Russia creates $9bn bonanza for oil rig manufacturers

Russia is to replace its old soviet made rigs with modern ones able to drill in shale oil deposits, which could be a boom for manufacturers like National Oilwell Varco of the US and China’s Honghua Group.

More than half of Russia’s 1,835 oil and gas rigs are over 20
years old, according to VTB Capital research. The
outdated rigs won’t be powerful or advanced enough for producers
such as Rosneft drilling in Siberia’s shale rock, Bloomberg
quotes field analysts.

Richard Anderson, the Chief Financial Officer of Russia’s largest
drilling rig operator, Eurasia Drilling, said that the US uses
250 rigs to produce just 700,000 barrels a day at the Bakken
shale formation. The Siberian Bazhenov formation is many times
larger, which means Russia needs several hundred new rigs.
Supplying that number of rigs at an average of $35 million would
cost $8.8 billion.

Rosneft and its partner Exxon Mobil, have just started to explore
the Bazhenov shale formation in Siberia. Bazhenov is estimated to
be the size of France, and could contain enough oil to more than
double Russia’s current reserves. The successful development of
Bazhenov is seen as vital to maintaining Russia’s reserves above
10 million barrels a day.

A lack of modern rigs remains a key stumbling block to developing
Bazhenov, Bloomberg quotes industry analysts. Hydraulic
fracturing, or fracking, at horizontal wells in Russia breaks
even at $90 a barrel without tax breaks, they estimate. Russia’s
Urals is trading at about $102 a barrel.

Deliveries of new rigs will reach a five-year high of 105 units
this year, according to VTB data. However, older rigs are being
quickly retired, which may result in a capacity squeeze.

“New drilling rigs must be built,” Bloomberg quotes Antony
Crawford, the head for National Oilwell in Russia, whose company
plans a factory east of Moscow. “This issue represents a clear
and present danger to Russia’s ability to maintain output during
the next three to five years.”

National Oilwell may sell five rigs to Russia-focused companies
this year, according to VTB. The largest US oil equipment
supplier competes with China’s Honghua and Russia’s OMZ for
orders. Oil is often more difficult to extract from shale rock
and drill bits often need to turn 90 degrees and continue
drilling horizontally, which is impossible with old rigs,
oilprice.com writes.

This article originally appeared on: RT