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Lukoil plans reduction of oil output in 2016 due to low price

January 25, 2016, 10:27 UTC+3

It’s unreasonable to increase supply on an oversupplied market, the company's Vice-President says

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© AP Photo/Hasan Jamali, Archive

MOSCOW, January 25. /TASS/. Lukoil does not plan to keep its last year’s record oil production level of 100 mln tons in 2016, Lukoil’s Vice-President Leonid Fedun told TASS, adding that it’s more profitable to sell oil at high price.

"I don’t think so. Amid high uncertainty it’s at least unreasonable to chase records and increase supply on an oversupplied market," he said when answering the question whether the company plans to repeat its last year’s output record.

According to Fedun, the strategy of flooding the market with cheap oil at any cost is incorrect as it could be sold for double what it costs within 6 months or one year. For doing this Russian companies has a degree of safety as they’re not burdened with debts or any tough financial commitments, he said.

"Today [companies] should supply the volume of oil, which will not disrupt the country’s budget and will not put additional pressure on the market on the other hand," Fedun said, adding that "it’s better to sell one barrel of oil at 50 dollars than two [barrels of oil] but already at 30 [dollars]."

According to Leonid Fedun, foreign oil and gas projects are unprofitable for oil companies amid current price environment and their current prospects are doubtful.

"There are no, simply because no one on the market realizes what the prospects are due to pricing environment," he said when answering the question on prospects of operations of Russian companies, including Lukoil, in foreign projects.

"Whereas in Russia the devaluation helps us, in other countries it’s difficult to meet huge investment commitments if oil price equals $30 per barrel. So companies, and not only Russian ones, are likely to leave costly projects all over the globe. Their current task is not to develop but to survive," he said, adding though that Lukoil continues participation in a number of big projects, first of all in Iraq and Uzbekistan, though it’s not easy now.

Iran not to hold oil production tenders this year

Iran will not hold oil production tenders among foreign companies this year, Lukoil’s Vice-President added.

"I don’t think Iran will hold any tenders within the nearest year," he said.

According to Fedun, the country’s government has to decide on the form of the contract to offer to investors.

"They don’t know themselves [when they decide on the form of the contract — TASS] as it’s a political issue, which does not depend on Iran’s Petroleum Ministry, and the decision should be made by the political leadership with participation of religious leadership," he said.

He added though that he does not think that Iran will be able to enter the market right away, as it won’t be able to substantially increase its share on the market without massive foreign investment and technologies.

In Leonid Fedun's words, Lukoil sticks to its plans to defray expenses on West Qurna-2 in the first half of 2016 at oil price of $30 per barrel.

"We assume we will cover the project [regarding expenses — TASS] in the first half of the year, even amid current price environment," he said, adding that this may happen "a bit later."

Lukoil is getting prepared to cut its oil production in Iraq due to the government’s decision to reduce oil output in the country, Fedun added.

"Iraq has warned all its subcontractors, including us, about the need to cut production, and we’ll be cutting it. Everything points to the fact that Iraq as an OPEC member-state is getting prepared, maybe even to reduction of output volumes and quota," he said.

Lukoil is not ready to participate in projects in Iran amid current oil price, its Vice-President went on to say.

"Amid current oil price no big company would go for even the most attractive reserves, so we’ll examine and monitor," he said.

Also, the company has doubts regarding reoccurring lifting of anti-Iran sanctions, Fedun said.

"There are doubts. There is such a mechanism though Iran’s leadership is very firm in its intention to return to the global market, that’s why they’ll be very meticulously meeting all those parameters of the nuclear agreement reached," he said.

OPEC may cut quotas in May or in summer — Lukoil

The Organization of the Petroleum Exporting Countries (OPEC) may take a decision to reduce oil production quotas in May or in summer this year after a sharp decrease of shale oil production in the United States, Lukoil’s Vice-President Leonid Fedun told TASS.

"When OPEC sees it has protected its share on the market it may take a decision to reduce quotas. This may already happen at the next OPEC meeting in May or in summer, which will be followed by a fast recovery of prices," he said.

According to Fedun, now OPEC needs to wait for hedge programs of the US companies to run short. WTI premiums for the majority of shale companies will stand at the level of $6-8 per barrel, he added.

"It’s insufficient amid prime cost of production at the level of $50-60 per barrel. That’s why there will be a decline. Now, at the beginning of the year, around 600,000 barrels of oil will leave the market of independent companies," he said.

Lukoil Vice-President says oil can’t exist economically amid $30 per barrel

Oil can’t exist economically amid $30 per barrel, Lukoil’s Vice-President Leonid Fedun told TASS, adding that deficit and a fairly strong output rebound are inevitable.

"The bulk of oil, which is now produced globally, historically costs higher than $30 per barrel. If it keeps at the level for a long period of time oil will simply no longer exist. Deficit and a fairly strong output rebound will emerge," he said.

According to Fedun, it’s impossible to predict the price now.

"No one knows it [what average annual oil price will be in 2016 — TASS]. The thing is that the oil price is hardly related to real events. It’s only possible to make forecasts based on instantaneous situation," he said, adding that "amid current uncertainty it’s impossible to predict the price when a bunch of investors with instincts of animals are running back and forth."

The price is likely to go up slowly, similar to production, Vice-President said.

"The good news is that it has turned out that the world has much oil, though the news is also bad as oil is no longer a strategic priority," he added.

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