Sunday, March 29

The oil-price war Russia helped create complicates their Arctic plans

Oil’s freefall amid a deepening price competition and a worldwide pandemic threatens to complicate Russian efforts to show the Arctic into a serious new energy zone.

Just last month Igor Sechin, the boss of top Russian producer Rosneft PJSC, told President Putin the corporate would invest quite 10 trillion rubles ($134 billion) in its Vostok Oil project on the Taimyr Peninsula . Yet reimbursement of infrastructure costs depends on crude prices, and that they have crashed to a four-year low.

A drop by funds from the state might be a setback for Rosneft, which estimates potential resources within the new region at quite 37 billion barrels of oil equivalent, with a production plateau adequate to “the largest projects within the Middle East .”

In return for investing within the Arctic province, the govt has offered tax breaks to at least one of Rosneft’s flagship fields in East Siberia, Vankor, located about 250 miles south of Vostok Oil. that might allow the corporate to scale back annual extraction-tax payments by the maximum amount as 60 billion rubles within the next 10 years.

Under the present bill, awaiting final approval from Putin, Rosneft would get tax breaks for Vankor as long as oil trades above $42.45 a barrel this year, $43.30 in 2021 and $44.16 a barrel in 2022. Such prices set down within the budget would allow the govt to hide all spending without seeking extra funds.

Yet benchmark Brent crude is currently trading near $30, having been battered by the simultaneous shocks of the coronavirus and a price competition unleashed by Saudi Arabia after OPEC+ talks broke down earlier this month.

“Amid low oil prices, Rosneft may minimize investment in its Arctic project,” said Vasily Tanurkov, director of Russia’s ACRA Ratings. The extent of any pullback will depend upon the duration of crude’s recovery, he said.

Arctic Bet. Rosneft has been among the staunchest opponents of cooperation with OPEC, and therefore the recent collapse of the deal to chop supply may help frame its view of future production. Russia expects its Arctic reserves to drive long-term output growth as most of its crude currently comes from declining Soviet-era fields.

The Finance Ministry hasn’t received any request from Rosneft or from government authorities to review the oil-price base level within the draft tax legislation, its press office said.

Rosneft is prepared to finance the development of infrastructure at Vostok Oil with its own funds and offset those costs once it receives tax breaks for Vankor, the corporate said.

Vostok Oil includes several fields on the Taimyr Peninsula within the Krasnoyarsk region, including the Lodochnoye, Suzunskoye, Tagulskoye and Payakha deposits. The license for Payakha is held by operator Neftegazholding, a corporation owned by former Rosneft president Eduard Khudainatov. Rosneft also created a venture with BP Plc to explore fields within the area.

“In the future , Vostok Oil is probably going to stay the company’s priority,” ACRA’s Tanurkov said. Crude’s plunge may cause underinvestment across the worldwide industry, leading to lower output and subsequent price growth within the future, he said.