MOSCOW, April 28 (Prime/RIA Novosti) – A proposed tax reform for the Russian oil industry, replacing the current revenue-based taxes with an excess-profits tax (EPT), could help avoid a decline in oil production in the country in the next few years, international rating agency Fitch said in a press release Monday.
“Russian oil production edged up 1 percent in 2013, but under the existing tax regime we expect production levels to stabilize at this level in 2014-2015 and potentially to start falling from 2016-2017,” the agency said.
Fitch analysts believe that the new tax regime could prevent a decline in production from traditional brownfields in Western Siberia and the Volga-Urals region, which account for over 90 percent of total oil production in Russia.
“The main drawback of a revenue-based tax system is that it generally disregards production costs. This is one of the reasons why the reserve life (the ratio of proved reserves to annual production) of a typical Russian oil company is higher, and its production level lower than that of similar-size international peers,” the press release stated.
The agency noted that currently Russian oil and gas companies pay two taxes: a mineral extraction tax (MET), payable on the amount of crude oil produced and an oil export duty. In the fourth quarter of last year, the average price of Russian Urals oil was $109 per barrel, and mineral extraction tax and export duties were $54 and $23 per barrel, respectively, amounting to 71 percent of the sale price.
The Russian government is considering a pilot tax change to EPT for a number of new fields, including the Imilorskoe field being developed by LUKoil and the Shpilmanovskoe deposit by Surgutneftegaz, where extraction should begin next year.
The EPT initiative enjoys wide support from the line ministries, whereas the Ministry of Finance strongly opposes the proposal.
