intelligence service

The shortage of oil and gas reserves in the country is becoming more noticeable. The Soviet portfolio of great deposits has been exhausted. In the not very distant future, Russia may face a sharp decline in production. And the main problem is that the trillions of budget rubles that are planned to be spent on geological exploration until 2020 will not change the situation unless the existing regulatory framework for geology is adjusted.

Soviet geologists, within the framework of unlimited funding, created the basis for the oil and gas industry of the new Russia. But in market conditions, for 1 ruble of government investment in geological exploration there should be at least 8-10 rubles of company funds
Photo: Vladimir Kazantsev/ TASS photo chronicle/ Photo by ITAR-TASS

Financial intelligence

“The development of geological exploration has long become a sore point for the country. The process is stagnant, and this naturally leads to the absence of significant new discoveries. The disproportion between the rates of production and growth is rapidly growing. We have already reached the point that there are no more attractive hydrocarbon deposits in the unallocated fund remains. Obviously, it is necessary to increase the physical volume of geological exploration, primarily exploratory drilling, by at least three times,” says Viktor Orlov, president of the Russian Geological Society (Rosgeo), with alarm.

The Ministry of Natural Resources of the Russian Federation proposes to allocate over 3 trillion rubles by 2020 to the program for the reproduction and use of the mineral resource base and geological study of the subsoil. The main amount of funding - 2.4 trillion rubles - should go to hydrocarbon exploration. These figures are reflected in the draft state program "Reproduction and use of natural resources" for 2013-2020, which was developed by the ministry.

But will an increase in funding for geological exploration work lead to a significant expansion of the mineral resource base (MRB)? Russian experience shows that this is not always the case.

Indicators of financing of geological exploration from all sources have been growing since 2004, with the exception of a slight decline in 2008-2009. During the period 2005-2012, budget funding for geological exploration amounted to about 150 billion rubles at current prices. Almost half of them were aimed at hydrocarbon raw materials. Budget funding in 2012 is 181% of the 2005 level, said the head of Rosnedra, Alexander Popov, at a meeting dedicated to reviewing the results of the department’s work in 2012.

The results of private investment in geological exploration look even more impressive: since 2005, investments have tripled.

However, the increase in reserves does not show the same thing at all - significantly! — growth of indicators. According to Rosnedra, in 2006 it amounted to 683 million tons of recoverable oil reserves of category C1, and in 2012 - 681 million tons, that is, it even decreased slightly. On average, for the period 2006-2012, the increase remained at the level of 650-700 million tons, and no sharp jumps were observed, despite the financing situation. In the crisis year of 2009, the figure dropped to 622 million tons. A reverse trend—increasing jumps—was not observed during the reporting period.

By stage

Why doesn’t an increase in budget funding by 181% result in a corresponding increase? “It is quite difficult to assess the effectiveness of geological exploration work carried out at the expense of the state budget. There is no direct connection between them and the increase in reserves. Today the state is not engaged in prospecting work, at least for hydrocarbon raw materials. The state is involved only in the regional stage. The main part of this work is carrying out seismic exploration, and the result, at best, is localized resources, nothing more,” explained Grigory Vygon, director of the Energy Center of the Skolkovo Business School.

Thus, the state is responsible for forecasts, which may or may not be confirmed, and not for growth. The stage preceding the discovery stage of deposits is certainly important, but experts are at a loss with the criteria for assessing its effectiveness in Russia.

Rosnedra, for example, annually reports on successes, demonstrating data on the increase in the value of subsoil due to the localization of predicted resources (the indicator is calculated as the product of the volume of localized resources, recalculated through the confirmation coefficient into the conditional category of industrial reserves, and market prices) or comparing the volume of annual budget funding for exploration with the amount of income in the form of a one-time payment received at competitions and auctions.

"The first criterion is controversial. There is no methodology for assessing predicted resources as such. Industry institutes make an assessment, the accuracy of which is low. Then the resulting indicator is multiplied by current prices, taking into account the share of exports, and an indicator of the value of subsoil is obtained. At the same time, the methodology for calculating the value does not take into account the economy development of deposits,” notes Mr. Vygon. “The second criterion is also incorrect. The main budget revenues are obtained as a result of the sale of large deposits discovered in the Soviet years. The budget money that is currently allocated to Rosnedra for regional work has nothing to do with the discovery of these deposits. relationship".

It turns out that experts are unable to give an objective assessment of the effectiveness of spending budget funds allocated for exploration. And when the structure cannot be analyzed, it is not possible to develop recommendations for its correction. Although such a need is ripe: there is a shortage of search reserves in the country, according to Mr. Orlov’s assessments. From what Rosnedra localizes, subsoil users for the most part have nothing to choose from.

However, this does not mean that budget funds allocated for geological exploration do not achieve their goals. It’s just that their volumes are not at all as significant as noted in the reports. The documents conceal the fact that until 2004 inclusive, geological exploration was financed from both the federal and regional budgets in approximately equal proportions. Since 2005, funding from regional budgets has ceased, and the declared increase in government spending refers to the level of funding from the federal budget, the volumes of which do not compensate for the resulting deficit.

“The state does not have sufficient budgetary funds to fully finance exploration projects. Private resources and market mechanisms must work. But making investments in geological exploration attractive is the task of the state. But it is not coping with it in the best way yet,” says Mr. Orlov.

It turns out that no government programs declaring an increase in funding for exploration will lead to expanded reproduction of SMEs until subsoil users have incentives to invest in growth.

Partial correlations

The key role in the process of replenishing the mineral resource base belongs to subsoil users. They are the ones who undertake prospecting, evaluation and exploration work, leading to the discovery of deposits and an increase in reserves. According to the “Long-term state program for the study and reproduction of SMEs in Russia based on the balance of consumption and reproduction of mineral raw materials,” approved in 2004 and updated in 2008, for 1 ruble of government investment in hydrocarbon exploration there should be 8-10 rubles of companies’ own funds. In fact, today this figure is approximately 16 rubles.

“But I have the impression that the volume of allocations has begun to have little effect on the growth of reserves. If you look at funding indicators since 2004, for companies they have been going up with slight declines during the crisis period. However, it is worth comparing with the graph reflecting the volume of exploration drilling: the line on it is as straight as a stick. From 1993 to 2012, annual drilling volumes averaged 1.2-1.3 million m. If we also put a graph of the growth of oil reserves next to it, then until 2005 they were at the level of 250- 275 million tons, and since 2005 - an average of 650 million tons with the same volumes of drilling. It is as if these indicators do not depend on each other. The classical correlations between financing, drilling and reserve growth have disappeared. It turns out that in 2005 a scientific phenomenon occurred. -technical revolution, otherwise this phenomenon cannot be explained,” argues Mr. Orlov.

It is significant that, despite the increase in investment, new large deposits are not heard of. In 2010, the most notable were the Sinyavsky oil field in the Irkutsk region and the Novo-Veninskoye oil and gas condensate field on the shelf of the Sea of Okhotsk. In the first case, the estimate of reserves did not exceed 15 million tons (to date it has been increased to 50 million tons), and in the second - only 3 million tons. The 2011 figures are also not impressive: two fields with reserves of 50 million tons each in the Irkutsk region and Krasnoyarsk region. The most significant discovery of 2012 was the Velikoye field in the Astrakhan region with reserves of 42 million tons. Well, the annual increase mainly consists not of discoveries, but as a result of revaluation of reserves of long-known fields and the use of higher oil recovery factors (ORF) there.

Let's figure out where private investments are being directed, which, according to Rosnedra reports, have tripled. They really go for geological exploration. But an analysis in comparable prices shows that there has been no significant increase in funding. Now, on average in the country, an increase in 1 ton of oil reserves costs $9-10, while in 2005 it cost only about $2. If we take into account inflation, costs of material and technical base and other factors, it becomes obvious that current investments in exploration are not enough for expanded reproduction. In addition, when determining the cost of exploration based on the cost of a unit of extracted raw materials, we find out that in Russia this figure is significantly lower than in other countries - 2.5 times (Europe), or even 7.5 times (Canada).

Much can be explained by the level of reserves available to Russian vertically integrated companies, which received a rich inheritance from Soviet geologists. This allows them to take their time with investments.

According to Ernst & Young, the average lifespan for Russian companies is about 22 years (all oil and gas reserves) and about 19 years (liquids), while for global majors it is about 13 and 12 years, respectively.

Having such a backlog of reserves, vertically integrated oil companies are in no hurry to seriously invest in geological exploration. This may be short-sighted from the point of view of long-term strategy, but it is practical from the point of view of financing ongoing infrastructure projects and dividend policy.

The law is not written

Indeed, “large companies are provided with reserves: geological exploration is less interesting to them. But it may be attractive to small independent companies that would be willing to invest. But they are stopped by the operating conditions, the lack of a regulatory framework in Russia for geological exploration as an independent business. For this There are simply no relevant laws and regulations; there are a number of legislative restrictions on the attractiveness of investments in geological exploration,” Mr. Vygon explains the conflict.

Mr. Orlov also agrees with the expert. In his opinion, the main thing that needs to be done to improve the reproduction rates of SMEs is to debug the regulatory framework in this area. In order to influence the situation that restrains interest in geological exploration, in February 2012, on the initiative of the strategic joint-stock company Rosgeologiya, a public council was created on the problems of reproduction of SMEs in Russia. Its members plan to prepare proposals for the development of the geological exploration industry and submit them for consideration by the government.

As Mr. Orlov said, for example, we are talking about the abolition of the “confiscation” norm for taking away strategic fields: if a foreign company discovers a field with reserves of over 70 million tons of oil or 50 billion cubic meters of gas, then it has strategic value and can be taken away by the government with compensation expenses incurred by the company that opened it. In addition, the authors of the proposals plan to initiate the introduction of a deferment or installment plan for the payment of a one-time payment for the provision of a license, as well as a refusal to pay VAT for deposits where the subsoil user has not confirmed the state’s forecast and has not made discoveries.

The director of the Energy Center of the Skolkovo Business School expanded this list: “In my opinion, a number of changes could help intensify geological exploration - obtaining licenses for geological exploration on an application basis, obtaining a license at an auction if there is only one participant. In addition In addition, a number of economic measures are advisable. For example, it is necessary to deduct the costs of successful exploration wells from the mineral extraction tax. But this is only effective for those companies that have production projects in their portfolio and pay the mineral extraction tax. Well, since geological exploration still does not make sense without production. ", it is important to increase the attractiveness of investments in it. This is not about targeted preferences for individual large projects, but about creating a common, intelligible tax system based on the taxation of financial results."

The expert believes that the state should focus exclusively on regulation, and geological exploration should be completely handed over to private companies, even at the regional stage. He gives a simple example: the country has long cultivated the myth that private companies are not interested in doing regional work and will never carry it out. And LUKOIL in the Caspian Sea took and refuted this thesis, carrying out the entire range of work and discovering a number of large fields.

Mr. Orlov has a slightly different point of view: “LUKOIL did not start in the Caspian Sea with a clean slate. A regional assessment of the predicted resources was made earlier. There were no areas and structures with localized resources. LUKOIL identified them and drilled them. I believe that the connection of the business is precisely at the stage of resource localization It is feasible and necessary. With budget funds, it is possible to prepare 25-30 areas with localized resources annually. Of these, about 50% of the areas will become deposits. And we need to open at least 100-150 deposits annually. Therefore, we need to enter into the exploration process. 300 new plots. It’s almost impossible to do this without business.”

One thing is clear: without significant regulatory and tax changes, 2.4 trillion rubles for hydrocarbon exploration until 2020 will not ensure a significant expansion of SMEs. But forecasts for global consumption of primary energy resources show: by 2020, oil consumption will increase by 13-15%, and by 2030 - by 34%.

To maintain its current status in the global oil market, Russia will have to produce more than 520-530 million tons in 2020, and 600-630 million tons in 2030. The existing base not only cannot provide such growth, but will not even ensure the maintenance of the current level of production.

Margarita Maskina, RusEnergy

Depths of knowledge of geology