Russia Majors Profit Even as Oil Price Falls

After reaching double-digit growth figures in the beginning of the decade, Russia’s oil output fell last year for the first time since 1999. With oil fields in Western Siberia — the country’s main production area — maturing rapidly, Russia’s biggest oil companies OAO Rosneft, Lukoil, TNK-BP Ltd., Surgutneftegaz and OAO Gazprom Neft must invest heavily into new and more difficult-to-reach areas in order to keep up production.

Russian oil majors such as Lukoil sell most of their crude and oil products in dollars abroad and the majority of their costs are in rubles. The ruble’s value fell by one-third last winter. Combined with crude prices, which climbed above $70 a barrel in the second quarter, producers saw an immediate rise in profits.
“Russian oil companies are now making more money than they were last year, possibly even at the peak of oil prices,” said UniCredit analyst Artem Konchin.

But some of the currency benefits have been erased lately, as the ruble has regained some of its value. The ruble also now trades in rough tandem with the price of oil, so any benefit to Russia’s oil majors from a recovery in oil prices could be undermined by the impact of a stronger euro.

Wall Street Journal (through Google News)