While other countries saw a significant loss in their oil production, Russia has managed to maintain an oil production that hit the highest production benchmark post-soviet era. But how is it that Russia alone could do this when other oil producing countries were suffering huge losses and having their oil companies shut down due to bankruptcy and fall in the rig count? A one dollar deflation in oil prices will make Russia incur a whopping two billion dollar loss from its revenue. This has made Russia follow a method that can help them follow a production method that will not only help them escape losses but also increase their overall production figure. After the annexation of Crimea which was under the Ukrainian territory, Russia has been imposed with various economic sanctions that targeted their finance and also travel. And still Russia has overcome them all and hit their highest production figure post-soviet era.
Russia has a low cost of production, good tax measures and the advantage of dollar value to play for their side. Russia achieved a low cost of production by increasing their capex/capital expenditure. With an increase in this the companies saw that there was a decrease in the cost of production. The two major oil companies of Russia, Rosneft and Lukoil account for half of the country’s oil production. Both of them increased their capital spending last year. Rosneft increased by 30% last year with the first half of 2016 seeing a 33% increase. A pull in Russia’s corporate taxes would only add to the struggle of increasing their chances to incur a loss.
But the government to balance the increase in corporate tax reduced the export duty by 9% in December 2016, which straightened the curve. Even though the oil prices are going through a decreasing stage, Russia has had an increase in investment and production. It will see a major growth and will keep increasing despite the low oil prices. Russia also makes clever agreements to sell its oil. It keeps term agreements with countries which run for five years or more and inclines them to buy oil from Russia even if it has a change of mind in between the term. With Donald Trump winning the Presidential election, Russia expects to have the economic sanctions imposed on them to be raised and continue to make better growth in investment and production.
OPEC and NOPEC made a deal to curtail the oil production and Russia has promised in the contribution of 300,000 barrels from their total production. Nigeria and Libya were exempted from these cuts and Saudi Arabia had to contribute 480,000 barrels from their total production. The deal will continue for 6 months and many have speculation about Russia’s promise since it has a history of lacking in cooperation.