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.
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