MOSCOW, June 25 (Reuters) – One of the world’s largest oil producers – Russia – plans to drill thousands of new oil wells, leaving them unfinished; it will allow Moscow to quickly restore oil production, when demand recovers from the impact of the pandemic coronavirus, say officials and analysts.
Russia is preparing to use the experience of competitors, producing shale oil in the United States. They usually prepare but not put into operation well before until the oil price reaches the desired level.
Party restricting the oil production of the OPEC Alliance+, Russia, in the framework of the Pact reduces production by 2 million barrels a day, mainly on Mature fields with high water cut, and the Minister of energy Alexander Novak said that some of the wells might be lost forever.
Low oil prices do not encourage the company to drill more wells to provide a good Foundation for oil production in the future, therefore, the Russian authorities plan to spur drilling through soft loans, under which oil companies will get 400 billion rubles for the formation of the Fund uncompleted wells.
One of the authors of the idea, according to a source familiar with a course of its preparation, became Deputy Minister of energy Pavel Sorokin, a former oil and gas analyst at the American investment Bank Morgan Stanley (NYSE:MS).
Sorokin told Reuters that the support services sector in the face of declining demand for drilling will keep the competence and the frames and create the necessary Fund for unfinished wells, ready to launch at a time when there will be a need to increase production.
“Now with the Ministry of Finance finalized the incentive mechanism in the amount of refinancing that will be applied after entering the wells on production to reduce the cost of ownership well in her unproductive period,” he said.
Drilling in Russia is more difficult than in Saudi Arabia and the United States, the nearest competitors of Russia, said Director of exploration and production of oil and gas VYGON Consulting Sergey Coil.
In Russia plays a big role in seasonality, because the main loads can be delivered by land only in winter – in summer the rivers and swamps of the ground make the logistics difficult. In addition, the oil in Russia is greater than in Saudi Arabia depth and the deposits themselves have lower permeability.
Despite the fact that the shale deposits of the United States more difficult from the point of view of Geology and mining, and therefore more costly, they occur at shallow depths, which gives the opportunity to drill wells quickly adds to the Tangles.
In the United States temporarily conserved wells easy to return to work, if the closure lasted more than two months, says an analyst with an American consulting company ESAI Energy Elizabeth Murphy.
Weather conditions in Russia – this is the main reason why the launch of the well more expensive and longer than in Saudi Arabia, an analyst at the Norwegian consulting firm Rystad Energy Darya Surova.
Support plan oilfield services 400 billion rubles will provide an opportunity to drill approximately 3,000 wells, said Coil from VYGON Consulting, which does research for the relevant Russian ministries.
Energy Minister Novak said earlier that the company will drill wells during the 2 years before the end of the transaction, which expires in April 2022.
A LOT OR A LITTLE?
The operating well stock in Russia – about 180.000 pieces on them in the past year we produced 11.3 million barrels per day, according to the Ministry of energy. Thus, the total number of wells in Russia will grow new unfinished approximately 2% excluding the eliminated wells that Russia may lose in the transaction OPEC+.
Based on average flow rates in 2019, conditional minimum volume, on which Moscow can expect when the new wells – 10 million tons per year, told Reuters one of the geologists, who advises oil companies.
He wished to remain anonymous, since these calculations are rough and may have nothing to do with the actual production wells. The maximum volume which could in theory be produced at new wells with the simultaneous entry and high flow rates – 100 million tons per year, or 2 million barrels a day, he said.
Deputy Minister of energy Sorokin refused to mention the amount of oil, on which Russia counts as part of the formation of the Fund uncompleted wells.
WHO WILL PAY?
A scheme for the formation of the Fund uncompleted wells, which is agreed between Ministry of energy and Ministry of Finance, provides tax incentives, the draft of the government’s economic recovery plan until the end of 2021, seen by Reuters.
According to the document, the company through the formation of the Foundation of new wells may qualify for higher tax deductions on paid interest on loans. Deputy Finance Minister Alexei Sazanov, in an interview Reuters did not rule out tax incentives for the formation of the Fund uncompleted wells.
The largest Russian Bank – Sberbank plans to participate in financing the scheme, said its top Manager.
“The proposed parameters of the program, including the conditions of the input and other parameters, are now at the stage of negotiation and on the basis of the final terms of the program, will develop parameters for loans, including collateral and other conditions”, – told Reuters the Deputy Chairman of Sberbank (MCX:SBER) Anatoly Popov.
A second possible contender may be the state Corporation VEB, said the geologist. The VEB said in response to a request by Reuters, that takes part in the discussion of anti-crisis initiatives of the government, but declined to comment further.
Neither Novak nor Sorokin, nor carp are not saying that will be the source of funding a loan of 400 billion rubles.
Some oil market participants doubt that the demand for oil in the future will return to pre-crisis levels.
“The question still is, a need they (new wells) us? It is unlikely that we will reach the pre-crisis production levels. Oil is not needed in such amounts and don’t need me anymore” – said one of them.
(Olesya Astakhova, Vladimir Soldatkin, Ekaterina Golubkova. With the participation of Tatyana Voronova and Darya Korsunskaya; Editor Dmitry Antonov)