Lukoil Can Return to Pre-Pandemic Output With Capacity Intact

(Bloomberg) -- Lukoil PJSC, Russia’s second-largest oil producer, has enough spare capacity to restore output to pre-pandemic levels, indicating that OPEC+ cuts haven’t had any significant impact on its production potential.

The company has about 90,000 barrels a day of capacity this month that can be brought online, Vice President for Finance Pavel Zhdanov said Friday on a conference call. The comments allay concerns among some analysts about whether Russian wells idled as part of the OPEC+ deal would be able to return when the alliance’s restrictions ease. 

If Lukoil deployed all of the spare capacity, its daily production could be close to 1.64 million barrels, matching the average in the first quarter of 2020 before the OPEC+ deal came into force, according to Bloomberg calculations based on data from the Energy Ministry’s CDU-TEK unit.

Lukoil “plans to continue to quickly restore production volumes, taking into account the OPEC+ decision made in July,” First Vice President Alexander Matytsyn said on the same call. 

The Organization of Petroleum Exporting Countries and its allies agreed to return 400,000 barrels a day to the market each month starting August until all of their halted production comes back online. Russia’s share in the monthly increases is some 100,000 barrels a day, and companies have been gradually bringing back output after slashing it by a fifth in May 2020. That was the deepest artificial oil-output cut in the country’s modern history.  

‘As Quickly as Possible’

Lukoil reduced crude output in Russia by some 310,000 barrels a day in May last year. So far, it has restored two-thirds of that amount, according to Zhdanov. Supply is being restored “as quickly as possible” by bringing back wells at previously producing projects, he said. 

In the first 24 days of August, Lukoil’s pumped 1.53 million barrels a day on average, according to CDU-TEK data seen by Bloomberg. 

More than half of Lukoil’s spare capacity is located in West Siberia, with another 24% in Timan-Pechora and 16% in the Ural regions, according to a Lukoil presentation.

The company also increased drilling starting in the second quarter to “minimize the use of spare capacity this year to compensate for the natural decline in production, and to ensure production growth above pre-crisis levels in the following years,” Zhdanov said. 

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