Output will rise 3.8 percent this year, less than half the average rate during the past five years and the lowest since a $US10 ($12.66) oil price slowed investment in 1999, the Paris-based International Energy Agency estimated. A tax increase last year means the government takes most of the gains as crude oil trades above $US50 a barrel.
Drilling in Russia fell last year as the government demanded $US28billion in back taxes from OAO Yukos Oil, raising concern that other oil companies may face similar claims. The jailing of Yukos's biggest investor, Mikhail Khodorkovsky, contributed to a $US7.8billion outflow of capital from Russia last year. The benchmark RTS stock index had its worst year since 2000.
A slowdown in Russian oil production gives greater power to the Organisation of Petroleum Exporting Countries as world oil demand rises. The group, whose members pump about 40per cent of the world's oil, is scheduled to meet in Isfahan, Iran, tomorrow to discuss second-quarter output.
Russian oil drilling declined 2.8per cent to 9million metres of wells last year, according to Industry and Energy Ministry data. Yukos, based in Moscow, reduced drilling by 37per cent, more than any other Russian oil company, followed by OAO Lukoil, Russia's largest oil producer, with a 6.2per cent decline.
Yukos shares have plunged 96per cent since October25, 2003, when Khodorkovsky was arrested in Siberia and jailed in Moscow on charges of fraud and tax evasion that he denies. He called the allegations a retribution for backing opponents of MrPutin.
MrPutin, 52, is consolidating the government's energy interests in OAO Gazprom, the state-run natural gas producer. The government also plans to allow only local companies bid for the largest oil, gas and metal fields, the Natural Resources Ministry said in February.
Russia last year cancelled the rights of Exxon Mobil and ChevronTexaco to the Sakhalin-3 oil fields in the Pacific Ocean, which hold an estimated 4.1billion barrels of oil reserves, more than Russia's current output. The fields also hold 1.5trillion cubic metres of gas reserves, enough to fuel the US for more than two years.
Russia's Anti-Monopoly Service has delayed for about six months approval of Total SA's plan to buy a 25per cent stake in OAO Novatek, Russia's second-largest natural gas producer. Paris-based Total, Europe's third-largest oil company, agreed in September to pay $US850million for the stake in the Russian company.
"It is important that the rules governing development, the role of the government, the role of the state companies and the roles and responsibilities of international investors should be clear and secure. So should the fiscal regime," BP chief executive John Browne said.
"For many potential investors and for many commentators and observers, Russia remains a dark and hostile place, a source of risk rather than of opportunity."
The International Energy Agency predicts Russian crude extraction will rise by no more than 350,000 barrels a day to an average of 9.6million barrels a day this year, compared with 9per cent growth in 2004 and an 11per cent increase in 2003.
Russia's economic expansion will probably slow this year, Deputy Economics Minister Andrei Sharonov said last month.
Gross domestic product may expand 6.3per cent this year from 7.1per cent in 2004.
The country holds almost 10per cent of the world's oil reserves and about a third of the global natural gas resources, Yuri Trutnev, the natural resources minister, told parliament.
"Russia has been the engine for [non-OPEC members]," the IEA said in February. "Recent months, however, have seen a sharp tailing off in growth, which, if continued, points to a less pre-eminent role for Russian supply growth for 2005."
Russian production growth is slowing after the government last year raised taxes on oil producers, taking most of the profit when crude prices are above $US25 a barrel. Russian oil has been above that level since 2003, and Brent crude, which serves as a benchmark for Russian oil, traded near a record last week.