The Slow Flow of Russian Oil

By Andrew KRAMER

MOSCOW, Sept. 19 - For five years, the managers of Russia's richest oil fields in western Siberia increased output by 14 percent annually, overcoming decades of Soviet neglect by repairing leaks, replacing pumps and charting better geological maps.

But then it stopped. In the year since Yuganskneftegas, the main production unit of the Yukos oil company, was effectively nationalized in December 2004, it will ship the same amount of crude oil, 385 million barrels, that it did in 2004, according to the new owner's projections, even as prices shot up in 2005 and the global supply of oil remained extremely tight.

The fields straddle five of western Siberia's best-producing reserves. The state-controlled oil and gas company Rosneft won them in January after the authorities took control of Yuganskneftegas, officially as part payment for a $28 billion tax claim against Yukos, then Russia's largest private oil company.

The takeover has been regarded as a critical juncture in President Vladimir V. Putin's policy of imposing Kremlin control over oil and natural gas, a policy that has produced a partial renationalization of the industry, one of the world's largest energy suppliers. (Until late 1991, under the Soviet Union's command economy, the energy industries - and virtually all others - were state-owned.)

The recent halt in growth at Yuganskneftegas comes as an ominous sign that Russia has mismanaged the nationalization, analysts and industry insiders say.

"Russia has to show that it's not just a big energy partner but a potentially much bigger energy partner, particularly to the United States," Christopher Weafer, chief strategist at Alfa Bank, said.

In another sign of the government's sway over the oil industry, the country's largest crude oil producers agreed Monday at a meeting with the minister of industry and energy, Viktor B. Khristenko, to freeze domestic gasoline prices until the end of the year, the Interfax news agency reported. The decision reflected popular pressure on Mr. Putin's government as gasoline prices rose to around $2.52 a gallon, not far from American levels, on the heels of high crude oil prices. Farmers protested in one Siberian region.

A cap on domestic gasoline prices meets the goals of the government to please the public, rather than those of oil companies seeking to maximize profits.

The troubles at Yuganskneftegas come as Gazprom, the giant state-controlled energy company, is poised to buy the privately held Sibneft, Russia's fifth-largest oil producer with more than 900,000 barrels a day, from Roman Abramovich, a Russian tycoon based in London. The deal could raise the Kremlin's control to one-quarter of all Russian oil production, according to 2004 production figures.

Rosneft attributed the leveling off of output at Yuganskneftegas to turmoil there during the takeover and to earlier mismanagement under Yukos. The slowing of production also stems from pipeline bottlenecks and high taxes across the industry, according to Rosneft.

Whatever the causes, it threatens to undermine Russia's efforts to reinvent its energy companies as major international oil producers. That kind of transformation would depend on their ability to deliver energy as promised.

Industrywide, production growth is forecast at 3 percent this year compared with a five-year average of 7.8 percent. It will remain at this level until Russia builds additional pipelines, Mr. Weafer said..

The stakes are high. By some rankings, Russia is the world's second-largest oil exporter after Saudi Arabia. Energy ministry projections cited by the United States Energy Department show crude oil exports rising possibly to 5.5 million barrels a day this year, from 5.14 million barrels in 2004, and reaching 6.2 million barrels a day by 2015.

Most Russian oil is now exported to Europe. But by 2010, Russia is expected to export energy directly to the United States. Oil could be shipped to the West Coast from offshore fields near Sakhalin Island and oil and gas to the East Coast from the Arctic.

Indeed, Russia's potential as an energy exporter was a theme Mr. Putin raised during a joint news conference with President Bush in Washington last Friday. "We see huge possibilities for further increasing economic cooperation in the energy sector," Mr. Putin said. "We discussed all this in detail."

But the credibility that Russia builds up among energy experts depends on its ability to increase production and improve efficiency.

"When a thief steals your car, he doesn't immediately know how to drive it," said Aleksandr V. Shadrin, a spokesman for Yukos, the west Siberian fields' former owner. "Rosneft stole our stock. Until they figure out how to use it, it will be a mess."

Political meddling with the emerging Russian oil companies could trip up production gains, as nationalized companies revert to being vehicles for patronage or corruption, Mr. Shadrin said.

Sergei V. Kupriyanov, a spokesman for Gazprom, brushed aside charges of inefficiency. He said his company planned to compensate managers with stock options. That and the removal of restrictions on foreign ownership of Gazprom stock, expected early next year, he said, would improve corporate governance.

Rosneft attributed the leveling off of production growth at Yuganskneftegas to Yukos's failure to maintain equipment and to turmoil in management during the ownership change. It said Yukos had damaged the fields by overproducing and it reduced output this year to fix the problems. Rosneft declined to specify how the fields were damaged.

Carl Granger, a Houston-based oil engineer who worked on the fields in 2002 under contract with Yukos, offered a different picture. Under Yukos, he said, engineers ramped up production by replacing Soviet-era pumps, tweaking controls and clearing out older wells, spending money and buying foreign equipment as needed. The production unit also developed a new field, accounting for a spike in production.

"The potential was incredibly high compared to what was done before," Mr. Granger said of the underperforming old rigs dotting the taiga in western Siberia. "There are still thousands of wells like that out there."

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