Bloomberg: Russian Oil-Tax Changes Put Output Growth at Risk - Vygon Consulting

Russia’s higher oil-tax burden, combined with OPEC+ restrictions and low prices, could prompt producers to cut spending plans -- including investments in drilling necessary for output growth post-OPEC+ -- analysts at Vygon Consulting say in a research paper. Recent tax changes are set to raise the net fiscal burden of the Russian oil industry by a total of 650b rubles ($8.5b) within the next five years. Tax conditions have changed for projects with output totaling ~240m tons/year, or >50% of Russia’s production. OPEC+ cuts may have negative effects on Russia’s future output; a pickup in drilling will be necessary to raise volumes beyond pre-OPEC+ levels from 2023 as planne.

Output could return to pre-crisis levels in 2022 if the OPEC+ deal parameters aren’t changed, according to Darya Kozlova, head of oil and gas regulation at Moscow-based Vygon. The return of Russia’s market share should be a priority once the agreement is over, Kozlova says at a press briefing.

Higher oil prices amid OPEC+ cooperation will bring a total of 9t rubles in additional revenue to Russia’s budget in 2017-2021. Given the long investment cycle, Russian authorities need to make a decision as soon as next year on financial measures to stimulate drilling, Vygon says in the research paper.  Otherwise, the wells drilled by 2023 won’t be sufficient to ensure production growth.