In 2017 Russian oil and gas companies increased investments in exploration in production by 38% to $58 billion, International Energy Agency (IEA) reported. One of the reasons for such dramatic change was the Russian rouble appreciation in 2017, but this figure also reflects growing spendings by the Russian oil and gas majors due to the oil market recovery. Thus, total investments in the Russian upstream sector counted in rubles have increased by 20% compared to 2016. IEA expects E&P investments in Russia to remain at the same level in 2018. Most of the spendings, however, will be aimed at sustaining current production at mature oilfields in Western Siberia.
Over the last few years, Russian oil and gas companies have been actively investing in the development of new oilfields, such as Vostochno-Messoyahskoye (JV of Rosneft and Gazprom Neft), Novoportovskoye (Gazprom Neft), various oilfields of Vankor group (Rosneft), and Lukoil’s Caspian Sea shelf projects. These new projects are supposed to be a new resource base for oil production growth in the future, reports Kommersant. However, the lion’s share of the E&P investments made by Russian companies in 2017 was aimed at keeping current levels of oil production in mature Western Siberian fields. This trend is reflected by a growing number of oil wells drilled in Russia. According to Darya Kozlova, a consultant at Vygon Consulting, in 2017 there were 8,500 wells drilled in the country, a 14% increase against the number of wells drilled in 2016. At the same time, the share of hard-to-recover oil in total crude oil production in Russia exceeded 15%, while the number of horizontal wells drilled increased by 20%.
Vostochno-Messoyahskoye oilfield. Image credit: Gazprom Neft
The most important objective for the Russian E&P companies in the mid-term perspective would be to develop country’s hard-to-recover oil resources, that are not economically viable under the current market conditions or due to lack of necessary technologies and equipment, said Darya Kozlova, cited by Kommersant.
The growing investments in sustaining output at mature oilfields in Russia offer great business opportunities for foreign equipment manufacturers and service providers. We at Eurasian Links expect that spending on such services as drilling (including multidirectional and horizontal drilling), well completion, hydraulic fracturing, artificial lift and other EOR methods will continue growing in the short- and mid-term perspectives. At the same time, EOR services and equipment for conventional oilfields in Russia are not affected by the U.S. and E.U. sectoral sanctions.
According to the IEA World Energy Investment 2018 report, global investment in upstream oil and gas rose by 4% to $450 billion in 2017 and is set to rise by 5% to $472 billion (in nominal terms) in 2018, driven primarily by the U.S. shale sector, which is expected to grow by around 20%. Agency also reports that “investment in conventional oil and gas remains subdued, focusing on brownfield projects, and the share of greenfield projects in total upstream investment is expected to plunge to about one-third in 2018 – the lowest level for several years.” At the same time, the global oil and gas industry is shifting towards short-cycle projects and rapidly declining producing assets while expanding into the downstream sector and petrochemicals. Most companies continue to “prioritise cost control, financial discipline and returns to shareholders. They appear to be aiming to reduce exposure to long-term risks, expanding their activities in smaller projects that generate faster payback, such as shale and brownfields.”