Rosneft will save $6 billion through oil export tax exemptions.
Prime Minister Vladimir Putin recently signed a resolution cutting to zero the export tax on oil produced from 13 oilfields in East Siberia as of December 1. The zero rate of oil export tax may be applied for three to seven years, but the exact term has not been defined yet. Considering the oil companies' presence in the region, Rosneft and Surgutneftegaz will benefit the most from the government's initiative. In the next three years, the oil export tax exemptions will save Rosneft about $6 billion, and Surgutneftegaz $3 billion, analysts say.
The government has long been talking about the need to stimulate the development of East Siberian oilfields. First, because West Siberian oil reserves are dwindling, and second, because Russia is gradually beginning to export oil to alternative markets of the Asia Pacific Region, for which the ESPO (East Siberia Pacific Ocean) oil pipeline is being built.
Today, the government's list includes 13 East Siberian oilfields: the Vankorskoye and Yurubcheno-Takhomskoye fields (both being developed by Rosneft), Srednebotuobinskoye field (Taas-Yuriakh Neftegazodobycha), Verkhnechonskoye field (TNK-BP and Rosneft), Talakanskoye, Alinskoye, Severo-Talakanskoye, Vostochno-Alinskoye, Pilyudinskoye, Stanakhskoye and Verkhnepeleduiskoye fields (Surgutneftegaz), Dulisminskoye field (Urals Energy has transferred this asset to Sberbank), and Kuyumbinskoye field (Slavneft). All the other companies which are not engaged in oil production in East Siberia will pay an oil export tax of $271 per metric ton ($40 more than in November) from December 1. The tax breaks under this decision will be extended every month and, most probably, will be applied for three to seven years from the start of oil production from the field.
State-controlled Rosneft is the main gainer from this decision, according to analysts: about 75% of the company's capital belongs to the state, and 9.44% of Rosneft's shares are treasury stock. "We have repeatedly said that the state can earn profits in the oil sector not merely through taxes and export duties, but also through dividends on its share capital. It is quite possible that Rosneft will start exporting oil from the Vankorskoye field; now its oil goes to the Tuapse refinery," says Alexander Razuvayev, head of the analytical department at Galleon Capital investment company. Export tax exemptions will give Rosneft about 130 billion roubles (nearly $5.4 billion) in 2010 alone, Razuvayev says.
Surgutneftegaz and TNK-BP will also benefit, but not so much, says Andrey Polishchuk of BrokerCreditService. "Export tax breaks for the Vankorskoye field alone will boost Rosneft's operational profit by $1.3 billion in 2010, and if the resolution is in effect till the end of next year, by $2 billion (depending on oil prices). Surgutneftegaz may save about $700 million in 2010," Polishchuk says. If the tax exemptions are extended for the next two or three years, Rosneft will avoid paying some $6 billion to the budget, while Surgutneftegaz may save $3 billion, Polishchuk says.
At the same time, oil companies regard uncertainty about the tax exemption period as a negative factor. "We believe the tax burden on oil companies is excessive and, despite the Finance Ministry's objections, the Russian government will continue to reduce this burden. A hen that lays golden eggs must be fed. I think Tatneft is likely to become the next candidate for tax breaks," Razuvayev says.
Note that, in addition to the listed deposits, Putin proposed a zero-rate mineral tax on gas produced in the Krasnoyarsk Territory and the Yamal-Nenets Autonomous Area. The government has already approved the zero rate of mineral tax on oil production from the offshore deposits of the Black Sea and the Sea of Okhotsk. The oil companies will enjoy this benefit for the next 10-15 years. Besides, Deputy Economic Development Minister Andrei Slepnev said in early November that the government planned to extend the list of oilfields qualifying for oil export tax exemptions.
Irina Kezik