What does Russia's commitment to OPEC deal mean?

RUSSIA ENERGY / FINANCE - In Brief 01 Dec 2016 by Marcel Salikhov

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Russia’s participation in the cut came as an additional surprise from OPEC meeting. Yesterday Minister Novak made prepared statement confirming Russia’s participation (in Russian - http://minenergo.gov.ru/node/6606) Basically he said two things: Russia is ready to cut production by 300 thousand barrels/day in 2H2017 by gradual manner and based on technical possibilities The commitment is conditional on OPEC members fulfilling their own reduction in production Based on press-release from OPEC (http://www.opec.org/opec_web/static_files_project/media/downloads/press_room/OPEC%20agreement.pdf), it is clear that production cuts are estimated from October 2016 levels. In October 2016 Russia's oil production (with gas condensate) was 11.04 mbd. It's a local high but lower than March figure (11.25 mbd). 11.04 - 0.3 = 10.74 mbd. In 1H2016 production was 10.95 mbd (monthly average). So it is about 2% decrease in production.Russia's oil production (including condensate)Source: calculations based on Rossst production data We think that the cut will be organized mainly by natural decline in mature fields. As you know, most of the Russian oil production comes from fields in declining stage. So the current production is ramped by implementing different enhanced oil recovery (EOR) methods. It's possible to decrease their usage to some extent and the production will naturally follow. In this way it will be less damaging for long term production potential and will not limit production from new fields. It’s difficult for Russia to organize it because of harsh conditions in winter and dispersed nature of production (tens of thousands of wells with low debits). But -2% is probably manageab...