UPDATE: Russia Oil Output May Go Higher After New Record In Sept
October 04 2010 - 11:22AM
Dow Jones News
Russian oil output reached a new post-Soviet high in September,
continuing to perform against expectations this year, and some
analysts are now saying the world's biggest energy supplier could
boost production further in the coming years.
Russian oil firms have surprised many this year by increasing
output, which topped 10.16 million barrels a day in September,
boosted by increased volumes from new projects in East Siberia.
Analysts have repeatedly said this year's output growth is
unsustainable, as production is falling rapidly in West
Siberia--the country's main production area, developed in the 1960s
and 1970s.
In 2008, Russia's oil output fell for the first time in a
decade, but that trend was reversed in August last year, when
Russia's top oil producer, state-controlled OAO Rosneft (ROSN.RS),
launched the huge Vankor field in East Siberia--the country's
biggest greenfield project since Soviet times.
With expected peak production of 25 million tons a year--or over
half a million barrels a day--by the middle of this decade, Vankor
is a cornerstone of Russia's attempt to keep up volumes.
The new record reached in September was also down to increased
output at OAO Bashneft (BANE.RS) and Anglo-Russian joint venture
TNK-BP Ltd., 50%-owned by U.K. oil major BP PLC (BP).
Some analysts say the weakening ruble has allowed oil companies
to invest more money; producers get most of their revenue in
dollars, while costs are in rubles, allowing them to produce more
oil, although this is considered a very short-term influence.
The Russian government, whose coffers rely heavily on oil
revenue, last year eased the tax burden on new greenfield projects
such as Vankor in a bid to stabilize output.
By creating incentives for companies to invest into new
production regions, the government has shown it is prepared to
contribute to the long-term sustainability of its oil industry,
analysts at Wood Mackenzie said in a research note.
"The government is managing a very fine balancing act between
maintaining production and protecting its revenue base," Wood
Mackenzie's analysts said.
The consultancy says overall production may rise modestly in
Russia through to at least 2017--so long as the general economic
environment remains stable--and could reach 11 million barrels a
day. The Paris-based International Energy Agency expects production
growth continuing at least through 2011.
Some analysts say Russia's failure to create a reliable tax
system for the industry could cause production to fall by as early
as next year.
"In light of uncertainty about Russia's tax regime, which
prevents companies from making long-term capital commitments, we
expect this rebound to be short-lived and production to start
declining again in 2011," said Alexander Burgansky, analyst at
Renaissance Capital.
The shift towards investments into greenfield developments in
East Siberia was only maintained at the expense of West Siberia.
Analysts agree that continued overall growth hinges on West
Siberia, where production decline could be slowed down if the right
tax incentives were created.
"Losing focus on the huge upside potential, which still exists
in West Siberia, could be a massively costly mistake," Wood
Mackenzie said.
The country produced 376.70 million tons of crude oil and
condensate in the first nine months of 2010, up 2.4% on the year.
September output stood at 41.59 million tons.
The five main contributors were state-controlled OAO Rosneft
(ROSN.RS), which produced 2.28 million barrels a day on average in
the month, OAO Lukoil Holdings (LKOH.RS), with 1.79 million barrels
a day, TNK-BP Ltd., at 1.46 million barrels a day, OAO
Surgutneftegaz (SNGS.RS), producing 1.20 million barrels a day, and
OAO Gazprom Neft (SIBN.RS), with 604,481 barrels a day.
-By Jacob Gronholt-Pedersen, Dow Jones Newswires; +7 495 232
9197; jacob.pedersen@dowjones.com
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