Govt ready to launch oil well fund to support oil service firms

MOSCOW, Sep 8 (PRIME) -- The Russian government has elaborated a tax deduction for the establishment of a fund of unfinished oil wells to support oil service companies during the OPEC plus deal, Energy Minister Alexander Novak said in the magazine Energeticheskaya Politika on Tuesday. 

"Work to create conditions to make a fund of unfinished oil wells has been made on orders from the president of Russia. In this context, proposals concerning amendments to the Tax Code of the Russian Federation… setting a tax deduction for creation of a reserve of new facilities producing hydrocarbon raw materials are prepared," Novak said.

A syndicate of vertically-integrated companies and banks will establish a special-purpose vehicle with 2% and 98% stakes owned by the sides respectively. The companies will sign contracts with the vehicle to borrow money on well construction and maintenance.

The government will provide a tax deduction when assigning oil wells to the companies. The total amount of tax deductions for the duration of the program of 2022–2025 is estimated at 32.15 billion rubles. The companies paying the mineral extraction tax (MET) on more than 1 million tonnes of oil in 2019 are entitled for the deduction.  

Novak said that introduction of tax deductions to support oil servicing can bring a 1.15 trillion ruble additional income to the budget, while companies will invest 300–400 billion rubles.

According to Novak, the Russian oil service market can fall by almost 50% in 2020 without support, and the share of foreign companies can exceed 50%.

"Concerning the situation at Russian companies, the decrease of oil services market can amount to almost a half of the 2019 level in 2020–2021,” Novak said.

“As a result, we see risks of a significant decline of the margin of oil service organizations. The decline in the amount of orders will inevitably strengthen market competition that can lead to irreversible economic consequences for some companies."

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