Alaska companies expand into Russia: large oil projects attract local attention and investment.

• Author: Feller, Gordon

Russia is a preeminent player in the global oil and gas production industry. Across Russia, new oilfields are being developed in remote regions like north of the Arctic Circle in northwest Siberia and on Sakhalin Island. The two projects currently under development on Sakhalin Island, Exxon Neftegas Limited's Sakhalin I and Sakhalin Energy Investment's Sakhalin II, will have a combined infrastructure investment of approximately $35 billion. In the upcoming years, there will be several additional large projects going forward on Sakhalin Island as well.

Doing Business in Russia

From his base in Russia's Far East city of Yuzhno-Sakhalinsk, Neil Anderson serves as the commercial director at ECC-VECO LLC, an Anchorage-based firm. "Activity of this magnitude draws worldwide attention, with the largest engineering and construction companies in the world competing for their piece of the projects," he noted. "The projects on Sakhalin Island define globalization. There are engineers and construction contractors from all over the world. Craft and general labor is coming from places as far away as Malaysia, Turkey, the Philippines and Thailand. Engineers, IT specialists, craft workers and laborers are brought in from all parts of Russia. Platforms are being built in Korea and the pipe is being manufactured in Japan."

VECO, and others like them in Alaska, are mindful of the fact that the oil and gas industry is global and that many of the people involved in Sakhalin have spent their lives working all over the world with the clients that they are serving there. Trust is important everywhere, but when a major oil company or contractor enters a completely new political and business environment, while at the same time attempting oil and gas development in new oilfields in remote locations with severe climate challenges, trust is absolutely invaluable. Any Alaska-based company trying to enter the competitive Russian market has to be able to differentiate themselves and have established relationships.

Anderson has some suggestions on how to be successful in Russia. "First, know that Russia will change your company; your company will not change Russia," he said. "Having strong Russian management participation is imperative. A company entering the Russian market must accept that the system here is different and that the burden of understanding and adapting is theirs.

"It is difficult, and most of the time impossible, to change what is different about the Russian business environment," he added. "To become an effective supplier of goods and services in the Russian environment, management must make the commitment to obtain an understanding of the Russian standards and a multitude of procedural compliance requirements."

VECO managers are mindful of one other key fact: qualified Russian personnel are available to fill key positions in the Russian organization. Just as in the United States, recruiting and retaining these key employees is critical. Without qualified Russian guides, there is little chance...