Russia Plans to Ramp Up Shale Oil Production

Russia is taking a leaf out of the U.S. shale playbook so it can ramp up oil production quickly and hang on to its share of the global market when demand finally recovers after the coronavirus pandemic.

At least two state-owned banks, Sberbank and VEB plan to lend oil firms some 400 billion roubles ($6 billion) at effectively almost zero interest rates to drill about 3,000 unfinished wells, officials involved in the scheme told Reuters.

Once oil prices recover, the wells can be finished off faster than starting from scratch so Russia can get its output back to levels reached before it agreed along with other leading producers to cut supply because of the fallout from COVID-19.

U.S. shale producers tend to drill but not complete wells when oil prices are low, rather than freezing all activity, so they can finish off the wells and quickly boost production when demand picks up.

A geologist advising Russian oil firms said the new wells would add at least 200,000 barrels per day to output based on average flow rates but if their assumptions about large reserves pan out the wells could boost output by 2 million barrels.

The geologist declined to be named because he is not authorized to talk to the media.

While Energy Minister Alexander Novak said last week how much would be invested in the drilling program, details of how the scheme will work, the number of wells, and by how much oil output could increase have not been disclosed.

Novak’s deputy Pavel Sorokin, a former oil and gas analyst at U.S. bank Morgan Stanley and one of the architects of the plan, declined to comment on the number of wells or their expected output.

Russia pumped an average of 11.3 million (bpd) from 180,000 wells last year, according to the energy ministry. Since the OPEC+ deal to curb global crude supplies, its output has fallen by 2 million bpd, Novak said last week.

Russia has mainly shut down old or less-productive wells that won’t necessarily be revived when the supply deal expires in April 2022, so the government is helping oil companies to ensure lost output can be replaced quickly.

“Such support … would allow us to create an essential number of unfinished wells, ready to be launched when we will need to increase production,” Sorokin told Reuters.

Russia has outlined various stimulus measures to cope with the fallout from COVID-19 and spending over the next two years is expected to reach 5 trillion roubles. It was not clear if the planned support for oil companies would come from these funds.

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