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Monday, April 17, 2006

OPR UPDATE: TAX CUTS FOR THE WEARY: GOOD NEWS FOR RUSSIAN OIL OR TOO LITTLE TOO LATE?

The Russian economics ministry today submitted for government consideration a bill to cut development taxes in key resources. While the measure covers mining, logging, and other earthen riches, it is particularly aimed at the all important and ever aging oil industry.

The bill will introduce tax holidays for companies developing new deposits, and major privileges for those working on depleted deposits, in a bid to avert a medium-term production decline in industries that provide much of Russia's budget revenues, particularly the oil and natural-gas sectors. "The bill has been agreed with all the agencies involved and sent to the government for consideration," a ministry spokesman said.

The reduction in oil and gas production growth from 7 percent per year from 2000 to 2004 to this year's rather anemic 2 percent growth is reflective of a sea-change in the character of Russian production: from the relatively easy oil of the Volga-Ural and West Siberian basin to the much more difficult deposits in Russia's offshore Arctic regions and in East and Far East Siberia. Russian oil and gas revenues account for 25 percent of the Russian federal budget (see page 9 of the Gazprom 2004 Annual Report for a peculiar graphical presentation of the importance of oil and gas to Russian finances).

However, Russia may have waited too long to begin developing the latter this difficult these remote riches. Major oil and gas projects -and the pipelines to serve them- are developing slowly and in need of huge capital outlays. By cutting development taxes, Russia hopes to speed the time to market of these hard to access oil and gas deposits. The oil industry and the federal budget are in a race against time.

2 Comments:

At 10:20 AM, Anonymous Anonymous said...

How are you doing these days? (Jeff from Bethesda) If you want to get in touch, call my mother's house.

 
At 1:43 AM, Blogger H said...

Hi David - Do you ever check these comments? I'd love to catch up. You can reach me at UT Austin. Hina from Duke

 

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