Russia’s oil firms have reduced pace of drilling from last year’s record as the nation deepened its OPEC+ production cuts.
Rigs drilled 14,370 kilometers (8,930 miles) of production wells in Russia from January to June, 2.5% lower than the same period a year ago, according to industry data seen by Bloomberg News. The slowdown follows Moscow’s voluntary cooperation with several nations of the Organization of Petroleum Exporting Countries, including Saudi Arabia, to stabilize global oil market.
“OPEC+ production ceilings, current and expected, serve as a damper on production growth and limit the amount of capital Russian oil companies deem reasonable to spend on drilling,” said Sergey Vakulenko, who spent a decade as an executive at a Russian oil producer and is now a scholar at the Carnegie Endowment for International Peace. “They drill enough to maintain the plateau and have some spare capacity, but not more.”
Russia’s Energy Ministry didn’t immediately respond to a request for comment.
Russia has been implementing two sets of OPEC+ production cuts, which the group deems as “voluntary” because not all members are participating in them. The first 500,000 barrel-a-day reduction was announced early last year, followed later by a 471,000 barrel-a-day cut promised for June to September. The country’s production level is set to remain at 8.978 million barrels a day until October when the nation will starts gradually phasing out the curbs in line with the OPEC+ deal.
While reducing its output this year, Russia has still been pumping crude above agreed levels. In June, the nation produced 9.139 million barrels a day, according to latest OPEC’s monthly report based on secondary sources. Moscow plans to make extra cuts in October and November this year, then between March and September of 2025, with total compensations curbs of almost 15 million barrels over the period.
Lower refinery-runs could also have affected slower pace in drilling this year, according to Dmitry Kasatkin, a partner at Kasatkin Consulting, which employs some former Deloitte consultants in the region.
Several Russian refiners have suffered damage since the start of the year after being hit by Ukrainian drones. In recent weeks, the nation’s downstream segment has been raising processing rates following planned maintenance and emergency repair works.
Resilient to Sanctions
This year’s OPEC+ supply constraints have finally brought an end to the increase in Russia’s drilling in the last two years, which had proved the resilience of the nation’s oil industry to unprecedented sanctions over the invasion of Ukraine. Western restrictions on supplies of energy equipment and technology had sought to cut in Russia’s ability to produce oil, a key source of revenue for the Kremlin’s coffers.
Overall production drilling in Russia rose an average of 7.5% in 2022 and in 2023, including more technologically advanced methods. The share of horizontal drilling exceeded 64% of the total in the first half of the year, compared with 54% in 2021, according to the industry data.
“The combined effect of increased drilling and a higher concentration of advanced drilling makes it very likely that, despite sanctions-related operational headwinds, Russia has maintained its pre-OPEC+ crude production capacity of 10.5 million barrels a day, even as oil production has fallen to around 9 million barrels a day,” said Ronald Smith, an oil and gas analyst at Moscow-based BCS Global Markets.
Russia’s total production drilling is expected to slightly decline to 29,400 kilometers this year, while still exceeding the average distance achieved from 2019 to 2022. It will again exceed 30,000 kilometers next year, Kasatkin Consulting estimated.
“Russian oil companies have adjusted to the new modus operandi,” Vakulenko said. There are no signs of “technology unavailability, or drastic deterioration of production base.”
Source: Bloomberg
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