Page 96 - RUSRptApr17

Russia should cut production by 2.7% compared with the October level, or by 300,000 barrels.
The Russian Ministries of Energy and Finance have finally agreed on an excess-profit tax in oil sector . A meeting with First Deputy Prime Minister Arkady Dvorkovich on April 20, the ministries have ultimately agreed the introduction of excess-profit tax (EPT) in the oil industry as of 2018, according to Vedomosti. The EPT is based on income calculated as 50% of the revenue, less production and transportation cash costs that are expected to be as high as RUB7,140/t. The EPT is due to be combined with a reduced export duty, and smaller than usual MET. This new tax will be tested at pilot fields in Western Siberia with 20-80% depletion and annual production up to 10mmt, as well as for new greenfields with depletion less than 5%. The MET decision for Rosneft's Samotlor field will be taken separately from EPT, Vedomosti writes. The devil is in details, and analysts are waiting for more clarity on the new tax parameters to see how beneficial (or vice versa) it might be for oil companies. Furthermore, the tax will be applied to a limited number of fields as of 2018 before it would be extended to more oil-producing assets, and gain momentum.
Gazprom's supplies to foreign countries not part of the former Soviet Union grew by 15% to 51bn cubic metres in the first quarter of 2017 compared with the same period in 2016, the Russian gas company said on April 1. Additionally, target countries increased demand for Russian gas for the Nord Stream 2 pipeline project in the first quarter of 2017. In particular, exports to Austria went up by 67.9%, to Germany by 20.3%, to France by 15% and to Hungary by 32%. Earlier reports said that in 2016, Gazprom's exports to non-CIS countries grew by 12.5% and reached its historic high of 179.3 bcm.
Crude production was down 0.5% m/m in March, and 1.4% since October 2016 (the reference level for the production cut agreement), according to CDU TEK.
Oil production in Russia decreased in March following the OPEC production cut agreement , although the output growth at Rosneft and Bashneft partially offset the country-wide decrease. In the previous months Rosneft was one of the key contributors to the Russian oil production decrease (compared with the October level).
Russian gas production showed strong y/y growth in February of 8.9%.
At the same time, Novatek’s standalone gas production decreased 8.1% y/y. Among oil names, the biggest gain was shown by Lukoil, with 17.6% y/y growth. Rosneft and Surgutneftegas were up 7.1% y/y and 3.1% y/y, respectively. Gazprom’s gas production was not disclosed separately, but according to Interfax’s own calculations it grew 14% y/y.
Asian LNG spot prices are down 40% YTD, to $6/mmbtu, according to Kommersant . The key reason might be the decreased demand from South Korea and Japan. LNG contract prices for Russian plants (Sakhalin-2 and Yamal LNG) are linked to oil prices and do not directly depend on spot LNG prices in Asia. Given that the price of oil was down only 2% YTD compared to 40% for spot Asian LNG, Russian projects should not be significantly affected. However, as has previously been seen in the case of Gazprom, in instances where the spot price is significantly lower than the contract price, the counterparties might demand that the contract formula be revised to include
96 RUSSIA Country Report April 2017 www.intellinews.com