Russia Plans Giant State Oil Services Company to Replace Western Firms

RUSSIA PLANS GIANT STATE OIL SERVICES COMPANY TO REPLACE WESTERN FIRMS

Published: October 14, 2014 (Issue # 1832)

  • Oil majors have also pressed on the brakes. ExxonMobil, for example, has frozen its Arctic drilling projects with Russia’s state-owned Rosneft.
    Photo: Wikimedia Commons

President Vladimir Putin has approved the creation of a state-owned oil exploration drilling corporation that will replace Western oil service companies forced to reduce operations in Russia by sanctions over Ukraine, a news report said Monday.

In a time of “sharply escalating international tensions,” a national oil service company uniting all necessary drilling and servicing expertise is crucial to ensure Russia can keep its hydrocarbon output stable in the long term, Deputy Prime Minister Alexander Khloponin wrote in a letter sent to Putin in September.

News agency RBC on Monday cited a copy of the letter already stamped with Putin’s approval. The president’s spokesman, Dmitry Peskov, refused to comment on the letter to news agency Interfax.

The new state company will be based on the assets of Rosgeologia, a fully government-owned agency that currently unites three dozen state-controlled exploration service companies, most of which date from the Soviet era. Government stakes in 15 other companies involved in shelf exploration would be handed over to the new corporation under the plan, Khloponin said in the letter.

Weeks earlier, a new round of sanctions imposed on Russia banned Western firms from supporting exploration or production of oil from deep water, Arctic offshore or shale projects. Some of Russia’s hard-to-reach oil projects, where it heavily relies on Western expertise, will likely be delayed by the sanctions.

In the medium to long term, the sanctions are calculated to undermine the Russian oil industry’s output volumes and hit the country’s budget, which relies for 50 percent of its revenue on oil and gas exports.

Last month, Natural Resources Minister Sergei Donskoi said sanctions legitimized the creation of a national oil service company that would substitute for the expertise of Western service firms and make them “grind their teeth.”

Western Pullout

In the recent years, major international oil service firms Halliburton, Weatherford, Schlumberger and Baker Hughes have been increasing their presence in Russia. According to estimates by the Oil & Gas Journal, their share of the market before sanctions were applied was about 18 percent. The servicing subsidiaries of Russian oil majors including LUKoil, Rosneft and Surgutneftegaz accounted for about 40 percent of the market.

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