Organizational and Economic Barriers to the Functioning of the Russian Oil Service Industry

The paper analyzes the problems of the Russian oil and gas sector from the point of view of the interaction between oil companies and contractor service companies. The Russian oilfield services market formed in the 90s as part of the separation of non-core assets from oil and gas production enterprises. The trend of the last decade has been the development of their own services by oil and gas companies. The key features of the Russian oil services market are: inelasticity to hydrocarbon prices and production levels, the dominance of internal services of large companies, and, as a consequence, the monopsony nature of the market. In the context of increasing technological level of complexity and risks in the implementation of projects (depletion of existing field reserves, Arctic projects, sanctions), the role of not only standard, but also high-tech work performed by service companies is growing. Oil and gas companies strive to build interactions with service companies in such a way as to minimize their risks. The existing format of interaction between oil and gas companies and service companies is not always acceptable for independent service companies in the regions, since it hinders their development. In competitive procedures, the price criterion dominates; the requirements for equipment and personnel qualifications on the part of oil and gas companies are growing, which companies cannot always meet. As a result, service contracts are often low-margin. We propose Norway’s experience in providing service companies with guaranteed long-term contracts and reduce the importance of the price criterion when choosing an oil service contractor. The paper analyzes the problems of the Russian oil and gas sector from the point of view of the interaction between oil companies and contractor service companies. The Russian oilfield services market formed in the 90s as part of the separation of non-core assets from oil and gas production enterprises. The trend of the last decade has been the development of their own services by oil and gas companies. The key features of the Russian oil services market are: inelasticity to hydrocarbon prices and production levels, the dominance of internal services of large companies, and, as a consequence, the monopsony nature of the market. In the context of increasing technological level of complexity and risks in the implementation of projects (depletion of existing field reserves, Arctic projects, sanctions), the role of not only standard, but also high-tech work performed by service companies is growing. Oil and gas companies strive to build interactions with service companies in such a way as to minimize their risks. The existing format of interaction between oil and gas companies and service companies is not always acceptable for independent service companies in the regions, since it hinders their development. In competitive procedures, the price criterion dominates; the requirements for equipment and personnel qualifications on the part of oil and gas companies are growing, which companies cannot always meet. As a result, service contracts are often low-margin. We propose Norway’s experience in providing service companies with guaranteed long-term contracts and reduce the importance of the price criterion when choosing an oil service contractor.