Tax row could delay Prirazlomnoye

Tax row: Prirazlomnoye project now likely to be launched in the second half of the year, instead of the first quarter

Gazprom has upped the stakes for the government to produce a quick resolution on tax breaks on Arctic offshore oilfields, hinting it will delay the first oil from its Prirazlomnoye project until the policy is set.

A Gazprom spokesman told Reuters on Wednesday that output from the much-delayed Prirazlomnoye project – the only major oil deposit expected to come on stream in Russia this year – will now be launched in the second half of the year, instead of the first quarter, seen previously.

Russia saw oil output soar in the middle of the last decade as rising prices encouraged companies to deploy new technologies at Soviet-era fields. But with their growth potential exhausted, new fields are crucial to even modest growth.

Russia is expected to increase production in 2012 by 1% from 10.27 million barrels per day reported by the Energy Ministry for last year.

"First industrial oil output at Prirazlomnoye is expected in the second half of 2012," a Gazprom press officer told Reuters.

Russia's gas export monopoly has been pursuing the Arctic project in the Pechora Sea for years.

Plagued by cost overruns and delays to the construction of the platform, it has postponed the launch several times.

It is aiming to reach peak production at Prirazlomnoye of 120,000 bpd in seven to eight years, with estimated reserves of 526 million barrels.

Media reports have put total investments at between $4 billion and $5 billion. Gazprom declined to comment on the reports, Reuters said.

Russia's total offshore hydrocarbon reserves are estimated at 100 billion tonnes of oil equivalent.

The heavy, sour oil will be extracted with the help of Russia's first ice-resistant offshore production platform, a vessel of 117,000 deadweight tonnes, from the deposit located some 60 kilometres offshore, where winter temperatures often plunge below minus-50 degrees Celsius, and then pumped to tankers.

But the state-owned company has failed to persuade the government to help the project with much-needed tax breaks, despite last year's announcement that a committee headed by First Deputy Prime Minister Viktor Zubkov, also Gazprom's chairman, recommended Prirazlomnoye for a preferential oil export fee.

"As of today, the Russian government has not decided on special custom tax rate for Prirazlomnoye field," Gazprom said.

Sources in the government confirmed, that there has been no specific decision on the breaks, Reuters said.

"It required much paperwork, and Gazprom has not presented the necessary documents for a decision to be made," a government source said.

Gazprom is also involved in the Shtokman gas project in the Barents Sea, where natural gas is expected to start flowing in 2016. The Russian giant is partnering with Total of France and Norway's Statoil on Shtokman.

The partners have also failed to persuade the Russian authorities to grant this project tax benefits. The final investment decision has been postponed to the end of the first quarter and the tax issue is seen as the key for Shtokman to go ahead.

"The work (on taxes) is under way. But it is unlikely that there would be certain results on Shtokman by the end of March," the source said.

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