Russia Oil Producers Would Cut If OPEC Has Deal, Lukoil Says

  • Oil companies will support Russian state position: VP Fedun
  • Freeze deal with OPEC likely after group’s November meeting

Goldman's Currie: Higher Likelihood of an OPEC Agreement

Russian oil companies will unify behind their government if talks with the Organization of Petroleum Exporting Countries result in an agreement to limit output, including cuts, said the country’s second-largest producer.

“I have no doubt that there will be a freeze” or even cuts, Leonid Fedun, billionaire vice president of Lukoil PJSC, said at the World Energy Congress in Istanbul. “I’m sure everybody will join” any action the Russian government agrees, he said. Gazprom PJSC, which controls Russia’s fourth largest oil producer Gazprom Neft PJSC, supports a production freeze, not a reduction, Interfax reported, citing Deputy Chief Executive Alexander Medvedev.

Oil prices remain at about half the level of mid-2014 due to a global oversupply. Russia is ready to join OPEC in limiting production to stabilize the market, President Vladimir Putin said Monday. The nation is approaching talks with other producers this week with a preference for freezing output, which is currently at record levels, according to Energy Minister Alexander Novak.

A supply deal that includes Russia can be expected shortly after OPEC’s Nov. 30 meeting in Vienna, Fedun said. Russian companies will probably get recommendations then from the Energy Ministry regarding output, followed by government orders if there is a decision to set limits, he said. Lukoil is ready to make cuts, he said. A one-year deal would make sense, Fedun said.

Rosneft Resists

Russia’s largest oil producer, state-run Rosneft PJSC, has no plans to cut oil production, Reuters reported Tuesday, citing Chief Executive Officer Igor Sechin. Saudi Arabia and other producers are unlikely to cut and higher prices would only bring U.S. shale producers back into the market, he said, according to the report.

Sechin’s comments don’t contradict President Putin’s stance, Kremlin spokesman Dmitry Peskov told reporters on a conference call Tuesday.

If OPEC and Russia are able to reach an agreement, Rosneft will “of course” comply, Rosneft spokesman Mikhail Leontyev said by telephone. Rosneft is skeptical of chances that OPEC will be able to reach a deal among its members, he said.

Lukoil Shareholder

Fedun, who is also Lukoil’s second-largest shareholder, welcomed limits as a mechanism to support prices and investment, saying companies need about $80 a barrel to go ahead with long-term plans. Russian output could be frozen at January 2016 levels, he said.

Russia pumped 10.9 million barrels a day in January compared with 11.1 million last month, according to Energy Ministry data.

Russia may have already reached its maximum oil production capacity as higher taxes introduced to help fill a gap in Russia’s budget siphon cash away from investment, Fedun said. Output could begin to fall in one or two years due to taxation, he said.

“As long as output grows, they will shear the sheep,” Fedun said referring to Russian taxation.

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