Russian govt proposes establishing MET benefits from 2030 for gas, condensate produced from HRR reserves

MOSCOW. Nov 12 (Interfax) - The Russian government has approved amendments to the budget package for the second reading, among which it is proposed to establish the possibility of applying a reducing coefficient to the amount of calculated mineral extraction tax (MET) from January 1, 2030, in order to stimulate the development of hard-to-recover (HRR) gas and gas condensate reserves, according to materials on the Russian Finance Ministry's website.

A source familiar with the text of the amendments to the Tax Code earlier told Interfax that the Finance Ministry proposed introducing a reducing HRR reserves coefficient for deposits if their permeability is less than 1 × 10-3 square micrometers and they are classified as Achimov or Jurassic productive deposits, as well as for Turonian deposits or deposits of the Berezovkskaya Formation. The subsoil block must be located fully or partially in the Nadym, Purovsky and/or Tazovsky districts of the Yamalo-Nenets Autonomous District. The coefficient is expected to be calculated separately for each deposit.

The incentive should remain in effect for 15 years.

For the first category of deposits, the coefficient is zero for the first three years then 0.1 for years 4-6, 0.2 for years 7-9, 0.3 for years 10-12, and 0.4 for years 13-15, after which it becomes 1.

These coefficients take effect from January 1 of the year following the year in which the depletion rate of gas reserves in the relevant reservoir first reaches 1%, but not before January 1, 2030. If the depletion rate has already reached 1% as of January 1, 2029, the tax incentive does not apply to total production, but only to volumes extracted from wells that meet the following criteria: they were commissioned after January 1, 2029; they were not included in the project documentation effective as of January 1, 2026; and, at the beginning of the tax period, they have a confirmed permeability of less than 1 × 10-3 square micrometers.

For gas from Turonian deposits or the Berezovskaya Formation, the HRR coefficient would be zero until the depletion rate for the relevant reservoir reaches 1%, and to keep it at zero for a further three years after that. In the fourth year, the coefficient will increase to 0.08, and subsequently, it will rise by 0.08 each year over a period of 15 years.

If a subsoil user applies the HRR coefficient, the tax incentives currently established in the Tax Code would no longer be valid - those based on the depletion rate reserves, the geographical location of the subsoil property (Yamal, Gydan, Astrakhan Region, Irkutsk Region, Yakutia, Krasnoyarsk Territory, Far Eastern Federal District, Sea of Okhotsk), or the depth of the deposit; if a property serves as a resource base exclusively for regional gas supply, as well as existing incentives for Turonian gas and gas from the Berezovskaya Formation.

The subsoil user does not lose the right to apply a tax deduction against mineral extraction tax for gas condensate sent for processing to produce a broad fraction of light hydrocarbons.

"There are financial-economic models from companies. The question is that if the HRR of gas are next to traditional reserves, a separate inventory methodology needs to be developed here, so that the administration can be done properly," Deputy Finance Minister Alexei Sazanov told reporters earlier. Sazanov said ministries would have to prevent the concessions from being extended to current production, as they are only intended for boosting new wells.

Russian President Vladimir Putin has asked the government, together with the Yamalo-Nenets Autonomous District's authorities, to provide incentives for the development of hard-to-recover gas reserves in the Nadym-Pur-Taz Region. The government must report on the fulfillment of these instructions by August 1, 2027. Putin said Russia needs to replenish its gas resources due to high production levels, including by developing hard-to-recover gas reserves.

In the country's main gas-bearing province - the Nadym-Pur-Taz region of the Yamalo-Nenets Autonomous District - the Cenomanian horizon is 73% depleted, the Neocomian complex - 21%. The remaining reserves are concentrated in the upper Cenomanian complex (Berezovskaya Formation and Turonian deposits), Achimov, Jurassic, and pre-Jurassic complexes.

The State Mineral Reserves Commission defines the main categories and criteria for distinguishing HRR gas as Achimov and Jurassic, Turonian and Berezovskaya (Senonian) deposits, low reserve density and late stage of development.

Following the example of low-permeability oil reservoirs, it is advisable to develop a system of reduction coefficients when calculating the MET for analogous gas reservoirs. For low-pressure gas, the reserves of which are only increasing, it may be necessary to provide a tax deduction from the MET upon achieving a certain cost recovery ratio for the subsoil user, related to modernization of surface infrastructure facilities and construction of additional stages of compression facilities.

In connection with the need to create new unconventional production methods, the next step should be to expand the list of deposits (Russian government resolution No. 1499 dated September 19, 2020), in relation to which technological test sites can be created with the inclusion of gas-bearing deposits of the Berezovskaya Formation, Turonian, Achimov and Jurassic.