Rosneft has struck a deal with Russia’s Finance Ministry that will hand the country's largest oil producer a large production tax concession for the Priobskoye oilfield in West Siberia.
According to a joint statement, the agreement could see Rosneft saving a maximum of 460 billion roubles ($6.2 billion) until the end of 2032.
However, the concession will be reviewed every month, and would not be granted for the following month in the event the average price of Urals export blend crude falls below a threshold set in the country’s annual budget.
For this year, the threshold has been set at $43.3 per barrel, with Rosneft able to save 3.83 billion roubles on a monthly basis unless the price drops below this level during the rest of 2021.
Since 2019, Rosneft has repeatedly petitioned the government to receive the tax concession for Priobskoye, promising in return to pour additional investments into new drilling and deployment of tertiary recovery methods to raise the field’s declining output.
Other Russian oil producers had protested, arguing such a practice would create unfair operating conditions for oil industry players.
The government agreed, however, to grant the Priobskoye tax privilege to Rosneft in the fourth quarter last year, with the decision rubberstamped by the Russian parliament and President Vladimir Putin.
Authorities have not granted a similar requested tax concession to state-controlled oil producer Gazprom Neft, which is developing the southern part of the Priobskoye field, and which faces similar challenges in maintaining output at the mature asset.
The Priobskoye field — over which Rosneft took control 2005 after authorities had forced privately held oil producer Yukos into bankruptcy — is estimated to account for over 11% of Rosneft's total oil production.
Vankor concession on the cards
Rosneft also anticipates that authorities will move forward with approvals for another set of production tax privileges that it intends to agree for its Vankor oilfield in East Siberia.
Although Vankor is not yet a mature asset, Rosneft has argued that it will use these future savings to build infrastructure and facilitate investments into its Vostok Oil development project that it intends to pursue in East Siberia in partnership with international commodities trader Trafigura.
In 2017, authorities in Moscow granted the first production tax concession of its kind to Rosneft for 350 billion roubles to compensate it for higher investments.
The concession is linked to Rosneft’s efforts to rehabilitate the Samotlor field in West Siberia, once the country’s largest producing asset.
Although the government controls an over 40% stake in Rosneft, remaining interests in the producer are in the hands of UK supermajor BP, Qatar Investment Authority, individual and portfolio investors and the oil producer itself.