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The major shareholder and the head of the leading Russian oil company LUKOIL Vagit Alekperov interviewed by Russia 24 News Channel said that in the coming years the oil prices would be growing smoothly to $65-90 per barrel which in turn would make it possible for the industry to implement new promising projects.
He noted that low prices resulted in severe cuts in investment into promising projects of exploration of new fields. That would eventually lead to an increase in oil prices two or one and a half times from the lows reached.
“There is no room for magic in the world. If one does not invest today, it means that tomorrow one will not get the production. In any case there will be amendments. The industry cannot stop investing due to the fact that it is investment that our well-being is based upon. Therefore, I believe the oil prices will be at such a level that would allow us to retain investment period. That is $65-90 per barrel. Deficit always breeds one thing – a sharp rise in prices” said Alekperov during an interview.
Alekperov reminded that in the 90s we witnessed a sharp decline in oil prices to $9-15 per barrel what caused a severe drop in investment. As a result, over the next few years the cost of barrel surged to a high of $120.
He stressed that “the same period will be repeated. Over time, the balance of demand and supply will be found. At the same time the price will present fairly not only the prime cost of oil production, but also economic features investors rely on”. Alekperov also remarked that the industry’s successful performance needs a minimum profitability of 12-16%. He said that only economically reasonable prices would provide opportunities to conduct researches in the deep water and the Arctic, i.e. promising oil provinces that would help to support oil production at the global market”.
According to the LUKOIL’s head, its medium-term program envisages the smooth growth of oil prices in 2016-2018. At the same time, average oil price should be $50-55 per barrel.
“This is the price that would allow us to envisage, though conservatively, the financial results we incorporate in the program” he added.
Alekperov expressed confidence that the recent drop in oil prices had undermined the trust of financial institutions to investing into shale oil and gas.
“Reduction of oil prices in just one year from $110 to $45 is significant not only for our industry, but also for the financial institutions. Great amount of money has been spent on development of shale deposits. Are the banks ready to take the risk they are taking now? That would constitute the major deterrent to active investment periods renewal in shale deposits”.