VLADIMIR PUTIN
ARCHIVE OF THE OFFICIAL SITE
OF THE 2008-2012 PRIME MINISTER
OF THE RUSSIAN FEDERATION
VLADIMIR PUTIN

Working Day

3 may, 2012 19:50

Prime Minister Vladimir Putin chairs a meeting on motivating exploration of hard-to-recover oil reserves

Prime Minister Vladimir Putin chairs a meeting on motivating exploration of hard-to-recover oil reserves
“Our goal is to create a flexible toolkit, including fiscal tools, to make all of hydrocarbon production projects more attractive for investment. In this way, we will be able to strategically enhance Russian energy security and play a bigger role on the global energy markets.”
Vladimir Putin
At a meeting on motivating exploration of hard-to-recover oil reserves

Vladimir Putin's opening remarks:

Good afternoon, colleagues. Let me remind you that on April 12, we discussed and took a number of strategic decisions on developing the shelf. We discussed the exploration of the most difficult hydrocarbon fields in the Arctic and other Russian regions. Based on a system-wide approach, we began to create incentives for investment projects that will ensure the long-term growth of oil and gas production. Our goal is to create a flexible toolkit, including fiscal tools, to make all of the hydrocarbon production projects more attractive for investment. In this way, we will be able to strategically enhance Russian energy security and play a bigger role on the global energy markets.

A significant reserve means more field production and the sparing use of minerals, as well as the more active use and involvement of hard-to-recover oil reserves. As you well know, such projects need both serious investment and state-of-the-art technologies. And we need to create conditions that attract investment, so that beginning work on new sites and the exploration of technologically difficult fields are profitable and worthwhile endeavours for companies that allow them to recoup investment costs and earn economically justified profits.

So far such fields produce only 4% of the total Russian oil, or a maximum of 20 million tonnes per year. You know that in 2011, total Russian oil production was 511.4 million tonnes. Meanwhile, according to expert assessments, projected Russian reserves of hard-to-recover oil are between 25 billion and 50 billion tonnes. So we should send a clear signal both to domestic companies (practically all leading companies are represented here) and to the global companies that it will be interesting and profitable to work on these fields.

In the medium term, starting in 2020, it will give us between 40 million and 100 million tonnes per year additionally, depending on how efficiently companies can produce. So similar to the shelf projects, the proposal is to introduce new categories for fields with hard-to-recover oil reserves depending on the specifics of oil fields, primarily rock permeability and viscosity, and to establish concessions on the mineral replacement tax for such fields.

For the most difficult projects (now I will cite the concrete figures), the mineral replacement tax will be between 0% and 10% of the standard rate, for the medium category, between 10% and 30%, and for the easier category, between 30% and 50%. The proposal involves maintaining this regime for the long term, thereby creating stable, predictable and long-term rules for business. The concession will be granted for 10, 7 and 5 years respectively from – and I'd like to emphasise this – from the start of industrial oil production.

The governmental executive order establishing this procedure will be signed immediately after our meeting. I ask you to prepare all the necessary documents and acts regulating the procedure of extending tax concessions on hard-to-recover oil reserves by October 1. In addition, I'd like to unveil yet another decision. Today a governmental resolution will be signed approving a statute establishing the borders of subsoil blocks. This document is meant to lift excessive administrative barriers in adjusting the borders of the area and depth of subsoil blocks. Thus the companies will be able to include in industrial turnover new layers of oil extraction and conduct additional exploration of fields.

In conclusion, I'd like to say the following. Currently we are creating all necessary conditions for the work of our companies, for developing new oil and gas provinces, for improving the sector's efficiency. These are financial incentives and the consistent development of transport infrastructure, including the pipeline network, which will doubtless create new conditions and new prospects for the sector. And I hope that businesses will deliver on their commitments with the same punctuality. This concerns investment projects, introducing new technologies, and upgrading the whole production chain. We have repeatedly discussed this, including last time in Kirishi, if I remember correctly. This is all I wished to say for the beginning. Let's discuss the proposed measures.