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OIL AND GAS
Fitch: Russian oil producers facing headwinds
by Daniel J. Graeber
Moscow (UPI) Oct 13, 2015


disclaimer: image is for illustration purposes only

A tax increase on the extractive industries in 2016 should add further downward pressure on the oil sector in Russia, Fitch Ratings said.

The Kremlin last week called for an increase in taxes on the extractive industries, which Fitch Ratings said should amount to about $3.3 billion from Russian oil companies next year.

"The effective tax increase for Russian oil and gas producers in 2016 will reduce their operating cash flows and increase the need to cut capital expenditures further, for example by reducing drilling in mature provinces," Fitch said.

Low crude oil prices and sanctions imposed as a result of Russian action in Ukraine have put pressure on the Russian economy, already troubled by a depressed national currency. From the U.S. perspective, Russia's decisions on the international stage are made from a position of economic weakness. In September, White House spokesman Josh Earnest said Russia's "refusal to abide by basic international norms" was taking a "significant toll" on its economy.

Russian President Vladimir Putin has called on budget planners to work to reduce the country's dependence on oil revenue. In early September, the Bank of Russia said it was keeping the key rate at 11 percent annually because of higher inflationary risks and "persistent risks of considerable economy cooling."

Fitch said that, if Brent crude oil prices stay around $55 per barrel under the current tax regime in Russia, net income for most Russian oil producers will fall by between 7 percent and 10 percent moving forward into 2016.

"Further tax increases remain a risk, especially if oil prices stay at the current level for a long period of time, or fall," the ratings agency said.


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