Russia Studies Export-Tax Breaks in Caspian Sea as Lukoil Pumps First Oil

Russia will consider scaling back export duties for Caspian Sea oil, Prime Minister Vladimir Putin said today after OAO Lukoil pumped the country’s first crude from the region.

“Oil men have raised the question of reducing export duties and we will think about that,” Putin said during a ceremony to mark the start of commercial output at the Korchagin field. “In any case, projects of this sort we will support.”

Lukoil Chief Executive Officer Vagit Alekperov has joined other energy company heads in calling for tax breaks in Russia’s new oil regions. Producers have said extending existing tax rules to areas such as eastern Siberia and the Caspian Sea, where investment costs can be higher than at older, established fields, may delay development.

The Finance Ministry has urged the government to maintain taxes to narrow a budget deficit that may widen to 7.2 percent of gross domestic product this year from 5.9 percent in 2009, after the economy’s worst contraction on record. Eastern Siberian oil export tax breaks alone may cost the budget $4 billion this year, according to the ministry’s estimates.

Operators in the Caspian Sea are already exempt from mineral extraction taxes for as long as 12 years, or until total output reaches 10 million tons of oil.

Tax Relief

Alekperov told Kommersant in September that Lukoil wanted tax breaks in the Caspian Sea and eastern Siberia for as long as 15 years, allowing producers to reap a return on investment. The company plans to pump 16 million metric tons of oil a year, or 320,000 barrels a day, in the north Caspian and 13 billion cubic meters of gas a year by 2020, Alekperov said in August.

Lukoil, Russia’s largest non-state oil company, began commercial output at Korchagin after spending more than 40 billion rubles ($1.4 billion) to bring the field on stream, Alekperov said today. Alekperov and Putin were among attendees to smear their faces with the first oil from the deposit, whose recoverable reserves are estimated at 28.8 million tons of crude and 63.3 billion cubic meters of gas, government data show.

Lukoil is looking to offshore developments in the Russian part of the Caspian Sea as West Siberian fields mature and go into decline. The Moscow-based company is targeting peak annual output from Korchagin of 2.5 million metric tons, or 50,000 barrels a day, and 1 billion cubic meters of natural gas.

Filanovsky Oil

After Korchagin, Lukoil will move to the largest oil deposit in the area, the Filanovsky field, where output is slated for 2014 and may peak at 210,000 barrels a day, according to the company’s Web site. That’s equal to about 2 percent of Russia’s current output.

Lukoil will spend $6.7 billion on the Korchagin and Filanovsky fields, Deputy Energy Minister Sergei Kudryashov said today, calling Filanovsky the “pearl.” A more “intensive” development plan, targeting about 400 million tons of oil equivalent in recoverable reserves from both fields and other deposits in the region, may require $27 billion in investment, he said.

Russia plans a gas-refining complex near the Caspian Sea, with a capacity of 5 billion to 6 billion cubic meters a year, and a petrochemicals plant in the region, Kudryashov said.

To contact the reporters on this story: Stephen Bierman in Astrakhan, via the Moscow newsroom at sbierman1@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net.

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