Exclusive: Russian oil majors raise output of hard-to-recover crude

Mon Sep 26, 2016 9:55am EDT
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By Katya Golubkova and Olesya Astakhova

MOSCOW (Reuters) - Russian oil majors Rosneft and Gazprom Neft are raising the share of production from hard-to-recover reserves, to counter declining conventional output, showing the complexities facing producer nations seeking to tackle a global oversupply of crude.

Top Russian producer Rosneft (ROSN.MM: Quote) expects the share of hard-to-recover oil production to rise to 11 percent of its total crude output by 2020, from 7 percent this year, it told Reuters by email in response to queries about its output plans.

It said the cost of production of such crude was between $10 and $35 per barrel. This makes it feasible to develop even in the current downturn, with prices hovering below $50 a barrel.

Gazprom Neft, the oil arm of state gas producer Gazprom (GAZP.MM: Quote), is raising its share of output of hard-to-recover oil by tapping more reserves at the Messoyakha project and other assets, First Deputy Chief Executive Vadim Yakovlev told the Reuters Russia Investment Summit.

Hard-to-recover oil refers to reserves trapped between layers of rock which cannot be accessed using conventional, vertical drilling. It requires techniques including drilling horizontal wells and fracking, similar to methods used to extract shale gas and shale oil.

As part of Western sanctions over the conflict in Ukraine, the United States imposed restrictions on providing shale technology, in an effort to slow the growth in Russian oil output. But despite the sanctions on the Russian oil industry, oil production, including hard-to-recover, is growing.

Taming global oil output - to tackle on oversupply that has helped drive down prices since mid-2014 - is the central issue facing the world's major producers, including Russia and OPEC members, who are meeting in Algiers this week.

While any output freeze deal is likely to be short-term, the Rosneft and Gazprom Neft plans for coming years illustrate the complexities of global co-operation, as countries including top producers Russia and Saudi Arabia seek to guard their market share in the long-term.   Continued...

The logo of Russia's top crude producer Rosneft is seen at the company's headquarters, behind the Kremlin wall, in central Moscow, Russia, May 27, 2013.    REUTERS/Sergei Karpukhin/File Photo