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Report: Russia's Oil Fields Are In Decline; Will They Attack Israel Over New Oil Discoveries?

A recent Bloomberg report paints a grim picture for the future of Russian oil. 

Russia’s 12-year oil boom is nearing its peak, forcing the next president to decide whether to cut taxes and revive production or use the windfall from $100 oil to boost public spending and quell mounting unrest.

As Vladimir Putin campaigns for a second stint in the Kremlin, the nation’s existing fields are losing pressure and oil companies OAO Rosneft, OAO Lukoil and TNK-BP say production taxes give little incentive to invest. Since Putin first became president in 2000, crude output has grown 57 percent to 10 million barrels a day, surpassing Saudi Arabia and flooding the state treasury.

“The cream has been skimmed off the top,” said Leonid Fedun, the billionaire deputy chief executive officer of Lukoil, Russia’s second-largest oil company. “Further steps require taxes based on different principles,” or production will start falling within three years, he said.

The oil and gas industry accounted for almost 50 percent of the state’s income in 2011, and Rosneft’s tax bill last year ran to about half its $92 billion revenue.

Russia’s Soviet-era Siberian fields are maturing, and producers face eroding profitability related to the higher cost of maintaining output. Crude extraction in the Khanty Mansiysk region of western Siberia, which began in 1964 and now contributes roughly half of Russia’s oil, fell 1.7 percent in 2010, according to the regional government’s website.

The prospect of decline can be seen on the Moscow stock exchange. Rosneft, the state-controlled company that’s the biggest oil producer, dropped 17 percent in Moscow trading over the past year, a time when crude prices gained by 13 percent to about $120 a barrel.

The Moscow-based company was downgraded at Goldman Sachs Group Inc., Citigroup Inc., Deutsche Bank AG and Troika Dialog this year on concern capital spending is rising on fields and refineries as production stalls.

The stocks with the highest dividends are the best picks, such as preferred shares in OAO Surgutneftegas, TNK-BP, and OAO Bashneft, Kraus said. They are “pretty much the only thing in Russian equity which pays its own rent,” Kraus said.

Without tax holidays five years ago Russia would already be in decline, Lukoil’s Fedun said.

Russia used windfall revenue to build two oil funds to more than $225 billion in December 2008, cash Putin used to bail out the banking industry during the global credit crunch and fund deficits that grew from increased spending on weapons, pensions and railways.

Putin, who wants a return to the presidency after four years as prime minister, is unlikely to receive a second oil windfall. Reserves in the two funds dropped to $150 billion at the end of January.

“Two to three percentage points of our annual growth used to come from the oil and gas sector,” then Finance Minister Alexei Kudrin said during a meeting with members of Putin’s All- Russia People’s Front in June. “That’s just gone now.”

Russia’s strategy to keep output above 10 million barrels a day for the next decade will initially depend on its ability to increase the amount recovered from existing fields, Kudryashov said. No major projects are scheduled to come on stream in the next four to five years, he said.

After that, Russia is pinning its hopes on the development of untapped deposits in eastern Siberia and the Arctic. The state will create a special regime for its offshore deposits, Kudryashov said.

Reductions in tax rates on crude exports, introduced last year, which increased profitability of mature deposits, have helped. Producers’ ability to slow decline rates at older fields underpinned Russia’s surprise record output last year, Troika Dialog wrote in research on Jan. 10. The bank expects the trend to continue and forecasts marginal output growth this year to 10.4 million barrels a day.

It may be difficult for companies to sustain this without accelerating developments, said Alexei Kokin, an analyst at Uralsib Financial Corp. said.

Forecasts for a plateau in oil production around current levels for the next decade “may be a bit optimistic,” said Kokin. “All the risks are to the downside.” (Bloomberg)

This report is basically saying that Russia's most productive oil fields are in decline or very close to running in decline, and without the necessary investment, they will continue to decline.  With this said, many see little hope of raising the capital for such a massive upgrade project.  It would be comparable to upgrading a gold mine that is widely believed to be over mined.  The investment simply would not pay-off in the long-term.  At the same time, Russia has no new oil fields of significance in development for the foreseeable future.

This is a major problem for likely returning president Vladimir Putin.  As stated in the article, oil and gas industry profits accounted for almost 50 percent of the state’s income in 2011.  It has also been a major source of bailout funds.  

So why is this report of prophetic significance in this late hour?  The Bible says in Ezekiel 38:2-4:    

Son of man, set thy face against Gog, the land of Magog, the chief prince of Meshech and Tubal, and prophesy against him, And say, Thus saith the Lord GOD; Behold I am against thee, O Gog, the chief prince of Meshech and Tubal:  And I will turn thee back, and put hooks into thy jaws, and I will bring thee forth, and all thine army, horses and horsemen, all of them clothed with all sorts of armour, even a great company with bucklers and shields, all of them handling swords.

At some future point, a war known as the Battle of Gog and Magog will come to life before our eyes.  It will start over a spoil Israel possesses that Russia must have. This passage states that whatever this great  possession is, it will grab Russia's attention as if they have hooks in their mouth unable to look away.  The draw of this possession will be so great they will align with Israel's Islamic enemies and come down upon Israel like a great storm (v. 9).

I believe this great possession will be a number of mammoth oil and gas discoveries.  As many of you know, Israel has recently discovered multiple very large oil and gas deposits, including a shale oil deposit estimated at 250 billion proven barrels of oil.  And I believe their biggest discoveries are still yet future.

With Russia's oil and gas fields in decline with no significant discoveries in the foreseeable future, could Israel's new found discoveries be the future spoils Russian President Vladimir Putin desires?  Will he take advantage of the Islamic world's hatred toward Israel to once and for all destroy them and take possession of their new found abundant natural resources?  Whether it will be oil, gas or some other spoil, the Bible says they will. That day is coming!  Today, all the participating nations are aligned and ready.

Are you ready to meet the Lord?  If not your time is running out!    

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Terry Malone
Calvary Prophecy Report

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Home Page                                                                                 Updated February 21, 2012 



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