Russian Oil Companies Push East for New Growth

Russia is scrambling to unlock the vast oil wealth of East Siberia to keep crude output in the world’s largest oil producer from falling. But to succeed, Russian companies will need deep pockets.

High oil prices have helped Russian oil companies post record profits in recent quarters. Yet as output growth from Russia’s main oilfields in western Siberia begins to slow, the country’s oil
giants are pushing eastward to tap new resources that sit under some of the world’s most forbidding terrain. Without new production in regions like East Siberia, crude output in Russia, the world’s second-biggest oil exporter after Saudi Arabia, will flatten or decline, industry observers say. Although Russia is the world’s largest crude producer, at 9.79 million barrels a day, much of its output goes to meet domestic demand.


“It’s difficult to overestimate the importance of East Siberia for our company, for the future of Russian oil,” says Mikhail Stavsky, vice president for production of Russia’s biggest oil producer, state-controlled OAO Rosneft (ROSN.RS). “But when you fly over this region, you see that the geography is much more difficult than where we work today. Clearly, this is going to require a lot of money.”

Oil output growth in Russia has slowed in recent years from double-digit expansion in 2003 to just 2% last year. During the boom, growth came from reinvigorating oil regions, primarily in West Siberia, first developed in the Soviet era. Future growth, from new projects in places like Russia’s untamed east, will have much higher startup costs.

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