top five in the Russian Federation and has developed subsidiaries. According to the idea of Kuzyaev and his team, they were combined into a holding company - the Perm Financial and Industrial Group. One point in the 1995 agreement between LUKOIL and the Perm Region was establishment of a company to meet the Region's demand for petroleum products. The authorized capital of CJSC LUKOIL-Perm is formed on a parity basis: 50% - LUKOIL and 50% - PFIG. Thus, in 1995, the 30-year old President of PFIG, Andrey Kuzyaev, became CEO of JSC LUKOIL-Perm.

...Let us go back, however, to the year 2000. Under Kuzyaev (who had, by that time, thrice been elected Deputy to the regional Legislative Assembly), the LUKOIL Overseas corporate center was opened in Moscow and, what is more, the company's geographical coverage began expanding. Assets of the Canadian Bitech Petroleum were acquired and the deal resulted in LUKOIL Overseas joining a project to develop the WEEM oil structure in Egypt. The project is being implemented in the Eastern Desert (in the Hurgada area) and, within the scope of this project, production has been increased many times over. The next step was startup of the Tengiz-Novorossiysk oil trunkline of the Caspian Pipeline Consortium (CPC), stretching about 1,600 km across the CIS, with a pipe diameter of 1020 mm and a through capacity of up to 36 million tons. It is through the CPC that the larger part of the oil produced by LUKOIL Overseas in Kazakhstan is efficiently exported.

In 2002, the company crossed the Atlantic to the Americas, concluding an agreement in Colombia with the national oil and gas company Ecopetrol for joint geological exploration and production of oil at the Condor block in the Llanos Basin. The block, located in the foothills of the Eastern Cordilleras, at a height of up to 2200 meters above sea level, was explored by LUKOIL Overseas using deep drilling into the Medina structure and confirmed the existence of an oil reservoir. Subsequently, however, for a number of reasons, it did not justify the oil producers' high expectations. Even so, this was the first discovery of crude oil made by Russians in the Western Hemisphere.

Again in 2002, LUKOIL Overseas opened offices in the capitals of Uzbekistan, Colombia, Egypt and Kazakhstan. A year later, an agreement was signed and came into effect with the Norwegian company NorskHydro for joint exploration of the Anaran block in Iran. In addition, base documents were signed with the Kazakhstan oil company Kazmunaygaz for joint work on the offshore blocks of Tyub-Karagan and Atashsky in Kazakhstan's sector of the Caspian.

Another successful year was 2004: LUKOIL Overseas won a tender to explore and develop gas and condensate reserves in the Rub al-Hali desert in Saudi Arabia. Block A started the project up, resulting in discovery of the Tuhman and Mushaib gas fields. Moreover, in 2004, a document was signed with the Petroleum Ministry of Iraq on cooperation and mutual understanding, disclosing the objectives of training and advanced training of personnel for the industry, as well as humanitarian aid in reviving the country's infrastructure, which had been destroyed during the wars. In Tashkent, meanwhile, an agreement was signed and, at the same time an environmental audit was launched on the Kandym-Hauzak-Shady-Kungrad gas project, which became one of LUKOIL Overseas's most significant and effective undertakings in Central Asia and, indeed, in the world. At the same time, LUKOIL Overseas opened offices in the capital of the United Arab Emirates - Dubai, in Teheran and also in Aktau, which is called the "sea gates" of Kazakhstan.

In 2005, LUKOIL Overseas acquired blocks of shares in operating companies of projects in Kazakhstan - Karakuduk, Northern Buzachi, Arman (Mangistau Region), and Kazakhoil Aktobe (the Alibekmola and Kozhasai blocks, Aktyubinsk Region). The same year, in Iran, during exploratory drilling, the Azar oil formations were discovered, this being one of the biggest discovered in the last ten years. In Uzbekistan, an agreement was signed on an alliance made up of the National Holding Company (Uzbekneftegaz), LUKOIL Overseas, Petronas Carigali Overseas (Malaysia), the Korea National Oil Corporation (South Korea) and the CNPC International (China) for exploring and developing hydrocarbon reserves in the Uzbek part of the Aral Sea. By then, too, LUKOIL Overseas had advanced from Colombia to Venezuela by signing an agreement with the government-owned company PDVSA on assessing the reserves of the Hunin-3 block in the Orinoco belt. Running forward somewhat, let us note that the Russians were the first to certify their block of heavy oil. Moreover, 2005 saw completion of the purchase and absorption of the company Nelson Resources Ltd., which owns production assets in the western part of Kazakhstan, as well as an option for the Jambay South-South Zaburunye exploration block in Kazakhstan's sector of the Caspian. This was LUKOIL's biggest ever transaction, worth $2 billion.

The LUKOIL Overseas business onslaught in West Africa took place in 2006, when the company joined four offshore geological exploration projects on the ocean shelf of the Gulf of Guinea - CI-101, CI-401, CI-205 (Cote d'Ivoire) and Cape Three Points Deep Water - CTPDW (Ghana). The decision on the part of LUKOIL to explore the wealth of this continental incline and ocean shelf was, in itself, a sensation for the global oil and gas community. For the first time ever in the history of the Russian oil industry, a large-scale program was subsequently implemented on these sectors of superdeep drilling at depths of up to 3,000 meters. During the exploration, over Christmas 2011, the very promising Independence structure was discovered in the Cote d'Ivoire waters. Returning to 2006, it should be noted that, in Uzbekistan, production drilling was launched on the Hauzak contract sector. In Azerbaijan's sector of the Caspian, commercial production of hydrocarbons began at the already mentioned Shah Deniz field. The gas produced there is exported by an international consortium along the Baku-Tbilisi-Erzerum Southern Caucasus pipeline, while liquid hydrocarbons take the Baku-Tbilisi-Jeihan oil pipeline.

In 2007, in Uzbekistan, within the scope of implementation of the Aral project, 2D seismic exploration work began and the Western Aral gas field was discovered on the contract territory. The Hauzak-Shady gas field in the Bukhara Region was started up in the same Central Asian state. It had been built from scratch under the difficult conditions of the Kyzylkum desert. In a very short time, the field reached the production level of 4 billion m3 of gas a year. A little later, in 2008, LUKOIL Overseas joined the South Western Gissar project in Kashkadaryinsky Region of Uzbekistan, providing for comprehensive development of the fields here and substantially increasing the volume of oil produced. Production of natural gas was also launched here.

For the company, 2009 was a real leap forward in the most positive sense: LUKOIL Overseas won the tender for developing the West Qurna-2 field in the Basrah province (Iraq). This is the world's biggest undeveloped oil structure. Many experts predict that development of the reserves here will produce up to 95 million tons of oil a year for 13 years! This is quite comparable with two LUKOILs operating simultaneously in the world, so great is the potential of Iraq's oil reservoir. Also in 2009, at the request of Venezuela, which is interested in combining the forces of all five Russian companies wishing to operate in the country, a National Oil Consortium was formed, with participation of LUKOIL Overseas. It was this Consortium that launched development of the huge Hunin-6 field in the Orinoco heavy oil belt mentioned above. A year later, good news came from Egypt: LUKOIL Overseas acquired a stake in the WEEM Extension project. Commercial reserves of oil were discovered in the sector and production was launched.

At the end of 2010, celebrating a decade of working with LUKOIL Overseas, Andrey Kuzyaev talked with pride about the company's achievements. In that momentous year for Kuzyaev, LUKOIL Overseas extracted 5.4 billion m3 of natural gas, this accounting for a quarter of all the gas produced by LUKOIL, and almost 5 million tons of oil - 5% of the LUKOIL total. The investment program amounted to almost $1 billion. For the first time since the company's inception, its net profit topped investments, reaching almost $1.1 billion. Confirming the high figures provided by the CEO of LUKOIL Overseas, very significant information arrived from Central Asia. A new discovery was made within the scope of the Aral geological exploration project in Uzbekistan, where drilling of the first well to a depth of 3,300 m on the Western Aral structure produced a gas flow with a total yield of about 600 thousand m3 a day. At the same time, neighboring Kazakhstan confirmed its leading role within the hydrocarbon of LUKOIL Overseas. The biggest state in the region, remaining the chief production base of LUKOIL Overseas, became the epicenter of production of 4.4 million tons of oil and gas condensate, plus 2.2 billion m3 of gas.

Good news arrived at the beginning of 2011 from Southeastern Europe: LUKOIL Overseas won the tender for exploring and developing the Black Sea offshore blocks of Est-Rapsodia and Trident in Romania. The blocks, with an area of about 2,000 km2, are located at a depth of 90 to 1000 m, 60-100 km from the closest town, Sulina. The same year, LUKOIL Overseas became the operator (i.e., not just a shareholder) of three offshore exploration projects. These are, first, the Est-Rapsodia and Trident mentioned above, and the Hanoi Trough-02 in Vietnam and the SL-5-11 in Sierra Leone. A year later, the active phase began of developing the West Qurna-2 - production drilling and installation of the key facility: an oil treatment unit. It became clear that total investments in this mega project would reach up to $30 billion. This is not counting the funds invested in Block 10, again in Iraq, which LUKOIL Overseas recently won in fierce competition with three rival consortia (with two claimants each). On the sector, where the Japanese company Inpex is the minority partner of LUKOIL Overseas, a considerable synergetic effect is anticipated from proximity to the West Qurna-2 block.

More and more partners

As Andrey Kuzyaev noted in an interview for the authoritative industry bulletin Nefte Compass (an Energy Intelligence publication), exploratory projects in Iraq involve a multitude of risks, but these are offset by the high chance of making discoveries of commercial reserves on Block 10 mentioned earlier. Operating actively only a hundred kilometers away, at West Qurna-2, LUKOIL Overseas is convinced that synergetic "pluses" might appear in the medium-term future. Fortunately, the geological "portraits" are also similar. Another major incentive, in the opinion of the LUKOIL Overseas CEO, is the fact that the company is striving precisely for long-term presence in Iraq. According to the Russians' service contract for West Qurna-2, though, in seven years' time, the rights of the block's operator will transfer to the Iraqi side but, in general, LUKOIL Overseas would like to maintain its operational activity in this country. It will be helped in this by its enormous experience gathered already on different continents.

The President of LUKOIL Overseas was also asked about why the Japanese were chosen as partners in the new Iraqi project. According to Kuzyaev, Japan is one of the biggest consumers of oil from the Middle East. Already in the medium-term future, it will become one of the main buyers of crude oil from Iraq. The Japanese, by the way, have also taken an interest there in the Nasria field and have held preliminary talks with Baghdad. Taking this into account and endeavoring to consolidate its alliances, LUKOIL would like to see Inpex among its strategic partners.

Now, following the Vladivostok APEC summit and successful conclusion of Moscow's chairmanship in this organization, the "drift" of the world oil and gas importing markets from North America and the EU to the Far East is becoming increasingly clear, so it is time for marketing changes. In a word, connection of companies from Pacific Region countries to the plans of the Russian fuel and energy giant in Iraq are doubly justified.

At the same time, the significance of the Atlantic and its shores in both hemispheres is in no way decreasing for the global course followed by LUKOIL Overseas. Moreover, the African region of the company's presence (Ghana, Cote d'Ivoire and Sierra Leone) might, judging from statements made by officials, be supplemented in the future by new licensed assets in North and South America. So would it not be more convenient to manage this "bunch" of Atlantic projects not from several points but from some single logistics center known within the industry, moreover, for its advanced role? So, surely, offices in tropical countries could be maintained by a minimum staff.

The President of LUKOIL Overseas was recently asked why they had decided to buy the Vanco Services company in Houston and why they had, at the same time, assumed the rights of operator of West African offshore projects where they were previously majority shareholders but not operators. "When we joined these projects six years ago, we were not yet known in the region and the government authorities of those West African states were not aware of our capabilities," Kuzyaev answered frankly. "Including how skillfully we manage exploration projects. Besides, our partners in Vanco insisted on being the operators until drilling of the first well was completed. Well, the first wells have now been drilled and we have established good relations with national companies, as well as the governments of Ghana and Cote d'Ivoire. They have learnt a lot about us, visited our production base facilities in Russia, and seen our technological potential. Mutual trust has grown. That is why we decided to assume the role of operator... At the same time, we decided that our competence in deepwater geological exploration and drilling would be increased in Houston - one of the world's leading centers of the industry."

"One way or another, we believe," the LUKOIL Overseas CEO went on, "that the efforts involved in opening a new office in the United States might last a long time, up to a year. And we wanted to speed up the process. In addition, no longer being the operator of our joint blocks in West Africa, Vanco no longer had reason to maintain the entire oil service staff of its branch. While for us, on the contrary, all these people were important: after all, they had unique knowledge and experience. So we proposed to Vanco that we buy its subsidiary and create, on its basis, our own service company for managing deepwater geological exploration projects." "How much did this transaction cost?" Kuzyaev was asked. "About $10 million," was the answer.

Moving on to Southeast Asia, the top manager stated that the wells drilled in Vietnam had been dry, so the period of geological exploration had been extended and the Russian investor's approach in general to these projects had been expanded in target terms. Previously, only oil had been sought there, but now attempts to find gas had been added.

So here we have another address of the growing business presence of LUKOIL Overseas. Breakthrough news was received from Norway, where the opening ceremony of the LUKOIL Overseas office was held on September 6, 2012.

The Russian debutante in Scandinavia, the media rushed to announce, joined three alliances: with two Norwegian companies - Det Norske and North Energy, and with the Swedish Lundin. This was done in order to participate in the 22nd license tender round announced by the Norwegian government. 84 blocks are being put up for tender, 72 of them in the Barents Sea or, to be more precise, in the central and western parts of its navigation area under Oslo's jurisdiction. The deadline for submitting applications is December 4, and it is planned to issue the licenses to the winners in the spring of 2013. The companies in the above consortia are participating on a parity basis, with LUKOIL Overseas being the operator in one of them. Beginning from the end of next year, LUKOIL intends to invest an annual $100 million in geological exploration in the Norwegian sector of the Barents Sea. It is not out of the question, however, that the company might, in the future, acquire existing, already operating and profit-generating reserves on the shelf belonging to this northern country.

Nor is it by chance that LUKOIL Overseas is already preparing, at the top of the European Arctic, for the next, 23nd round, to be held in 2014-2015. The tender will offer blocks in the southern part of the so-called grey zone of the Barents Sea. The Russian company does not, by the way, fear financial losses from this program. After all, one of the sectoral "pluses" in Oslo is that the government returns to investors up to 78% of the exploration costs, including exploratory drilling. True, the tax burden in Norway is one of the highest in the world, but it is quite comparable with that in Russia: in Scandinavia, taxes stand at about 75% of revenues, and in Russia - 70%. "Yet, at the same time, no one in Moscow makes compensation for exploration costs," explained Andrey Kuzyaev. "It is obvious that, in Norway, this is an incentive and a bonus." Under these conditions, there is no excluding establishment of a consortium between LUKOIL and the government-owned company Rosneft, which has, in recent years, leapt into the leading position in terms of the volume of crude oil produced in the Russian Federation. Such a partnership alliance will be quite realistic once Rosneft passes through the strict qualification procedures in Oslo.

"Our priority aim is the new areas that will be drawn into the industry coverage from the ‘grey zone,' the President of LUKOIL Overseas sums up. "We would like to have a whole portfolio of different geological exploration projects here. Yes and, overall, we consider the shelf of the Arctic seas as our long-term prospect."

Investment in human capital

The September morning in the Moscow area was unusually sunny. The transformed surroundings of the village of Skolkovo were reminiscent of the contours of a newly laid out construction site, demonstrating above all that, like California's Silicon Valley, an entire conglomerate of architecturally outstanding buildings, laboratories and hostels, called on to serve science, is going up here. Though science here, unlike the Silicon Valley, will mean more than just computer and electronic sciences: here it will be multi-profile and, so to say, multi-disciplinary, at the intersection with the education system, meeting the best international standards, moreover. The manager training center, including for a very prestigious certified MBA program, has already been built here. And, in general, the Skolkovo innovation complex should become the biggest student and postgraduate campus and, at the same time, experimental platform for both new economic policy and modernization of the entire cycle in the training of top, leadership level specialists. On the territory allocated for this, special conditions will be created for research, including for creation of energy, energy-efficient and energy-saving technologies, as well as nuclear, space, biomedical and computer developments.

...The barrier lifted instantly before the vehicle carrying the President of LUKOIL Overseas - and now the footsteps of today's visitors to the Moscow School of Management resound on the stairs leading to one of the auditoria on the second floor. These are LUKOIL Overseas President Andrey Kuzyaev and head of a personnel department of the parent company JSC LUKOIL Yury Pikhtovnikov. The school's Rector Andrey Volkov accompanies them to a meeting with one of the international contingents of the new intake of students. Yet, imagine, these are no ordinary students, from a multitude of different professions; nor have they been called by chance to meet the captains of the Russian oil industry. Before the presidium of this unusual introductory meeting sit, at extended "adult" desks, people who have already worked for LUKOIL for a long time. Indeed, it is not professors but bosses from work who will get together this sunny morning, though on "neutral" territory, to talk with their subordinates, for whose further training the company has paid Skolkovo a considerable amount. But it is worth it: the management school is seeing the launch of an ambitious initiative to combine science, higher education and business: the so-called LUKOIL Overseas Corporate University is opening here.

The first intake of 46 includes 28 from LUKOIL Overseas and 18 from other LUKOIL units, including the headquarters. Considering that the program has Executive MBA status, the entire audience is made up of middle-level managers with high leadership potential, aged between 30 and 45, with a pre-intermediate or higher knowledge of English. The task is to foster personnel capable of managing international projects. The study program of the course has been drawn up accordingly to include such fundamental topics as management of operating companies, strategic decision-making, financial management, risk analysis and gradation, adaptation to extraordinary situations, management of innovative technological development, strategic communications (PR, GR, contacts with stakeholders, negotiation, corporate social responsibility). The study course is broken down into 8-week modules plus one more graduation module (defense of study projects actually implemented within the activities of companies). Each module contains two parts - theoretical (lectures) and practical (presentations by experts from LUKOIL and big transnational oil and gas corporations).

Considering that the first 5 modules are taught in English, with simultaneous interpretation into Russian, whereas the last 3 modules are in English without translation, the program includes lessons in English. There will be multi-level tests (introductory, intermediate and graduation), as well as highly intensive group lessons using the deep immersion approach. The course lasts 13 months, without holidays. It may include short internships at major international oil companies. The lecturers include scientists and experts from the Academy of the National Economy under the Government of the Russian Federation, the Russian School of Economics, the Massachusetts Institute of Technology (MIT), Oxford University, Columbia University, the University of Chicago, the University of Hong Kong, the Kellogg School of Management and other leading Russian and foreign higher educational establishments and business schools.

The LUKOIL Overseas corporate order at Skolkovo is a harmonious extension of the LUKOIL "Leader" program. In other words, it embodies the dream of the company's founders of a full-scale personnel filter that would quickly identify future top managers with general director potential. For instance, some gifted engineer or economist, already the head of a branch department, wants to go up the career ladder. Yet the difficult startup of the program at West Qurna-2 showed that ambition alone is not enough. The people sent there often had experience, organizational abilities and strength of will. Yet, as a rule, they lacked the competence to work in the new environment and adapt to it. So the entire thrust of the Skolkovo initiative is precisely to raise "intellectually" specialists already in possession of diplomas, personal qualities and willpower, to develop these young colleagues to the level of leading complex, echelon, upstream projects anywhere in the world.

Over the last decade, LUKOIL Overseas has multiplied most of its indicators tenfold and is to treble them again over the next five years. In other words, LUKOIL Overseas will account for 25% to 30% of the total LUKOIL Overseas production. Moreover, about 40% of the aggregate corporate financial EBITDA will derive from international projects. LUKOIL Overseas teams currently number 3,500 employees but, by 2018, the staffing list will hold 8,000 positions. And the best of these employees will not just work within the scope of international upstream programs but also manage them in the full sense of the word. On what grounds is this forecast based? The answer is simple: in the majority of the overseas projects, it is precisely LUKOIL Overseas that is the operator company and LUKOIL will be responsible for planning, human resources and logistical support, procurement and so on. These same business leaders, apart from managing their subordinates, will supervise the work of 23,000 colleagues from engaged companies. Yet that is not everything: the graduates of the Skolkovo course will also have to manage a big segment of foreign professionals. It is already known that, in five years' time, i.e., at the peak of most of the projects, about 30,000 employees of contractor and subcontractor firms will be working under LUKOIL Overseas requests, orders and contracts. Making a total of 60,000 people in different parts of the world. A truly gigantic organization! So the young shift of managers and directors are already guaranteed work at least for a decade and a half in the future.

"Having once chanced on Skolkovo," Kuzyaev says, "I realized that this was precisely the place where such high benchmarks could and should be achieved. The management school impressed me greatly. We could argue a long time about the interconnection between form and content but, in any case, the form, the very atmosphere and style of instruction are very important. On this campus, we see that its founders and creators had the best global standards in mind. Discussions with the rector and his managers convinced me that the aims of Skolkovo and LUKOIL Overseas in general coincide. They want to become the world's best business university and we want to become the master unit in the LUKOIL system, to help transform it into a transnational company. The proximity and even identity of these strategic goals are precisely what constitutes the basis of our partnership. Cooperation with LUKOIL will mean, for Skolkovo, a serious chance to create a qualitatively new Russian education cluster for top managers not with some abstract ‘pie in the sky' career future but specifically for energy companies."

In a word, everything possible will be done for the new Moscow area special course to change the LUKOIL hopefuls for the better and turn a group of students not only into holders of an Executive MBA certificate but also a "team of winners," united by common ideas. After all, class-mates often manage major companies together some years later. Yes, LUKOIL has made a substantial investment in this educational project but no one here would want to think of the new students beneath the Skolkovo arches as "faceless investment units." The individuality and requirements of each are beyond doubt. At the same time, in taking their desks, members of the LUKOIL Overseas management team of tomorrow should realize that they constitute human capital orientated on obtaining a quality end product with a substantial value added. And this would be impossible without a lively, curious spirit of true competition between comrades on the course or without meticulous comparison of their weekly ratings and thorough examination selection.

"The anticipated growth of LUKOIL Overseas over the next ten years," Kuzyaev says, "is about $40 billion in investment. It is already clear that, without a well-tuned system of project management, even hard work by the teams will suffer from departures from the planned budget value, timelines, efficiency and other key benchmarks - departures up to loss of 30% of the invested resources. In other words, $12 billion worth of unjustified additional risk merely as a result of the leaders being unprepared and lacking competence, of a shortage of teamwork on their part. Such are the losses that will threaten us if we fail to develop the management system, adopt world standards or create a stratum of competitive managers. Once we decided to see how many people were engaged in managing the LUKOIL Overseas company in Moscow and elsewhere, including the functional administrative links and regional branches. It turned out to be 70 people who, in fact, manage a capital of $50 billion. I am convinced that this team needs new blood all the time: as the scale of the company's operations grows, we will need new people. That is why we are pinning so many hopes on the "Skolkovo recruits". I truly envy these fellows and wish them every success. May they take advantage of this unique opportunity, step into the future and become a golden fund for the Russian and international oil business."

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Oil of Russia, No. 4, 2012
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