Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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


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."


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:

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 - 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