Tatneft asking for tax concessions in exchange for trillion of investments

Tatneft’s “tax manoeuvre”

Tatneft that explores more mature and complex fields in the Russian oil industry has prepared the next initiative on concessions to increase oil production. As Director General of Tatneft Nail Maganov claimed, the company created a big investment project to seal well walls at a trillion rubles. There will additionally be built 21,600 new wells that will allow producing a fantastic amount of oil equal to 245 million tonnes. Moreover, as Nail Maganov stressed, Tatneft was going to order equipment in Russian mechanical engineering factories.

“All the equipment will be made in Russian enterprises, which will allow creating 30,000 jobs,” he said. “We are ready to provide technical documents right now and start production immediately. We are intending to sing agreements at 350-370 billion rubles.”

Instead, Tatneft is asking for tax concessions to produce more oil. “For this project’s success, it is necessary to create a special tax regime for these drilled wells,” Maganov explained. He means zeroing the main tax — mineral tax — that is paid per tonne of oil. By Nail Maganov’s estimate, the concessions are needed for three years to implement this big project. He assures that residual oil “can’t be extracted anyway” without these state supporting measures. But it will be possible to return standard tax terms in three years, while the federal budget won’t get hurt. But if they are denied concessions, as he said, the project won’t be realised. “We have extracted everything, it is impossible to do it at a cheaper price. If the economy doesn’t feel good in these conditions, what else can we do?” he claimed rhetorically. Tatneft’s “tax manoeuvre” with a link with the Russian mechanical engineering industry was presented to the previous government. Ex-Vice Premier of Russia Dmitry Kozak got acquainted the Tatarstan oil workers’ ideas in November. After that, the proposals laid on the table of Russian Minister of Industry Denis Manturov. However, nothing is known about their reaction. But it is clear anyway that it is a brave and quite an ambitious plan to save the resource at old operating fields. As it is known, the biggest field of Romashkinskoye has been used for over 70 years, the depletion of its reserves is over 80%. 10 years ago Tatneft received concessions on mineral tax for depleted fields, which allowed it to effectively explore other sites. The amount of concessions in monetary terms wasn’t made public.

3%-growth

Meanwhile, in 2019, the company increased its revenue by 3%, to 800 billion rubles by Russian Accounting Standards. The indicator rose because oil conversion volumes augmented. At the same time, sales revenue stayed at the level of 2018. Production at Tatneft totalled 29,8 million tonnes, with a rise of 0,9%. The 2020 production plan will be determined according to Russia’s cooperation policy with OPEC+.

It is planned to convert 11,5 million tonnes of feedstock at TANECO in 2020 against 10,8 million tonnes in 2019. It became possible to increase conversion in 2019 by launching the second unit for primary oil conversion ELOU-AVT-6 in August, whose capacity is 6 million tonnes a year. It was said earlier that this would allow TANECO to convert 15,3 million tonnes a year in the next years.

Director General of the company Nail Maganov commented on Tatneft’s joint venture with subsidiaries of Gazprom Neft (Bazhen Technology Centre CJSC) and LUKOIL (Ritek) too. New Oil Production Technology CJSC was registered on 23 December 2019, in which each of the sides got equal shares of 33%. The JV was created to explore hard-to-recover oil in Orenburg Oblast. The Russian companies acquired the share with their fields — Sovetsky and Zhuravlyovsky. “But we aren’t unloved people,” Maganov answered a question about Tatneft’s shares. It turned out that Tatneft paid money for its participation. However, the management hasn’t been created yet and there isn’t an investment programme.

Diamond provisions

However, Tatneft’s foreign projects are diverse. “But if geological exploration in Lybia has ups and downs, diesel fuel in Africa can be sold for diamonds. The deal is discussed — it isn’t a fake and fantasy,” Maganov confirmed. But he immediately asked the journalists about how they found out this. They explained that Business Times newspaper from Zimbabwe wrote that Tatneft would supply diesel fuel to the country, while diamonds were transaction security.

“Yes, we have had such an interesting proposal when looking for the best markets. Supplies to Zimbabwe are something new and not simple for us. The deal is moving forward,” Maganov confirmed and noted that some Russian companies helped Tatneft in this cooperation.

He didn’t say anything about the terms. As for Lybia, head geologist of the company Rais Khisamov said that Tatneft would determine the further programme of works to get results about seismic exploration works. According to him, 300-km-long seismic exploration works in the eastern zone were done before the military actions. He assured that invited specialist did the research, not Tatneft’s workers. “Ours didn’t work there,” he assured.

“There was to be a meeting in December. But after the well-known events — the escalation, closure of airports — unfortunately, we didn’t manage to go there,” Maganov noted.

Within the agreement with OPEC, the daily oil output is limited to 80,640 tonnes, said Tatneft’s Vice Director in Production Rustem Khalimov. According to this indicator, the annual oil output was 29,8 million. If not the restrictions, Tatneft could have produced 32 million tonnes, Maganov specified and added that the company’s confirmed reserves allowed producing for another 29 years.

Be cautious, go step by step

Tatneft is entering a new area of petrochemistry in quite a confident way, having bought Tolyattikauchuk in Samara and Nefis in Kazan last year. “Who knows, Tatneft might become a global rubber market player, as there are all prerequisites for this,” the head of the company claimed. According to him, Tatneft is creating the enterprise’s new development programme and wants to have at least 2-3 suppliers to develop the business.

“There is a good technopark there, they have things to learn: 16 residents of the park make different products from the petrochemical feedstock, which is used not only at Tolyattikauchuk,” Maganov said. “We will have to develop the technopark considering the development of special economic zones. We are creating a programme to modernise the newly purchased asset.”

Also, Tatneft got a share in a Uzbekistani tyre factory. “It is a good, new factory with a capacity of 3 million car tyres a year. I think we are looking in the right direction. We have a unique possibility of diversification and expansion of production and sale of our products in Central Asia,” the head of Tatneft added. He was brief when talking about Nefis — they are looking for new ways of cooperation. At the same time, he stressed as he did previously that the company “was entering petrochemistry cautiously”: “The investments are huge. We can’t fail”.