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Page added on November 30, 2015
More Russian Oil Drilling Shows its Resolve to OPEC
Russian oil firms are drilling more, showing the world’s top crude producer is ready for a longer fight for market share with OPEC, as its industry can carry on even if oil prices reach $35 per barrel.
As OPEC prepares to meet on Friday in Vienna, Russia is sending a low key delegation for talks which are very unlikely to result in any output deal.
OPEC oil ministers have repeatedly said they would only cut production in tandem with non-OPEC.
According to Eurasia Drilling Company (EDC), the largest provider of land drilling services in Russia and offshore in the Caspian Sea, Russian drilling measured in metres rose 10 percent in the first six months of this year from a year ago, despite a decline in oil prices to less than $50 per barrel from their peaks of $115 in June 2014.
“Despite the recent fall in oil prices, Russian production continued to accelerate as oil producers remained profitable even in the lower oil price environment, helped by the effect of a weak rouble on costs and lower taxes, which decline in a lower oil price environment,” Bank of America Merrill Lynch said in recent research.
Moscow has surprised the Organization of the Petroleum Exporting Countries by ramping up output to new record highs this year despite low oil prices, which OPEC had hoped would depress production from higher cost producers.
Moscow responded by steeply devaluing the rouble, giving an edge to its exporters. In many OPEC Gulf producers currencies are firmly pegged to the dollar.
According to EDC, the Russian drilling market is based on long-term contracting, which results in lower pricing and less margins volatility, as compared to other countries more subject to the spot market.
Total drilling has more than doubled over the past decade to more than 22 million metres per year.
Russian oil production, which together with sales of natural gas account for half of state budget revenues, has been steadily rising since 1998, apart from a marginal decline in 2008.
According to official data, the number of producing wells in Russia has increased in 2014 to 146,279 from 143,875 in 2013.
The number of horizontal wells – a more efficient method of extracting oil – has increased by more than six times since 2005.
The number of wells in the Middle East, including in Saudi Arabia, has also risen over the past year, according to data from OPEC – in steep contrast to fast declines in many other producing areas as a result of low oil prices.
In the United States, the number of oil rigs has fallen by 1,173 over the past year to 744 as the shale oil boom cools due to lower oil prices, according to oil services company Baker Hughes.
Merrill Lynch said that most Russian oil companies break even at an oil price as low as $35 per barrel comparing to $40-$50 for Latin America’s producers.
11 Comments on "More Russian Oil Drilling Shows its Resolve to OPEC"
shortonoil on Mon, 30th Nov 2015 11:47 am
“Merrill Lynch said that most Russian oil companies break even at an oil price as low as $35 per barrel comparing to $40-$50 for Latin America’s producers.”
This represents the cost of operating existing fields, and does not include the cost of replacing reserves extracted. Another convenient RIGZONE over sight?
Plantagenet on Mon, 30th Nov 2015 12:09 pm
When oil prices plunge in an oil glut, the logical thing for producers to do would be to cut back their production. However, they often try to produce even more in order to keep their income streams flowing.
This illogical behavior makes the oil glut worse, and makes the oil glut last longer.
Enjoy this oil glut while it lasts!
cheers!
twocats on Mon, 30th Nov 2015 12:29 pm
With 2015 mostly in the bag it looks like Russia is flat in terms of production 2014 and 2015 (slightly down in 2015). Some think this is the second and final peak for Russia. Two things:
Russia has increased production about 100kbpd for every year going back to 2004, right into the teeth of peak oil. They are one of only ten or so remaining countries that was able to increase production over that period.
Their consumption has increased every year but one (2008) since 1998. So we also have the ELM in play here.
Increased drilling isn’t resolve, its survival. They have experienced more than any other country the devastation of a realized peak oil. In addition, they are a key player on the global chessboard, and the moves are just starting to get interesting.
twocats on Mon, 30th Nov 2015 12:49 pm
Hey Plant,
I’m not so sure maintaining production is illogical. Each country and company has its own goals and needs. Sure if there was some martyr that was willing to fall on the sword of reducing production in face of the glut. But don’t look to Russia for such a move:
http://www.businessinsider.com/afp-russia-capital-flight-more-than-doubled-in-2014-to-151-bn-2015-1
They’ve got major problems (see article) and are besieged by the US/NATO both militarily and financially (sanctions post Ukraine for example). If Russia were suddenly seen reducing production the United States could (quite ironically) call peak oil, and this would vastly accelerate capital outflows. With Russia’s major play in Turkey/Syria, escalation of a major proxy war, and a veering (whether mildly or dramatically) towards an outright hot war, now would be the absolutely WORST time for Russia to cut production.
AgentR11 on Tue, 1st Dec 2015 8:49 am
I still think folks read this wrong, this isn’t OPEC vs Rus; this is OPEC&Rus vs Fracking/deep water. Its a market share fight. And I think its working like a champ for them.
To the profit side.. oil production in Russia allows them to use rubles to create dollars, euro, and Yuan. Profitability is determined by the exchange rate, because revenue is in external currency, and costs are largely ruble. Russian bankers have already indicated they’d be comfortable with an even much weaker ruble than now. So don’t think they’re anywhere near the bottom as it were.
Davy on Tue, 1st Dec 2015 9:02 am
Agent R, good point. I have read $30 oil would be difficult for Russia. I have also read they have adjusted quite well to the current price allbeit with banking sector problems and an economy in recession.
Boat on Tue, 1st Dec 2015 9:18 am
AGentR
I don’t think you can think of oil as groups anymore. There are countries within OPEC that are hurting bad, Venezuela would be the poster child.
This war over market share is simply won by those with the deepest pockets and cheapest production costs. Down the road those who are not developing replacement oil will be affected.
Davy,
You call 11% credit and 15% inflation with an economy in recession a good adjustment? If the rest of the world were in that kind of shape you would christen the beginning of the collapse of the world.
Davy on Tue, 1st Dec 2015 9:32 am
Yea Boat, I call the Russians tough. They can take it and keep on ticking. Get a grip boat not everything is about money.
Boat on Tue, 1st Dec 2015 10:53 am
Davy,
What world do you come from. Of course it is about the money. Absolutely nothing happens without it.
Boat on Tue, 1st Dec 2015 11:00 am
Davy,
So is real toughness Ethiopians where 8 of them use the same amount of electricity in a year as one modern refrigerator?
Having poor people doesn’t make you tough.
Davy on Tue, 1st Dec 2015 11:08 am
You hit the nail Boater on why you are so wacked out. Power is what matters. Money is the bait. You took the bait because you don’t know any better. As for tough all peoples have tough people. Some nation are accustomed to difficult times better than others like Russia. Ethiopia is not a significant country to compare boat. In that league compare South Sudan or something. I am assume you know where these places are right?