UPDATE: Russian min sees fair oil price in medium term at $50/bbl

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MOSCOW, Oct 7 (PRIME) -- Russian Energy Minister Alexander Novak said Monday he believes the fair oil price in the medium term amounts to U.S. $50 per barrel, while the price of $100 per barrel was long ago.

“Everyone has long ago forgotten about the (price of) $100 (per barrel). We live on the assumption that in the medium term fair prices are $50 (per barrel). The budget for 2019 is based on the price of $43– 45 per barrel,” Novak said in an interview with Reuters.

Russia has been reducing oil production with OPEC since 2017, and this allowed for keeping prices at levels that stimulate investments in new fields, he added.

Novak also said that the tax burden on Russian oil companies amounts to 68–70% of revenue on the average and is the biggest in the world.

“We have the biggest burden for the oil industry in the world. On average, it amounts to 68–70% of revenue. And if we take fields of West Siberia, which do not have any incentives, - the burden there amounts to 85% of revenue,” he said.

Russia, which has enough oil reserves to support the current level of production during over 50 years, can maintain and even slightly raise production if revises taxes, the minister said.

“We have vast reserves, but a half of them are not profitable with the current fiscal system. The current financial policy does not allow us to significantly raise production… If we do not change the tax system and do not stimulate development of existing fields, in West Siberia and the Arctic, we will not be able to maintain the current level of production in several years already,” Novak said.

The Energy Ministry proposes to expand the use of the added income tax instead of the mineral extraction tax (MET), he said. Russia should also provide tax incentives for geological exploration works, development of small deposits, and advanced oil extraction technologies, he added.

“These measures will allow producers to raise profit margin by $3–5 per barrel, make Russian oil more competitive, and launch up to 10 billion tonnes of new reserves, which at the current oil prices could bring Russian additional $4 trillion,” Novak said.

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