Industry Trend Analysis - Greenfield Project Delays On OPEC Extension - JAN 2018

BMI View: Russia will need to delay start up at one or more greenfield projects if the OPEC/non-OPEC agreement is extended to the end of 2018. Rosneft will see the biggest impact from this decision.

While there appears to be strong political will for Russia to extend its agreement to manage oil production in collaboration with OPEC, it will mean oil companies will have to adjust development plans. Currently, the OPEC/non-OPEC agreement to curtail oil on the global market runs to end-March 2018, though in the run up to the November 30 ordinary OPEC meeting, rhetoric has been strongly focused around extending the agreement to end-2018.

In accordance with the agreement, Russia slowed its oil output from more than 11.2mn b/d in late 2016 to the 10.95mn b/d level in mid-2017. The decline in production was made from reducing production at major recent greenfield start-ups, predominantly the Vankor cluster fields. These fields were likely targeted given the greater output flexibility in the early stages of their production cycle. Mature fields, where higher water cuts create issues with slowing production in the freezing temperatures of Western Siberia, have been targeted for more drilling. This is evident in Rosneft's increase in development drilling, with more needed to maintain production levels at mature fields ( see ' Rosneft Planning For Market Tightness ' , November 13).

Rosneft Switch From Green To Brown
Rosneft - Development Drilling (km)
Source: Rosneft

An extension of OPEC cuts and Russia's continued involvement would require some rescheduling of greenfield projects. 2018 was due to see both a number of major start-ups but also ramp up of new fields. According to Rosneft's last investor presentation, the Rospan, Tass-Yuryah and Russkoye fields were all due to begin production in 2018, while the Yurubcheno-Tokhomshoye field was also due to ramp up production towards its 100,000b/d plateau target. With Russia's likely commitment to an OPEC extension, projects will be delayed. In a recent conference call, first vice-president of Rosneft, Eric Liron, indicated that the start of one of the Russkoye or Yurubcheno-Tokhomshoye fields may need to be put back. The Yurubcheno-Tokhomshoye field is due to begin production before the end of 2017, though output will likely be tempered. The Russkoye field is at more risk of delay.

Greenfield Pull Back If OPEC Agreement Extended
Russian Oil Production (mn b/d)
Source: Department of Energy, Rosneft, BMI