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. Last Updated: 07/27/2016

Slow Recovery Predicted For Russian Oil Industry

A major recovery in Russian oil production is still some years away because Russia's new energy majors have neither the money, nor the export outlets needed to significantly boost output, energy analysts said Tuesday.

High tax burdens, low domestic oil prices, limited export capacity and outdated infrastructure are all helping to keep a lid on Russian output, which fell to 293 million metric tons (5.86 million barrels per day) in 1996, the lowest level in nearly 30 years.

"I think we have basically reached the bottom of the cycle," said Stephen O'Sullivan, director of oil and gas at MC Securities in London, referring to the decade-long decline that has halved output from its peak 1987 level.

"But there will not be a recovery in the same shape as we saw in the decline," he said.

A string of recent Russian oil company results supports the view that any rebound in production will be slow at best, and many small and medium-sized producers expect a slight output drop in 1997.

Russia's total oil output drop of two percent in 1996 was an improvement over 1995 in that it was the smallest drop in years.

But it still told a story of a persistent downward production trend in Russia, the world's third-largest oil producer.

"Realistically, companies could expect in coming years to boost output overall by three to four percent, but anything beyond that would be tough," said a Western oil consultant.

LUKoil, Russia's largest oil producer, saw 1996 output rise to 58.3 million metric tons from 57.3 million -- and forecast it edging up to 59.7 million this year.

But Yukos, a top-three Russian producer, forecasts 1997 output down seven percent to 32.6 million.

Analysts said a government decision in January to reduce excise duties on domestic output for most oil firms was a step in the right direction.

The changes are expected to cut the average duty to 55,000 rubles per metric ton of oil from 72,000 rubles, according to a Renaissance Capital report.

Still, there is precious little cash to invest in significantly boosting output in spite of a nine percent surge last year in Russian oil exports to more pricey world markets.

"In some cases they [Russian oil companies] are saying that 80 percent of revenue is taken up by taxes, which doesn't leave much capital to reinvest in restructuring," said James Bunch, oil analyst at Renaissance Capital in Moscow.