"Eastern"climate is getting milder" ("Neft Rossii") | KPMG | RU

"Eastern"climate is getting milder", an article for the "Neft Rossii" magazine (issue 9, September 2016)

"Eastern"climate is getting milder" ("Neft Rossii")

What measures have been already taken to develop the The Far East and Sakhalin region for investment projects in oil & gas?

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Despite the sanctions and challenging economic circumstances, 2015 showed a 1.3% increase in Russian hydrocarbon production, part of which comes from the Far East and Sakhalin region. The region's location is advantageous for investment projects in oil & gas and associated industries, as its oil & gas resources are vast, though largely unexplored. To develop this area, new facilities and infrastructure items, and, importantly, relevant tax and legal stimulation measures by the government are required.

Such measures have to a certain extent already been taken. A special tax and customs regime for new offshore fields has been applied, a legal vehicle for risk service contracts and joint field development agreements has been developed for offshore deposits and scavenger oil projects (as well as selective tax concessions for the latter), and draft tax legislation to stimulate the development of new and low-margin deposits has been drawn up. Furthermore, since 2014 a number of federal laws have been in force aimed at stimulating investment activity, e.g. relating to special tax regimes, funding, and special investment contracts allowing to zero out or reduce to 10% the profit tax for a period of 10 years. All these measures help reduce the tax burden for oil & gas projects, thus increasing their profitability and cutting back on the pay-off period; and provided that the tax regime remains stable, it will in general contribute to developing both the region's economy and the oil & gas industry in Russia.

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