Putin’s state oil champion suffers biggest production drop
LONDON: The state-run oil champion led by a close ally of President Vladimir Putin has seen the largest drop in production since the invasion of Ukraine.
Rosneft PJSC, whose chief executive officer Igor Sechin has been part of Putin’s inner circle for decades, along with its subsidiaries account for about two-thirds of Russia’s production cuts since the invasion of Ukraine, data from the Energy Ministry showed.
That’s about double the company’s share of national output, meaning Rosneft has been affected disproportionately.
“It’s arguably the largest sufferer of the last rounds of international sanctions,” said Viktor Katona, head of sour crude analysis at data and analytics firm Kpler. “Rosneft has become the main source of Russia’s production cuts.”
Most Western nations, with the notable exception of the United States and United Kingdom, haven’t announced bans on imports of Russian oil. But an array of other factors from shipping and insurance restrictions to weak domestic demand and the public rejection of Putin’s regime by international companies – have forced the country to cut oil production.
Russian oil output in mid-may was 830,000 barrels a day lower than in February, according to calculations based on data from the Energy Ministry’s CDU-TEK unit. Rosneft projects, including assets run by subsidiary Bashneft PJSC, accounted for 560,000 barrels a day of the drop, the data showed.
The share of idled Rosneft wells grew from 17% of the producer’s total in January to 30% in April, according to industry data seen by Bloomberg. Bashneft idled more than 55% of its wells last month, compared to just over 27% at the start of the year, the data showed.
As of end-april, the two companies had the largest percentage of idled wells among key Russian producers. Rosneft didn’t respond to a Bloomberg News request for a comment
The drop in Russian production has been unevenly shared for a variety of reasons.
“The main factor driving production trends across Russian companies is their ability to sell oil for export and to increase processing inside the country,” said Daria Melnik, senior analyst at Oslo-based consultant Rystad Energy A/S.
The US import ban was particularly problematic because it primarily affected Russian suppliers of fuel oil to the Gulf Coast. Deprived of a major market, stockpiles of the heavy oil at refineries quickly began to grow, forcing plants to halt their operations temporarily.
Rosneft is the country’s largest refiner and its primary throughput was down by nearly 28% in the first days of May compared with the pre-war levels, according to Bloomberg calculations based on industry data.
The exodus of major international oil companies also had an impact. Exxon Mobil Corp, the operator of the giant Sakhalin-1 project under product-sharing agreement with partners including Rosneft, decided to exit Russia.
Output there shrank by over 145,000 barrels a day, or 71%, by mid-may compared with February.
Privately-held Surgutneftegas PJSC has also had issues with marketing its crude abroad, leading to a drop of about 72,000 barrels a day in its production by mid-may.
For other major Russian companies, effects of the restrictions were less severe. Lukoil PJSC, the country’s second-largest producer, has been able to keep its output almost flat thanks to the successful efforts of its trading unit Litasco to market oil abroad, said Melnik.
Gazprom Neft PJSC, part of the state-run Gazprom Group, has been the only top Russian oil company that managed to raise production between February and mid-may, industry data show.