According to Interfax, Prime Minister Vladimir Putin has suggested new tax regulations to make offshore exploration attractive for Russian O&G companies. Putin said that the export duty would be eliminated, and that the MET for the most technically complex Arctic projects might be reduced to 5% of the realised sales price. The proposed tax regime is to remain for 15 years of production. Putin also said that offshore projects should primarily be undertaken by Russian companies, while the participation of international majors would be appreciated. He added that 70-75% of orders for equipment and services should be placed with Russian companies. Kommersant also speculates that the government might allow Russian oils to send offshore gas to export, or sell it at export prices to Gazprom. According to Putin, the estimated additional investment might reach USD 500bn for the next 30 years. Currently, only Gazprom and Rosneft have the right to explore offshore. Yesterday, the chief executives of the largest independent oil and gas companies asked Putin to ease these restrictions.
Introducing tax reliefs for offshore projects is positive for sentiment on the O&G sector as a whole. Rosneft has, over the last few years, been acquiring new offshore licences and so were the tax changes to materialise it would be a key beneficiary.
However, we still have no clarity as to whether independent O&G producers will be permitted to develop offshore projects or not. In any case, those projects are very capital intensive, with profitability highly dependent on tax reliefs provided by the government, and therefore risky. While we do not expect any impact on O&G companies’ financials in the short term, the news is positive for sentiment. Putin’s comment about local content requirements, in our view, would also mean Russian offshore development could be TMK’s entry ticket to the premium league of global OCTG producers (currently occupied by Tenaris and Vallourec).
Dmitry Loukashov, Ekaterina Rodina, Alexander Kirevnin, Elena Kopylova, Mikhail Zarkhi
VTB Capital analyst
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