Russia's Novatek to use tax incentives to hike oil output

Fri Nov 8, 2013 11:23am EST

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* Sees oil output reaching 3.5 mln T/year at Yarudeyskoye

* Investment in field over next 3 years seen at $1.5 bln

MOSCOW Nov 8 (Reuters) - Novatek, Russia's second-biggest gas producer, plans to take advantage of government incentives to boost its crude oil production and further diversify its business, a company official said.

The government has introduced tax relief and other incentives to encourage increases in oil production as it aims to at least maintain Russia's output at no less than the current 10 million barrels per day, the world's largest, this decade.

Novatek is pinning its hopes for oil on the Yarudeyskoye field in Northern Russia, in which it owns 51 percent. The rest is owned by a Cyprus-registered firm.

"Crude oil is obviously becoming a much more significant business for us," Novatek Chief Financial Officer Mark Gyetvay told a conference call.

He estimated overall investment in the field over the next three years to be $1.5 billion, "of which we are responsible for 51 percent of the capital costs".

The field is subject to zero mineral extraction tax until 2022.

According to Novatek's website, Yarudeyskoye field contains 4.5 million tonnes of petroleum liquids (33 million barrels) and 7.4 billion cubic metres of gas.

The company, whose gas output is second only to state-run Gazprom's, plans to start production of oil there in 2015 and reach a plateau of 3.5 million tonnes a year (70,000 barrels per day) the following year.

According to Sberbank CIB analysts, the Yarudeyskoye field and the Norgtas and SeverEnergia project, in which Novatek owns about a quarter, will enable the company to increase oil and condensate production to almost 10 million tonnes a year by 2017, generating net income of over $600 million in 2016 alone.

Novatek's crude output is currently no more than about 10,000 barrels per day.

The company, controlled by its head Leonid Mikhelson and Gennady Timchenko, co-owner of Gunvor trading house, also plans to start producing liquefied natural gas in 2016, with a view to produce 16.5 million tonnes of the frozen gas a year in 2018. (Reporting by Vladimir Soldatkin; editing by Jane Baird)

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