Rosneft H1 oil output jumps on drilling improvement, as gas output surges

Russia's Rosneft increased its liquids output in the first half of 2023 by nearly 7% year on year to 4.0 million b/d, reflecting a jump in gas output and higher rates of drilling, while also making progress on infrastructure designed to route more oil via Arctic waters to Asia, it said Aug. 30.

In a results statement, Rosneft said its liquids output fell 2% in the second quarter compared with the first quarter to 3.9 million b/d as a result of OPEC+ production constraints -- seemingly lamented by CEO Igor Sechin. The company did not provide a breakdown differentiating between crude and natural gas liquids, the crude portion being subject to OPEC+ production cuts. It highlighted high rates of horizontal drilling and hydraulic fracturing as factors in its output strength.

Rosneft also reported a 32% year-on-year increase in its gas output to 43.7 Bcm (1.5 million b/d of oil equivalent), suggesting renewed success in its efforts to grow its gas production, including LNG exports, and likely implying an increase in NGL production. It noted the ramp-up of new gas projects in the Yamalo-Nenets region.

Sechin said cost-cutting efforts had reduced lifting costs to $2.8/boe produced; however, recent tax changes, together with new tax initiatives, made operations "more challenging."

"In Q2 2023, given external production constraints, the company had to reduce its output," Sechin said. "I should note that Rosneft has been limiting crude oil production in one way or another since 2017, which prevents the company from fully unleashing its potential."

"Despite the complex external environment, Rosneft continues to implement major investment projects," he added, referring to a 14% year-on-year increase in capital expenditure in the first half to Rb599 billion ($6.2 billion).

Arctic export route

The statement pointed to progress in Rosneft's efforts to build up Arctic export infrastructure that should enable it to direct light sweet crude from the Vankor area in East Siberia via the Northern Sea Route through the Arctic to Asia, rather than using the traditional Transneft pipeline system. It said progress was being made on both the Bukhta Sever port project on the Yenisey River estuary, and a 770-km pipeline to the port.

The project should contribute to Russian efforts to direct more oil to Asia in the face of international sanctions by the US, the EU and allies. Sechin called recently for Rosneft to be allocated greater railway capacity for oil exports to Asia, in place of coal exports.

Russian efforts to make greater use of the Arctic Northern Sea Route to Asia have attracted attention in recent weeks as some of the first shipments of oil and LNG from the Baltic have set out along the route, but have been held up by thick ice, necessitating the use of atomic ice breakers and limiting hoped-for time and cost savings.

Platts, part of S&P Global Commodity Insights, assessed Russia's ESPO crude loaded at Kozmino on the Pacific coast at $79.34/b on Aug. 29.

Technology sanctions

In its refining segment Rosneft said it had processed 9.2% more crude in the first half of the year compared with the same period a year earlier, at 44.1 million mt.

Throughput fell 5.1% in the second quarter compared with the first quarter to 21.5 million mt, mainly reflecting seasonal turnarounds, it said.

On the issue of replacing technology that can no longer be accessed from some countries due to sanctions, Rosneft said it has been "consistently working to develop local technologies and import substitution, in particular, supplying its refineries with in-house catalysts required to produce high-quality motor fuel."

"In H1 2023, 780 mt of diesel hydrotreatment catalysts and protective layer catalysts were produced -- 75% of this volume was supplied to the company's refineries and another 25% to third party customers," it said. "The company's enterprises also produced 175 mt of reforming catalysts and 55 mt of hydrogen production catalysts. 340 mt of regenerated diesel hydrotreating catalysts were reactivated."