The Russian government’s generous tax break to its largest oil company, Rosneft, for work on its largest oilfield, the Priobskoye, is being called into question by President Vladimir Putin, according to a document published on the Kremlin website seen by Reuters.
Putin also ordered a moratorium on any new state support for developing domestic oilfields, country wide. The moratorium will remain in effect until the end of the calendar year. Rosneft had put its hand out just a couple of weeks ago for another tax break as well—this time for a large-scale Arctic venture—of $41 billion. President Putin had previously offered tax incentives to Rosneft for developing the costly Arctic area. It is unclear how the moratorium will affect the call for additional money for Arctic drilling.
The government extended the tax break for to Rosneft in May for the purposes of developing Rosneft’s largest oilfield, Priobskoye, months after Rosneft had asked in February for the break to offset the extra expense of pumping oil from an aging field that is experiencing depletion. The Finance Ministry opposed the idea, but the break was granted despite the pushback.
The tax breaks are expected to set the government back more than $7 billion over the next ten years.
President Putin has asked the energy and finance ministries to reveal their economic justification for granting Rosneft its wishes.
Russia’s Priobskoye oilfield suffered a major setback in January after a fire ripped through the field, cutting into Rosneft’s oil production by almost a percent and taking 1,200 wells offline, just as Russia was expected to comply with a lower oil output level as it reached a deal with OPEC to rebalance the oversupplied market.
By Julianne Geiger for Oilprice.com
More Top Reads From Oilprice.com:
Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.