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Why Russia Will Struggle To Meet Its Production Cut Quota

The effect of oil well shut-ins on future production has become one of the main topics of discussion in the energy media lately, what with OPEC+ cutting millions of barrels of daily output to try and prop up oil prices. Russia, one of the world’s top three producers, has to shut in the most oil output in decades, and this could cast a shadow over the future of production.

The problem is the length of well shut-ins, according to energy experts who spoke to Bloomberg. It is one thing to shut in a well for a few months, which is what producers do anyway for field maintenance. It is, however, completely different to shut in a well for two years, which is what many Russian producers would need to do as the latest OPEC+ agreement runs until 2022.

“Mass sealing of oil wells is a much more serious thing than short-term idling,” an energy industry executive told Bloomberg, noting the harsh weather conditions in much of Russia’s top producing regions, all in Siberia. “It’s by far not a given that after a well has remained shut-in for so long it will pump at the same levels as before,” Evgeny Kolesnik added.

Not everyone agrees on the challenges caused by the weather, however. The New York Times’ Andrew E. Kramer, for example, earlier this month wrote Russia was bluffing when it said shutting in wells in Siberia could take longer and be trickier than shutting in production in warmer climates. Kramer cited energy experts as saying there was no marked difference between shutting in a well in Texas and one in Western Siberia.

Agreement on the effects of a lengthy shutdown, on the other hand, seems wider. The longer a well does not produce, the more things can go wrong. Among these is a change of pressure in the reservoir rock, which could be beneficial—if the pressure rises—or detrimental, if it declines during the shut-in period. The mix of hydrocarbons in the reservoir is another thing that can change, changing the quality of the crude produced from the well. There are also problems specific to horizontal wells that can affect future production negatively, according to experts.

So, Russian companies need to cut deep and cut it fast. According to Bloomberg, the country has to reduce its total output by some 2.5 million bpd over this month and next. Two months is not such a long time, but from July on, reduction quotas will remain, they will just be relaxed from a total OPEC+-wide 9.7 million bpd to 7.7 million bpd. A lot of wells will need to remain shut in. Russian producers may need to get used to the thought that some wells will be lost permanently. Related: The Oil Crisis Puts The Entire U.S. Economy At Risk

Yet the problem is by no means unique to Russia. Every producer that needs to halt production for more than the usual few weeks for maintenance risks losing production permanently. There are simply too many things that can go wrong and too many uncertainties.

“When you shut in wells, especially for a long period of time, you have a lot of surprises,” said Apache Corp. VP Clay Bretches at a conference call earlier this month, as quoted by Bloomberg. “Some of them are good and some of them are bad.”

The one thing that is certain seems to be that curtailment, or reducing the flow of oil from a well, is the safer option. Probably a lot of producers that can afford to just reduce the output of most wells would choose that over a shut-in.

As the head of Russia’s Zarubezhneft told media recently, you can cut 200,000 to 300,000 bpd in less than an hour by adjusting well flows. That’s nowhere near enough to cover Russia’s total OPEC+ commitment, of course, but it does imply that maybe not all the production that needs to be cut will be threatened over the long term, in Russia and elsewhere.

By Irina Slav for Oilprice.com

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