22 Feb 2019 10:10

Energy Ministry might draft proposals for tax deductions for high water cut fields in fall

MOSCOW. Feb 22 (Interfax) - Russia's Energy Ministry might prepare a general package of proposals in the fall for mineral extraction tax (MET) deductions for oil fields with high water cut, Deputy Energy Minister Pavel Sorokin said in an interview with business daily Vedomosti.

He said the final decision on such an incentive will be made following an inventory of all projects that receive tax breaks being done by the Energy Ministry, Finance Ministry and Natural Resources Ministry on orders from the government.

"The roadmap to stimulate production has a number of categories of reserves that will be analyzed, including fields in Western Siberia with high water cut. We will make a decision based on the results of this work: how many tax breaks are needed and what the consequences will be for the budget, whether there will be additional investment if the tax breaks are applied. We expect to arrive at concrete decisions, agreed by federal government agencies, in the summer or fall. This is a very tight schedule and essentially preventative measures in order to avoid a drop in production in Russia in 2021-2022," Sorokin said.

"According to our estimates, the MET deduction for fields in Western Siberia could provide upwards of $3-$4 per barrel. This could lead to a fairly substantial increase in investment - going forward to 2024 this is up to 200 billion-400 billion rubles per year of additional investment in this region. It would be premature to estimate the final effect on production, but we're talking about an additional 30 million-40 million tonnes per year here compared to current profiles," Sorokin said.

He said the MET deductions granted to Rosneft's Samotlor field have had a positive effect.

"If you look at the dynamic of production for Samotolor, you will see that this is one of the most stable fields. Therefore, activity there has increased and this is the effect. One needs to understand that this is a depleted field. This is one of those cases where allocated money has had the real effect of keeping production around the current level, although earlier the field declined every year. This is one of those tax breaks by which we will assess effectiveness and look at how such injections influence production," Sorokin said.