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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Russian Banks To Finance 200,000 Bpd In New Oil Production Capacity

  • At least two Russian banks are lending some $6 billion to the oil industry to drill new wells that could add 200,000 bpd to the country’s production quickly.
  • It is a tactic the Russian companies likely borrowed from its U.S. competitors: drilling but not completing wells to have new production at the ready when prices call for it.

At least two Russian banks are lending some $6 billion to the oil industry to drill new wells that could add 200,000 bpd to the country’s production quickly, unnamed sources have told Reuters.

It is a tactic the Russian companies likely borrowed from its U.S. competitors: drilling but not completing wells to have new production at the ready when prices call for it, so they can bring it online fast--completing an oil well takes a lot less time than drilling the whole thing from scratch.

Energy Minister Alexander Novak said in late April that oil companies may start drilling but not completing wells for future production in order to keep oilfield service providers in the business. Now, another goal would be to help Russia maintain or expand its market share on short notice if demand rebounds.

Russia’s oil production is down by about 2 million from last year’s average of 11.3 million bpd per its agreement with OPEC+. Most of the wells that Russian companies had to shut to effect the production cuts were mature ones and may not be brought back on stream when—and if—prices recover, Reuters noted in its report.

This means that new production will be necessary but, if possible, without the full investment done upfront. Instead, the investment will be distributed over a longer period and only when necessary to complete the wells so they can start producing.

Novak earlier this month said he hoped oil demand could recover next year to pre-pandemic levels. However, he noted that it could take two to three years for this recovery to materialize.

Oil demand has been recovering across the world as pandemic-forced national lockdowns began to be lifted and borders reopened. However, the situation is still fragile, with little clarity as to whether demand will improve to pre-crisis levels.

By Irina Slav for Oilprice.com

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