The tax deduction provided for the Priobskoye field will allow for additional oil production. “The bill, approved by the State Duma in the first reading, provides for a mechanism to guarantee the achievement of budgetary efficiency by providing an investment incentive for the Priobskoye field. We are talking about the conclusion of a legally binding investment contract between the company and the government, which will ensure a multiple increase in state revenues up to 1 trillion rubles,” a report by Rosneft (MCX: ROSN) in connection with the findings of the Accounts Chamber about the alleged failure by the Ministry of Finance to provide a financial and economic justification for the tax deduction for the Priobskoye field.
“As part of the investment contract, Rosneft assumes obligations for additional investments in the development of oil production at the Priobskoye license area. These investments will be comparable in volume to the amount of the tax deduction for 2021-2030 and will provide additional production of 70 million tons for the corresponding period. by increasing the volume of drilling on low-profitable reserves, the production of which may be lost under the current tax regime, “- said NK.
The Priobskoye field is the largest oil field in Russia, which has a complex geological structure, is multi-layer and low-productive, the company recalls. The current recoverable reserves of the Priobskoye license area are more than 1.6 billion tonnes.
The field was discovered in 1982 and brought into development in 1988. The peak of oil production at the Priobskoye field at the level of 33.8 million tons was passed 11 years ago – in 2009. “Over 11 years (from 2009 to 2019), oil production decreased by 29% despite all the company's efforts to develop the field. During this period, Rosneft increased drilling volumes by more than 50%, from 380 to 580 wells per year. began to use expensive high-tech development methods at the field, and if in 2009 all new wells were directional, in 2019 36% of them were horizontal with multi-stage hydraulic fracturing, “Rosneft reports.
According to the company, for the period from 2009 to 2019, the stock of operating production wells increased 2.8 times – from 1.8 to 4.9 thousand wells (it increased by an average of 11% annually), but the oil flow rate simultaneously decreased in four times. The decline in production at the field is due to the low quality of reserves, primarily due to the extremely low permeability of the reservoir and in connection with a set of other geological and technical factors, explains NK.
“The investment agreement will prevent a further, more substantial drop in production,” Rosneft is confident. The proposed investment model has already proven its effectiveness on the example of the Samotlor field. In the first two years of the investment contract at Samotlor, the budget received 111 billion rubles in the form of additional taxes. During the period of the investment contract, the multiplier effect of the economy from investments in Samotlor will amount to at least 1.7 trillion rubles, which will exceed the amount of tax investments by almost 5 times, the company emphasizes.
“Today, the example of the Samotlor field indicates that Russia has enormous potential in maintaining and even increasing production at mature fields,” the message says.
“In the case of the Priobskoye field, government revenues over 10 years of the investment contract will more than double the size of incentives. Under the terms of the agreement, in those periods when the market price of oil does not exceed the price of oil established by the budget rule, investment incentives will not be applied. At the same time, the company assumes unconditional obligations to the state to increase the volume of investments in the development of the Priobskoye field, increase production and tax revenues to the budget, “Rosneft points out.
“The investment agreement will not only give a new impetus to the development of one of the key oil and gas assets of Western Siberia, but will also have a significant multiplier effect for related sectors of the economy,” NK believes.
“Taking into account the participation of representatives of the Accounts Chamber in interdepartmental events at the sites of the government of the Russian Federation for the consideration and approval of the bill, improved interaction between departments would serve to remove claims and bureaucratic delays in the process of adopting the law,” the company said.
Last week, the government submitted to the State Duma a bill (N1023277-7), which, from January 1, 2021, grants the right to receive a tax deduction for oil production in subsoil areas located simultaneously within the boundaries of the Surgut and Khanty-Mansiysk regions of the Khanty-Mansiysk Autonomous Okrug – Yugra , the license for the right to use which was issued before January 1, 2018 and the initial recoverable oil reserves of each of which are 1 billion tons or more as of January 1, 2018.
The amount of the monthly tax deduction is 3.83 billion rubles in the event that during the tax period the price of Urals oil exceeds the base oil price set by the RF BC (in 2021 $ 43.4 per barrel). The exemption does not apply if the oil price is below the base price. The tax deduction is provided subject to the conclusion of an investment agreement to stimulate production. It does not indicate specific investment requirements, you need to register the planned volume of oil production for the period from January 1, 2021 to December 31, 2032, inclusive, in the absence of a tax deduction.
The Accounts Chamber stated in its report that the Ministry of Finance did not provide justification for the selection of oil sites, for which, from 2021, a monthly tax deduction of 3.83 billion rubles could be provided. We are talking about a bill that, in particular, introduces benefits for Rosneft at the Priobskoye field.