Spending on Oil Exploration to Surge

BloombergWorkers maneuvering a drill bit on an oil derrick at LUKoil's Kharyaginskoye field in the Nenets autonomous district.
The government will double state spending on resource exploration to 2020 to $23 billion with the focus on oil in eastern Siberia to ensure good replenishment of reserves and efficiency of key projects, Natural Resources Minister Yury Trutnev said Thursday.

Trutnev told reporters that the Cabinet had approved his proposal to increase state spending on mineral resources exploration to 544 billion rubles ($23 billion) from the previous 261 billion rubles ($11 billion) and speed up exploration from next year, instead of 2010.

"We believe that if we wait for one more year it will not improve the situation with mineral resources in Russia," he told a government meeting.

Last year, Russia spent 20 billion rubles of state funds on exploration, a jump from the previous years, but still a mere 0.5 percent of federal budget spending compared with 2 percent to 5 percent in other countries, Trutnev said.

State spending on exploration is dwarfed by state revenues from the resources sectors, which last year earned Russia over 4 trillion rubles ($169.1 billion) out of the total budget revenues of 6.9 trillion rubles.

The country's oil output may fall this year for the first time in a decade as it struggles with rising costs and harder-to-reach fields, Trutnev said.

"Two years ago, we said the growth rate was falling, and we said this was bad for Russia, remember?" Trutnev said in televised remarks after the meeting. "Now we're saying the production rate is falling this year. This is not a bogeyman, unfortunately, this is real," Trutnev said, without giving a specific forecast.

A decline would end a 10-year, 58 percent surge in production, which fell to 6.2 million barrels per day in 1998, when prices dipped below $10 per barrel and Russia defaulted on about $40 billion of domestic debt and devalued the ruble.

Trutnev's outlook contradicts that of the Industry and Energy Ministry, which expects an increase of 1.8 percent to 10 million barrels per day of crude and gas condensate, or about 11 percent of world consumption.

Investment bank Credit Suisse on Thursday joined UralSib in forecasting an annual decline in production after output slid in January and February.

"The difficult start to the year indicated that the situation in the Russian oil sector is perhaps much more challenging than major integrated oil companies believed at the end of last year," Credit Suisse analysts Vadim Mitroshin and Lev Snykov wrote in a note to clients.

Output fell 0.7 percent in January and 0.9 percent in February, to 9.79 million barrels per day, compared with the same months last year, according to Industry and Energy Ministry data.