RusPetro, the only Russian company focused on hard-to-extract "tight oil," said it would get significant tax relief for almost all of its current crude production under a law signed earlier this week.
Development of tight oil could help Russia, the world's largest crude producer, meet its aim to maintain production capacity at its current level of more than 10 million barrels per day over the next decade.
RusPetro, with proved and probable reserves of more than 1.8 billion barrels of oil equivalent in the heart of West Siberia, said it would get 80 percent relief on mineral extraction tax for about 97 percent of its current oil production.
"If an 80 percent reduction in MET [mineral extraction tax] … had been applicable during [the first quarter], the EBITDA per barrel of production would have been $17.15, an almost 400 percent increase," the company said Friday.
RusPetro reported first-quarter earnings before interest, taxes, depreciation and amortization at $3.61 per barrel.
Russia's basic mineral extraction tax, at 470 rubles ($14.40) per ton, is adjusted according to several variables, including global oil prices, the level of depletion of a deposit, its reserves and the level of extraction difficulty.
Late Tuesday, President Vladimir Putin signed into law amendments that set the coefficient of difficulty of oil extraction at between 0 and 0.8, with zero applying to Siberia's Bazhenov formation and several other unconventional plays.
The tax relief will come into force from Sept. 1.
But Putin also left in an amendment that requires separate metering for tight oil at each well, a costly new infrastructure that may prevent companies from using the tax relief.
RusPetro has obtained an interest in exploring the Bazhenov formation, which covers 2.3 million square kilometers in West Siberia. Russian producers have already reported 500 million tons, or 3.5 billion barrels, of recoverable tight oil reserves in the formation.
Alexander Nazarov, an analyst with Gazprombank, welcomed the tax relief but said it was worth waiting a couple of months to see how companies would deal with the new tax regime.
"It will be quite difficult [to install separate measurements on wells]. There could be a 'regular' layer, for example, and then after drilling tight oil could be found. How are companies supposed to count oil at such a well?" he said.
The relief should boost investment in hydraulic fracturing, a process that involves injecting water and chemicals at high pressure into rock to unlock shale oil, one type of tight oil.
Russia has 75 billion barrels in recoverable reserves of shale oil, the U.S. Energy Information Administration has estimated, larger than the 58 billion estimated for the U.S.
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.
