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MND eyeing Russia's black gold

Oil tycoon to build refinery in Russia, reinvest in Moravia

By Victor Velek
Staff Writer, The Prague Post
February 20th, 2008 issue

Moravské naftové doly (MND), an oil and gas company controlled by the Czech entrepreneur Karel Komárek, has set off on a new oil rush.
The firm plans to invest a massive amount of money in Russia, beginning with the construction of a refinery worth several billion U.S. dollars, the company announced.
As a first step of the project, MND signed a memorandum of understanding with the government of Russia’s Sverdlovsk Region and four local companies Feb. 12.
“This will be the largest investment project in the company’s history,” Komárek said. A final decision on establishing a joint venture with the four Russian partners will be made after MND conducts its due diligence, the company said.
The refinery, with an annual capacity of 3.5 million metric tons of oil and 3 billion cubic meters of gas, will be constructed near the town of Verkhoturye in the southern Ural Mountains. The plant could be put into operation in 2011, according to MND spokesman Dan Plovajko.
The Russian investment comes as MND embarks on a large expansion, which envisages increasing the output of its operations tenfold in the next few years.
In 2006, the company extracted 1.8 million barrels of oil from its Moravian wells and 372 million cubic meters of gas from facilities in Moravia and Pakistan, posting a pretax profit of 2.4 billion Kč ($137 million).
There is no space left to enlarge oil and gas production in south Moravia, MND’s traditional base of operations, the company said.
“Thus, the production increase will be achieved by investments abroad, mainly in former Soviet Union countries, the Middle East and North Africa,” Plovajko said.
Last year, the company acquired majority stakes in Nikolayevkaneft and VostokInvestNeft, Russian oil firms holding three exploration licenses in the Ulyanovsk Region. Exploration works in the area are under way, Plovajko said.
Since 2003, MND has been producing natural gas in eastern Pakistan through an 8 percent stake it holds in an international consortium. The production share amounts to some 280 million cubic meters of gas a year.
The firm also holds stakes in companies holding exploration and production licenses in Pakistan, Germany, Romania and Yemen.
Oil slick
The history of oil and gas drilling in the south Moravian borderlands stretches back to the 19th century. However, large industrial production started only in the early 20th century, when a gas blast damaged the workshop of a local blacksmith who had used the gas seepage for his work.
That event triggered a black gold fever that drew dozens of prospectors to the region and resulted in the establishment of commercial oil and gas facilities.
After World War II, all oil and gas businesses were nationalized. During that period, MND carried out oil and gas explorations in Iraq, the Soviet Union and Sweden.
In the 1990s, the company was privatized and later added to Komárek’s empire. Today, the firm produces oil and gas from 21 fields in south Moravia, enough to cover some 2 percent and 3 percent of the country’s overall consumption of gas and oil, respectively.
Although MND says an expansion in the Czech Republic is unlikely due to limited deposits, it wants to keep production output at its current level and is spending large sums for exploration work.
“The strategy of [MND] is to make the current production volume sustainable in the midterm,” Plovajko said. “In 2007, we invested 800 million Kč in exploration activities.”
MND made a seismic survey of a 100-square-kilometer area between the towns of Valtice and Podivín and drilled seven exploration holes.
“The majority of these drills were successful and either discovered new deposits or enabled further enlargement of existing sites,” Plovajko said, adding that some 570 million Kč is slated for exploration work this year.
Komárek’s oil prospecting has met with virtually no protest from local communities.
“MND has been always considered by our city as an important company participating in local activities,” said Lubor Šimeček, the mayor of Hodonín, MND’s home city.
“Moravian municipalities are happy about the company’s contributions to their budgets,” added Petr Holub of the environmental nonprofit Hnutí Duha.
However, these towns should prefer clean energy, which could also bring finances for their development, he added.
Oil and gas production in south Moravia has had a negative environmental impact, with a number of abandoned wells and exploration holes sitting as environmental time bombs. During floods, for example, oil from unsealed sites has repeatedly contaminated water and soil.
According to Šimeček, himself a former MND doctor and mine rescuer, there are hundreds of unused oil holes in Hodonín, each a great threat to water sources.

Victor Velek can be reached at vvelek@praguepost.com


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