Technical Efficiency of Russian Oil Companies

Russian economy depends highly on condition of oil and gas industry since the middle of 20th century. As an evidence, due to crisis of 2014 oil over-extraction the price of oil Brent fell by 55.5%, and, as a result, the exchange rate RUR/USD devaluated by 68.1%. Also, in 2014 5.6% of GDP consisted of export of oil and gas only. Therefore, GDP in its turn depends on performance of domestic companies. Technical efficiency, as a direct tool of measuring performance, is analyzed in current article using stochastic frontier functions introduced by Aigner et al. (1977). The aims of research are: determine the characteristics and distribution of technical efficiency of Russian oil and gas firms; identify the most appropriate model; compare the estimates with efficiency of largest foreign firms; investigate factors affecting on technical efficiency and annual revenue such as government ownership, vertical integration, international activities and so on. For analysis there were selected four stochastic frontier models: time-invariant, time-varying decay, ‘true’ fixed effects and ‘true’ random effects models. Additionally, there were considered two production functions: Cobb-Douglas and transcendental logarithmic. Each regression was analyzed under different assumption of distribution of inefficiency term (truncated-normal, exponential and half-normal). It was found that the most appropriate model is ‘true’ FE model in translog specification and, moreover, with first difference variable form, supported by AIC and BIC criterion. The average technical efficiency of Russian firms is 81-85%, while for foreign ones 86%. State-owned firms have higher rate of efficiency, while vertically integrated lower one; international activity affects positively.