According to Vedomosti, the President’s Committee for the Energy Sector has suggested a rule for greenfield export duty reliefs. Relief would be granted to greenfields located in the republic of Yakutsk, Krasnoyarsk region, Yamal-Nenets Autonomous District and the Caspian Sea. The depletion must be less than 5% and reserves more than 10mmt. The rule would allow those projects affected to receive 16.3% IRR. The suggestions might be passed to the government within the next few days.
This is in line with the previous government initiatives, which were aimed at incentivising oil companies to develop greenfields in and support the country’s oil production. We are reiterating our long-term view that all of Russian oils’ new projects are granted the necessary tax reliefs anyway. However, we believe that guaranteeing a 16.3% IRR for new projects might result in oil companies focusing less on efficiency, thus affecting their ability to generate positive FCF, in line with our new moderated view on the sector’s investment case. At the same time, we believe that the positive sentiment from the news has already been priced in by the market and so will not trigger any market reaction now.
Dmitry Loukashov, Alexander Kirevnin, Ekaterina Rodina, Elena Kopylova, Mikhail Zarkhi
VTB Capital analyst
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