OOO Burovoya Kompaniya Eurasia (BKE) is the largest onshore drilling contractor in Russia
The chart below illustrates the path of Russian oil production and drilling activity over the past quarter of a century. Production reached its peak in 1988 just before the collapse of the Soviet Union and thereafter fell heavily to 6mbpd in 1996, with drilling activity falling by over 85%, due to the economic and organisational problems that followed. Corporate reorganisation, improved access to capital markets and rising oil prices has driven the recovery in production levels back to 10mbpd. Much of the initial recovery in production up until 2005 was driven by idle well reactivation and intensive hydro-fracturing of existing wellbores, and as the chart shows, drilling activity began growing in earnest from 2006 as returns from reactivation and hydro-fracturing declined.
Russian oil production and development drilling
(Source: REnergyCO 2014)
There are interesting parallels in the current Russian situation with that experienced in the United States in the 1970s, itself a mature oil producing region currently going through something of a renaissance. The US had enjoyed strong growth in production in the 1960s, without a commensurate increase in drilling activity, as early enhanced oil recovery techniques were developed and applied. Returns from these efforts began to diminish as the US reached peak oil production in 1970 and, in an effort to sustain production, drilling activity increased dramatically over the subsequent 10 to 15 years. Assuming oil prices remain stable at current levels, most market commentators expect Russian drilling activity to continue growing strongly, as it did in the US in the late 1970s and early 1980s.
US oil production and new wells drilled