Page 7 - FSUOGM Week 16

FSUOGM COMMENTARY FSUOGM
Some fields enjoy tax breaks, so the actual MET budget revenues per barrel are even lower.
The record-low crude tax levels are alarming for Russia, which gets around 40% of its total revenues from oil and gas, and is facing billions in extra spending to cushion the economic effects of lockdowns around the globe to curb the spread of coronavirus. A reduction in reve- nues is what the Kremlin wanted to avoid when it agreed to make new, unprecedented output cuts as part of the deal with the OPEC and other producers.
President Vladimir Putin, who only in March rejected Saudi Arabia’s proposal to deepen OPEC+ production cuts by 1.5mn bpd, last week agreed to take the overall reductions to almost 10mn bpd.
In a painful climbdown, Russia agreed to reduce its crude output in May and June to a level last seen in 2003. The Russian cuts of 2.5mn bpd will be a “tremendous challenge” for the nation’s oil industry owing to difficult geological condi- tions, Oxford Energy analysts said in a research paper published last Monday.
While the OPEC+ deal will contribute to stabilising the oil market, the fall in demand is so great that there is “no feasible agreement that could cut supply by enough” to offset it, the Inter- national Energy Agency (IEA) said Wednesday in its monthly report. The IEA expects global storage facilities to run out of space by this sum- mer, while demand may experience its biggest annual collapse this month.
The weakness in physical crude markets is putting pressure on the price, and for Rus- sia’s budget it means one thing: it may have to
withstand extra-low oil revenues beyond May.
Saudi spending spree
Earlier this month, the Wall Street Journal reported that Saudi Arabia’s sovereign wealth fund —the Public Investment Fund (PIF) — had been buying stocks in European oil majors, including Royal Dutch Shell, Eni, Equinor and Repsol, with the total price paid for all four stakes coming in at $1bn. The fund, interestingly enough, was supposed to be the primary investment vehicle on Saudi Arabia’s journey to economic diversification away from oil.
In addition, the fund has also bought a stake in cruise operator Carnival and has become a partner in the group that bought English soccer club Newcastle for $375mn (GBP300mn). And it seems its buying spree is far from over.
“The Saudis have been buying every day almost for the past few weeks, especially since the share prices of many of these [oil] compa- nies were in correction territory and dividend yields were very high,” one unnamed source told Reuters.
Saudi Arabia was the country that fired the starting pistol in what everyone came to see as an oil price war between Riyadh and Moscow, after the latter refused to join oil production cuts in early March. In the current context of crippled demand, those deeper cuts would have been a drop in the ocean, as Gazprom Neft’s CEO put it recently, but at the time, Russia’s move sparked Saudi anger, which led to the latter deciding to flood markets with crude. Naturally, oil tanked.™
PIPELINES & TRANSPORT
Transneft boss gets five-year contract extension
RUSSIA
Tokarev has led the Russian oil pipeline monopoly since 2007.
NIKOLAI Tokarev will continue serving as the head of Russia’s state oil pipeline operator Trans- neft for another five years, despite the Druzhba dirty oil crisis last spring.
Tokarev’s current five-year contract had been due to expire this month but the Russian gov- ernment has extended it until April 2025, Reu- ters reported on April 20. His renewed tenure still needs to be rubber-stamped by Transneft’s state-controlled shareholders.
Tokarev, who turns 70 this December, is a close ally of President Vladimir Putin, the pair having worked together in the KGB in East Ger- many in the 1980s. He has led Transneft as its president since 2007.
Tokarev came under fire last May when it was discovered that millions of barrels of oil contaminated with organic chlorides had found their way into Russia’s Druzhba export system. Organic chlorides are used at oilfields to boost recovery, but can cause damage to refining
equipment if not removed.
The crisis led to a sharp drop in Russian oil
exports and resulted in customers filing numer- ous claims against Transneft. So far, the opera- tor has paid damages to Kazakhstan, Hungary’s MOL and France’s Total.
Transneft is yet to settle a dispute with Rus- sian state oil giant Rosneft relating to damages. Rosneft was among the Russian producers worst affected by the contamination. Transneft and Rosneft have had a difficult relationship over the years, sporadically locking horns over the oil transport tariffs that Transneft charges. Tokarev and Rosneft boss Igor Sechin, another confidant of Putin, have long battled for influence in the Kremlin.
Transneft suffered a 35% decline in net income in the fourth quarter to $539mn, despite a 7% growth in revenues, after setting aside funds to cover potential Druzhba claims. Its EBITDA was down 4% at $1.7bn. ™
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