"Effective decline", an article for the "Neft Rossii" | KPMG | RU

"Effective decline", an article for the "Neft Rossii" magazine (issue 1-2, January-February 2017)

"Effective decline", an article for the "Neft Rossii"

The article is dedicated to the outlook for the Russian oil & gas industry since January 2016 and the question of whether optimisation is required within the sector.

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One year ago, the drop in oil prices put oil production projects around the world on the verge of profitability, but Russian companies have managed not only to stay afloat, but also to show a minimum profitability decline in operational revenues compared to foreign competitors. However, a detailed assessment demonstrates that it is mostly due to the compensation effect from the revenue decline after the 2014/2015 rouble devaluation, the tax "shield", and comparatively low production costs. It should also be noted that in Russia, the oil & gas sector forms the budget, and that is why, in order for the country not to lose out in tax revenues, oil & gas companies must work on further increasing their profitability rather than maintaining it at the current level. The market outlook leaves little hope for that, and so it must be achieved via the optimisation of internal business processes, e.g. their standardisation, overlap reduction and outsourcing, increasing labour efficiency, and Big Data implementation.

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