Russia to Axe More Oil Export Tax Breaks in May

Russia will axe export duty breaks for two more oilfields, a finance ministry official said on April 26, 2011, squeezing oil companies profits ahead of an election year and amid surging crude prices.

Russia's No. 3 oil producer TNK-BP's Verkhnechonskoye field and Surgutneftegaz's Talakan field have enjoyed large discounts on Russia's crude export duty for more than a year as the state moved to support domestic companies when oil prices were falling.

But starting from May 1 they will pay export duty in full.

The government has said it will cancel the preferential export tax for the huge Vankor oil deposit owned by Russia's top crude producer, Rosneft, as the state coffers require more cash ahead of the presidential election in March 2012.

"The order was signed April 25, 2011, it should be published April 27, 2011. All the three deposits will be deprived of breaks starting from May 1," Finance Ministry official Alexander Sakovich told Reuters.

Verkhnechonsk -- which is 25 percent owned by Rosneft and 68 percent by TNK-BP and consolidated by the latter -- and Talakan currently pay preferential export duties.

Russia's oil export duty in May will rise 7 percent to $453.7 a tonne, a new 2-and-a-half-year high, on rising crude prices URL-E due to supply shortages from restive Libya.

The export duty on crude from new fields in East Siberia -- apart from Vankor, Talakan and Verkhnechonsk -- and the Caspian Sea, which enjoy a lower rate than Russian crude from other production areas, will rise to $211.7 per tonne.

Verkhnechonsk was supposed to start paying full duties from January 1, 2012, while Talakan was scheduled to do so from 2013.

"Additional export duties could amount to hundreds of millions of dollars, negatively affecting the earnings and valuation multiples for TNK-BP Holding for the remainder of 2011 and for Surgutneftegaz this year and next," Deutsche Bank said in a note.

Troika Dialog brokerage said that the companies may challenge the government decision, while they also may delay the launch of new fields.

"We expect both companies to fight the cancellations. TNK-BP Holding, in particular, may start having second thoughts about launching its Yamal greenfields if it cannot trust the government's tax commitments," it said.