Sector News

Russia: Oil companies are actively investing into the drilling of wells

July 20, 2015
The results of the first half of the year have shown, how Russia manages, contrary to forecasts, to support a small growth in oil production. The market participants are increasing their investments into drilling, despite the sanctions and falling oil prices. The leaders are ‘Bashneft’ and ‘Rosneft’. The latter tries to cope with the reduction of production in Western Siberia and to compensate for its low levels of drilling in 2014. Experts point out that launching large deposits, the major investments into which have already been made, will help to keep up the production level.
In the first half of the year production drilling for oil in Russia increased by 10.3%, according to the RF Minister of Energy, Aleksandr Novak. According to him, as yet none of the major Russian oil companies has reported any plans to cut production this year, despite the drop in oil prices and sanctions. Mr. Novak has recognized that certain downside risks to production existed, but pointed out that, despite this, this year’s production continued to grow. According to Central Dispatch Department of the Fuel and Energy Sector in H1 oil and gas condensate increased by 1.2% to 260.9 million tons.
In 2014 Russia produced 526.75 million tons of crude oil – a record since the collapse of the Soviet Union. At the same time, the analysts and market participants expected that in 2015 production dropped due to the insufficient rate of drilling in old fields. But it turns out that even at current oil prices (around $ 56 per barrel of Urals) ‘there are still a lot of places in Russia that are profitable to drill’, the source of ‘the Kommersant’ in one of the large companies states. The fall in oil prices mainly hit the budget, not the companies, and the weakening of the rouble provided rouble revenue growth in the oil industry. Since the cost on drilling is calculated in roubles, the companies have enough money for it, besides oil producers have reduced or fixed prices for the services of contractors, the source of ‘the Kommersant’ informs.
The increase in drilling was confirmed by ‘Bashneft’: in January – June it drilled 55 wells on its deposits – 44.7% more than in H12014. The volume of production drilling increased by 62.5% to 186.1 thousand meters. The increase in drilling corresponds to the business plan, ‘Bashneft’ declares, stating that in 2014 the production drilling increased by 149% to 272 thousand meters. Other oil companies did not provide comments.
Valeriy Nesterov from Sberbank Investment Research added that the high growth rate of drilling was largely due to the low base effect from ‘Rosneft’. In 2014 the company drilled relatively small amounts as it was rebuilding the relationship with contractors: asked them to reduce their prices and rejected the services of Eurasia Drilling, which accounted for a quarter of its orders. ‘Now ‘Rosneft’ has restored the volume of drilling’, – the analyst explains. Within five months the company indeed increased production drilling by 1.3 times, but so far its oil production decreased by 0.8% to 94 million tons. ‘The main fall is at ‘Yuganskneftegaz’ and TNK-BP’, – says the source of ‘the Kommersant’ in the industry informs. LUKOIL and ‘Gazpromneft’, on the contrary, reduce production drilling with a slight increase in production. Mr. Nesterov stated that the total excavation might be reduced by increasing the share of more efficient horizontal drilling.
‘While oil producers skim, the production is performed with the low oil recovery factor, i.e. the quality of reserves is deteriorating’, – the analyst states, pointing out that now production is increasing primarily due to a small segment of the oil companies and gas condensate. But the inertia of existing investments insures against dramatic decrease in production, for example, in 2016 LUKOIL must enter a large deposit named after Filanovskiy, ‘Gazpromneft’ – Novoportovskoye field and together with ‘Rosneft’ Messoyakha.
Rusmininfo – Russian Oil and Gas News
Source: Oil Voice

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