October 10, 2022
According to the Russian Ministry of Energy Russia had 223 billion Bbls of discovered oil resources in 2021. This ranks Russia 6th largest in the world based on proven reserves, behind Venezuela, Saudi Arabia, Canada and a few other Middle Eastern countries. Classification of reserves in Russia in somewhat different than internationally accepted Society of Petroleum Engineers (SPE) classifications although it corresponds with the Total Petroleum Initially In Place under the SPE classification. As such, Incorrys re-aligned Russia’s reported resources to those of the SPE for comparison purposes. Of this amount, 80 B Bbls (36%) of prospective resources (yet-to-be discovered reserves) are actually recoverable at 2021 prices. Under SPE classifications, it is production, proved, probable and possible reserves, as well contingent resources (recoverable oil from known accumulations but not considered to be commercial recoverable). Russian oil production was 10.6 MM Bbl/d in 2021 with a resource life for Russian oil of 37 years. The resource life indicates the number of years discovered resources would last at current rates of production. The reserves, resources, and resource life for the Permian basin in the U.S. is presented here as a reference point. Permian production was above 3 MM Bbl/d in 2021 with a resource life of almost 50 years.
Permian Basin Oil Resources
Resource Life, Years
The majority of existing Russian basins are considered mature, and production is in decline. Production from the largest oil producing region in Russia (Western Siberia) declined 10% over the past 10 years. The main reasons Russia is in this predicament include:
- Decline of existing wells; new wells must be drilled deeper
- Lower productivity of new wells due to drilling in areas with low net pay
- Significant water yield in many wells
- Low quality casing in many old wells
As a result, production and net present value (NPV) of many wells is lower than planned.
As in many other countries, Russia considered increasing (or at least maintaining) production by using new technology, particularly IT technologies for seismic interpretation, geological analysis, reservoir characterization and engineering. The Russian Ministry of Energy considered new technology as a key in reversing negative trends in the oil industry. Another area of improvement was utilizing modern drilling and completion technology. However, much of the new technologies, and financing, typically comes from western companies which are no longer doing business in Russia due to sanctions. Many of the largest oil producers have left Russia leaving considerable stranded assets behind, including:
Due to US sanctions over the Russian invasion of Ukraine, many of the largest oil producers have left Russia, including:
- Shell – existing Sakhalin 2 project; up to $5B loss expected.
- BP – existing 20% stake in Rosneft; up to $20B loss expected.
- ExxonMobil – existing Sakhalin 1 project; up to $4B loss expected.
- Equinor – $1.2B loss expected.
- TotalEnergies – will stop buying oil from Russia
In addition, all major oil field service companies are also leaving Russia including:
- Baker Hughes
In addition, all major oil field service companies are also leaving Russia including Schlumberger, Baker Hughes, and Halliburton. Incorrys believes that without western oil producers and oilfield service companies, Russia will not be able to increase their reserves base, maintain production, or reduce costs as most new fields require the latest technology to explore, develop and produce. While production from older fields will decline at a rate of up to 40%, technology Russia had previously acquired will work for a short while. However, as the drilling of new wells is always required to maintain or grow supply, a drop in production due to aging technological is expected to occur this year.