Interview with Igor Shchurov, CEO of DTEK Oil&Gas, for TOP-100 magazine/Delo.ua online portal

What's happening in the global oil and gas industry? How is this embodied in the Ukrainian market?

According to experts' estimates, oil and natural gas will continue to play a critical role in the global economy at least in the next 10 years. Gas is still a strategic eco-friendly product in the long term, and oil and gas prices are subject of most focus of all commodities. At the same time, the oil and gas industry will constantly change and transform.

Ukraine is expected to slightly reduce gas consumption - about 1.5% per year. However, production will see 2% or more up per year, depending on economic factors and the regulatory environment. Private companies will be the most important drivers of gas production growth in Ukraine. In-depth analysis of these trends, as well as a number of other factors, formed the basis for DTEK's development strategy 2030.

In December, DTEK presented a new strategy. What can you say about the strategy of DTEK Oil&Gas?

Now the oil and gas industry is going through hard times due to relatively low gas prices, but any crisis is an opportunity. Therefore, the most important thing is to choose the right strategy that will allow us to evolve in an era of change. The main strategic goal of DTEK Oil&Gas is to maximize the growth of hydrocarbon recovery by expanding the resource base and introducing the latest technologies. In 2020, after a four-year period of stable production at the basic fields, we reached a new dynamic: we demonstrated an 11% growth, having produced 1.84 bcm of gas, which became a new record for private Ukrainian gas production. This became possible thanks to the implementation of innovative solutions by our employees into all production and business processes of the company. This year we plan to reach 2 bcm, and over the next five years - at least double this figure. It is the production of conventional gas in the continental part of Ukraine that remains our main priority. However, in the course of the strategy, we are also moving towards commodity diversification - we plan to start oil production.  

How much did the company invest in the past year?

Over the past year, we invested over USD 100 million in the development of Ukrainian gas production - in deep drilling, construction of onshore infrastructure and latest technologies. We continued to implement the drilling program at the Semirenkovskoe and Machukhskoe fields and constructed four new deep wells. Moreover, we completed the construction of booster compressor stations in order to develop the existing fields with maximum efficiency. We applied the latest well stimulation and workover methods, while some of geological studies were carried out for the first time in Europe. All this helps us to increase production and approach Ukraine's energy independence not in words, but in deeds.

Have you in plan to develop new assets?

Thanks to work of the Association of Gas Producers of Ukraine, a mechanism of open auctions for the sale of subsoil use licenses was launched in Ukraine. Over the past two years, we purchased the most promising sites, which were put up for auction by the state. The most intriguing of them was the Budyschansko-Chutovsky site, which we won in the competition last year and which to be developed in the near future.

In addition, an important step was taken at the end of 2020 in the development of Ukrainian gas production - production sharing agreements were signed as part of the largest PSA competition in the history of Ukraine. Working on PSA terms will potentially bring Ukraine up to USD 1 billion in investment and will be a strong positive signal for the industry, significantly improving the investment image of Ukraine. Effective implementation of the agreement on the Zinkovskaya area is part of DTEK Oil&Gas's strategy 2030.

What is the role of latest technologies in DTEK Oil&Gas's strategy? Can you illustrate the impact of innovation on the company's commercial performance?

We introduce modern technologies throughout the entire gas production chain - from the latest exploration and deep drilling techniques to hydrocarbon recovery, industrial safety, environmental protection and business process management. Innovations help us to effectively build up our resource base, increase production and reduce capital and operating costs. The effect of the introduction of latest technologies at DTEK Oil&Gas is comparable to the developments of the world's major oil and gas companies and amounts about 20% of the business value.

You are the only company in the industry that created a Technological Center, which is responsible for the systematic implementation of advanced technologies. What are the principles and mechanism of its work?

The Technological Center is a multidisciplinary team of highly qualified professionals. They systematically monitor world-class breakthrough technologies, appraise the possibility of their application at our facilities and adapt them to the conditions of our fields. But we look wider. Our mission is to develop not only DTEK's oil and gas business, but the entire industry, and, in fact, we form a full-fledged technological ecosystem in the gas sector of Ukraine. To this end, we are creating DTEK Oil&Gas Technology Hub in order to involve previously unavailable technologies to Ukraine, establish international partnerships with major companies and activate the scientific and technical potential of our country. This will bring additional value not only for DTEK, but also for the energy industry in Ukraine as a whole.

What conditions are required to achieve the strategic goals of the company?

In the modern world, many companies are able to purchase the latest equipment and introduce modern technologies. But this is nothing without a high-professional team. That is why I am convinced that the key condition is people. We focus on internal resource: we create and maintain candidates pool, bring up the best specialists who already today help the company to be the leader and form the vector of development of the entire industry. This is our main competitive advantage and the most valuable capital.

Now you do not surprise anyone with declared salary and a good social package. This is the standard a company should comply with if it wants to involve the best specialists. Therefore, we are paying more and more attention to other additional values - training and development, creating a unique corporate culture. Our employees have the opportunity to implement complex projects, adopt the best international practices, regularly attend specialized trainings, exhibitions and conferences worldwide and undergo training on the basis of our corporate university - DTEK Academy.

How is DTEK Oil&Gas poised for a period of strong growth? 

Today, in the current conditions of high market uncertainty, the organizational model of the oil and gas business should increasingly meet the principles of sustainable development. Now the habitual foundations of work undergo changes, so we strive to ensure management flexibility and a constant readiness to adapt to new conditions. To this end, last year we launched a transformation process, the main goal of which is to increase DTEK Oil&Gas's readiness for active development within the approved Growth Strategy. This can be achieved by distributing human resources to focus the efforts of key employees and clearly delineating their areas of responsibility. This will allow us to increase the number and quality of new ideas, make decisions faster and more efficiently implement the strategic initiatives.

Your company is one of those focused on sustainable development. What principles of sustainable business are applied at DTEK Oil&Gas and how does it affect your business?

DTEK determined 12 priority UN Sustainable Development Goals and incorporated them into its ESG Strategy. It comes to combating climate change, the preservation of ecosystems, responsible consumption and production, and much more. We make a great contribution to the achievement of these goals by Ukraine. To a great extent, this is facilitated by modern technologies that minimize the impact on the environment such as pitless drilling that meets international standards, wireless seismic technology and much more. The most important principle of our work is to be a reliable partner of local communities. We invested about UAH 50 million in 2020 in the development of local communities in the territories of our presence. This figure is higher every year.

What factors will help develop the Ukrainian gas industry?

The oil and gas industry is a budget-forming industry for Ukraine, so we need systemic processes to come to sustainable, not situational development: systemic investments, a constant inflow of modern technologies and expertise. We have been talking about this for years. It is extremely important to continue the reform that was started several years ago. First of all, we are talking about fiscal incentives. This is the extension of the incentive royalty rent for new wells for 10 years, the introduction of the incentive royalty rent also for oil and condensate production, the unification of rates for all hydrocarbons, the introduction of fiscal incentives for hard-to-recover and depleted reserves. There are modern technologies to develop hard-to-recover reserves. Such projects are still unprofitable without fiscal incentives, but they can reveal the resource-reserve potential of Ukraine in a completely new way. Ukraine has great prospects for increasing own gas production. We are able to unlock this resource potential and make the country energy independent.

Based on Delo.ua files (https://delo.ua/business/nasha-missija-razvitie-ne-tolko-neftegazovogo-378769/)