Russian oil producers cut capital expenditure while looking for taxation changes
Lukoil was the first among Russia's energy companies to admit they have to cut their spending. The company will reduce investment by 20 % according to Head of Lukoil, Vagit Alekperov.
“Some of our most capital intensive and long term projects are to be postponed, especially newly launched ones. And we are going to postpone for a long term period our investment into oil refinery.”
Now Rosneft with a debt burden of $21 Billion has revised its investment projects in East Siberia, And Ronald Smith, Head of Research at Alfa-Bank says all energy companies will have to reduce capital expenditure.
“Some of the fields are going to be profitable at a $60 BBL scenario, some only under $70-$80 BBL. Oil companies will look at their fields and decide whether they need them. Some of the fields which would have been profitable 6 months ago under a $60 BBL oil scenario, because of the higher cost of financing, now are not. So around 20% of the wells they would have drilled are not going to get drilled at all.”
Russian oil companies are caught in a tax trap. Not only must they sell oil for less – but taxes remain at levels which were fixed when prices were higher. Smith thinks the taxation regime will change.
“It was easy to promise tax cuts when everything was fine and there was enough money for the budget. But government has two choices; devaluate the Ruble – reduce costs, or cut taxes and export duties. I'm sure it will choose to revise tax policy.”
This week Deputy Prime Minister, Igor Shuvalov, promised to revise export duties by November.