Posted on 04/21/2008 6:33:19 PM PDT by kiriath_jearim
Russian oil output in 2003 was increasing at such a swift pace even Saudi Arabia worried about upstart energy companies – including Yukos and Sibneft – then posting production gains of more than 20 per cent.
But from 2004 the Moscow government changed its tax regime and began to take over privately held assets, including Yukos, and so Saudi Arabia’s fears proved short-lived.
As a result of these and other policies, average production growth in Russia has slowed to 2.5 per cent from a high point of 12 per cent in 2003. The problem has become so severe that Russian politicians and energy executives fear that this year the world’s second biggest exporter may see its first decline in 10 years.
Output in the first three months fell 1 per cent to 9.76m barrels per day. For it to increase in the long-term, massive investments are needed to develop fresh pockets in western Siberia and to tap more remote provinces in eastern Siberia and the Arctic. Leonid Fedun, Lukoil vice-president, says Russia needs about $300bn (€190bn, £150bn) during the next eight years only to keep production at current levels.
But many projects are being held back by a difficult fiscal and political regime that began with the break up of Mikhail Khodorkovsky’s Yukos by the Russian state after the tycoon’s arrest in 2003 over tax charges.
Another problem is access to new fields, which is limited by a new law to companies with more than 51 per cent Russian participation. The process of handing out licences for these fields has been delayed for years while the state determines how many of them are to be considered “strategic”.
The state takeover of Yukos led to uncertainty about the investment climate as other private companies were picked off by the state. Russneft had been Russia’s fastest growing oil major until last year, when its owner, Mikhail Gutseriyev, fell on the wrong side of the authorities and fled Russia for the UK with a warrant out for his arrest. The company, which Mr Gutseriyev had developed from scratch in 2002 to produce 300,000 barrels per day, is now in administrative limbo, allegedly owing more than $800m in back taxes.
Exxon Mobil’s Sakahlin-1 oil and natural gas venture, which had been a driver of growth, is also facing decline as the state limits its expansion and Gazprom, the state-controlled energy group, seeks to take control of its gas exports.
Andrei Illarionov, a former presidential economic adviser who is now a fierce Kremlin critic, says: “No one in the country is going to invest in the industry when sooner or later the state is going to take your assets.”
Since Yuganskneftegaz, Yukos’ main production asset, was taken over by Rosneft, the state-controlled oil major, in December 2004, the state’s direct and indirect share of the oil industry has risen to more than 50 per cent from 28 per cent, reckons Chris Weafer, chief strategist at Uralsib investment bank in Moscow.
The takeovers by Gazprom and Rosneft have used up funds that otherwise could have been spent developing fresh fields, says Vladimir Milov, a former deputy energy minister who now heads a think-tank about energy policy.
Since 2003, direct investment in Russia’s oil industry has not kept pace with the more than three-fold increase in oil prices. Even oil barons loyal to the Kremlin – including Vagit Alekperov, the Lukoil president, and Vladimir Bogdanov, president of Surgutneftegaz – warned last year that state intervention could hamper future investment growth.
”A lot depends on Rosneft and Gazprom’s ability to begin new developments in east Siberia and the Arctic,” says David Fyfe, oil supply expert with the International Energy Agency in Paris. “But they have huge amounts of debts and we are now in an environment where globally credits are scarce.”
Fears about a production decline have spurred the government to review the tax regime, which takes more than 80 per cent of revenues of more than $27 per barrel. Ivan Mazalov of Prosperity Capital Management, an investment fund, calculates that, with oil prices at $110 a barrel, oil companies operating in Russia’s core production area of west Siberia see net income of only about $11 a barrel after taxes, export duties, operating and transportation costs.
An offer by Alexei Kudrin, finance minister, of $4bn in tax cuts per year “is nowhere near enough in itself to right the problems”, says Ronald Smith, of Alfa Bank in Moscow.
Mr Smith reckons the government could rectify the problem by increasing export tariffs on oil products, which are set at such a level to send refining margins “off the charts” while lowering tariffs on crude.
But at fields in east Siberia, such as Surgutneftegaz’s Talakan venture and Rosneft’s Vankor, big tax breaks have already been won for the first oil extracted.
Yeah Russia is full of brain surgeons and rocket scientists......
BTTT
I also have seen reports that the needed investment in the oil infrastructure in Russia would amount to something like 12% of gross revenues over the next 20 years. A no brainer and automatic in any society with real ownership rights. Instead the companies don't expect to get more than a third of that, and have to beg the state for tax breaks to go higher. Why? Because all the goons doing nothing have grabbed all the remainder for decades and won't let a drop go.
This is beautiful.
You know, it’s almost like government takeovers of private industry ruin productivity. Crazy thought, I know.
But from 2004 the Moscow government changed its tax regime and began to take over privately held assets, including Yukos, and so Saudi Arabia’s fears proved short-lived.
My question is WHY are the Saudi's worried about it? And why did Russia have to put a stop to it? Is their "fear" the reason WE can't drill our own even though we have so much of our own, we shouldn't even need the Saudi oil?
“Yeah Russia is full of brain surgeons and rocket scientists......”
They are adept at killing the goose that laid the golden eggs...something our two Dem Socialists would also do with their micro-managing of the economy if they become President.
“But comrade, wasn’t it a disaster when the communists nationalized the oil industry?”
“That was because it was communist nationalization. This is capitalist nationalization. It is completely different. And don’t call me comrade.”
“Yes, comrade.”
“Better.”
yuk, yuk!
good 4 putin!
The private sector wins hands down.
The Russian Thugocracy will learn it the hard way.
Stupid, Greedy Bastards.
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