Arctic and other offshore projects in Russia

Moving production from the land to the offshore area is a worldwide tendency of the oil and gas sector development.

Main discoveries are made offshore where major part of launched deposits is located. This global trend has reached Russia.

State companies have long been eagerly engaged in distribution of offshore fields. The question is when there will be a serious breakthrough in oil and gas production.

So far we can boast of just occasional success that has not turned into a systemic trend. Moreover, the Arctic fever still continues in Russia: officials are actively discussing the Arctic future, and the topic of the Arctic development is becoming a key one.

This is stirred up by estimations of western analysts who argue that main Arctic reserves may be located in the Russian zone. Yet, this nice talk about the Arctic future should move towards practical actions.

A new report elaborates on the following issues:

• State policies in the Arctic and offshore areas

  • The executive power will undergo serious reshuffle this May. However, in conclusion state institutions are preparing adoption of strategic documents on developing offshore fields. The question is whether they will repeat the fate of other strategies that became a pile of hollow papers.

• Taxation regime for offshore production

  • Different projects of changes in taxation of offshore production are discussed. There are two ways – to make exceptions for certain projects or to fundamentally alter the fiscal system. There are proposals based on the Brazilian and Norwegian models. There are ideas to replace the minerals production tax with the gross receipts tax using the ad valorem rate in percentage points or to introduce the tax on financial results. It is important to understand what newly elected president Putin is up to.

• Licensing policies

  • Back in 2008 shelf deposits were declared strategic, which led to corresponding consequences. Licenses were given only to state companies that had experience of offshore activities. However, private companies more and more actively criticize this regime accusing state companies of license collection without intention to develop fields. Before the elections Putin promised to liberalize access to the shelf. Some ministries adhere to the same position. Meanwhile, state companies may well become private in several years. So, there will be changes, but the question is about their scale and time.

• Foreign partners

  • Complexity of tasks Russian companies are facing on the shelf in general and in the Arctic in particular, creates the necessity to actively form partnerships with nonresidents. Conditions of their operation are vigorously debated.

• Encumbrances of offshore operation

  • Shelf projects create not only new opportunities but also serious difficulties. First of all, this concerns ecological restrictions, as well as attempts to make developers buy Russian equipment and services. Participants of offshore projects are viewed as fat cats that can be persuaded to buy something else.

Struggle for investments in shipbuilding

• As an incentive to develop Arctic projects the state promises to invest in construction of corresponding infrastructure. In particular, a huge shipbuilding program is discussed. The question is who will draw these huge resources.

The contents of the report: