Russian oil companies are having no trouble coping with the low price of oil — in fact, their mining industry is thriving, thanks to a weak ruble and some coincidental tax benefits. How can U.S. drillers compete?
In June, Russian crude and gas condensate production hit a post-Soviet record high of 10.72 million barrels per day, according to Platts. While many countries have been struggling with oil’s historically low prices, Russia is steamrolling ahead to keep production up — partly because their economy depends upon it.
As their current wells approach depletion, Russian oil giant OAO Rosneft has increased drilling output by 27%, compared to the first seven months of last year. In today’s market, where profits per barrel have dropped to mere fractions of previous takes, a dip in production is not in the cards for this, or any, Russian producer.
The Economic Factor
A weak ruble has helped the situation drastically — one U.S. dollar trades for 70 rubles at the moment, whereas in 2014, it would only have bought 35. By earning U.S. dollars for their oil exports, and paying less in operating expenses due to a low local currency, the Russians are saving a fortune in costs. While they manage to keep a small profit rolling in, they’re also maintaining a distinct advantage over European oil companies.
Because of specific Russian tax laws, their oil producers have experienced only around 20% of the economic losses that recent low oil prices should have caused — the state bears the brunt of it, according to Bloomberg.
Keeping Pace
Looking to the West, the situation has been less rosy. Obviously, neither the tax nor currency benefits that apply to Russian producers apply to those in the U.S. — only new levels of operating efficiency are going to ensure the profitability of oil drillers stateside. However, our oil resources are safe in the ground and aren’t going anywhere — for some companies, the best strategy is to simply wait for supply to rebound and prices to go up again.
But according to Baker Hughes Inc., U.S. drilling is down a massive 60% since December of last year, and as of August 21st, only 675 rigs are in service — the lowest number in nearly 12 years. Some operators can’t afford to wait.
Operating Efficiency
How can U.S. oil stay competitive? The best way is to find cost-saving solutions like reducing site maintenance costs and increasing employee productivity. For example, Midwest Industrial Supply, Inc. provides effective road and process dust control solutions, as well as economical and environmentally-friendly road construction and maintenance services.
By using products like Newtrol™ or EnviroKleen®, operators can avoid a myriad of unnecessary expenses that stem from dust, like extra maintenance costs on machinery and equipment, cleanup costs, and the expenses that come with continual watering and grading. And when you spend less time fighting dust, your employees can get back to the work that matters.
Though Russian oil is experiencing an unexpected boom, U.S. can match pace by keeping their costs as low as possible. Contact Midwest today for a consultation, and we will work together to create the optimal solution to meet your evolving needs.
