Russia Drills Most Oil in a Decade
When Russia announced last week that it would cut oil production by half a million barrels a day in retaliation against Western sanctions, there was scepticism about whether it was really doing so by choice.
Russia is entangled in a tightening web of economic restrictions, from prohibitions on exports of technology to the country to a recent European Union ban on most imports of its oil. As far as the West is concerned, Moscow is buckling under the weight of sanctions.
“It wasn’t voluntary, it was forced on them,” Kadri Simson, EU Commissioner for Energy, said in an interview in Cairo. “They don’t have the ability to keep up the production volumes because they don’t have access to necessary technology.”
Yet data from within Russia tells a different story.
Russian companies did the most drilling at their oil fields in more than a decade last year, with little sign that international sanctions or the departure of some major Western firms directly harmed so-called upstream operations. This helps to explain how the country’s oil production rebounded in the second half of 2022 even as further restrictions were imposed on its exports.
“The industry largely continues working just like before,” said Vitaly Mikhalchuk, head of the research center at Business Solutions and Technologies, formerly the Russian unit of consultant Deloitte & Touche LLP. “Russia has been able to retain most oil-service competencies, assets and technologies.”
Since President Vladimir Putin’s decision to invade Ukraine almost a year ago, Russia’s oil industry has undergone the most dramatic change in political circumstances since the collapse of the Soviet Union.
Western majors including BP Plc, Shell Plc and Exxon Mobil Corp. walked away from multibillion dollar investments in the country. Some of the major international service providers followed them. Europe also introduced “comprehensive exports restriction on equipment, technology and services for the energy industry in Russia.”
Yet Russian oil rigs drilled a total depth of more than 28,000 kilometers last year, the highest in over a decade, according to industry data seen by Bloomberg. The total number of wells started rose nearly 7% to above 7,800, with most key oil companies beating their results of the previous year, the data show.
Several factors have helped Russia keep its oil industry ticking over.
First, top international providers accounted for only 15% of the country’s total oil-services segment in 2021, according to data from Vygon Consulting. The in-house units of domestic producers such as Rosneft PJSC, Surgutneftegas PJSC and Gazprom Group make up the bulk of the market, the data showed. Those companies didn’t respond to requests for comment.
“Russian companies attract foreign contractors if they need high-tech services and equipment” as well as advanced software, a report of the Moscow-based consultant said. But such things aren’t generally needed to keep the oil flowing from established fields.
Second, some of the most significant western oil-service providers didn’t leave the country. SLB and Weatherford International Plc continue Russian operations, with some limitations.
SLB Chief Executive Officer Olivier Le Peuch said in July that his company’s unique corporate structure gives its flexibility to work in Russia while fully complying with US and EU sanctions. The company didn’t respond to a request for comment from Bloomberg.
SOURCE – RIGZONE