The Impact Analysis of Breakthrough Technologies on the Development of Russian Oil and Gas Companies



4. Methodology

In this paper, to analyze the situation on the international oil and gas market and to analyze the situation in the oil and gas industry in the Russian Federation, qualitative and quantitative research methods were used. As a qualitative study, a number of questions were developed that were sent to employees from Gazprom Neft PJSC and Rosneft PJSC.

4.1 Sample

Interview questions:

Does the company use breakthrough technologies such as 5g, Artificial intelligence, 5g communication, 3D printing, or the blockchain system?

In what areas does the company use breakthrough technologies?

If a company uses a breakthrough technology, what impact does this technology have on the company's performance?

If a company uses breakthrough technologies, how long did it take, and what stages of implementation were used to implement the breakthrough technology successfully?

Were there negative aspects or negative consequences after the introduction of the breakthrough technology?

Is there a development Department within the company that is responsible for implementing breakthrough technologies in various processes?

How did the introduction of breakthrough technologies affect the company's financial position?

How did the introduction of breakthrough technologies affect the company's competitive advantage?

If the company does not apply, is it going to use breakthrough technologies in the future?

What should breakthrough technologies be implemented in the company if certain developments are still not used for one reason or another?

Responses to interviews from an employee of Gazprom Neft PJSC:

Our company actively monitors all breakthrough technologies that can be implemented or adapted to the activities of Gazprom Neft PJSC.

At the moment, the company is developing using or trying to use technologies such as: 3d printing, blockchain, artificial intelligence and augmented reality (VR) system.

3d printing is currently being tested for printing components of large corporate equipment. The subsidiary Gazprom Neft Supply has already tested parts printed on a 3D printer, which were placed in the gearbox and engine cooling system in trucks.

The blockchain system has been tested in logistics. Using this system, the company was able to control the movement, speed of shipment, location and quantity of goods. As a result, all information was reflected in the blockchain system, where each operation was formed by a new block, which made it possible to improve the security of information, which should be kept secret.

Gazprom Neft PJSC is trying to introduce artificial intelligence and machine learning to look for additional oil and gas locations that are currently hidden. This system will be used, since there are deposits that were impossible to identify using traditional research methods.

Augmented reality is already used in the construction and control of facilities. Moreover, augmented reality allows the use of digital design and the creation of virtual models of objects to analyze the feasibility of building training for employees who work at potentially dangerous objects.

All breakthrough technologies are currently only being tested, but analysts are already building a model in which all production will be optimized.

Using 3d printing allows to reduce the cost of parts for vehicles. Perhaps in the future 3d printing can be used in the construction of facilities, which will reduce the cost of building materials and reduce the cost of labor.

The use of blockchain allows to create an ecosystem in which all participants in the process will interact with each other. For example, when transporting goods using the blockchain, the producer, logistics partner, warehouse and consumer will be connected by one system. At the same time, the company will be able to abandon the usual supply chain control systems, and the system itself allows to safely store data, automate processes such as settlement with contractors and quality control.

The use of artificial intelligence in the search for new deposits of natural resources will allow the company to double the speed of obtaining information about the location of oil and 40% accelerate the implementation of all components derived from oil.

Augmented reality is already used in employee training. This reduces the cost of organizing staff training.

The introduction of breakthrough technologies always takes a huge amount of time.

There are entire departments that are studying the possibility of applying one or another breakthrough technology. If analysts and other specialists see the possibility of implementation, then this issue is put forward for consideration by the senior management. The full implementation of breakthrough technology can take from 6 months to 10 years.

The main negative factors for the introduction of breakthrough technology is: the cost of studying and introducing into the ecosystem of the company. Investments can exceed tens of millions of people, but in the long run this breakthrough technology will certainly pay off.

The second negative factor is the settlement of legal issues with the State Duma and various authorities. This process is sometimes very long.

The company has departments that are engaged in the development of breakthrough technologies. The name of the department cannot be named, as it is a trade secret.

The introduction of breakthrough technologies requires huge costs and investments, but these are all long-term projects that should pay off in the future and bring profit or reduce company costs.

Breakthrough technologies can successfully affect the competitiveness of companies. In this case, companies are trying to become pioneers.

The company is already introducing breakthrough technologies.

At the moment, the company is waiting for the Russian government to allow the use of 5g communications in the Russian Federation, as this will allow it to interact with large files during meetings.

Responses to interviews from an employee of Rosneft PJSC:

Rosneft PJSC is currently testing the following breakthrough technologies: blockchain, Artificial Intelligence, Augmented Reality.

Breakthrough technologies will be applied in production drilling, cash transactions, monitoring of oil deposits and staff training.

The use of artificial intelligence will be associated with the creation of an automated system that will serve as an autopilot when performing drilling operations.

Blockchain is currently under implementation. The company will track export transactions using this technology.

Virtual reality will be used for staff training. Employees will be able to learn how to work at high-risk facilities, without risking their health.

Breakthrough technologies are now at the stage of gradual implementation. The full use of technology can be both in 3-4 years, and in 10 years.

The main negative aspect is the large investment in the project, difficult payback and the time for which the company must introduce breakthrough technology.

The company has a department that analyzes and implements breakthrough technologies.

Breakthrough technologies will have to reduce the company's costs for certain costs. Savings can reach tens of millions of rubles, and with the right use of breakthrough technologies, the company can earn 30% -40% than before the introduction of technology.

At the moment, the company is only testing many technologies, but after successful implementation, the company will be able to gain a great competitive advantage.

The company is already testing breakthrough technologies.

At the moment, 3d printing is a promising area. In the future, the company could use this technology in the construction of facilities.

For a visual presentation of the answers to the interview, a visual table was created, which indicates in which areas of the company one or another breakthrough technology is used. It is located in Appendix 2.

4.2 Analysis of companies' development in the international oil and gas market

The situation in the oil and gas industry on the world market is not looking very good at the moment in 2020. Global oil and gas industry can face resource shortages, which will eventually lead to a shortage of oil. This was stated by the head of the Russian Federation, Vladimir Putin, in his speech at a meeting on the situation on energy markets: "Because prices can also fly up. Therefore, it is in the common interest, precisely in the common interest, to avoid such a scenario. However, what is also alarming is that everything can turn into high technology and even environmental risks. This, too, must not be forgotten." It is evident that at the moment, the oil market is in a new reality, where only sellers dominate.

The head of state also mentioned that the decline in prices for oil and gas products was influenced by the spread of a completely new COVID-19 virus for the world. This argument also seems logical, given that the mobility of people has decreased around the world, due to the introduction of measures to isolate citizens. Now the situation on the world oil market can be called an indicator of the state of the global economy, which is approaching a new crisis, the way out of which is quite difficult.

Today, all the world's oil and gas companies are focused on implementing new breakthrough technologies for an efficient way to extract oil, but more than that, to reduce the level of environmental impact and improve the safety of working conditions.

The use of artificial intelligence is gaining more and more popularity in all branches of international business. The introduction of artificial intelligence in the oil and gas fields is also gaining momentum. Almost every global oil company invests in the development and implementation of artificial intelligence in production. For example, the American company ExxonMobil already uses digital technologies in production. Microsoft cloud technologies were successfully implemented by ExxonMobil to improve the efficiency of hydrocarbon manufacturing in Texas. Using such software from Microsoft as Dynamics 365; Azure;" machine learning "and" Internet of things " will allow ExxonMobil to increase oil and gas production by 50 thousand barrels per day by 2025. Digitization of data from Microsoft is implemented in a subsidiary of ExxonMobil-XTO Energy (Texas). The software tracks oil and gas sources in real-time, which helps ExxonMobil quickly respond to any changes and make decisions to optimize well drilling or completion.

Digital technologies for optimizing oil production have not spared the Russian market of the oil and gas fields. Moreover, digital technologies are actively used in almost every segment of oil production: exploration, field development, and production, as well as in procurement, supply, and logistics management. For example, Rosneft PJSC is implementing its strategy under the name "Rosneft-2022", where several programs are planned:" Digital field"," Digital plant", "Digital gas station". In 2019, the company launched the "Digital Deposit" system based on the "Digital double" system - when a physical object is modeled in a digital version, and all departments of the company have access to it. This optimization of production will help to increase oil production to 1 million tons, and economic efficiency to 1 billion rubles per year. "The introduction of new technologies will increase transparency, manageability, and speed of decision - making throughout the company's production chain, strengthen the Foundation of the developing digital economy in Russia and increase our competitiveness in global markets," commented Rosneft PJSC CEO Igor Sechin at the annual meeting of shareholders on June 4, 2019.

More recently, Rosneft PJSC has introduced drones with television control and video surveillance to its plants, which helps in monitoring oil pipelines and increases the level of protection of facilities. At Bashneft production, pilot versions of augmented reality training simulators, a digital leak control, and corrosion monitoring system are actively used, and unique "smart" wristbands and "smart" helmets have been developed for personnel that track their condition and safety.

Gazprom Neft PJSC, one of Russia's leading players in the oil production industry, is also aggressively pursuing its plans to incorporate digital technologies. Within three years, the enterprise plans to implement a digital development program that will allow for 40% or more optimization of the preparation period for significant projects and minimize the work time. A more striking example is the already implemented cognitive systems, which helped to reduce the time to assess potential drilling sites from a few weeks to 15 minutes, and also optimized the routine work of geologists. In 2018, the company successfully refueled a regular flight using blockchain technology.

At the moment, Russia is actively developing various IT startups that can be implemented in the oil and gas sector. What is more, unfortunately, most of them are not implemented directly on the territory of our country but are overbought by international companies and flow abroad. For example, the technology of hydraulic fracturing in oil production, developed by a Russian scientist.

However, the introduction of Artificial Intelligence technology was successfully implemented by the collaboration of Shell and Gazprom Neft PJSC companies. This is, we can say, the most striking example of how artificial intelligence has contributed to reducing costs and improving production efficiency. In the Khanty-Mansi Autonomous district, there are about 20 "smart wells" in production. The Smart Field system increased production by 2.5% per year and reduced well downtime. This type of digitalization increases the economic efficiency of the business by 10-15%, RBC + analysts also say. Vygon Consulting gave its assessment of the situation in the Russian oil and gas market, where it stated that Russian companies with their high tax burden, in which the state withdraws about 70% of the cost of the produced barrel to the budget, reducing costs by 10% in the production segment would save more than 200 billion rubles annually.

Considering in this paper not only the two largest Russian companies in the oil and gas sector selected for analysis, Rosneft PJSC and Gazprom, we provide some data for an objective assessment of the situation by analyzing the situation of such oil and gas companies as Tatneft and Lukoil. "There are about 40 field projects in the country that can be classified as intellectual, "says Natalia Milchakova, Deputy Director of the analytical Department of Alpari. Their total production is 140 million tons or 27% of the total oil production in the country, the expert estimated.

In early 2014 Tatneft agreed to invest aggressively in digital projects when there was an unstable situation in world oil prices. As of 2020, Tatneft is designing wells based on three-dimensional models of the field. This system allows to control the trajectory of well drilling and record reservoir characteristics, which in turn allows to optimize hydraulic fracturing along the entire length of the trunk and increase the level of low-profit wells.

As in any industry, the oil and gas sector also have a clear leader in investing in innovative projects - PetroChina Corporation, based in China. From 2010-2015, the company invested about 2 billion us dollars annually in projects, which is twice the investment of its competitors from the United States, Great Britain, and France. In 2012, PetroChina signed an agreement with Shell and Hess to extract oil from bituminous shale in the Santhanghu basin in the northwestern province of Xinjiang. "The main goal of the cooperation is to use advanced technology, production, and management methods in the exploration and production of oil and gas from non - traditional sources, as well as to acquire technologies and experience," the CNPC corporate publication says.

PetroChina Corporation actively develops and borrows advanced technologies from all over the world in the oil and gas sector. By creating a symbiosis of technologies, the Corporation showed the world new opportunities for oil production with reduced harm to the environment. Thus, modernization and borrowing of technological developments helped PetroChina to improve the quality of various products. In drilling, the company has also achieved specific results, introducing new and new developments. The Corporation has developed a series of technologies that allow drilling wells with negative reservoir depression in air, nitrogen, and gas environments. The company has experience in drilling ultra-deep wells and horizontal wells. The products are exported to 60 countries and regions, covering America, Asia, Africa, and Europe. The annual volume of exports exceeds 700 million dollars in the United States of America.

4.3 Comparative analysis of Exxon Mobile; PetroChina; Gazprom Neft; Rosneft

Today, Russian oil companies remain the cheapest among their global competitors. Of course, there are many objective reasons for this, such as the difficult political situation, strict state control over the activities of companies, relations with Western investors who have a certain capital in Russian oil companies, as well as some legal aspects.

However, in the ratio of enterprise value to its income, Russian companies are significantly undervalued. This effect, in turn, indicates the "cheapness" of the company's shares.



Table 1. Key Fuel Company Information

Company name	Production*	Capitalization, Billion Doll**	Average dividend yield for 5 years	EV/EBITDA**	P/E**	Net debt/EBITDA**
Rosneft	5,7	61	3,5%	5,94	19,82	2,64
Exxon Mobil	4,1	325,2	3,3%	13,51	16,49	1,34
PetroChina	4	236,8	2,3%	20,37	57,5	3,58
Shell	3,7	277,7	6,3%	7,85	20,41	1,53
BP	3,3	137,4	6,5%	6,35	38,55	1,4
Petrobras	2,8	81,1	4,3%	5,72	35,54	2,95
Chevron	2,5	213,5	3,9%	10,28	29,95	1,39
Lukoil	2,2	55,7	5,5%	4,48	7,69	0,47
Eni	1,7	62,3	6,2%	5	28,86	1,2

* Hydrocarbon production in 2016, mln boe per day. Source: Rosneft Annual Report

** According to Reuters

Using the table 1, you can see that the Chinese company "PetroChina", also being controlled by the state, is 4 times more expensive than the Russian leading company «Rosneft». It is quite difficult to explain this fact, but it is possible to explain why «Rosneft», which is at the top of the list, is 5 times cheaper than ExxonMobil, the largest American oil producer, with a higher debt load.

Let's start our analysis with «ExxonMobil». The world's largest oil producing company of American origin still occupies a leading position in the rating of companies engaged in oil production and refining. Every day, «ExxonMobil» produces up to 4 million barrels of oil, and its proven oil reserves reach 21 billion barrels.

The key advantage of the company is its business model, which reduces the dependence on the dynamics of prices for «black gold». Thus, «Upstream's» profit from crude oil and natural gas production is about 57% of the company's total revenue, while «Downstream's» profit from refining and selling petroleum products and «Chemical's» is 23.8% and 19.2%, respectively. «ExxonMobil» has a vertically integrated structure.

«ExxonMobil» has its own program document "Forecast of energy development until 2030", which directly States that the demand for petroleum products will only increase (by about 60% since 2000). These statistics link this to the rapidly growing popularity of biofuels.

The company's strategic development plan outlines the following actions:

Active investment in the development and equipping of drilling platforms and oil refineries (the approximate amount allocated is about $ 150 billion);

Investing about $ 20 billion in projects for oil and natural gas exploration and production.

In General, ExxonMobil's strategy can be described as a long-term perspective of the energy market.

«PetroChina» holds a leading position in China, being an approximate analogue of «Gazprom» in Russia. Enhanced state support provides «PetroChina» with unprecedented success. Initially, the company was founded as a limited liability company. Since the range of operations of the oil-producing giant is simply huge, it can be said that «PetroChina» has the largest revenue from sales. The business of the company covers all important sectors of the oil and petrochemical industry. This forms an optimized and productive chain from crude oil and natural gas research and development to refining, conveyor processing and marketing, which lowers costs dramatically and improves the core competitiveness. «PetroChina» founded the «National Research Center» for Shale Gas and the «PetroChina» ethanol Fuel Research Centre. The company continues industrial biodiesel, bituminous shale, oil sands, and geothermal energy behavior analysis testing and resource assessment. The company makes big bets on the development of its own staff. So, every year the company selects a group of promising managers and sends them to the best educational institutions in the world.

There is no doubt that «PetroChina» is strongly influenced by both external and internal factors. At the moment, PetroChina is planning to increase its investment in new oil fields.

«PetroChina» announced successful exploration in the field of unconventional sources of oil and gas on 29 September 2019. In recent years, China has been focusing on increasing shale oil and gas production. China has already made some headway in the production of shale gas. In 2017 China became one of the world's leading producers of shale gas and took 1st place in Eurasia. By studying foreign experience and introducing innovative methods, China has succeeded in implementing the entire shale gas production chain on its own from geophysical exploration, well drilling, and hydraulic fracturing.

The capacity has not yet been completely activated by China. China's shale oil success has been more modest. But China cannot reverse the downward trend witnessed over the past 3 years in oil production. In 2018, China's oil production fell by 1.3 per cent compared to 2017, to 189.11 million tons or 3.78 million barrels per day. The need for higher costs to expand Mature fields and the lack of new discoveries complicate the development of oil in China.

Further, for clarity of comparative analysis of oil leaders, we present the SWOT analysis of PetroChina.

Table 2. SWOT analysis of the company PetroChina

Strengths	Weaknesses
The leading position within the country is China. The largest oil company in the country. Continued funding by the state. The first Chinese company with a market capitalization of more than a trillion dollars. A huge staff of employees. About 540.000 people work for PetroChina. The most potential employees are sent for annual professional development. Operations within the company include not only oil production, but also the development of new oil and gas fields, chemical processing, and research.	A high level of environmental disaster due to active waste releases into the country's environment. Deterioration of the environmental situation in the country. The possibility of reducing sales within the country and on the international market. (The collapse of the company's shares in 2019, from a multibillion-dollar company turned into one of the loss-making ones). As a result of the collapse of shares, PetroChina suffered operating losses.
Opportunities	Threats
An opportunity to improve the company's former level both on the domestic market and on the international market, taking into account the company's program plan. Development until 2030 implies even more active investments in the development of innovative technologies and cooperation with Russia in the development of new fields. Active involvement of young specialists not only in the oil and gas sector, but also cooperation with international universities. Opportunity to explore the oil and gas market outside of China. The overall complexity of the company «PetroChina» has huge areas with deposits in most countries of the world.	Quite severe control by the state. Constant government laws and innovations can aggravate the situation with the company's development in the international and domestic market. Environmental problems can lead to irreparable consequences. So presumably because of the new biological state developments in the city of Wuhan, provoked the birth of a new unknown mutagenic virus, and subsequently the collapse of the world economy. Since «PetroChina» is a fully state-owned company, many internal and external political factors influence economic performance.

In 2014, «PetroChina» placed big bets on cooperation with Ukraine. The discovery of additional new fields could prompt further development of the company in Europe and the CIS countries. But the countries did not come to an agreement, due to both political and economic inconsistencies. If this had happened, and the Chinese leader had infiltrated the countries of Europe and the CIS, it is quite possible that there would not have been a collapse of shares at the moment.

Rosneft is the Russian oil industry pioneer, and the world's largest public oil and gas company. Rosneft's key activities are the search and discovery of hydrocarbon reserves, oil, coal, and gas condensate processing, and the implementation of offshore field growth projects.

At the moment, like the entire world economy, «Rosneft» is going through not the best of times due to the OPEC+ agreement to reduce oil production, as well as other external factors, such as a new virus in the world, which has destroyed most of the economy of the entire world space.

However, it is impossible not to note the fact that the company continues to occupy a leading position in the domestic market of the country. Rosneft is the leader in terms of proven reserves among all the world's oil producing companies. Analyzing the annual report of «Rosneft» on the official website, we can conclude that the company's reserves in 2018, according to the SEC classification, increased by 4% to 41.4 billion barrels per day, and the replacement rate of production with proven reserves reached 173 %. In 2018, at the annual meeting and preparation of «Rosneft's» development strategy, the head of the company summed up a small summary of the work already done: «The company is aimed at rational development of natural resources, production of modern, eco-friendly fuels and reducing the environment impact. Within the framework of the «Rosneft» 2022 Strategy, we are implementing initiatives that will allow us to enter the first quartile of international oil and gas companies in the field of industrial safety, labor protection and the environment, as well as develop human resources and contribute to the integrated socio-economic development of regions, fully meeting the UN sustainable development Goals.». In 2018, Rosneft, together with the Board of Directors, decided to support environmental development under the UN program. This is a big step forward, given that the production capacity that the company has is causing irreparable damage to the ecology of the world as a whole.

In the field of gas business growth, Rosneft 's strategic aim is to increase the long-term shareholder value of the company by rising gas production through a highly productive long-term sales portfolio. According to information obtained on the official website of «Rosneft» in 2018, the firm, in collaboration with BP, began the active phase of the second largest gas business development project - the production of the Harampur and festival licensing areas. The company is developing substantial gas reserves in Siberia and has an unique portfolio of licenses for the development of hydrocarbon reserves on the Russian continental shelf. Rosneft manufactures gas through more than 35 subsidiaries and joint ventures in Western and Eastern Siberia, Central Russia, Southern Europe, the Far East, Egypt, Vietnam, Venezuela and other countries.

The current predicament forces the head of the company to ask for the support of the Russian government. So, the chief Executive officer of «Rosneft», Igor Sechin, asked Prime Minister Mikhail Mishustin to provide the company with tax benefits, RBC reports with reference to Sechin's letter of March 23. The request was about the benefits from hard-to-recover Berezovskaya formation deposits in western Siberia for gas production. According to RBC news, the letter from Sechin suggests that the field has complex geological features and needs advanced technology, so the unprofitable production of gas without any benefits. The key beneficiary could be the «Kharampur» sector, which «Rosneft» is developing along with «BP». This is one of the biggest new gas ventures at «Rosneft». A substantial portion of Language is in Turonian mines, which have the right already.

Turning to the most relevant sources, namely official data from the Gazprom company's website, we find information about the company's organizational structure in order to further compare this company with its global opponent. «Gazprom Neft is a vertically integrated oil company whose main activities are exploration and development of oil and gas fields, refining, and production and marketing of petroleum products. The company is one of the leaders of the Russian oil industry in terms of efficiency. Gazprom Neft's largest shareholder is PJSC «Gazprom» (95.68 %). The remaining shares are in free circulation.». This information is provided on the official website of one of the world's most famous leaders in the oil and gas sector, PJSC «Gazprom». Based on the company's organizational structure, PJSC «Gazprom» is a vertically integrated company, and the world's largest oil producer, the American company «ExxonMobil», which we mentioned above, has the same organizational structure. But unfortunately, «Gazprom's» success is not as attractive as that of Its «ExxonMobil» counterpart.

Rosneft is not the only company experiencing difficulties today. Like Rosneft, Gazprom wants to enlist the support of the state, given that the state also has its own part of the assets inside the company. The situation in the European oil and gas market is currently unfavourable for Gazprom's active development. The European market is the main target buyer of gas and oil. Abnormally warm winter and an surplus of stored supplies in anticipation of a gas war between Russia and Ukraine at the beginning of 2020.

On official data spot prices at European gas hubs - nearly 57 percent of the long-term contracts of the Russian business - are related to them--fell by nearly half in January from $148 per 1,000 cubic meters. On 10 March, 1000 cubic meters of gas supplied in April cost $101 at the Dutch Title Transfer Station. The coronavirus outbreak has been exerting upward pressure on global gas prices since February. There is no hope the pattern shifts. "The situation will remain tough throughout the year - spot gas prices eventually plummeted only in February due to the coronavirus," says Dmitry Marinchenko, Senior Director of the Fitch Corporate division. - However, the oil-price crisis would also pull Gazprom 's financial metrics down. This circumstance pushes Russia and, accordingly, Gazprom to supply and sell gas to Europe at prices below the cost of production. But the situation is getting worse every day. In connection with the Coronavirus pandemic, gas supplies intended for the middle Kingdom were forced to turn towards Europe. China refuses to supply gas from Russia, blaming everything on force majeure. Most enterprises in China are closed, so the demand for previously ordered goods has fallen by almost 100%.

4.4 Comparative analysis of the introduction of breakthrough technologies on the example of Gazprom Neft and Rosneft companies

4.4.1 State and prospects of the oil and gas industry in Russia and in the world

At present, the global oil market is facing a "ideal earthquake" as a crisis of demands for a sharp rise in oil production is being placed as a result of the downturn in the contraction of world demand for motor fuels, due to the growing quarantine of a growing number of countries, due to the deterioration of the gaps between the countries involved in the OPEC+ Agreement.

As a result of this double hit from the supply and demand side, world oil prices have collapsed more than two times in less than a month: from $50 to less than $25 a barrel of Brent oil (Figure 3).

Figure 3. Quotes Urals, Brent, ESPO and Dubai, dollar / barrel

At the same time, on the last day of March 2020, the price of Russian Urals oil, according to Argus, an Independent International Price Agency that provides information on prices and market conditions for energy carriers and other goods, fell to $ 13 / barrel, which is already more than 3 times lower than the so-called level. “Cut-off prices” set in the Russian budget ($ 42.4 per barrel of Urals oil).

Moreover, the level of uncertainty in forecasting future prospects for the growth of the global market for liquid hydrocarbons is growing, as demonstrated by the rapidly evolving forecasts of current and anticipated demand and supply of liquid hydrocarbons released by leading international analytical companies and investment banks.

Various metrics are used to measure the creation of groundbreaking practices by oil and gas firms. For example, in terms of the absolute costs of research and development, China's Petrochina is the leader among oil and gas companies for 2013-2017. An investment of more than 10 billion US dollars. It is followed by Total (France), Shell (USA), ExxonMobil (UK), whose research and development costs an average of $1 billion annually (Figure 4).

Russian companies spend more than $500 million annually on average funding for research and development. Around the same time, according to the European Commission, in 2016, only three Russian firms (Gazprom, Russian Helicopters Holding and Rosneft PJSC) were listed 302, 830 and 2,283, respectively, among the 2,500 biggest companies in terms of research and development expenses. The benchmark for the performance of technical growth for domestic companies will serve as Petrochina, which has achieved remarkable progress in creative production over a limited period of time. Therefore, in 2016, the firm earned more than 2,000 patents, which is equivalent to the world's largest oil and gas firms, including businesses such as Shell and ExxonMobil.

Figure 4. Total costs of oil and gas companies on R&D for the period 2013-2017, million dollars

However, the total measure of the costs of research and development to be used to evaluate the funding of technological programs of organizations is not completely right, because the size and performance of each company are not the same. The key illustrative metrics in the area of innovation funding are thus the share of investment expenses in the sales of the business.

Analysis of the Innovation Spending Metrics (Figure 5) reveals that Gazprom and Rosneft PJSC respectively spent 0.37% and 0.55% on royalties from hydrocarbon exports, similar to the rates of other international oil and gas firms.

Figure 5. The ratio of research and development costs to company revenue, %

In order to carry out a thorough evaluation of the technological practices of oil and gas firms, it is more fitting to implement a set of private metrics, such as: research and development costs, business sales, hydrocarbon output and number of patents. The analysis of patent statistics was carried out using the patent database of Espacenet as well as the annual reports of the companies. “It should be noted that there is an error in the analysis of patent information. This is attributed to the fact that the processing of data by national patent office's takes place on a contractual basis, as a result of which certain States do not have the ability to supply full details”. An additional error often occurs as a consequence of the fact that, in certain companies, the issuer of the patent suggests a division whose name does not include the name of the parent company. Table 3 shows the initial data on company performance for the period 2013-2017. On the basis of these, person profiles of the creative activities of the firms have been created.

Table 3. The performance of oil and gas companies

Company name	Research and development costs, million US dollars	Company revenue, billion US dollars	Production volume, mln tons.	Number of patents
ENI	922	493	35067	410
Equinor	1963	366	26399	682
ExxonMobil	5144	1429	94662	6891
Petrobras	3948	554	56207	361
PetroChina	10782	1526	86554	10668
Shell	5569	1676	64100	5474
Gazprom	2264	617	610443	786
Rosneft	2991	545	207294	202

On the basis of the profile of the indices of technological development, the following conclusions can be drawn:

- The Russian oil and gas company Rosneft PJSC is at an average level of R&D funding and sales and is slightly behind the number of patents. In terms of hydrocarbon processing, the results are above average;

- Royall Dutch Shell, a British-Dutch oil and gas firm, is a market pioneer with a degree above average in the costs of research and production and in the number of patents. At the same time, the company shows below the average level of production. From which it can be concluded that the company generates its revenues not so much from the production and sale of hydrocarbons, but from the development of the processing segment (sale of processed products), production and sale of liquefied natural gas, generation of energy (development of renewable energy sources, etc.).

The Russian oil and gas industry, with considerable science and output capacity, has long neglected its own technologies. It was also cheaper and quicker to purchase ready-made products and inventions than to do work and set up our own manufacturing facilities. "But as a result of sanctions, when the introduction of foreign technology into the domestic oil and gas industry was banned, Russian firms updated their product production plans and enabled import substitution mechanisms to ensure technical independence". In 2015, the Ministry of Industry and Trade of the Russian Federation approved a five-year plan for import substitution measures in the oil and gas engineering sector, which set out tasks to reduce the share of imports in priority technological areas for the industry. The share in the supply of critical equipment was 80% and there were no domestic analogs in certain areas (i.e. pump and compressor and seismic equipment, technologies and equipment for offshore projects, drilling software, production , transport, etc.).

In order to increase the competitiveness of state-owned companies, innovative development programs are being developed and implemented.

Currently, the following fuel and energy companies are implementing the programs: Rosneft, Gazprom, Transneft, Zarubezhneft.

The current situation in the oil and gas market, which accounts for a significant part of the budget income, is risky for the country's 30 economies. The Russian economy is threatened by the increasing decline of "productive" oil reserves, the share of which today exceeds 90 % of the total Russian production, which requires the immediate implementation of advanced technologies that make it possible to grow hard-to-recover and offshore oil fields, which increase the recovery of conventional oil fields and reduce production costs.

In this context, the first and foremost concern is the concern of the procurement of offshore development technology that Russian companies do not have. This problem was particularly acute following the introduction in 2014-2015. Anti-Russian sanctions that impact whole sectors of the Russian economy, including the oil market. The restrictions imposed on Russian oil and gas companies include: a ban on investment in oil and gas production in the Russian Federation; a ban on the sale of equipment and technology for the exploration and development of deposits to Russian companies; a ban on the provision of oilfield services to Russian companies.

In Russia, offshore oil and gas projects built to operate under Arctic conditions were produced solely by international companies. Today, as a result of sanctions prohibiting the importation into Russia of offshore drilling equipment, such opportunities are closed. According to the Ministry of Energy, 68% of oil and gas equipment imported by the Russian Federation fall under Western sanctions. According to analysts, Russian oil and gas firms will require more than 20 floating drilling rigs to execute the proposals on the shelf by 2020. At the same time, the shortage of spare parts for the systems could be more than 150 thousand units. The demand for components for them is also projected each year.

Russian energy companies did not have sufficient technology and financial resources to develop new hard-to-reach areas. Under these terms, while the oil and gas resource base in Russia was under tight state control, 31 foreign specialist firms were expected to collaborate extensively in this region. Focusing on mega-projects in the growth of the largest industries with challenging market conditions has made invaluable companies such as Shell and BP, as well as companies with special capabilities (such as the Norwegian Statoil - the undisputed global leader in oil production technologies on the Arctic Shelf).

Anti-Russian sanctions forced Eni and Statoil to stop operating on the market. ExxonMobil, Rosneft's strategic partner, abandoned 9 out of 10 joint ventures, including the Arctic Shelf. Shell suspended its participation in a partnership with Gazprom Neft PJSC to produce shale oil in Khanty-Mansi Autonomous Okrug (JV Khanty-Mansiysk Petroleum Union (KhMNS)). The absence of Shell as a partner could cost Gazprom Neft PJSC 2-3 dollars in additional costs per barrel of oil produced. In addition, on the grounds of Shell 's withdrawal, Gazprom Neft's PJSC shale ventures may be postponed by two to three years.

Total has left Shtokman Development AG, a joint venture with Gazprom, to develop the first phase of the giant Shtokman gas condensate field in the Barents Sea. In terms of proven natural gas reserves, the Shtokman field is now one of the biggest in the world. The field's geological reserves are 3.9 trillion cubic meters. M natural coal and nearly 56 million tons natural gas condensate. The Shtokman field is considered to be a resource base for the supply of gas through the Nord Stream pipeline to Western Europe, as well as for the production of Russian LNG, which will then be sold on the Western European and North American markets. The French energy giant was also forced to cancel its involvement in a joint project with Lukoil to build the Khanty-Mansiysk Autonomous Okrug (Bazhenov Formation) bowels. One of the most important fields for sustaining and increasing oil production in Russia is related to the introduction of this initiative (the official estimation of 32 recoverable reserves is approximately 3 billion tonnes). Within two years, Lukoil and Total expected to spend $120-150 million in exploration jointly.

Hard-to-recovery oil is produced using modern production stimulation methods, mainly hydraulic fracturing, which require special navigation equipment, well pumping tools and special software. Approximately 25% of oil is produced in Russia by this method. At the same time, the equipment currently in use is not produced anywhere except in the USA. It is assumed that it will take at least three years until it appears that this can only happen with the support of customers who have to bear the corresponding risks for operating in technology and equipment and higher costs. So far, it's only Surgutnegaz that's gone.

4.4.2 Assessment of the competitiveness of the Russian oil and gas industry

This study will assess the competitiveness of the Russian oil and gas industry using a SWOT analysis. Consider the strengths and weaknesses, opportunities and threats of the oil and gas industry in Russia in more detail.

Table 4. SWOT analysis of the Russian oil and gas industry

Strengths	Weaknesses
Fast increase in the production of crude. Large standard of industrial equipment for the oil and gas industry. The emergence of vertically integrated systems in the oil and gas field Strong demand for hydrocarbons as a fuel for various modes of shipping, petrochemical production Creation of the manufacturing and marketing division	Dependence on global average hydrocarbon prices Increase in the mining tax rate US Sector Economic Sanctions High dependency on the development of transport infrastructure Small ability to ship petroleum goods
Opportunities	Threats
Creation and deployment of advanced innovations in the oil and gas sector. Increased sales by entering new markets The discovery of a variety of interesting artifacts while looking for hydrocarbons. State support to industry Improving the commercial and operational conditions of the oil industry	Slowdown in Urals oil price increase Production of new sources of electricity. A slowing of global economic growth. Expansion of the independent segment of oil production, which may lead to a weakening of the consolidation of OPEC countries. Degradation of the system of proven oil and gas reserves.

Strengths:

Fast increase in oil demand. According to the findings of 2016, oil demand in Russia has risen to its highest level since 1990, accounting for 547.5 million tons of crude. Around the same time, the total limit production in the RSFSR was achieved in 1988 and was about 570 million tones. Russia's share of world oil supply is reportedly 12.5%.

High standard of industrial facilities for the oil and gas industry. Oil and gas firms are among the most technologically trained, constantly implementing innovative telecommunications technologies to increase production performance.

The emergence of vertically integrated systems in the oil and gas field. Currently, many oil and gas firms are distinguished by vertical integration, being part of large portfolios and manufacturing organizations that play a major role not only in the country's economy, but also in the global market.

High demand for hydrocarbons as a resource for various types of transport, the production of petrochemicals. Oil and gas products and services are used in nearly all fields of the national economy.

Established production and marketing division. The organization of vertically integrated oil firms requires systems that guarantee all phases of the production cycle-from production to transport and processing of petroleum products. At the same time, three key components of vertically integrated oil firms can be distinguished: businesses directly involved in development activities; distribution link; financial link.

Weaknesses

Dependence on current global markets for hydrocarbons. In general, the sector was adversely impacted by a fall in global average hydrocarbon rates, a major rise in the ruble against the US dollar and the euro during 2016, as well as an improvement in the base tax rate for oil production and a drop in the refining margin in Russia. In 2016, the average price of Brent crude oil ranged from 26 to 55 dollars per barrel, to a total of 25,98 dollars a barrel. Up to 55.41 dollars per barrel at the end of January. It was at the end of December. Compared to 2015, it declined by an total of 1.5%, which has been the lowest for 12 years. This price drop was made possible by a gross oversupply of more than 1.5 million barrels of oil a day due to expanded demand in Iran, Iraq, Saudi Arabia and Russia. Nevertheless, ruble rates did not slip so much as a result of a drop in the average annual ruble exchange rate.

A rise in the mining tax limit. In 2015-2017, the Russian Government is involved in a so-called tax manoeuvre, which includes a cut in export duty and a rise in tax rates on mining and excise taxes. Changes to law 103, which came into effect in January and April 2016, adversely impacted the competitiveness of production, distribution and marketing.

Sectoral trade controls levied by the United States. In July - September 2014, the United States, the EU and many other countries placed a range of economic sanctions on Russia, including several sectoral sanctions that concern Russian oil and gas firms. Such sectoral restrictions bar businesses and persons from the United States and the EU from importing, selling and re-exporting goods and technology, directly or indirectly, or from supplying facilities (excluding financial services) that could be used in the Russian Federation as part of deep-sea exploration and development ventures on the Arctic Shelf.

Strong reliance on the growth of transport infrastructure. The major areas of oil production in Russia are far from the global markets for oil and petroleum products. Consequently, access to markets for oil producers relies on the degree of growth of the transport system and the possibility of connectivity to it. In this respect, the expense of exporting oil and energy materials is a significant element impacting net income.

Limited capacity to transport petroleum products. Transportation of oil produced in Russia to and from oil refineries is mainly carried out through the trunk pipeline system owned by the state-owned company Transneft. In fact, it is possible to export oil by train.

Threats

A slowdown in Urals' growth in oil prices. In 2015, this pattern worsened, with Urals dropping almost twice - from $97.6 to $51.2 per floor. In 2016, oil prices hit a multi-year low, dipping below $28 a barrel of the Brent brand. In the second half of 2016, prices have been adjusted and the efforts of the OPEC countries and the largest oil producers to reduce production have made it possible to stabilize 104 prices at the end of 2016 and beginning of 2017 in the range of $48-57 per barrel. According to the results of the year, the oil brand Urals decreased by $9.3 per barrel. -from $51 to $42 per bar.

Creation of alternate sources of electricity.

A slowdown of global economic growth.

Expansion of the independent sector of oil output, which may contribute to a strengthening of the unification of OPEC countries.