Since the 2014 discovery of Universitetskaya-1 in the Kara Sea, offshore exploration spending in Russia has fallen dramatically by 90%, dropping from US$1.8 billion in 2014 to around US$170 million in 2015, impacted by the fall in oil prices, sanctions, and rouble deflation. This decrease is also due to reduced activity on the western Russian shelf, i.e. the Kara Sea and the Barents Sea, where operation costs are very high. Offshore exploration was active in comparatively low-cost operational areas in the Baltic and Okhotsk Seas, but other than Universitetskaya-1, there have been no significant discoveries since 2011. New discoveries accounted for around 200 MMboe in total from 2015 and 2016.
Historically, the exploration trend in Russia has been switching from mature oil and gas areas to frontier provinces: first, it was the Volga-Urals, then Western Siberian. However, the current reserve growth in Western Siberian is mostly through enhanced oil recovery techniques rather than new discoveries, and the exploration focus now needs to shift further north towards the underexplored Arctic continental shelf, which holds unconstrained resources. This shift is in harmony with the global trend of a decline in ‘easy’ oil and a move to more expensive and geologically complex areas.
Rystad Energy estimates there are around 90 Bboe of undiscovered hydrocarbon resources in Russia, 40% of which lies in the Kara Sea and 37% in the Barents Sea. Both these regions have dense 2D seismic coverage and a working petroleum system, established by discoveries such as Shtokman and Prirazlomnoye. In addition, increasing activity in the Norwegian Barents Sea adds to the regional geological picture. However, the Eastern Siberian region, including the Chukchi and the Laptev Seas, have very poor data coverage in terms of both 2D seismic and wells, which is why Rystad Energy’s yet-to-find estimates are heavily risked down and represent only 10 % of the total undiscovered potential. Despite high operational costs at the initial stage, the size of discoveries in these regions clearly indicates that the western Arctic shelf will play a crucial role in Russian hydrocarbon exploration in the near future.
Reduced investment in exploration compels companies to consider more than the lure of high volumes, turning their focus to areas where government support and tax incentives increase the profitability of any discoveries made. Furthermore, under current Russian law private companies cannot have operating permits in Arctic waters, curbing the scope for investment in the Russian Arctic. After the easy discoveries of the mature Western Siberian Basin, this puts Russia in a fix as all frontier regions are offshore, underexplored and require high investment. With economic and legislative restrictions, it seems exploration CAPEX will remain low at least until 2019.