HomeMediaLatest NewsIndependent oilmen were infringed in the tax breaks

Independent oilmen were infringed in the tax breaks

12 December 2013

Gromov Alexey I. Principal Director on Energy Studies, Head of the Energy Department

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance commented to the Izvestia newspaper on the current situation in small and medium-sized businesses in the Russian oil industry and the prospects for state support for their development.

According to  Izvestia, the Skolkovo Energy Center has assessed the development potential of small oil companies in Russia.

The amount of mineral extraction tax (MET) benefits for small independent oil companies is 5–20 times lower than for their large competitors. Such data are contained in a study by the Skolkovo Energy Center dedicated to stimulating the development of small and medium-sized independent oil companies in Russia (available to Izvestia). The research was prepared by the order of the Association of small and medium oil companies «Assoneft».

In the context of the dominance of large state oil companies in the Russian oil industry, independent small players of this market asked themselves how to develop in the current market conditions. The study of the Skolkovo energy center showed that such companies have development potential, it is associated with additional exploration of reserves at existing fields. However, in order to stimulate companies to invest in geological exploration and use new technologies, it is necessary to improve tax legislation. In particular, it is necessary to improve the mechanism of tax deductions and tax credits, taking into account the interests of small companies and to stimulate investments in geological exploration by revising the Law on Subsoil.

Skolkovo experts cite the United States as an example. With similar trends in the mineral resource base development in our countries, the share of small independent oil companies in the US production is 46% (in Russia only 2.8%), in exploration and development drilling — 94%. In Russia, there are only 250 small oil companies against 7 thousand in the United States.

Alexei Gromov, Director on Energy Studies of the Institute for Energy and Finance, believes that the potential of Russian small and medium-sized oil companies cannot grow to the level of their development in the United States, since Russia has different specifics of the oil-producing sector of the economy.

«The main focus is on the exploration and production of hydrocarbons at new medium and large fields in difficult climatic conditions, which requires significant expenditures, which only large investors can afford," explains Gromov.

He says that small and medium oil business should be developed by increasing the oil recovery factor at the depleted fields of small companies through their additional exploration and development of deep horizons. Large companies rarely make such investments, preferring to take on «the scale of the deposits' territories." But, in order for business to invest in new technologies, it must be stimulated through the effective distribution of tax incentives.

Read the article and expert comments: https://iz.ru/news/562351.

Gromov Alexey I. Principal Director on Energy Studies, Head of the Energy Department
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