This put to rest several weeks of speculation about the future of TNK-BP's stake in the Kovytka project which has estimated reserves of 1.9 trillion cubic metres of gas. Previously, the Russian state had threatened to revoke TNK-BP license to Kovytka on the grounds that it had not fulfilled its production targets (something it could not do unless Gazprom gave it access to its pipeline export routes) and thereby open up to other bids.
The move was perceived to be part of the Kremlin's plan to secure more state control over its energy assets, particularly coming six months after it had paved the way for Gazprom to take control of Royal Dutch Shell's stake in the Sakhalin-II energy project.
On a more positive note, Gazprom and TNK-BP agreed to create a strategic alliance to invest jointly in major long-term projects or swap assets around the world. In the coming year, it will be seen whether one of the major state-owned energy firms Rosneft or Gazprom will try to buy out the Russian private owners' (Alfa and Access/Renova) 50% stake in TNK-BP, as some commentators believe, or whether the current structure will remain. If the former, TNK-BP will face the challenge of developing international standards of business practice and efficiency with a major partner which approaches business as a state-owned enterprise and does not adhere to pure free market principles of constant improvement and wealth generation in the same way.
INTERVIEW - KRIS SLIGER, TNK-BP
You grew up in the oil business. Can you say something about that?
Yes, that's true. I was born in Farmington, New Mexico in the San Juan basin, one of the largest gas producing basins in the US. It's very mature now, but still a very significant source of supply. The first time I was in an oil field was in the San Juan basin when I was two years old, when I went out with my father who also worked in the oil and gas industry. I started paid employment in the industry when I was probably 14 or 15. I worked for a couple of months one summer in a retail petrol station. And then I started working summers when I was in high school. I went on to take a degree in petroleum engineering, followed by a course in petroleum engineering at the University of Texas. I then started working in oil and gas mostly in the US, a bit in the Middle East until such time as I studied finance and economics at the University of Chicago.
What do you like about working in the oil and gas business?
It sounds a bit trite but I'm not sure if there are any industries which touch almost everything about human existence from politics to economics to all of the bad points too in our history, such as the world wars and the battles for energy as this industry does. I thought Daniel Yergin's book The Prize was one of the most fascinating books you can read. It was about everything from politics to world war, with the big figures in history playing a major part - and it's still that way today in the sense that we now have China emerging onto the world scene. At the same time without energy almost all of our economic accomplishment is impossible. We have almost moved into a world in which at least for the developed world things like clean water, heat and mobility, which means energy, are expected to be there. Without them what we know as life today will not exist. So long as they can be supplied in acceptable terms to society at reasonable prices the average human doesn't want to know anything about how it was put there. But if you are ever short they recognise how critical they are.
What do you find most challenging?
It is an industry that touches on engineering, economics, corporate finance and human behaviour. It poses an almost an endless set of problems and challenges but in a good sense because it provides a constant supply of new challenges. And Russia is almost advanced addiction in this sense. If you're interested in business, the energy industry and economics, it's everything on adrenalin. So just the pace of change which is occurring in Russia today, the scale of the opportunities that are in Russia, the amount of transformation they have achieved in such a short period of time [creates a dynamic atmosphere].
Can they keep that pace up?
I don't know. For a few of my colleagues working in China, it is a very similar transformation. Take a city like Shanghai, essentially it was nothing three decades ago and now it's equal to if not larger to what was built in Manhattan in over a century. It's just phenomenal what can be done.
What have been your biggest lessons in Russia?
One is that you can never underestimate the impact of the cultural surrounding in which you are operating and how that impacts on day-to-day human behaviour. Thinking otherwise would be wrong. It's like taking alternative chemistries and saying that under ideal situations and the exact same conditions it will always produce the exact same outcome. Yes that's true but change one of the inputs or change the pressure or temperature at which that process is occurring and you'll get a radically different outcome.
When you first started working in Russia how prepared were you for that difference in culture?
We joke inside the company that the fundamental laws of physics, thermodynamics and economics apply in Russia just as they do elsewhere in the world. So I have a rather positive outlook that things can be done and fundamental laws of nature govern what those things are but at the same time I viewed it as a huge challenge. There are areas for improvement, though the progress made since the 90s has been amazing. Partly, companies require capital productivity change - you have to physically put the capital in place to get the productivity gain. There are also a huge amount of challenges which are just business process related which is more about changing, shaping, putting incentives and disincentives in place which shape human behaviour.
How do you measure your own success?
Obviously there is the standard set of performance metrics that you would think of in any similar enterprise and we actually use performance contracts which we manage on an annual basis. Our owners are very demanding and actually I don't see much distinction between the 50% that's owned by BP and the 50% that's owned by Alfa and Access/Renova. Both of them would rather have higher returns than lower returns. What I personally think will be the ultimate measure of my success is the finger in the glass of water test. If you take my finger out of the glass of water (when and if I leave Russia) can you see any difference?
What specifically can you bring to TNK-BP?
That's more subjective, it's intangible but it's also about the transfer of knowledge. We're using things like trying to build a meritocracy in the company which is rewarding, promoting and developing people based on merit as opposed to some subjective set of criteria. Then just given my own background (economics, finance and engineering) we're trying to put in place a set of disciplined networks to build organisational capability. I would hope that eventually this would enable the company to be run entirely by Russian nationals if that is desired later on. I would take it one step further than that and say: can we actually build enough capability such that not only can they run every aspect of the business in Russia but that TNK-BP and most importantly our people can be globally competitive as individuals, such that if they choose to work in Europe, the US or China that they could be competitive?
What have you done to this end?
For me personally we are now 18 months into what we call a staff development network with very specific capabilities. This starts with different training modules and we've now had a relationship at an executive level with INSEAD going back to day one in which we have been running our most high potential managers and executives through leadership training which will hopefully give them the skills to not only run a successful enterprise in Russia but run a successful enterprise anywhere against global norms - so that they can benefit from this whole concept of globalisation.
Is it being received well?
Honestly, I think it's what you'd expect? You cannot change human behaviour or a culture overnight. There is probably 50% of the attendant population which would ask for more. There's probably 20-30% who are sensitive about being asked to change because they feel they are too important and they don't need it. And then you've got another smaller percentage maybe 10-20% that is undecided. They are trying to figure it out and are often reluctant to plan for the future.
What do you say to those people who criticise Russia for failing to advance in terms of democracy and free markets?
Sometimes people from the OECD look at Russia and say the development of democracy is slower than it should be, it's being rolled back, the political process is going backward. Taking off my TNK-BP hat for a moment, my personal observation is that it would perhaps be a true statement if it was looked at in the context of a political process or an economy that had developed for hundreds of years. It's not necessarily true where you now have people who are seeing living standards approaching what we call middle class status and they're thinking, 'As a human, I like the fact that I have disposable income. I can do things that I did not before. I have choices so long as the political system is stable and doesn't bother me. I really don't care about it.' And all of the pontificators around Europe and the US are probably the most guilty of taking a critical stance and say, 'How could you ever tolerate a system like that?' My observation is that whether people are in Europe or the US they are equally apathetic about the political process so long as it doesn't directly impinge on what they want to do as individuals.
When will more progress occur then?
It will take some time until the middle class is built to the point where they start placing demands on the political system. Then you will start seeing equal levels of democracy in Russia and the other part of the more developed world. It's the same as in environmental standards. When you can't feed your family, you arenot going to complain about the amount of sulphur dioxide or carbon dioxide in the air but when you have all your other basic needs sorted you are going to complain about it.
What's TNK-BP's long game?
So long as we can demonstrably deliver something to the Russian State and to the Russian people that is different and distinct from what any other energy provider can I think there will be a natural affinity or demand for our services. We believe we have some of the capability and the intention to build the rest: to be one of the best as measured by a basket of measures that any objective energy observer would apply - one of the best vertically integrated oil and gas companies in Russia.
That entails everything from successful exploration to being able to develop massive world-scale capital projects and put them into production and operate them efficiently for decades around health, safety and environmental programmes that is consistent not only with regulation but also what we know are international best practices. This will enable us to run our refineries at higher efficiency than others and create products in our refineries that are more desirable for consumers. So long as we can do that and do that in compliance with all the rules, standards and norms in place then we will be reaching our goals.
What is the art of negotiating in Russia?
It is much different. In [western] culture you can have very confrontational negotiations but it is generally done with what I call a straight razor so you never really feel the cuts and it's always done with smiles and very subtle language. But everybody knows what is going on. Part of it is a language difference but it's also a cultural difference. Subtle does not work in Russia. The Russians do it completely without thinking about it and they expect foreigners to do it as well. You shout, you scream and you throw things at each other. But it is business and five minutes after having a screaming match at somebody they don't think anything about it. They walk out of the room and you are best friends. Business is business.
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