Russia May Cut Oil Export Duty to Entice Foreign Investment
Russia may reduce crude export duties next year as the government overhauls the tax system to help President Vladimir Putin lure billions in foreign investment from oil producers including Exxon Mobil Corp. (XOM)
“Clearly taxes for upstream are excessive,” Deputy Energy Minister Pavel Fedorov said today in an interview. “We’ve gotten from a decree to draft laws in two months and hope to wrap it up in the coming weeks. It was basically a tour de force in lawmaking.”
Exxon, Statoil ASA (STL) and Eni SpA (ENI) have pledged to spend billions of dollars exploring for oil and gas in Russia’s offshore industry after Putin proposed tax cuts. He called for incentives for offshore and hard-to-recover resources, with export tax holidays and lower extraction taxes.
Putin is seeking to maintain oil output stable above 10 million barrels a day for the next decade. The Russian state, which gained half of its revenue last year from the oil and gas industry, wants to tap offshore deposits to keep the cash stream flowing beyond that.
Russia cut rates on oil export duties, the industry’s most burdensome tax, in October to spur output. The state at the same time raised rates for lower-value residual oil products to push companies to produce higher quality fuels.
The ministry may seek to cut the crude export tax rate to 55 percent from 60 percent next year, Fedorov said. The decision next year will depend on monitoring the results of last year’s tax adjustment.
Russia aims to have a “definitive perspective” on gas extraction taxes in the next weeks, Fedorov said. The proposals include an option to vary the rate based on the type of gas produced and a formula taking into account a planned domestic gas price increase, he said.
The legislation for unconventional oil and offshore taxes will be presented to other Russian state ministries for final approval in the coming weeks, Fedorov said. The final package should be ready for the heads of government to approve earlier than an October target, he said.