Page 11 - FSUOGM Week 25 2021

FSUOGM COMMENTARY FSUOGM

yield positive free cash flow and net present value production while it waits for the government to
even with high production costs – but now they re-introduce tax reliefs. Lukoil recently proposed
have become uncommercial, with free cash flow including high-viscous oil projects into the new
becoming negative already from next year. The additional income tax (AIT) system, where rev-
Yaregskoye field will suffer more than Usinskoye enue-based royalties are partly replaced by net
due to higher lifting costs of $15-$18 per barrel. income-based taxes. However, the Ministry of
Despite the cancellation of tax incentives, Energy has made it clear that it is not going to
Lukoil continued to drill wells and install infra- introduce any tax privileges until 2024.
structure at high-viscous oil projects in the first
quarter this year. At Yaregskoye, 43 production Caspian projects
and injection wells were completed and addi- This year’s removal of export duty reliefs will
tional steam generation facilities were commis- also hit the economics of the Caspian basin
sioned. At Usinskoye, eight production wells Yuri Korchagin field, which Lukoil has been
were put into operation and daily production in developing since 2009. The field’s recoverable
January-March was above the 2020 average. On oil reserves were raised by 50% in 2012 from an
the conference call with investors in May, Lukoil initial estimate of 211mn barrels, and Lukoil is
officials said they don’t expect any decline in carrying out further drilling to tap the reserves
high-viscous oil production this year. in the field’s eastern part. Two wells were drilled
The company’s continued drilling opera- and brought online last year, resulting in an 8.4%
tions and production ramp-up at these fields year-on-year production increase to 1.1mn
are a result of historical investment decisions, in tonnes (21,000 bpd).
Rystad Energy’s view. Lukoil has said it will can- Before 2021, the Korchagin field benefited
cel investments for further expansion and will from export duty reliefs that reduced export
keep capex at the minimum needed to maintain duty payments to zero at oil prices below $80

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