IHS Markit: Russian oil production among world’s most costly

Russia is one of the most expensive places in the world to produce oil, shows recent research conducted for Saudi Aramco on the threshold of the company’s initial public offering (IPO). Besides extraction costs, which are especially high in remote regions, experts blame the high tax burden on Russian oil companies.

Russian oil production has one of the highest break-even prices in the world, says The Moscow Times citing the latest research conducted by IHS Markit and published alongside Saudi Aramco’s IPO prospectus. According to the agency’s estimates, the cost of producing a single barrel of Brent crude oil amounts to around $42 for Russian onshore projects and $44 for offshore projects. It is more expensive than in many other countries including Iraq, Kuwait, Iran, Nigeria, the United Arab Emirates, the UK, the Gulf of Mexico and Norway and more than twice higher than in Saudi Arabia.

The highest break-even price in the world is $63 per barrel for offshore projects in Venezuela, followed by China’s $55-60. Azerbaijan, Angola, Thailand and India were named among the other most expensive places to produce crude. Meanwhile, oil production in Saudi Arabia costs only around $17, which is the cheapest in the world, claims the report.

Oil production costs depend on many factors such as ease of extraction and location of the project. Taxes levied by governments in different jurisdictions are also a deciding factor. According to the Russian Federal State Statistics Service, the cost of extraction without taxes totals $32 per barrel in Russia. The country has one of the highest tax burdens on oil companies in the world. At the same time, the Russian government offers significant tax indulgences to encourage more costly projects. For example, Rosneft’s Vostok Oil project in the Russian Arctic has recently received a trillion-ruble tax break.

The Aramco IPO prospectus also considers exposure to US and EU sanctions against Russia to be a risk for the company. Due to “investment and joint venture opportunities in oil and gas… projects located in Russia and with Russian counterparties”, Saudi Aramco is vulnerable to “asset freezes, restrictions on investors trading securities [and] substantial civil or criminal penalties” in case that the company falls under such sanctions “as a result of its transactions with other parties”, explains the prospectus.

By Anna Litvina