Gazprom Neft Spending to Jump as Tax Incentives Drive Expansion

Янкевич Алексей Викторович

Interview with Alexei Yankevich, Deputy CEO for Economics and Finance, Gazprom Neft

Bloomberg (ссылка откроется в новом окне)

OAO Gazprom Neft, the oil arm of Russia's largest natural-gas producer, is set to raise spending 23 percent as President Vladimir Putin's tax incentives prompt drillers to develop remote fields.

Gazprom Neft has earmarked investments of $7.5 billion in 2013 compared with about $6.1 billion this year, Chief Financial Officer Alexey Yankevich said in an interview. The company plans to almost double oil and gas output to 100 million metric tons a year by 2020 as it develops Siberia's largest new deposits.

"We have a lot of reserves that are ready for development," Yankevich said in Moscow. "We have had a number of things come together for us, mainly that we have clarity, more or less, on taxes."

Russia, which earns about half its revenue from an oil and gas industry dependent on Soviet-legacy fields, is seeking to balance budget needs and tax breaks to spur investment in new deposits. Putin's call to keep oil output above 10 million barrels a day for at least the next decade has seen companies such as OAO Rosneft and OAO Lukoil increase investments in drilling.

Gazprom Neft is confident it can recoup large spending as it secures breaks on mineral-extraction taxes and lower export duties at some northern fields, Yankevich said. "The extra investment is mainly linked to this," he said. The board will meet to review the business plan on Dec. 21, he said.

Gazprom Licenses

OAO Gazprom, the world's largest gas producer, is transferring oilfield licenses to the unit for development.

Gazprom Neft gained control of the Novoport field in the Yamal region last week and expects to get the Prirazlomnoye field in the Barents Sea next year, Yankevich said.

With the addition of projects from Gazprom, including fields in the Orenburg region transferred last year, Gazprom Neft has outstripped competitors on output growth. Production rose 4.4 percent to 1.19 million barrels of oil equivalent a day in the first nine months of this year, according to Gazprom Neft's website. That beat state-run Rosneft, Russia's largest producer, which increased oil and gas output 3.4 percent, its website shows.

Borrowing will remain at this year's level, or about $2 billion to $2.2 billion, even as spending rises, Yankevich said.

Gazprom Neft will consider dollar, euro and ruble debt and has plenty of room to borrow more, he said. No debt sales are planned before the end of the year, he said.

"It's a sin not to borrow with such a low debt load and good rates," Yankevich said.