Page 8 - LatAmOil Week 01 2021

LatAmOil COMMENTARY LatAmOil

The incentives package led to a flurry of new Gazprom Neft and Tatneft are reconsidering
investment announcements. Many of these pro- investment plans in light of the changes.
jects had been shelved at the onset of the crisis. Despite the hardships of 2020, though, Rus-
Exploration in Norway has also fared better sia’s oil majors have proved more resilient to
than in the UK, in large part thanks to the coun- the downturn than many of their international
try’s supportive fiscal regime. Norway allows peers. The country’s producers have mostly kept
companies to deduct almost 80% of their explo- their dividend policy unchanged and some have
ration costs from taxable income. continued buyback programmes, reflecting con-
At the same time, Norway also imposed its fidence in their financial standing.
own cuts to production this year, in a show of There are concerns in Moscow that Russia
solidarity with OPEC+. might struggle to reclaim its market share once
OPEC+ cuts are ended. As such, the government
FSU: Tighter margins is looking to provide support for the drilling of Russian oil
As members of the OPEC+ alliance, Russia, some 3,000 wells that will remain unfinished producers have
Kazakhstan and Azerbaijan committed to dras- until the output restrictions are lifted. Russia is
tic cuts to their oil production this year. drawing from the practices of US shale compa- had to contend
Russia alone took over 2mn barrels per day nies, which sometimes drill but do not complete
of oil supply offline beginning in May. It restored wells when oil prices are low, and then finish with an overhaul
500,000 bpd in August and expects to bring a them when prices are higher.
further 125,000 bpd back on stream this month. Azerbaijan and Kazakhstan are more in taxation
Further increases will be negotiated with its dependent on oil and gas for their economic designed to
OPEC+ partners on a monthly basis. output and state finances than Russia. From
Producers have implemented these cuts an operational point of view, OPEC+ cuts have extract more
by closing down older, less profitable wells at forced Azerbaijan to reduce supply from its
mature fields in Western Siberia and the Vol- flagship Azeri-Chirag-Gunashli (ACG) oil pro- budget revenue
ga-Urals region. They have also delayed growth ject in the Caspian Sea, in additional to smaller
at greenfield projects in the Arctic and Eastern fields. Kazakhstan has imposed reductions at from the industry
Siberia. The risk is that some mature projects a number of large and medium-sized oilfields,
may never return to operation, undermining including the giant Kashagan and Tengiz sites
long-term prospects for Russian oil supply. operated by international consortia.
Russian oil producers boast some of the low-
est production costs in the world. But the out- Latin America: Complicating the situation
put cuts, combined with weak oil prices, have The year began with OPEC losing ground in
squeezed their margins considerably. Latin America. On January 1, 2020, Ecuador
During the 2014 oil price crash, the ruble’s formally exited the group, leaving Venezuela –
resulting collapse wreaked havoc on Russia’s increasingly moribund, owing to US sanctions
finances at large. But it also helped prop up Rus- – as the only remaining member in the region.
sian oil firms’ earnings by inflating the value This departure had little practical effect,
of their exports. This time around, they have partly because Ecuador had been one of the
enjoyed no such relief, as Russia’s government smallest oil producers in the organisation and
made delinking the currency from the oil price partly because the subsequent crude price
one of its key tenets of economic stability in the crash made a mockery of that country’s hope of
aftermath of the 2014-2015 economic crisis. boosting output and exports in order to increase
Russian oil producers have also had to con- earnings.
tend with an overhaul in oil taxation, aimed Nevertheless, OPEC and its pricing and pro-
at extracting more budget revenue from the duction policies certainly did affect the region,
industry. While state oil giant Rosneft has come as they cut into the revenues of hydrocarbon-de-
off relatively unscathed, others such as Lukoil, pendent states such as Mexico.

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