Russia is preparing a stimulus that will allow oil producers to adopt practices that are usually done by their US counterparts. An official familiar with the scheme said that at least two state-run banks, Sberbank and VEB, would provide oil companies with RUB400 billion ($6 billion) funding to drill about 3,000 uncompleted wells. The scheme is at effectively almost zero interest and also includes tax breaks.
US shale producers usually refrain from freezing all activity when oil prices are low. Instead, they continue drilling but not complete wells so they can react quickly when demand picks up. On the other hand, there are concerns that Russia cannot boost production quickly and lose its market share when demand improves. Russia has shut old or less-productive wells as it participates in OPEC+ deal. Those wells will not necessarily be revived when the pact expires in April 2022.
Besides, restarting oil wells in Russia is more expensive and takes longer time compared to in Saudi Arabia or the US. Russian producers need to transport heavy drilling equipment when Siberian rivers and swamps are frozen during winter. Russian oil is also usually located in deeper and thicker layers of earth.
Hence, the stimulus is designed to help Russian oil producers to replace lost output quickly. A Russian geologist said around 3,000 new wells could provide up to 2 million bpd of additional production. However, some industry players doubted whether global oil demand would recover fully to justify the drilling of the new wells.
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Published on June 25, 2020 3:30 PM (GMT+8)Last Updated on June 25, 2020 3:31 PM (GMT+8)
