The Ministry of Energy and the Ministry of Finance are discussing the expansion of tax incentives for hard-to-recover oil and gas reserves

As Kommersant has learned, the Ministry of Energy and the Ministry of Finance are discussing expanding tax incentives for hard-to-recover oil and gas reserves. In particular, according to the results of a meeting in the Khanty-Mansi Autonomous Okrug at the end of August, it is proposed to provide such deposits with tax deductions for mineral extraction tax for ten years. In addition, the Ministry of Energy is looking for an opportunity to expand the perimeter of fields that can switch to an additional income tax, but the Ministry of Finance is ready to consider such proposals only if there is no shortfall in budget revenues.

Kommersant obtained the minutes of a meeting on increasing the economic and technological efficiency of the oil and gas industry, which took place in Khanty-Mansi Autonomous Okrug on August 30 with the participation of oil companies, the Ministry of Finance, the Ministry of Energy, Rosnedra and the regional authorities. In particular, the document envisages a number of tax incentive measures for field development. Thus, it is proposed to provide the industry with a tax deduction for the mineral extraction tax for the development of hard-to-recover reserves (TRIZ) of oil and gas until a “certain coefficient of recovery of subsoil user costs” is achieved for a period of ten years from the start of production. Also mentioned is the classification of gas condensate deposits in low-permeability formations with abnormal reservoir pressure as TRIZs. In addition, according to the protocol, stimulation of geological exploration work – seismic exploration, parametric and exploratory drilling – was discussed using a tax deduction for the mineral extraction tax in the amount of costs at the regional and prospecting and evaluation stages.

During the meeting, representatives of the Ministry of Energy and the Ministry of Finance also discussed expanding the number of areas that can switch to additional income tax (ATT). Thus, according to the order, by February 1, 2024, departments will have to determine the parameters for selecting sites for “possible inclusion in the fourth group of additional production requirements” (this includes new fields in Western Siberia with a depletion rate of less than 5%). “If the economic situation and budgetary stability improve” in 2024–2026, it is proposed to work out the issue of expanding the perimeter of the third group (areas in Western Siberia with a depletion of 20–80%). At the same time, additional adjustment of the new tax regime is possible only if there are no shortfalls in revenue in the new budget cycle. “I support the proposals of oil companies to include about 70 subsoil areas in the Tax Code for transfer to the AIT regime. And also the proposals of the Rosneft company to further configure this regime,” noted the head of the Khanty-Mansi Autonomous Okrug Natalya Komarova on August 30. This year, the Ministry of Finance was against expanding the perimeter of the AIT; such a right was granted only for ultra-viscous oil fields.

The secretariat of Deputy Prime Minister Alexander Novak forwarded the question to the Ministry of Energy, where it was forwarded to the Ministry of Finance. The Ministry of Finance was unable to immediately comment on the issue.

The provision of land plots in Khanty-Mansi Autonomous Okrug on an application basis is also being considered. The secretariat of Deputy Prime Minister Victoria Abramchenko told Kommersant that they have instructed the relevant departments to make relevant proposals.

Taking into account the position of the Ministry of Finance, the introduction of new benefits for hard-to-recover reserves is unlikely today, says tax expert Boris Lutset. A more realistic option seems to be work on their inclusion in the perimeter of the AIT, as well as a discussion on tax incentives for low-pressure gas, the Berezovsky formation, coalbed methane and other TRIZs in the gas industry. Lost budget revenues – that is, the difference between the preferential mineral extraction tax rate and the full rate – for oil TRIZs (low-permeable formations, Tyumen formation) in the materials for the draft budget are estimated at 178 billion rubles. in 2023 and 229 billion rubles. in 2024, the Bazhenov, Abalak, Khadum and Domanik deposits will account for another 45 billion rubles. and 52 billion rubles. respectively. Lost revenues due to the transfer of ultra-viscous oil to AIT are estimated at 48 billion rubles in 2024. Thus, Mr. Lutset concludes, benefits for oil TRIZs in 2024 will amount to more than 300 billion rubles, which is “pretty decent.”

As for the AIT, it continues to be perceived by the industry as the most effective tax, and the perimeter of the fields included in it is steadily expanding and in 2022 amounted to 46% of all oil production. However, the Ministry of Finance is pursuing a consistent policy to reduce the attractiveness of this regime, which is increasingly moving away from the classical understanding of AIT, the expert says, recalling large-scale adjustments to AIT in 2020 and recent restrictions on the possibility of recognizing historical losses. The amount of budget expenditures under the AIT is estimated at 1.1–1.2 trillion rubles. in 2023-2024, this is a third of all oil and gas tax expenditures. And taking into account the need to mobilize budget revenues and the endless search for sources of damper compensation, Boris Lutset believes, the near future of AIT does not look too rosy.

Dmitry Kozlov