Beating a Dead Horse With West Siberia Declining, Russian Oil Producers Still Await Tax Incentives to Unlock New Regions

The oil situation in Russia is similar to that of gas production: main fields in West Siberia are already depleted, but there is no worthy alternative yet. According to estimates of the majority of analysts, oil production will stay at the present plateau level (in the range of 505 million tons to 520 million tons per year) for the next 5-6 years. Then, in the existing situation in this industry, and at the level of the explored and developed reserves, oil production will start declining. Konstantin Simonov, Director of the National Energy Security Fund, believes that in 2017–2018, Russia can experience an oil production decline of 5-7 percent a year. According to the estimate of FGUP (Federal State Unitary Enterprise) All-Russian Geological Petroleum Research Institute, by 2020, oil production can decrease by 20 percent – to 415 million tons per year. To stay within the present limits, or even more, to increase the production, it is necessary to invest in exploration of new territories, apply advanced technologies for stimulation of oil production, and work with “complicated fields”. However, while reservoir engineers are passionate in this respect, the state is in no haste to stimulate them by providing preferential taxation. Another serious factor hindering the development of this sector is an extremely limited access of private companies to the offshore areas.

Predictable Eastern Siberia 

Eastern Siberia and Krasnoyarsk Territory in particular is considered to be one of the most promising regions in respect of the reserves increment and oil production. There, in 2009, Rosneft put on production the Vankorskoye field having reserves exceeding 0.5 billion tons; they plan to increase production by 22 percent – up to 22 million tons by 2013, and the maximum potential production from the field is estimated in the amount of 28 million tons per year. This is actually the only significant success of Russian oilmen in the last few years: to achieve this success, the East-Siberian crude oil of Rosneft received exemption from export duties in the period from 2009 to 2011, though this was not sufficient for economic viability of the project. 

As a result of acquisition of the assets of TNK-BP, Rosneft obtained the Verkhnechonskoye field in the Irkutsk Region, which has been under commercial production since 2011 and has reserves of 200 million tons of oil. In 2012, its production increased by 40 percent – to 7 million tons, and it is expected that it will stabilize at the level of 7.8 million tons in 2014.

Surgutneftegas hopes to increase its oil production through operation of fields in Yakutia, and this year they plan to triple the reserves of these fields. In the first quarter of this year, oil production from the Yakutia fields has increased by 12 percent. This spring Surgutneftegas has started commercial production at the Eastern Block of the Talakanskoye oil and gas condensate field in the Irkutsk  Region, with the proven reserves in the amount of 20 million tons (the reserves of the whole area are estimated in