Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Why Russia’s Oil Fields Will Soon Be Crawling with Western Oil Companies

Commodities / Oil Companies Dec 11, 2009 - 07:05 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleKent Moors writes: Western oil majors are about to help Moscow solve its energy problem. And that could be a boon for investors.

The traditional Russian oil fields in Western Siberia are well past peak production. Some satellite fields in the region remain, but the extraction gains will be marginal.


My sources in Russia's Ministry of Natural Resources and Ecology (MNRE), the government entity responsible for distribution and oversight of development leases, now acknowledge that the country's overall crude oil production could decline by more than 7% over the next several years.

That's a staggering total. And the Kremlin is not about to accept such an extraction rate decline, especially now that prices are rebounding on the global market.

Officials from Prime Minister Vladimir Putin on down are pushing a bold plan to move into three regions known to have significant resources:

  • North of the Arctic Circle.
  • Eastern Siberia.
  • Out Onto the Continental Shelf.

All three are very expensive areas in which to work and will require billions in exploration and production (E&P), capital expenditures (capex) and new technology.

That has led to Russian administrators talking for the first time in years about allowing more foreign investment into the sector. There will be opportunities for production companies, especially those prepared to develop smaller fields (those below the "strategic" level of 50 million tons, or 365 million barrels, for which new laws require Russian majority ownership).

But the real opportunities will emerge elsewhere.

A Ton of New Business for Oil Field Services

To pull off this massive production shift into regions that are difficult to develop, Russia will need considerable help in oilfield services (OFS) - everything from seismic and geological to drilling, well maintenance and workover provisions, wellhead operations and technical support.

As Moscow readies major new pipeline systems to the Pacific coast - bypassing the Bosporus and increasing flow to expanding port facilities on the Black and Baltic Seas - it needs to rev up new production as quickly as possible. That will require OFS provision.

A lot of it.

Russia will experience significant financial and credit constriction well into 2010, since the international crisis hit there later than elsewhere. Thereafter, however, new production will need to be coming on line, especially since Moscow depends upon the export of hydrocarbons for over 60% of its budget revenue.

That sets the stage for a dramatic increase in OFS demand.

In fact, the Russian OFS sector will experience significant growth over the next decade, clearly outstripping the ability of domestic providers to keep pace. This has already surfaced as a problem in the Duma, the national parliament.

Some political forces are worried that actions of the last several years, in which the state progressively came to take control of oil and gas production within the country, may be undone by an inability to service the government-owned and administered extraction companies. As a consequence, some legislative moves have begun to limit foreign access to the Russian OFS market.

Some politics will play out here, but more bark than bite.

The Kremlin reaction has been cool to such moves in the legislature. Officials recognize that they need the technology and cannot match that need with domestic services in the short-term. Nor do they have the investment available to develop the OFS sector in a few years.

New programs have been introduced to increase local production of rigs and offshore platforms, and the country retains much of its OFS infrastructure. But the manufacturing steps are too little, too late, and the infrastructure is hardly competitive with the technical sophistication of outside providers. The Russian government and the major operating companies it controls - Rosneft Oil Co. (PINK: RNFTF) and OAO Gazprom (OTC ADR: OGZPY) - require foreign help.

Western OFS Providers See the Major Opening

The Russian approach now is to favor outside service companies while discouraging majority ownership of the actual production.

That does not help a major vertically integrated oil company seeking reserves to book. But it fits quite nicely with how OFS providers operate. The know-how and technical base being brought in will also help the Russian sector upgrade its own activities. Given the increasing need for OFS services, the risk of government barriers to foreign involvement is quite low. 

Major companies such as U.S.-based Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL) and Baker Hughes Inc. (NYSE: BHI) have been in Russia for some time and have developed a market presence to benefit from the sector expansion. Foreign companies in the aggregate currently do not control more than 15% of the total Russian OFS market. That means there is upward movement remaining before any political reaction becomes a genuine issue.

Even then, acquisitions of local companies may improve the situation even more. Once we reach this time next year, as one of my Russian contacts recently told me, "there will be more business than the companies can handle."

Investors can ride the outside companies into the market. However, there is another way to participate in the moves to come.

A significant consolidation has been underway in the Russian OFS sector. Two large and rapidly expanding holdings have emerged. Both have undergone initial public stock offerings (IPOs) on the London Stock Exchange (LSE), where they now regularly trade. This is becoming the norm among developing market oil-related companies, with London emerging as the preferred place to raise operating cash.

Eurasia Drilling Co. Ltd. and Integra Group together now control the largest OFS base in Russia. They are certain to become involved in additional merger-and-acquisition (M&A) activity, become preferred joint venture partners for foreign players and continue to receive governmental preferential treatment (since the Kremlin wants to consolidate as much ongoing OFS work as possible in Russian hands).

Rather than competing with them, there is considerable flexibility developing. As a British OFS colleague of mine observed during a Moscow chat last month, "there are no Russian companies capable of servicing the sector, regardless of how large those companies become."

Source: http://moneymorning.com/2009/12/11/russia-oil/

Money Morning/The Money Map Report

©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules