Sanctions Failed To Take A Bite Out Of Russia’s Oil Patch: Fuel For Thought
International sanctions against Russia introduced in 2014 turned out not to be the bogeyman they first seemed to be, and could in fact have played a key role in helping the Russian oil sector to not only handle the sharp price drop over the last year and a half, but make the industry more efficient in the long run.
When sanctions were implemented targeting the Russian oil sector’s access to Western financing and key Arctic, shale and deepwater technology, analysts saw them as major blow.
Forecasters speculated that Russian oil companies would run into problems trying to maintain drill rates, service loans in foreign currencies, and could struggle to maintain output. At the time the International Energy Agency estimated Russia’s crude production would fall by 80,000 b/d in 2015. And these forecasts came when oil was still trading at over $100/b.
Things haven’t quite panned out as predicted — Russia increased crude output in 2015 by 147,222 b/d year on year, to 10.73 million b/d, and energy ministry data for January indicates this trend is continuing into 2016.
This is mainly due to a significant increase in drilling, and a drive to concentrate resources on maximizing efficiency at existing projects, rather than invest in new ones that are unlikely to immediately boost output.
Although natural declines continued at ageing fields in West Siberia, companies stepped up drilling effortsto minimize the fall. Rosneft said in November it increased drilling meterage by over 32% in the first nine months of 2015.
Russian production costs are also relatively low — estimated to be between $5/b and $15/b by energy minister Alexander Novak. These costs, which are largely incurred in rubles, have dropped in line with the ruble’s devaluation against the US dollar.
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