The fall in oil production in Western Siberia will hurt the budget of the Russian Federation

By 2024, due to the fall in oil production by 17%, the country's budget losses may amount to 1.5 trillion rubles.
Western Siberia is the key producing region of Russia, accounting for 56% of Russia's oil production and 61% of the mineral extraction tax, Vygon Consulting experts say in the review "Oil production in Western Siberia: restarting" (Vedomosti got acquainted with it). Over the past 10 years, production in the region has decreased by 10%, if nothing is done, the rate of decline will accelerate to 2-3% annually, they predict. And by 2024, production will drop by 17% to 240 million tons, and the budget will lose about 1.5 trillion rubles at current prices, the document says.

The reason for the decline in production is a deterioration in the resource base of the region: the water cut of the fields is growing (in traditional areas of Western Siberia, 89%). This is due to the geological features and the system of maintaining reservoir pressure, adopted since the USSR, by pumping water, the document says. Due to the increase in water cut, the average production rate of wells decreases - by 36% to 27.5 tons per day for 10 years.

In previous years, the decline in production at existing fields could partially be compensated for by the introduction of new ones: since 2008, projects have been launched, such as Uvat, Novoportovskoye, Vostochno-Messoyakhskoye, Pyakyakhinskoye, Imilorskoye and others, with total reserves of about 1.9 bn tons, experts say. Vygon Consulting. But now there are fewer new deposits. According to their estimates, about 0.4 billion tons of reserves can be put into development from 2019 to 2024, and significant investments in geological exploration are needed to introduce the remaining 1.5 billion tons of reserves in the category C1 + C2.

At the same time, the tax burden in Western Siberia is high: in the Khanty-Mansiysk Autonomous Okrug (47% of Russian production), the effective MET rate is 92%, and on average in other regions - 80%. The tax regime in Russia is one of the most stringent among the producing countries, and the numerous benefits introduced in 2006-2012 were aimed at increasing the effectiveness of specific problem stocks, the survey said. The tax on additional income introduced in 2018, according to experts, will not significantly affect production and drilling in Western Siberia in the next 7-10 years.

Recently, to stimulate production, it has been proposed to introduce a raising factor of at least 2.5 for depreciation charges already in force for R & D and offshore exploration, the survey authors recall. This idea was described by Rosneft in a letter to President Vladimir Putin, Interfax reported at the end of August referring to the document. According to the company, this will increase oil production by 2-7% and bring the budget to 1 trillion rubles.

The Ministry of Finance is against a raising factor, says the federal official. A representative of Gazprom Neft declined to comment. In Lukoil, Surgutneftegaz, Rosneft, the Ministry of Economic Development and the Ministry of Finance did not respond to Vedomosti's requests.

The current tax system was introduced in the early 2000s. and is designed in many respects for taxation and obtaining high incomes from low-cost deposits, including a number of West Siberian ones, says Denis Borisov, director of the Moscow Oil and Gas Center EY. As the resource base deteriorated, companies developed projects at a higher cost, which reduced their income and influenced the desire to invest and drill new wells. Now the average cost of the West Siberian deposit is about 6,000 rubles. for 1 ton, and taxes total about 20,000 rubles. for 1 ton, he adds. "Production in Western Siberia will continue to fall if not to change the system," Borisov said. - Requires incentives for additional drilling. This may be an incremental factor or, for example, an additional differential to the mineral extraction tax, depending on the mining and geological conditions of field development. " It is necessary to increase the investment attractiveness of the new drilling, says Vygon Consulting, the head of the direction "Technology, exploration and production of oil" Daria Kozlova, and to form a system of new industry-wide incentives for Western Siberia.

It is possible that some structures operating in Western Siberia and belonging to vertically integrated companies may show losses under the current fiscal policy, says partner of the consulting company Urus Advisory Alex Panin. But large oil companies "can redistribute losses and incomes within the group, this allows them to work efficiently and profitably even with a low oil price," he notes.