The Russian parliament has approved amendments to legislation that will benefit unconventional oil development operators by allowing them to use a simplified taxation mechanism to reduce their tax take, improve profitability and secure investments.
Due to come into force from 1 January 2024, the amendments will apply to heavy viscous oil projects — similar to Canada’s oil sands — that are mostly concentrated in central Russia’s Tatarstan region and the Komi region in the country’s north.
The changes passed despite the government’s efforts to raise additional revenues from the oil and gas sector and use them to reduce the huge budget deficit.
According to the Finance Ministry, the difference between budget revenues and spending stood at 2.6 trillion roubles ($28.9 billion) between January and June this year.
Concessions
The Russian government removed oil production and crude oil export tax concessions granted to heavy viscous oil projects in 2020, in a blow to regional producer Tatneft and privately held producer Lukoil, which has similar assets in Komi.
Tatneft operates the country’s largest heavy oil field, Ashalchinskoye, using stream-assisted gravity drainage (SAGD) to heat and extract bitumen.
Lukoil employs both SAGD and open-pit mining for viscous oil extraction at Komi.
Though Tatneft continued to operate Ashalchinskoye after the previous tax concessions were scrapped, it put on hold its other bitumen projects because of associated high development costs.
In its 2022 financial report, Tatneft said it had reduced the value of bitumen assets under its control in Tatarstan by over 13.6 billion roubles ($182 million) as projects were on hold after the loss of tax concessions.
Authorities in Tatarstan also said that operating losses at Tatneft’s bitumen projects ate heavily into profits at its conventional but heavily depleted oilfields, thus reducing the company's total net profits and the corresponding tax payments it contributes to the regional budget.
It is unclear if Tatneft will seek to take advantage of the simplified taxation mechanism. The company did not immediately reply to a request for comment.
The new scheme scraps two of the largest direct levies, the oil production tax and the crude oil export tax, placing the levies on the positive difference between incurred expenses and revenues received from the sale of hydrocarbons from fields subject to the taxation mechanism.
The approved amendments will now move to the upper chamber of the Russian parliament and then to President Vladimir Putin to be signed into law.
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