The Russian oilfield service (OFS) sector is gradually recovering from the slump in drilling activity and local demand for sophisticated exploration and production methods that followed the dramatic oil price drop in 2014.
In the meantime, Russia's biggest potential OFS customer, Rosneft, has partly withdrawn from the market. Over the past three years, the company has been steadily building up its in-house OFS capacity, in defiance of the prevailing global view that large oil firms should divest such non-core businesses.
Just a few years ago, Rosneft was planning to do just that - alongside Russian counterparts such as Lukoil, Gazpromneft, TNK-BP and Bashneft. The initial catalyst for the change in Rosneft's strategy was a pricing dispute in early 2014 with Russia's largest independent service provider Eurasia Drilling (EDC) - which leading international OFS company Schlumberger is in the process of taking over, two years after it gave up on a previous attempt.
In the wake of that conflict, Rosneft took control of Orenburg Drilling and US service provider Weatherford's Russian rig fleet in 2014, as well as ordering 13 new rigs from Russian engineering firm Uralmash. The following year it bought the Russian assets of Canadian company Trican Well Service, which specialises in hydraulic fracturing and other enhanced oil recovery methods - an acquisition that "will affect the distribution of roles of key players", Rosneft said at the time.
The process continued last year with the takeover of OFS company Targin, which accounts for more than 70pc of the drilling services provided for Bashneft, allowing Rosneft to boost its in-house drilling capacity by almost 20pc. The oil firm now carries out around 60pc of drilling operations itself.
Drilling is one of the biggest expenses for any oil company and can account for up to 80pc of a firm's upstream capital expenditure. At the time of its initial row with EDC, Rosneft was expecting an increase in conventional drilling activity, as well as development of onshore shale and offshore Arctic projects, and was concerned that costs would spiral out of control. But the strategy shift appeared very much in keeping with chief executive Igor Sechin's ambition to extend Rosneft's overall dominance of the Russian oil sector.
The drive to bring OFS back in house just about pre-dates the 2014 imposition of US and EU sanctions against Russia, but it has allowed Rosneft to insulate itself from potential risks connected with them, such as future restrictions on western service providers working in Russia. Developing in-house services will not over¬come bans on access to technology for Arctic, deepwater and shale operations, but Rosneft is now less vulnerable should foreign firms be barred, for example, from carrying out hydraulic fracturing operations in Russia
"Against the backdrop of growing external pressure, the role of the national content is increasing," Sberbank analyst Valery Nesterov says. He adds that Rosneft's strategy has paid dividends by allowing it to successfully implement drilling programmes at key west Siberian production subsidiary Yuganskneftegaz and at the giant, but depleted, Samotlor field, also in west Siberia, using both its own resources and the assistance of OFS firms. Rosneft managed to halt declining output at Yuganskneftegaz last year and the unit achieved its highest daily production in 30 years last month.
On the other hand, by scaling back the use of service companies and scooping up OFS assets, Rosneft may be impeding the development of the local industry. Russia is keen to develop domestic resources to replace those denied to it by sanctions and dedicated OFS firms working in a competitive environment could arguably be better placed than the oil giant to develop the technology and skills needed to substitute those bought in from abroad.