Page 5 - FSUOGM Week 43

FSUOGM COMMENTARY FSUOGM

Russian President
Vladimir Putin (left)
meets with Lukoil CEO
Vagit Alekperov in April
2019. Source: Kremlin
website.

Tatneft was able to negotiate a new three-year stake in Tatneft, while no other shareholder
break on paying MET for highly viscous oil, but holds more than a 5% interest. The company’s
this constituted a mere $150mn per year in relief. stock, some of which is traded internationally,
“We now have to formulate a new investment has shed almost half of its value since August,
programme in oil production,” Khalimov said. when authorities first revealed the changes in
“The cancellation [of previous concessions] will taxation.
lead to losses of tens of billions of rubles; how-
ever, there is no panic.” The company will hold Lukoil
off on new projects until it has decided on the The head of Russia’s second-biggest oil pro-
best course of action, he said. ducer, Lukoil, railed against recent tax reforms
Tatneft will be able to get some of the lost sup- on October 25, warning they would stunt the
port back by moving its highly viscous fields to company’s recovery.
Russia’s excess profit tax (EPT) regime, launched Lukoil CEO Vagit Alekperov told reporters
on a limited basis last year. However, BCS GM that his company understood that the industry
estimates that Tatneft will pay $7 per barrel extra should serve as a “shoulder of support” amid the
in tax under the EPT regime than it did under current economic difficulties Russia faces. But
the previous concessions. he said the reforms meant Lukoil’s key indica-
According to Khalimov, up to 10 highly vis- tors might not return to pre-crisis levels even by
cous and/or nearly depleted oilfields operated by 2023.
Tatneft can be switched to the EPT system. But “Of course, it will negatively affect our finan-
the company is yet to decide whether doing so cial results,” he said, noting that Lukoil would
is in its best interests, with Khalimov describing dedicate the next year to discussing tax policy
the process as complex. with the government.
Tatneft’s 2030 strategy calls for a significant Commenting on the market’s outlook. Ale-
upscaling in oil production, but it is unclear kperov said he expected oil prices to rebound
whether the ambitious plan is feasible under the to $50 per barrel in the first quarter, up from
new conditions. Complicating matters further around $40 at present. This recovery will be
are Russia’s OPEC+ cuts, which are set to remain driven by lower levels of investment in produc-
in force until at least early 2022. tion, he said.
“Tatneft has begun the process of adapting its Lukoil is heavily exposed to the reforms
development plans to the new tax reality,” BCS because of its status as Russia’s largest producer
GM said. “We expect no major changes to cur- of highly-viscous oil (HVO). Projects targeting
rent production capacity, but Tatneft’s heretofore this hard-to-recover resource currently pay
ambitious growth targets may be under some much lower rates of MET.
question.” Lukoil produces HVO at the Yaregskoye and
Tatneft produces most of its oil from six Sovi- Usinskoye fields, which delivered around 70,000
et-era deposits in Tatarstan, the largest of which barrels per day (bpd) between them in 2019. The
is the Romashkinskoye field. The company lifted company saved some $700mn from HVO-re-
523,000 barrels per day of oil in the first nine lated tax breaks that year. Analysts at BCS Global
months of 2020, down from 598,000 bpd a year Markets (BCS GM) estimate that Lukoil will pay
earlier, as a result of OPEC+ cuts. Prior to the oil $4 extra in tax for every barrel of HVO in 2021 if
cartel's April deal, Tatneft was aiming to ramp it transfers these fields to the EPT system.
up production to 700,000-740,000 bpd within a Lukoil will also suffer from the loss of conces-
decade. Highly viscous crude accounted for 13% sions at near-depleted fields, as well as changes
of its total output in January-September. in EPT affecting those of the company's projects
Tatarstan’s local government controls a 36% that are already under the regime.™

Week 43 28•October•2020 www. NEWSBASE .com P5