The crisis might bankrupt small oil business

Low oil prices, caused by the refusal to roll over and adjust the “OPEC +” deal, have led the Tatarstan's small oil business (29 companies) to be at risk. Despite the fact that such “kids” collectively produce four times less oil than “Tatneft” company, the situation creates serious grounds for concern.

The total revenue of such companies is about 122 billion rubles, which provides about 88 billion rubles of tax revenues to various budgets of the state. Last year, these enterprises produced about 7.15 million tons of oil. Are the smaller oil companies ready to take the necessary measures to survive the crisis in the current situation? Can they hope for the government support?

According to the experts, most oil producers are ready to take urgent measures, based on existing reserves. What is more, tax incentives from regional authorities have already played a role in previous crises of 1998 and 2008. A proper role in this matter is played by the correct coordination, which is a responsibility of “Nefteconsorcium”.

Taking into account that the goal of creating small companies was to improve oil recovery, we can assume the active participation of market giants in the rescue of the smaller ones. As a rule, large enterprises already come to the existing oilfields, not being involved in the drilling process.

According to analysts, the cost of oil production at large oil companies is about $ 15-17, including the basic operating, transportation and capital costs. Small oil enterprises cannot achieve the same production cost. For them it can be about $ 25-30. Thus, it does not exclude the possible bankruptcy of certain hydrocarbon market entities.

The problem will become especially urgent if the prices in the market fall below $ 20 per barrel.

A number of experts believe that it is not worth waiting for such a development, since no oil exporting country needs a low oil price. Oil production in Tatarstan itself is quite an expensive pleasure. For many small businesses, even a price of $ 25 can be unprofitable. Therefore, we can expect that an agreement on the “OPEC +” format will nevertheless be reached in the nearest future.

However, it is unlikely that it will be possible to return the price level, preceding the exchange madness on March 9th. This is hindered by the objective situation with the spread of coronavirus and the economy of China as the largest consumer.

Whether Russia will return to the “OPEC +” negotiating table is not clear yet. It became known that on March 12, representatives of the Russian oil industry will take part in discussion of this issue at the meeting with representatives of the Ministry of Energy. “Rosneft” is opposed to such an agreement, and “Lukoil” is looking at the possibility of reaching agreement with optimism. What oil “parties” will ultimately win the dispute and be able to really influence the actions of the Russian state, will become clear after the meeting.