Business as Usual Part II

It’s good to see that following the Macondo well blowout last year, BP have taken all necessary steps to ensure they don’t lurch into yet another embarassing  crisis:

UK supermajor BP and Russian giant Rosneft have been blocked by an arbitration panel from forming an alliance to explore for oil in the Russian Arctic and executing a $16 billion share swap.

The ruling, by an arbitration tribunal in Stockholm today, handed a major victory to BP’s billionaire partners in its Russian venture, TNK-BP. They argued that the deal between BP and state-controlled Rosneft violated their right of refusal on deals in Russia enshrined in TNK-BP’s shareholder agreement.

It will especially sting BP chief executive Bob Dudley, who was once in charge of TNK-BP before being forced to leave Russia in 2008 due to what he described as a campaign of harassment by the joint venture’s co-owners.

Recall that they sacked Tony Hayward for incompetence and making an idiot of himself in public.  I wonder what the BP management think this is?

Perhaps Bob Dudley is  hoping the problem will just go away, as Igor Sechin appears to be:

Russia’s Rosneft vowed today to push ahead with a strategic alliance with BP, despite a block on the deal by the UK supermajor’s partners in joint venture TNK-BP.

Rosneft chairman Igor Sechin said an arbitration panel ruling preventing BP and the state-controlled energy giant from jointly exploring Russia’s Arctic region and from executing a $16 billion share swap did not void the deal.

“The court didn’t block (the deal), it extended the injunction until 7 April. We must await the court’s verdict,” said Sechin, who is also Russia’s deputy prime minister.

This might come as somewhat of a surprise to Mr Sechin, but the tribunal is unlikely to be interested in his personal interpretation of the ruling.  Unlike in Russia, such rulings are not merely handed down for information only.


US giant Chevron and Russian state-owned oil company Rosneft are looking at whether to go ahead with a $32 billion Black Sea oil exploration project, with the proposed deal currently mired in uncertainty, sources at the companies said today.

If the oil and gas journals are ever looking to save money they might consider informing us only when Russian projects are not mired in uncertainty.  Nobody seems to have a clue what to do with Kovykta: the Russian government first tried to snaffle it from TNK-BP before pulling out of a deal to take it over declaring they have no use for the gas, then saying they will delay its development before buying the field and subsequently announcing that sending its gas to China will be a priority. (Incidentally, Kovykta is one of the hardest subjects I write about: trying to make head or tail of all the u-turns, announcements, contradictions and actual events is a nightmare.)  Shtokman has stalled following an 11th hour change of strategy on the part of Gazprom, rumours abound that Sakhalin II is going to become wholly Gazprom-owned with Shell being granted access to another development in return (although perhaps they should decide once and for all if they’re going to build a 3rd LNG train, baby steps and all that), and the Russian government recently threatened to replace ExxonMobil on Sakhalin I in the midst of arguments over the project budget (yes, the same Sakhalin I project which was told it couldn’t export the gas it was entitled to under the terms of the PSA).  On this basis, the confusion over the BP-Rosneft deal is business as usual.

Back to the article:

Industry analysts said there were differences between Chevron and Rosneft on the choice of a project contractor, where the joint venture should be domiciled, and on the jurisdiction of arbitration for any business disputes.

Pretty major differences those, all pointing in the direction of Chevron not trusting Rosneft one jot.  I expect Chevron want disputes to be settled in the courts of a neutral country whilst Rosneft want them to be settled in Russia, specfically Igor Sechin’s office.  If they can’t even agree basics such as this, this can be chalked up as yet another Russian oil and gas project which has fallen at the first hurdle.  No doubt Russia’s cheerleaders will ascribe this to strategic brilliance on the part of Russia’s leadership who have shrewdly predicted an oversupply of Black Sea oil in the next decade.  Indeed, the Russians are already getting their version of events out:

Russian media reported Chevron was sceptical about the prospects of Val Shatskogo and that it feared the deposit did not hold enough crude to be commercially viable.

Not being commercially viable and not being commercially viable in Russia being two entirely separate things.  There’s a pattern here, isn’t there?

The Best Business in the World

I have heard the following quote attributed to both J.D. Rockefeller and John Paul Getty, although I have been unable to verify its actual source.  Not that it matters, as it’s as true as true can be:

The best business in the world is a well run oil company.  The second best business in the world is a badly run oil company.

Many people probably labour under the impression, as I once did, that oil companies represent the most efficient, well-managed businesses going.  How else would they make profits running into the billions year on year?  Anyone who’s worked in an oil company will quickly learn that nothing could be further from the truth, and perversely it is their very success which makes them so inefficient.

Oil companies make money by opening a spigot and flogging what comes out.  What comes out is extremely valuable, so they make an awful lot of money very quickly.  But if it is so easy, why isn’t everyone doing it?  Because to get into a position where you own the spigot and what comes out of it you need to have invested an enormous amount of capital, which few people have.  By far the greatest contribution of western oil companies to any given development is their stumping up enormous amounts of the necessary capital.  Their secondary contribution is to manage the expenditure of this capital in an efficient and responsible manner.  Of course, the criteria for that last one is that the oil company must be more efficient and responsible in matters financial than either a kleptomaniacal tin-pot dicator or anyone else in the position of owning an oil well, who thankfully for the western oil companies all happen to be kleptomaniacal tin-pot dictators.  Or Russians, who have even less clue than tin-pot dictators how to spend money wisely.

Anyway, the upshot is oil companies throw lots of money at a development and make lots of money in return.  LOTS of money.  If you are making lots of money, what is your incentive to do something differently?  There isn’t one.  If you are making lots of money, what is your incentive to do something which is not only different but a right pain in the arse as well, like sack an idiot, launch an efficiency drive, or refrain from airfreighting scaffolding tubes around the world?  None whatsoever.

Contrast this with an engineering company providing services to an oil company.  How do they make money?  Well, they convert manhours into drawings and sell the drawings.  Sometimes they even sell the manhours and hope the oil company won’t notice no drawings have been produced.  They do so on a margin of somewhere between five and ten percent.  In other words, if an employee of an engineering company goes to the toilet, makes a coffee, picks his nose, or surfs the ‘net for 3-6 minutes an hour, the company loses money.  Which goes a long way to explaining why most of them do, unless they happen to have a subsidiary in Jakarta or Chennai stuffed full of people who go home at weekends to till the family farm with a buffalo.  For engineering companies, time is money and people are vital.  For oil companies, oil is money and people are involved for some reason, but nobody’s sure why.  The difference can be appreciated by observing a typical first day of work at both companies.

When you join an engineering company you get instructions to present yourself at the office no later than 8am.  You walk through the front door bypassing the empty receptionist’s desk (being an overhead she starts at 9am), and find your manager’s office.  You know who he is because he interviewed you last week.  He will run at you as if he has discovered there are only 24 hours in the day instead of the expected 30.  He’ll grasp your hand and, taking you by the shoulders and wheeling you around, propel you to an empty desk outside his door.  There you will be plonked into a seat opposite a computer which is already booted up, and has a Post-It note stuck to the screen with your username and temporary password.  Before you’ve caught your breath your boss will have plonked a pile of papers on your table, splurted out the location of a folder on a server you don’t know the name of, and told you to “get up to speed” in preparation for the meeting this afternoon.  By the time you go home at 6pm you’ve delivered a presentation, negotiated a contract or two, reviewed a folder full of drawings, done your HSE induction, been issued with a badge, missed lunch (nobody ever tells you where to get grub on your first day), written a progress report, and feel as though you’ve worked in the company a month.

When you join an oil company you get instructions…actually, no you don’t.  You don’t get any instructions.  Your first day on the payroll is 1st September, and by 18th September you think it may be time to give somebody a call to ask when and where you are supposed to be.  After finding out that the person who interviewed you has now been promoted to Senior Venture Planner in the company’s Rio de Janiero office, the person who has replaced her has no idea where you are supposed to be.  She promises to get back to you.  By October she will probably have called you having been on the receiving end of a phone call from a bewildered engineering manager who thought he was supposed to get a new engineer sometime this autumn.  By mid-October, if you are lucky, you will know where you’re supposed to be and on what date.  If you’re daft enough to turn up before 9:00am you can expect to wait outside the door for a while, staring helplessly through the glass at the empty reception desk beyond, or the plastic square against which you will one day press your badge to gain entrance.  Once everyone else arrives and somebody lets you in, you’ll speak to the receptionist at the front desk.  She will take you through to an admin. girl whose job is to…well, nobody is sure.  But she will give you a blank look as the receptionist skedaddles back to her desk before she can get roped into doing any more work today.  The admin. girl will um and ah, um and ah, and when she sees you’re not going away she will pick up the receiver of her phone and stab a few buttons.  The conversation that will follow, if you can call it that, is akin to that which takes place between an employee at a job centre and a smack-head who has been told to show up or else lose his dole cheque.

After a lot of pouting and snorting, the admin. girl will take you down the corridor, into a lift, up a few floors, out of the lift, down another corridor, and into an office containing a Human Resources department and more incompetence per square metre than anywhere else on earth.  A sour-faced harpy will bark at you for having come to the wrong office on the wrong day less than a minute after saying she doesn’t know who you are and she’s not the one dealing with you.  She will then ask you where you are supposed to be working, perhaps not realising that you are stood there hoping she might be able to tell you.  She will make a few phone calls, grumbling that her busy day has been disturbed and she might not be able to book herself on the training course in Paris before lunchtime.  She will put the phone down, look up at you, and say something along the lines of “Okay, you need to go to Churchgate”, as if its meaning and location were self-evident.  If you ask where it is you can expect an impatient snort, a wave of the hand, and no useful information which might help you get there, so you’re better off wandering down the corridor poking your head in the offices as you go and finding the nearest expat.  He’ll tell you where Churchgate is.

Unfortunately, when you get there the bloke you’re supposed to be meeting will be on leave.  The department admin. girl, different from the other one in name and appearance but identical in all other aspects including manners and competence, will plonk you at an empty desk and tell you to wait until he comes back.  From his three-week skiing holiday?  Apparently yes.  By this time it’s 11am and everyone is starting to think about lunch.  You know this because since you’ve been sat down half a dozen people have wandered aimlessly past carrying mugs of coffee and engaged you in idle chit-chat, and the admin. girl has already left.  By the time you’ve explained to everyone where you’ve been working previously it’s actually lunchtime and you join a jolly throng of twelve of your new colleagues on their way to the staff canteen.  Over three courses and an hour and a half you get to know everyone, but alas nobody has the faintest idea of what job you’re supposed to be doing.  “Maybe you could ask HR?” they advise kindly if not a little naively.

The afternoon is spent trying to find out when you will get your computer, when you will get your badge to let you in the front door, and when you will be doing some work.  The answers do not come easily, but through toil and perserverance the results come in and are, respectively: at least a month, at least a month, and loud guffaws with one request not to swear.  By the time you go home at 4pm you’re thinking one thing only: thank f*ck I left that engineering company!

Some Shit They Supposed To Do

In Chris Rock’s Bring the Pain he observes that:

Niggaz always want credit for some shit they supposed to do. … A nigga will say some shit like “I take care of my kids!” You’re supposed to, you dumb mother f*cker! What kind of ignorant shit is that? “I ain’t never been to jail!” What you want, a cookie? You’re not supposed to go to jail, you low-expectation having mother f*cker!”

He might as well have been talking about Russia.  Russia wants to simultaneously be a respected member of the G8 treated as equal to the likes of the USA and Germany, whilst at the same time be granted the same passes enjoyed by African basket-cases.

Now I don’t want to pick on the Kremlin Stooge here, but he does an indeniably good job of reaching an audience which consists of the most vociferous and passionate supporters of Russia that I’ve come across on the internet to date.  Certainly, in my opinion, the commenters on Mark’s blogs are representative of Russia’s educated and energetic cheerleaders, and thus we can make a reasonable assumption that much of what Mark himself writes must chime pretty neatly with their own views. Now the particular complaint I’m going to talk about can be found in a lot of places, but Mark’s site has thrown up two examples which I remember, so I’ll use them for convenience.

The first concerns the reaction to the western press over Russia’s planned technology park Skolkovo.  Firstly, some background:

The Moscow authorities intend to ease registration rules for companies at a high-tech business park in the Moscow suburb of Zelenograd as part of continued efforts to develop the country’s high-tech and innovation sector, a local government source said on Thursday.

It said the Moscow authorities were planning to draw up special rules to cut red tape on registration in the technology park for small innovative companies that do not have plans to build their own production facilities.

Now over to Mark:

What is it about President Medvedev’s attempts to set up a “technology city” at Skolkovo that drives some western journalists over the edge?

In Russia, it’s as if journalists fear Russia actually will turn into something worthwhile internationally, and they must arrest every sign of progress by greeting it with hisses of contempt.

It’s still exasperating, though, to see any efforts to make progress in Russia greeted with sneers, snickers and mockery by the western press.

Such sentiments are common amongst Russians, I’d even go so far as to say they are widespread.  Here’s why I think they’re going to stay unhappy for a while yet.

Firstly, let’s take Skolkovo.  So Russia plans to set up a special zone where the mind-numbing, wealth-and-soul-destroying, all-encompassing bureaucracy which has cursed Russia since the Revolution will supposedly be relaxed.  Sorry, are we supposed to be impressed by such plans?  Russia plans to do in one small place what most developed countries do anyway as a matter of course, and they’re supposed to be showered with praise?   No, what would be worthy of praise is Russia actually achieving this aim of cutting bureaucracy and the inevitable graft and corruption that follows it and keeping things that way for several decades, not just merely announcing grand plans.  Cutting bureaucracy and corruption in Russia has been tried before, and has failed on every occasion.  Previous attempts at creating technology hubs in Russia have not been met with much success.  The vested interests in maintaining bureacracy and corruption in Russia are formidable, and merely announcing that they will be disposed of – even in an area as pathetically small as Skolkovo – is no more impressive than king Knut’s efforts at turning back the sea.  Everybody knows this, which is why such announcements are met with snorts of derision.  There is no fear of a modern, efficient Russia, just recognition of the same old Russia.

Let’s take a recent comment on another subject:

The Russian government shows significant interest in diversifying away from an energy-dominated economy and in an increased reliance on trade.

The difference is that Russia receives far more mockery than encouragement. Old enemies Germany and Japan are welcome trading partners and cozy friends whose judgment and ideas are respected and welcomed. Not so Russia, which gets neither support or encouragement for reform.

So Russia wants praise for showing an interest in trade?  Fuck me, half the western world understood the importance of trade, and the institutions which underpin it, over two hundred years ago.  The other half were slow in catching up but finally the penny dropped.  By contrast, Russia spent 80 years making trade illegal – something I’m fairly sure the west consistently told them was a bad idea – and now, having spent 20 years enforcing laws which make trade more difficult and people less wealthy, they show an interest in it?  Even assuming they are sincere (a big assumption) the most positive thing I can think of saying is “About bloody time!”

And yes, German and Japanese ideas are welcomed because they are sometimes new, innovative, and of benefit to themselves and others.  By contrast, Russia’s ideas are not ideas at all but merely their sudden appreciation of what the rest of the developed world realised a century ago (appreciations which rarely translate into actions).  Only, like Chris Rock’s niggaz, they expect praise for doing what everyone else has always done.

Now the likes of Nigeria and Ethiopia do get praise from the west for making insincere statements regarding the rule of law, trade, and development.  But is this how Russia really wants to be treated, on a par with African basket-cases?  No, of course not.  Russia wants everyone to treat it as an equal amongst European and North American nations, but at the same time applaud its meagre developments as if it were in sub-Saharan Africa.  Well, it doesn’t work like that, nobody is going to be making excuses or feel guilty for Russia.  It has not been subject to colonial occupation, it did not lag the west in discovery or development by a century or more.  Russia’s problems are entirely home-grown, optional if you will.  As I said before, nobody forced the Russians to pursue the insanity of the Soviet Union for 80 years, in fact most people were desperately trying to persuade them not to for the entire existence of the USSR.  So until it catches up with the west it’s going to find praise and encouragement are in pretty short supply.

Russia demands respect without realising that respect must be earned.  People don’t respect the Germans because they are stern, humourless, and business-like: they respect them because they go to Germany and find shit works.  They go to Russia and find nothing works.  The USSR gained respect chiefly through threat of force alone, but such respect is one-dimensional, similar to the respect one would afford a knuckle-head bouncer on the door of a club.  If Russia wants to be respected as an adult, the first thing it needs to do is grow up.  Nobody is going to respect Russia merely for doing “some shit they supposed to do.”

Registration in Russia: Two Views

A Russian commentator, rigourously defending the archaic system which requires all Russian citizens to be registered at a permanent or temporary place of residence:

But when someone tells that it impede the free movement of labour across the country, you can be sure that he’s lying through his teeth.

Referring to me, as it happens.

Here’s a report dated February 2010 from Russia Today, the  state-funded media organisation which sets out to present the Russian government’s point of view on events in Russia and the world:

There are plans to exempt Russians from any type of registration, including “propiska” (permanent registration or residential registration). This revolutionary bill is being prepared by the Federal Migration Service (FMS). The Service explains this initiative with the desire to encourage labor migration and is, at the same time, relying on international experience: without being restricted to their place of residence, people move more freely from “unemployed” regions to places where specialists are in demand.

FMS spokesman, Konstantin Poltoranin, explained this step by saying that Russians will become more mobile in their search for work. Residential registration hinders the ability to move from one region, which lacks jobs (such as a single-industry-towns with one bankrupt enterprise) to another, which needs workers.

So are the Federal Migration Service lying through their teeth, or are they just stating the bleedin’ obvious?  Not that this is the first time I’ve encountered a Russian who has mistaken one for the other…

Quelle Surprise

Via Upstream Online, several huge surprises in one article.  The first:

Nigeria’s state oil company had the poorest transparency record of 44 national and international energy companies evaluated in a report published by international watchdogs this week.

Transparency International (TI) and Revenue Watch Institute (RWI) rated a list of oil and gas companies, which represent 60% of global output, on how they reported revenues and disclosed information on anti-corruption programmes.

Nigerian National Petroleum Corporation (NNPC) was the only company to score zero on organisational information disclosure, which included the provision details of deals agreed with governments and partners on energy projects. The average score was 65%.

The second:

The report, released this week and based on research carried out in 2010, showed that publicly listed companies score better than non-listed ones, while international oil companies fare better than national oil entities, according to Reuters.

The third:

NNPC was among eight companies, including Angolan state oil company Sonangol and Russia’s gas export monopoly Gazprom , to score 0% on reporting anti-corruption programmes.

Gazprom?  Nooooo!