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approved on the third and final reading on September 30 eased the extra taxes on these two companies. Lawmakers also backed additional tax breaks for certain oilfields in Western Siberia owned by Russia’s biggest producer, state-owned Rosneft.
Rosneft comes out on top Rosneft stands out as the clear winner from the reforms. While it too will have to fork out more in tax at some mature fields, it will also gain new tax breaks at its giant Priobskoye and Vankor oilfields.
Priobskoye is a Soviet-era field in Russia’s oil heartland of Khanty-Mansiysk. It was brought on stream in 1982 and started production six years later. Output peaked at 33.8mn tonnes (679,000 barrels per day) in 2009 and has been declining ever since, dropping to 480,000 bpd last year. Even so, it still accounts for roughly 5% of Russia’s national oil output.
Rosneft says it has been ramping up drilling work at the site and using other techniques to stem Priobskoye’s decline. But its efforts have been undermined by the field’s maturity, complex structure and high level of water cut, the company says. Priobskoye will now get an extra RUB3.8bn per month, or around $600mn per year in tax deductions, with a lifetime limit of RUB460bn. These breaks will only apply when the price of Russia’s Urals oil is below the price assumed in the budget, which is $43.4 per barrel in 2021.
Making its case for tax breaks in late September, Rosneft said it would be able to prevent more significant drops in production levels at Priobskoye over the coming years.
Vankor is a newer project further north that came online in 2009. Together with its satellite fields it has produced around 425,000 bpd of crude in recent years. The trigger oil price for breaks at Vankor has been lowered from $42.5 to $25 per barrel under the changes. Vankor is already covered by the EPT regime.
Vankor will play a role in Rosneft’s up and coming Vostok Oil project, a plan to produce up to 2.3mn bpd of oil from the Russian Arctic. The project also comprises the Paiyakhskoye field, controlled by a private firm called Neftegazholding that is thought to be a Rosneft affiliate.
Developing Vostok Oil will be no small feat. Besides wells and processing facilities, Rosneft will also need to build 2,000 km of long-distance pipelines, 7,000 km of local branch pipelines and 2,000 MW of power generation capacity, Interfax reported last week. Its infrastructure will also include a seaport and 50 new ice-class tankers to carry its oil to markets, as well as three new airports and 10 helipads.
Vostok Oil is expected to supply up to 500,000 bpd of crude to global markets by 2024, rising to 1mn bpd by 2027 and 2.3mn bpd by 2030. Rosneft is eager to use tax breaks at Vankor to cross-subsidise the project’s undeveloped fields.
Others lose out Gazprom Neft, Lukoil and Tatneft will be hit harder by the changes. The MinFin’s initial proposals would have robbed Gazprom Neft of 21% of its EBITDA in 2021, VTB Capital (VTBC) earlier estimated. This was
10 ​RUSSIA Country Report​ November 2020 www.intellinews.com