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Rosneft is preparing to lead an Arctic oil field development project that will cost an estimated $157 billion (10 trillion rubles).
Reuters quoted Russia’s Deputy Energy Minister Pavel Sorokin as announcing the price tag of the Vostok Oil project to media last week, adding that the Kremlin had already agreed on a tax relief package that would help with the Artic oil and gas push.
The Vostok Oil project will include already producing fields as well as untapped ones, and Rosneft will develop them along with partner Independent Petroleum Company. The tax relief for this project alone could reach some $940 million (60 billion rubles) annually, the chief of the tax department of Russia’s Finance Ministry said.
The tax relief package for the energy industry has been the subject of heated debate in political circles because at the same time that the Kremlin is lending its generous support for oil and gas, it is hiking other taxes, on citizens, and extending the retirement age as part of a delayed and highly unpopular retirement system reform.
Yet the Vostok Oil project could add some 2 million bpd to Russia’s overall oil production, which although not the biggest contributor to federal GDP is still the biggest single contributor to export revenues, at 53.8 percent.
The government’s tax relief would certainly go a long way towards helping Rosneft and its partner develop the Arctic fields, but it will not be enough on its own. To bring the plans to fruition, Rosneft would need foreign partners as well. And it has already found them: Indian and Chinese investors have already agreed to invest in Vostok Oil in exchange for minority stakes in the fields that the project includes. Some of them had put forward as a condition for the investment the agreement of a government support package and now that this has been largely agreed, the project could move forward.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.