For Russia, new oil today means new dollars to fill state coffers and prop up the economy. However, bigger output largely depends on new rigs. OGE probed Russia’s drilling market to learn how quickly contractors can upgrade their fleets in order to meet soaring output targets.
The Russian economy’s traditionally heavy dependence on petrodollars continues – in 2012, oil and gas revenues accounted for 52 percent of federal budget revenues and over 70 percent of total exports, PFC Energy reported. High budget receipts from hydrocarbon exports hinge on sustained growth of oil output, which in recent years regularly topped post-Soviet era records. Last year was no exception as Russian oil companies grew output by 1 percent and produced 523.3 million tons (10.51 million barrels per day), setting a new all-time high since the breakup of the Soviet Union in 1991. Last year’s spike of oil output helped Russia snatch the title of the world’s #1 oil producer from Saudi Arabia, but was even more important on the backdrop of the continuing decline in gas production by Gazprom, the world's largest gas producer.
The Russian oil industry’s fresh success breeds new ambitions: according to a forecast by Russia’s Chamber of Trade and Industry (TPP), by 2018 national oil production should reach the plateau of 550 million tons. That figure translates to an incremental buildup of approximately 6.7 million tons per annum. It is no secret that growing production largely depends on more efficient, more productive drilling. Last year, state-owned oil giant Rosneft emerged as the new leader in the drilling market, dethroning longtime drilling king Surgutneftegaz (Fig. 1). Rosneft’s surge to number one spot occurred after acquiring another local oil major, TNK-BP, in the national industry’s biggest deal ever worth $55 billion. Adding TNK-BP’s drilling record to its own automatically labeled Rosneft the industry’s top driller, the title previously held over many years by Surgutneftegaz.
Old Rigs Limit Oil Production Potential
New targets are challenging, but the question remains: can drilling contractors and operators deliver and meet them? Opinions differ as 20-year-old rigs account for almost three quarters of Russia’s aging drilling fleet and upgrades aren’t happening quickly.
“This target could be met through bringing new fields on stream, primarily those in Rosneft projects, the former TNK-BP and Gazprom Neft projects,” Raiffeisenbank analyst Andrei Polischuk told OGE. “The main issue, though, is whether the largest oil companies will be able to sustain output at mature fields in West Siberia. Judging by production reports, we can see that so far they’ve managed to accomplish this. Rosneft stabilized output at former TNK-BP’s fields, at Samotlor, for instance, where it had only a minor output fall in the last quarter, compared to previous drops that sometimes amounted to 6 percent per year. LUKOIL has been doing the same. If production can be stabilized over the next three years, projected output growth is possible, despite being hard to achieve.”
“The majority of drilling rigs used today by Russian companies had been manufactured between 1987 and