The recently announced mineral extraction tax (MET) concessions on hard-to-extract tight oil in Russia may not give any immediate relief to ONGC Videsh (OVL) as the OVL-owned Imperial Energy’s producing assets do not fulfil the conditions for availing the sops, said OVL officials. But they say that as the company ventures into the tight Bazhenov shale formations found in their acreages in Siberia, Imperial Energy might be able to avail MET concessions in later years.
The realisations from Imperial’s main Siberian assets are low as the stringent Russian tax regime leaves it with little returns. Moreover, Imperial has seen production plummet over the last few years as the fields have failed to meet its earlier production potential estimated when OVL acquired the company for $2.1 billion in 2009. OVL has been seeking tax concessions from the Russian government for sometime now with no avail.
Under the new tax regime applicable from September 2013, Russia will apply a zero rate of MET to Bazhenov, while other tight oil reservoirs will attract relief of between 20% and 80% on the standard rate of MET. MET is based on a complex formula but currently around 21-22% of the sale price of a barrel of oil exported goes into state coffers. Imperial Energy’s interests comprise 14 blocks with a total licensed area in Tomsk region standing at approximately 12,696 square kilometres.
Sources say that of Imperial’s current acreages in Russia, only a small oilfield in Maiskoye meet the criteria for availing the tax benefits. Only oilfields with a certain level of permeability, oil thickness, production and depletion levels are permitted to avail the MET exemption.
Imperial's Siberian fields hold shale formations called Bazhenov shale in the Tomsk region of western Siberia. OVL's realisations from Imperial's oilfield currently stands at around $20 a barrel at $100 per barrel oil price as it also pays other taxes like export duty. “We have found some Bazhenov shale formations in our acreages but we do not have the technical expertise to work on such formations. We have now signed a technology partnership agreement with US company Liberty Resources to explore the Bazhenov shale formations. If we produce oil from these formations we can seek tax concessions in future,” said an OVL official. If Imperial finds oil in the Bazhenov formations, OVL is willing to offer Liberty a 30% stake in Imperial.
A large share of Russia's shale reserves are