MOSCOW'S IDLE WELL REDUCTION CAMPAIGN ADDS UNCERTAINTY TO RUSSIAN OIL PRODUCTION OUTLOOK
The Russian government has lately intensified its effort to reduce the share of idle (nonproducing) wells in the oil industry's total count to no more than 10 percent, declaring that oil from idle wells could boost Russian crude production by up to 30 million metric tons per year (600,000 barrels per day). But the drive in its current form to reduce the idle well count is at odds with reservoir management practice elsewhere in the world. Recent developments have the following major implications:
*The government's growing focus on idle well rates is part of a broader reassertion of regulatory authority that limits the companies' capacity for innovative policies needed to address unique field development challenges.
*Ironically, a state-mandated program of idle well reduction could send Russia onto a lower oil production growth trajectory because this policy prevents companies from implementing a production doctrine that is considered optimal by the international oil industry.
*Well stock management is likely to remain a key bone of contention between the oil companies and the government for the foreseeable future, with private sector companies increasingly in the line of fire following major idle well reduction initiatives on the part of the state-owned Russian oil companies.
*The Russian oilfield service sector may be the primary beneficiary of the idle well reduction campaign, depending on the state's timetable (with a fast-track reduction schedule favoring outsourcing of well reactivation contracts to independents).
