Page 8 - AfrOil Week 01 2021

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Norway, in contrast, provided the industry with contend with an overhaul in oil taxation, aimed
some NOK100bn ($10.6bn) in tax relief in June, at extracting more budget revenue from the
in a bid to help companies stay afloat and con- industry. While state oil giant Rosneft has come
tinue investing. The country’s willingness to pro- off relatively unscathed, others such as Lukoil,
vide so much support is hardly surprising, given Gazprom Neft and Tatneft are reconsidering
the major role that oil and gas plays in the Nor- investment plans in light of the changes.
wegian economy. The incentives package led to a Despite the hardships of 2020, though, Rus-
flurry of new investment announcements. Many sia’s oil majors have proved more resilient to
of these projects had been shelved at the onset the downturn than many of their international
of the crisis. peers. The country’s producers have mostly kept
Exploration in Norway has also fared better their dividend policy unchanged and some have
than in the UK, in large part thanks to the coun- continued buyback programmes, reflecting con-
try’s supportive fiscal regime. Norway allows fidence in their financial standing. Russian oil
companies to deduct almost 80% of their explo- There are concerns in Moscow that Russia
ration costs from taxable income. might struggle to reclaim its market share once producers have
At the same time, Norway also imposed its OPEC+ cuts are ended. As such, the government had to contend
own cuts to production this year, in a show of is looking to provide support for the drilling of
solidarity with OPEC+. some 3,000 wells that will remain unfinished with an overhaul
until the output restrictions are lifted. Russia is
FSU: Tighter margins drawing from the practices of US shale compa- in taxation
As members of the OPEC+ alliance, Russia, nies, which sometimes drill but do not complete designed to
Kazakhstan and Azerbaijan committed to dras- wells when oil prices are low, and then finish
tic cuts to their oil production this year. them when prices are higher. extract more
Russia alone took over 2mn barrels per day Azerbaijan and Kazakhstan are more
of oil supply offline beginning in May. It restored dependent on oil and gas for their economic budget revenue
500,000 bpd in August and expects to bring a output and state finances than Russia. From
further 125,000 bpd back on stream this month. an operational point of view, OPEC+ cuts have from the industry
Further increases will be negotiated with its forced Azerbaijan to reduce supply from its
OPEC+ partners on a monthly basis. flagship Azeri-Chirag-Gunashli (ACG) oil pro-
Producers have implemented these cuts ject in the Caspian Sea, in additional to smaller
by closing down older, less profitable wells at fields. Kazakhstan has imposed reductions at
mature fields in Western Siberia and the Vol- a number of large and medium-sized oilfields,
ga-Urals region. They have also delayed growth including the giant Kashagan and Tengiz sites
at greenfield projects in the Arctic and Eastern operated by international consortia.
Siberia. The risk is that some mature projects
may never return to operation, undermining Latin America: Complicating the situation
long-term prospects for Russian oil supply. The year began with OPEC losing ground in
Russian oil producers boast some of the low- Latin America. On January 1, 2020, Ecuador
est production costs in the world. But the out- formally exited the group, leaving Venezuela –
put cuts, combined with weak oil prices, have increasingly moribund, owing to US sanctions
squeezed their margins considerably. – as the only remaining member in the region.
During the 2014 oil price crash, the ruble’s This departure had little practical effect,
resulting collapse wreaked havoc on Russia’s partly because Ecuador had been one of the
finances at large. But it also helped prop up Rus- smallest oil producers in the organisation and
sian oil firms’ earnings by inflating the value partly because the subsequent crude price
of their exports. This time around, they have crash made a mockery of that country’s hope of
enjoyed no such relief, as Russia’s government boosting output and exports in order to increase
made delinking the currency from the oil price earnings. Nevertheless, OPEC and its pricing
one of its key tenets of economic stability in the and production policies certainly did affect the
aftermath of the 2014-2015 economic crisis. region, as they cut into the revenues of hydrocar-
Russian oil producers have also had to bon-dependent states such as Mexico.

P8 www. NEWSBASE .com Week 01 06•January•2021