About ProZorro and fracing

Andrey Zakrevskiy, CEO of oil and gas consulting center Newfolk
I want to congratulate Ukrainian energy community, gas consumers, taxpayers and Ukrgasvydobuvannya company with conduction of auctions for fracturing services. The fact of so many frac jobs for their total generating capacity could be compared to the construction of Tashlyk hydroelectric plant. But it is not necessary to wait for years and flood relic slopes around the Bug. The whole range of work will be carried out deeply underground at already developed fields.
Newfolk decided to give the floor to the winners of the auction and express the public its opinion about the auctions held.
Hereinafter you will see comment statements from Tacrom (the winner) and Maxim Nefyodov (curator of ProZorro).
Further information as well as forecast of development of hydraulic fracturing technology in Ukraine you will be able to find in our monthly analytical report Oil and Gas of Ukraine, July edition.
Fracing and its cost in Ukraine
So, while I write these lines, a courier from Weatherford company is hurrying to Ukrgasvydobuvannya with a letter withdrawing their price offer of 13 million hryvnias for 25 fracing jobs. I feel sorry for that because it would have been a shock of international dimensions! But now it has turned out to be just a technical error that cost one 0 and 100 million hryvnias, as the company reported immediately.
Of course, initially all the auction witnesses were shocked, but the price of Weatherford, which was announced at the second auction left no ambiguities: the figure of 13 million was just a technical error.
Let's go back to pricing on hydraulic fracturing in Ukraine. Ukrgasvydobuvannya suggested a starting price of 135 million UAH (about 200 thousand dollars per one fracing job) at the auction.
The price of 200 thousand dollars for one operation in a series is quite comparable with the prices offered in Ukrainian market for the last five years. Unfortunately, we cannot compare them because fracing operations were carried out as single jobs in completely disparate geological and organizational conditions.
Schlumberger completed a very complex multi-stage hydraulic fracturing for Poltava Petroleum Company and before this for Smart Energy. Belarusian companies and Region did fracturing jobs for Kub-Gas. Ukrnafta was doing mini-fracturing for itself and its equipment and crews were involved in outsourced minor jobs. We have just a couple of dozens of fracturing jobs made for many years for prices varying from 200 to 400 thousand dollars per operation.
Russian Federation as our nearest neighbor conducts hydraulic fracturing annually in hundreds of series. The contracts thereof are worth of billions, thus it cannot be a model of pricing for us at our beginning.
Belorusneft conducts hundreds of fracing jobs but the company has its own equipment and separate service units within a large industrial group. Prices for domestic customers are generated upon its corporate principles. The services they provide beyond the borders of Republic of Belarus are conformed within market principles.
Ukrgasvydobuvannya faced a complicated marketing situation to choose a minimal price for hydraulic fracturing, which was offered to our private companies by foreign suppliers two years ago. Whatever it was, but the calculation was correct: 6 out of 11 companies agreed to participate in the auction. The list included an outrageous Diament because of which the tender for 100 fracturing operations was split for 4 auctions to be conducted at ProZorro.
The auctions resulted in a victory of Tacrom Services S.R.L., Romania. Thus an average price for hydraulic fracturing in Ukraine is 160 thousand USD for an operation upon results of the first and the second auctions. Ukrgasvydobuvannya kept its promise to lower prices for fracing in Ukraine.
Too much or too little is that?
As the "Island of Crimea" hero every summer evening was trying to figure out whether to little or to much the USSR was threshing grain, lets try to understand the same thing about 160 thousand dollars for a single fracing job for Ukrgasvydobuvannya.
Firstly, a huge breakthrough is the fact that the price was figured out. From now we can start to calculate investments and risks.
Secondly, a real value of money to be spent will become clear a year later when we analyze the results of the work.
Thirdly, an outcome of the first and the second auctions lowered fracturing costs in Ukraine by 20% from the lowest prices that used to exist in our underdeveloped market. However, management of Ukrgasvydobuvannya would have considered it as the most important thing.
Is it good or bad?
Schlumberger company is among those 11 ones that initially agreed to participate in jobs in Ukraine but then abandoned. Schlumberger is a founder of commercial hydraulic fracturing in the world and belongs to a few companies that have Ukrainian experience. Schlumberger’s price for a single fracturing operation in Ukraine starts from 200 thousand dollars. The percentage of successful fracing jobs ranges from 75 to 100 that is very good given the uniqueness of each project. Thus, in theory, the company could fight during the auction to win it because its pricing strategy does not tallies very much from those of other participants. But the company abstained.
Schlumberger has refused to participate in electronic trading on high-tech services since 2003.
Newfolk received an extract outlining their policy. You can look through it below. To cut a long story short, Schlumberger does not want to be involved in such games because analysis of 25 cases of their participation showed low efficiency of trading.
To provide an opportunity to hear different opinions we sent questions to Maxim Nefyodov, a curator of electronic auction ProZorro. In his answer (find below) it was outlined that reverse auctions in real time are a passport to the market for new companies. And they really were, thus we ought to say that in this case we’ve got not the worst option from the pool of contractors.
Winners and losers
At the auction, we saw the second fight of Belarusians and contingent Germans. Tacrom is a daughter of German company KATT GmbH. Prior to this auction FIDMASH was competing with KATT during a tender for coiled tubing units. Belarusian-American FIDMASH won with the score 4:2 there. But here Belorusneft lost with a score of 2:0. Both companies are market low-cost players in oilfield services. But, as it is noted in Tacrom’s letter, KATT belongs to only four people who were able to make decisions quickly while Belorusneft was lame to react quickly to price changes and lost just a penny.
The form of the tender knocked out a half of the participants. This part includes leaders of North American market and, therefore, world leaders of hydraulic fracturing such as Schlumberger, Trican, Calfrac. Costs of their services together with their quality allowed them to take 80% of the market and make American Gas three times cheaper than we have in our wholesale market! By virtue of hydraulic fracturing and horizontal drilling technologies mastered by those giants of service market shale revolution occurred having left Gazprom back behind ten years ago.
So, I want to congratulate the people of Ukraine with the fact that hydraulic fracturing has commercially got its second birth in Ukraine owing to Ukrgasvydobuvannya.
Before it, hydraulic fracturing was made on an industrial scale in order to degas mines near Donetsk in 50-70-ies. Also Ukrnafta’s fleets had been living out the last days since 70-ies of the last century.
This rebirth will allow the largest oil and gas companies to preserve production volumes and thus, reduce an amount of Russian gas in our energy sector.
The rebirth of industrial hydraulic fracturing will reduce an amount of particulate emissions from our heating stations and the amount of nuclear waste from our nuclear power plants.
After gas combustion only water and carbon dioxide remain to be consumed by plants. Around old wells, where fracing is to be held, grass have been growing for long feeding cows. Actually, like in Russia and I wish it lived happily ... without us.
The market is now discussing the auctions that were held on ProZorro site during tenders of Ukrgasvydobuvannya for providing fracturing services. One of interesting moments was a 10-time cut of the initial auction price by Weatherford. In this regard, different opinions circulate from errors in data entry to price dumping. Hereinafter there are a few positions expressed by business and government officials. Weatherford, as the news producer is still preparing comments for us.
Statement of Maxim Nefyodov, Deputy Minister of Economic Development and Trade of Ukraine, curator of Prozorro project:
Sometimes companies make a wrong data entry, but not often, therefore, statistically it is imperceptible. I believe that the mechanism of e-procurement is a transparent mechanism. We are not cutting ourselves off high-tech by Prozorro. Quite the reverse: we attract new participants who refused to participate in tenders upon previous rules.
Tacrom Services S.R.L. Romania
Ralph Koskamp, General Manager:
On July 21 and again on July 22 we were fortunate to be one of the competitors for the supply of hydraulic fracturing services for PJSC UkrGasVydobuvannya.
Currently, we are the winners for the second round of bidding and will soon finalize the service contract.
The bidders were primarily Ukrainian companies or partnerships between foreign and domestic companies.
We were one of the few foreign bidders and as such, we would like to introduce our company to the Ukrainian public.
Tacrom Services is based in Romania and as of July of this year celebrated 10 years of services in Romania and area.
Tacrom is the daughter of a German company operating as a limited liability privately owned company and going by the name KATT GmbH. KATT was originally operating as Consulting-Agency-Trade GmbH but the name was changed in 2015.
Because KATT is privately owned by only four people, decisions can be made very quickly and all companies in the KATT group are very flexible.
KATT has a long history with more than 25 years in the oil and gas business.
The primary function of KATT in the early days was to assist companies in establishing and operating oilfield service companies in western Siberia.
Typically KATT would source and supply all the equipment, materials and specialists to assist domestic companies in establishing services such as fracturing, cementing, coiled tubing and other services.
Today KATT supplies this specialized equipment and materials to more than a dozen countries and also functions as the financial center for the KATT group of companies.
During the 1990’s most of the equipment supplied by KATT was built in North America. This was due to the fact that hydraulic fracturing and coiled tubing services were well developed and the builders had the expertise to construct the complex equipment needed for oil and gas well remediation and stimulation.
As time progressed it became apparent that the manufacture and supply of this equipment should be closer to the final customer.
In order to reduce delivery time and improve after sales service to our customers in Siberia, Asia, Europe and MENA a new company was established in Germany in 2007 to design and build all the specialized equipment needed by oil and gas operators and service providers.
This manufacturing company also had a name change in 2015 and was renamed GOES GmbH in 2015.
In order to grow the KATT Company a decision was made in 2005 to establish a service company in Romania. Romania was chosen due to the existing oil and gas operating companies and the desire of these companies to outsource pumping services in order to import modern equipment and technologies.
Tacrom Services SRL was established in July 2006 and initially offered only hydraulic fracturing services. As business developed Tacrom added new services such as coiled tubing, nitrogen, acid and solvent injection, hot oiling and sand control.
Our core customers are based in Romania but in order to develop our services and expand our company we are continually searching for customers outside our borders. As a result of business development efforts we can now proudly say that we have provided fracturing, coiled tubing and/or pumping services in: Turkmenistan, Azerbaijan, Georgia, Turkey, Bulgaria, Albania, Austria, Poland and Ukraine.
Our goal has always been to provide services on par or better than the competition. To accomplish this we have developed full fluid testing facilities and engineering capabilities. An important part of any frac project is design optimization and to this end we use one of the most popular fracture modelling and design software packages.
We use only the most modern mixing and pumping equipment and since it is all made by our sister company, GOES GmbH, we can be sure of technical and mechanical quality and support.
Of course none of this guarantees a successful job without the hard work and dedication of the operators, supervisors, engineers and management that have made Tacrom a success.
Through the years we have had various expats training and guiding our crews. Today, we can proudly say that our company is almost exclusively managed and operated by Romanian personnel. Our Canadian General Manager has 30 years of oilfield experience and will be working in Ukraine together with our very experienced crew.  Tacrom intends to share their knowledge and capabilities with local companies to move the industry forward here in Ukraine.
We have strict safety practices and standards.  We have not had any LTIs or serious accidents. We are committed to accomplishing our jobs safely, without any negative impact on the environment. Our HSEQ department is working to ensure we work properly.
Another notable addition to Tacrom Services was establishing a drilling company, Tacrom Drilling SRL,  in Romania in 2008 which currently operates 3 rigs.
We have teamed up with a well test company in India and have a coiled tubing and a nitrogen unit working in the Assam/Mizoram area.
We recently established a joint venture in Kazakhstan where we are also offering coiled tubing and pumping services.
Due to a worldwide slowdown in oil and gas development our job count has dropped and this encouraged us to look outside Romania once more.
We see great opportunity in Ukraine due to the commitment by the government to invest in and expand hydrocarbon development.
It is exciting to see this positive attitude to the industry and quite opposite to many other parts of Europe.
We are eager to introduce our technologies and experience to our customers in Ukraine.
We are sure our services will help in the drive for energy self-sufficiency which in turn will create jobs and new opportunities within the country.
The spinoff benefits from oil and gas development and production cannot be underestimated. Domestic and foreign investment in this industry creates opportunities for small and large businesses and career opportunities for young and old alike.
With regards to the tender itself, we found the ProZorro format to be open and transparent. The procedure is quite new and both the contractor and the bidders are on a learning curve. This was the first time we participated in an E-auction in Ukraine and there were a lot of questions before hand, but as the bidding started it proved to be very efficient.  It will be a pleasure to work in such a clear and straightforward environment as the projects move ahead.
As it can be difficult for foreigners to understand local laws and regulations we will be working closely with local people who have the knowledge that we require and learning from them.
We look forward to our future here in Ukraine and feel our company will be a good fit for these projects.  Tacrom will work hard to make this a success and plans to spend many years working here toward a common goal.
Please visit our website www.tacrom.ro for further information on our company.