Putin Promises “Favorable” Tax Conditions For Barents Sea Field Development

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April 1, 2012

MOSCOW -(Dow Jones)- Russian Prime Minister Vladimir Putin has reassured the chief executives of France’s Total SA (TOT) and Norway’s Statoil ASA (STO) that favorable tax conditions will be created for the giant Shtokman gas project in the Barents Sea.

“We have taken several tax decisions at the federal and regional levels (…) that will create favorable conditions for implementing the Shtokman project,” Putin said at a meeting in Moscow with Total’s Christophe de Margerie and Statoil‘s Helge Lund, according to a transcript on the government website.

The meeting took place after the Shtokman shareholders–Total, Statoil and Russian state gas firm OAO Gazprom (GAZP.RS)–had decided to postpone a final investment decision for the fourth time until July 1.

Shareholders had targeted a final decision by the end of March, but discussions have been held up after the shareholders pressed for tax breaks from Russian authorities for the challenging gas condensate field located in the icy waters about 650 kilometers north of Russia.

The Shtokman consortium, in which Gazprom holds a controlling stake, said it would work on further optimizing costs at the project, while awaiting Russian authorities’ decision on a potential tax-rebate.

“The challenge is to make this commercially viable,” a Statoil spokesman said. “We are continuing to work on optimizing the project to maintain a good dialogue with Russian authorities.”

Shtokman map
Shtokman field will be resource base for Russian gas exports to Atlantic basin markets. Discovered in 1988, the Shtokman gas and condensate field is located in the central part of the Russian sector of the Barents Sea shelf, about 600 kilometers northeast of Murmansk, where sea depth varies between 320 and 340 meters. C1 reserves of the field make up 3.9 trillion cubic meters of gas and 56 million tons of gas condensate, with 3.8 trillion cubic meters of gas and 53.4 million tons of gas condensate located within Gazprom's licensed area. via Gazprom

Last week, however, Russia’s deputy Finance Minister Sergei Shatalov cast doubt about the project, saying that so far the Shtokman partners had failed to provide the necessary information needed to make a decision on tax breaks.

The Russian government is preparing a range of tax incentives for offshore projects, but the process is taking longer than expected. Thursday, Energy Minister Sergei Shmatko said that due to high operating expenses and investment volumes the internal rate of return for offshore projects should “significantly exceed the 16% level” that is set for East Siberian fields, according to the Interfax news agency.

The shareholders plan to begin production from Shtokman in 2016 and launch a liquefied natural gas plant in 2017.

-By Jacob Gronholt-Pedersen, and Kjetil Hovland in Oslo, Dow Jones Newswires

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