Page 5 - FSUOGM Week 40

FSUOGM COMMENTARY FSUOGM

The Priobskoye oilfield,
in the Khanty-Mansiysk
region, is one of
Russia's largest.

RUB460bn. These breaks will only apply when proposals would have robbed Gazprom Neft
the price of Russia’s Urals oil is below the price of 21% of its EBITDA in 2021, VTB Capital
assumed in the budget, which is $43.4 per barrel (VTBC) earlier estimated. This was chiefly
in 2021. because its Novoportovskoye oilfield in the Arc-
Making its case for tax breaks in late Septem- tic was to be stripped of its current MET breaks.
ber, Rosneft said it would be able to prevent more Tatneft, which enjoys support at its highly vis-
significant drops in production levels at Priob- cous fields in Tatarstan, was to take a 20% hit to
skoye over the coming years. EBITDA, whereas Lukoil was to lose out on 8%,
Vankor is a newer project further north that according to VTBC. Lukoil also produces a sig-
came online in 2009. Together with its satellite nificant amount of highly viscous crude.
fields it has produced around 425,000 bpd of However, during the third reading of the
crude in recent years. The trigger oil price for bill, Gazprom Neft and Tatneft were provided
breaks at Vankor has been lowered from $42.5 with extra support to shore up their earnings.
to $25 per barrel under the changes. Vankor is Oilfields in Tatarstan, where Tatneft is by far
already covered by the EPT regime. the largest producer, will receive MET relief of
Vankor will play a role in Rosneft’s up and up to RUB1bn per month when oil prices are
coming Vostok Oil project, a plan to produce up above the budget assumption. The exact size of
to 2.3mn bpd of oil from the Russian Arctic. The the breaks will also be determined by producers’
project also comprises the Paiyakhskoye field, investments in projects. The total value of these
controlled by a private firm called Neftegazhold- tax breaks is capped at RUB36bn.
ing that is thought to be a Rosneft affiliate. Fields entirely located in the Yamal area of
Developing Vostok Oil will be no small feat. the Yamal-Nenets region will get similar breaks,
Besides wells and processing facilities, Rosneft benefiting Gazprom Neft’s Novoportovskoye
will also need to build 2,000 km of long-distance field. But the company will have to conclude
pipelines, 7,000 km of local branch pipelines and an agreement with the MinFin to obtain this
2,000 MW of power generation capacity, Inter- relief, committing to certain levels of investment
fax reported last week. Its infrastructure will also and production in 2021 up to the end of 2023.
include a seaport and 50 new ice-class tankers The total amount of relief is likewise capped at
to carry its oil to markets, as well as three new RUB35bn.
airports and 10 helipads. While these adjustments lessen the pain of
Vostok Oil is expected to supply up to 500,000 the reforms, the earnings of Tatneft and Gaz-
bpd of crude to global markets by 2024, rising prom Neft will still be significantly lower. VTBC
to 1mn bpd by 2027 and 2.3mn bpd by 2030. estimates that Tatneft will lose $395mn in 2021
Rosneft is eager to use tax breaks at Vankor to because of the removal of high-viscosity tax
cross-subsidise the project’s undeveloped fields. breaks, but gain only $164mn from the MET
relief at Tatarstan fields. Gazprom Neft will lose
Others lose out $1.3bn in 2021 as a result of the changes to the
Gazprom Neft, Lukoil and Tatneft will be hit EPT regime, but gain only $164mn from the
harder by the changes. The MinFin’s initial relief granted to its Yamal fields. ™

Week 40 07•October•2020 www. NEWSBASE .com P5