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Top events of March 2015

The National Energy Security Fund introduces top-ten events in the oil and gas industry in March 2015 and is ready to comment on them in detail.

  1. Gov’t supports pilot substitution of minerals production tax with profit tax

    The experiment covers 12 deposits of three oil majors: Gazprom Neft, Rosneft and LUKOIL. The objective is to see how the transfer to a new taxation system – the tax on profit, not revenues – will affect revenues of the companies and the state budget. The idea is simple: a new sound taxation system will promote investments in new projects, growth in oil production and, correspondingly, state revenues. The alternative variant is as follows: to preserve a stupid and inefficient taxation system that will lead to decline in investments in oil production, plummeting oil output and, finally, in oil revenues of the state budget. Despite the obvious logical thinking, the problem is that the finance ministry that traditionally opposes the new taxation philosophy has the reasoning of minions; it cannot see any further that the end of nose being afraid of any changes. The prospect of getting benefits in several years does not satisfy the ministry. It seems that functionaries are not sure that they will preserve their posts in several years. This is why they want to be responsible only for the current period of time. Such planning horizon means no good. This pilot project will definitely have a hard fate not because it will be difficult to invest or produce, but because the finance ministry perceives it very negatively and does not hide this attitude.

  2. Saudi Arabia launches military operation in Yemen

    The situation in Yemen resembles the situation in Ukraine very much: an uprising of people, the president flees his country, a neighboring country interferes in the situation to protect its brothers there. Russia also supported the president who had fled his country, and then there was the Crimea story. As a result, all dogs were set on Russia, while the actions of Saudi Arabia did not stir any reaction of the UN Security Council, although a decision on bombing was made without the SC’s authorization. Thus, we have a serious case of violation of the international law, but everybody turned a blind eye to that, because the USA traditionally supports Saudi Arabia and it does not want Shia groups to come to power in Yemen. The situation is very uncomfortable for the oil market. Prices have stabilized but the question is what will happen next? The situation will not necessarily lead to a military confrontation between Iran and Saudi Arabia and the blockade of the Strait of Hormuz and the Strait of Bab-el-Mandeb leading to the Red Sea and the Suez Canal. We will watch developments, but it is clear that political risks are still there on the oil map.

  3. Debate over summer package for Ukraine

    The question of gas purchases in the spring-summer period is open. Vladimir Putin and Gazprom executives have officially confirmed that Russia is ready to retain a discount for Ukraine. Russia’s task is simple: to provide Ukraine with a chance to buy natural gas and pump it into underground storages to overcome the next winter season. Ukraine may put a brave face and yell that it will get rid of the Russian gas, but the winter will immediately make it sober. Ukraine, despite all its bravado, managed to overcome last winter only because it had been pumping Russian gas into underground storages until June 16 not paying for it at all, by the way.

  4. EC meets in Brussels, retains its position on anti-Russian sanctions

    Unfortunately the situation is getting protracted, and there is a feeling that the USA is not really interested in its normalization. The situation is Donbass is unstable and it may deteriorate at any time. It means that we should not expect sanctions to be lifted in the near future. It also concerns the oil and gas sector. This is why priorities, Arctic offshore projects in particular, are being revised. In the next few years we will not cope with Arctic offshore projects.

  5. Natural resources ministry supports flexible access of private companies to offshore deposits

    Sanctions promoted liberalization of some procedures in the oil and gas sector. It seems that the law prohibiting private companies to have controlling stakes in offshore projects will be canceled. But isn’t it too late? Private companies are unlikely to join Arctic offshore projects now: there is neither money nor necessary technology; offshore projects almost fully depend on imports. We can claim that we have drilling rigs. And we indeed have drilling rigs, but they were also manufactured abroad. The process of import substitution is complicated and, most importantly, quite long.

  6. ExxonMobil requests overpaid taxes back

    Several years ago it was decided to reduce the profit tax rate, but the Sakhalin project was not affected by that decision. It ensured inter alia very good revenues of the Sakhalin Region, which might lead to a well-know corruption case of Sakhalin’s ex-governor Khoroshavin. The profit tax provided the money to the region’s budget. This tempted either governor Khoroshavin or somebody who wanted to have the money in some other place, or both of them. What we can see is that the profit tax is still paid at the old rate. And ExxonMobil seems to be right demanding paying it back, but the thing is that ExxonMobil was ready to pay the old rate. However, it was under different oil prices and political conditions – at that time Exxon was planning to produce oil in the Black Sea, in the Arctic and at the Bazhenov suite. Now the company has all its projects in Russia closed except Sakhalin-1. It is not ruled out that following this tax claim changes will affect Sakhalin-1. Besides, as far as offshore projects are concerned, we currently cannot count on foreign investors.

  7. List of candidates to Rosneft board of directors approved, Igor Sechin rumored to retire

    The Rosneft head is such an active person that many people get nervous about him, which sparks rumors. However, we all understand that Putin will not agree to dismiss Sechin. Yet, the life of Igor Ivanovich will be less comfortable, which is testified to by the list of candidates to the company’s board of directors. The list contains many people who do not inspire Sechin. There are few supporters of Sechin on this list, and his retinue of academicians will be removed from the board. We will see whether Rosneft’s board of directors will manage to pursue a relatively independent policy from the executive board, but there is obviously some intrigue about it.

  8. Rusneft owner Gutseriyev ready to sell stake to Glencor International

    We are witnessing important processes in the sphere of property. The issue of sanctions is one thing, but the property is another matter. On the contrary, such a complicated political situation provokes accelerated re-division of assets. Someone is scared and wants to hide assets in a safe place. Somebody, on the contrary, wants to grab something on the quiet. So, this year will provide us with many interesting things to speculate about.

  9. Schlumberger-EDC deal

    The federal antimonopoly service put forward ten conditions that must be met before the deal takes place. The main one is that Schlumberger will have to sell Eurasia Drilling to a Russian entity should anti-Russian sanctions toughen. There is a feeling that the FAS is very vigilant towards this deal. It may be the echo of an old story when Rosneft wanted to buy Eurasia Drilling but failed, which offended the former’s management. The management did not forget that story and is still eyeing the asset. We will see what will happen. There is no common attitude towards this deal in the sector. Some believe that nonresidents are buying good assets on the quiet. Others see a positive sign – foreign oil-field services companies are not leaving Russia. In any case it will be very difficult in the oil services segment without foreign firms. Ripping shirts open is simple but managing many tasks alone is not that easy.

  10. TANAP gas pipeline construction launched

    Many experts believe it is an anti-Russian project that will negatively affect our supplies to Southeastern Europe. However, this project is absolutely acceptable for us. Our idea is simple: expand the pipeline’s capacity and ensure competition between Russian, Iranian and Caspian gas, but do it by 2019 and we will have fair competition. It is clear that Russian gas will be there but Iranian gas is unlikely to get there. We will see if the European Union is ready for fair competition.

 


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Analytical series “The Fuel and Energy Complex of Russia”:

State regulation of the oil and gas sector in 2023, 2024 outlook
Gazprom in the period of expulsion from the European market. Possible evolution of the Russian gas market amid impediments to exports
New Logistics of Russian Oil Business
Russia’s New Energy Strategy: on Paper and in Fact
Outlook for Russian LNG Industry

All reports for: 2015 , 14 , 13 , 12 , 11 , 10 , 09 , 08 , 07

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