September 12, 2016
Authurs: Olga Kerimova, Senior Analyst, and Veronika Akuliniseva, Analyst, Rystad Energy
Publisher: PESGB Newsletter, September Edition
Russia’s oil production is expected to remain at almost 11 million bbl/d for the next three years, thanks to the contributions from projects currently under development, while unsanctioned fields are needed to further offset the production decline after 2020. While Russia’s discovered oil resources yet to be sanctioned are significant, these will take time and substantial investments to develop. This article assesses the status and outlook for Russia’s E&P, illustrated by the three key drivers: production, exploration success and spending.
Figure 1 shows the total oil (crude and condensate) production for Russia, split by project and life cycle, from 2010 to 2025. Production levels increased from 10.2 million bbl/d in 2010 to around 10.7 million bbl/d in 2015. For 2016 the production is expected to reach 10.9 million bbl/d and stay there until the end of the decade. Producing fields account for over 90% of the total production forecast in 2020, but less than 80% in 2025, with the largest contributions from Rosneft’s mature oil fields: North Priobskoye, Vankorskoye and Samotlor. From 2017, contributions from fields currently under development and unsanctioned fields are needed to maintain production. These include Lukoil’s Vladimir Filanovsky, Messoyakha (Gazprom Neft-operated), and Rosneft’s Tagulskoye and Suzunskoye fields (Vankorneft cluster) as well as the Russkoye field. Vladimir Filanovsky and the eastern part of the Messoyakha field are expected to be put on production in the second half of this year, while Messoyakha West and Russkoye are planned to be brought on stream around 2019.
Figure 2 shows the discovered oil volumes in Russia from 2005 to 2015. The dashed line depicts the discovery cost per barrel and represents exploration efficiency or how much exploration capex has been spent per barrel of oil discovered. The vast majority of discovered resources are still in discovery stage, as the time from discovery to regulatory approval and final investment decision in Russia is longer than average. Remote location, lack of required technologies, and thus high development costs are the key factors affecting the time from discovery to commercial development. The period from 2009 to 2011 has been the most successful one for the country as discovered oil volumes stood at around 1.7 billion barrels per year on average. More than 40% of discovered resources in this period are operated by Rosneft, and include fields like Savostyanov, Lisovskoye, and Sanarskoye. The discoveries would have been declining post 2011, if it wasn’t for the Rosneft-operated Universitetskaya field that added about 1 billion bbl to the discovered oil volumes in 2014. Last year has been the worst year in the decade considered with barely 125 million bbl discovered. At the same time, exploration efficiency represented by discovery cost per bbl has been in decline since 2005. Average discovery cost has grown from 0.15 $/bbl to almost 0.65 $/bbl in 2015.
Figure 3 shows the total spending on oil in Russia from 2010 to 2020. Expenditures have been continuously increasing since 2010 until 2013 before flattening out at around $70 billion and then decreasing by 30% last year. The fall in the oil price has had an effect on devaluation of Ruble, and thus spending in dollar terms has fallen substantially. Capital investments are estimated to contract by another 9% this year before starting to recover from 2017 onwards followed by an expected recovery in the oil price and exchange rate. Total spending is currently forecasted to reach more than $70 billion again by 2020. At the same time, investments in Ruble terms have kept increasing over time even in the periods of very low oil price since most of the cost in Russia is spent locally. Spending is anticipated to stay at around 3 trillion Rubles until 2020, with almost 2 trillion Rubles dedicated to capital and exploration expenditures. Roughly 80% of that will be spent on brownfield developments, while the rest will be allocated to currently under development and discovery stage fields. Greenfield projects with the highest forecasted investments until 2020 include Rosneft-operated Russkoye, Yurubcheno-Tokhomskoye and Tagulskoye fields, followed by Messoyakha West and Kuyumba, projects jointly developed with Gazprom Neft.
Around 12 billion bbl of oil resources have been discovered in Russia in the past ten years. However, 70% of the projects have not yet been sanctioned. Timely development of these resources is key for the country in order to offset production decline at mature fields and keep total production levels at least constant. It will take time to develop Russia’s vast resources, with some uncertainty surrounding both the timing and the commerciality of projects. Significant investments are also required to bring these resources on stream.
Contact: Olga Kerimova, Analyst
Phone: +47 24 00 42 00
Contact: Veronika Akulinitseva, Analyst
Phone: +47 24 00 42 00
About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro) as well as Singapore and Dubai.