HomeMediaLatest NewsWill Rosneft help the budget of the Far East?

Will Rosneft help the budget of the Far East?

08 July 2022

Salikhov Marcel R. President, Principal Director on Economic Studies, Head of the Economic Department

Marcel Salikhov, President of the Institute for Energy and Finance, commented to Moskovskaya Gazeta on the decline in production at the Sakhalin-1 project.

Daily oil production under the Sakhalin-1 project has decreased by 22 times due to Western sanctions. This was announced at a meeting in Yuzhno-Sakhalinsk by the presidential envoy to the Far Eastern Federal District, Yuri Trutnev, who expressed concern for the region's budget. “In 2023, up to 38 billion rubles will not be received. This is 26% of the level of the region's own income in 2022,” Interfax reports the words of the official.

The situation is not critical for Russian oil exports in general, but is palpable for Sakhalin's budget, Marcel Salikhov told Moskovskaya Gazeta.

“In May-June, Russian oil exports recovered after the difficulties of March-April. Now the volumes of our, at least, “raw” exports are higher than in May-June last year. Projects on Sakhalin are implemented a little differently, they differ from the way, by which oil is traditionally produced by Russian oil companies. They are implemented on the terms of PSA (Production Sharing Agreements). Previously, the main operator on Sakhalin was the American company ExxonMobil. This operator is now leaving the project. Rosneft becomes the main operator, which also has a stake in the project, but, as far as I understand, Rosneft has not previously participated in the project operationally. Last year, oil production at Sakhalin-1 amounted to 11.3 million tons, which is about 2% of oil production in Russia. But the Sakhalin region is likely to experience problems. The region is small, the budget for a quarter depends on revenues from the Sakhalin-1 and Sakhalin-2 projects. A certain financial well-being of the region was determined by the fact that, thanks to production sharing agreements, a large share of taxes went to the regional budget. Therefore, the regional authorities are interested in Rosneft taking everything into its own hands as soon as possible and increasing production. ExxonMobil is one of the world's largest oil companies. The company has already reported that it is leaving the project - perhaps it was looking for a buyer, and perhaps Rosneft will buy out its share. It is logical to expect such an outcome of events. It is difficult to say how quickly Rosneft will be able to restore the work of the project,” Marcel Salikhov said.

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