Chinese investments in the oil sector of Russia may grow because of sanctions - Fitch

Almaty. March 12. Silkroadnews - Chinese direct investment in the Russian oil sector could grow due to the imposition of sanctions against the Russian Federation, says analysts of Fitch Ratings.
According to a press release from the international rating agency, sanctions and their effects are more serious threat to the Russian oil sector than the weak oil prices. Fitch's stress test shows that the creditworthiness of the companies can sustain the price of oil at $55/bbl for several years. However, if access to finance will not improve, and export restrictions will remain in force, the oil companies may not be able to carry out the investment necessary to maintain production.
As noted in the document, the sanctions actually shut down access to Western capital markets for all Russian oil and gas companies, and not only for those directly related to sanctions. Some liquidity can provide Russian banks, but they depend on the state and the Central Bank of Russia in terms of funding and capital to maintain its ability to lend. As a result, banks are likely to roll over existing debt, thus it is unlikely to provide significant new funding.
The sharp increase in the use of technologies such as horizontal drilling and hydraulic fracturing, offset lower production in traditional mature fields. However, it made Russia more dependent on supplies of Western equipment - the share of imported oil equipment exceeds 50%. Russian producers will take several years to replace the bulk of imported equipment.
The sharp drop in oil prices also affects the prospects of more technically complex and expensive projects and weaken the cash flows that will help to reduce investment. At the same time, the depreciation of the ruble by 40% helped to offset this effect by further reducing the so lowest production costs, as well as investment. Leading Russian oil companies historically had one of the lowest oil production costs in the world. Therefore, the sharp depreciation of the ruble has helped to make the sector more competitive in terms of production costs.