Russian President Vladimir Putin has issued an order for the government to take a fresh look at measures the state could adopt to help the country’s oil producers invest in unconventional oil developments.


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Putin’s order came some six months after authorities in Moscow decided to scrap existing tax privileges for heavy and viscous oil greenfield projects in an attempt to increase budget revenues that declined sharply last year following the fall in international oil prices.

Under the order, Prime Minister Dmitry Mishustin will be responsible for holding consultations with Russian oil producers to listen to their proposals and report back to the Kremlin by 1 May.

At the end of last week, Putin met Lukoil chairman Vagit Alekperov to hear the challenges privately held oil producers are facing after losing tax incentives.

Unconventional oil projects operated by Lukoil and another chief producer, Tatneft, were hit the most after tax privileges for their expensive heavy and viscous oil developments were removed from 1 January.

Both companies use steam-assisted gravity drainage to melt and extract such oil at their fields, with Tatneft seeing the increasing importance of such assets in its efforts to reverse the decline in production at its exhausted conventional legacy deposits.

Following the loss of tax privileges, Lukoil and Tatneft said that they will continue to operate existing wells on such developments but will halt the flow of investments to expand them, due to the uncertainty over payback.

Caspian worries

Tax cancellations have also negatively impacted the economics of Lukoil’s offshore oil developments in the Russian sector of the Caspian Sea.

Lukoil already operates two fields in the region and is preparing to bring online a third asset within its large Caspian licence block.

Last month, Lukoil confirmed the presence of hydrocarbons at another structure, Titonskaya, within its Caspian block, following the drilling of an exploration well last year.

The company also hopes it will be able to confirm the presence of commercial hydrocarbons at another structure, Khazar, which lies to the west of Titonskaya and closer to shore.