Page 5 - FSUOGM Week 32

FSUOGM COMMENTARY FSUOGM

will be indexed at 7% per year for the purpose of the company’s EBITDA will weaken by $664mn
the tax carry-forward, rather than 16.3%. or 12% in 2021 and $661mn or 10% in 2022, if it
Thirdly, the deductible costs per tonne will is unable to carry these losses forward.
remain unchanged at RUB7,140 per tonne The development economics of the compa-
up until the end of 2024, instead of rising to ny's oil rim projects might also suffer, the bank
RUB9,520 per tonne in 2021. They will rise only said, as well as the Kuyumbinskoye field in East-
to RUB8,600 per tonne in 2025. ern Siberia, where it is partnered with Rosneft.
For the second group of fields – those that Rosneft would similarly be hard hit if the
enjoy export duty relief – the ministry wants to ministry’s proposals are adopted. Unable to fully
increase MET rates. It suggests applying a 1.5x reflect its historic losses in the lower tax base, its
coefficient to their MET rates between 2021 and EBITDA could be $697mn, or 4% less, in 2021
2023. But this will also affect companies’ ability and $776mn, or 4% lower, in 2022, according to
to reduce their tax base beyond the threshold VTBC.
level defined by deductible costs. Affected Rosneft projects include Yurubche-
Under the current regime, companies were no-Tokhomskoye, Tagulskoye and Trebs and
able to reduce the tax down to zero through car- Titov, as well various brownfields and smaller
rying forward their historical losses as long as greenfields such as Lodochnoye, Naulskoye and
this MET co-efficient was below 1. Essentially, Labaganskoye.
this will further limit how much companies are Lukoil’s only major project where the EPT
able to reduce their tax base by carrying forward system is applied is the Pyakyakhinskoye field
historical losses. in Western Siberia, which accounted for 32,000
The MinFin estimates that these measures bpd, or 2%, of its liquids output in 2019. That
would bring an extra RUB87.8bn ($1.2bn) in project has $2.8bn in historical losses, and the
tax revenues in 2021 and RUB55.6bn ($0.75bn) company’s inability to carry these forward could
in 2022. It expects to collect an additional cut its EBITDA by $19mn in 2021, VTBC esti-
RUB200bn ($2.7bn) in total between 2021 and mates. A lower cap on deductible costs may
2023. erode a further $8mn of its earnings.
EPT also governs a number of smaller Lukoil
Implications fields that produced 94,000 bpd, or 6%, of its
VTB Capital (VTBC) estimates that Russian oil last year. The company could lose $51mn of
oil firms will take a 3.2% hit to their EBITDA in EBITDA in 2021 because of lower deductible
2021 if the ministry’s proposals are introduced, costs at these fields, as well as $1mn because of
followed by 1.9% in 2022 and 1.8% in 2023. This the reduction in historic losses that can be car-
assumes oil prices averaging between $45 and 49 ried forward.
per barrel during the period. All in all, Lukoil stands to lose only $78mn, or
Gazprom Neft will suffer the most, as the EPT less than 1% of its EBITDA, in 2021 as a result of
system is applied at its largest greenfield project, the proposed changes. As for Russia’s other main
the Novoportovskoye oilfield in the Arctic. The oil producers, Surgutneftegas will take a $92mn,
field produced 7.7mn tonnes per year (tpy) or 2.6% hit, to EBITA in 2021, whereas Tatneft
(155,000 bpd) of oil and condensate last year, does not have any fields under the EPT regime.
equal to 17% of Gazprom Neft’s domestic out- The MinFin is unlikely to get everything it
put last year. is asking for, given the EPT regime’s popularity
Gazprom Neft generated an extra $0.7bn among Russia’s powerful oil lobby. However,
in EBITDA last year thanks to the EPT system some tweaks will be made, given the significant
being applied at Novoportovskoye, VTBC esti- budgetary shortfall Russia is facing. A compro-
mates. The project had some $3.7bn of accumu- mise is likely to be reached with the Kremlin's
lated historic losses that Gazprom Neft was able direct intervention, given how high the stakes
to use to reduce its tax base. VTBC forecasts that are on either side. ™

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