Structural issues facing the market

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Declining productivity

As a mature oil production province, the brownfields of Western Siberia and Volga Urals are now heavily depleted, suffering from high water-cuts and deteriorating well productivity. The efficiency of hydro-fracturing has fallen dramatically and with well productivity falling by 8% on average from peak in 2004, simple arithmetic would suggest that drilling volumes need to increase at a similar rate just to keep production stable, all other things being equal.

Barrels produced per metre
(Source: REnergyCO 2014)

Migration to greenfields

The vast majority of incremental oil production in Russia in future years will come from the greenfield regions of Eastern Siberia, Timan Pechora, Offshore Caspian and Arctic Seas and Yamal-Nenets. Oil companies face substantial operational challenges developing prospects in these regions, given the harsh climate, lack of infrastructure, more complex geology and remoteness. Costs per barrel are significantly higher than in the brownfield as the challenges are greater.

Incremental oil production
(Source: REnergyCO 2014)

Increasing complexity

As drilling activity has grown in the past five-six years, EDC has observed some clear trends emerging. With the shallower layers substantially exploited and with new technologies available, oil companies are seeking to drill ever deeper wells. Additionally, EDC has observed a strong increase in horizontal drilling in the past three years in particular. This increasing complexity plays to EDC's key competitive advantage - our younger, more mobile and heavier rig fleet which is better suited to drilling these more complex wells.

Horizontal drilling
(Source: REnergyCO 2014) 

Russia's ageing rig fleet

Many existing onshore drilling rigs in Russia are approaching the end of their 25 year useful lives, as there have been very few additions to the rig fleet over the past 20 years. There are fewer rigs available that are capable of drilling the deeper and more complex wells that are being demanded by customers. The Russian drilling industry faces a massive investment requirement over the coming five-10 years.
(Source: Douglas Westwood 2012)

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