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Russian oil output down 8 pct by end-2016 -Lukoil co-owner

Russian oil output will decline by 800,000 barrels per day (bpd), or around 8 percent, in the next two years as companies reduce drilling in Siberia due to low oil prices and sanctions, a top oil executive told Reuters.

Leonid Fedun, vice president and a major shareholder of Russia’s largest private oil company Lukoil, also said he expected refining in the country to drop by the same amount in the next few years due to recent tax changes.

Despite falling oil prices and adverse economic conditions, Russian oil output has been rising and increased last year to a post-Soviet annual record of 10.58 million bpd. Oil and gas sales account for a half of Russian budget revenue.

Output from Russia, one of the world’s biggest oil producers along with Saudi Arabia and the United States, has been steadily rising since 2009 after a slump the previous year.

However, Fedun, Lukoil’s second-largest shareholder after the company’s head Vagit Alekperov, said he expected production of oil, Russia’s key export commodity, to fall.

“Everyone will reduce production because everyone is reducing drilling,” Fedun said.

The estimate is one of the most pessimistic yet by a Russian oil executive since the country was hit by Western sanctions over the Ukraine crisis and a steep drop in oil prices.

Russian President Vladimir Putin has said he expected the economy to recover in two years’ time.

Russian oil production, concentrated in West Siberia, is expected to remain steady at between 526 and 528 million tonnes (10.56-10.60 million bpd) this year, energy ministry forecasts show. The ministry has played down any major risk to domestic output due to sanctions and oil price volatility.

Fedun said Lukoil’s output was likely to stay flat or drop in 2015 as the company was drilling fewer wells in Siberia.

He also said the company will halt production at its Ukhta oil refinery, with a capacity of up to 4 million tonnes a year, in northern Russia due to a low profitability.

Lukoil will maintain its dividend, Fedun added, even if oil prices fall to $40 per barrel because it was benefiting from lower capital expenditure due to the steep rouble devaluation.

Earlier on Tuesday, Lukoil said its 2014 net income fell 39 percent due to weaker oil prices and non-cash impairment losses.
Source: Reuters (Reporting by Dmitri Zhdannikov; additional reporting and writing by Vladimir Soldatkin, editing by David Evans)

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