Russia Seen Maintaining Oil Output Even After Collapse in Prices

Russia will maintain oil output for at least two years as increased use of technology and tax breaks will counter falling prices, Oxford University researchers said.

“Russian production may stay flat for the next few years and could even rise towards the end of the decade,” James Henderson, an analyst at the university’s Oxford Institute for Energy Studies, wrote in a report. That assumes fields that have yet to begin output are delayed for two years on spending cuts.

Russia has slowed the rate of decline in production at its mature fields to as low as an annual 2 percent from as much as 10 percent thanks to use of technology and tax policy, Henderson said.

The government eased taxes on crude exports, about half of national output, this year to support its largest budget earner. The state gets about half its budget revenue from oil and gas.

“A focus on maintaining this decline rate, which is a relatively low-cost tactic, should be the optimal way of sustaining oil output,” Henderson said. Mature fields account for about 9 million barrels a day, according to the research.

Should all new fields start according to plan, total output may reach 11 million barrels a day by 2020, Henderson wrote. It was 10.71 million barrels a day in March, matching a post-Soviet record set in January, according to Russia’s Energy Ministry.

The risk remains declining output will accelerate again because of weak oil prices, Henderson said. Brent crude was $64 a barrel at 5:34 pm in Moscow, down about 40 percent in a year.

That’s compounded by U.S.-led sanctions, imposed following Russian support for an insurgency in Ukraine, that have curbed access to some technology and international financing for oil producers.

OAO Rosneft, Russia’s largest producer, is affected by its limited access to funding and short-term debt obligations.

“Rosneft is particularly exposed, with the highest levels of debt,” Henderson said. “Given that Rosneft accounts for almost 40 percent of Russian oil production, the risk to its future output is clear.”

Foreign companies like ExxonMobil Corp., BP Plc, Royal Dutch Shell Plc and Total SA that have had a long-time relationship with Russia, promise support where they are able, he wrote. Asian companies with financial strength are also gaining opportunities previously unavailable, Henderson said.

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