Tax incentives for heavy oil production – what has been done and future prospects by example of Tatneft PJSC heavy oil project

UDK: 622.337.2
DOI: 10.24887/0028-2448-2017-6-6-9
Key words: heavy oil, tax incentives, export tax, excess profits tax
Authors: R.S. Khisamov (Tatneft PJSC, RF, Almetyevsk), A.T. Zaripov, E.V. Mekheev, M.L. Nasyrova (TatNIPIneft, RF, Bugulma)

The paper presents information on Tatneft PJSC heavy oil development project underway in the Republic of Tatarstan. The project aims at development of new heavy oil fields and plays that hold much potential. The project provides for a package of new and improved drilling and production technologies, downstream and midstream solutions, customized machinery and equipment. Main results of the project are presented: cumulative oil production, amount of investments, tax payments.

Development of non-conventional hydrocarbon reserves is associated with heavy investments and high operating expenses, so the success of such projects is only possible given the governmental support, in the first place, tax remissions.

The project has been enjoying Federal tax incentives in the form of the zero rate of Mineral Extraction Tax for production of heavy oil and special formula for calculation of heavy oil export tax for 10-years period, and Regional tax incentives – zero rate of property tax, which gives good reasons for the project to be successful.

Technical and economic assessment of development of new heavy oil fields made in 2015 showed that the remaining export tax special formula period is too short to provide for return on investments. With a view to expand the heavy oil project, the Company has offered special formula to calculate export tax for new plays. The offered unification of export tax special formula period has been approved at the governmental level and has been included in the Russian Law on Customs Tariff. The existing tax incentives for heavy oil production hold out hopes that heavy oil development projects would pay back and that regional and federal budgets would get extra income.

Federal authorities are currently discussing feasibility of the new model of petroleum industry taxation system, excess profits tax. Possible future impact of the new concept has been assessed.
References
1. Khisamov R.S. , Abdulmazitov R.G., Zaripov A.T., Ibatullina S.I., Stages of development of bitumen pools in the Republic of Tatarstan (In Russ.) Neftyanoe khozyaystvo = Oil Industry, 2007, no. 7, pp. 43–45.
2. Takhautdinov Sh.F., Sabirov R.K., Ibragimov N.G. et al., Sozdanie i promyshlennoe vnedrenie kompleksa tekhnologiy razrabotki mestorozhdeniy sverkhvyazkikh neftey (The creation and implementation of technology complex for heavy oil deposits development), Kazan': Fen Publ., 2011, 142 p.
3. Maganov N.U., Ibragimov N.G., Khisamov R.S. et al., Problems of Tatneft OAO heavy oil project development (In Russ.), Neftyanoe khozyaystvo = Oil Industry, 2014, no. 7, pp. 21–23.
4. Mekheev E.V., Khisamov R.S., Zaripov A.T., Motina L.I., Ekonomicheskie aspekty razvitiya proekta osvoeniya mestorozhdeniy sverkhvyazkoy nefti v Respublike Tatarstan (Economic aspects of the super-viscous oil deposits development o in the Republic of Tatarstan), Collected papers “Osobennosti razvedki i razrabotki mestorozhdeniy netraditsionnykh uglevodorodov” (Features of exploration and development of non-traditional hydrocarbons deposits), Proceedings of International Scientific and Practical Conference, Kazan', 2–3 September 2015, Kazan': Ikhlas Publ., 2015, pp. 202–204.
5. Ibatullin R.R., Ibragimov N.G., Khisamov R.S., Zaripov A.T. , Problems and solutions for shallow heavy oil production, SPE 161998, 2012.
6. Takhautdinov Sh., Ibragimov N., Khisamov R. et al., Modern SAGD technology – From modeling to field monitoring, World Heavy Oil Congress, 5-7 March 2014, New Orleans, Louisiana, USA, WHOC 14–257.
7. Osnovnye napravleniya nalogovoy reformy neftyanoy otrasli (The main directions of the tax reform of the oil industry), URL: http://vygon.consulting/upload/ iblock/fc5/vygon_consulting_tax_reform_2017.pdf

The paper presents information on Tatneft PJSC heavy oil development project underway in the Republic of Tatarstan. The project aims at development of new heavy oil fields and plays that hold much potential. The project provides for a package of new and improved drilling and production technologies, downstream and midstream solutions, customized machinery and equipment. Main results of the project are presented: cumulative oil production, amount of investments, tax payments.

Development of non-conventional hydrocarbon reserves is associated with heavy investments and high operating expenses, so the success of such projects is only possible given the governmental support, in the first place, tax remissions.

The project has been enjoying Federal tax incentives in the form of the zero rate of Mineral Extraction Tax for production of heavy oil and special formula for calculation of heavy oil export tax for 10-years period, and Regional tax incentives – zero rate of property tax, which gives good reasons for the project to be successful.

Technical and economic assessment of development of new heavy oil fields made in 2015 showed that the remaining export tax special formula period is too short to provide for return on investments. With a view to expand the heavy oil project, the Company has offered special formula to calculate export tax for new plays. The offered unification of export tax special formula period has been approved at the governmental level and has been included in the Russian Law on Customs Tariff. The existing tax incentives for heavy oil production hold out hopes that heavy oil development projects would pay back and that regional and federal budgets would get extra income.

Federal authorities are currently discussing feasibility of the new model of petroleum industry taxation system, excess profits tax. Possible future impact of the new concept has been assessed.
References
1. Khisamov R.S. , Abdulmazitov R.G., Zaripov A.T., Ibatullina S.I., Stages of development of bitumen pools in the Republic of Tatarstan (In Russ.) Neftyanoe khozyaystvo = Oil Industry, 2007, no. 7, pp. 43–45.
2. Takhautdinov Sh.F., Sabirov R.K., Ibragimov N.G. et al., Sozdanie i promyshlennoe vnedrenie kompleksa tekhnologiy razrabotki mestorozhdeniy sverkhvyazkikh neftey (The creation and implementation of technology complex for heavy oil deposits development), Kazan': Fen Publ., 2011, 142 p.
3. Maganov N.U., Ibragimov N.G., Khisamov R.S. et al., Problems of Tatneft OAO heavy oil project development (In Russ.), Neftyanoe khozyaystvo = Oil Industry, 2014, no. 7, pp. 21–23.
4. Mekheev E.V., Khisamov R.S., Zaripov A.T., Motina L.I., Ekonomicheskie aspekty razvitiya proekta osvoeniya mestorozhdeniy sverkhvyazkoy nefti v Respublike Tatarstan (Economic aspects of the super-viscous oil deposits development o in the Republic of Tatarstan), Collected papers “Osobennosti razvedki i razrabotki mestorozhdeniy netraditsionnykh uglevodorodov” (Features of exploration and development of non-traditional hydrocarbons deposits), Proceedings of International Scientific and Practical Conference, Kazan', 2–3 September 2015, Kazan': Ikhlas Publ., 2015, pp. 202–204.
5. Ibatullin R.R., Ibragimov N.G., Khisamov R.S., Zaripov A.T. , Problems and solutions for shallow heavy oil production, SPE 161998, 2012.
6. Takhautdinov Sh., Ibragimov N., Khisamov R. et al., Modern SAGD technology – From modeling to field monitoring, World Heavy Oil Congress, 5-7 March 2014, New Orleans, Louisiana, USA, WHOC 14–257.
7. Osnovnye napravleniya nalogovoy reformy neftyanoy otrasli (The main directions of the tax reform of the oil industry), URL: http://vygon.consulting/upload/ iblock/fc5/vygon_consulting_tax_reform_2017.pdf


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