TBY talks to Francisco Parrilla, CEO of Chagala Group, on its service operations for the oil and gas industry and joint venture with ADM Capital.
TBY How did Chagala decide to focus on its niche service areas?
FRANCISCO PARRILLA The company started operations in Atyrau in 1995. At that time, there were few options for accommodating the large in-bound work force drawn to the city by projects such as Tengizchevroil and the OKIOC (AGIP KCO/NCOC) project. There were no hotels of international quality standards. Chagala was established to address that need, and we quickly expanded into food services, office space, recreational facilities, and logistics, among others. We have focused our business model on the needs of international and domestic oil companies and the service companies that support them. In doing so, we’ve also fostered an improved standard of living for the West Kazakhstan community in general—not only by building the skills and providing employment for many Kazakhstanis, but also by bringing higher quality standards to the region. We understand the demands of today’s oil companies, such as health and safety expectations, flexibility in service provision, cost effectiveness, and quality. We are always talking with our clients about their future needs.
How would you assess the importance of Chagala’s joint venture with ADM Capital?
The joint venture with ADM is an exciting opportunity for Chagala. It allows access to development capital for projects we have already identified and feel strongly about, but would be a challenge funding on our own. The venture allows us to capitalize on these opportunities and to position the company for continued growth. This is an example of how our market reputation and strength has enabled us to employ a variety of financing approaches, unlocking the potential in our development pipeline.
How do Chagala’s different regional operations compare to each other?
All of Chagala’s operating assets are in the west—Aktau, Bautino, Atyrau, Uralsk, and Aksai. All are designed and built to service the large oil and gas projects located there—CMOC and the N Block project in Aktau, CMOC and Kashagan in Bautino, Tengizchevroil and Kashagan in Atyrau, and Karachaganak in Uralsk and Aksai. Our long history and future in the region positions us to anticipate and meet the rapidly developing needs in these locations. The bottom line is that none of the cities where we have operations today had a well-developed service sector when we first arrived. In many ways we were the trailblazers. Look at Aktau and Atyrau today—they are both very different places. At first there was a need for basic quality housing, and then better food service options, office space, logistics, and others quickly followed. The nature of market demand continues to evolve. We know the market and have a pipeline of development projects to meet what we foresee the market demanding.
What is affecting the investment climate on the services side of the oil and gas industry?
Kazakhstan is currently doing what many resource-rich countries are doing; assessing the state’s involvement in developing its natural resources. In some cases the authorities are taking steps to bring a more appropriate balance to the relationships. This has not always been an easy process, and in some cases it has caused delays in projects. To a large degree, the project shareholders are reluctant to commit investment dollars to projects until they better understand the investment climate. The knock-on effects for service companies can be easily understood. But again, once that understanding is gained there is no question that projects will push ahead and business levels should improve in concert with that. As for smaller projects, with energy prices likely to remain at current levels for the foreseeable future, more and more smaller companies are looking to expand operations and improve conditions for their staff. Better service in areas such as catering, remote camp management, office space, and access to leisure facilities are all now topics of discussion with companies that could only dream about such issues even five years ago. We see a very bright future for the company in this area.
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