Russian oilmen threaten the government with a drop in oil production

Lending their interests, the Ministry of Energy asserts that without tax benefits by 2035 oil production in Western Siberia will collapse by 45% from the level of 2021. All these figures are speculative, whereas the benefits are needed now.
18.09.2018
Kommersant
Origin source
The rise in oil prices and the surplus budget of the Russian Federation allowed the Ministry of Energy to raise again at the government level the issue of granting new tax benefits to oil companies, primarily in the main production region - Western Siberia. Without benefits, oil production in Russia from a peak of 570 million tons in 2021 could fall to 310 million tons by 2035, Energy Minister Alexander Novak said, making it clear that tax breaks in the long run are beneficial to the budget.

The Energy Ministry is launching a new campaign in favor of large-scale tax breaks for oil production. The last time the oil companies received serious systemic benefits in 2012-2013, when they formulated incentives for hard-to-recover oil and offshore deposits. However, as early as 2014, the situation with the filling of the budget due to the decline in oil prices has sharply deteriorated, and it was already impossible to get tax breaks from the Ministry of Finance for the industry providing basic revenues to the budget. Even the application of a new tax on additional income in the pilot mode (for individual deposits), which is not generally a benefit, was agreed upon for more than three years. Now that the federal budget has moved to a surplus for the first time since 2011, the Ministry of Energy is trying again to raise the issue of benefits, recalling that the main resource base of oil production in Russia - the fields of Western Siberia - is steadily becoming depleted.

As the head of the Ministry of Energy Alexander Novak said at a meeting in the government today, the Ministry expects to reach the peak of oil production in the country in 2021, when it will reach 570 million tons. This year production is expected to be 553 million tons, which will be the next record level since the collapse of the USSR. But after 2021, production will start to decline and with current trends, by 2010, it will fall to 310 million tons, Mr. Novak said, which would lead to a loss of 3.3 trillion rubles. in the year of tax revenue. "This is the inevitable result of increased production costs, excessively high taxation on the fields of Western Siberia," the head of the Energy Ministry said. In Western Siberia, production will decline from 330 million tons to 180 million tons, and if new fields in the region are not opened, then up to 146 million tons.

Alexander Novak proposed six measures to stimulate production in Western Siberia. The first of these is the so-called mechanism of aplift, which represents an increased depreciation rate for investment (mainly new drilling, fracturing, etc.). In fact, this is an investment deduction from the mineral extraction tax (MET). According to the Ministry of Energy, the use of this mechanism from 2019 to 2035 will additionally produce 461 million tons of oil and will bring 5.3 trillion rubles. taxes. Secondly, a similar mechanism is proposed to be used to stimulate geological exploration.

Thirdly, the Ministry of Energy proposes to expand the parameters of NDM and accelerate the transition of a number of fields to it in order to transfer all deposits of Western Siberia in the future. According to the Ministry of Energy, this will increase tax revenues by 1.2 trillion rubles, and investments by oil companies - by 3.5 trillion rubles. until the year 2035. Fourth, the Ministry of Energy proposes to expand the list of new fields that receive MET exemption, having canceled the temporary restriction of the application of this benefit (now - until 2021). Fifth, it is proposed to apply a reduction factor to the MET for oil production using technological methods: the use of polymers, surfactants, the injection of carbon dioxide into the formation, thermal methods (heating of the formation), etc. Sixthly, the Ministry of Energy suggests introducing privileges for the development of oil rims, indicating that oil reserves in such deposits are now estimated at 6.9 billion tons.

"Prospects for a possible drop in production in the country of 100 million tons or more until 2035 are quite real," says Darya Kozlova from Vygon Consulting. "Therefore, we believe that the measures proposed by the Ministry of Energy are correct, but priorities should be set. In our opinion, this is the creation of incentives for Western Siberia with an undiscovered potential for reserves of almost 18 billion tons and falling production at the same time. The simplest and most effective measure would be an applift for Western Siberia, since this mechanism carries the least risk to the budget: according to our estimates, in the first year of operation, the effect on budget revenues will be zero, and then positive due to an increase in production of 80-90 million only in the next six years. In a similar way, a deduction may also work for geological prospecting, but the mineral extraction tax is postponed here, "the analyst believes. In her view, the idea of ​​extending NDD to the whole of Western Siberia seems more complex and needs serious calculations, since there are significant risks to the budget. As Daria Kozlova notes, it would be more correct to make a decision on expanding the NDA on the basis of the analysis of the work of the pilot projects that will be launched in 2019: "We need to give them work for at least five years, annually evaluating the effectiveness of the measure and changing the parameters if necessary."

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