Russia’s Gazprom Neft ‘holds its nose’ at global oil output cut

Russian energy firm Gazprom Neft is chafing at a global deal to cut oil output because the pact has forced the company to curtail its ambitious plans for production growth, deputy chief executive Vadim Yakovlev said in an interview. Yakovlev said the company, Russia’s fastest-growing oil producer by output, views the deal as short-term. He also said Gazprom Neft’s Middle East operations are of “strategic importance” and it plans to increase its presence there.

RUSSIA

Yakovlev: Middle East operations are of ‘strategic importance’.

Russian energy firm Gazprom Neft is chafing at a global deal to cut oil output because the pact has forced the company to curtail its ambitious plans for production growth, deputy chief executive Vadim Yakovlev said in an interview. Yakovlev said the company, Russia’s fastest-growing oil producer by output, views the deal as short-term. He also said Gazprom Neft’s Middle East operations are of “strategic importance” and it plans to increase its presence there.

The Organisation of the Petroleum Exporting Countries and other leading oil producers, including Russia, agreed to reduce their combined output by around 1.8mn barrels per day (bpd) until the end of March 2018. There have been mixed signals about the possibility of extending the deal, while Russian President Vladimir Putin has suggested it could be stretched to the end of next year. Yakovlev’s comments underscore the frustration of some Russian companies with the deal, which forced them to cut production from 30-year highs reached in October 2016 — the baseline for the agreement.

“We are working today in conditions of uncertainty over the extension of the Opec and non-Opec deal,” Yakovlev told Reuters in an interview. “The companies involved in this deal are paying a different price. The effect is equal for everyone, but the contribution of the companies to the deal is different,” he said. “This is related to the market players’ ability to increase their output — we have such a possibility and have to ‘hold our noses’ (at the deal). Gazprom Neft makes a big contribution to the deal. For us, this is a very sensitive issue as it is holding up the development of our fields.” The company plans to increase its oil output in 2018, he said. “In any case, we view this deal as a short-term one,” Yakovlev said.

Gazprom Neft has been the fastest-growing Russian energy company by output because of new fields. Last year, it produced 86.2mn tonnes of oil equivalent, with plans to boost that to 89.4mn this year and to at least 90mn in 2018. Its production jumped by 20% in 2015 and by 8% in 2016. Oil output is seen rising to 63mn tonnes (1.26mn bpd) in 2018 from the planned 62mn tonnes this year, Yakovlev said. “Our proposal to the board is to produce at least 90mn tonnes of hydrocarbons in 2018, including over 63mn tonnes of oil and gas condensate,” Yakovlev said, adding that key greenfields, such as Novoport, Messoyakha and Prirazlomnoye, will show production growth next year. Gazprom Neft produces oil at Iraq’s Badra field.

It expects production there to stay between 85,000 and 90,000 bpd in 2018, plateauing as high as 110,000 bpd in the future, Yakovlev said. Iraq has asked foreign producers to cut spending on oil projects to reduce the government’s contribution in shared ventures. Gazprom Neft’s peer Lukoil was forced to curtail its output plans there. Yakovlev said Baghdad had not asked Gazprom Neft to curtail production. Gazprom Neft also plans to develop two oilfields in neighbouring Iran — Shangule and Cheshmeh-Khosh. Tehran has said it expects to sign deals in the next five to six months with Russian firms on developing Iranian oil and gas resources. “We made our proposals, which we are discussing with the Iranian oil ministry and the National Iranian Oil Company,” Yakovlev said.

The Organisation of the Petroleum Exporting Countries and other leading oil producers, including Russia, agreed to reduce their combined output by around 1.8mn barrels per day (bpd) until the end of March 2018. There have been mixed signals about the possibility of extending the deal, while Russian President Vladimir Putin has suggested it could be stretched to the end of next year.
Yakovlev’s comments underscore the frustration of some Russian companies with the deal, which forced them to cut production from 30-year highs reached in October 2016 — the baseline for the agreement.

“We are working today in conditions of uncertainty over the extension of the Opec and non-Opec deal,” Yakovlev told Reuters in an interview. “The companies involved in this deal are paying a different price. The effect is equal for everyone, but the contribution of the companies to the deal is different,” he said. “This is related to the market players’ ability to increase their output — we have such a possibility and have to ‘hold our noses’ (at the deal). Gazprom Neft makes a big contribution to the deal. For us, this is a very sensitive issue as it is holding up the development of our fields.” The company plans to increase its oil output in 2018, he said. “In any case, we view this deal as a short-term one,” Yakovlev said.

Gazprom Neft has been the fastest-growing Russian energy company by output because of new fields. Last year, it produced 86.2mn tonnes of oil equivalent, with plans to boost that to 89.4mn this year and to at least 90mn in 2018. Its production jumped by 20% in 2015 and by 8% in 2016. Oil output is seen rising to 63mn tonnes (1.26mn bpd) in 2018 from the planned 62mn tonnes this year, Yakovlev said. “Our proposal to the board is to produce at least 90mn tonnes of hydrocarbons in 2018, including over 63mn tonnes of oil and gas condensate,” Yakovlev said, adding that key greenfields, such as Novoport, Messoyakha and Prirazlomnoye, will show production growth next year. Gazprom Neft produces oil at Iraq’s Badra field.

It expects production there to stay between 85,000 and 90,000 bpd in 2018, plateauing as high as 110,000 bpd in the future, Yakovlev said. Iraq has asked foreign producers to cut spending on oil projects to reduce the government’s contribution in shared ventures. Gazprom Neft’s peer Lukoil was forced to curtail its output plans there. Yakovlev said Baghdad had not asked Gazprom Neft to curtail production. Gazprom Neft also plans to develop two oilfields in neighbouring Iran — Shangule and Cheshmeh-Khosh. Tehran has said it expects to sign deals in the next five to six months with Russian firms on developing Iranian oil and gas resources. “We made our proposals, which we are discussing with the Iranian oil ministry and the National Iranian Oil Company,” Yakovlev said.