Russian Oil Production Costs Hit 10-Year High

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Russian crude oil production costs hit a 10-year high in the second quarter of 2021 as companies increased their capital spending in response to the Opec-plus alliance's move to gradually increase output. A rising tax burden and a deterioration in the quality of Russia's oil reserves -- which are becoming more difficult to extract -- also contributed to the increase in costs. All of this raises questions about Russia's sustainable production capacity and the level of oil prices at which producers -- and the country's government -- feel comfortable. Broad Cost Measure Doubles According to data from statistics agency Rosstat, crude oil production costs in the second quarter of this year rose by nearly 14% versus the first quarter. That left costs at 20,379 rubles per metric ton or $37.47 per barrel, which was more than twice as high as during the same period of 2020 in both currencies (see table). Energy Intelligence understands that these figures represent the marginal cost of production for Russian oil companies, including both operational and capital costs, as well as taxes and other expenses. A Rosstat representative told Energy Intelligence that the production cost data includes all costs, including taxes, but declined to provide further details. Taxes generally account for about 60% of production costs in Russia. Focus on Lifting Costs Russian oil companies generally prefer to focus on their lifting costs -- a relatively narrow measure of the cost of producing oil. These are low by global standards, even compared to some Mideast Gulf producers. Rosneft confirmed that last week, reporting lifting costs for the second quarter of this year of $2.60 per barrel of oil equivalent (IOD Aug.13'21). Deputy Energy Minister Pavel Sorokin has said in the past that capital expenditure plus operating expenditure ranges between $10 and $20 per barrel in Russia, depending on the project. Green Light From Opec-Plus

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