Russian Oil Industry Increase their Investment in Production by 40%
Russian oil and gas companies are practically the only ones in the world who continue to record a record increase in investments in mining projects. In 2017, investments grew by almost 40%, in 2018, growth will continue
Russian oil and gas companies have sharply increased their investments in mining projects, according to the report of the International Energy Agency (IEA), published on Monday, July 30.
In 2017, investments grew by 38%, to $ 58 billion (in rubles at the average annual rate – by 20%, to 3.4 trillion rubles.), The analysts of the agency calculated. At the same time, the average world investment in such projects increased by 3.7%, to $ 450 billion, the report said. In Europe, the United States and the Middle East, investment even fell by 1-16% and only slightly increased in China and Latin America.
The correlation between oil prices and investments in oil and gas companies has changed, IEA experts note. Previously, there was a direct dependence: oil prices grew, followed by investments, and vice versa. But since 2016, oil prices have almost doubled (Brent is trading at $ 75.5), and investments remained almost at the same level. The same picture will be observed in 2018: investments will grow by about 3%, the authors of the report indicate.
After a sharp fall in oil prices, at the end of 2014, foreign majors consistently reduce operating and capital costs, and because of the increased efficiency they are able to demonstrate production growth, said the director of the Moscow Oil and Gas Center Denis Borisov. Meanwhile, due to the peculiarities of the tax system and the devaluation of the ruble, Russian oil companies’ investments since 2015 have been much more profitable than similar investments by foreign players: the ROACE in the Russian segment of exploration and production has exceeded 10% over all these years, while abroad this indicator only last year reached 5-6%, and before that it fluctuated around the zero mark, the expert explains.
In 2017, according to the Ministry of Energy, the investments of the largest oil and gas companies in production increased by 19%, this is in line with the IEA data, says ACRA analyst Vasily Tanurkov. First of all, the growth of investments is connected with the preparations for the launch of new large fields – the second stage of Taas-Yuryakh and the new fields of the Vankor cluster of Rosneft-Lodochny and Tagulskoye, and the Kuyumbinskoye oilfield of Slavneft (a joint venture of Rosneft and Gazprom Neft) and the Severo-Sarusnoye field (the Gazprom project).
In 2017, the Russian oil industry has a good market situation, and even more growth in production is hampered only by the OPEC + deal, Tanurkov asserts. In late 2016, OPEC countries, Russia and other countries that joined them agreed to cut production by 1.8 million barrels. per day because of the excess supply in the market. In June 2018, the participants of this agreement revised the terms of the deal and decided to increase production by 1 million barrels. per day to compensate for a more dramatic drop in production in Venezuela. As a result, in 2018, according to the Minister of Energy Alexander Novak, production in Russia will grow by 0.7%, to 551 million tons, and in 2019 – to 555 million tons.
Russian companies are helped by the tax system (falling oil prices mostly amortize the budget), cheap ruble and high oil prices, adds Tanurkov. In 2017 oil companies had the peak of investments, and the ratio of capital expenditures to EBITDA in 2017 increased to 76%, while the normal level is 60-65%, Tanurkov said. With such investments, free cash flow from companies was negative even before dividends were paid, the expert said.
