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Oilfield Services and Equipment Opportunities in Russia
20 March 2007
Oilfield Services and Equipment Opportunities in Russia

While the market is far from transparent and easily accessible, the potential for business is staggering...

The following article draws from an intensive, in-depth investigation of Russian upstream oil production and the Russian oilfield services industry conducted by RPI, Inc., collected and analyzed in the recently-published management report, "Russian Oilfield Services Market: Analysis and Prospects." The complete table of contents is online: Volume I and Volume II.

Oilfield Services and Equipment Opportunities in Russia
By Dmitry Lebedev, Director, Consulting Division of RPI, Inc.

The detailed research that RPI, Inc. performed in preparing our new report revealed that the Russian oilfield services market will be booming for years to come, opening business opportunities in all segments of this market.

Click for more information on Russia's oil industryThe Russian energy industry had significant growth over the five years from 2000 - 2005, with crude oil production growing by 45 percent and gas production by 10 percent. The majority of this production increase was generated from "brown fields" that had suffered from underinvestment and poor management during the turmoil of the 1990's. The introduction of new technologies in oil field services, notably hydro fracing and horizontal drilling, was responsible for a portion of this increase, at a time when costs of introducing new technology brought higher returns than engaging in drilling new wells.

By 2005, incremental gains through extensive use of fracing and other production enhancement methods began to decline. As a result the new trend in the industry is towards increasing drilling activity to increase production and to create new opportunities for enhanced recovery. For the first half of 2006, drilling volumes increased by more than 16 percent over the same period in 2005. It is our expectation that increases in production drilling will be the key to maintaining consistent growth rates for Russian oil production in the near future. Exploration activity will grow along with new significant "green field" development in the promising regions of Timan-Pechora and Eastern Siberia. Although the overall growth of oil production in Russia will slow down, we project sustainable growth of around two to three percent per year until 2015.

The growth in production fueled by production and exploratory drilling will positively impact all segments of the oilfield services sector, with the possible leveling of hydro fracing activity. More drilling will mean growth in demand for all types of equipment, from drill bits to casing and artificial lift equipment.

While the market is far from transparent and easily accessible, the potential for business is staggering. For instance, Schlumberger has raised its revenues from 50 million USD in 1999 to an estimated 1.25 billion USD in 2006 – an average 50 percent increase per annum. At the same time, many other companies, both local and foreign, have struggled in this market until recently. The year 2006 has been a turning point with oilfield service companies able to operate profitably and to expand, due to high capacity utilization rates and rising fees for services.

The growing inflationary price pressures and shortage of oilfield services capacity, particularly in drilling, will trigger a drive for efficiency that will open doors for both Western service providers and equipment suppliers, along with low-cost competition from emerging market companies. In this dynamic and turbulent environment, opportunities exist for those who take the time to develop a thorough knowledge of the market and its players. Detailed strategic planning and market presence are the keys to success in the growing Russian oilfield service market.

For further information about RPI, Inc. or about "Russian Oilfield Services Market: Analysis and Prospects," contact:

Daniel Satinsky
Director, North American Business Development
RPI, Inc.

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