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Russia Will Not Compensate Its Oil Firms For Production Cuts

Lukoil HQ

Russian oil companies will not receive compensation for the production cuts that Russia has pledged to implement as part of a deal with OPEC producers to reduce global oil supply, Russia’s TASS news agency reported on Wednesday, quoting Kremlin spokesman Dmitry Peskov.

“The issue of any compensation has not been raised,” Peskov commented on the meeting which Energy Minister Alexander Novak held with major domestic oil producers earlier today.

“On the whole the oil price hike as a result of assumed measures, a $5 increase brings certain extra yields both to the country’s budget and to oil companies themselves,” TASS quoted Peskov as saying.

In addition, Putin has “personally agreed the issue of production cap with all leading oil companies,” Peskov noted.

OPEC said last week it had reached a deal to cut the cartel’s production to 32.5 million bpd, by around 1.2 million bpd from October levels, but made it contingent on the willingness of non-OPEC nations – including Russia – to shed another 600,000 bpd from total production.

A day after the deal was reached, Novak said that all Russian oil companies are on board with the 300,000-bpd cut agreed by Moscow. The Russian-language website of the Russian energy ministry features a quote by Novak that says that Russia would gradually reduce output in the first half of 2017 by up to 300,000 bpd.

Related: Venezuela’s Maduro Praises The OPEC Deal, But How Good Is It Really?

Meanwhile, Venezuela’s Oil Minister Eulogio del Pino told TASS news agency on Wednesday that OPEC and Russia have agreed a mutually acceptable deal on how to cap production for six months. According to Del Pino, the oil market will stabilize in 6 to 9 months after the production cap accord that is expected to be signed on December 10 in Vienna.

After today’s meeting between Novak and large oil companies, Lukoil’s CEO Vagit Alekperov said that the ministry had not set recommendations on output quotas to Russian oil producers, according to Reuters. The ministry would comment on the meeting with oil producers later, according to Novatek CEO Leonid Mikhelson.

Last week, Lukoil’s vice president Leonid Fedun said in an interview with a Russian TV that Lukoil was expecting the government to issue a decree on production cuts with tasks for each company and probably offer some compensatory mechanisms for lower output. Fedun added that Lukoil hoped there would be some sort of compensation.

By Tsvetana Paraskova for Oilprice.com

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