Sergey Gorkov, the CEO and Chairman of the Board of the Russian Federation, gave an interview

After Rosgeo’s Head was replaced, the company started to renew its long-term development strategy. In particular, the management plans to focus on risk diversification, implement innovative technologies and increase the amount of international orders in the revenue mix from the current 1-2% to 23-25% in the next five years. At that, the Holding is waiting for the growth of financial ratio at the yearend and plans to attract new partners both in international markets and in the country. The strategy will be implemented in the coming months. The new management of the Holding plans to present it in September. Sergey Gorkov, the CEO of the Holding, in his interview with TASS at the St. Petersburg International Economic Forum, spoke about the ideas that had been included in the new key document of Rosgeo’s development and the ways the Holding planned to implement them.

— Sergey Nikolaevich, I want to ask my first question about you, not Rosgeo. It is still a mystery why you decided to unexpectedly change the banking sector in the Ministry of Economic Development for geology.

— Thank you for this question, it was asked not only by journalists, but even by my family members. In fact, I feel very close to the industry. First, my grandfather was a driller and an expert of exploration. My father is a mining engineer, a geologist and I grew up in this environment. I remember myself as a little boy when my father used to take me to expeditions. It’s, you know, a romantic childhood dream. Then I entered the Mining Institute and also studied at the faculty of biology. By the way, I had been working in the oil industry for ten years before I got into finance.

— That means that you got into the banking sector by accident?

— Probably, I accidentally got into the banking for some time. But this accident turned out to have, as you see, a very long term, I’ve worked in this area for over ten years.

— Your background has had some impact on Rosgeo, of course. Did you notice anything that you wanted to fix immediately?

 — The situation here is multifaceted. First, we are currently developing a new strategy. It is quite ground-breaking because it concerns not only Rosgeo, but the geological industry as a whole. We show the trends here that have already been overdue.

Despite the jokes about where digitalization is and where the geology is, actually, back in the 1950s and 1960s, the geology was one of the first industries to integrate digitalization. That is, seismic works, data processing, interpretation, mathematical methods, figures and sensors. That is why, in fact, the geology is quite essential to this industry. Of course, we cannot ignore this in the new strategy.

— Will it concern the financial issues?

— We consider the new forms of financing. For example, today we have signed an agreement with the Russian Direct Investment Fund to establish a venture capital fund, which will finance the projects at an early stage of exploration.

— Could you be more specific about this? Does it imply any investments from Rosgeo?

— No, it's a pure venture fund. Nobody likes to work with green fields in geology, everybody is interested in brown fields, and everyone needs a ready-to-use field. That is why, many companies have some part of the fields at a breakpoint stage of development, i.e. the company does not take unnecessary risks, and there are no tools to bring the project to the green field stage. Therefore, we need a technical tool on the one hand, and a financial instrument on the other. It is these gaps that we want to fill in by establishing a venture fund.

— How long have you been drawing up this agreement?

— We have drawn it up for two months, and it is quite a long time. At that, we believe that other partners will be interested in the fund, including the foreign partners. It could be the Arabs, the Chinese and perhaps the European partners. The fund creates an entirely new financial and regulatory instrument.

— What other aspects do you consider in the new strategy?

— Rosgeo is not only engaged in land works, we also work on the shelf, we have a quite large fleet, so we are now considering the diversification options and the development of different areas. We see a possibility to operate heavy pilotless aircrafts, the artificial intelligence, but no one excludes the physical work. Now we are considering a new version of oscillating machinery, which would take into account not only physical, but also digital methods. We give a lot of thought to new methods of geochemistry. You know, this is a very meaningful story.

— When are you planning to complete the work on the strategy?

— We hope that we will actually finish this work in a couple of months. I think that the strategy is very interesting. Maybe there are a lot of controversial issues, but it's good, because now no one will say for sure which technology will win.

— With regard to a new approach to the Holding's work, Rosgeo has never been a part of joint ventures, and has always acted as a contractor. Do you consider such opportunities in the new strategy?

— Of course, we do. The overarching objective, probably, is not only to discover a deposit, so that it wouldn’t be used, but to ensure that it is used in the economic activity as soon as possible to start effecting the economy of both the country and the company. If you find something, it's great, but no one cares if it hasn’t been used for 30 years. Therefore, our main goal is to make fast and effective transformation and involvement in the economic activity. That's what a venture fund is for.

Besides, a number of fields are hard to develop without partnerships. Why? Because we are not a mining or a production company. We deal with prospecting. The partnership gives us the possibility to properly share the risks, i.e. become a part mining companies’ projects and simultaneously hedge, or be compensated through a partnership. That is, we are engaged in a partnership not only economically but generally as well.

Today, for example, we have signed a technological partnership with Gazpromneft, it relates to the development of Paleozoic oil. This oil is very hard to discover, it is of a very good quality, but there is no exploration facility. For these purposes, we have agreed to establish a specific consortium together with the Tomsk Region and Gazpromneft in order to develop this exploration facility. Paleozoic is a completely new type of oil, it has not been developed in Russia yet, but it needs a solution. We have united to find this solution. It's a technological partnership in some way.

— Are you ready to cooperate with foreign companies in a similar way?

— We are ready for various forms of partnership, both with Russian and foreign companies. The current technologies have a global nature.

— Currently, Rosgeo closely cooperates with the countries of the Middle East and Africa, develops projects in Egypt, the UAE, Azerbaijan and China. Will Rosgeo keep focused on Africa and the Far East, or will it change the areas of work? Or will it even use a major list? Does the new strategy imply an increase in the share of foreign partners, for example, in the Portfolio Total?

—    We have been studying a lot of different countries since the Soviet times. It is Africa, Asia, and Latin America. All this information and experience are in the company called Zarubezhgeologiya, which is a part of our Holding. It would be foolish not to use it.

Currently, we get only 1-2% of revenue from foreign contracts, this is extremely low. I believe that this figure should be at least 20-25%. In particular, this relates to our boats, which, for example, can’t operate in the Arctic in winter. It would be great if they worked in warmer seas in the winter and earned money there instead of standing idle.

There are markets that we are very interested in, such as Kazakhstan, which is our close partner in the EurAsEs community. We have recently signed an agreement with Kazgeologiya and we don’t rule out that we will sign an agreement with Kazmunaigas in future.  We plan to perform the works on the shelf of the Caspian Sea as well as the solid mineral works.

Zarubezhgeologiya permanently works in Africa, now we are discussing India, the Bay of Bengal. We will choose those markets that, on the one hand, can be within our field, and on the other hand, those that are highly profitable. The Soviet model implied the work performance without the subsequent payment. We do not want this to happen, we want these services to be paid for. And, of course, our goal is to increase the amount of foreign business in our portfolio.

— Do you set any timeframe within which the amount of revenues from foreign contracts should increase from 1-2% to 20-25%?

— I think we should achieve it within five years. We have already been actively working on this. I believe this year we will bring this figure to 3.5%.

— The Ministry of Natural Resources and Environment of Russia completed the audit in April related to Rosgeo’s administrative and economic activities, and based on the results thereof, Dmitry Kobylkin said that in general there were the management approach issues rather than any major violations. On the other hand, there’s information from time to time that the Holding is almost on the verge of bankruptcy. What is your assessment? You came to the company and received the results of the audit. What do you think about the status of the company and what are its financial prospects?

— Look, if we talk about the financial results, we have recently signed the audit reports. Last year's revenue amounted to 28.9 billion rubles, the revenue was a little more than 400 million rubles.

This year we are planning to get the revenue of 33 billion rubles, i.e. we predict growth. At that, it is very important to renew the company, we need new techniques and technologies. Now is the time when it is necessary to change all the basic management structures.

As for the results of the audits is concerned, I prefer not to look back, but to move forward. We must always consider the results, set a new goal and move forward. I'm used to this model, and the current management insists on it.

— They said earlier in Rosgeo and the Committee that the state financing of hydrocarbon exploration is expected to increase at least twice. That is, now it is about 20 billion rubles, and it is required at least 40 billion rubles. Do you agree with this?

— Not quite. It is important to understand that the industry cannot be developed only by state investment, it will always be not enough. I agree that we need to increase investment in exploration. Its efficiency in future is a different matter. The issue in general can be solved when you have a combination of several solutions. You can’t just say, "Let's increase the state funding, and this is the only remedy." You need a few remedies here. That is why we are talking about several types of tools in our strategy. Our main goal is to be effective, replenish the mineral resource base and help our companies and partners.

 In the beginning of this year the Auditing Chamber published the results of the Holding’s audit, according to which Rosgeo did not completely perform its obligations under state contracts with Rosnedra. At that, the Holding commented that this was due to late conclusion of contracts by Rosnedra, long document reconciliation and, partially, the refusals of oil companies from contracts. How do you plan to solve this problem?

— First, any oil company, of course, tries to reduce the costs. On the other hand, one should understand the principles of getting a margin and the cost of work. The management should be performed from both sides, not one. Therefore, when you complain that the market is low, you need to reciprocate and the offer you have is an inter-related source.

If we talk about Rosnedra’s documentation, unfortunately, this is not a problem of a specific authority. This is actually the problem of our reality. It is important to find a tool that would make the reconciliation process fast enough.

— You have already said that the strategy can be ready in two months. That means, the end of August?

— I think we will approve it in September.

— Will it be for a certain period or for a long term without specific dates?

— It is common in the world today to develop the strategy while you constantly have some changes and that means that the strategy is updated and added all the time. As a rule, it sets the common direction, "We move there, we do this and that." And we want to create this modern strategy, and not just cut off the limited five-year plan. On the other hand, it will include certain targeting points, because without this it is impossible to build, give proper guidance to the company's management, set a task and state a motivation.