Petrostrategies - The World Energy Weekly

Petrostrategies - The World Energy Weekly

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Corporate disputes helped Russia to meet its production commitments in 2017

Petrostrategies, February 2nd, 2018

Russia successfully met its commitments to limit its oil production (crude + condensate) in 2017. Official figures show that Russia’s average production of liquid hydrocarbons over the last nine months of 2017 declined by 290,000 b/d compared to October 2016, the month that served as the reference for Moscow’s commitments under the terms of the December 2016 accord between OPEC and non-OPEC oil-producing countries. The agreement gave Russia three months (January-March 2017) to reduce its production by 300,000 b/d relative to October 2016, thus starting in April 2017. In all, Russian production of liquid hydrocarbons amounted to 10.98 million b/d for the whole of 2017, a level that remained virtually stable compared to 2016 (10.96 million b/d). According to Sberbank’s analysts, Russian production would have reached 11.2 million b/d if the agreed reduction had not been made over the period from April to December 2017.

Detailed figures for each Russian producing company are interesting to look at. Rosneft, whose CEO, Igor Sechin, is a fierce opponent of the agreement concluded with OPEC, only reduced its production by 0.1%, while its output share under the RN Holding declined by 0.7%. Even more interesting is the fact that the largest cuts were made by Bashneft, particularly on the Trebs and Titov fields, which are shared by Rosneft and Lukoil, and have led to disputes between the two companies. Lukoil has curtailed its investments on existing mature fields, where production has fallen by 7%, whereas the average decline recorded by the company is only 1.3%. The sharpest production cut (-4.4%) is that of Slavneft, a company which is controlled by Rosneft and Gazprom but is not consolidated in the accounts of the two companies. On the other hand, Gazprom Neft increased its oil production by nearly 5% in 2017.

Will these circumstantial reasons that limited Russian oil production last year recur in 2018, when the goal will be to comply with the level from April to December 2017? Some Russian companies, and Rosneft in particular, have developed fields where they want to start production quickly, or where they are reluctant to reduce flows as this would force them to cut production on other fields. Unconsolidated companies or shared fields will probably once again suffer most the consequences of the discipline which Russia will have to exercise in 2018, if the agreement between OPEC and non-OPEC oil-producing countries to limit production is respected and runs until the end of the year.