Mineral Extraction Tax Differentiation is Required for Development of Small Fields

Mineral Extraction Tax Differentiation is Required for Development of Small Fields

However, their development requires substantial investments in exploration and construction: the smaller are initial recoverable reserves, the higher are specific capital and operating costs per ton of crude oil recovered. Therefore, many experts and analysts believe that there is urgent necessity in the industry to differentiate the mineral extraction tax for small oil fields.
70% of the available small oil fields in the Volga region may be involved into development. According to estimates of OAO TATNEFT's experts this is possible provided that a "zero" rate of the tax on minerals extraction (MET) is introduced for new oil fields with reserves of less than 1 million tons, while 25 coefficient will be introduced for fields with 1-3 million tons of reserves and .5 factor will be introduced for reserves in the amount from 5 to 3 million tons for the whole period of development. In this case small fields with reserves depletion up to 20% should be considered as new ones.
Introduction of such measures would allow to additionally produce in the Volga region 5 million tons of crude oil from the oil fields with initial recoverable reserves of less than 1 million tons, while additional crude oil production from the fields with reserves of 1- 3 million tons will amount to 3.4 million tons of crude oil with the production from the other fields amounting to additional 3.7 million tons over the next 10 years.
Putting into operation the new fields in general will have a positive impact both on the residents' employment and the crude oil production. Small-scale fields' development will compensate decline of production at larger sites and will increase the load of the related works and industry branches, which would surpass the volume of tax preferences.