ISTANBUL (Bloomberg) — Russian oil companies will unify behind their government if talks with the Organization of Petroleum Exporting Countries result in an agreement to limit output, including cuts, said the country’s second-largest producer.
“I have no doubt that there will be a freeze” or even cuts, Leonid Fedun, billionaire V.P. of Lukoil PJSC, said at the World Energy Congress in Istanbul. “I’m sure everybody will join” any action the Russian government agrees, he said.
Oil prices remain at about half the level of mid-2014 after a global oversupply caused prices to plummet. Russia is ready to join OPEC in limiting production to stabilize the market, President Vladimir Putin said Tuesday. The world’s largest energy exporter is approaching talks with other producers this week with a preference for freezing output, which is currently at record levels, according to Energy Minister Alexander Novak.
An OPEC supply deal including Russia can be expected shortly after the group’s Nov. 30 meeting in Vienna, Fedun said. Russian companies will probably get recommendations then from the Energy Ministry regarding output, followed by government orders if there is a decision to set limits, he said. Lukoil is ready to make cuts, he said.
Russia’s largest oil producer, state-run Rosneft PJSC, has no plans to cut oil production, Reuters reported Tuesday, citing CEO Igor Sechin. Saudi Arabia and other producers are unlikely to cut and higher prices would only bring U.S. shale producers back into the market, he said, according to the report.
Sechin’s comments don’t contradict President Putin’s stance, Kremlin spokesman Dmitry Peskov told reporters on a conference call Tuesday.
Fedun, who is also Lukoil’s second-largest shareholder, welcomed limits as a mechanism to support prices and investment, saying companies need about $80/bbl to go ahead with long-term plans. Russian output could be frozen at January 2016 levels, he said.
Russia pumped 10.9 MMbpd in January compared with 11.1 MMbpd last month, according to Energy Ministry data.
Russia may have already reached its maximum oil production capacity as higher taxes introduced to help fill a gap in Russia’s budget siphon cash away from investment, Fedun said. Output could begin to fall in one or two years due to taxation, he said.
“As long as output grows, they will shear the sheep,” Fedun said referring to Russian taxation.