Russia lower house eases rules for proposed tight oil tax breaks

Mon Jul 8, 2013 11:03am EDT

* Lower house approved tight oil output tax relief

* Dropped requirement for separate metering for tight oil plays

* Sent to upper chamber, would then need OK from president

MOSCOW, July 8 (Reuters) - Russia's lower house of parliament has stripped compliance measures from proposed tax incentives for "tight" oil production, a parliamentary official said.

Energy companies have warned that the measures, which will now be reviewed by the upper chamber, would drive up production costs and deter investment.

Russia aims to boost oil production to 10 million barrels per day this decade and needs tight oil to get there.

It is preparing to offer tax incentives to spur investment which will include "fracking", a process involving injecting water and chemicals at high pressure into rock to unlock oil and gas deposits.

Fracking has revolutionised the U.S. energy sector in recent years, bolstering gas and oil supply and lowering energy bills for industry and consumers.

Draft amendments sent to Russia's upper house removed a requirement that would bar oil companies from using existing above-ground infrastructure and force them to re-invest in new transport and metering facilities for their tight oil production.

Such deposits predominantly lie beneath already producing fields and energy firms are loath to install separate metering equipment.

The Finance Ministry proposed the rules, concerned that without separate metering oil companies might label oil from conventional plays as "tight" oil, thereby avoiding taxes.

"There are no requirements for direct separate metering of oil. The Finance Ministry has dropped it," a parliamentary budget committee official said.

The upper house of parliament must approve the package, which would then go to President Vladimir Putin, who has voiced support for it.

The amendments to Russia's tax code would eliminate a mineral extraction tax for 'tight' oil output in the shale of Siberia's Bazhenov formation starting from January 2014 and cut the rate for several other unconventional plays.

Russian producers have already reported 500 million tonnes, or 3.5 billion barrels, of recoverable reserves of 'tight' oil in the Bazhenov formation.

Russia has 75 billion barrels in recoverable reserves of shale oil, the U.S. Energy Information Administration has estimated, larger than the 58 billion estimated for the United States.