2016 Russian Oil & Gas Outlook Survey
10th anniversary edition
Deloitte CIS has completed its tenth annual Russian Oil and Gas Outlook Survey, based on interviews with executives from state and private enterprises. Its findings highlight the interim results of operations throughout the industry, current results of certain companies, their plans and short-term and medium-term growth opportunities.
As demand growth slowed down and markets became over-saturated, 2015 saw a further decrease in oil prices, following the previous year's drop. Renewed EU and US sanctions against Russia put energy companies in an even more challenging environment, both financially and technically. Nonetheless, oil production in Russia grew in 2015, mostly due to increased oil recovery from conventional fields and the exploration of new deposits, including reserves that are hard to recover. Indeed, Russia set a historic record last year beating the Soviets with daily oil production at 10.7 mbpd.
Experts believe that the decline in oil prices is pushing the upstream sector to improve the profitability of oil fields in 2016, including by raising the production efficiency of extensively depleted fields. At the same time, the overwhelming majority of respondents anticipate a significant growth in capital needs across the industry in 2016, while only 18 percent predict more investment, the opinion shared by most professionals being that investment in oil and gas is likely to decrease or at best remain at the same level. The major sources of capital are still loans and borrowings (used by 46 percent of companies); other sources, namely share capital, strategic investors and internally available funds, are each used by companies in equal proportion.
Naturally, with the current level of prices and scarce investment, the industry expects government regulation to increase. Great importance is placed on the approval of the General Development Plan for the Russian Oil Sector: 64 percent of respondents see it as a major incentive for the industry, particularly for the exploration of oil and gas potential in the Russian Arctic. The adverse impact of market fundamentals and sanctions imposed on Russia is likely to continue in 2016. In these circumstances, companies should focus on efficiency and adapting to the new environment in the long term.
Our review includes more extensive commentary from oil and gas industry industry executives regarding the current situation and their business plans for 2016. We would like to thank the experts who shared their vision of the current state of affairs and the outlooks for the oil and gas industry.