Investment essential for oil reserve turnaround as producer point to tax

Russia won’t reduce oil production in the next three years acording to Deputy Prime Minister, Igor Sechin. But after 2012, output will depend on investment in exploration, which has dropped significantly.

A recent survey by BP indicated global proven oil reserves fell last year. The first drop since 1998 was led by declines in Russia, Norway and China, and BP CEO, Tony Hayward, says a lack of upstream investment now may result in skyrocketing oil prices in few years.

“One of the most important things the industry has to do today that is to invest for the future, because if it doesn’t then we really will have a $150 or $200 per barrel by the middle of the next decade.”

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nternational companies like Shell say it’s hard to take long-term investment decisions in the current instability, but Chris Finlayson, Head of Shell Russia, says it won’t cut capital expenditure.

“We set very clearly that we will keep investing through the cycle. We are keeping our level of investment at around 30 billion dollars and clearly look for the best possible value as we invest.”

Russian producers claim they can't invest much in development of new fields. That's particularly important, as the large, productive fields in Western Siberia are starting to run low. The oil producers blame the tax system, according to Pavel Sorokin, Oil Analyst at Unicredit Securities.

“Before the crisis taxation was quite excessive. A lot of extra profits have been taken away. The more you earn, the more you get taken away. For an efficient operator that’s not a formula they want to work on.”

The tax burden in oil industry was slightly reduced in 2009 to help oil producers to cope with falling crude prices. Some say that the state has a policy of bleeding cash from the oil sector in order to diversify the economy.But if it's not profitable to find new reserves, that could cause shortages and spikes in future oil prices.