A sharp increase in production costs is becoming a cause for concern for oil companies all over the world. It's also causing a problem for such companies in Russia, with smaller firms becoming the first to feel the pressure.

Russian companies aren't feeling the effects as much as foreign ones as they're able to use domestic resources.
 
Market watchers agree, though, that rising costs are starting to affect Russian companies as well.
 
“What we've seen in Russia is the situation when the price windfall has been taken primarily by the state in the form of taxes and export duties and, therefore, the companies are not really seeing the price of oil at $US 90 per barrel in Russia. What they're seeing is the price at $US 40-45 – and in this sense high costs will have a much greater impact on the bottom line for the Russian companies,” commented Vitaly Ermakov from Cambridge Energy Research Associates.
 
What can drive up the cost of production is access, as some companies are having difficulty extracting reserves, so their costs are higher in comparison with those that have access to newer and more accessible fields.
 
Experts say the problem of rising costs concerns all oil operators from small businesses to big giants.
 
One of them, Russia's Rosneft, says it's ready to tackle the issue.
 
“Yes, costs are going up, but we remain profitable and we're working hard to fight inflation in the future and to plan capital expenditure better,” said Peter O’Brian, vice-president of Rosneft.
 
Small companies will be the first to feel the effects of rising costs and the issue has already been named the biggest challenge for the next generation of Russian oil firms.