Discussion and Conclusions

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Another ratio that was examined is debt to assets ratio. Its results support those of debt to equity ratio. On average, 65% and 70% of assets in Rosneft and RussNeft are financed by creditors versus 58% of industry average. Overall, the highest results of both ratios were attributable to the crisis period of 2014-2015, when most of companies expressed considerable financial difficulties because of low oil prices.

Overall, in terms of profitability, such companies as NOVATEK, Tatneft, Bashneft, Gazprom, Gazprom Neft and Lukoil on average demonstrated better results than the rest of the group. Secondly, Zarubezhneft, Surgutneftegas and Bashneft were proved to have higher average liquidity than the rest of companies. Thirdly, Zarubezhneft and Gazprom were found out to keep the low debt strategy and rely more on equity financing. Finally, RussNeft was proved to be inefficient in terms of asset utilization to generate revenue, to have lower liquidity and to rely heavily on debt financing.

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positively related to the production of oil and gas companies

rejected

H2: The number of employees is positively related to the production of oil and gas companies

Accepted Cannot be supported or rejected

H3: The share of state- ownership is negatively related to the technical efficiency of oil and gas companies

Declined Declined

H4: Reserves to production ratio is negatively related to the technical efficiency of Russian oil and gas companies

Accepted Cannot be supported or rejected

The results of the study indicate that labor and oil and gas reserves indeed positively relate to the production of oil and gas companies. There is no possibility to either accept or decline the H1, H2 and H3 under DEA method, since this method mainly serves as a source of benchmarking. Nevertheless, both under SFA and DEA methods the most common hypothesis of previous studies that the share of state-ownership negatively relates to the technical efficiency of oil and gas companies was declined. This means that on the Russian market the general conclusion of previous studies does not hold and there is not direct preference of ownership type when it comes to efficiency results. Finally, the higher reserves to production ratio proved to be negatively related with the firm’s efficiency.

Meanwhile, financial analysis was used as a supplement method to make more in-depth insights about the sample companies. Though the study is mostly concentrated on operational efficiency, the results of both operational and financial sides allow to look at the efficiency problem from different angles and should be used together in practice. Despite a series of global oil price falls, most Russian companies demonstrated healthy profitability trends and efficient asset utilization to generate revenue and net income. In terms of liquidity results, such companies as Zarubezhneft, Surgutneftegas and Bashneft showed the highest average liquidity during the period while another company, Slavneft, demonstrated a considerable improvement of its results

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in 2018. Some companies from the sample preferred to rely more on creditor financing, while such companies as Zarubezhneft and Gazprom followed more equity financing strategy. Finally, RussNeft was found to have low efficiency results in terms of using assets to generate revenue, the company is also characterized by low liquidity results and significant utilization of debt financing.

Nevertheless, in order to have a more detailed picture and generate new insights, quantitative methods of measuring efficiency should be supported by qualitative ones. This is especially important, considering the results of previous studies that were only concentrated on quantitative conclusions and hold a firm view that state-owned companies are inefficient compared to private ones. However, it is essential to obtain the industry expert view on the problem that will tell more about specifics of oil and gas industry at a market. According to the experts, the efficiency of oil and gas companies operating on Russian market depends not only on managing reserves, which is still highly important, given the increasing depletion rate of the major oil and gas producing regions. The possible strategies of increasing efficiency also include digitalization of both upstream and downstream sectors, higher agility that can be mostly improved by the increase of decision-making speed and higher autonomy of subsidiaries and diversification to other, not related to oil and gas sectors, such as renewable energy.

Finally, there is an outline of some techniques Russian oil and gas companies currently use or start employing to increase their efficiency. Firstly, the depletion of the existing fields is one of the main production challenges. To overcome this issue, Russian companies should improve reservoir management techniques and increase their drilling efficiency. For instance, while the annual natural decline rate for Western Siberia fields is currently around 10-15%, over the past decade such production companies as Lukoil West Siberia, Noyabrskneftegas, owned by GazpromNeft and Yuganskneftegas, Purneftegas, owned by Rosneft demonstrated an average decline rate of 2% (Oxford Institute of Energy studies 2019). Particularly prominent example of improved reservoir management is the case of Lukoil: the company increased the number of horizontal wells in its West Siberian field, which in its turn increased the drilling efficiency and decreased the natural decline. Furthermore, Lukoil currently also started to use wells with a smaller diameter. This allows to make the costs lower and optimize the performance.

Another method of improved reserves management, applied by the sample companies, was enhanced oil recovery (EOR), which includes such tertiary methods as steam injection, which is the most prevalent one, chemical flooding and several others (Oxford Institute of Energy studies 2019). EOR methods are successfully employed on some fields of Tatneft, for example, Romashkinskoye field in the Volga-Urals region. Another success in applying EOR is

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demonstrated by Gazpromneft: together with Shell, the companies apply alkalinesurfactant polymer (ASP) flooding method to boost recovery rate of the Salym field. The results are already encouraging: the recovery rate of certain areas of the field has been increased from forty-eight per cent to sixty-five per cent (Gazpromneft 2017).

Furthermore, it is important to replenish the resource base with new sources of production, for illustration, hard-to-recover reserves that will also provide companies with considerable tax breaks. For instance, a hard-to recover field Russkoye, operated by Rosneft, is projected to generate 130,000 barrels per day in five years, thanks to the new efficient drilling programme. Lukoil uses steam injection technology to ramp up the production of its Yaregskoye and Usinskoye fields. Thirdly, there is a high potential in the development of offshore projects:

for instance, Gazprom Neft has been very active in bringing new offshore fields, such as Novy Port and Prirazlomnoye into development (Oxford Institute of Energy studies 2019).

Meanwhile, diversification to other industries is another way to proceed with efficiency improvement. Gazprom Neft is considered to be a pioneer of this strategy: together with Gazprombank and RBK the company established a venture found dedicated to investing in national and foreign startups that develop up-to-date innovative technologies for petroleum and energy industries (Vedomosti 2019).

Finally, technological innovation is a significant source to increase the efficiency in oil and gas industry and decrease the dependence of Russian petroleum companies on foreign technologies. The first example in this category is the fourth LNG train of NOVATEK at Yamal LNG project: it is based on internally developed liquefaction technology “Arctic Cascade” and utilizes equipment from Russian manufactures (Oxford Institute of Energy studies 2019). Second good example is Rosneft’s unique simulation technology of hydraulic fracturing that was developed to replace imported software that was commonly used for hydraulic fracturing operations. Finally, Slavneft views the use of big data and machine learning as one of the key efficiency drivers. Its innovative drilling center that currently uses such technologies allowed to optimize costs by lowering sums paid to foreign service companies and empowered the company to conduct predictive analysis of potential drilling problems and increased the overall drilling efficiency and speed by fifteen per cent (Slavneft 2019).