According to Kommersant, the government commission led by Deputy Prime Minister Arkady Dvorkovich is to consider a new taxation scheme for oil fields with hard to recover crude oil. The paper speculates that fields will be divided into two categories: with permeability below 1mD and 1-2mD. For the first group, the export duty discount ratio is to be set at 5%, while for the second it will be 30%. Rates are to be applicable for 7 and 10 years correspondingly. The new taxation will also cover the Abalakskoy, Hadymskoy and Bajenovskoy horizons development, according to the report.
We see this as the execution of an order given by President Vladimir Putin on 3 May. Although the idea has already been announced several times, and so is not new for the market, the rates have been disclosed for the first time. The discount of USD 2.2-13.6/bbl (at USD 95/bbl of Brent) is likely to add some value for the projects with hard to recover crude oil and move the start of their development forward. However, these rates are still subject to final approval. Overall, the news is positive for the entire sector from a sentiment point of view, but we suggest that these new taxes would be difficult to administer and would require substantial changes to the Russian mineral code, as well as the organisation of production at Russian fields. We also believe that permeability is too subjective to be used as a factor for calculating tax.
Dmitry Loukashov, Alexander Kirevnin, Ekaterina Rodina, Elena Kopylova, Mikhail Zarkhi
VTB Capital analyst
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