Exxon Mobil, Royal Dutch Shell, Total, ConocoPhillips and StatoilHydro to profit.

Implications: Miriam Elder of the Moscow Times reported in the May 16 issue of the International Herald Tribune that Prime Minister Putin is fighting claims that Russian oil production is in decline. In recent days both Putin and his deputy, Igor Sechin, have pledged to stimulate the industry. Rivals Gazprom and Rosneft seek government support for their projects. Large Siberian fields remain unallocated. The Kremlin prefers the use of energy rather than missiles to project foreign policy. Production, up slightly in 2007, has been falling in 2008. Many of Russia’s western Siberian fields are nearly depleted. Oil companies are now entering inhospitable regions. Today’s high crude oil prices allow heavy taxes and high operating costs. This week Putin proposed extending the tax breaks for seven years to companies operating in Timan-Pechora basin, Yamal Peninsula and the continental shelf. Putin expects production will increase by 1.3% this year based on plans already in place.

Analysis:  The Russian oil industry is almost as old as the U.S industry. Royal Dutch Shell was an early beneficiary of oil production. Their associations with the Nobel and the Rothchilds in the late 19th and early 20th Century in Russia allowed them to compete successfully with John D. Rockefeller’s Standard Oil Trust. During the 1980s, Soviet Union oil production was consistently around 12.5 million bbl/day. In the turmoil following the revolution which ended the Soviet Union, production began to decline. Azerbaijan’s defection from the Union also caused production losses. By 1998, production was in decline and hit its low point in 1996 at 6.1 million bbl/day. Only in the year 2001 did production, aided by increasing prices, top the 7 million bbl/day mark. Since then, production has climbed steadily helped greatly by the technology provided by the major American, and European energy firms. An outstanding example of foreign participation is the proposed development of the Shtokman natural gas/gas-condensate field in the Arctic Ocean. Without the financial strength and technical prowess of StatoilHydro and Total, it is doubtful if this project could go forward. Similarly, both Royal Dutch Shell and Exxon Mobil have supported the several Sakhalin Island projects which involve some of the most sophisticated extended reach drilling (ERD) in the world. Royal Dutch Shell has entered into a number of agreements with Russian companies for development of oil and gas projects in eastern Siberia. Conoco Phillips is an investor in Lukoil. The leaders of the western oil companies are all well-acquainted with Vladimir Putin and have little difficulty obtaining audience. Everything considered, the oil companies have a solid, reliable friend in Russia. New opportunities to increase reserves and production rates will be welcome indeed.