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Paved with Promises: Rosneft Seeks Tax Reductions for Yurubcheno-Tokhomskoye

This is an abridged version. The full text is avaiable to subscribers to The Russian Energy weekly.

The Yurubcheno-Tokhomskaya Zone (YTZ) is the last untapped resource for filling the ESPO pipeline with East Siberian crude. Its development plans, however, remain on hold pending governmental guarantees of tax reductions.

 Zone Zero

 Rosneft made an economic calculation that proved the necessity of a five-year export tax holiday for oil of the Yurubcheno-Tolhomskoye field, submitted the results to the government in September 2010, and is still waiting for an answer. The field in the Krasnoyarsk Territory is estimated to contain 356.29 mln t of oil in categories C1+C2 (probable reserves) and could become a major supplier to the ESPO export route. The economics, however, are poor because of geological risks and the large distance to the pipeline mains.

Today, Rosneft is speaking about a reduced export tax, but it needs a guarantee to enjoy this advantage for at least five years. It has already experienced a drawback with the Vankor project, which was dropped from the privileged list after 17 months of a reduced export tax. Rosneft spokesman Ilya Glazunov announced in April that the company would make the final investment decision on Yurubcheno-Tokhomskoye before yearend but the field would not be brought onstream before 2014. Earlier, the deadline had been 2013.

The development of Kuyumbinskoye in the YTZ is also being delayed. The owners of the license, TNK-BP and Gazprom Neft, hope to strike a deal with Rosneft to use a common pipeline, but it is open to speculation about who is going to lay the pipes. Because of this uncertainty, Kuyumbinskoye is not expected to be developed before 2016.

The destiny of the zone’s probable reserves totaling 776 mln t hangs on the attitude of Rosneft, which is reluctant to start moving without assistance from the government.

Unlike the Vankor group of fields that are relatively simple to develop, the geology of the YTZ is a complicated affair. Fissured carbonate traps are intermixed by rock with zero porosity. ‘Reserves are mostly located in the western part of the zone, and five wells the previous operator, Yukos, drilled in the eastern area failed to yield commercial flow rates,’ a Rosneft official told RusEnergy. ‘The complex geological structure makes it difficult to delineate productive reservoirs, and seismic data also failed to provide definite results.’

It also prevents operators from pinpointing the location of productive wells. Only those wells could be recognized as commercial that managed to hit fissured and faulty rock formations. The number of dusters promises to be great, pushing development costs to new heights.

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