OAO Rosneft,
Russia
’s largest oil producer, expects the government to preserve tax
exemptions for eastern Siberian crude exports at least through this year,
saying that their removal would threaten national output.
“We don’t anticipate any changes in 2010,” Rosneft Vice President Peter
O’Brien said today in an interview in
London
. “If this zero export duty were taken away we would
need to bring investment down to achieve our leverage target.”
Russia
’s oil production will start to decline in the next
year or two if the export tax break is revoked, O’Brien said. The country will
rely on east Siberian deposits, such as Rosneft’s Vankor field, the country’s
biggest new development, to offset declines in traditional west Siberian
deposits.
Russia
, the world’s largest oil producer, is seeking
marginal production growth this year, Deputy Prime Minister Igor Sechin said
last week. Output has exceeded 10 million barrels a day for the past six
months, a post-Soviet record.
Without the exemption, Rosneft may cut investment by 60 billion rubles
($2 billion), or 25 percent of this year’s plan, O’Brien said. The export tax,
which eats up $33 a barrel at an oil price of $70, has a “multi-billion dollar
effect” on cash flows, he told Bloomberg Television today.
For investors, the concern is that the state-owned company will be
forced to forge ahead with projects even if the economics are poor, UralSib
Financial Corp. Chief Strategist Chris Weafer said.
The Danger for Rosneft
“The real danger for Rosneft is that investors start to view it not as
an oil major but as a sort of oil ministry working to satisfy state
priorities,” Weafer said by e-mail.
The government is seeking to narrow a budget gap that may reach 7.2
percent of gross domestic product this year, after plunging oil prices and the
economy’s worst contraction on record left a deficit last year of 5.9 percent,
or 2.3 trillion rubles. The eastern Siberian oil export tax break alone may
cost the budget $4 billion this year, the Finance Ministry has estimated.
A ministerial working group is reviewing eastern Siberian projects run
by Rosneft, TNK-BP and OAO Surgutneftegaz and will make recommendations within
two weeks, O’Brien said.
Finance Minister Alexei Kudrin has questioned whether their projects
need the exemption to remain profitable, as his ministry seeks to narrow a
widening budget gap after the first deficit in a decade last year.
A Different World
Since now-Prime Minister
Vladimir
Putin’s election as president in 2000, the Russian oil industry has
increased output by more than 50 percent and boosted profits amid a heavy tax
burden largely by applying low-cost technology to Soviet-legacy deposits.
As the era of easy growth has reached its limits and aging deposits decline,
the nation has sought growth from more remote deposits like Vankor, TNK-BP-led
Verkhnechonsk and Surgutneftegaz’s Talakan. The producers say tax breaks are an
essential, given the cost of new developments.
“We already live in a different world,” Sechin said in
Nizhnevartovsk
last week. Sechin is also chairman of Rosneft and has
backed the tax incentives to boost
Russia
’s oil output.
“It’s no longer possible to say that we can live off the same old Soviet
baggage which has been left to us,” Sechin said. “It’s now time to draw a
line.”
Rosneft’s growth will depend on getting the Finance Ministry to relax
the tax regime, Weafer said.
Rosneft has based investment plans for the Vankor field on a three-year
tax exemption. The company has already spent $6 billion on the northern
Siberian project and plans to produce 250,000 barrels a day there this year. Rosneft
aims to double Vankor’s output by 2014, to the equivalent to 5 percent of the
country’s total output.
Rosneft plans to invest between $9 billion and $10 billion this year, of
which $2.5 billion may be spent at Vankor, O’Brien said earlier this year. The
company plans to reduce net debt from $18.5 billion at the end of 2009.
(
from Business Week)