Gazprom Neft considers Arctic development relevant, oil prices and tax regime facilitate this
ST. PETERSBURG. June 15 (Interfax) – The current oil price environment, the tax regime for Arctic projects in Russia, and Gazprom Neft’s portfolio of shelf assets allow the company to consider development of the Arctic shelf as relevant, in connection with which dialog with the state on supporting geological exploration on the shelf is necessary, Deputy CEO for Upstream Vadim Yakovlev told reporters.
“The tax regime [in the Arctic] creates good stimuli for projects at the production stage. This is primarily a lower rate of mineral extraction tax. At the same time, such projects are characterized by a very long investment cycle from the stage of seeking an estimate, geological exploration to commissioning. For this, we believe stimuli need to be created at the geological exploration state too, so that this part of the country’s resource potential also gets the opportunity for development,” Yakovlev.
He said the traditional means of supporting geological exploration on the shelf in the world were financing from government investments at the prospecting and appraisal stage. “This is often a so-called tax shield. When a multiplying coefficient is applied for geological exploration expenditures so that these costs reduce income tax payments. Now, such a mechanism is also applied in Russia, for example, a coefficient of 1.5. The share of co-financing from the state is thus 30%. In global practice, this stake is higher, for example, in Norway it is up to 70%, up to 80%. Our suggestion to raise the multiplying coefficient from 1.5 to 3.5, and thus to take the state’s share up to 70% at the geological exploration stage is linked to this. We are discussing this issue with the Finance Minister, the Energy Minister, and the Economic Development Minister,” Yakovlev said.
“We have long-term investment cycles, and our efforts in this regard are also long-term. Price trends at the moment allow us to deal with this part of the portfolio – the Arctic shelf. That’s why we think this issue is relevant and we should get back to it in discussions,” the executive said.
Gazprom Neft considers the oil price of $70 per barrel to be acceptable for development of the Arctic shelf, he said. In addition, much depends on the resource potential of the area: “If we’re talking about the prospects for potential discovery of hundreds of millions of tonnes, and there are such resource areas on the Arctic shelf, it may be beneficial. I mean the possibility in general to create value both for the state and for the subsoil user at the current oil prices. But the conditions must be fair, they must stimulate the implementation of projects with a cycle from prospecting to the start of production.”
Commenting on the development of Gazprom Neft’s Neptun and Triton fields in Sakhalin, Yakovlev said that the company has obtained a lot of geological information there. The next stage is the issue of working out optimal infrastructural solutions, including in light of the projects in which Gazprom is involved on the Sakhalin shelf: “We are in discussions with the participants of Sakhalin-2 and assessing options for the use of infrastructure, including on-shore facilities.
At the same time, he added, Gazprom Neft is “in discussions with potential partners” to jointly develop Neptune and Triton. “This is the right time. On the whole, we look positively on these projects now and see no grounds or prerequisites to somehow postpone their implementation,” he said.
