Short-term Crunch for Russia’s Oil Companies

Source:

"Russia's top oil producer will seek a $4-billion loan from the state development bank in 2009."

Rosneft, Russia's top oil producer, confirmed yesterday that it would seek a $4-billion loan from the state development bank in 2009.

Rosneft's announcement is symptomatic of the difficulties facing Russia's oil majors, including private companies such as Lukoil and TNK-BP. In the short term, the companies are facing a cash squeeze caused by falling crude and petrol prices. This decline has been exacerbated by the impact of export duties, which had been set for two-month periods but was reduced to one month.

It is possible that companies will turn to foreign partners for assistance with financing and project execution for new developments. However, it is not clear how committed the government is to making the sector more attractive for inward investment.

The financial crisis has led Russian oil companies to cut back on both capital and operating expenditures, and in the long term, the companies will be hurt by falling production as new projects are downsized or deferred. However, companies that receive strong government support are likely to weather the financial crisis, and they could emerge well positioned to expand internationally through acquisitions of distressed assets.

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