The news that TNK-BP plans to raise its investment this year is the latest sign of how oil’s recovery to $70 is reviving activity across the oil sector.
TNK-BP, owned 50/50 by BP and the AAR group of Russian tycoons, last year agreed a $3.4bn capital spending budget for 2009, then cut that to $3bn. This week, it put it back up again to $3.4bn. In rouble terms, that means capital spending will be about the same as last year, even though it is well below 2008′s $4.3bn in dollar terms.
Even in Russia, with its draconian tax regime, a price of $70 seems to be enough to justify making more of an effort to get the oil out of the ground, for all the industry’s complaints.
As Andy Brogan, Ernst & Young’s global leader for transactions in oil and gas, puts it:
If the price of oil stays where it is, then people are going to start trying to take advantage of it.
TNK-BP’s strategy presentation, from April, which talked about that earlier $3bn investment figure and stressed financial discipline and “focus on cash”, looks a little on the gloomy side.
TNK-BP’s production is rising because of new fields opening up: Verkhnechonskoe in eastern Siberia, which came on stream last year, and Uvat and Kamennoye in western Siberia, which have come on stream this year. But the company is also spending to slow the decline in its older fields, where investment in drilling or re-fracturing old wells can be started up very quickly.
Citigroup said it would not be surprised to see other Russian oil companies similarly raising their capital spending plans, although Gazprom today said it was cutting its planned investment for the year.
The upturn in spending helps support the more positive view of Russian oil output recently expressed by the IEA. After falling by 90,000 barrels per day last year, its first decline in a decade, Russia’s output is still expected by the IEA to fall by a further 80,000 b/d this year after an upward revision of 170,000 b/d this month. If oil stays at its present level, and other companies do follow TNK-BP’s lead, that forecast drop may have to be revised again.
Rosneft’s reserves rise, and fall (FT Energy Source, 02/03/09)